Course 2 - Residential Real Estate Transactions - Humber Real Estate Education [7 ed.]

Citation preview

V7

©2019 Real Estate Council of Ontario

V7.1

Module 1: Explaining Services Available to a Seller or a Buyer Disclaimer: This is a reference document which contains pages from the Accessible eLearning module. You should complete the eLearning module to proceed to the next step. Please note that the accessible module on the LMS only contains the interactive pages and you need to go through the content of this document thoroughly to attempt the interactive activities in the module. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Salesperson Program ©2019 Real Estate Council of Ontario. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or in any means – by electronic, mechanical, photocopying, recording or otherwise without prior written permission, except for the personal use of the Real Estate Salesperson Program learner.

©2019 Real Estate Council of Ontario

Module 1: Explaining Services Available to a Seller or a Buyer Sellers, Buyers, and Brokerages The relationship between a seller or a buyer and a brokerage can appear straightforward. A seller hires a brokerage to market and sell a property, while a buyer hires a brokerage to assist them in their search for a property to purchase. Although the role of a brokerage may be apparent, there are many aspects of accomplishing these goals for a seller or a buyer that are impacted by the specific type of relationship established. Sellers and buyers have options in terms of the services provided by a brokerage and the level of advice or assistance included in those services. A seller or a buyer can be either a client or a customer, depending on the service options they choose. Establishing this relationship is an important first step. A salesperson must be able to explain how the duties and obligations of a brokerage will differ to a client or to a customer and be able to clearly communicate the relationship options available, so an informed decision can be made. To check your understanding of this module, you must complete all the activities in the online module. While navigating through the online module, click the Legislation button to view laws and regulations related to this module. While navigating through the online module, click the KMS button to access the Knowledge Management System or visit the Module Resources to find the list of all the KMS assets for this module. The contents of the thumbnail icon and References from the module are added to support your learning throughout this Accessible PDF. ©2019 Real Estate Council of Ontario

Menu: Explaining Services Available to a Seller or a Buyer Number of Lessons

Lesson Number Lesson 1 Lesson 2 Lesson 3 Lesson 4 Lesson 5 Lesson 6 Lesson 7 Lesson 8 Lesson 9

10 Lessons

Lesson Name Fundamentals of Agency Brokerage Authority and Principal’s Duties Duties and Obligations of a Salesperson Representation Service Options Available to Sellers and Buyers Providing Services to a Seller Providing Services to a Buyer Obligations when Dealing with Others Summary Practice Activities Module Summary

©2019 Real Estate Council of Ontario

Lesson 1 | Page 1 of 19

Lesson 1: Fundamentals of Agency

This lesson introduces the terms used to describe an agency relationship including the parties in that relationship. The lesson details how an agency relationship can be created and how it can be terminated.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 2 of 19

Under Ontario common law, agency is a relationship between a principal and an agent wherein the agent is authorized to represent the principal in dealing with a third party. Agency can apply to many fields such as relationships with lawyers, travel agents, stockbrokers, property managers, insurance agents, and real estate brokerages. However, the actual practice of agency varies according to the profession or trade and related legislation. To understand an agency relationship formed in a real estate transaction, you should know the proper usage of terms. Common law uses different terminology than that used in REBBA. For example, common law uses the terms principal and third party, while these same parties are referred to as a client and customer under REBBA. An important aspect of the real estate profession is relationships, and agency is fundamental to creating those relationships. Upon completion of this lesson, you will be able to: • Define terms related to agency under common law and identify associated terms used within REBBA. • Describe how an agency relationship can be created. • Describe how an agency relationship can be terminated. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. ©2019 Real Estate Council of Ontario

Lesson 1 | Page 3 of 19

Agency and Agency Terms In a real estate transaction, the parties involved would be a brokerage, a salesperson, a seller, and a buyer. The underlying relationship between these parties is based on the common law of agency. Agency is the relationship between two parties in which one party (the agent) accepts responsibility for representing the other party (the principal) in dealing with a third party. Under REBBA, the equivalent term for agency is representation. The brokerage is the agent, and the salesperson is authorized to trade on behalf of the brokerage when representing the principal in a transaction. The seller or buyer could be the principal, for example: • A seller (principal) and brokerage (agent) enter into an agency relationship when the brokerage is contracted to represent the seller in the marketing and sale of their property.

©2019 Real Estate Council of Ontario

• A buyer (principal) and brokerage (agent) enter into an agency relationship when the brokerage is contracted to represent the buyer in the purchase of a property. Let’s look at how these roles are defined under agency. The next few screen provides definitions of terms used to describe an agency relationship and to identify the roles and responsibilities in an agency relationship. For each of the agency law terms, the matching term found in REBBA is specified. This section of the module expands on topics introduced in a previous module.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 4 of 19

Agency Relationship Roles The parties to a real estate transaction are the seller and buyer; the brokerage and salesperson will assist the parties in negotiating the terms. The following three sections contain information on roles in an agency relationship along with examples of how they apply in a real estate transaction.

Agent An agent is authorized by a principal to represent the principal in business transactions with another party. An agent acts on behalf of a principal when performing professional services that can bring the principal into legal relationships with others. For real estate purposes, an agent is a brokerage that is expressly or implicitly authorized to act for a principal. Brokers and salespersons are employed by brokerages and authorized to trade on behalf of their respective brokerages. As such, a salesperson lacks the legal capacity to trade on their own account and is viewed as having an employee/employer relationship with their brokerage.

©2019 Real Estate Council of Ontario

Once an agency relationship is established, all brokers and salespersons employed by the brokerage fall under the same relationship and obligations established between the principal (seller or buyer) and the agent (brokerage). They must protect and promote the best interests of the principal. Although consumers typically refer to salespersons as agents, it is actually the brokerage that is the agent. In REBBA, the term “brokerage” is used to identify the agent who is authorized to trade in real estate on behalf of others.

Principal A principal is an individual who authorizes an agent to act on their behalf in an agency relationship. The principal provides information and lawful instructions to the agent regarding the transaction. In REBBA, the term “client” is used to identify the principal and a client can be a seller or a buyer. Example: When a brokerage represents a seller when listing a property for sale, the seller is known as the principal. Example: When a brokerage represents a buyer when showing properties for sale, the buyer is known as the principal. ©2019 Real Estate Council of Ontario

Third party A third party is an individual who is not directly connected with a legal transaction but may be affected by it. In REBBA, the term “customer” is used, and a customer/third party can be a seller or a buyer. Example: A brokerage representing only a seller would consider a buyer as a third party or customer. Example: A brokerage representing only a buyer would consider a seller as a third party or customer. A third party may also be another individual otherwise involved in the transaction. Example: A brokerage representing only a buyer, and the buyer’s parents are providing the deposit. The buyer's parents would be considered a third party.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 5 of 19

Agency Relationship Obligations and Authorities Once an agency relationship has been established, it will invoke specific obligations on the agent while also providing authority to represent the principal. The following two sections contain information to read the obligations owed and authority granted in an agency relationship along with examples of how they apply in a real estate transaction.

Fiduciary Fiduciary generally refers to a relationship of trust with one or more parties. An agent (specifically, a brokerage) as a fiduciary has the legal obligation to act in the principal’s (specifically, a seller’s or buyer’s) best interests. As the relationship is fiduciary in nature, the agent’s obligations to the principal include: • Full disclosure—disclosure of all facts known • Obedience—obey the lawful instructions of the principal • Confidentiality—all information that is confidential will not be disclosed • Competence—provide all services competently • Accounting—responsible handling of all documents and funds related to the transaction

©2019 Real Estate Council of Ontario

• Loyalty—promote and protect the principal’s best interests at all times In a real estate transaction, the brokerage—and by extension all salespersons—are required to uphold these obligations. Example of Disclosure: A salesperson discovers a material fact that may impact their buyer client’s decision to purchase a specific property. The salesperson fully discloses the information to the buyer so that an informed decision can be made. Example of Confidentiality: A salesperson knows a seller is motivated to sell the property due to relocation. This information is not shared with any buyer who may ask why the seller is selling.

Authority Authority is the legal power or right given by a principal, and accepted by the agent, to act on the principal’s behalf in business transactions with a third party. Authority relating to a representation agreement is typically analyzed in terms of actual and implied authorities. In real estate, the principal gives permission to the brokerage to offer the property for sale and to represent their best interests in a transaction.

©2019 Real Estate Council of Ontario

Example of Actual Authority: A seller gives the brokerage authority to offer their property for sale. Example of Implied Authority: The brokerage will determine the best marketing methods to offer the property for sale.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 6 of 19

Understanding the Agency Relationship In an agency relationship, the brokerage is representing a seller or a buyer. There may be times when a brokerage represents more than one seller or buyer during a transaction. The following three sections contain examples of agency relationships.

Agency Agency is the relationship between a principal and that person’s agent. Once established, the agent has specific obligations owed to the principal under the common law of agency. In real estate, when a salesperson provides advice to a seller or to a buyer, this action creates an agency relationship. In REBBA, the term “representation” is used, as the brokerage is deemed to “represent” the seller. Example: A seller and salesperson agree that the brokerage will list and market their property for sale, and the salesperson provides advice on the appropriate listing price. The agency relationship establishes the brokerage as representing the seller.

©2019 Real Estate Council of Ontario

Single agency Single agency occurs when there is one agent (brokerage) representing one principal (seller or buyer) within a transaction with a third party. In REBBA, single agency is referred to as “single representation”. Example: A brokerage is representing a seller in the sale of a property. A buyer is being represented by a different brokerage when submitting an offer on the seller’s property. Both the seller and the buyer are represented by different brokerages for the transaction, which results in each relationship being single agency/representation.

Dual agency Dual agency occurs when there is one agent (brokerage) representing two or more principals (sellers and/or buyers) within the same transaction. Under REBBA, dual agency is referred to as “multiple representation”. There are several circumstances in which dual agency can occur, such as representing a seller and a buyer, or representing two competing buyers. These circumstances can also be referred to as concurrent representation, which is a legal term generally ©2019 Real Estate Council of Ontario

referring to a brokerage representing two clients at the same time. The underlying legal assumption is that all salespersons in a brokerage share each other’s confidences. For example, this could include confidential information regarding the seller’s motivation. Under dual agency, there is an inherent conflict of interest with the agent representing competing interests. Example: A brokerage is representing a seller in the marketing of their property. A buyer is also represented by the same brokerage when submitting an offer on the seller’s property. Both the seller and the buyer are represented by the same brokerage for the transaction which results in dual agency/multiple representation. You will learn more about multiple representation later in the module.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 7 of 19

Identify which of the following statements are true. There are four options. There are multiple correct answers.

1 2 3 4

Under REBBA, agency is referred to as representation Under REBBA, agent is referred to as brokerage Under REBBA, principal is referred to as customer Under REBBA, third party is referred to as client

©2019 Real Estate Council of Ontario

Lesson 1 | Page 8 of 19

Quincy wants to sell her property, so she contacts Natalie, a salesperson with ABC Real Estate Ltd. Quincy signs an agreement with the brokerage to list her property and represent her in the transaction. Natalie’s co-worker is representing a buyer who is interested in the property. There is also a second buyer who is interested in the property, who is being represented by a different brokerage. Identify which of the following statements are true. There are five options. There are multiple correct answers.

1 2 3 4 5

The relationship is of single agency if the buyer working with Natalie’s co-worker submits an offer. The relationship is of dual agency if the buyer represented by the other brokerage places an offer on Quincy’s property. Implied authority allows the brokerage may select the marketing methods used to promote the listing. A fiduciary relationship creates obligations on the brokerage, such as ensuring loyalty and confidentiality. Actual authority allows the brokerage is authorized to list Quincy’s property for sale.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 9 of 19

Introduction to Creating an Agency Relationship There are many ways in which a brokerage can enter into an agency relationship with a seller or a buyer. The most common way is by agreement, which can be either express or implied. An express agreement can be written or verbal and creates a definite understanding between the parties of the agency relationship. Implied agreements can be created by the words and actions of one party, which leads the other party to believe there is an agency relationship when no formal acknowledgment of the relationship exists. Although common law does not require a written agreement, nor a particular form to be used, proper documentation of the relationship is required under REBBA. A salesperson needs to be mindful that an agency relationship can be created by their words or actions. Once that relationship is created, there are many obligations and duties owed to the principal (client). It is important to explain the services being provided, so there are no misunderstandings by the seller or the buyer.

©2019 Real Estate Council of Ontario

Documenting the relationship in writing will provide a clear record of the expectations and requirements of all parties. This is considered a leading practice for a salesperson. A salesperson should at all times avoid putting themselves in a position where the court would determine whether an agency relationship has been established under a particular set of circumstances. Later in this module, you will look at different types of agreements between a brokerage and a seller or a buyer in more detail.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 10 of 19

Agency Relationship by Agreement An agency relationship can be created by an express agreement, which would occur when there is a definite understanding between the parties, such as a written or verbal agreement. Alternatively, the agency relationship can be implied based on the circumstances or actions of the agent and principal. The following three sections contain examples of how an agency relationship can be created by agreement.

While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Written agreement A written agreement details the obligations of all parties and would be signed by the brokerage and the seller or the buyer. A brokerage would document the agency relationship by using a Seller Representation Agreement or a Buyer Representation Agreement. There are requirements for a salesperson under the Code of Ethics whenever a representation agreement is required. Explanations of these agreements and the obligations of a salesperson are detailed in a later module. Example: A buyer discusses their requirements for purchasing a home with a brokerage and agrees the brokerage will represent them. A representation agreement is then signed by the buyer and the brokerage confirming the details. ©2019 Real Estate Council of Ontario

Verbal agreement A verbal agreement could include many of the same aspects of a written agreement, only the details are not documented. Example: A buyer has met with a salesperson and has verbally given them the authority to search for a property for them. The agreement is verbal only, but the salesperson has identified suitable properties and has shown these to the buyer even though there is no written agreement.

Implied agreement An implied agreement can be unintentionally created based on the words and actions of the salesperson, the seller, or the buyer. If a seller or a buyer and the brokerage act in a manner that suggests an express agreement exists, an agency relationship is formed even though no formal understanding is reached between them. Example: A salesperson and their friend are spending the day skiing. On their way to the ski hills, they notice a home that is listed for sale. The friend states the property is one they have longed to purchase. The salesperson provides advice about obtaining a mortgage, the amount of down payment required, and ©2019 Real Estate Council of Ontario

follows up the next day with information on the property and copies of recent sales to help determine an offer price. Even though there is no agreement between the parties, an implied agency relationship is created based on their actions.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 11 of 19

Additional Ways to Create an Agency Relationship Most agency relationships are created by an express agreement, and a written document confirming the agency relationship is strongly encouraged. However, some situations do not allow for this to occur. The following three sections contain examples of other methods by which an agency relationship is created and the potential challenges and considerations for each. Note that these examples illustrate principles under the common law of agency but do not reflect the requirements under REBBA.

By ratification

An agency relationship by ratification is when the authority is granted retroactively. Ratification applies if the agent has acted either without authority or in excess of the authority granted. In such instances, when the principal subsequently agrees to be bound by such unauthorized acts, the agency relationship is ratified. Example: A property was previously listed for sale by a salesperson which did not sell. A few months later, this salesperson is approached by another salesperson asking if the seller would consider an offer from their buyer who viewed the property when it was listed. The salesperson obtains the offer and approaches the seller who agrees to sell.

By estoppel

When the seller accepts the offer, the agency relationship has been created by ratification. An agency relationship can be created by estoppel when a principal leads a third party to believe they are being represented by the agent, and that the agent has the authority to act on behalf of the principal. In real estate, a relationship can be created by estoppel when the seller or buyer gives the impression to a third party that they already have an agency relationship with a brokerage. There must be clear evidence that the seller or buyer has by words or actions indicated that the brokerage has the authority to act on their behalf.

©2019 Real Estate Council of Ontario

Example: A buyer is viewing a property that is being privately offered for sale. The buyer is concerned about the condition of the electrical system and makes enquiries with an electrician to inspect it. The buyer is not available to attend when the inspection is done but indicates to the electrician that a salesperson they know will be able to attend and has the authority to approve any expenses related to the inspection.

By operation of law

An agency relationship by estoppel is created as the buyer has clearly indicated the salesperson—as an extension of the brokerage—has the authority to act on their behalf. Operation of law creates an agency relationship where a duty created by circumstance is imposed on an agent to act on behalf of the principal, where previously no agency relationship existed. The agency relationship would be based on established legal principles rather than by a formal agreement. In real estate, operation of law is rare and happens in emergency situations. Example: A property manager has been retained to oversee the day–to-day operations of a property, but the owner clearly indicates major expenses must be approved first. After a violent storm, the property manager visits the site and discovers significant damage. Despite being unable to reach the owner, the property manager arranges for repairs to be made immediately to the structure at a significant cost, as the building was unsafe and would have put others at risk. Under operation of law, an agency relationship was established. Even though the actions were outside of what had been agreed to, the owner will be obligated to pay for the repairs even though they were not authorized.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 12 of 19

Marvin is a salesperson with ABC Real Estate Ltd. who has been working with several sellers and buyers this month. In which scenario, would an agency relationship be created by ratification? There are five options. There is only one correct answer. 1

2

3

4

5

Marvin explains the relationship options to Marta, who wants to sell her condominium. Marta signs a representation agreement with Marvin’s brokerage. Marvin has discussed property value with Jiten who is considering selling his cottage. Marvin discussed Jiten’s property with a co-worker, who is currently working with a buyer interested in buying a cottage. Marvin states that Jiten has agreed to work with Marvin, should he or his brokerage obtain an offer on his property. Marvin is not currently working with Bruno but knows that his dream is to own a waterfront property someday. When one becomes available, Marvin gathers the information and sends it to Bruno. Bruno and Marvin discuss his financial requirements for the purchase and decide to view the property. After the viewing, Bruno and Marvin review recent sales, discuss an appropriate offer price, and prepare an offer. Marvin presents the offer to the seller and listing salesperson. Marvin has a buyer interested in purchasing a townhouse condominium in a specific complex. The buyer has signed an agreement of purchase and sale without viewing the townhouse. Marvin approaches several owners in the complex and explains that his buyer is serious and has already signed an agreement of purchase and sale. Several owners declined the offer; however one seller stated they discussed moving earlier that week. Marvin met with the owners, and they accepted the offer. Initially, Marvin did not have a listing authority, but the sellers adopted Marvin’s actions. Marvin, a salesperson, meets Bernie at a social function. Marvin gives him his business card and invites Bernie to call him if he has any questions related to listing his property for sale. A month later, Bernie decides to sell his property himself and places a “For Sale” sign on his front lawn. An interested buyer knocks on his door asking to view the property, but Bernie is now unsure about letting the individual come in. Bernie gives the buyer Marvin’s business card and tells them to call Marvin for any information or to view the property.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 13 of 19

Terminating an Agency Relationship There are several ways in which an agency relationship is terminated, but these can be generally categorized as either by agreement or by operation of law. Termination does not disturb legal rights and obligations associated with the relationship unless otherwise agreed to by the parties. As a salesperson, you need to understand how agency relationships can be terminated and the continued obligations for you and the brokerage. This is important from both legal and relationship management perspectives.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 14 of 19

Termination of an Agency Relationship by Agreement At times, the termination of an agency relationship will automatically occur. Other times, specific actions by the parties involved must occur for the relationship to be terminated. The following four sections contain examples of the ways an agency relationship can be terminated by agreement.

Completion or performance Termination by performance is automatic once the obligations under the terms of the agreement are fulfilled. In real estate, termination occurs when the sale is completed and not when an offer has been accepted between the seller and buyer. It is important to understand this distinction, as all fiduciary and regulatory obligations owed by the brokerage and salesperson continue uninterrupted and unaltered throughout this time period. Example: A salesperson has represented a buyer in purchasing a home. The sale has now closed, and the buyer has possession of the property. The agency relationship that was created is now automatically terminated.

©2019 Real Estate Council of Ontario

Mutual agreement An agency relationship can be terminated by mutual agreement between the agent and the principal. In real estate, both the brokerage and the seller or the buyer must mutually agree to terminate the relationship. Both the principal and the agent would document this termination by mutual agreement using a termination or cancellation form. Example: A seller has listed their property for sale with a brokerage pending the seller being relocated to another province. The seller no longer wishes to sell their property as the relocation has been cancelled. Both the seller and the brokerage agree to terminate the listing agreement.

©2019 Real Estate Council of Ontario

Expiry An agency relationship is automatically terminated on the expiry date agreed to by the parties. In real estate, a seller representation agreement or a buyer representation agreement is required to contain both an effective date and an expiration date. If the purpose of the agreement has not been fulfilled within the term of the agreement—or the agreement has not been extended prior to the expiry date—the agency relationship is ended. Example: A seller and brokerage have contracted to list and market a property for sale, and the parties have agreed to a 90-day term for the listing agreement. The seller received one offer on the property during the listing period, but the offer was not accepted. With no extension to the agreement, the agency relationship is automatically terminated once the agreement has expired.

©2019 Real Estate Council of Ontario

Revocation The principal has the power to revoke the authority of the agent to act on their behalf. Revocation may be either lawful or unlawful. In real estate, if the brokerage fails to fulfill their duties under the representation agreement, revocation would be lawful. However, if the brokerage has fulfilled their duties and the principal revokes their authority without justification, this is unlawful. The principal may then be liable for damages. Example: A seller is approached by a buyer, who wishes to purchase the property but suggests a private sale to avoid remuneration being paid. The seller revokes the listing agreement with the brokerage and proceeds to sell the property privately. The brokerage has been fulfilling their duties, so the seller’s attempt to revoke is unlawful. The brokerage could make a claim for remuneration as the property was sold during the term of the agreement.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 15 of 19

Termination by Operation of Law On the previous screen, you viewed four ways of terminating an agency relationship by agreement. An agency relationship can also be terminated by operation of law. This means the courts have determined over time that specific circumstances provide for the termination of the agency relationship. The following three sections contain examples about the different ways an agency relationship can be terminated through operation of law.

Impossibility of performance An agency relationship can be terminated because of the impossibility of performance. This occurs when the subject matter of the agency ceases to exist. Thus, the duties and contractual obligations of the principal and the agent can no longer be fulfilled under normal circumstances. In real estate, unforeseen circumstances could arise, making it impossible for the brokerage to fulfill their obligations. Example: A seller’s house has burned down, and there is no longer a house to sell. In this instance, the seller and their brokerage would complete a cancellation of the listing agreement to confirm the termination of the agency relationship due to impossibility of performance.

©2019 Real Estate Council of Ontario

Illegality An agency relationship is terminated if the agency purpose or the agency relationship is unlawful. This could occur both from an agent’s and a principal’s perspective. In real estate, if the brokerage has their registration under REBBA terminated, then it is no longer authorized to trade in real estate. As such, all agency relationships to which the brokerage is a party to are terminated. Be aware that the relationship is between the brokerage and the seller or the buyer. If a salesperson’s registration is terminated or if the salesperson transfers to another brokerage, it does not affect the existing agency relationship. Example of Agent/Brokerage Perspective: A seller has listed their property for sale with a salesperson at a brokerage. The owner of the brokerage is retiring and has decided to cease operations as a brokerage. Once the brokerage’s registration under REBBA has been terminated, all agency relationships with sellers and buyers are automatically terminated. From the principal’s perspective, if the authority to bind the principal was illegally obtained, the relationship would be terminated.

©2019 Real Estate Council of Ontario

Example of Principal/Client Perspective: An agency relationship is terminated when the brokerage discovers that the seller’s son fraudulently signed a seller representation agreement for his own gain after forging a Power of Attorney to act for his father. This is an example of revocation due to unlawful conduct of the seller’s son.

Death, mental incapacity, or bankruptcy The agency relationship generally terminates with the death, bankruptcy, or mental incapacity of either the agent or the principal. In real estate, an exception to this can involve the principal’s death, if there is a provision within an agreement to extend the obligations to the person’s estate. In most cases, this provision would apply to a seller who has listed their property for sale rather than a buyer who is viewing properties for sale. Example of Termination Due to Death: A brokerage is representing a buyer in their search for a property to purchase. During the term of the agreement, the buyer passes away. The agency relationship is terminated on the buyer’s death. Example of Termination Due to Mental Incapacity: A seller contacts a brokerage to list their property for sale. During the listing process, the salesperson notices they are forgetful and distracted. Several ©2019 Real Estate Council of Ontario

weeks later, the seller’s niece informs the salesperson that the seller has been diagnosed with dementia and needs full-time care. The agency relationship between the seller and the brokerage is terminated. Example of Termination Due to Bankruptcy: A corporation has listed a property for sale due to financial difficulties. The property is listed with a brokerage, and during the listing, the corporation declares bankruptcy. The agency relationship is now terminated.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 16 of 19

Continuation of Rights and Obligations After Termination The termination of an agency relationship does not affect the rights of either party, or any associated obligations owed by one of the parties, unless the parties agree otherwise. As a salesperson, understanding the continuation of rights and obligations owed both to the principal and by the principal is an important part of the agency relationship the brokerage has with a seller or a buyer. Continuing responsibilities to the principal are based on the fiduciary obligations owed under the relationship and include: • Confidentiality of personal information • Maintaining utmost loyalty • Protecting the principal’s best interests A salesperson must ensure that all obligations owed to the principal following the termination of an agency relationship are adhered to; otherwise there could be legal ramifications. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic. ©2019 Real Estate Council of Ontario

Lesson 1 | Page 17 of 19

Identify the scenarios that are true regarding agency termination. There are five options. There are multiple correct answers.

1

2 3

4

5

After looking at several properties, a buyer receives a notice from their employer that the company is restructuring, and their employment is terminated. The buyer no longer wishes to purchase a property, so the brokerage and the buyer sign a cancellation of the buyer representation agreement. In this scenario, the termination is due to mutual agreement. A brokerage is representing a buyer in the purchase of a property. The transaction is completed, and the buyer gets ownership of the property. In this scenario, the termination is due to completion of performance. A seller lists a property for sale with a brokerage. Prior to the property selling, the municipality expropriates the land for a road widening. In this scenario, the termination is due to illegality. A brokerage lists a property for sale and confirms the ownership by reviewing a copy of the transfer/deed provided by the seller. It is later discovered that the document was fraudulent, and the seller is the tenant rather than the owner. In this scenario, the termination is due to impossibility of performance. A salesperson lists a property for sale with a 60-day listing period. Two months later, the property has not sold, and the seller decides not to extend the agreement. In this scenario, the termination is due to expiry.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 18 of 19

Neko, a salesperson with ABC Real Estate Ltd., has a property listed at 123 Market St. for sale that is owned by the Petersons. During the listing process, the Petersons shared with Neko there is an urgency to sell due to financial difficulties in making their mortgage payments. Neko, while conducting an open house at Petersons’ property, meets Sheryl who has expressed some interest in the property and asks Neko why the sellers are selling. Neko, who is mindful of his fiduciary obligations to the seller, explains the owners reasons for selling is confidential and he is not at liberty to disclose such information. The property does not sell and the listing expires. Sheryl, still interested in buying a property, visits an open house at 130 Market St., hosted by Neko. During her visit, she asks Neko if the house at 123 Market St. had sold as the “For Sale” sign had been removed. Neko commented that it had not and as per his knowledge it was no longer on the market. Sheryl is persistent in asking Neko why the owners of 123 Market St. were selling and if it was because of financial problems. How should Neko respond to Sheryl’s statement regarding the Petersons? There are four options. There are multiple correct answers.

1 2 3 4

“The Petersons were having some troubles but are now looking at other options. I’m not sure if their property is still available to purchase.” “The Petersons’ property has many similar features to this one. Why don't you look through the house and then we can discuss any questions you may have.” “The owners of 123 Market St. may decide to relist their property, if they do, would you like me to contact you?” “If you sign a representation agreement with me, I owe you full disclosure. Only then would I be able to discuss this.”

©2019 Real Estate Council of Ontario

Lesson 1 | Page 19 of 19

Congratulations, you have completed the lesson! There are six sections on this page with a summary of the key topics that were discussed in this lesson.

Agency terms and the equivalent terms within REBBA

In order to fully understand obligations both under the common law of agency and REBBA, it is important to know the applicable terms used. The terms used under agency are followed by terms used under REBBA: • Agency is equivalent to the term representation. This is the relationship between the parties that is fiduciary in nature. A brokerage will “represent” the party in an agency relationship. • Agent refers to a brokerage representing a seller or a buyer. The term agent is used incorrectly when referencing a salesperson. The term agent identifies the brokerage. • Principal is equivalent to the term client. This is a seller or a buyer who is represented by a brokerage. • Third party is equivalent to the term customer. This is an individual who is not directly connected with a legal transaction but may be affected by it. A brokerage representing only a seller would consider the buyer as the customer. A brokerage representing only a buyer would consider the seller as the customer. • Single agency is equivalent to the term single representation. This identifies a relationship where there is one agent (brokerage) and one principal (seller or buyer). • Dual agency is equivalent to the term multiple representation. This identifies a relationship where there is one agent (brokerage) and more than one principal (sellers and/or buyers) in the same transaction.

©2019 Real Estate Council of Ontario

Fiduciary

Authority

Creating an agency relationship

An agency/fiduciary relationship created between a brokerage and a seller or a buyer involves fiduciary responsibilities by the agent. The brokerage and salesperson’s obligations in a fiduciary relationship include: • Full disclosure • Obedience • Confidentiality • Competence • Accounting • Loyalty The brokerage—and by extension, all salespersons—are required to uphold these obligations. Authority is the permission granted to the agent by the principal. A seller or a buyer gives the brokerage express authority to represent their interests in a real estate transaction. Implied authorities are an extension of the express authority. Additional details regarding authority are detailed in the next lesson. An agency relationship can be created in several ways— By agreement: • A written agreement details the obligations of all parties and would be signed by the brokerage and the seller or buyer. • A verbal agreement could include many of the same aspects of a written agreement, only the details are not documented. • An implied agreement can be unintentionally created based on the words and actions of the salesperson, seller, or buyer. • If a seller or buyer and the brokerage act in a manner which suggests that an express agreement exists, an agency relationship is formed even though no formal understanding is reached between them. By ratification: • An agency relationship by ratification is created retroactively if both a principal and an agent later sign an agreement or give formal consent to an

©2019 Real Estate Council of Ontario

action previously taken without explicit permission—thus ratifying the agent’s actions. By estoppel: • An agency relationship can be created by estoppel when a principal leads a third party to believe that they are being represented by the agent, and that the agent has the authority to act on behalf of the principal. By operation of law: • An agency relationship is created by operation of law when duty, created by circumstance, is imposed on an agent to act on behalf of a principal, where previously no agency relationship existed. The agency relationship would be based on established legal principles rather than by a formal agreement.

Termination of an agency relationship

A leading practice for creating any agency relationship is ensuring there is a written agreement. A written agreement will help to ensure there is no confusion, misunderstanding, or miscommunication with the seller or the buyer as to the authority granted, services provided, or the duties and obligations owed by all parties. An agency relationship can be terminated by: • Completion of performance: Termination by performance is automatic once the obligations under the terms of the agreement are fulfilled. • Mutual agreement: An agency relationship can be terminated by mutual agreement of the agent and the principal. • Expiry: An agency relationship is automatically terminated on the expiry date agreed to by the parties. • Revocation: The principal has the power to revoke the authority of the brokerage to act on their behalf. Revocation may be either lawful or unlawful. • Impossibility of performance: An agency relationship can be terminated because of the impossibility of performance or frustration. This is when the duties and contractual obligations of the principal and the agent cannot be fulfilled under normal circumstances.

©2019 Real Estate Council of Ontario

Continuation of rights and obligations

• Illegality: An agency relationship is terminated if the agency purpose or the agency relationship is unlawful. This could occur both from an agent and a principal’s perspective. • Death, mental incapacity, or bankruptcy: If either the principal or the agent suffers death, becomes mentally incapacitated so as to be unable to continue the relationship, or becomes bankrupt, the agency relationship is terminated. The termination of an agency relationship does not affect the rights of either party, or any associated obligations owed by one of the parties, unless the parties agree otherwise. As a salesperson, understanding the continuation of rights and obligations owed both to the principal and by the principal is an important part of the agency relationship the brokerage has with a seller or buyer.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 1 of 13

Lesson 2: Brokerage Authority and Principal’s Duties

This lesson describes the authority granted to a brokerage by a seller or a buyer, the limitations to that authority granted, and the obligations owed by the seller or buyer when they are being represented by the brokerage.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 2 of 13

To build upon the previous lesson where you learned about the fundamentals of an agency, this lesson will expand on key aspects of an agency relationship by exploring the details and examples relating to authorities, obligations, and limitations. Upon completion of this lesson, you will be able to: • Describe the authority granted to a brokerage by a principal. • Describe the limitations to the authority granted to a brokerage by a principal. • Describe the principal’s duties to the agent. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 3 of 13

Granting Authority The most common method of entering into an agency relationship with a seller or a buyer is by express agreement. Leading practice would be to document that agreement in writing. Once the agency relationship has been created, the principal grants authority to the agent to perform certain activities on their behalf. This authority is legally defined as a right or permission granted by one person to another to act. From a real estate perspective, a representation agreement would be used to document the agency relationship and also detail the authority granted to the brokerage. The next few screens explores the authority a seller or a buyer would grant to a brokerage under an agency relationship.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 4 of 13

Authority Granted by a Principal Typically, an agency relationship between the agent (Brokerage) and the principal is documented in a buyer or a seller representation agreement. In real estate, there are two types of authority – express (Sometimes referred to as actual) and implied. Express authority is the authority granted by the principal (Buyer or seller) intentionally to the agent (Brokerage) and is outlined in the terms of the representation agreement. Implied authority is assumed given the nature of the relationship; this allows the agent (Brokerage) to complete the task properly, efficiently and competently.

©2019 Real Estate Council of Ontario

The following two sections contain information on express authorities granted to a brokerage by a seller or a buyer.

Express authority granted by a seller

Express authority granted by a buyer

A seller grants express authority to a brokerage to offer their property for sale. A representation agreement must contain certain information to comply with REBBA, but specific wording can vary. An agreement will explicitly outline the main tasks the brokerage is to carry out. A seller’s express authorities can also include: • Allowing buyers to fully inspect the property. • Placing a “For sale” or “Sold” sign on the property. • Giving the exclusive authority to make all advertising decisions to the brokerage. A buyer grants express authority to the brokerage to seek out suitable properties for the buyer to view. In addition to providing the brokerage with express authority to locate a suitable property, a buyer’s express authorities can also include: • The brokerage’s entitlement to receive and retain remuneration paid by the seller or the listing brokerage. • Providing information as needed to third parties retained by the buyer to assist in a transaction.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 5 of 13

Implied Authorities Implied authorities grant the agent the ability to take actions and make decisions as an extension of the express authorities granted by the principal. Activities undertaken under implied authorities are consistent with the express authority granted, such as those authorities identified in a seller or a buyer representation agreement. Implied authorities allow the agent to undertake incidental activities and perform other acts usual to a real estate transaction, which are not specifically detailed in the agreement. The following two sections contain information on seller implied authorities and buyer implied authorities as they relate to a representation agreement.

Seller representation implied authorities A seller grants express authority to the brokerage to list and market their property for sale and to advertise the property. An implied authority allows the brokerage to determine the advertising specifics, such as arrangements for advertising materials and media placements. Additional implied authorities by a seller can include: • Delegation: The brokerage delegates various activities to brokers and salespersons employed by that brokerage to carry out the seller’s instructions.

©2019 Real Estate Council of Ontario

• Showings/Negotiations: The brokerage conducts showings to prospective buyers and assists in negotiations. • Deposit/Trust Account: The brokerage receives a deposit from a third party relating to an agreement to purchase the seller’s property and deposits these funds into the real estate trust account. • Notices: The brokerage has certain implied authorities involving receipt of notice. For example, a notice received by a brokerage that a buyer has fulfilled a condition in an offer is deemed to be notice received by the seller. Certain implied authorities are further supported by provincial legislation (such as the authority to delegate to employed, appointed, or authorized brokers and salespersons, and the authority upon receipt of a deposit for the placement of same into the brokerage’s real estate trust account).

©2019 Real Estate Council of Ontario

Buyer representation implied authorities A buyer grants express authority to the brokerage to locate suitable property within a geographic area. The implied authority allows the brokerage to select the appropriate methods to locate properties for viewing. Additional implied authorities by a buyer can include: • Delegation: The brokerage delegates various activities to brokers and salespersons employed by that brokerage to carry out the buyer’s express instructions. • Relevant Facts/Presentation: The brokerage obtains and presents relevant facts for consideration. • Negotiations: The brokerage arranges showings and assists in negotiations. • Notices: The brokerage has certain implied authorities involving receipt of notice. For example, a notice received by a brokerage that an offer has been accepted is deemed to be notice received by the buyer.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 6 of 13

Yusong, a salesperson with XYZ Realty Ltd. is working with Amanda, who is looking to buy a house. Amanda is about to sign a buyer representation agreement. But first, Yusong will explain the actual and implied authorities associated with their relationship by providing examples of what activities he would complete on Amanda’s behalf. Identify which of the given Yusong’s explanations would fall under the implied authority. There are four options. There are multiple correct answers.

1 2 3 4

Yusong explains he will review many of the property listings from a local listing service and then select the most appropriate five properties for Amanda to initially view. Yusong explains he will gather and provide information regarding different school districts to Amanda to help her when considering which properties could be suitable for her to purchase. Yusong explains the representation agreement is between herself and his brokerage, and he will be the individual assisting Amanda in her search for a property. Yusong explains Amanda is retaining the brokerage for the next 60 days to locate properties meeting her criteria.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 7 of 13

Limitations to a Brokerage’s Authority You have examined the differences between express and implied authorities, which are fundamental to ensuring all parties understand the permissions granted and your role as their salesperson. While brokerages can pursue reasonable activities extending from express authority in a representation agreement, legal precedents and common practices have formed certain limitations to brokerage authority. Even though a particular authority is granted (for example, to market a property or to seek out an appropriate property) that authority is limited. During initial meetings and throughout the agency relationship, a salesperson will clearly communicate the activities undertaken to fulfill the goals of the relationship. Understanding the limitations to these activities is equally important. See the next screen for a detailed discussion of the limitations to a brokerage’s authority. ©2019 Real Estate Council of Ontario

Lesson 2 | Page 8 of 13

Brokerage Authority Limits If an agent acts outside of the scope of authority granted, the agent could be liable to the principal for any injuries or for breach of contract. As such, a brokerage must ensure the activities undertaken by a salesperson when representing a seller or a buyer fall within the authority granted. The following four sections contain examples of limitations to brokerage authority.

Contract Brokerages or salespersons do not have the authority to sign a contract on behalf of a principal, unless precise and clear authority is granted. Since signing on behalf of a principal could place a brokerage in a position with legal ramifications, a brokerage would not approve a salesperson participating in any such activity. Example: An offer has been received on a seller’s property listed with a brokerage. The seller is currently out of the country and would like to accept the offer but is not available to sign the offer before it expires. The seller asks the salesperson to accept the offer on their behalf. The salesperson would decline the seller’s request and could address the seller’s concerns in other ways, such

©2019 Real Estate Council of Ontario

as asking the buyer to extend the time period associated with acceptance of their offer.

Delegation of duties As the agency relationship is established between the principal and the agent, delegation of duties to any salesperson or broker employed by the brokerage is acceptable. However, delegation of duties by the listing brokerage to use other brokerages in the marketing/selling process is neither presumed nor implied under agency law because the agency obligation is particular to that brokerage. For other brokerages to participate in the marketing/selling process, this authority must be specifically provided for in the agreement. A brokerage would document this authority in a listing agreement. Example: A brokerage obtains a listing and delegates the duties owed to the seller to a salesperson employed by the brokerage. The seller has also agreed that other brokerages may participate. This allows cooperating brokerages to show the property to prospective buyers and obtain an offer.

©2019 Real Estate Council of Ontario

Purchase price Brokerages have no implied authority to receive all or part of the purchase price; they can only receive a deposit relating to the purchase. The deposit is now considered monies held in trust for the seller. When a deposit is received by a brokerage (related to a transaction), the brokerage holds the deposit in trust. Upon completion of the transaction, the buyer receives a credit towards the purchase price for the deposit amount. Example: A listing brokerage receives a $10,000 deposit from a buyer related to an offer accepted on a seller’s property. The brokerage places the deposit into its real estate trust account and the funds are held in trust pending the completion or termination of the agreement. When the transaction has been completed, the buyer’s deposit is shown as a credit to the purchase price and the deposit funds are now held in trust for the seller. Typically, the brokerage then applies the deposit towards the remuneration owed by the seller to the brokerage.

©2019 Real Estate Council of Ontario

Expenses Brokerages cannot incur expenses on behalf of the principal or seek reimbursement without express authority. Typically, an agreement with a principal will identify the remuneration paid to the brokerage, which includes any expenses incurred. If the principal requests extra services, such as alternate forms of advertising, the agent can seek additional reimbursement, only if agreed to by the principal. Example: A brokerage agrees to list a property for sale and provides the seller with a marketing plan. The seller would like additional signage, the home staged by a professional, and a property inspection report completed. The brokerage and the seller agree that the seller will reimburse the brokerage for the additional expenses.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 9 of 13

When a brokerage is granted the authority to represent a principal in a transaction, it comes with many obligations and duties. A salesperson is an extension of the brokerage and is required to conduct their daily activities within the limitations to the authority granted to the brokerage. All actions must be in compliance with legal precedents and common practices under agency law. Which of the given scenarios could exceed the limits of authority granted to a brokerage? There are five options. There are multiple correct answers.

1

2

3

4 5

A brokerage is representing a seller, who is currently in offer negotiations with a buyer. The salesperson has been notified that the buyer has accepted the seller’s offer, which means the seller is deemed to have received the notice as well. A seller has specifically chosen a salesperson to list their property for sale as they are experienced in this type of property. The salesperson will be going on holiday and has discussed with the seller that another salesperson from their brokerage will oversee the listing during this time. The seller agrees verbally but does not sign a new listing agreement identifying this. A seller’s listing with a brokerage has expired. The seller calls the salesperson and indicates they would like to extend the listing but not lower the asking price. The salesperson quickly enters property details into the local listing service to activate the listing as there were no changes to the terms. A salesperson works with a professional stager to prepare a seller’s home prior to the marketing of the property. Afterwards, they advise the seller they will need to be reimbursed for the fees charged by the staging company. A salesperson obtains their seller’s consent to place a “For Sale” sign on the property. When the property is sold, the salesperson changes the sign to read “Sold”.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 10 of 13

Principal’s Duties to the Agent The principal will owe certain duties to the agent when entering into an agency relationship. These do not include any fiduciary or regulatory obligations but rather stem from the general obligations under the common law of agency. From a real estate perspective, an important extension of explaining the obligations and duties, the brokerage owes to the seller or buyer is to also clearly communicate and document the duties owed by that party to the brokerage. A misunderstanding at the onset of an agency relationship can have a negative impact on the brokerage and salesperson’s ability to fulfill their obligations. The principal owes the given duties to the agent: 1. Duty of indemnification 2. Duty of remuneration 3. Duty regarding any other obligations agreed to The next few screens describes each of these duties in more detail. ©2019 Real Estate Council of Ontario

Lesson 2 | Page 11 of 13

Duties the Principal Owes to the Agent As a general rule of agency, the principal owes the agent indemnification and remuneration. In addition, the principal owes any other obligations agreed to, which are typically documented in an agreement between the principal and the agent. In real estate, the seller or buyer’s obligations to the brokerage would be documented in a representation agreement. The following three sections contain examples of the duties the principal (seller or buyer) owes to the agent (brokerage) within an agency relationship. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Duty of indemnification

The agent must act according to the lawful instructions of the principal, and in doing so, may not be held responsible for any liability, claim, loss, cost, damage, or injury resulting from these acts. As a general rule of agency, the principal must compensate an agent for loss or damage incurred in carrying out lawful acts. Seller perspective: The brokerage may be indemnified should the seller breach any warranty or representation made by the seller. Buyer perspective: The brokerage may be indemnified should any latent defect to the land or improvements not be identified by the brokerage, as the buyer will be required to make their own enquiries to confirm the condition of the property. Indemnity may also extend to reimbursement for expenses incurred. However, by the terms of most real estate representation agreements, the right to reimbursement does not generally apply when, for example, real estate brokerages receive a remuneration, unless specifically stated in the agreement. See additional information under the topic “Duty of remuneration”.

©2019 Real Estate Council of Ontario

The principal has no duty to indemnify an agent who acts unlawfully or negligently or is in breach of duty.

Duty of remuneration

Seller example: A buyer sued both the seller and the seller’s brokerage because five expensive appliances stated to be included in the purchase price within the agreement of purchase and sale were removed from the property by the seller on completion of the transaction. The court held that the seller must indemnify the brokerage and assume the full liability for the loss suffered by the buyer. The principal, upon signing the agreement, is obligated to pay the brokerage for the services agreed to and provided as part of the agency relationship between the parties. The payment is typically the remuneration paid to the agent for services rendered. For the duty of remuneration to apply, the agent must be duly authorized by provincial legislation to trade in real estate, and the terms of the representation agreement must be fully met. The brokerage’s remuneration must be specified in the representation agreement.

Duty regarding any other obligations agreed to

Sample wording of brokerage remuneration provision in a seller representation agreement: “In consideration of you listing the property, I agree to pay the listing brokerage a remuneration rate of 5% of the sale price of the property or for any valid offer to purchase or lease the property from any source whatsoever obtained during the Listing Period and on the terms and conditions set out in this agreement OR such other terms and conditions as I may accept.” You will learn more about representation agreements later. The principal must perform any other obligations as agreed to by both parties in the representation agreement. It is strongly recommended that any other obligations be formally documented in the representation agreement rather than agreed to verbally in order to avoid any misunderstandings. Examples of other obligations typically agreed to by a seller as a principal include: • Payment of applicable taxes (such as HST on any remuneration paid)

©2019 Real Estate Council of Ontario

• Agreement to maintain insurance on the property, until the sale has been completed • Referral of enquiries to the brokerage, if a potential buyer contacts the seller directly for information regarding the property • Paying remuneration, if the sale does not close due to their default or neglect • Right of the brokerage to apply any deposit against remuneration Examples of other obligations typically agreed to by a buyer as a principal include: • To refer all properties of interest which the buyer may wish to view to the brokerage • Entitlement of the buyer’s brokerage to receive/retain remuneration from the seller’s brokerage or the seller • To pay remuneration, if the sale does not close due to their default or neglect

©2019 Real Estate Council of Ontario

Lesson 2 | Page 12 of 13

Which of these scenarios demonstrate compliance with a duty typically owed by a seller or a buyer as a principal to a brokerage? There are three options. There are multiple correct answers.

1

2

3

A buyer attends an open house where the seller is privately selling their home rather than listing it with a brokerage. The seller does not agree to pay any remuneration to the buyer’s brokerage. The buyer is interested in purchasing the property and contacts their salesperson to arrange for another viewing. A seller has listed their property with a brokerage and is promoting the new listing at work. A co-worker is interested in purchasing the property but states they have been working with another brokerage. The seller advises their salesperson of the interested co-worker and states they have now fulfilled their obligations to refer the buyer, but if the sale results from their introduction of the property, remuneration is owed only to the buyer’s brokerage. A buyer viewing a property with a salesperson is unaware of an unused buried oil tank, which remains on the site. The seller did not disclose this to the brokerage and specifically warranted in the agreement of purchase and sale that there was no buried oil tank. After the transaction closes, the buyer discovers the buried oil tank and takes legal action against the seller.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 13 of 13

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Brokerage authority

Authority is the legal power or right given by the principal and accepted by the agent to act on the principal’s behalf in transactions with a third party. The actual authorities are typically granted in a written document, which describes the permissions granted to the agent. A seller typically gives express written authority to offer their property for sale. This differs from implied authorities that are assumed given the nature of the relationship. Implied authorities are additional assumed authorities allowing the agent to undertake incidental activities consistent with an authority granted expressly. An example of implied authority would include the determination of advertising specifics to market the seller’s property.

Limitations to brokerage authority

Understanding the authority granted to the brokerage and the implied authorities that it entails is required by a salesperson to carry out appropriate tasks on behalf of the brokerage. There are limitations to brokerage authority with regards to: • Contracts: A brokerage is not authorized to sign a contract on a principal’s behalf. • Delegation of duties: A brokerage can delegate duties to employed salespersons but must obtain specific permission to delegate any duties to another brokerage. • Purchase price: A brokerage may obtain a deposit from a third party but may not receive all or part of the purchase price.

©2019 Real Estate Council of Ontario

• Expense: A brokerage cannot incur expenses or seek reimbursement without express authority.

Principal’s duties to the agent

A salesperson must be able to identify and put into practice the limitations to brokerage authority in order to ensure any action they take remains compliant. The principal’s duties to the agent include: • Duty of indemnification: A brokerage will not be liable for certain lawful actions performed. • Duty of remuneration: A brokerage will be compensated as agreed to for performing the duties under the agreement. • Duty regarding any other obligations agreed to in a representation agreement: A brokerage will be owed additional obligations to which the parties have agreed.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 1 of 25

Lesson 3: Duties and Obligations of a Salesperson

This lesson describes a salesperson’s duty of care and general obligations owed to a client and to a customer, as well as the fiduciary obligations owed to a client only. The lesson also identifies the obligations owed to a client and to a customer under the Real Estate and Business Brokers Act (REBBA).

©2019 Real Estate Council of Ontario

Lesson 3 | Page 2 of 25

This lesson describes and distinguishes between the duties and obligations a brokerage and salesperson owe to a client and those owed to a customer. These will be separated into various categories: • Duty of care: At all times, a salesperson must conduct themselves in accordance with a standard of care expected of a knowledgeable salesperson. However, the extent of that duty will differ significantly between a client and a customer. • General obligations: Various obligations are owed to a client under the common law of agency, however, only some of the obligations are owed to a customer. • Fiduciary obligations: A brokerage owes fiduciary obligations to a client, as these stem from the agency relationship. Fiduciary obligations are not owed to a customer. • Regulatory obligations: Specific obligations under REBBA are described. Only a select number of obligations relating to specific activities with sellers and buyers are being detailed. We will revisit regulatory obligations in subsequent modules regarding the listing and marketing of properties and when showing properties and interacting with buyers. As a salesperson, you will need to differentiate between the obligations owed to a client and those owed to a customer to ensure the appropriate level of service is provided. A salesperson’s words and actions can create an agency relationship, so understanding how this will differ for a client or a customer will prevent an agency relationship from being created where one is not intended.

©2019 Real Estate Council of Ontario

Upon completion of this lesson, you will be able to: • Describe a salesperson’s duty of care owed to a client and to a customer. • Describe the obligations owed to a client and to a customer under agency law. • Describe the fiduciary obligations owed to a client. • Describe the obligations owed to a client and to a customer under REBBA. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 3 of 25

Duty of Care The phrase “duty of care” refers to the standard of care and skill provided by a salesperson to a client or a customer. A salesperson, whether new to the profession or not, must act within a standard expected of a knowledgeable, proficient salesperson. Perfection is not required, rather the standard is based on how ordinary and prudent salespersons would conduct themselves under similar circumstances. An important exception involves a salesperson, who claims to possess special expertise or experience. This salesperson’s conduct will be assessed according to that higher standard. Failure to provide an appropriate level of care as a salesperson can result in liability for professional negligence. When providing information or performing functions on behalf of a customer, a salesperson must understand the limitations, otherwise an unintended client relationship could be established, which can lead to misunderstandings or legal ramifications. Next, we will detail the requirements for duty of care and how they differ for a client and a customer.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 4 of 25

Duty of Care Duty of care is owed to both clients and customers. The following three sections contain information on a brokerage’s duty of care, and how your obligations to a client and a customer will differ. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Duty of care owed to a client

Duty of care to a client applies to everything a brokerage and salesperson does for the client, and all services are to be provided in a conscientious and competent manner. One distinguishing aspect of an agency relationship is related to providing advice. Any information provided when giving advice by the brokerage or salesperson—whether

©2019 Real Estate Council of Ontario

written or verbal and no matter how honestly provided—can give rise to action for damages due to negligence. Negligence results from not providing competent services and/or not completing the required due diligence.

Duty of care owed to a customer

Example: The seller asks for advice on whether or not to accept an offer. The salesperson meets an acceptable duty of care by providing input based on knowledge of existing sales, reviewing the benefits and drawbacks of the offer, pointing out any particular difficulties that might be encountered (such as the removal of any conditions), and answering seller questions as the need arises when reviewing the agreement. Duty of care owed to a customer is limited and involves ensuring that honesty, fairness, and integrity is exercised, that information provided is accurate, and that any services the brokerage agrees to carry out on behalf of the customer are thorough and performed with reasonable care and skill. A brokerage and salesperson must also ensure the obligations regarding disclosure and privacy are followed. Certain disclosures must be made to a customer. These include but are not limited to: • Any material facts known or that ought to be known by the salesperson • Any direct or indirect interest held by the salesperson or brokerage related to a trade A salesperson must also ensure any obligations to protect the privacy of the customer and any personal information are complied with. It is important for a salesperson to be conscious of limiting their services to providing information only, not advice. Otherwise, the act of providing advice can unintentionally alter a customer relationship to that of a client. As noted earlier in the module, this would result in creating a potential conflict of interest when a brokerage is representing more than one client in a transaction (known as multiple representation).

©2019 Real Estate Council of Ontario

Ensuring duty of care as a salesperson

Example: The buyer, as a customer, asks for advice regarding the condition of the seller’s home. The salesperson states that the seller is their client, but that, in all honesty many buyers seek out a home inspector, as the responsibility rests with the buyer to satisfy themselves regarding the condition of the property. A duty of care is implied when one party seeks information from another, who has special skills, such as a seller or buyer requesting advice or information from a salesperson. A salesperson is in a position of trust and must exercise due care when giving advice or providing information since they should know this will be relied upon. A salesperson can avoid problems relating to duty of care by the given guidelines: • Seek advice: Be aware of the limits to your knowledge and experience, seek advice or assistance when needed, and recommend the client or customer obtain legal or other appropriate advice. • Accuracy in documentation: Make certain that contracts are properly worded, documents are delivered appropriately, and persons signing are aware of associated implications of the contract or document. • Be informed: Stay up-to-date on relevant issues impacting property ownership in your trading area, such as zoning and taxation. • Make inquiries: Do not rely on information provided by others without completing proper investigations and due diligence to confirm the accuracy of the information.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 5 of 25

Identify which of the given circumstances are examples of duty of care in a real estate transaction. There are four options. There are multiple correct answers.

1 2 3 4

A salesperson completes a listing agreement and uses the room measurements provided by the seller rather than risking error by personally measuring. A salesperson is asked by a buyer customer, if the vacant land adjoining a property will be developed soon. The salesperson discloses the property was recently sold and recommends the buyer confirm any development plans with the municipality. A salesperson informs a buyer client that many buyers seek out the services of a property inspector rather than provide an opinion on the extent of a problem identified during a property viewing. A salesperson does not disclose to the buyer customer that the basement apartment may not be legal to avoid providing advice.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 6 of 25

General Obligations Owed to a Client and a Customer Under the common law of agency, there are eight general obligations a brokerage and salesperson owe to a client. When interacting with a customer, only two of these obligations apply. These include exercising care and skill and ensuring honesty, as both of these general obligations also reflect the obligations under duty of care. A salesperson should apply these general obligations to the everyday functions performed on behalf of a seller or buyer with a clear understanding of the obligations owed to a client and the limited obligations owed to a customer. Next, these obligations will be detailed along with examples to illustrate how the obligations apply to you as a salesperson.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 7 of 25

Obligations Owed to Both Clients and Customers Two general obligations that are owed to both a client and a customer are: • Exercising care and skill • Ensuring honesty In interactions with a client or a customer, a salesperson must exercise care by being conscientious in answering questions, exercise skill by performing all obligations competently, and ensure honesty by providing accurate information. As detailed earlier, the level of competency expected is that of any prudent salesperson. Complying with these general obligations would include ensuring the completeness and accuracy of all information and recommending relevant experts when applicable.

©2019 Real Estate Council of Ontario

These two obligations under the common law of agency are also found within the Code, applying to all clients and customers. A salesperson must provide conscientious and competent services and treat every person with fairness, honesty, and integrity. Exercise Care and Skill Example: A buyer who is viewing a property with their salesperson indicates concern over the water stains on the basement wall. The salesperson responds by saying that water stains can indicate larger problems, so a professional should be retained to investigate the extent of any damage and whether the problem still exists today. The salesperson also recommends including a condition in any offer allowing for an inspection to be completed and a satisfactory report received. The salesperson exercises care and skill in acknowledging the buyer’s concern and recommending that a third-party professional be retained. Honesty Example: The listing salesperson arrives at an open house 30 minutes before it is scheduled to begin. The seller is speaking to another individual, who has arrived early and is interested in viewing the property. The salesperson joins them as the seller states that the property features a large backyard and is priced very well considering the bush and stream at the rear. The potential buyer indicates owning a property that includes a bush and stream is very appealing. The salesperson concludes the potential buyer is mistaken by what the seller has said and explains that the bush and stream are not located on the property but are lands owned by the Crown, and the seller’s property ends prior to the treeline. The salesperson ensures honesty by ensuring the potential buyer is not misled about the seller’s property.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 8 of 25

General Obligations Owed to Clients Now, let’s review the additional six general obligations a brokerage and salesperson owe to a client. The following six sections contain information on client-exclusive obligations.

©2019 Real Estate Council of Ontario

Negotiate favourable terms A brokerage must diligently advance the client’s interests by assisting in negotiations, discussing their options, and drafting favourable terms and conditions in agreements arising from these negotiations. Accordingly, a salesperson must possess the necessary knowledge and skills to successfully negotiate agreements and also ensure that legally binding agreements are drafted on behalf of their client. Example: A salesperson is presenting an offer received on a seller’s property. The salesperson points out concerns about a financing clause the buyer added to the offer and recommends a change that could result in more favourable terms from the seller’s perspective. The seller agrees to the change, and a counter offer is submitted with the revised terms to the buyer’s salesperson. The buyer reviews the terms and agrees to the change resulting in a successfully negotiated agreement of purchase and sale between the parties.

©2019 Real Estate Council of Ontario

Maintain confidentiality Maintaining the confidentiality of a client is fundamental to an agency relationship. A brokerage and salesperson must maintain confidentiality regarding all matters that could adversely impact or undermine the client’s position during negotiations. Common examples include the client’s personal information, any motivation for buying or selling, and the amount willing to be paid or accepted during negotiations. The duty of confidentiality survives termination of the representation agreement and the closing of the transaction. Example: The listing salesperson has obtained an offer on the seller’s property, which is lower than what the seller had anticipated receiving. The seller indicates they are willing to accept the offer but would like to first counter the buyer’s offer with a higher price. The salesperson submits the revised offer to the buyer’s salesperson and does not disclose any information related to the seller’s willingness to accept a lower price. The buyer agrees to the seller’s offer and a sale is successfully negotiated between the parties.

©2019 Real Estate Council of Ontario

Disclose information A brokerage and salesperson have a duty to fully disclose any information that is relevant to the relationship as principal and agent, or matters relating to the transaction, which could impact the decisions being made. Information about the relationship includes any actual or potential conflicts of interest, such as the salesperson being a party to the trade, either directly or indirectly. Matters related to the transaction can include events involving the property, the offer, or third parties. The obligation to disclose information requires a salesperson to ensure full disclosure of any actual or potential issues or matters before the client makes a decision or takes any action. Additional information related to disclosure of information about the relationship is detailed later in this lesson under Fiduciary Obligations. Example: A salesperson is showing a property to a young couple, who are very interested in purchasing it. The salesperson knows the buyers have limited funds set aside, if the property purchased needs any immediate repairs.

©2019 Real Estate Council of Ontario

The salesperson identifies a section of the home that contains older wiring and explains these deficiencies might need to be addressed right away. Based on the information provided by the salesperson, the buyers obtain a quote to complete the necessary upgrades from an electrician prior to placing an offer on the property.

Act in person A brokerage as an agent must perform duties personally, unless instructed otherwise. In a representation agreement, the brokerage is allowed to extend the authority to represent the client to their employed salespersons. Further, a seller may agree to the brokerage co-operating with other brokerages in the showing of the property to prospective buyers. Example: A listing salesperson has scheduled an open house for this Saturday but is not able to attend as an out-of-town buyer is arriving and has only two days to view properties. The listing salesperson contacts the seller and advises them of this and suggests that another salesperson from the brokerage conduct the open house. The seller agrees as it is understood the brokerage can delegate duties to their employed salespersons.

©2019 Real Estate Council of Ontario

Obey instructions A brokerage is obligated to obey all lawful instructions from the client. However, this obligation only extends to lawful instructions. Example, the brokerage would not have to follow an instruction from the seller to provide false and misleading information about the property to a buyer, such as identifying there has been no water seepage in the basement when in fact, there has been. Example: A seller indicates specific instructions for any showings when listing his $1,500,000 penthouse condominium. The seller requires all salespersons to leave a business card at the property when showing buyers through the home and also requires the listing salesperson to be present for all showings. Any feedback from prospective buyers during such showings is to be provided in an email. The listing salesperson agrees to these instructions as they are all lawful.

©2019 Real Estate Council of Ontario

Perform mandate A brokerage must perform the mandate as set out in the representation agreement between the parties and act within specific authorities granted. The brokerage should seek clarification when doubt exists regarding such authorities. A brokerage, including all employed salespersons, is not legally obliged to complete specific acts, unless these terms are explicitly set out in the agreement. However, a brokerage that does not perform those acts usual to the listing and showing of properties may give rise to successful legal action for negligence. Example: A seller signs a representation agreement that authorizes the brokerage to undertake marketing activities it deems effective to sell the property. In accordance with this instruction, the brokerage markets the home by placing the listing on the brokerage’s website, promoting the listing using social media, and showing the property to prospective buyers during reasonable hours. However, the seller has specifically removed any authorization in the agreement for any signage at the property. As such, the brokerage must act within the specific authority granted and should not place a “for sale” sign on the property.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 9 of 25

Jason, a salesperson with XYZ Realty Ltd, recently listed a property located in an older neighbourhood. He is showing the property for a second time to a buyer customer named Sylvia. When arriving, Jason notices a municipal vehicle on the street and two individuals installing a new sign on the property across the street. The sign is alerting the public to an application for rezoning. Sylvia is concerned the rezoning will change the neighbourhood appeal and is now hesitant about viewing the property again. What should Jason say to Sylvia to comply with his obligations to exercise care and skill, and ensure honesty? There are four options. There are multiple correct answers.

1

2

3 4

“The sign is new so I will need to contact the municipality to confirm the proposed change to the zoning. As this is an older neighbourhood and property sizes are spacious, there is a possibility for a change in use.” “Rezoning a property can sometimes impact property values and changing the use can lead to construction noise and disturbances for the neighbourhood. There is always the chance this rezoning won’t be approved, but details are needed before you make any decision.” “I understand that you may have concerns, however, I have never seen a rezoning have a negative impact on a neighbourhood. I would encourage you to continue with the viewing and consider making an offer.” “A change to the zoning means this older neighbourhood is undergoing a transition. This always results in property values increasing. Purchasing this property before values increase is a wise decision.”

©2019 Real Estate Council of Ontario

Lesson 3 | Page 10 of 25

A salesperson is showing a property to a buyer client and overhears the seller customer discussing with a neighbour the water problems they had this past summer during the drought. The water problems relate to both the water quality and adequate supply, and the seller indicates they did not disclose this to the listing brokerage. After leaving the property, the buyer’s salesperson informs the buyer about the discussion they overheard regarding the potential water problems with the property. This scenario is best described by which of the given general obligations being complied with by the buyer’s salesperson? There are four options. There is only one correct answer. 1 2 3 4

Obey instruction Act in person Maintain confidentiality Disclose information

©2019 Real Estate Council of Ontario

Lesson 3 | Page 11 of 25

Under the common law of agency, a brokerage and all employed salespersons owe general obligations to clients and customers. Identify the statements that are correct for the given scenarios. There are five options. There are multiple correct answers. 1 2 3 4 5

A salesperson researches recent sales to assist a seller in an appropriate listing price. The general obligation owed in this scenario is ‘exercise care and skill’. A buyer notices water stains on the foundation. The salesperson recommends a professional inspection as this could be a serious problem. The general obligation owed in this scenario is ‘exercise care and skill’. A salesperson overhears a seller misrepresenting the square footage of their home to a prospective buyer and corrects the information. The general obligation owed in this scenario is ‘ensure honesty’. A buyer attending an open house says their children could walk to school from here. The salesperson corrects the buyer’s statement as the school is closing. The general obligation owed in this scenario is ‘ensure honesty’. A seller, when listing her multi-million dollar mansion, requires the listing salesperson to be present for all showings. The general obligation owed in this scenario is ‘perform mandate’.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 12 of 25

Under the common law of agency, a brokerage and all employed salespersons owe general obligations to clients and customers. Identify the statements that are correct for the given scenarios. There are five options. There are multiple correct answers.

1 2 3 4 5

A salesperson advises all brokerages and salespersons that the seller requires them to leave a business card after showing the property. The general obligation owed in this scenario is ‘obey instructions’. A buyer indicates that they only want to view properties in a specific area. The salesperson reviews several listings and selects five to show to the buyer. The general obligation owed in this scenario is ‘act in person’. A salesperson places a “For Sale” sign on the property just listed for sale and includes the information on the brokerage’s web site. The general obligation owed in this scenario is ‘perform mandate’. A seller agrees that other brokerages can co-operate in the sale of their property. The salesperson promotes the listing to other salespersons. The general obligation owed in this scenario is ‘perform mandate’. A salesperson is not able to show properties to a buyer on Saturday, but another salesperson from the brokerage is available. The general obligation owed in this scenario is ‘act in person’.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 13 of 25

Fiduciary Obligations Owed to a Client An agency relationship is one based on trust and confidence and involves the legal or ethical responsibility requiring the agent to act in the principal’s best interests at all times. The obligations inherent in an agency relationship are known as fiduciary obligations and are owed only to a client. Fiduciary obligations are not owed to a customer. Under the common law of agency, a brokerage’s relationship with a client is thus considered fiduciary in nature. As a fiduciary, a brokerage and all salespersons must act at all times in the principal’s best interests. This means avoiding conflicts of interest, disclosing conflicts, not making secret profits, and not misusing confidential information. Although the basis of fiduciary obligations is part of agency law, the Code also provides for this. A salesperson must at all times work in a client’s best interests. The next few screens explain the fiduciary obligations in detail.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 14 of 25

Creating a Fiduciary Relationship As you have learned, an agency relationship—also known as a fiduciary relationship—is consensual in nature and is created when an agent accepts the authorities granted by a principal to act on the principal’s behalf in business transactions with a third party. In other words, an agency or fiduciary relationship is created by mutual consent and not necessarily from a contractual relationship. While the most common method of creating an agency relationship is by written agreement, it can also be established by words and actions. An agency/fiduciary relationship can be created when a salesperson receives confidential information from a seller or a buyer and, by their words or actions, leads the seller or buyer to believe that they will act in the seller’s or the buyer’s best interests.

©2019 Real Estate Council of Ontario

The relationship can also be created when the salesperson takes no action to correct the seller’s/buyer’s mistaken belief that their interests will be protected. Therefore, a fiduciary relationship can exist even when a brokerage has not entered into a written representation agreement with sellers or buyers. It can exist when the brokerage is acting gratuitously for their clients or is engaged in joint ventures with their clients. Although an agency/fiduciary relationship can be created by words or actions, the Code requires a verbal representation agreement with a seller or a buyer to be in writing as soon as possible, and must be before an offer is made. It must be signed on behalf of the brokerage and submitted to that seller or buyer for signature. Although common practice, the seller or buyer is not obligated to sign the document.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 15 of 25

Fiduciary Obligations Owed to a Client Case law has established that various elements must be present to create a fiduciary relationship. Fiduciary obligations are based on three fundamental premises: • Loyalty: Loyalty is focal to any fiduciary relationship and, in fact, encompasses all other obligations within its scope. At all times, the client’s best interests are serviced, and these interests will always take priority over personal and third-party interests. ©2019 Real Estate Council of Ontario

• Best interests: A brokerage must at all times act in the client’s best interests. A brokerage and salesperson must never permit their own interests, or those of a third party, to override this duty. The client’s informed consent must be obtained if such interests come into conflict, either directly or indirectly, with the client’s interests. • Trust and confidence: A client places trust and confidence in the brokerage and relies on the advice given. As such, a client becomes dependent on and vulnerable to the brokerage. The three elements of a fiduciary relationship flow to five fiduciary obligations. The next few screens explain each of the fiduciary obligations in detail.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 16 of 25

Specific Fiduciary Obligations The fiduciary obligations owed to a client will be the basis for how a salesperson interacts with seller and buyer clients. The following five sections contain information on different fiduciary obligations including an example of how each obligation would be complied with by a salesperson. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Maintain utmost loyalty

This obligation effectively encompasses all other fiduciary duties. The client’s interests take precedence over those of the brokerage, any salesperson, and that of any other party. Maintaining loyalty is best achieved by representing the interests of only one party to a transaction (single representation). Difficulties in maintaining loyalty arise when a brokerage attempts to act in the best interests for competing parties in a transaction in multiple representation, such as a seller and buyer or two competing buyers. A breach of any brokerage obligation owed to a client constitutes a breach of loyalty, as the brokerage is not acting in the client’s best interests. Seller Example: A seller and their salesperson are discussing two offers they have received. Both offers are from co-operating brokerages, but one offer is through a salesperson who is also a personal friend of the seller’s salesperson. Although the offer price is similar for both, the friend’s offer lacks some of the terms in the other offer, which are better for the seller. The salesperson fully details these

©2019 Real Estate Council of Ontario

disadvantages to the seller without regard for personal interests in advancing the friend’s offer. The seller agrees and accepts the other buyer’s offer.

Avoid conflicts of interest

Buyer Example: A salesperson is showing properties to a buyer and when viewing one of the listings, realizes the property would be ideal for their own purchase. The buyer is also very interested in the property and asks for the salesperson’s advice on placing an offer. The salesperson puts aside their own interests and successfully negotiates an offer on behalf of the buyer. Many forms of conflict of interest can arise, both within a brokerage and individually for a salesperson. A conflict of interest can involve: • A brokerage representing two clients at the same time in the same transaction (multiple representation) • A salesperson purchasing their client’s property • A client purchasing their salesperson’s property • A salesperson or brokerage being either directly or indirectly involved in the transaction (for example, the seller is a relative of the listing salesperson) • A brokerage having some other association that creates a potential or actual conflict of interest, such as a brokerage with a salesperson who is also an appraiser Seller Example: A seller has accepted an offer on their property, conditional upon the buyer obtaining financing. The listing brokerage also has an appraisal division and two of the salespersons are qualified to complete residential appraisals for lenders. One of these salespersons is asked to complete an appraisal for a buyer, but when discovered the request is for a listing within the salesperson’s brokerage, the appraisal request is denied. Buyer Example: A salesperson is approached by a buyer during an open house who indicates they are interested in purchasing the property and want to be represented by the salesperson. The salesperson explains that the brokerage represents the seller and describes the conflict of interest that inherently arises if

©2019 Real Estate Council of Ontario

Disclose conflicts

the brokerage were to also represent them. Based on this, the buyer chooses to receive customer services instead. The brokerage must disclose any personal or third-party interests that conflict (or may conflict) with the interests of the client. The client must have full knowledge of the exact nature and extent of the conflict if the brokerage is to avoid potential liability for breach of any fiduciary obligations. While common law does not mandate a disclosure be in writing, practical considerations would result in a signed document attesting to the client’s awareness of, and consent to, the specified conflict. Failure to openly disclose conflicts can give rise to liability for a brokerage and a salesperson. In addition to the practical considerations, a salesperson must comply with the requirements under REBBA relating to disclosures of an interest, either directly or indirectly, by a salesperson. These disclosure requirements apply to both clients and customers of a brokerage. You will learn more about obligations owed under REBBA later in this module. Seller Example: A salesperson wants to buy a property listed with their brokerage. When arranging for an appointment to view, they verbally disclose their status as a salesperson. When drafting their offer, they prepare a written disclosure containing specific information as required.

Do not make a secret profit

Buyer Example: A salesperson’s parents are interested in purchasing a condominium as they are downsizing from the large family home. The salesperson advises the listing brokerage of this relationship prior to showing the condominium and then provides a written disclosure to the seller prior to an offer. This obligation prohibits an agent from profiting unlawfully at the expense of the principal. This obligation can involve a brokerage and salesperson profiting from various activities. These activities can include: • Improper advice or breach of loyalty: Any profit from the principal’s trust and reliance on advice provided to further the personal interests to the

©2019 Real Estate Council of Ontario

detriment of the client is prohibited. This would include instances such as a salesperson advising a seller to accept an offer below market value because the property has been difficult to sell, and the listing is soon to expire. • Payment from another party: A brokerage may not accept remuneration from both parties to a transaction unless full disclosure is made to all parties. The amount being received must be disclosed and consent by the client to retain the payment is required. • Payment by third party: A brokerage may not receive a secret profit from someone who is providing services relating to the transaction. This would include a referral fee being paid by a property inspector, appraiser, or lender. Also included would be any third party who is providing services that are incidental to the transaction, such as a moving company, contractor, or stager. Any payment by a third party must be disclosed to the client. In addition to this fiduciary obligation, a salesperson also has disclosure requirements under REBBA relating to any direct or indirect financial benefit. You will learn more about obligations owed under REBBA later in this module. Seller Example: A listing salesperson, in addition to receiving a remuneration from the seller client, is offered an additional fee from the home staging company for referring the seller. The salesperson discloses this fee in writing to the seller who consents to the brokerage receiving and retaining the fee.

Do not misuse confidential information

Buyer Example: A salesperson representing a buyer will receive a remuneration from that client for locating and negotiating an accepted offer on a property. The property located for the buyer is being sold privately by a seller. The seller offers a bonus to the salesperson if the buyer purchases the property. The salesperson makes a full disclosure of the bonus to the buyer prior to submitting an offer. A brokerage and salesperson will acquire confidential information by the very nature of the client relationship. As this relationship is established based on trust and loyalty, any confidential information obtained must not be divulged or used to promote the interests of the brokerage or salesperson. Providing confidential

©2019 Real Estate Council of Ontario

information to another party to the transaction can have significant detrimental impact on the client. This requirement excludes any information about the client, the property, or the transaction that, by law, the brokerage is required to disclose. Suspicious transactions, money laundering, and terrorist financing involving a client (or customer) must be disclosed to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). Seller Example: A salesperson is working with a client to sell their house; the client is in a hurry due to a job change and very eager to sell. A buyer customer is looking at the seller’s property and is considering making an offer, but first wants to know why the seller is selling. The salesperson does not engage in any casual conversation regarding the property nor do they disclose their client’s personal information. Buyer Example: A buyer informs the salesperson in confidence they are willing to pay the full asking price of a property because they are quite anxious to purchase it. The buyer wants to submit an offer that is less than this amount but states if the seller makes a counter-offer at a higher price, they will accept the offer. The salesperson does not disclose this information, as this would impair the buyer’s negotiating position.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 17 of 25

Reggie, a potential buyer, walks into an open house conducted by the listing salesperson, Nia. Nia identifies herself as representing the sellers and asks Reggie if he is working with any salesperson. Reggie’s answer takes Nia by surprise, as he suddenly begins to share some personal financial details. Nia interrupts Reggie and explains he should not be sharing these details with her as she represents the seller, and any disclosures would only complicate the situation, as there are fiduciary obligations she must comply with. Reggie asks Nia to explain further. Which of the given explanations should Nia provide to Reggie when explaining fiduciary obligations? There are four options. There is only one correct answer.

1 2 3 4

“Brokerages must avoid any conflicts of interest whenever possible. For example, I could avoid a conflict of interest by not representing you as a client, if you decided to purchase this property.” “Brokerages must keep all information confidential. This particular obligation is owed whether you are a client or a customer.” “Brokerages must disclose any conflicts of interest. For example, if the seller was my mother, I would tell you this, but there would be no reason to put it in writing.“ “Brokerages must be loyal to their clients. So, for you to become my client, I need you to sign a representation agreement before we speak about any details.”

©2019 Real Estate Council of Ontario

Lesson 3 | Page 18 of 25

Fiduciary obligations are owed to all clients as the agency/fiduciary relationship is based on loyalty to the principal. Identify the correct statements regarding Fiduciary obligations. There are five options. There are multiple correct answers.

1

2

3

4

5

A salesperson advises a seller to accept an offer from another brokerage rather than their own offer, as the terms are better for the seller. The fiduciary obligation owed in this scenario is ‘maintain utmost loyalty’. A brokerage employs a salesperson who is also an appraiser. The salesperson completes an appraisal on a sale, where another brokerage represents the seller and buyer. The fiduciary obligation owed in this scenario is ‘avoid conflicts of interest’. A salesperson sees a new listing. It is perfect for both her and a buyer she has been working with; the salesperson shows the property to the buyer who purchases it. The fiduciary obligation owed in this scenario is ‘avoid conflicts of interest’. A buyer attending an open house states they want to place an offer after viewing the property; the listing salesperson and buyer agree to a customer relationship. The fiduciary obligation owed in this scenario is ‘maintain utmost loyalty’. A salesperson is representing their son and daughter-in-law in the purchase of their first home. A written document is provided to the seller, which identifies this relationship. The fiduciary obligation owed in this scenario is ‘disclose conflicts’.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 19 of 25

Fiduciary obligations are owed to all clients as the agency/fiduciary relationship is based on loyalty to the principal. Identify the correct statements regarding Fiduciary obligations. There are five options. There are multiple correct answers.

1 2 3

4

5

A salesperson is purchasing a property through a corporation in which they are a shareholder. The salesperson includes this as a written disclosure to the seller. The fiduciary obligation owed in this scenario is ‘disclose conflicts’. A salesperson receives a fee from a mortgage broker for referring a buyer client. This is disclosed to the buyer. The fiduciary obligation owed in this scenario is ‘do not make a secret profit’. A salesperson representing a buyer in the purchase discloses the brokerage will receive a remuneration from both the seller and the buyer. The fiduciary obligation owed in this scenario is ‘do not make a secret profit’. A seller counters a buyer’s offer at a higher price but tells the salesperson they would accept a lower price. This is not disclosed to the buyer. The fiduciary obligation owed in this scenario is ‘do not misuse confidential information’. A buyer is motivated to purchase a property due to its proximity to family. When presenting an offer, the buyer’s salesperson does not disclose this information. The fiduciary obligation owed in this scenario is ‘disclose conflicts’.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 20 of 25

Regulatory Obligations Owed to Clients and Customers A brokerage and salesperson must comply with regulatory obligations under REBBA in addition to the general and fiduciary obligations imposed under the common law of agency. As a salesperson, to fulfill your obligations, you will need a thorough understanding of how the regulatory obligations impact any activities. Under REBBA, obligations are owed to both a client and your customer, although, these obligations can differ substantially based on the relationship a brokerage has with a seller or a buyer. The given screens detail some of the regulatory obligations owed including how any responsibilities differ when representing a client or providing services to a customer.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 21 of 25

Specific Regulatory Obligations Owed to Clients and Customers In many ways, the requirements under REBBA mirror the requirements under the common law of agency. The following six sections contain information on the regulatory obligations owed to both a client and a customer under REBBA.

Account

Under REBBA, the brokerage has a regulatory responsibility to account for, safeguard, and keep proper records pertaining to money, documents, and property entrusted to that brokerage. As part of safeguarding a buyer’s deposit, a brokerage must place it in the brokerage’s real estate trust account. In addition, brokers and salespersons, must be insured under the RECO Insurance Program to maintain registration with RECO. This provides protection for a buyer’s deposit held in the brokerage’s real estate trust account. REBBA also requires a brokerage to maintain a written record of all monies received and held in trust for other persons in connection with the brokerage’s business and to every transaction relating to that money. Such transactions would include any disbursement of the funds and interest earned on the money. Specific information must be documented by the brokerage in accordance with the trust requirements of the specific trade. A brokerage could retain this information in what is often referred to as the real estate trust ledger. As a salesperson, understanding the brokerage’s requirements will ensure you do not place the brokerage in a position of non-compliance with REBBA. Example: A salesperson receives the deposit from a buyer relating to an accepted offer. The offer indicates the deposit is being held by the listing brokerage. ©2019 Real Estate Council of Ontario

The buyer’s salesperson ensures the deposit is immediately provided to the listing brokerage who will place the deposit into their real estate trust account within the specified regulatory time limit (no later than five business days from receipt). The listing brokerage completes the required documentation to show the deposit being placed into the account. When the transaction is completed, the brokerage will disburse the deposit from the statutory trust account according to the terms of the trust. At all times, the buyer’s deposit is safeguarded, as the brokerage has complied with the requirement to maintain insurance.

Establish remuneration provisions

REBBA identifies the allowable ways remuneration payable to a brokerage can be calculated. Remuneration can be established based on an agreed-upon amount (a flat fee) or a percentage of the sale price/rental price, or a combination of both. The percentage does not have to be fixed but may be expressed as a series of percentages that decrease at specified amounts as the sale or rental price increases. The percentage cannot increase as the sale or rental price increases. Remuneration also cannot be calculated based on the difference between the price the property was listed for sale or rent, and the actual sale or rental price. The given are also requirements under the Code relating to remuneration: • A salesperson must disclose in writing at the earliest practical opportunity any direct or indirect financial benefit that a salesperson or person related to the salesperson may receive from another person in connection with the trade in real estate. This obligation would require the salesperson to disclose any finder’s fee being paid to the salesperson, such as a fee paid by a lender who is providing financing for a buyer. • When a brokerage has entered into an agreement with a seller and buyer and then also enters into an agreement with another person in respect of

©2019 Real Estate Council of Ontario

the same trade, the brokerage must disclose the terms of each agreement in writing to each of the parties. REBBA further provides that no legal action can be taken to collect commission unless the person who brings such action is either registered or exempt from registration at the time of providing the services. Refer to the previous module Introducing the Real Estate and Business Broker’s Act (REBBA) for additional information regarding calculating remuneration. Example: The remuneration rate in the seller representation agreement was agreed upon as 4.5% on the first $250,000 of the selling price and 2.5% on the balance. Example: A brokerage has entered into a representation agreement that requires the seller to pay 5% of the sale price as remuneration to the brokerage. A buyer purchasing the property through the same brokerage has agreed to pay an additional $1,000 as remuneration. The disclosure for both remuneration being paid is disclosed in writing to the seller and buyer.

Do not induce, breach, or make certain promises

REBBA prohibits a brokerage or salesperson from inducing a party to cancel an agreement for the purpose of entering into another agreement. This would apply to any agreement relating to a trade, including a representation or customer service agreements, as well as an agreement of purchase and sale. Further, a brokerage or salesperson cannot make certain promises to a seller or buyer (for example, to resell the property if the buyer purchases it) unless the promise is put in writing, signed by the person making the promise, and delivered to the party to whom the promise is made. Example: A salesperson representing a buyer has successfully negotiated an agreement of purchase and sale. Several weeks after acceptance, a new listing is discovered by the buyer who contacts their salesperson with a request to

©2019 Real Estate Council of Ontario

terminate the accepted offer in order to purchase the new listing. The salesperson informs the buyer that such advice cannot be provided.

Deliver copies of agreements, offers, and statements

Example: A salesperson promises a buyer that they will guarantee the sale of the buyer’s current property in order for the buyer to purchase another property. The promise is a personal promise of the salesperson and does not oblige the brokerage. The salesperson provides a document identifying the details of the promise, signs the document, and provides this to the buyer prior to the buyer purchasing a new property. Various requirements under the Code apply to a brokerage and salesperson relating to any documents or deposits in connection with a trade in real estate. These include: • A copy of the agreement for the purpose of trading in real estate must be given to the client or customer immediately upon signing. This would include a representation or customer service agreement. Each party signing the agreement must receive a copy when the document has been signed. This requirement prohibits a salesperson returning the following day to provide a copy to a seller or buyer. • A signed copy of any written agreement relating to the conveyance of an interest in real estate is to be delivered to each of the parties at the earliest possible opportunity. This would include an agreement of purchase and sale. For example, this requirement allows a salesperson to provide each seller or each buyer a copy of an accepted offer on the day after the other party had accepted the offer, rather than providing a copy immediately. • Any deliverable within the agreement of purchase and sale, such as a deposit or documents pertaining to the transaction, must be delivered in accordance with the time and dates specified in the agreement. This would require a salesperson to provide a buyer’s deposit as identified within the agreement, as well as any notices, amendments, or other documents related to the trade. • When a seller has completed a written statement that is intended to provide information to buyers about the real property, the salesperson representing

©2019 Real Estate Council of Ontario

Document relationships and requirements for any agreement

the seller must advise any buyer that expresses an interest in the property that this document exists. The salesperson must also provide potential buyers with a copy of this document, if requested, unless the seller provides the salesperson with written instruction to the contrary. This can be complied with by indicating on a listing that the disclosure statement is available. When a salesperson is working with a buyer, this information would become known and the buyer’s salesperson could request a copy from the seller or listing brokerage. When documenting a relationship with a seller or buyer, there are several different compliance requirements under the Code for a brokerage and salesperson: • The requirements relating to the minimum content to be included in any written representation or customer service agreement include the start date and expiry date, remuneration obligations, a description of the services options available, and the services to be provided by the brokerage under the agreement. • The obligations relating to seller and buyer representation agreements or customer service agreements must be in writing, signed on behalf of the brokerage, and submitted to the respective seller or buyer for signature. This must be done prior to any offer being made. • Disclosure requirements relating to multiple representation extend past obtaining a representation agreement. At the point when a brokerage wants to represent more than one client in a transaction, additional disclosures are required including an explanation of how the services will differ as a result of multiple representation. The salesperson must obtain consent from the parties at this time. Whether working under multiple representation or not, additional requirements prior to entering into an agreement of purchase and sale include informing all sellers and buyers involved the nature of the brokerage’s relationship to each seller and buyer. • To assist in ensuring the brokerage and salesperson are providing the services agreed to in a representation agreement, all significant steps taken

©2019 Real Estate Council of Ontario

on behalf of the client shall be communicated to the client throughout the course of the relationship.

Provide disclosure of service options before an agreement

You will learn more about representation and customer service agreements later. The Code requires that a brokerage discloses the brokerage’s role and the service options available as early as is practically possible and before entering into a representation or customer service agreement. This disclosure requirement also addresses the possibility of multiple representation and the consequent implications for seller and/or buyer clients. The brokerage and salesperson must use their best efforts to obtain a written acknowledgment from the consumer that such information has been received and understood. Example: A brokerage has prepared an information sheet, which explains the types of service alternatives available and other information a seller or buyer is required to receive prior to entering into a representation or customer service agreement. The salesperson explains this information, confirms the buyer understands it, and then obtains a signature from the buyer. The salesperson and buyer then determine the type of relationship the brokerage and buyer will establish.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 22 of 25

Henry has contacted Monique, a salesperson with ABC Real Estate Ltd. Monique will be meeting with Henry to discuss listing his property for sale. Which of the given explanations comply with Monique’s requirements under REBBA related to listing Henry’s property for sale or obtaining an offer? There are five options. There are multiple correct answers.

1 2 3 4 5

“We will discuss providing a written disclosure about the property. I can let other salespersons and potential buyers know about this so a buyer can receive a copy. Do you feel comfortable making those disclosures available?” “We will discuss the remuneration that will be paid to my brokerage. It can be calculated in a few different ways, so let’s look at the options.” “We will discuss situations where my brokerage could be representing more than one client when an offer is received on your property. As this is important to understand, we will discuss this now as well as before an offer is presented to you.” “There is always a lot of paperwork with a real estate transaction. I am obligated to leave this representation agreement with you once you have signed it.” “A buyer’s deposit will likely be placed in our brokerage’s general bank account for safe keeping. Our brokerage has insurance to protect the buyer’s deposit, but not all brokerages do.”

©2019 Real Estate Council of Ontario

Lesson 3 | Page 23 of 25

A salesperson is representing a seller and is holding an open house. A prospective buyer visits the property and approaches the salesperson as they are very interested in placing an offer on the property. The buyer asks for advice as they purchased a property one month ago but would like to terminate that agreement to purchase this property instead. The buyer asks if this is possible because the transaction is not scheduled to close for another two months. What should the salesperson do? There are four options. There are multiple correct answers.

1 2 3 4

The salesperson should review the buyer’s agreement of purchase and sale to see if there is any potential to terminate the agreement. The salesperson should advise the buyer that they cannot provide advice to the buyer on how to terminate the contract. The salesperson should refer the buyer to obtain independent legal advice on the matter. The salesperson should advise the buyer to speak with their own salesperson to terminate the contract and then contact them to purchase this property.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 24 of 25

Identify which of the given scenarios are in compliance with REBBA. There are three options. There are multiple correct answers.

1

2

3

A brokerage has promised a buyer that they will guarantee the sale of their current property if they purchase a specific property listed by their brokerage. The brokerage provides a written contract detailing this promise. A brokerage is involved in a transaction in which the buyer has agreed to pay remuneration. The salesperson locates a property being sold privately by the seller who has also agreed to pay a remuneration to the brokerage. The salesperson discloses the remuneration arrangements to the buyer, but not the seller as the seller is not a client. A buyer views a property during an open house and expresses an interest in the property. Prior to any specific details about a possible purchase, the salesperson discusses the service options and they agree that the brokerage will provide customer service to the buyer. The salesperson and buyer formalize the relationship by signing a customer service agreement prior to discussing any specifics about purchasing the property.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 25 of 25

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were discussed in this lesson.

Duty of care

The phrase duty of care refers to the standard of care and skill provided by a salesperson to a client or a customer. A salesperson, whether new to the profession or not, must act within a standard expected of a knowledgeable, competent salesperson. Duty of care owed to a client involves everything done for that client. Duty of care owed to a customer involves ensuring that honesty, fairness, and integrity are exercised throughout the relationship.

General obligations

Information provided and services performed by a salesperson must be carried out in a conscientious and competent manner. Under agency law, the given are two general obligations owed to both a client and a customer: • Exercise care and skill: A salesperson must exercise care by being conscientious in answering questions and exercise skill by performing all obligations competently. • Ensure honesty: A salesperson must ensure honesty by providing accurate information. The given are six additional general obligations owed to clients:

©2019 Real Estate Council of Ontario

Fiduciary obligations

• Negotiate favourable terms: A brokerage must diligently advance the client’s interests by assisting in negotiations, discussing their options, and drafting favourable terms and conditions in agreements arising from these negotiations. • Maintain confidentiality: A brokerage and salesperson must maintain confidentiality regarding all matters that could adversely impact or undermine the client’s position during negotiations. • Disclose information: A brokerage and salesperson have a duty to fully disclose any information that is relevant to the relationship as principal and agent, or matters relating to the transaction which could impact the decisions being made. • Act in person: A brokerage, as an agent, must perform duties personally unless instructed otherwise. • Obey instructions: A brokerage is obligated to obey all lawful instructions of the client; however, this obligation only extends to lawful instructions. • Perform mandate: A brokerage must perform the mandate as set out in the representation agreement between the parties and act within specific authorities granted. The obligations inherent in an agency relationship are known as fiduciary obligations and are owed only to a client. Fiduciary obligations are not owed to a customer. The given are five fiduciary obligations owed to clients: • Maintain utmost loyalty: The client’s interests take precedence over those of the brokerage, any salesperson, and that of any other party. • Avoid conflicts of interest: The salesperson must avoid the many forms of conflict that can arise both within a brokerage and individually for a salesperson. • Disclose conflicts: The brokerage must disclose any personal or third-party interests which conflict (or may conflict) with the interests of the client. • Do not make a secret profit: This obligation prohibits a brokerage or salesperson from profiting unlawfully at the expense of the client.

©2019 Real Estate Council of Ontario

Regulatory obligations

• Do not misuse confidential information: Any confidential information obtained must not be divulged or used to promote the interests of the brokerage or salesperson. Under REBBA, the given are six regulatory obligations owed to both a client and a customer: • Account – OTH Sections 11 and 12 of O. Reg. 579/05 • Establish remuneration provisions – Sections 9 and 36(1) of the Act; Sections 18(4) and 18(5) of the Code • Do not induce, breach, or make certain promises – Section 33(1) of the Act; GEN Sections 25(2) 25(5) of O. Reg. 567/05 • Deliver agreements, offers, and statements – Sections 12, 20, 28, and 29 of the Code • Establish brokerage relationships and agreements – Sections 11 to 16 and 23 of the Code • Provide disclosure of service options before an agreement – Section 10 of the Code

©2019 Real Estate Council of Ontario

Lesson 4 | Page 1 of 17

Lesson 4: Representation

This lesson explains representation and details the obligations owed to a seller or buyer when representing one and when representing more than one party to the trade.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 2 of 17

Under REBBA, an agency relationship is described as representation. Single representation is equivalent to single agency and multiple representation is equivalent to dual agency. It is essential to understand that when a representation is established, parties involved in that relationship have committed to certain obligations, and as a salesperson, it will be your responsibility to communicate what these are to clients. This lesson details the obligations of a brokerage and a salesperson to a client and explains the limitations to those obligations when a brokerage is representing more than one party for the same trade (multiple representation). Upon completion of this lesson, you will be able to: • Describe the obligations owed to a seller or a buyer under single representation. • Describe how multiple representation alters the obligations owed by a brokerage to a seller or a buyer. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 3 of 17

Two Categories of Representation As you have learned, the agency relationship between principal and agent within a real estate context are known as representation. Representation can be grouped in two categories: • Single representation: In real estate, single agency is referred to as single representation. Single agency occurs when there is one agent (brokerage) representing one principal (seller or buyer) within a transaction with a third party. • Multiple representation: In real estate, dual agency is referred to as multiple representation. Dual agency occurs when there is one agent (brokerage) representing two or more principals (seller/buyer) within the same transaction. As the agency relationship is established between the principal and the agent, the relationship established applies to all salespersons employed by the brokerage. For example, when a brokerage lists a seller’s property for sale, the salesperson who is working directly with the seller is known as the listing salesperson. However, all obligations owed to the seller by this salesperson are also owed by all other salespersons employed by the brokerage. This is known as single representation. When a brokerage represents both the seller and the buyer, or two competing buyers offering on the same property, this is known as multiple representation, even if different salespersons within the brokerage are representing the seller and the buyer. ©2019 Real Estate Council of Ontario

Lesson 4 | Page 4 of 17

Seller Single Representation Under seller single representation, the brokerage represents the seller as a client. The listing brokerage promotes the listed property, seeks out qualified buyers, and uses their professional negotiation skills to advance the seller’s interests. General, fiduciary, and regulatory obligations are owed to the seller. In single representation involving the seller, the buyer is often represented by another brokerage (the co-operating brokerage). In other instances, the buyer could be a customer of the seller’s brokerage, which also results in single representation. The given table outlines the basic obligations under a seller single representation: Obligation

Description

Market the Property and Promote the Seller’s Best Interests Advise the Buyer that the Brokerage is the Representative of the Seller Act as the Seller’s Representative

Obey Lawful Instructions Fulfill Fiduciary Obligations

Exercise Reasonable Care and Skill

Use the best efforts to market the property and to promote the interests of the seller. At the earliest reasonable opportunity, advise any buyer interested in the property that the brokerage is the seller’s representative. Subject to the provisions of the agreement related to a change in representative capacity, act as only the seller’s representative. Obey all lawful instructions of the seller. Fulfill fiduciary obligations of loyalty, confidentiality, and full disclosure of all conflicts of interest that may arise between the seller’s interests and those of the brokerage, salesperson, or buyers. Exercise reasonable care and skill in the performance of any services provided under the agreement.

©2019 Real Estate Council of Ontario

Negotiate Favourable Terms

Disclose Material Facts to Buyers Timely Present Offers and Counter Offers Discover and Disclose all Relevant and Material Facts to Seller

Keep Seller Fully Informed Obtain Expert Advice Comply with Regulatory Requirements

Assist the seller in negotiating favourable terms and conditions with a buyer and in preparing and complying with a legally binding agreement of purchase and sale for the property. Disclose to buyers all material facts affecting the property known to the brokerage. Present, in a timely manner, all offers and counter offers to and from the seller. Discover and disclose all relevant and material facts affecting the transaction—that are known, or ought to be known, to the brokerage or salesperson—to the seller in a timely manner. Keep the seller fully informed regarding the progress of the transaction. Advise the seller to obtain expert advice on matters of importance to the seller. Comply with all provisions of REBBA including its regulations, any federal and provincial laws, and the rules and bylaws of the applicable municipality.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 5 of 17

Buyer Single Representation Under buyer single representation, the brokerage represents the buyer as a client. The buyer’s brokerage (often referred to as the co-operating brokerage when the seller is also represented by a brokerage) must promote the buyer’s best interests, locate suitable properties for the buyer to view, and use their professional negotiation skills to advance the buyer’s interests. General, fiduciary, and regulatory obligations are owed to the buyer client. The given table outlines the basic obligations under a buyer single representation: Obligation

Description

Locate Property and Promote the Buyer’s Best Interests

Advise Seller that the Brokerage is the Representative of the Buyer Act as the Buyer’s Representative

Obey Lawful Instructions Fulfill Fiduciary Obligations

Exercise Reasonable Care and Skill Seek Out Available Properties

Use the best efforts in locating a property in the specified market area(s) that meets the material requirements identified by the buyer and to promote the interests of the buyer. At the earliest reasonable opportunity, advise any seller in whose property the buyer is interested that the brokerage is the representative of the buyer. Subject to the provisions of the agreement related to a change in representative capacity, act as only the buyer’s representative. Obey all lawful instructions of the buyer. Fulfill fiduciary obligations of loyalty, confidentiality, and full disclosure of all conflicts of interest that may arise between the buyer’s interests and those of the brokerage, salespersons, sellers, or competing buyers. Exercise reasonable care and skill in the performance of any services provided under the agreement. Seek out and advise the buyer in a timely manner of all available properties in the market area that may meet the buyer’s requirements. This includes those listed

©2019 Real Estate Council of Ontario

Discover Relevant and Material Facts

Disclose Relevant and Material Facts

Obtain Expert Advice Timely Presentation of Offers and Counter Offers

Keep Buyer Informed Disclose Competing Offers

with other brokerages, those that are for sale by the owner (FSBO), and other available properties known to the brokerage—without regard to the amount of remuneration being offered. Use the best efforts to discover any relevant or material facts pertaining to any property for which the buyer is considering making an offer. Disclose in a timely manner to the buyer all relevant or material facts known to the brokerage or salesperson affecting a property or transaction. Any change to the information on properties of interest, such as a reduction in the listing price, should be disclosed to the buyer as this could impact any decisions made. This requirement also includes disclosing the existence of any written statement made by the seller of a property intended to provide information about the property to prospective buyers. Advise the buyer to obtain expert advice on matters of importance to the buyer. Present all offers and counter offers to and from the buyer in a timely manner. This is required no matter the contents of the offer. This includes presenting an offer where a seller has already accepted an offer that is conditional because the buyer’s offer could contain terms which would place it in a position of being accepted conditional on the previous offer becoming null and void. Keep the buyer fully informed regarding the progress of the transaction. Disclose to the buyer the existence of any competing offers known to the brokerage or salesperson for a property in which the buyer has signed an offer.

©2019 Real Estate Council of Ontario

Negotiate Favourable Terms

Comply with Regulatory Requirements

Assist the buyer in negotiating favourable terms and conditions, and in preparing a legally binding agreement of purchase and sale. Comply with all provisions of REBBA, including its Regulations, and all other federal and provincial laws.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 6 of 17

Jason has listed Marta’s home for sale for $399,500. At the time, Jason stated the property should sell for about $390,000. Jason has now received an offer from a buyer who is represented by another brokerage for $389,000. Prior to meeting with Marta to review the offer, Jason notes two new listings and one sale which occurred yesterday. The information on these properties indicates property values are starting to increase and Marta’s property should sell for closer to the listing price. What actions should Jason take to fulfill his obligations owed to Marta under single representation regarding the offer received? There are four options. There are multiple correct answers.

1 2 3 4

Provide Marta the new information on the listings and sale and discuss how market conditions may indicate a higher price for her property than the offer received. Explain to Marta she does not have to accept the offer and they can consider other options such as countering the offer at a higher price or rejecting the offer. Present the offer to Marta as soon as possible but also contact other salespersons who have expressed an interest in showing the property to see if any other offers can be obtained for Marta to review at the same time as this offer. Encourage Marta to accept the offer without reviewing any new information because it is close to his original estimate of value and it would mean her property is sold.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 7 of 17

Marlon and Jean have called Juan from XYZ Realty Ltd., as they have decided to begin looking for their first home. They have been renting an apartment for years and have saved enough for a down payment. Jean found a property on the internet, and it appears to meet their criteria, but they are unsure of the neighbourhood. Before booking an appointment to show them through this or any other property, Juan wants to discuss how he can help them in their search for a property. They indicate a school district is very important and that although they are not in a hurry to buy, they would not want to miss out on the perfect property. What should Juan say to Marlon and Jean to demonstrate the benefits of representing them in their purchase? There are two options. There is only one correct answer.

1 2

As your salesperson, I am committed to asking the sellers for more information about the property, its surroundings, or any other information that matters to you. As your salesperson, I am committed to discovering material facts about the property, its surroundings, or any other information that matters to you.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 8 of 17

Marlon and Jean have called Juan from XYZ Realty Ltd., as they have decided to begin looking for their first home. They have been renting an apartment for years and have saved enough for a down payment. Jean found a property on the internet, and it appears to meet their criteria, but they are unsure of the neighbourhood. Before booking an appointment to show them through this or any other property, Juan wants to discuss how he can help them in their search for a property. They indicate a school district is very important and that although they are not in a hurry to buy, they would not want to miss out on the perfect property. What should Juan say to Marlon and Jean to demonstrate the benefits of representing them in their purchase? There are two options. There is only one correct answer.

1 2

It’s also good that you have identified a property that you like; with this information I can negotiate a good price to show you so that you can make an informed decision It’s also good that you have identified a property that you like; with this information I can seek similar available properties to show you so that you can make an informed decision

©2019 Real Estate Council of Ontario

Lesson 4 | Page 9 of 17

Marlon and Jean have called Juan from XYZ Realty Ltd., as they have decided to begin looking for their first home. They have been renting an apartment for years and have saved enough for a down payment. Jean found a property on the internet, and it appears to meet their criteria, but they are unsure of the neighbourhood. Before booking an appointment to show them through this or any other property, Juan wants to discuss how he can help them in their search for a property. They indicate a school district is very important and that although they are not in a hurry to buy, they would not want to miss out on the perfect property. What should Juan say to Marlon and Jean to demonstrate the benefits of representing them in their purchase? There are two options. There is only one correct answer.

1 2

Right now, the market is very active, so if you find a property that you like, before we prepare an offer, I’ll contact the listing salesperson to see if there are any competing offers already received. Right now, the market is very active, so if you find a property that you like, before we prepare an offer, I’ll contact the listing salesperson to see if there are any surveys available.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 10 of 17

Marlon and Jean have called Juan from XYZ Realty Ltd., as they have decided to begin looking for their first home. They have been renting an apartment for years and have saved enough for a down payment. Jean found a property on the internet, and it appears to meet their criteria, but they are unsure of the neighbourhood. Before booking an appointment to show them through this or any other property, Juan wants to discuss how he can help them in their search for a property. They indicate a school district is very important and that although they are not in a hurry to buy, they would not want to miss out on the perfect property. What should Juan say to Marlon and Jean to demonstrate the benefits of representing them in their purchase? There are two options. There is only one correct answer.

1 2

Things can happen quickly, and there will be times when we are very busy, but I’m obligated to present any offer in a timely fashion, so I will be in touch quite often with the other salesperson. Things can happen quickly, and there will be times when we are very busy, but I’m obligated to tell the listing salesperson your offer price, so I will be in touch quite often with the other salesperson.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 11 of 17

Multiple Representation Multiple representation is when there is one brokerage representing more than one client (seller or buyer). Most commonly, multiple representation arises when two different salespersons within a brokerage represent the seller and buyer respectively in the same transaction or when the same salesperson represents both seller and buyer in the transaction. A brokerage may operate from more than one location, so different salespersons working at different locations for the brokerage would still constitute multiple representation. Additionally, multiple representation occurs when the same brokerage represents two or more buyers who are making an offer to purchase the same property at the same time. In the case of multiple buyers, it may not be clear that a single brokerage is representing multiple buyers until multiple buyers have expressed interest in the same property. In

©2019 Real Estate Council of Ontario

such situations, consent to the multiple representation would be required when the brokerage becomes aware that it is operating in a multiple representation situation. Given that an inherent conflict of interest exists between the interests of the seller and the buyer, or competing buyers, multiple representation presents many challenges for a brokerage and salesperson. REBBA has specific requirements for a brokerage when representing more than one client in a transaction. In a multiple representation situation, all parties must be fully informed and provide written consent for the transaction to proceed. If consent is not granted, the brokerage is required to release one of the clients from their agreement so they can seek representation elsewhere. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 12 of 17

Limitations to Obligations Owed Under Multiple Representation Multiple representation limits the obligations you, as a salesperson, will owe to your clients. Under single representation, full disclosure exists because salespersons have one priority: the best interests of their client. Under multiple representation, a salesperson cannot look after the best interests of two clients. The disclosure becomes modified; the salesperson may not reveal all of the information known about one client to the other client, nor inform them of everything they might have in a single representation situation because their obligations are to multiple parties with competing interests. A brokerage must ensure that all parties are treated equally, and neither should feel disadvantaged. When working under multiple representation, the obligations owed are limited to retaining confidential information and not providing advice on the price of the property. For clarity, a brokerage and salesperson may not advise a ©2019 Real Estate Council of Ontario

seller on the price they should accept, nor advise a buyer on the price they should offer. A salesperson can, however, provide information on comparable properties so the seller or the buyer can make their own informed decisions in this regard. The given information may not be disclosed, unless instructed in writing by the client to do so, or unless the nondisclosure would result in unethical, illegal, or fraudulent activity: The amount the seller might accept, for example, an amount other than the price the property is listed at The amount the buyer might pay, for example, an amount other than the price being offered for the property The motivation behind the seller’s listing of the property or the buyer’s purchase of the property The personal information of the seller or the buyer, for example, the individual names of all shareholders when a property is being bought or sold by a corporation • Any information related to previous negotiations of the property, for example, the terms of an offer received by the seller may not be disclosed to the buyer

• • • •

©2019 Real Estate Council of Ontario

Lesson 4 | Page 13 of 17

Disclosure Requirements Due to the limitations to the services a brokerage and salesperson may provide to a client under multiple representation, REBBA requires specific disclosures to be made to a client or potential client. Disclosure for multiple representation is best undertaken in two chronological steps: 1. Disclosure before a representation agreement 2. Disclosure before an offer The following two sections contain information about the benefits of working with a real estate professional.

©2019 Real Estate Council of Ontario

Disclosure before a representation agreement

Before asking a seller or a buyer to sign a representation agreement, a salesperson is required to discuss various aspects of multiple representation including how this could occur and how the services provided would change. Ideally, this discussion should happen at the first available opportunity when meeting with a seller or a buyer to ensure the limitations are understood before entering into a representation agreement. It is important to remember that representation can be created by the words and actions of a salesperson. Documenting the relationship does not establish the relationship, it merely confirms what the parties have agreed to. Requirements under the Code relating to multiple representation for a salesperson to discuss with a potential client include:

Disclosure before an offer

• The fact that circumstances could arise in which the brokerage could represent more than one client in respect of the same trade in real estate but that the brokerage could not do this unless all the clients represented by the brokerage in respect of that trade consented in writing • The nature of the services that the brokerage would provide to each client if the brokerage represents more than one client in respect of the same trade in real estate REBBA states a brokerage cannot represent more than one party to a trade without the written consent of all parties being represented. Therefore, at the point where a brokerage wants to represent more than one client in a trade, the Code requires disclosure of the given matters at the earliest practicable opportunity: • The fact that the brokerage proposes to represent more than one client in respect of the same trade • The differences between the obligations the brokerage would have if it represented only one client in respect of the trade and the obligations the brokerage would have if it represented more than one client in respect of the trade, including any differences

©2019 Real Estate Council of Ontario

relating to the disclosure of information or the services that the brokerage would provide Only once all parties have provided written consent can a brokerage represent more than one client in the transaction. In situations where a client or clients refuse to consent to operating under multiple representation, the brokerage must release one or more of its clients to seek alternate representation with respect to the transaction.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 14 of 17

If a brokerage represents both the seller and the buyer in respect of the same trade, the salesperson must have a detailed understanding of the limitations that arise to ensure compliance while still providing competent services. Which descriptions show how multiple representation alters the obligations owed by a brokerage to a seller? There are three options. There are multiple correct answers.

1 2 3

A salesperson’s obligation for full disclosure is limited, such as not sharing the motivation of one party with the other party, even when this is known. A listing brokerage operating under multiple representation with a seller and a buyer owes its ultimate allegiance and loyalty to the seller, as the seller is typically paying the remuneration. At all times, the salesperson must refrain from providing advice to the buyer on the price to offer or to the seller on the price to accept.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 15 of 17

Which descriptions show how multiple representation alters the obligations owed by a brokerage to a buyer? There are three options. There are multiple correct answers.

1 2 3

Under multiple representation with a seller and a buyer, the buyer’s salesperson may not indicate that the buyer will pay more than the offered price, unless instructed otherwise by the buyer. Under multiple representation where both buyers are being represented by a brokerage and the seller is represented by another brokerage, the brokerage is permitted to disclose the motivations, if known, of the competing buyer. Under multiple representation with both the seller and the buyer, the salesperson cannot disclose the amount of any offer previously received by the seller.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 16 of 17

Multiple representation is a difficult situation to navigate. Understanding when a relationship is single representation and when it is multiple representation is important as a salesperson must understand when any limitations to their obligations are required. Identify which of the given statements constitute multiple representation. There are four options. There are multiple correct answers.

1 2 3 4

A buyer is represented by ABC Real Estate Ltd. and is placing an offer on a property through one salesperson. Another buyer who is represented by a different salesperson in ABC Real Estate’s branch office places an offer to purchase the same property. A salesperson from ABC Real Estate Inc. represents two buyers at the same time, in separate transactions involving two different condominium units located in the same building. A seller is represented by one salesperson with XYZ Realty Ltd., and the buyer who wishes to purchase the property is also represented by the same salesperson with XYZ Realty Ltd. A salesperson with ABC Real Estate Inc. is representing a seller in the listing of their property. A buyer is interested in purchasing the property and places an offer through another salesperson at ABC Real Estate Inc. as a customer.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 17 of 17

Congratulations, you have completed the lesson! There are five sections on this page with a summary of the key topics that were discussed in this lesson.

Single representation Obligations under seller single representation

Obligations under buyer single representation

Single representation occurs when there is one brokerage representing one client (seller or buyer) within a transaction. Under agency law, this is called single agency. Basic obligations under seller single representation include: • Marketing the property and promoting the seller’s best interests • Advising the buyer that the brokerage is representing the seller • Acting as the seller’s representative • Obeying lawful instructions • Fulfilling fiduciary obligations • Exercising reasonable care and skill • Negotiating favourable terms • Disclosing latent defects to buyers • Providing timely presentation of offers and counter offers • Discovering and disclosing relevant and material facts • Keeping the seller fully informed • Obtaining expert advice • Complying with regulatory requirements Basic obligations under buyer single representation include: • Locating property and promoting the buyer’s best interests • Advising a seller that the brokerage is representing the buyer • Acting as the buyer’s representative • Obeying lawful instructions • Fulfilling fiduciary obligations • Exercising reasonable care and skill • Seeking out available properties

©2019 Real Estate Council of Ontario

Multiple representation

• Negotiating favourable terms • Disclosing competing offers • Providing timely presentation of offers and counter offers • Discovering and disclosing relevant and material facts • Keeping a buyer fully informed • Obtaining expert advice • Complying with regulatory requirements Multiple representation occurs when there is one brokerage representing two or more clients (seller and/or buyer(s)) within a transaction. For a brokerage to operate under multiple representation, the given disclosures are required: 1) Disclosure before a representation agreement (per CODE, Sec. 10) 2) Disclosure before an offer (per CODE, Sec. 16 and O. Reg. 567/05, Sec. 22) If either client does not consent to multiple representation, a brokerage must release one or more of the clients so that they can seek alternate representation.

Limitations under multiple representation

In situations where a brokerage is representing two or more buyers at the same time for the same property, it may not be evident prior to an offer that the brokerage is operating under multiple representation. A brokerage should obtain written consent from each buyer as soon as the brokerage becomes aware that it is operating in a multiple representation situation. Multiple representation limits the obligations a salesperson will owe to all clients. Under multiple representation, a salesperson may not reveal all of the information known about one client to their other client, nor inform them of everything they might have done in a single representation situation, because their obligations are to multiple parties with competing interests. A brokerage must ensure that all parties are treated equally, and neither party should feel disadvantaged. When working under multiple representation, the limitations related to discussing certain topics centre around retaining confidential information, such as the motivation of either party and providing advice on the price of the property. ©2019 Real Estate Council of Ontario

Lesson 5 | Page 1 of 15

Lesson 5: Service Options Available to Sellers and Buyers

This lesson introduces the types of agreements used to document a brokerage’s relationship with a seller, buyer, landlord, or tenant. It details the obligations of a salesperson to provide information to a seller or buyer before entering into an agreement with the brokerage, and the importance of defining and documenting services as soon as possible in the relationship.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 2 of 15

In this lesson, you will be introduced to the types of agreements used to document a brokerage’s relationship with a seller and a buyer. The lesson also details the information a brokerage must provide to a client or customer before entering an agreement and the importance of defining and documenting the services being provided under an agreement as soon as possible when establishing a relationship with a seller or a buyer. Upon completion of this lesson, you will be able to: • Identify the benefits of working with a salesperson registered with RECO. • Identify the types of agreements used to document a brokerage’s relationship with a seller and a buyer. • Identify the obligations to provide information before an agreement. • Identify the importance of defining and documenting services as soon as possible in the relationship. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 3 of 15

Benefits of Working with a Registered Salesperson All brokers and salespersons in Ontario are regulated under REBBA, and registered with RECO. As such, working with a registered real estate professional provides sellers and buyers with knowledge, professional standards, and insurance. A real estate transaction is complex, so knowledge about the profession and the regulations impacting the activities of a salesperson results in better services being provided on behalf of a brokerage.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 4 of 15

Advantages of Working with a Brokerage There are three inherent advantages for a seller or a buyer when working with a brokerage. The following three sections contain information about the benefits of working with a real estate professional.

Knowledge Since all brokers and salespersons registered with RECO complete extensive education requirements prior to entering the profession, they will have the knowledge to provide the services and guidance that a seller and a buyer need throughout a real estate transaction. In addition, by completing RECO’s Mandatory Continuing Education course every two years, brokers and salespersons ensure they have current knowledge and remain up-to-date with changes to legislation. A salesperson should also remain up-to-date on current trends and the impact of various factors on the housing market. A change in interest rates, or changes in qualifying for a mortgage can impact a buyer’s ability to purchase a property. A salesperson can also provide information not readily available to sellers and buyers such as the number of days on market a property is listed before it is sold and the average selling price of properties in the area. ©2019 Real Estate Council of Ontario

Professional standards All registrants must follow the rules and regulations that are in place to protect consumers. The Code governs the actions of all registrants. Brokers and salespersons are required to uphold these obligations and professional standards that emphasize treating everyone involved in a transaction with fairness, honesty, and integrity. If a consumer wishes to file a complaint, RECO will investigate the complaint and if warranted, take steps to hold the brokerage, broker, and/or salesperson accountable for their actions.

Insurance Deposit insurance provides a buyer with peace of mind, knowing that their deposit will be held in trust and insured against loss, insolvency, or misappropriation by a brokerage. Errors and Omissions insurance, depending on the circumstances of a situation, may provide coverage for a salesperson in the event that they are negligent in performing their duties.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 5 of 15

Chris is considering selling his house and has an appointment with Marcel at XYZ Realty Ltd. to discuss the details of listing his property for sale. Chris’s neighbour asks him what services the brokerage will provide that Chris could not or would not do himself. Identify which of the given activities should be performed by Marcel. There are four options. There are multiple correct answers. 1 2 3 4

An analysis of the current market to help ensure the property is listed and sold at the appropriate price. Preparation of the home for buyers to view by decluttering, organizing, and ensuring valuables are safeguarded. Not interacting with other professionals during the course of a trade, such as the buyer’s salesperson or a third-party professional retained by the buyer. Obtaining the buyer’s deposit on an offer to be held pending completion of the transaction.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 6 of 15

Representation and Customer Service Agreements The relationship between a brokerage and a seller or a buyer should be documented to ensure the parties understand their obligations. A written agreement allows for clarity in terms of the expectations of a salesperson and brokerage. Depending on the type of relationship established, a salesperson will use a document that is specific to that relationship. REBBA requires a salesperson to explain to a seller or a buyer, the service options available. At the earliest opportunity, a salesperson is to outline the relationship in a written document, sign it on behalf of the brokerage, and submit it to the seller or the buyer for signing. All agreements that document a brokerage relationship must comply with the Code, which specifies the minimum required content of any written agreement.

©2019 Real Estate Council of Ontario

This section of the lesson introduces the types of agreements used to document distinct types of brokerage relationships including: • Representation agreement with a seller • Customer service agreement with a seller • Representation agreement with a buyer • Customer service agreement with a buyer • Representation agreement with a landlord or a tenant This lesson also touches on customer service agreements with landlords and tenants.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 7 of 15

Types of Agreement Documents Various agreements can be used when working with a seller or a buyer. You will learn more about the agreement in a later module. The following five sections contain information about the types of agreements used to document a brokerage’s relationship with a seller, a buyer, a landlord, or a tenant.

Representation agreement with a seller

This is an agreement that sets out the relationship between a brokerage and a seller in which the brokerage represents the seller, who is the client. It is commonly referred to as a “listing agreement”. The salesperson representing the brokerage is known as the listing salesperson. The listing agreement is used to identify key terms such as the duration of the agreement and remuneration payable. There are further terms, such as permission to place a “For Sale” sign on the property and to specify whether the listing is exclusive to the brokerage or will appear on a local listing service, which allows other brokerages to co-operate in the sale of the property. As you learned earlier in this module, a representation agreement will define the authority granted to a brokerage, as well as any limits on the brokerage’s authority. Prior to any offer, a brokerage would ensure a seller representation agreement is signed, presented to the seller for signature, and once signed by the seller, ensure the seller receives a copy immediately.

©2019 Real Estate Council of Ontario

Customer service agreement with a seller

In situations where the seller is not being represented by a brokerage, a non-exclusive agreement that establishes a contract between a brokerage and a seller for customer service only can be used. This agreement is used when a seller is selling their property privately and the brokerage is enquiring about the property to show it to a buyer. These sellers are referred to as for sale by owner (FSBO). The agreement is used to: • Confirm the brokerage is not the representative of the seller. • Provide the brokerage with the authority to obtain additional information about the property. • Detail the remuneration to be paid by the seller. • Obtain authorization to apply the deposit to reduce the remuneration payable.

Representation agreement with a buyer

Prior to any offer, a brokerage would ensure a seller customer agreement is signed, presented to the seller for signature, and once signed by the seller, ensure the seller receives a copy immediately. In instances where the seller is privately offering their property for sale, this agreement is typically negotiated with the seller prior to showing the property to a buyer. An agreement is used to set out the terms of the relationship when a brokerage is representing a buyer seeking to purchase a property. A buyer representation agreement is an authority granted by a buyer to a brokerage to act on their behalf in locating a suitable property for that buyer on terms and conditions set forth in the representation agreement. This agreement is used to identify key terms, such as the duration of the agreement, the desired property location and property type, and how remuneration is paid under certain circumstances. Prior to any offer, a brokerage would ensure a buyer representation agreement is signed, presented to the buyer for signature, and once signed by the buyer, ensure the buyer receives a copy immediately.

©2019 Real Estate Council of Ontario

Customer service agreement with a buyer

This is a non-exclusive agreement that establishes a contract between the brokerage and the buyer for customer services only. Typically, this agreement is used when the brokerage is representing the seller and providing customer services only to the buyer. A customer service agreement can also be used when a buyer selects to receive services only rather than being represented by a brokerage. Experienced buyers may select this option regardless of whether the seller is being represented by the same brokerage or another brokerage. The agreement is used to confirm that no remuneration is paid for any customer service provided by the brokerage, unless otherwise agreed to, and confirms that the brokerage is not the representative of the buyer. This requires the buyer to complete more due diligence and investigations into the property and its condition as the brokerage is providing services only and will not be providing any advice.

Representation agreement with a landlord or a tenant

Prior to any offer, a brokerage would ensure a buyer customer service agreement is signed, presented to the buyer for signature, and once signed by the buyer, ensure the buyer receives a copy immediately. An agreement is used to set out the terms of the relationship when a brokerage is representing a landlord or a tenant. These agreements are used when a landlord is being represented in a listing for lease or when a tenant is being represented to find suitable premises to enter into a lease agreement. The agreements are used to identify key terms such as the duration of the agreement and remuneration payable, if applicable.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 8 of 15

A salesperson is required to be familiar with the types of agreements available to sellers and buyers and be able to use each agreement when appropriate. Identify which of the given statements are true. There are four options. There are multiple correct answers.

1 2

3

4

A seller who is out of town is not available to confirm showings on his listed property. The brokerage should document this relationship using the ‘Representation agreement with a seller’. A seller is approached by a brokerage enquiring if the seller will pay remuneration to the brokerage as they have a buyer who is interested in the property. The brokerage should document this relationship using the ‘Customer service agreement with a seller’. A first-time home buyer seeks out the advice and guidance of a brokerage when looking at properties for sale and submitting an offer. The brokerage should document this relationship using the ‘Customer service agreement with a buyer’. A buyer views a property during an open house and is interested in purchasing the property through the listing brokerage. The brokerage should document this relationship using the ‘Representation agreement with a buyer’.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 9 of 15

Providing Information Before an Agreement A salesperson is obligated to provide information to a seller or a buyer before entering into a representation or customer service agreement. Failing to do so may cause confusion regarding the service options available resulting in the selection of the wrong type of relationship with the brokerage. The Code describes the requirements regarding which specific information is to be provided prior to entering into any agreement with a seller or a buyer.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 10 of 15

Minimum Required Information Before an Agreement The Code identifies information a salesperson is required to provide to a seller or a buyer prior to entering into a representation or customer service agreement. The following seven sections contain information on the specific information to be provided to a seller or a buyer.

©2019 Real Estate Council of Ontario

Service alternatives

Services being provided Multiple representation Representation and obligations Representation and customer service Service limitations Obtaining written acknowledgement

The types of service alternatives that are available to the seller or the buyer include a representation or customer service agreement. Sellers and buyers must understand there are service alternatives rather than misunderstanding they have no options except for the relationship with a brokerage. The services that the brokerage would provide under the agreement can be tailored specifically to each seller or buyer. The agreement would detail the specific services the salesperson is agreeing to perform for the party. Documenting these services prevents misunderstandings between the party and the brokerage. The seller and buyer must be advised that circumstances could arise in which the brokerage could represent more than one client in respect of the same trade in real estate, but that the brokerage could not do this unless all the clients represented by the brokerage in respect of that trade consented in writing. Representation and obligations are the nature of the services that the brokerage would provide to each client in the possible event that the brokerage represents more than one client in the same transaction. This identifies the limitations to the services when operating under multiple representation. Representation and customer service identifies that circumstances could arise in which the brokerage could, in respect of the same trade in real estate, represent clients as well as provide services to customers. Service limitations arise from the restricted nature of the services that the brokerage would provide to a customer in respect of a trade in real estate if the brokerage also represents a client in respect of that trade. The brokerage must, at the earliest possible opportunity and before an offer is made, use its best efforts to obtain a written acknowledgment that information regarding the required disclosures has been received.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 11 of 15

Rohit wants to purchase a property and has contacted a salesperson, Tamara. Rohit has not purchased a property before, so Tamara is meeting with him for the first time and wants to discuss the service options available to Rohit when working with her brokerage. Which of the given choices include information Tamara is required to discuss with Rohit before Rohit signs a representation or customer service agreement? There are four options. There are multiple correct answers.

1 2 3 4

The restricted nature of the services that Tamara, on behalf of the brokerage, would provide to Rohit if Rohit wanted to make an offer on a property where the brokerage is representing the seller. The specific services that Tamara, as Rohit’s salesperson, will provide to him, including any customized requests from Rohit and confirmation that these services will be documented in writing in the agreement. The relationship options available for Rohit, including a client or a customer. A statement identifying that the brokerage will not enter into an agreement with another party that might cause risks or conflicts of interest within their agency relationship with Rohit.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 12 of 15

Defining and Documenting Services as Soon as Possible Whether a representation relationship is formed, or a brokerage is providing services to a customer, an understanding by all parties of the obligations, authority, and limitations to any authority being granted is important. Defining this as soon as possible will contribute to the parties fully understanding and complying with their obligations. In the course of any relationship, salespersons and their clients or customers can communicate in various ways about what the terms of the relationship will be, from face-to-face interactions to phone calls to emails. Ultimately, in order for there to be a clear consensus of the terms and conditions of the relationship, and to fully understand the services the salesperson will provide, there needs to be explicit or written documentation concerning all matters. As a salesperson, you may agree to various levels of service with each seller or buyer. As you are obligated to provide conscientious and competent service, you must define and document services in a timely manner and provide explicit and efficient communication with each seller and buyer. By doing so, you reduce any risk of providing less than expected services for your clients and customers. ©2019 Real Estate Council of Ontario

Lesson 5 | Page 13 of 15

Benefits of Defining and Documenting Services as Soon as Possible The following two sections contain information about why it is important to define and document services as soon as possible in the relationship.

To avoid situations where an implied agreement is unintentionally created based on the words and actions of a salesperson An implied agreement can be unintentionally created based on the words and actions of the salesperson, which can lead the seller or the buyer to believe there is an express agreement when there is not. Once that relationship is created, there are many obligations and duties owed to a client. To avoid this situation, it is important to explain the services being provided so there are no misunderstandings by the seller or buyer. Documenting the relationship in writing will provide a clear record of the expectations and requirements of all parties. Cautionary Example: Roger has listed his property with Seema’s brokerage and Seema has fully explained her duties to Roger as a client. Seema hosts an open house at Roger’s property where she engages Bruno, a prospective buyer, in conversation. Bruno appears very interested in purchasing a property, ©2019 Real Estate Council of Ontario

and Seema is hopeful he will want to purchase this one. As presently there are no other visitors at the open house, Seema begins to have a general discussion on market conditions, house prices, and details how much a typical mortgage payment might be on this listing. Bruno responds by suddenly providing information about his financial situation and how much he would be willing to pay for Roger’s property. Despite Seema’s attempts to redirect the conversation, Bruno tells Seema she appears very knowledgeable and, whether he purchases this property or another one, he would like her to be his salesperson. Even though Seema tried to stop Bruno from telling her these things, she is now possibly in a position of unintended multiple representation. It appears Bruno may believe he is working with Seema, even though they have not discussed and decided on the scope of their relationship. Bruno may logically assume that what he has shared with Seema will be kept confidential. Seema must now decide how to address this situation. She will need to consider: • If Bruno purchases the property, can she treat him as a customer? If so, Seema would not owe him confidentiality and in fact would be obligated to share what she has learned with her client, the seller. • If the information provided by Bruno is not considered confidential, then Seema can ensure no

©2019 Real Estate Council of Ontario

additional information is shared and have a discussion with Bruno about representation. • If Seema’s words or actions led Bruno to believe he was being represented by Seema and thus shared some confidential information, Seema may need to work under a client relationship, which results in multiple representation. This situation could have been avoided had Seema initially identified she is representing the seller and enquired if Bruno is working with any other salesperson. This would have provided Seema an opportunity to discuss relationship options and ensure Bruno understood where her loyalties are. This may have stopped Bruno from sharing confidential information until they could come to an agreement on whether he would be a client or a customer.

©2019 Real Estate Council of Ontario

To reduce the risks inherent in a seller or a buyer misunderstanding the services to be provided Documenting the brokerage relationships is an important aspect of reducing the potential for any misunderstanding between the brokerage and the seller or the buyer. Cautionary Examples: • The brokerage could be placed in a position where the courts will need to determine whether an agency relationship has been established under a particular set of circumstances. This could expose the brokerage to litigation and can result in the loss of any remuneration payable to the brokerage. • The reputation of the salesperson and the brokerage have potential to be harmed from a misunderstanding around services to be provided. • To reduce risks to the brokerage, a salesperson should ensure the services being provided and the obligations owed by all parties under the agreement are explained and documented as soon as possible when entering into a relationship with a seller or a buyer.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 14 of 15

Mickey is a salesperson who is holding an open house at Carlos’ property he has listed for sale. Kris is a visitor to the open house and Mickey spends time discussing the property and answering many questions for Kris. Kris is not working with another brokerage, so Mickey leaves his business card with Kris and offers to talk further if Kris has any additional questions. If Kris calls Mickey to discuss this property further, what should Mickey’s next steps be? There are four options. There are multiple correct answers.

1 2 3 4

If Kris wants to proceed with an offer on Carlos’ house, Mickey can let Kris know about the different service options available in his brokerage. Mickey should remind Kris that his brokerage represents the seller and caution Kris not to share any confidential information. Mickey can provide Kris with factual information about the property but he should not provide any advice until a service alternative has been decided on. Mickey should wait until Kris is ready to place an offer and then complete all of the required documentation to confirm the relationship between the brokerage and Kris.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 15 of 15

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were discussed in this lesson.

Benefits of working with a registered salesperson

Types of agreements used to document a brokerage’s relationship

Any client or customer with whom registered salespersons interact can benefit from: • Knowledge to address the complexities of a real estate transaction • Professional standards to ensure all parties are treated with fairness, honesty, and integrity • Insurance protection for buyer’s deposits and for errors and omissions Salespersons can and should share these benefits with clients and customers in order to reassure them that their skills will help them successfully buy or sell properties. There are several different types of agreements with sellers, buyers, and landlords or tenants. These agreements document the terms of the relationship established between the brokerage and other parties, allowing the salesperson—on behalf of the brokerage—to fulfill their responsibilities. Agreements with sellers: • A representation agreement with a seller provides details regarding the agency relationship. A customer service agreement with a seller identifies a non-agency relationship and is typically used when a seller is privately selling their property. Agreements with buyers: • A representation agreement with a buyer provides details regarding the agency relationship. A customer service agreement with a buyer is a non-exclusive agreement with a buyer. Agreements with landlords or tenants: • A representation agreement with a landlord or tenant provides details regarding the agency relationship.

©2019 Real Estate Council of Ontario

Obligations regarding providing information before a brokerage relationship agreement Importance of defining and documenting services in a timely fashion

The Code requires a brokerage to disclose the following information before entering into an agreement with a seller or buyer and to use their best efforts to obtain a written acknowledgment that these disclosures have been made at the earliest opportunity and before an offer is made: • Available service alternatives • Brokerage services provided under the agreement • Potential for multiple representation and the obligation to obtain consent in writing • Nature of the services when representing more than one client • Potential to provide services to more than one customer • Potential to represent a client and provide services to a customer • Restricted nature of the services provided to a customer For a salesperson to provide competent service to consumers in their daily activities, they must understand the importance of defining and documenting services as early as possible in the relationship. Client relationships can begin based on the words and actions of a salesperson, which may result in the unintentional creation of a multiple representation situation. Documenting the brokerage relationships is an important aspect of reducing the potential for any misunderstanding between the brokerage and the seller or the buyer. Misunderstandings can impact a brokerage and salesperson’s reputation.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 1 of 20

Lesson 6: Providing Services to a Seller

This lesson outlines the services a brokerage and salesperson could provide when representing a seller or when providing services to a seller under a customer service agreement.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 2 of 20

Once a seller decides to become a client or a customer, they continue to make choices that will involve the salesperson. A client may select from a range of services when they enter a relationship with the brokerage. While services provided to a customer are more limited than those provided to a client, a customer seller can still benefit from working with a registered salesperson. No matter what, a salesperson is required to provide knowledge, expertise, skill, and professionalism throughout all aspects of a real estate transaction. Upon completion of this lesson, you will be able to: • Outline the services a salesperson can provide when representing a seller. • Outline the services a salesperson can provide to a seller under a customer service agreement. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 3 of 20

Outlining Services for a Seller Client As part of establishing an agency relationship, a salesperson must explain the available services the brokerage can provide under an agreement. In your role as a salesperson, the services you will offer to the seller can vary depending on the needs of each seller. There are options available to a seller client for full services or a la carte service, the latter being an option where there is a fee attached to each specific service being requested by and provided to a client. Explanations of these service options should aim to demonstrate the value of the service. These can be summarized in a brochure used by the brokerage, but it is not appropriate to provide reading material only. You will need to explain the options available and answer any questions the seller may have so they understand specifically how these services will be provided to them.

©2019 Real Estate Council of Ontario

The process of listing, marketing, and negotiating an offer has many steps and can often be daunting. Setting expectations for the extent of the services being provided not only helps to avoid any misunderstanding about the role you will play in supporting the seller, but can also help to ease any anxiety they may have about selling their property. Sellers may wish to select from the available service options, or the seller may select full services from the brokerage. Whatever the choice, documenting the services is a necessary first step. Next, we will review some key services a brokerage can offer a seller client.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 4 of 20

Due Diligence A salesperson is relied upon to provide thorough and professional services when representing a seller throughout a transaction. This can be done by understanding the seller’s objectives and ensuring all advice, guidance, and activities promote their best interests. Completing the due diligence required by a salesperson includes: • Confirming the seller has made all necessary disclosures, as required by law • Discovering all relevant information and material facts regarding the transaction • Making appropriate disclosures to other parties, as required • Demonstrating competence, skill, and judgement when providing opinions, advice, or information • Referring a seller to third-party professionals when the advice or opinion is beyond the education or experience of a salesperson

©2019 Real Estate Council of Ontario

Due diligence obligations begin before any relationship with a seller has been established and continue throughout and after a seller has accepted an offer on their property. As a salesperson, you will be expected to be conscious of the duties and obligations owed to a seller and ensure these have been complied with, when providing services before and after any representation agreement has been signed.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 5 of 20

Services for a Seller Client Whether this is the first time you have worked with the seller, or you have represented the seller in a previous transaction, as a salesperson, you will need to review the service options available from the brokerage. The services you will provide and the obligations you will be required to meet are interrelated and help ensure the seller’s goal of selling their property is satisfactorily completed. There are many variations of services available for a seller. The given table identifies some of the typical services a salesperson could provide. Details about these activities are presented on the given screens. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic. ©2019 Real Estate Council of Ontario

Pre-Listing • Conduct a visual walkthrough • Gather and verify key information related to the property • Identify and disclose any material facts • Explain marketing options • Estimate the value of the property to arrive at an accurate listing price • Explain selling costs • Advise on property preparation

During Listing • Accurately list the property • Explain the process for showings • Implement the marketing plan • Qualify buyers based on seller’s directions • Ensure all required disclosures are made by the seller • Coordinate showings • Explain offer process • Be aware of competing listings and recent sales • Update on market conditions

©2019 Real Estate Council of Ontario

Offer Transaction Management • Confirm offer process • Analyze, advise on, and negotiate offers • Coordinate buyer’s inspections or viewings • Follow up on conditional dates and closing • Manage post-transaction relationship

Lesson 6 | Page 6 of 20

Pre-listing Pre-listing activities occur prior to the actual listing of the property. The following seven sections contain information on the common pre-listing services a salesperson could provide to a seller. While there is a suggested flow of services outlined in the page, they do not need to necessarily take place in this order.

Conduct visual walkthrough A salesperson should complete a thorough visual tour by walking through the home as well as the entire property with the seller. A working knowledge of the property is essential, and attention to detail when viewing the property will help to build rapport with the seller. If asked to list the property for sale, there will be information identified on the day of the walkthrough that will be required to market the property. This is the start of your due diligence as this visual walkthrough can help to identify material facts or identify any other aspects of the property that would require disclosure to a buyer, assess any issues that will need to be addressed prior to listing the property, and familiarize yourself with the property so that any opinion of value or an appropriate listing price is based on accurate information.

©2019 Real Estate Council of Ontario

Detailed notes should be taken so these can be referred back to at a later time. Some of the property features that should be noted include: • Lot (size, shape, landscaping, and quality of any improvements such as a fence or deck) • Structure (age, condition, and overall appeal) • Features and benefits (upgrades, renovations, and unique aspects which would be highlighted in the listing) • Concerns (defects, safety hazards, and repairs needed to enhance the property’s marketability) Having a candid and open conversation with the seller is important. Acknowledge the selling features of the property, but also ensure any defects or safety hazards are discussed, and detail what action should be taken to address these. If additional inspections or advice is required, refer the seller to third-party professionals with expertise in the specific field. A thorough and detailed viewing of the property with a seller provides an opportunity to build a relationship, gain their trust and confidence in your abilities, and ensure their insights into the property and the neighbourhood are used to promote their best interests.

©2019 Real Estate Council of Ontario

Gather and verify key information about the property When listing the property, a salesperson will need to gather key information, which is used for the marketing of the property and any offer made. A seller may provide information as they should have the documentation from the purchase of the property. However, additional information will be needed, and the information must be accurate and complete. This will require a salesperson to do additional research to verify and supplement the property information provided by the seller. For example, if a seller has not provided a deed or survey, a salesperson can review registry, tax, assessment records to verify various aspects of the property including ownership, legal description of the property, and the lot size. By verifying information that is gathered about the property, a salesperson can reduce the risk of error, misrepresentation, and fraud.

©2019 Real Estate Council of Ontario

Identify and disclose any material facts As you learned earlier, disclosing material facts is an integral part of providing conscientious and competent service. A salesperson has specific obligations related to material facts. From a seller’s perspective, a material fact would include anything related to selling the property and the price received. A salesperson should compare what they learn through research with what they would have observed during the walkthrough and the information provided by the seller to be sure they are able to identify and disclose all of the material facts required.

Explain marketing options Sellers will want to know what efforts will be taken to increase the exposure to the marketplace of their property, so you as a salesperson, will need to explain their marketing strategy. Brokerages may offer specific marketing for all properties with additional marketing provided by way of a flat rate marketing package or fee-for-service options. In addition to placing the property on the local listing service (if applicable), marketing options can include: • Promoting via the website • Conducting an open house ©2019 Real Estate Council of Ontario

• Providing a virtual tour • Making use of professional photography, professional home stagers, flyers, and signs Some sellers may have inputs or certain requests, which the salesperson should try and incorporate into their marketing plan.

Provide opinion on property value A salesperson can assist the seller in arriving at an appropriate listing price by providing an estimate of the property’s market value or by preparing a comparative market analysis. You will learn more about this in a later module. The overall goal is to provide the seller with information on comparable properties and—based on this research, the salesperson’s education, and their professional knowledge— provide the seller with an opinion of value and ideas about the appropriate listing price. Although the seller is relying on a salesperson’s knowledge and expertise, ultimately it is the seller who selects the listing price.

©2019 Real Estate Council of Ontario

Explain selling costs This service helps the seller understand that there will be expenses and costs associated with paying out any existing mortgage, or other adjustments to be deducted from the sale price to arrive at the proceeds from the sale. A salesperson should explain the nature of these additional costs and expenses when selling the property, so the seller can budget for such costs as moving fees, legal fees, and remuneration to brokerage. As a note, sellers should be made aware that any remuneration paid is subject to HST. Salespersons will need to reinforce to the seller that this is an estimate only, and the seller needs to be certain that they have enough financial resources to close the sale.

©2019 Real Estate Council of Ontario

Advise on property preparation When viewing the property, there may be specific ways the property can be prepared for the sale, which will help improve the marketability. This can be part of the services a brokerage offers, or it could include a professional to stage the property. A seller may require guidance to properly prepare for the property to be shown. The seller should understand that a buyer’s request to view the home could happen immediately after the property has been listed. It is better to delay the listing by a few days than to market the property before it is ready. Make any recommendations diplomatically and provide a to-do list with suggestions to enhance the property’s marketability.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 7 of 20

Abigail, a property owner, is considering selling her house and a friend recommended she contact Frank, a salesperson employed by ABC Real Estate Inc. Abigail contacts Frank to arrange an appointment to meet later in the week. During the conversation, Frank describes several services he can initially provide which will help Abigail to prepare for the listing of the property. What services and information can Frank obtain in advance to provide Abigail during their meeting? There are five options. There are multiple correct answers.

1 2 3 4 5

Ask Abigail a series of questions about her property and provide an opinion on the listing price based on this information before viewing the property. Ensure the listing price is high enough so that Abigail is not discouraged about meeting with Frank. Conduct additional research to supplement information provided by Abigail about the property. The research can then be discussed and verified during his first visit. Rely on his colleagues at the brokerage to validate the information provided by Abigail based on their sales experience. Explain to Abigail that she must ensure all repairs, painting, or other updates need to be done prior to his visit so that his estimate of value is more accurate and any photos taken will be reflective of the property condition. Let Abigail know he will need to do a visual walkthrough of the property to gain information before providing his opinion of value for Abigail’s property.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 8 of 20

During Listing There are several services available to a seller client during the listing process, as discussed previously. The following five sections contain information on the services a salesperson will provide during the listing.

Accurately list the property Review the seller representation agreement with a seller before it is signed, and ensure the seller fully understands its contents. Salespersons are responsible for explaining all clauses in their entirety in plain language to each seller. Confirm the obligations of both parties, and that the services being provided by the brokerage are complete. Any information related to the property specifics that will be used in the marketing of the property and for obtaining an offer must be accurate and complete. The listing price should be finalized based on the input from the salesperson and a final decision by the seller.

©2019 Real Estate Council of Ontario

Explain the process for showings A seller may have never offered a property for sale, so an understanding of how this will occur will help the seller to maintain the property. A buyer could request a showing with little notice, so discuss the importance of the home always being ready to show by keeping it bright, clean, and uncluttered. Explain how the showings will occur so the seller is confident that showings will be handled professionally. Identify options for providing access to the property, including the safeguards put in place if a lock box will be used. A seller may want confirmation that the showing did occur, so a request to have all salespersons leave a business card following the showing might be included in a listing.

©2019 Real Estate Council of Ontario

Implement the marketing plan Marketing plans can be tailored to each property, so ensure the seller understands what will be done, and document this in the seller representation agreement. Keep the seller informed during the various stages of implementing the marketing plan and keep track of the results throughout the process so the seller is aware of the progress and initiative the salesperson is taking on their behalf.

Qualify buyers based on seller’s directions Some properties may result in a seller requesting only qualified buyers are to view. This could occur when a property is well above the average price for an area, and the seller is concerned about privacy. Buyers may choose to view the property out of curiosity, so a salesperson listing the home may need to ensure that prospective buyers have the financial means to purchase it. The salesperson can do that by asking the buyers or their representatives qualifying questions.

©2019 Real Estate Council of Ontario

Ensure all required disclosures are made by the seller A seller is required to disclose certain defects that are known to the seller. These are described as latent defects and a salesperson is required to ensure the seller understands their legal obligations. A discussion about non-required disclosures should also be held with the seller. There may be other aspects of the property the seller would like the buyer to be made aware of. Any disclosures being made by the seller should be in writing and provided to any interested buyer prior to an offer. You will learn more about this in a later module.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 9 of 20

During Listing There are several services available to a seller client during the listing process, as you have seen previously. The following four sections contain information on the services a salesperson will provide during the listing.

Coordinate showings with seller A salesperson should explain how any requests to show the property will be handled. The processes should be agreed to by the seller, including how notification of any showing will be handled (namely, if the salesperson will be booking the appointments personally or if this will be done through the brokerage office). A salesperson should also consult with the seller on their ability to accommodate scheduled showings or if there are specific times when they would like to restrict viewing. The seller should understand that access to the property can occur with little notice, and it is important to provide buyers with as much convenience in scheduling appointments as possible. A delay in showing the property to a buyer could result in the buyer purchasing a property before viewing the seller’s home.

©2019 Real Estate Council of Ontario

Explain offer process Prior to any offer presentation, a salesperson should explain how the process could occur. There are various ways for offers to be presented, such as in person or electronically. When the offer is being presented in person, the seller should be asked if they have any preference for who is in attendance, such as if the buyer’s salesperson is permitted. Understanding this process in advance will help the seller prepare for the actual receipt of an offer.

Be aware of competing listings and recent sales Market activity is an important factor that must continually be monitored during the listing period. A salesperson must look for specific signs which could result in a change to the terms of a seller’s listing. Review the seller’s listing based on the given criteria: • What properties have been listed and at what price? • What sales have occurred, what was the selling price, and how did they compare to this property? • How many properties are on the market in competition with this listing?

©2019 Real Estate Council of Ontario

• Are there more or fewer properties available today? • Have the competing listings reduced their listing price? • Have the average number of days required to market a property extended or shortened? Being fully informed and capable of providing an analysis on this important information is an integral part of the services a brokerage can provide.

Update on market conditions A seller will expect to be kept informed on any changes in the market that could affect the sale of their property. For example, a change in interest rates can impact a buyer’s ability to afford a home. Other legislative changes could impact the market activity as well. Different seasons in the year can see an increase or decrease in market activity. Keeping the seller informed will result in less stress for a seller when there are discussions about the listing price or the offered price from a buyer.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 10 of 20

Frank met with Abigail in his office and after completing the pre-listing process, Abigail decided to list her property with ABC Realty Inc. What does Frank need to communicate to Abigail in order to formalize the listing? There are six options. There are multiple correct answers. 1 2 3 4 5 6

Review the services the brokerage will provide under the agreement before it is signed. Explain all clauses in the agreement and ensure Abigail understands the authority granted to the brokerage. Abigail must agree to the listing price suggested by Frank, even if it is lower than Abigail had wanted. Ensure Abigail understands the agreement and her obligations to the brokerage related to remuneration and indemnification. Discuss the listing options and whether other brokerages will be permitted to show the property to buyers and obtain an offer. Ensure Abigail obtains a property inspection prior to listing the property which will be used to verify the condition of the property.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 11 of 20

Hannah is discussing the listing of her property with Gael, a salesperson with XYZ Realty Ltd. Hannah is downsizing and indicates she is really hoping there are sufficient proceeds from the sale of her property so she can pay some expenses and have a down payment for another purchase. She is not just eager to obtain the highest price that she can on her property, but also needs to sell her property within a reasonable time. What do you recommend Gael do to help Hannah establish an appropriate listing price and successfully market the property? There are five options. There are multiple correct answers.

1 2 3 4 5

Advise Hannah to list the property substantially higher than the value to allow for negotiations with a buyer. Prepare a comparative market analysis. Advise Hannah to keep the property clean and uncluttered. Advise Hannah to check for a salesperson’s business card after each showing as the listing will indicate this requirement. Advise Hannah that any disclosures regarding property defects will be disclosed only once an offer has been received.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 12 of 20

Offer Transaction Management The offer process and what comes after, the post-transaction period, include many services a salesperson will provide to seller clients. The following five sections contain information on these services.

Confirm offer process

When the brokerage has been notified there is an offer to be presented to the seller, arrangements will be made based on any previous instructions received from the seller. The salesperson will confirm how the offer will be presented, and if it is to be personally presented with the buyer’s salesperson in attendance, arrive early, and ensure the seller is prepared. A salesperson is required to ensure any offer is presented to the seller in a timely manner and according to the seller’s instructions.

Analyze, advise on, and negotiate offers

Each offer will include a time and date which identifies the length of time the party has to accept an offer. Once that time expires, the offer can no longer be accepted. This time is referred to as the irrevocable time period. Based on market conditions, the irrevocable time period can change, but should be at a minimum several hours and can extend up to several days. You will learn more about this in a later module. Negotiations can become complex and emotional. A salesperson’s role is to review the offer, ensure the terms of the offer are fully understood, and then discuss the seller’s options. At all times, the salesperson should guide the seller through the negotiation process and ensure the seller’s best interests are being protected when analyzing and advising on offers.

©2019 Real Estate Council of Ontario

Although some offers are less complex and appear straightforward, others may contain complex clauses, which could require the seller to do something, guarantee or warrant something, or pay for something. All offers and clauses need to be reviewed and explained to ensure the seller understands their obligations if the offer were to be accepted. A seller may not agree with the terms of a buyer’s offer, and this will require a salesperson to provide the appropriate advice when making any changes. A seller must understand that if they do not accept the buyer’s offer and make changes to it, the buyer is under no obligation to accept those changes. Negotiations can include several rounds of offers between the parties, before the terms are mutually agreed upon. There can be times when the parties cannot agree to the terms and an offer that has been sent back and forth between the parties results in no sale.

Coordinate any required inspections/viewings Follow up on conditional dates and closing

Before making any decision on addressing an offer, ensure the seller is aware of any relevant details that may affect their decisions. This would include contacting any other salespersons with prospective buyers who may be considering making an offer, and providing the seller with an updated report on recent listings and sales of comparable properties. If the accepted offer includes any terms or conditions that require access to the property to complete any due diligence on behalf of the buyer, a salesperson will ensure that any additional appointments necessary are made and access is provided by the seller. Access could be for third-party professionals such as a home inspector or for any buyer follow-up visits agreed to in the offer. A salesperson will be the point of contact to arrange appointments and to monitor the completion of any terms or conditions within the scheduled time frame. There could be circumstances prior to completion where either party may request an amendment to a term or condition of the offer. In such circumstances, the listing salesperson will assist not only in further negotiations but in documenting the agreedupon revisions. Changing the completion date is something that might be amended.

©2019 Real Estate Council of Ontario

Otherwise, a salesperson will act as a resource as needed once an offer is accepted, answering questions that may come up prior to completion.

Manage the posttransaction relationship

Although some questions will be easily handled by a salesperson, others may need to be addressed by the seller’s lawyer and a salesperson should be mindful to provide competent service without overextending themselves beyond their knowledge and experience. The services provided by a salesperson will not end at completion of the transaction. To maintain the relationship, they will want to follow up with the seller to ensure there are no additional services needed. A follow-up will not only demonstrate your professionalism but also helps to maintain a salesperson’s relationship for future business.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 13 of 20

Negotiations An important aspect of a salesperson’s services is negotiating offers. From a high-level point of view, there are four potential outcomes in a negotiation scenario: • Win-Win: Everyone’s objectives are met in a positive manner. The seller obtains market value; the buyer receives the sought-after property. • Win-Lose (or Lose-Win): The seller wins by successfully selling his home at or close to asking price. The buyer, disregarding certain problems with the property, must make significant repairs after taking possession. • Lose-Lose: Both seller and buyer fail to achieve a meeting of the minds and everyone loses. The seller misses the opportunity to sell to the best buyer; the buyer fails to get the desired property. • No outcome: Some negotiations become stalemated and have no result; the seller decides not to sell, and the buyer exits having second thoughts about the financial commitment. Both parties may re-negotiate at a later time or advance to other win-wins. The challenge for a new salesperson is readily identifying the no outcome. ©2019 Real Estate Council of Ontario

At all times, a salesperson must provide conscientious and competent service to the seller. Any advice must only be provided when a salesperson has the education or experience required to provide the advice. Negotiations can become emotional, and decisions can be made that are not based on sound reasoning. A salesperson’s role is to guide the seller through the process and ensure the seller has all the information required to make fully informed decisions.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 14 of 20

Frank has received a phone call from a salesperson who showed Abigail’s property earlier in the week. The salesperson has an offer which they will email to Frank for him to present to Abigail that evening. Frank is also expecting another offer from a buyer who viewed the property today, so Frank contacts that salesperson but has to leave a message. When Frank meets with Abigail to present the offer, she is unsure about the offer price and some of the terms. Which of the given services should Frank provide to help Abigail make her decision? There are four options. There are multiple correct answers.

1 2 3 4

Explain to Abigail that if she changes the offer, the buyer may not agree to these terms, resulting in her not selling the property to this buyer. Discuss with Abigail the option of submitting a counter offer back to the buyer through the buyer’s salesperson with a higher purchase price and revised terms. Encourage Abigail to accept the offer despite not having heard back from the other salesperson because this would mean her property is sold. Advise Abigail on the pros and cons of the offer and depending on the irrevocable time period in the offer, ensure she does not make a hasty decision.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 15 of 20

Sub-agency As you learned earlier, agency is the relationship between a principal and an agent. The brokerage, as an agent, allows employed salespersons to perform activities related to the principal as the salespersons are an extension of the brokerage. As such, all salespersons within the brokerage represent the principal under the same agency relationship as the brokerage. Although seldom used in today’s real estate environment, extending the ability to represent the principal to another brokerage can occur. The other brokerage would then be deemed a sub-agent of the brokerage who has established the relationship with the principal. In practice, sub-agency occurs when the seller is a client of the listing brokerage and a co-operating brokerage has a buyer who is a customer; the co-operating brokerage in a sub-agency relationship owes fiduciary duties to the seller and represent the interests of the seller rather than the buyer. The co-operating brokerage would treat the buyer as a customer and provide ethical and competent service but owe no fiduciary duties such as confidentiality. Prior to the existence of buyer representation, a buyer’s brokerage always worked under sub-agency. The subagent owes all of the same general, fiduciary, and regulatory obligations to the principal, as does the agent.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 16 of 20

Seller Customers As the previous screens have demonstrated, there are many benefits for a seller to be represented by a brokerage. An experienced and knowledgeable salesperson can guide a seller through every step of the selling process, lending their expertise and helping the seller make critical decisions with their valuable input. However, there are times when a seller may not need the extent of services that a salesperson can offer a client. In fact, some sellers choose to limit their relationship with a brokerage to customer services for various reasons. The next few screens explore these reasons and the specifics of available seller customer services.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 17 of 20

Becoming a Seller Customer There are several reasons why a seller may select customer service rather than representation including: • The seller has previous experience in selling a property and feels they can negotiate the terms successfully without a brokerage. • The seller does not want to formally list their property for sale, although they do want buyers to know it is available. This would be called a For Sale by Owner. • The seller is looking for any cost savings associated with reduced services. Often, a customer service agreement with a seller occurs when the seller is privately selling their property and a brokerage is representing a buyer who is interested in purchasing the property. When approaching a private seller, a salesperson would identify their brokerage has an interested buyer. The salesperson is not attempting to list the seller’s property for sale but rather negotiate an offer on the buyer’s behalf with the seller. The brokerage would ensure the seller clearly understands the brokerage is not representing them but rather providing customer services. The next few screens detail the types of services a brokerage can provide to a seller customer.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 18 of 20

Seller Customer Services A seller must understand the impact of the limited services provided under a seller customer service agreement. A brokerage and salesperson are not obligated to act in the best interests of the seller customer but must still treat them fairly, honestly, and with integrity. In other respects, the same obligations under REBBA apply to the salesperson when providing customer services as when representing a seller. The typical activities a salesperson would perform when providing services to a seller customer include: • • • • •

Explaining relationship and service options to the seller Documenting the customer service agreement Showing their property to the brokerage’s buyer Presenting offers to the seller customer that have been prepared on behalf of the buyer Delivering counter offers to the buyer on behalf of the seller customer ©2019 Real Estate Council of Ontario

Lesson 6 | Page 19 of 20

Identify which of the given obligations are owed to both a client and a customer.. There are four options. There are multiple correct answers. 1 2 3 4

Explain service options and document the relationship. Present a buyer’s offer. Disclose any material facts to the seller. Advise the seller on a listing price or offer price.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 20 of 20

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were discussed in this lesson.

Services available to seller clients

Working with a registered salesperson can have many benefits for a seller client. The property selling process has many steps and can often be daunting, especially for first-time sellers. Therefore, it is important for salespersons to help sellers understand that they can assist with the transaction during the pre-listing, listing, and offer transaction management process.

Negotiations for seller clients

Services may include, but are not limited to: • Setting their expectations about all available services • Advising on property preparation • Identifying and disclosing any material facts • Estimating the value of the property to arrive at an accurate listing price • Coordinating showings • Analyzing, advising on, and negotiating offers • Following up on conditional dates and closing • Managing post-transaction relationship A salesperson’s role is to guide the seller through the process and ensure the seller has all the information required to make fully informed decisions. At all times, a salesperson must provide conscientious and competent service to the seller. Any advice must only be provided when a salesperson has the education or experience required to provide the advice. Negotiations have four potential outcomes: • Win-Win ©2019 Real Estate Council of Ontario

• Win-Lose or Lose-Win • Lose-Lose • No outcomes

Sub-agency

Services available to seller customers

A salesperson should be aware of these outcomes and ensure the seller understands the potential outcome based on the negotiation stance they take. In practice, sub-agency occurs when the seller is a client of the listing brokerage and a co-operating brokerage has a buyer who is a customer; the co-operating brokerage in a sub-agency relationship owes fiduciary duties to the seller and represent the interests of the seller rather than the buyer. The co-operating brokerage would treat the buyer as a customer and provide ethical and competent service but owe no fiduciary duties such as confidentiality. There are times when a seller may not need the extent of services that a salesperson can offer a client. In fact, some sellers choose to limit their relationship with a brokerage to customer services for various reasons. Services available to seller customers include: • Explaining relationship options to the seller • Documenting the customer service agreement • Showing their property to the brokerage’s buyer • Presenting offers to the seller customer that have been prepared on behalf of the buyer • Delivering counter offers to the buyer on behalf of the seller customer

©2019 Real Estate Council of Ontario

Lesson 7 | Page 1 of 12

Lesson 7: Providing Services to a Buyer

This lesson illustrates the services a brokerage and salesperson could provide when representing a buyer or when providing services to a buyer under a customer service agreement.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 2 of 12

Buyers can greatly benefit from working with a salesperson registered with RECO. While the scope of services will differ significantly between a client and a customer, buyers will benefit from working with a registered salesperson who can provide knowledge, expertise, skill, and professionalism throughout every aspect of a transaction. A salesperson must ensure a buyer understands the extent of their relationship with the brokerage, including all available service options. The next few screens explore the available services throughout the buying process. Many of these are similar to those available to seller, while others are specific to buyers. In addition, when representing a buyer, all services should be in their best interests. Upon completion of this lesson, you will be able to: • Outline the services you as a salesperson can provide when representing a buyer. • Outline the services you as a salesperson can provide to a buyer under a customer service agreement. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 3 of 12

Providing Services to a Buyer Client A salesperson can provide many services when representing a buyer throughout the stages of searching for and purchasing a property. Pre-Showing • Discuss and identify the buyer’s needs and wants • Outline all costs the buyer may incur • Pre-qualify the buyer

Showing Properties • Show properties • Obtain information about the neighbourhood, schools, transit, etc. • Discover and disclose all material facts ©2019 Real Estate Council of Ontario

Managing the Transaction • Provide information on comparable properties • Draft, present, and negotiate offers • Assist in the buyer’s due diligence

• Seek out appropriate properties • Inspect properties in advance • Verify all information

• Provide update on market conditions • Follow up on a property that was of interest

• Accompany the buyer on preclosing visits • Provide assistance before and after closing • Provide post-transaction management and follow-up

While carrying out all these services, the Code dictates that salespersons will provide conscientious and competent service to their clients while providing opinions backed by reasonable knowledge, skill, judgement, and competence. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 4 of 12

Buyer Qualification, Suitable Properties, and Conducting Viewings A salesperson has the same obligations under the Code when representing a buyer that they have when representing a seller. However, the application of these requirements will differ as the activities associated with a buyer can be unique from those for a seller. A salesperson must continue to work in a buyer’s best interests, provide conscientious and competent service, and ensure all properties meeting their criteria are shown, regardless of the remuneration offered. The following six sections contain information on salesperson’s obligations to the buyer.

©2019 Real Estate Council of Ontario

Discuss and identify the buyer’s needs and wants Outline all costs the buyer may incur

Pre-qualify the buyer

A salesperson should gather information about a buyer’s preferences for their new home including their desired location, type and style of home, and any particular features they are looking for. Through effective questioning and listening, a salesperson can help a buyer establish priorities and differentiate between what they need and what they want, all of which can be documented in a profile. A salesperson should inform a buyer—especially a first-time home buyer—of the range of costs they will likely incur when purchasing their new home. Buyers may not be aware of costs such as legal fees, land transfer tax, and various adjustments made on the closing costs that are apportioned between the seller and the buyer. Providing this information upfront can help a buyer avoid any unexpected surprises and ensure sufficient funds are available to complete a transaction. A salesperson should encourage the buyer to speak with a lender who can discuss financing options, gather financial information from the buyer, and provide parameters for a purchase price based on the amount of financing available. The buyer could obtain a pre-approval for financing, given their income and current and future debt repayment schedule. The lender will also discuss the buyer’s down payment requirements, which is monies the buyer must have available to them to make a purchase.

Seek out appropriate properties

Based on this information, a salesperson can look for properties in a price range that is aligned with the buyer’s preferences and financial capacity. A salesperson can use a variety of methods to search for properties that meet a buyer’s criteria. These methods can include searching the local listing services, driving through the desired neighbourhoods to see if there are any listings available, reviewing advertisements, checking with the brokerage for any exclusive listings, and putting out flyers. As per the Code, a salesperson is obligated to inform a buyer of all properties that meet their criteria regardless of the amount of remuneration being offered. This requirement is only for a buyer who has a client relationship with the brokerage

©2019 Real Estate Council of Ontario

Inspect properties in advance Verify all information

and not when a buyer is a customer. As one of the obligations owed to a brokerage by a client is remuneration, the brokerage is required to show all properties of interest to the buyer client. As a salesperson, you would ensure the buyer is made aware of any remuneration obligations they would have, should the property be purchased prior to showing the property to the buyer. If feasible, a salesperson should inspect properties prior to showing them to the buyer to assess suitability, familiarize themselves with the layout and features, and take note of anything that might warrant additional investigations or discussion with the buyer prior to arranging to show the property. A salesperson must verify that any information they rely on is verified. This would include information from other brokerages as well as information provided by a seller. This is particularly important in the case of a property being offered for sale privately by the owner (FSBO). In these situations, another brokerage has not validated the information presented by the seller, so additional due diligence is important to ensure the buyer’s interests are being protected. Any disclosures provided by the seller, such as a disclosure regarding the condition of the property, should be obtained and reviewed with the buyer to ensure the information is understood and assessed. This could impact the buyer’s decision to pursue making an offer on the property or obtaining third-party professional advice to address the disclosure being made.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 5 of 12

Showing Properties Once a buyer has identified the property specifics and a salesperson has found suitable properties to show, booking appointments to view these properties will occur. Scheduling these appointments must take several things into consideration, such as their location, travel time, and time to view the property. When scheduling several properties in a row, it is important to factor these considerations in. A seller will have the property set aside for the viewing; keeping the appointment and arriving on time is important. The following five sections contain information about services to a buyer client related to showing properties.

Show properties

Once a salesperson has located suitable properties for a buyer, they accompany and assist them during the showings, which may also include showing a property to a buyer during a brokerage’s open house.

©2019 Real Estate Council of Ontario

Obtain information about the neighbourhood, schools, transit, etc.

Discover and disclose all material facts

Provide update on market conditions

Follow up on a property that was of interest to a buyer

Obtain information about the property and provide a copy for the buyer to review. As a salesperson, making notes while showing the property to the buyer will assist in recalling the property’s features at a later date. After viewing several properties, the features of one home may become mixed with the features of another. When discussing a buyer’s needs and wants, part of that discussion could include the important aspects of a neighbourhood or property location to the buyer. A salesperson should then gather information about the buyer’s desired neighbourhood(s) and be able to point out how this property also provides these desired amenities. For example, a salesperson could point out the location of schools, shopping, medical facilities, proximity of public transit, and any other features. This will help the buyer to prioritize which neighbourhoods best meet their needs. As you learned in an earlier module, a salesperson needs to first discuss what the buyer considers to be a material fact. This includes asking the buyer to provide examples of facts which would impact their decision to purchase a specific property or the price paid. As a salesperson, it is your role to ensure any material fact for a buyer has been discovered and disclosed to them to ensure the buyer can make informed decisions. A salesperson should keep a buyer aware of any updates to market conditions as well as how active the market is. An active market can mean properties are listed and sold in a very short time period. If a buyer is not ready to act, they may lose out on a property. Other changes can include changes in interest rates, or any changes in legislation. If a buyer was interested in a property but has decided to continue looking, it is helpful for a salesperson to continue to follow up on that property. For example, a property may have been previously viewed, but the buyer felt the listing price was too high. When the listing price is reduced, the salesperson should be contacting the buyer to see if there is any renewed interest in the property.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 6 of 12

Managing the Transaction Working with a buyer to find a suitable property can be a lot of work and can take weeks or even months. Once the buyer has found a property they would like to purchase, a salesperson will provide additional services throughout the transaction. A buyer will rely on the salesperson’s skillset to help negotiate an offer on favourable terms. The following six sections contain information about services to a buyer client related to managing the transaction.

©2019 Real Estate Council of Ontario

Provide information on comparable properties

Draft, present and negotiate offers

Assist in completing the buyer’s due diligence

Accompany buyer on pre-closing visits

A salesperson can provide the buyer with information on sales of comparable properties and draw comparisons to the buyer’s chosen property to establish an accurate assessment of market value. In addition, a comparison of the chosen property to those properties also viewed will assist the buyer with their decision on the appropriate offer price. The buyer has viewed these other properties and can easily make the comparison rather than relying only on information and no visual perspective. In compliance with the Code, when the buyer is at the offer stage, a salesperson can offer these services: • Preparing offers and advising on conditions, clauses, warranties, and other terms • Attending the offer presentation whenever possible to promote the buyer’s best interests (as opposed to sending the offer to the listing salesperson by email or fax) • Negotiating the offer on behalf of the buyer These services can include: • Keeping track of time limits of any conditions in an offer • Attending a home inspection with a buyer • Arranging for an appointment for an appraiser to view the property if an appraisal is required for mortgage purposes • Preparing the necessary documentation for a buyer based on the results of any condition in the offer • Assisting the buyer in obtaining home insurance by providing information about the property A buyer’s offer may contain terms allowing the buyer to attend the property for various reasons prior to the transaction closing. The buyer may want to bring in a contractor to obtain quotes, or the buyer may simply want to view the property prior to closing to ensure it has been appropriately maintained. Any visit to the property would need to be arranged with the seller/seller’s salesperson, and at all times, the buyer needs to be accompanied by the salesperson.

©2019 Real Estate Council of Ontario

Assistance before and after closing

Provide posttransaction management and follow-up

A buyer could require assistance throughout the time period leading up to the transaction closing, as well as assistance once they have taken possession of the property. Any legal queries should always be referred to the buyer’s lawyer. However, some questions can—and should—be addressed by the salesperson. Ensuring the salesperson is available to assist the buyer both before and after closing is important in establishing and maintaining a relationship with the buyer. These services can include: • Making a follow-up call or visit to ensure that the buyer is fully satisfied with the outcome of the services • Assisting with follow-up issues such as missing garage door openers, utility connections, or other small incidental issues that can arise

©2019 Real Estate Council of Ontario

Lesson 7 | Page 7 of 12

Salesperson Poppy has been working with her buyer client, Brian, to find a new home. They find a property and Poppy prepares an offer. The seller is dissatisfied with the offer and proposes a counter-offer. Poppy reviews the counter-offer with Brian and she advises him that the seller’s offer is in line with the price of comparable properties recently sold. Brian is not sure. Which actions are appropriate for Poppy to take in order to provide conscientious and competent service to Brian? There are four options. There are multiple correct answers.

1 2 3 4

Discuss the terms that Brian is unsure of and then continue to negotiate the offer towards terms that are better suited for Brian. Review the other properties that Brian viewed to make a comparison between those and this property in terms of price, features, and desirability. Complete or update a comparative market analysis to give Brian more context to understanding market conditions and property values when assessing the seller’s counter-offer. Recommend that Brian meet directly with the seller to discuss the terms of the offer and better understand the seller’s rationale.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 8 of 12

Buyer Customers Buyers do not always become clients of a brokerage; they can be customers with limited services available to them. This commonly happens when a brokerage is the listing brokerage for a seller client and a potential buyer approaches them about the listing. When this happens, the buyer in question often becomes a customer of the brokerage and receives limited services from the brokerage. A customer relationship might arise in other circumstances too; a buyer with real estate experience might only want to work with a brokerage as a customer as they do not require many of the other services or advice a brokerage could provide. As with any relationship the brokerage engages in, the Code dictates a level of fairness and honesty that the brokerage must maintain. The given points describe the limited services owed to a buyer customer: • Treating the party fairly, ethically, and with integrity • Exercising due care when answering questions and providing information • Avoiding misrepresentation

©2019 Real Estate Council of Ontario

Lesson 7 | Page 9 of 12

Buyer Customer Services and Limitations Understanding the limitations to the services provided to a buyer customer is important. Providing advice or overstepping these limitations can unintentionally turn a customer relationship into one of a client. Services Available to Buyer Customers A salesperson should disclose information regarding material facts that they know or ought to know, which can affect the buyer's decision to purchase the property. A salesperson should prepare and present offers from the buyer customer to the seller.

Limitations to Buyer Customers A salesperson is not obligated to research or verify property defects. A salesperson cannot provide advice to the buyer, including what price to offer or what terms to include in an offer.

©2019 Real Estate Council of Ontario

A salesperson should facilitate general communication between the buyer customer and the seller.

A salesperson should maintain contract management throughout the transaction.

A salesperson is not obligated to act in the best interests of the buyer but is required to treat the buyer fairly, honestly, and with integrity and take due care when answering questions. This would include ensuring any information about the property is accurate. A salesperson is not obligated to keep the buyer’s information confidential. In fact, if the salesperson is representing the seller, any information about the buyer must be disclosed to the seller. However, the buyer must be told this in advance before any information about the buyer is shared by the salesperson.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 10 of 12

A salesperson is showing an older house to a buyer customer. The basement is unfinished and appears to have water damage, among other issues. Which of the following should the salesperson do for the buyer customer? There are four options. There is only one correct answer. 1 2 3 4

Disclose the possible water damage issue to the buyer. Verify the information about the basement provided by the property seller through inquiring about the damage. Conduct additional research about the condition of the basement. Advise the buyer customer on an appropriate way to negotiate with the seller.

Lesson 7 | Page 11 of 12

Identify which of the given obligations are owed to a client only. There are four options. There are multiple correct answers. 1 2 3 4

Ensure information regarding any material facts are determined and disclosed to the buyer. Show all properties that meet the buyer’s criteria, regardless of any commission being offered. When conditions warrant, recommend a property inspection be completed by a professional. Advise the buyer on whether they should accept, reject, or counter a seller’s counter offer.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 12 of 12

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were discussed in this lesson.

Available services for buyer clients

Buyer clients versus buyer customers

Working with a registered professional can have many benefits for a buyer client. The property buying process has many steps and can often be daunting, especially for first-time buyers. Therefore, it is important for you as a salesperson to help clients understand that you can assist with the transaction in the given ways: • Set their expectations about all available services • Help the buyer find properties within their price range and attend open houses with them • Provide due diligence when it comes to discovering and disclosing material facts about a property • Provide information on comparable properties to assist in arriving at an offer price • Draft, present, and negotiate the agreement of purchase and sale in favour of the buyer • Guide clients through satisfying terms and conditions, leading to the transfer of ownership upon completion date • Follow up with clients after transactions to ensure that the process was satisfactory Services available to buyer customers are much more limited than those available to buyer clients. Even so, some buyers enter into this type of relationship with a salesperson for the given reasons: • The buyer is interested in a property for which the salesperson is already representing the seller

©2019 Real Estate Council of Ontario

• The buyer wants to avoid commitment to the brokerage • The buyer is experienced in real estate purchases As a salesperson, you are required to treat all parties with integrity and carry out all interactions with honesty. It is important for you to understand the limitations of a customer relationship so as not to mislead customers about your services.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 1 of 5

Lesson 8: Obligations when Dealing with Others

This lesson details the brokerage’s obligations when dealing with other brokerages and their clients.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 2 of 5

A significant aspect of acting ethically and professionally as a salesperson is knowing the requirements regarding dealings with other brokerages and salespersons. Compliance with this aspect of REBBA guides how a salesperson goes about their day-to-day interpersonal activities and communications. The reputation of a brokerage depends on each salesperson upholding a high standard in their everyday dealings. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 3 of 5

Ensuring Compliance When Interacting With Sellers and Buyers A salesperson must follow guidelines set by the Code when communicating with sellers and buyers when a brokerage has established a relationship with them, or they are a party to an agreement of purchase and sale. The following four sections contain information on regulations in place to guide how to communicate with sellers and buyers working with other brokerages.

Communicating with a client of another brokerage The Code establishes that if a salesperson from a brokerage other than the listing brokerage wants to convey information to the seller or ask a question of the seller, that salesperson must only communicate with the seller through the listing brokerage. The exception to this rule is if the listing brokerage has given written permission for a salesperson to communicate directly with the seller. The same is true if a salesperson has a buyer client and another salesperson from a different brokerage wishes to communicate with the buyer; this must be done through the buyer’s brokerage unless written permission has been given to communicate directly with the buyer. Though not a requirement under the Code, it is a generally accepted practice that other salespersons in a listing brokerage’s office would only communicate

©2019 Real Estate Council of Ontario

with a seller through the listing salesperson. The same is true of a buyer client. An offer is usually submitted to the listing salesperson/brokerage by the buyer’s salesperson. It is important that all information is communicated, and all documents are delivered from one brokerage to the other brokerage, never from a brokerage directly to another brokerage’s client. The Code states: “A registrant who knows or ought to know that a person is a client of another registrant shall communicate information to the person for the purpose of a trade in real estate only through the other registrant, unless the other registrant has consented in writing.”

Inducing a party to break an existing contract One provision makes it a violation in any way to induce a seller or buyer to break an existing contract they have with another brokerage. The Code states: “If a broker or salesperson knows or ought to know that a seller or buyer is a party to an agreement in connection with a trade in real estate with a brokerage other than the brokerage that employs the broker or salesperson, the broker or salesperson shall not induce the seller or buyer to break the agreement.”

©2019 Real Estate Council of Ontario

Example: A salesperson is approached during an open house by an individual who states they have their property listed for sale with a different brokerage. The individual states they are unhappy with the services being provided and would like to cancel the listing and have the salesperson discuss a new listing. The salesperson advises the individual to speak directly with the listing brokerage and hopefully resolve any problems. The salesperson ensures there is no indication the individual should cancel the listing.

Breaking agreements of purchase and sale The provision that states a salesperson must not interfere by inducing a seller or a buyer to break an agreement includes not only representation or customer service agreements, but also agreements of purchase and sale. The Code states: “No registrant shall induce any party to an agreement for purchase and sale or an agreement for rental of real estate to break the agreement for the purpose of entering into another such agreement.” Example: A salesperson is conducting an open house and an interested buyer is viewing the property. The buyer states they have an accepted offer on a property already, but this property is more appealing, and they

©2019 Real Estate Council of Ontario

would like to know how to cancel their existing agreement of purchase and sale. The salesperson tells the buyer they cannot provide any advice related to this and to contact their salesperson.

Fairness, honesty, and integrity Remember that fairness, honesty, and integrity should be at the core of every relationship a salesperson has with all other parties. It is just as important to incorporate this into interactions with salespersons from other brokerages, all clients and customers of other brokerages, and all third-party professionals a salesperson interacts with throughout a trade. The Code states: “A registrant shall treat every person the registrant deals with in the course of a trade in real estate fairly, honestly, and with integrity.”

©2019 Real Estate Council of Ontario

Lesson 8 | Page 4 of 5

Henri, a salesperson, attends a friend’s dinner party. During the social time leading up to the meal, Henri is approached by Danielle, who currently has her property listed for sale with another brokerage. During the conversation, Danielle is discussing market conditions in the neighbourhood and mentions that she is not having the property shown very often and it has been on the market for a long time. Danielle tells Henri that she is not happy with the services being provided by her brokerage and wants to cancel the listing agreement because it is not expiring for another two months. How should Henri respond to Danielle’s statement? There are three options. There is only one correct answers.

1

2

3

Henri should ask questions about Danielle’s property to learn more about the listing and whether it is overpriced. If Henri feels that the price is appropriate, then it must mean the listing brokerage is not performing adequately, and Henri should advise Danielle to cancel the listing. Henri should tell Danielle that he cannot get involved with this situation, given that it involves a client relationship with another brokerage. Henri should advise Danielle to speak directly with the listing brokerage and hopefully resolve any problems. Henri should give Danielle his business card and recommend that she discuss her dissatisfaction with the listing brokerage and insists on changing the expiry date to one week later. This would allow Henri time to gather information, search for a buyer, and then list the property with his brokerage.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 5 of 5

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were discussed in this lesson.

Communicating with a client of another brokerage

A salesperson from a co-operating brokerage must convey information to the seller or ask a question of the seller through the listing brokerage, and not directly with the seller. The exception to this rule is if the listing brokerage has given written permission for a salesperson to communicate directly with the seller. The same is true if a salesperson has a buyer client and a salesperson from a different brokerage wants to communicate with this buyer.

Interfering with client relationships of other brokerages Breaking agreements of purchase and sale Fairness, honesty, and integrity

Any offer should be submitted to the salesperson working with the seller or the buyer, and never directly to the party themselves. It is a violation for a salesperson, in any way, to induce a seller or a buyer to break an existing representation agreement they have with another brokerage.

Salespersons must not interfere by inducing a seller or a buyer to break an existing agreement of purchase and sale. This might occur if the party thought the salesperson could negotiate a better offer on a different property. Fairness, honesty, and integrity should be at the core of every relationship a salesperson has with all other parties. This would include a salesperson’s interactions with sellers, buyers, salespersons from other brokerages, as well as other brokerage’s clients and customers, and any other person in the course of a trade.

©2019 Real Estate Council of Ontario

Lesson 9 | Page 1 of 9

Lesson 9: Summary Practice Activities

These practice activities summarize concepts from throughout the module.

©2019 Real Estate Council of Ontario

Lesson 9 | Page 2 of 9

This lesson will ask you to practice applying many of the concepts you have learned so far in this module. It is your responsibility as a salesperson to employ these skills during your interactions with sellers and buyers. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 9 | Page 3 of 9

Identify which of the given statements are true for the given scenarios. There are three options. There is only one correct answer.

1

2

3

A salesperson has advertised they are experienced in selling cottage properties. The salesperson is approached by a buyer who asks if the salesperson could show them a waterfront property listed for sale with another brokerage. The salesperson agrees, shows the buyer the property, and provides advice about the listing price and any conditions to be included in an offer. In this scenario, an agency relationship is created by implied agreement. A salesperson and a potential buyer are discussing the new changes that are being made to obtain financing as lenders are tightening the criteria for approval. The salesperson is given confidential financial information from the potential buyer as they are concerned they would not qualify for a mortgage. The salesperson reviews this information and suggests the buyer should proceed with looking at properties, but might consider approaching a lender first. In this scenario, an agency relationship is created by express agreement. Jarod and Arnie are both salespersons and they are speaking about a buyer that Jarod is working with. Jarod describes a specific type of property and states there are none listed that match the criteria. Arnie says he knows of a property that is ideal and will arrange for the property to be shown. Arnie approaches the seller who agrees to allow the property to be shown. An offer is then made and Arnie presents it to the seller, who accepts the offer. In this scenario, an agency relationship is created by ratification.

©2019 Real Estate Council of Ontario

Lesson 9 | Page 4 of 9

Mac, a salesperson with XYZ Realty Ltd., is working with Sam, who is looking to buy a house. Before the representation agreement is signed, Mac explains the actual and implied authorities associated with their relationship by providing examples of what activities he would complete on Sam’s behalf. Identify which of Mac’s actions is likely undertaken by express authority. There are four options. There is only one correct answer.

1 2 3 4

Mac explains he will review many of the property listings from a local listing service and then select the most appropriate five properties for Sam to initially view. Mac explains he will gather and provide information regarding different school districts to Sam to help him when considering which properties could be suitable for him to purchase. Mac explains the representation agreement is between himself and his brokerage, and he will be the individual assisting Sam in his search for a property. Mac explains Sam is retaining the brokerage for the next 60 days to locate properties meeting his criteria.

©2019 Real Estate Council of Ontario

Lesson 9 | Page 5 of 9

Which of the given scenarios exceeds the limits of authority granted to a brokerage who is listing a property and placing it on the local listing service? There are three options. There is only one correct answer.

1 2 3

A seller client has a luxury property. Their salesperson decides to advertise the property in an expensive and exclusive magazine. The salesperson tells the seller that they need to be reimbursed for the cost of advertising. A salesperson lists a property for their seller client. They advertise the property on social media without informing the seller. The listing salesperson allows a salesperson from a cooperating brokerage to submit an offer from their buyer on the seller client’s property.

©2019 Real Estate Council of Ontario

Lesson 9 | Page 6 of 9

Chet is the listing salesperson with XYZ Realty Ltd. and Asma, who is looking to buy a house, visits an open house Chet is holding. Chet informs Asma that he represents the sellers and asks Asma if she is working with a salesperson. Asma surprises Chet by saying that she isn’t and starts to explain her situation, including some personal financial details. Chet interrupts her and warns her that she should not be sharing these details with him, and any disclosures of pertinent information could create a conflict of interest for him, including a potential violation of his fiduciary obligations to his seller client. Asma asks Chet to explain what he means by that. How should Chet handle this situation to comply with his fiduciary obligations? There are three options. There is only one correct answer.

1 2 3

Inform Asma that since he is representing the seller, she would be treated as a customer if there is no written documentation, or he can represent her as a client, but only if it is documented in writing. Tell Asma that if he treats her as a customer, he will be able to continue advising her about the purchase of the property. Explain that brokerages should avoid any conflicts of interest whenever possible. For example, he could avoid a conflict of interest by not representing Asma as a client if she decided to purchase this property.

©2019 Real Estate Council of Ontario

Lesson 9 | Page 7 of 9

Identify which of the given circumstances are examples of duty of care in a real estate transaction. There are three options. There are multiple correct answers.

1

2

3

A salesperson, when listing a property, obtains the lot dimensions verbally from the seller as no survey is available. A buyer customer, while viewing a property with a salesperson, asks the salesperson if they know the age of the property or if there are any local improvements. The salesperson reviews the listing and confirms the information with the listing salesperson. The salesperson provides the information to the buyer and also recommends they complete their own additional due diligence if the crack in the basement is a serious problem. The salesperson recommends that the buyer should obtain the advice of an expert. A buyer client informs the salesperson that he would like to purchase a property but would like to be assured he can obtain financing before being committed to the purchase. The salesperson drafts an offer and inserts a condition into the agreement allowing the buyer time to confirm they can obtain financing.

©2019 Real Estate Council of Ontario

Lesson 9 | Page 8 of 9

Miguel is the listing salesperson for Vivien who has signed a seller representation agreement with ABC Realty Estate Inc. Miguel is showing the property to Irma, a buyer customer interested in the property. The house is newly renovated with the exception of the finished bedroom in the attic, which suffered water damage from a leak in the roof last year. The damage is not easily seen, but the seller has disclosed this to Miguel. Which of the following should Miguel do for Irma? There are four options. There are multiple correct answers.

1 2 3 4

Disclose the possible water damage issue to Irma and recommend further inspection of the area to determine the extent of the damage. Verify the information about the attic provided by Vivien and make sufficient inquiries to be able to provide accurate information about the damage. Conduct additional research about the condition of the attic and advise Irma on next steps. Advise Irma on an appropriate way to negotiate with Vivien to seek compensation for the water damage in the form of a price reduction.

©2019 Real Estate Council of Ontario

Lesson 9 | Page 9 of 9

Congratulations, you have completed the lesson!

©2019 Real Estate Council of Ontario

Module Summary | Page 1 of 4

Module Summary

This lesson contains a summary of the entire module and a list of helpful resources available in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 2 of 4

Congratulations, you have completed this module! This lesson will present a summary of Learning Objectives and a list of helpful resources that you can search for in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 3 of 4

There are eight sections on this page with a summary of the key topics that were discussed in this module.

Identify the fundamentals of agency

The terms used in REBBA can differ from the terms used under the common law of agency and within the marketplace. A salesperson should understand how these terms are used and ensure sellers and buyers understand the terms as they can have a significant impact on their relationship with the brokerage. An agency relationship can be created by express agreement, which is either written or verbal. It can also be created through words and actions of the parties, which is an implied agency relationship. A salesperson must understand how an agency relationship can be created so that they do not unintentionally establish a client relationship with a customer where it was not intended. This would result in unintended multiple representation. There are many ways in which an agency relationship with a brokerage can be terminated. At times, the termination will automatically occur. Other times, specific actions by the parties must occur for the relationship to be terminated. Completion of this lesson has enabled you to: • Define terms related to agency law • Describe how an agency relationship can be created • Describe how an agency relationship can be terminated

Identify the authority granted to a brokerage

When entering into a representation agreement with a seller or a buyer, there are actual authorities granted to the brokerage. Stemming from these actual authorities are implied authorities. The implied authorities are those undertaken by the brokerage to be able to fulfill the actual authorities granted.

©2019 Real Estate Council of Ontario

There are also limitations to a brokerage’s authority, which a salesperson should understand so the authority granted is not over-stepped. A seller or a buyer, as a principal (client), owe the duty of indemnification, remuneration, and any other obligations agreed to in the representation agreement.

Identify the duties and obligations of a salesperson to a client or customer

Completion of this lesson has enabled you to: • Describe the authority granted to a brokerage by a principal • Describe the limitations to the authority granted to a brokerage by a principal • Describe the principal’s duties to the agent A salesperson owes both clients and customers duty of care, which means they must treat all individuals with fairness, honesty, and integrity. They also must exercise care and skill for both clients and customers. A salesperson must understand that fairness, honesty, and integrity apply to all their actions when trading in real estate, and they must conduct themselves in a professional manner. It is important for a salesperson to understand their obligations to sellers and buyers, and be able to explain the differences in their obligations to clients and customers. Specifically, the limitations to services available to customers need to be understood. There are general obligations owed to both a client and a customer. However, the extent of these obligations owed to a customer are limited to exercising care and skill, and ensuring honesty. All remaining general obligations are owed to a client. Fiduciary obligations are owed only to a client and many of these are based on ensuring the client is the priority and focus in all activities undertaken by the brokerage. A fiduciary relationship is based on trust and confidence, best interests, and loyalty. A brokerage must always obey the instructions of a client, however this applies only to instructions that are legal.

©2019 Real Estate Council of Ontario

Regulatory obligations are those under the common law of agency and REBBA. Many of the regulatory obligations will apply equally to a client and a customer, however, some obligations will have significant differences.

Understand single representation and multiple representation

Completion of this lesson has enabled you to: • Describe a salesperson’s duty of care owed to a client and a customer • Describe the obligations owed to a client and a customer under agency law • Describe the fiduciary obligations owed to a client • Describe the obligations owed to a client and a customer under REBBA As the agency relationship is established between the principal and the agent, the relationship established applies to all salespersons employed by the brokerage. For example, when a brokerage lists a seller’s property for sale, the salesperson who is working directly with the seller is known as the listing salesperson. However, any obligation owed to the seller by this salesperson is also owed by all other salespersons employed by the brokerage. This is known as single representation. When a brokerage represents both the seller and a buyer, or two competing buyers offering on the same property, this is considered multiple representation, even though different salespersons within the brokerage are representing the seller and buyer. For a brokerage to operate under multiple representation, the brokerage must disclose the potential for this, and then obtain written consent to work under these conditions. If one or more of the clients do not consent to operating under multiple representation, the brokerage must release one or more clients to allow them to seek representation with another brokerage. Under multiple representation, the obligations owed, and the disclosures made, will be limited. These limitations centre around the non-disclosure of personal information or the motivation of the other party, retaining all confidential information. In addition, the brokerage may not provide any advice regarding the

©2019 Real Estate Council of Ontario

price to offer or the price to accept. The brokerage must treat both parties fairly and equally.

Identify the service options available to a seller or buyer

Completion of this lesson has enabled you to: • Describe obligations owed to a seller or buyer under single representation • Describe how multiple representation alters the obligations owed by a brokerage to a seller or buyer A seller and a buyer receive many benefits when working with a salesperson registered with RECO. The regulatory requirements for education helps a salesperson to expand and retain the knowledge required in the profession, while the Code provides a uniform standard of professional conduct for all registrants to uphold. A brokerage can offer different types of services to a seller and a buyer. These include representation as a client, or being provided services as a customer. A salesperson can offer a variety of services to sellers and buyers as clients and can tailor these services to meet the specific needs of each individual. Documenting these services will assist the seller or the buyer in understanding the obligations of the brokerage. There are many benefits to documenting these services as soon as possible in the relationship. In addition to guiding clients through the listing and selling process step-by-step, the greatest benefit of having a client relationship with a salesperson is the salesperson’s utmost loyalty. Unlike a customer relationship, in a client relationship, a salesperson is obligated to act in the client’s best interests at all times. Completion of this lesson has enabled you to: • Identify the benefits of working with a salesperson registered with RECO • Identify the types of agreements used to document a brokerage’s relationship with a seller, buyer, landlord, or tenant • Identify the obligations to provide information before an agreement

©2019 Real Estate Council of Ontario

• Identify the importance of defining and documenting services as soon as possible in the relationship

Describe a salesperson’s services to a seller

A salesperson’s services when representing a seller as a client will apply to all steps in the marketing and sale of the property. Examples of services include: • Marketing their property • Explaining the terms and conditions of offers received • Negotiating the agreement of purchase and sale for the benefit of the seller • Guiding sellers through the due diligence period of an offer when a party will be completing conditions as a requirement for the agreement The services available to seller customers are more limited. However, the salesperson is still required to act with a duty of care and treat the seller with fairness and honesty. In many instances, a brokerage has a customer relationship with a seller who is privately offering their property for sale and the brokerage is representing a buyer in the transaction. Understanding the distinction between services available to seller clients and seller customers is important for a salesperson to properly fulfill their duties.

Describe a salesperson’s services to a buyer client

Completion of this lesson has enabled you to: • Outline the services a salesperson could provide when representing a seller • Outline the services a salesperson could provide to a seller under a customer service agreement A salesperson’s services when representing a buyer will involve all aspects of identifying appropriate properties to view, showing properties, negotiating offers, ensuring any due diligence is completed, and assisting in the closing of the transaction. Examples of services include: • Qualifying buyers (and/or referring the buyers to a financing expert) to determine what price home they can afford • Locating homes that meet the buyer’s financial needs and preferences • Making appointments and showing homes to the buyer

©2019 Real Estate Council of Ontario

• Drafting an agreement of purchase and sale with terms beneficial to the buyer including any conditions to protect the buyer, (for example, home inspection or financing for the benefit of the buyer) • Presenting the offer in person (if possible) and negotiating on behalf of the buyer • Guiding buyers through satisfying conditions, leading to the transfer of ownership upon completion date The services available to buyer customers are more limited. However, the salesperson is still required to act with a duty of care and treat them with fairness and honesty. Understanding the distinction between services available to buyer clients and buyer customers is important for a salesperson to properly fulfill their duties. Completion of this lesson has enabled you to: • Outline the services a salesperson could provide when representing a buyer • Outline the services a salesperson could provide to a buyer under a customer service agreement

Fulfill obligations of a salesperson regarding not interfering with agreements that exist between clients and other brokerages

Salespersons must respect and refrain from interfering in the relationships sellers and buyers have established with other brokerages. This includes following ethical modes of communication when conveying information or responding to questions. A salesperson may not induce a seller or a buyer to break their representation agreements to enter into one with the brokerage. A salesperson may not encourage or recommend a seller or a buyer from breaking an agreement of purchase and sale already entered into. Completion of this lesson has enabled you to: • Identify the requirements under REBBA regarding dealings with other registrants

©2019 Real Estate Council of Ontario

Module Summary | Page 4 of 4

Module Resources There are nine helpful resources related to this module that you can search for in the Knowledge Management System. 1. Creating an Agency Relationship: This job aid depicts different ways agency relationships may be created. It includes a table of common actions a salesperson may take and their results. A salesperson can use this job aid during the initial stages of routine contact with a seller or a buyer and to assist in determining whether an agency relationship has been implied. 2. Terminating an Agency Relationship: This job aid lists the obligations a salesperson has to sellers and buyers after the termination of an agency relationship between them and the brokerage. It includes a common example that a salesperson might encounter. A salesperson can use this job aid as a refresher prior to terminating a relationship. ©2019 Real Estate Council of Ontario

3. Duties Owed by the Seller or Buyer to the Brokerage: This job aid contains examples of each duty a seller or a buyer owes to the brokerage. It also contains Frequently Asked Questions (FAQs) that salespersons receive from sellers or buyers and examples of how to respond to them. A salesperson can use this job aid when fielding questions from a seller or a buyer about their obligations. 4. Duty of Care to Client: This job aid outlines the duty of care owed to clients. A salesperson can use this job aid when representing a client. 5. Avoiding Conflicts of Interest: This table lists common scenarios in which a conflict of interest may arise. A salesperson can refer to it to ensure they avoid conflicts of interest. 6. Navigating Multiple Representation: These flowcharts outline the required steps of disclosure before an offer is made. They also address common examples of multiple representation. A salesperson can use this job aid to help them avoid conflicts of interest during multiple representation. 7. Seller Client Services: This flowchart contains a list of some of the services available to a seller client throughout each stage of the listing process. A salesperson can use this job aid during the following stages of a seller client relationship to ensure the indicated tasks are completed. 8. Buyer Client Services: This flowchart contains a list of services available to a buyer client throughout each stage of the buying process. A salesperson can use this job aid during the following stages of a buyer client relationship to ensure the indicated tasks are completed. 9. Duty of Care to Customer: This job aid outlines the duty of care owed to customers. A salesperson can use this job aid at the start of their relationships. While navigating through the online module, click the KMS button for tools and information on this topic.

©2019 Real Estate Council of Ontario

Module 2: Documenting Relationships Disclaimer: This is a reference document which contains pages from the Accessible eLearning module. You should complete the eLearning module to proceed to the next step. Please note that the accessible module on the LMS only contains the interactive pages and you need to go through the content of this document thoroughly to attempt the interactive activities in the module. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Salesperson Program ©2019 Real Estate Council of Ontario. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or in any means – by electronic, mechanical, photocopying, recording or otherwise without prior written permission, except for the personal use of the Real Estate Salesperson Program learner.

©2019 Real Estate Council of Ontario

V7.1

Module 2: Documenting Relationships Documenting Relationships with Sellers and Buyers As you learned earlier, establishing a relationship between the brokerage and a seller or a buyer can be done in various ways, including by the words and actions of the parties or by way of a written agreement. The relationship established, and the services being provided, can be unique to each seller or buyer. Therefore, documenting the relationship is an important aspect of ensuring all parties understand their obligations and there is no misunderstanding of the services being provided by the brokerage under the agreement. Accurately documenting the relationship with a seller or a buyer is a regulatory requirement under REBBA. The Code of Ethics requires specific information to be provided to a seller or a buyer prior to entering into any agreement, and certain information to be included in any agreement. As a salesperson, you will be responsible for documenting the relationship on behalf of your brokerage. Since the scope of the relationship can be created by your words or actions alone, an undocumented relationship can lead to misunderstandings. All agreements should clearly set out the obligations of all parties involved and any limitations to the services being provided by the brokerage to ensure the expectations of a seller or a buyer are met. To document the relationship with a seller or a buyer, as a salesperson, you will need to understand the type of agreement to be used, be able to explain the contents of an agreement to a seller or a buyer, understand how to amend, suspend, cancel, or assign an agreement based on events occurring after an agreement has been signed, and be able to fulfill your obligations under REBBA relating to documenting a relationship.

©2019 Real Estate Council of Ontario

To check your understanding of this module, you must complete all the activities in the online module. While navigating through the online module, click the Legislation button to view laws and regulations related to this module. While navigating through the online module, click the KMS button to access the Knowledge Management System or visit the Module Resources to find the list of all the KMS assets for this module. The contents of the thumbnail icon and References from the module are added to support your learning throughout this Accessible PDF.

©2019 Real Estate Council of Ontario

Menu: Welcome to Documenting Relationships Number of Lessons

9 Lessons

Lesson Number Lesson 1 Lesson 2 Lesson 3 Lesson 4 Lesson 5 Lesson 6 Lesson 7 Lesson 8

Lesson Name Registrant, Seller, and Buyer Obligations The Seller Representation Agreement The Buyer Representation Agreement The Seller Customer Service Agreement The Buyer Customer Service Agreement Altering the Terms of a Representation or a Customer Service Agreement Salesperson’s Obligations Regarding Services Provided Summary Practice Activities Module Summary

©2019 Real Estate Council of Ontario

Lesson 1 | Page 1 of 18

Lesson 1: Registrant, Seller, and Buyer Obligations

This lesson details the regulatory obligations when documenting a relationship with a seller or a buyer, requirements regarding remuneration and other financial disclosures, additional disclosures relating to a brokerage’s relationship to the parties, and the legal obligations of a seller and a buyer to a brokerage.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 2 of 18

This lesson highlights your obligations as a salesperson when documenting relationships, your requirements for disclosure regarding remuneration or other financial matters, and additional requirements relating to the brokerage’s relationship with sellers and buyers. The lesson also details the legal obligations of a seller and a buyer to a brokerage, and how these obligations vary whether it is a client or a customer relationship. Upon completion of this lesson, you will be able to: • Identify the regulatory obligations of a registrant regarding documenting a relationship with a seller and a buyer • Identify the regulatory obligations of a registrant regarding remuneration and other financial disclosures with a seller and a buyer • Identify the regulatory obligations of a registrant regarding disclosure requirements relating to relationships with a seller and a buyer • Identify legal obligations of a seller • Identify legal obligations of a buyer

©2019 Real Estate Council of Ontario

Lesson 1 | Page 3 of 18

Introduction to the Regulatory Obligations of a Registrant A salesperson must clearly describe the nature of the services they would provide when entering into an agreement to represent or provide services to others in a real estate transaction. The Code of Ethics includes several requirements related to entering into and documenting a relationship. These include: ● Before a seller or a buyer is asked to enter into a client or customer relationship with a brokerage, a salesperson must provide information regarding service alternatives, types of services offered, and multiple representation ● Specific information must be included in any agreement used to document a relationship ● A written document is required at the earliest practical opportunity and before an offer is made ● A salesperson must provide a copy of the agreement to each person ● Any document used must be current As a salesperson, you are required to comply with these regulatory obligations as they are in place to help protect consumers and to ensure appropriate disclosures and minimum standards are upheld by all registrants. An important first step in ensuring that a seller or a buyer makes an informed decision when establishing a relationship with a brokerage, is to accurately and fully explain the service options available to them. Clarifying and documenting a relationship as early as possible is the best way to avoid misunderstandings. The following screens detail the obligations under the Code relating to documenting a relationship with a seller or a buyer. ©2019 Real Estate Council of Ontario

Lesson 1 | Page 4 of 18

Registrant’s Obligations: Information before Agreements, Section 10 of the Code of Ethics A salesperson is required to discuss specific information with a seller or a buyer prior to entering into an agreement for the purpose of trading in real estate. This information is provided to assist the seller or the buyer in making an informed decision on the type of relationship and the services they will receive based on that relationship. The information to be provided includes: • The types of service alternatives that are available to the seller or the buyer in the circumstances including a representation agreement or another type of agreement. This discussion should include the difference between a client and a customer, and how services differ in these two types of relationships. You are also expected to explain that there could be circumstances where the brokerage may represent more than one client in the same transaction, which would result in a change to those services. • The services that will be provided by the brokerage and the salesperson under each agreement. Services differ according to the nature of the agreement; the seller and the buyer must understand this to avoid any misunderstandings at a later time.

©2019 Real Estate Council of Ontario

• The fact that circumstances may arise in which the brokerage could potentially represent more than one client in the same trade in real estate. However, a brokerage cannot do this unless all of the clients represented by the brokerage in the trade agree and confirm their agreement in writing. • The nature of services that the brokerage would provide to each client if the brokerage represents more than one client in the same trade. • The fact that circumstances could arise in which the brokerage could provide services to more than one customer in respect of the same trade and how the services may change. • The fact that circumstances may arise where the brokerage could be representing a client and providing services to customers within the same trade and how the services may change. • The difference in services that the brokerage would provide to a customer versus the services it would provide to a client in the same trade. • The Code requires you to do your best to obtain a written acknowledgement that this discussion has taken place at the earliest opportunity, but at the very latest, before an offer is made. As a salesperson, you must ensure that all parties have received the required information before agreeing to become a client or a customer of the brokerage. Failure to explain the service options available can result in a seller or a buyer selecting a level of service that is not appropriate for their needs, or creating a misunderstanding of the services being provided or the obligations owed. For example, a buyer assumes that brokerages and salespersons are required to treat all information as confidential and that the salesperson will provide advice on all aspects of a purchase. The salesperson has offered customer service only to the buyer to avoid multiple representation, as the buyer is interested in purchasing a property listed by the brokerage. Unaware of this, the buyer is disappointed in both the salesperson and the brokerage as they were expecting services in excess of those being provided. The buyer expresses their dissatisfaction that the salesperson shared information with the seller that the buyer thought would be held in confidence by the salesperson. They file a complaint with RECO. As a salesperson, you can avoid such misunderstandings by clearly explaining the services and obligations under each agreement to the seller or the buyer at the earliest opportunity, to ensure they are clear as to the differences between a client relationship and customer relationship.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 5 of 18

Registrant’s Obligations: Information before Agreements, Section 10 of the Code of Ethics Example 1 A salesperson is preparing material for her first listing presentation and wants to ensure that she is able to discuss all of the requirements under the Code of Ethics before asking the seller to enter into a representation agreement. She has copies of the seller representation agreement and the customer service agreement used by her brokerage. The broker of record has assisted her by explaining in detail the services offered for both clients and customers. They also review the brokerage services form produced by the brokerage to address client services, multiple representation, services to more than one customer, representing clients while providing services to customers, and specifics of limited services provided to customers. She will use this to obtain the seller’s signature to confirm that the information is provided at the earliest practical opportunity and before an offer is made.

Example 2 A salesperson wants to ensure that each person attending their open house is aware of the information required by the Code of Ethics relating to service alternatives and the services the brokerage provides to a client or a customer. He has produced a “property feature sheet” containing minimal information about the property. If a visitor expresses a deeper interest in the home, then more information would be provided along with information on services that the brokerage could offer. The following screens explore other obligations under the Code.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 6 of 18

Regulatory Obligations Regarding Documenting a Relationship with a Seller and a Buyer The Code of Ethics contains additional provisions relating to a representation or customer service agreement. The following six sections contain information about your regulatory obligations while documenting a relationship.

Contents of written agreements (Section 11 of the Code of Ethics)

All representation and customer service agreements must contain, at a minimum, specific information as identified under the Code. Any written agreement between a brokerage and a seller or a buyer must clearly, comprehensibly, and prominently specify: • The effective date and expiry date of the agreement. There may be only one expiry date. • The method for calculating remuneration payable to the brokerage. In the case of an agreement with a seller, the amount payable to any other brokerage. • How the remuneration will be paid to the brokerage. • The services that the brokerage will provide under the agreement. In addition, if the term of the agreement is more than six months, the expiry date must be prominently displayed on the first page and the seller or the buyer must initial next to the date acknowledging this term. Example: A broker of record provides brokerage pre-approved documents for all salespersons to use when preparing a representation or a customer service agreement with a seller or a buyer. The use of brokerage pre-approved forms ensures the salesperson does not put the brokerage in a position of non-compliance with the Code.

©2019 Real Estate Council of Ontario

Copies of written agreements (Section 12 of the Code of Ethics)

When a brokerage enters into a written representation or customer service agreement with a seller or a buyer, a copy of the agreement must immediately be given to everyone who signs the agreement. This would require a salesperson, when meeting with the parties in person, to have sufficient copies of the agreement for all parties and the brokerage. If the agreement is being completed electronically (by fax or email), or if the parties sign the agreement electronically, they are deemed to have received a copy of the agreement with the generated receipt or confirmation as evidence of transmission.

Seller representatio n agreements (Section 13 of the Code of Ethics)

If a brokerage enters into a verbal agreement with a seller to represent them in the listing and marketing of a property, the agreement must be reduced to a written document, signed by the brokerage and submitted to the seller for signing at the earliest opportunity and before an offer is made.

Example: A salesperson is meeting with the sellers of a residential property who have agreed to list their property for sale with the brokerage. The salesperson has three copies of the seller representation agreement and, immediately after signing, provides each seller with a copy of the signed agreement and retains the third copy for the brokerage.

As a salesperson, you may sign a representation or a customer service agreement on behalf of the brokerage and present it to the seller for signing. Although the Code does not require the seller(s) to sign the agreement, in practice, a brokerage may have policies that require any agreement with a seller to be signed prior to any marketing activity being undertaken for the property. A seller representation agreement is also commonly referred to as a listing agreement. Example: A seller has expressed an interest in selling a property. A salesperson explains the services available to the seller under a representation or a customer service agreement. The salesperson and the seller agree the brokerage will represent the seller, so the salesperson prepares the seller representation agreement, signs it on behalf of the brokerage, and gives it to the seller for signature. The seller agrees and signs two copies of the form. The salesperson provides the seller with one copy and retains one copy for the brokerage.

©2019 Real Estate Council of Ontario

Buyer representatio n agreements (Section 14 of the Code of Ethics)

Agreements with customers (Section 15 of the Code of Ethics)

If a brokerage enters into a verbal agreement with a buyer to represent them in the purchase of a property, the agreement must be reduced to a written document, signed by the brokerage, and submitted to the buyer for signing at the earliest opportunity, and before any offer is made. As a salesperson, you may sign the document on behalf of the brokerage. Although the Code does not require the buyer(s) to sign the agreement, in practice, a brokerage may have policies and procedures relating to working with buyers and obtaining the buyers’ signatures. Example: The buyers have expressed interest in seeing various listed properties but are reluctant to sign a representation agreement. The salesperson fully informs them of the brokerage’s services, client/customer relationships, and reviews the buyer representation agreement. The salesperson agrees to show the buyers three properties, one of which is of interest. The buyers, now at the point of contemplating an offer, sign the buyer representation agreement. If a brokerage enters into a verbal agreement with a seller or a buyer as a customer to provide services in respect of a trade, the agreement must be reduced to a written document, signed by the brokerage, and submitted to the customer for signing at the earliest opportunity, and before any offer is made. As a salesperson, you may sign this document on behalf of the brokerage. Although the Code does not require the seller or the buyer as a customer(s) to sign the agreement, in practice, a brokerage may have policies relating to the use of a customer service agreement. These policies may vary depending on whether the customer is a seller or a buyer. There are distinct service agreements used for each, as the terms relating to providing services for a trade differ. Example: A salesperson is holding an open house for a seller who has listed their property for sale with the brokerage. A buyer who has viewed the home during the open house expresses an interest in the property. The salesperson fully explains the service alternatives and that the brokerage would be providing customer service to the buyer for this purchase to avoid entering into multiple representation. The buyer agrees to these terms, so the salesperson

©2019 Real Estate Council of Ontario

prepares a buyer customer service agreement, signs it on behalf of the brokerage, and submits it to the buyer for signature. The buyer signs the customer service agreement prior to discussing any details of an offer.

Current forms (Section 34 of the Code of Ethics)

The Code also requires that all forms used in the course of a trade are current. As legislation can change, a brokerage must ensure all salespersons are using up-to-date forms. Example: A brokerage has a policy regarding the preparation of any form that includes measures to ensure current forms are used and outdated forms are removed from circulation at the brokerage. In addition, the broker of record conducts a detailed training session to ensure the salespersons are complying with their obligations to use an updated form and their understanding of any revision.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 7 of 18

A couple contacts a salesperson to discuss selling their home. After the salesperson explains the types of services available through his brokerage, the homeowners indicate that they would like to be represented by the brokerage. The salesperson reviews the seller representation agreement with them and explains the services the brokerage will be providing under the agreement. The Code of Ethics places certain obligations on a brokerage when documenting the relationship with a seller. Which among the following actions by the salesperson comply with regulatory obligations? There are four options. There are multiple correct answers.

1 2 3 4

The salesperson prepares the seller representation agreement and has both sellers sign. The salesperson immediately provides them with one copy and returns the second copy to the brokerage. The salesperson identifies the amount of remuneration payable to the brokerage, including any remuneration payable to another brokerage. The salesperson identifies the expiry date of the listing as 60 days from the effective date and does not ask the sellers to initial next to the expiry date on page one of the agreements. The salesperson explains how the services provided by the brokerage would change if the brokerage also represents the buyer in the transaction, and identifies that signing the representation agreement provides full consent from the seller should this occur in the future.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 8 of 18

A salesperson is meeting with a potential buyer for the first time and is discussing the types of services available from his brokerage. The buyer explains that he would like help in finding a property, but he doesn't want to be tied down to one brokerage and he doesn't want to pay any remuneration. The buyer decides that customer service is his best option. Which statement is correct regarding the buyer customer service agreement? There are four options. There is only one correct answer.

1 2 3 4

Since there is no obligation to pay remuneration and the buyer is free to work with any other brokerage, there is no requirement for a written buyer customer service agreement. A provision for the automatic extension of the expiry date is contained in the pre-printed wording of a typical buyer customer service agreement. Once a buyer customer service agreement is created and signed on behalf of a brokerage, a customer is required to sign the document to establish the customer relationship. While the brokerage is providing customer service to the buyer, they may also be representing the seller of a property the buyer wishes to purchase.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 9 of 18

Registrant’s Obligations Regarding Remuneration and Financial Disclosures A salesperson and brokerage have certain regulatory obligations when it comes to remuneration and other financial disclosures, which they need to keep in mind when documenting relationships. The following four sections contain information about the different types of regulations regarding remuneration and other financial disclosures with sellers and buyers.

Obligation related to charging or collecting remuneration, per Sections 13 and 14 of the Code and Subsection 23(1) of O.Reg. 567/05

A brokerage cannot charge remuneration for a trade unless there is a written agreement that is signed by, or on behalf of, the person who will pay the remuneration. There exists, under REBBA, a provision for remuneration to be payable where an agreement to pay remuneration is not in writing, provided certain conditions exist. Remuneration may be payable, despite there being no commission agreement documented, when: • A salesperson has conveyed a written offer that is accepted by the seller; • A salesperson shows a property to the buyer, who subsequently purchases the property; or • The salesperson introduces the seller and the buyer, for the purpose of discussing the acquisition or disposition of an interest in real estate. In such cases, the brokerage was the catalyst for the sale or purchase of the property and may be able to claim remuneration. Under Sections 13 and 14 of the Code, the salesperson, at the earliest opportunity, is required to complete the appropriate agreement, sign it on behalf of the brokerage, and present it to the party for signature. The party is not obligated to sign the agreement. However, the

©2019 Real Estate Council of Ontario

salesperson is also not obligated to work with a party who refuses to sign. This is often a matter of brokerage policy. Failing to properly document and discuss the client’s or the customer’s obligation to pay remuneration may result in an invalid agreement, resulting in the brokerage not getting paid, detrimental impact on the salesperson’s and the brokerage’s reputation, and disciplinary action by RECO.

Obligations regarding allowable ways of calculating remuneration (Subsections 36(1), (2), and (3) of the Act)

As previously detailed, REBBA contains various restrictions relating to commission or other remuneration payable to a brokerage. The allowable methods include a fixed amount, a percentage of the sale price, or a combination of both. If there is no written agreement as to the amount, the remuneration is then negotiated between the parties and in some cases, the courts may be asked to intervene and determine the amount of remuneration payable. If the remuneration payable is a percentage of the sale price, the percentage does not need to be fixed but can be a series of percentages that decrease at specified amounts as the sale price increases. Remuneration cannot be based on the difference between the listing price and the sale price of the property. Many variations of remuneration calculations exist, with a percentage of the sale price being the most common. Factors that could impact the calculation of remuneration include the price range of the property and service or marketing options being provided by the brokerage. To ensure compliance with these obligations, a complete understanding of the requirements under REBBA is needed. Example 1: ©2019 Real Estate Council of Ontario

A salesperson and a seller agree to the remuneration payable to the brokerage as follows: A flat fee of $2,000 plus 3.5% of the sale price of the property.

Obligations to disclose any direct or indirect benefit (Subsection 18(4) of the Code of Ethics)

Example 2: A seller’s property is listed for sale at $1,900,000 and the remuneration rate payable to the brokerage has been agreed to as follows: 4% of the sale price up to and including $500,000 and 2.5% of the sale price over $500,000. Any direct or indirect financial benefit that a registrant, or a person related to the registrant, may receive from another person in connection with the services being provided by the registrant to a client must be disclosed in writing as soon as possible. This includes any commission or other remuneration that the brokerage may receive from another person. It does not matter whether the benefit is cash, a gift, or any other form of financial benefit such as reward points. If a direct or indirect financial benefit is to be received, specific details regarding that benefit must be disclosed to the client in writing. Any monetary compensation must be paid through the brokerage and not directly to a salesperson. Failure to disclose or obtain the client’s consent could jeopardize the relationship and create legal liability (e.g., having to forfeit the benefit received) for the brokerage and the salesperson. Example: A salesperson representing a buyer, has negotiated an offer, which has been accepted. The salesperson has provided the buyer with information on various lenders to obtain financing for the purchase. The buyer has selected one of the lenders who has offered the salesperson a referral fee. The salesperson fully discloses in writing the

©2019 Real Estate Council of Ontario

Obligations when remuneration is being paid to the brokerage from more than one person for the same trade (Subsection 18(5) of the Code of Ethics)

terms of the referral fee, which is paid directly to the salesperson’s brokerage. If a brokerage has an agreement with a seller or a buyer to pay remuneration for a trade, the brokerage cannot collect remuneration from another person for the same trade unless specific disclosures are made by the brokerage at the earliest opportunity. These disclosures must be made in writing at the earliest opportunity and include: ● To the other person, the terms of the agreement with the seller or the buyer regarding the payment of remuneration ● To the seller or the buyer, the terms of the agreement with the other person regarding the payment of remuneration Traditionally, remuneration is paid by a seller. However, buyers can also be obligated to pay a brokerage remuneration under certain conditions (see Lesson 3 for details). Example: A brokerage has an agreement with a seller to pay remuneration at the rate of 4% of the sale price. The brokerage is also collecting a remuneration from the buyer at the rate of 1% of the sale price. The amount being paid by the seller is disclosed to the buyer, and the amount being paid by the buyer is disclosed to the seller. The disclosure is made in writing at the earliest opportunity and the brokerage obtains consent from both parties to collect remuneration twice for the same trade.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 10 of 18

Registrant’s Obligations Regarding Remuneration and Financial Disclosures A salesperson and brokerage have certain regulatory obligations when it comes to remuneration and other financial disclosures, which they need to keep in mind when documenting relationships. The following three sections contain information about the different types of regulations regarding remuneration and other financial disclosures with sellers and buyers.

Obligations to not indicate remuneration is fixed or approved (Section 9 of the Code of Ethics)

A salesperson may not indicate to any person, either directly or indirectly, that the remuneration is fixed. Also not permitted would be any indication that remuneration must be approved by the administrative authority, a government authority, or a real estate board or association. Remuneration is negotiated with each seller and buyer and could be based on the services the party is to receive, the location of the property that requires additional time and distance to travel, or unique skills required (e.g., a cottage on an island would require someone with a Marine Operator’s License). Brokerages could have policies and procedures relating to remuneration that a salesperson must comply with when negotiating remuneration with a seller or a buyer. Example: A salesperson is preparing to list a seller’s property for sale and discusses the services the brokerage will provide under the agreement. The salesperson indicates that although there are regulatory requirements regarding how remuneration may be calculated, the amount agreed to is negotiable between the seller and the brokerage.

©2019 Real Estate Council of Ontario

Obligations to show all properties that meet a buyer’s criteria (Section 19 of the Code of Ethics)

Obligations regarding remuneration when it is known that there is an unexpired agreement (Subsection 33(3) of the Act and Subsection 23(2) of O. Reg. 567/05)

When a buyer is being represented by a brokerage, the buyer must be informed of properties that meet the buyer’s criteria, without any regard to the amount of remuneration, if any, the brokerage may be entitled to. This requires a salesperson to inform a buyer of all properties that meet their criteria, regardless of the amount of remuneration offered to the brokerage. The buyer can then make an informed decision on whether to view the property or not, taking into consideration any remuneration obligations they may have. Example: A salesperson is reviewing potential properties to show to a buyer client and selects six properties that meet the buyer’s general requirements. When reviewing the listings, the salesperson notes that one of the properties is paying a flat fee remuneration of $1,000 while the other five are paying a percentage of the sale price ranging from 2% to 3% of the sale price. The salesperson introduces all of the listings to the buyer and explains any remuneration obligations the buyer would have. The buyer then selects the listings that will be shown to them by the salesperson. There are regulatory requirements regarding collecting a remuneration from a seller or a buyer who is currently under an agreement with another brokerage to pay remuneration. Unless a seller provides a written agreement to pay remuneration, a brokerage is not entitled to claim remuneration from the seller for a trade in real estate if the brokerage knows there is an unexpired listing agreement with another brokerage. Similarly, unless a buyer provides a written agreement to pay remuneration, a brokerage is not entitled to claim remuneration from the buyer for a trade in real estate if the brokerage knows that there is an unexpired buyer representation agreement with another brokerage.

©2019 Real Estate Council of Ontario

A salesperson would specifically confirm with a seller or a buyer that they are not currently a party to an existing representation agreement with another brokerage prior to entering into such an agreement with the seller or the buyer. In Lessons 2 and 3, details regarding obtaining a warranty from the seller or the buyer in a representation agreement with the brokerage are explained. Example: A salesperson has been contacted by a seller who is interested in listing their property for sale. The salesperson confirms the seller is not currently a party to a representation agreement with any other brokerage before entering into an agreement with the seller. When the property is sold, and the transaction is completed, the brokerage is permitted to collect the remuneration as agreed to.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 11 of 18

While documenting a relationship with a seller or a buyer, a salesperson has certain obligations regarding remuneration and other financial disclosures.

Which scenario shows the salesperson complying with their obligations for disclosure? There are four options. There is only one correct answer.

1

2

3

4

A salesperson finds a property being sold privately for a buyer client. The buyer has agreed to pay remuneration to the salesperson’s brokerage. The seller signs a customer service agreement with the salesperson’s brokerage and agrees to pay remuneration. The salesperson informs the buyer about the terms of the brokerage’s agreement with the seller, but does not inform the seller about the remuneration the brokerage will be receiving from the buyer as the seller is a customer, not a client. A seller, while discussing remuneration with a salesperson, suggests the remuneration rate of 2% of the selling price up to $250,000 and then 4% of the selling price for the amount above that. The salesperson suggests the rate of remuneration be altered at $200,000 instead. A salesperson, while discussing remuneration obligations with a seller, states their brokerage is required to charge a remuneration rate of 5% for the trade as that is the minimum amount required to place the listing on the local listing service. A salesperson helps a buyer find their ideal home. The agreement is accepted, and the buyers ask the salesperson if he knows of any moving companies. The salesperson’s brokerage has a business relationship with a moving company from whom they receive a fee for referring anyone to them. The salesperson refers the buyers to the moving company and provides a written disclosure regarding the referral fees.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 12 of 18

Disclosure Requirements Relating to Relationships As a salesperson, you will have regulatory obligations for disclosure relating to the relationships and the services a brokerage provides to sellers and buyers. The first step in these disclosures occurs when documenting relationships. Other disclosures will occur prior to an offer. The following four sections contain information about your obligations regarding disclosure requirements relating to relationships with a seller and a buyer.

Disclosure before multiple representation (Section 16 of the Code of Ethics)

A brokerage may not represent more than one client for the same trade, unless the following information has been disclosed to all clients and prospective clients, as soon as possible: ● The fact that the brokerage proposes to represent more than one client in the same trade. ● The differences in the obligations, including the disclosure of information or the services provided, if the brokerage were representing only one client rather than more than one client in the same trade. Example: A salesperson is discussing representation with a seller when listing their property for sale. While explaining the services available from the brokerage, the salesperson informs the seller that during the course of a transaction, the buyer could also be a client of their brokerage. The salesperson discusses the differences between their obligations, including any disclosure of information and the services being provided, should the brokerage represent more than one client in the same transaction.

©2019 Real Estate Council of Ontario

Nature of relationship (Section 17 of the Code of Ethics)

Inaccurate representations (Section 37(2) of the Code of Ethics)

If a brokerage represents or provides services to more than one seller or buyer for the same trade, each seller and buyer must be informed about the nature of the relationship to each seller and buyer in writing as soon as possible and before any offer is made. Examples of situations where the salesperson would need to disclose the nature of the relationship include: ● The brokerage is representing both the seller and the buyer in the same transaction (i.e., both the seller and the buyer are clients). ● The brokerage is representing the seller as a client and is providing services to the buyer as a customer in the same transaction. ● The brokerage is representing the buyer as a client and is providing services to the seller as a customer in the same transaction. In the above situations, the written disclosure is required whether it is the same salesperson working with the seller and the buyer, or different salespersons employed by the brokerage working with the seller and the buyer. In addition, the seller and the buyer must be informed about how the information shared and the services being provided by the brokerage will now change. Information regarding the nature of the brokerage’s services when representing more than one client for the same trade are detailed in Lessons 2 and 3. Example: A brokerage has listed a property for sale and is representing the seller in the transaction. The listing salesperson has been advised an offer is being received on the property. The buyer is represented by a different salesperson in the same brokerage. Prior to the offer, a written disclosure is made and signed by all parties that discloses the nature of the brokerage’s relationship to each seller and buyer. A registrant cannot knowingly make any inaccurate representations about the services provided. As a salesperson, you may not mislead a seller or a buyer about the services you provide, nor could you make an inaccurate representation in an advertisement related to your services.

©2019 Real Estate Council of Ontario

Insurance requirements (Section 11 of O. Reg. 579/05)

All registrants must be insured under the group insurance policy arranged and administered by RECO. This requires each broker, and salesperson to maintain insurance. The coverage under the policy, which is important to explain to sellers and buyers, is the errors and omissions and the deposit protection. When explaining and documenting the relationship between a brokerage and a seller or a buyer, you, as a salesperson, would advise them of the relevant insurance. Example: A salesperson is discussing the services the brokerage could provide to a buyer. During this discussion, the salesperson identifies the insurance coverage for errors and omissions as well as the deposit protection for any deposit the buyer submits and is placed in a brokerage’s trust account. In addition, the salesperson signs a document confirming they have maintained the required insurance policy.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 13 of 18

A salesperson has certain obligations regarding disclosures they need to make to sellers and/or buyers when it comes to brokerage relationships and providing services. Which scenario shows a salesperson fulfilling their obligations? There are four options. There is only one correct answer.

1

2

3

4

A salesperson advertises that every seller who lists within the next 30 days will receive a gift valued at $350. The gift is a two-hour staging of the home by the salesperson, something they usually do free of charge as part of their regular marketing efforts. The gift was not specified in the advertisement as other salespersons offer this service free of charge. A salesperson explains to their buyer client prior to showing any properties, the fact that the brokerage could also be representing a seller in the transaction and this is considered multiple representation. However, if the seller is represented by a different salesperson in the brokerage, there will be no change to the services being offered to the buyer. A salesperson is preparing to draft an offer for their buyer on a property that is being sold privately. The salesperson has documented a customer relationship with the seller and a client relationship with the buyer. Although the relationships have been previously documented, the salesperson discloses in writing and prior to any offer, the nature of the brokerage’s relationship to the seller and the buyer. A salesperson is explaining the services they would provide to a buyer and has detailed the requirements to maintain insurance. The salesperson states the brokerage must be insured under the group insurance policy. A salesperson is not required to maintain insurance as all claims are made against the brokerage and not the individual salesperson.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 14 of 18

Introduction to the Legal Obligations of a Seller and a Buyer As with salespersons, sellers and buyers also have legal obligations when it comes to relationships for a trade in real estate. These obligations are tied to agency law, covered in Explaining Services Available to a Seller or Buyer. Typically, the obligations for seller and buyer clients are indemnification, remuneration, and anything else they agree to in writing in the agreement. Seller and buyer customers’ obligations, on the other hand, are limited to only what was explicitly contained in the agreement. It is very important for you, as a salesperson, to ensure that a seller or a buyer understands their legal obligations. This can be achieved through explaining various scenarios where their obligations would apply and making sure said obligations are included in the relevant relationship agreement. You should also make sure you direct the seller’s or the buyer’s attention to every obligation and ensure that they understand each of those obligations before signing the agreement. Failure to do so may result in a misunderstanding that may damage the clients’ relationship with the brokerage. This could also lead to a lawsuit if the seller or the buyer believes that they suffered some loss because of the brokerage’s actions or inactions. Additionally, the reputation of the brokerage and salesperson could also be affected.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 15 of 18

Legal Obligations of a Seller and a Buyer Both the seller and the buyer have certain obligations, including indemnifying the brokerage against legal liabilities, paying the rightful remuneration, and carrying out any additional obligations that may be in the agreement. The following three sections contain information about the legal obligations owed by a seller or a buyer to a brokerage when being represented in the marketing of a property. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Indemnification

As you learned earlier, a brokerage (the agent) must act according to the lawful instructions of the seller or the buyer (the principal), and in doing so, will not be held responsible for any liability, claim, loss, cost, damage, or injury resulting from these acts. In the seller representation agreement, the seller agrees not to hold the brokerage or anyone else, which could include the co-operating brokerage, responsible for any damage, theft, vandalism, or fire that may occur during the marketing process, providing the brokerage is not behaving negligently in carrying out its duties. Example 1: Seller Obligation A salesperson holding an open house has taken steps to safeguard the property and ensures the property is locked at the end of the event. Following the open house, the property is vandalized, and the seller suffers a loss. Indemnification would result in the brokerage not being liable to the seller for any loss. Example 2: Seller Obligation

©2019 Real Estate Council of Ontario

The salesperson, in preparing the home for the marketplace, advises the seller to secure or otherwise remove a valuable sculpture from the coffee table in the living room. The seller does not follow the salesperson’s guidance and during a showing by another salesperson, the artwork is damaged by a prospective buyer. Should the seller decide to sue the visitor and the brokerage for the cost of the sculpture, they would likely be unsuccessful because they indemnified the brokerage, and the salesperson acted responsibly. This indemnification also extends to any liability, loss, damage, etc., as a result of the property being affected by any contaminants or environmental problems. Example 3: Buyer Obligation A salesperson shows a property to a buyer and discusses several aspects of the property, which should be inspected by a professional. The buyer purchases the property without any additional property inspections being completed. After the transaction is completed, the buyer notices water seepage in a section of the basement being renovated that was previously not visible. Indemnification would result in the brokerage not being liable to the buyer for any loss.

Remuneration

As you learned earlier, a seller or a buyer (the principal) is obligated to compensate the brokerage (the agent) for the services agreed to and provided under an agreement. The brokerage’s remuneration must be specified in the agreement and the terms fully met by the brokerage for the obligation of remuneration to apply. Example 1: Seller Obligation A seller agrees to pay the brokerage a remuneration rate of 2% of the sale price of the property. During the listing period, the seller accepts an offer and the transaction closes. Remuneration would result in the

©2019 Real Estate Council of Ontario

seller compensating the brokerage as agreed to in the listing agreement. Example 2: Buyer Obligation A buyer agrees the brokerage should receive a remuneration rate of 2.5% of the sale price for any property purchased during the term of their agreement. The buyer purchases a property where the brokerage is being compensated 1.5% of the sale price by the seller. Remuneration would result in the buyer compensating the brokerage for the additional 1% of the sale price as agreed to in the agreement. The seller is obligated to compensate the brokerage if they bring the seller a valid agreement of purchase and sale even after the expiry of the agreement, for anyone introduced to the property during the listing period, based on the holdover provision in the agreement. You will learn more about this later in the module.

Additional obligations specifically agreed to

Additional obligations of a seller or a buyer may be included in an agreement with a brokerage. These obligations must be specified in the agreement for the brokerage to enforce the agreed-upon terms. Seller Obligations A. The seller agrees to pay remuneration as agreed to if an accepted agreement of purchase and sale is not completed due to the seller’s default or neglect. Example 1: A seller accepts an offer and the transaction is scheduled to close in one week. The seller advises the brokerage they no longer want to sell their property. Based on the other obligations agreed to, the seller would be required to compensate the brokerage the agreed-upon remuneration should the seller not proceed with the transaction.

©2019 Real Estate Council of Ontario

B. The seller agrees to inform the brokerage if they receive any direct enquiries or offers from any source whatsoever during the term of the listing agreement. Should an offer be received, the seller will advise the brokerage immediately. Example 2: A neighbour approaches a seller and indicates their relative is interested in purchasing the property. The neighbour suggests selling it privately to avoid paying remuneration to the brokerage. Based on the other obligations agreed to, the seller would be required to compensate the brokerage the agreed upon remuneration should the seller complete a transaction without the participation of the brokerage. Buyer Obligations A. The buyer agrees to pay remuneration as agreed to if an accepted agreement of purchase and sale is not completed due to the buyer’s default or neglect. Example 1: A buyer’s salesperson negotiates an offer that is accepted by a seller. The offer was conditional upon the buyer obtaining financing, which was approved by the lender. A notice of fulfillment regarding the condition was delivered to the seller within the required time period. Prior to the transaction closing, the lender withdraws approval as it comes to light that the buyer had misrepresented his salary. Based on the other obligations agreed to in the buyer representation agreement, the buyer would be required to pay the brokerage the agreed upon remuneration should the buyer not complete the transaction. Additionally, the buyer would be responsible to compensate the seller for any losses suffered as a result of their default. B. The buyer agrees to inform the brokerage of any properties of interest that comes to their attention from any source whatsoever

©2019 Real Estate Council of Ontario

during the term of the agreement. Whether the brokerage has introduced a property, or the buyer has located a property on their own, any offer to purchase must be submitted through the brokerage to the seller. Example 2: A buyer notices a property being sold privately that appears to meet their criteria. Based on the other obligations agreed to, the buyer would be required to compensate the brokerage the agreed upon remuneration, should the buyer purchase the property without the participation of the brokerage.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 16 of 18

In the course of a trade, a seller has certain legal rights and obligations. Which of the following scenarios show a seller adhering to those rights and obligations? There are three options. There is only one correct answer.

1

2

3

A seller has entered into a representation agreement with a brokerage. The brokerage’s salesperson finds a buyer who submits an offer that is accepted by the seller. However, the buyer does not close the transaction citing personal reasons. Even though the transaction failed, the seller would still be obligated to pay commission as the brokerage fulfilled its duty of bringing a buyer to the seller and it isn’t the brokerage’s fault that the transaction could not proceed. A salesperson is holding an open house on a seller’s property listed with the salesperson’s brokerage. A buyer views the property but tells the salesperson that he is not interested. A few days later, the buyer contacts the seller directly and suggests that they enter into an agreement without involving the brokerage. The seller agrees and sells the property to the buyer. A seller signs a customer service agreement with a brokerage and agrees to pay them remuneration if they sell the property to the buyer named in the agreement. During the course of the agreement, a different buyer approaches the seller directly and agrees to buy the house. The seller does not disclose the enquiry to the brokerage, and the transaction to the other buyer closes successfully. The brokerage’s salesperson learns about the transaction and approaches the seller for payment of remuneration. The seller refuses to pay.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 17 of 18

In the course of a trade, a buyer has certain legal obligations. Which of the following scenarios show a buyer not adhering to their obligations? There are three options. There is only one correct answer.

1

2

3

A salesperson drafts an offer for a buyer client and includes the washer and dryer. The offer is accepted by the seller, but on closing the buyer discovers that the seller has taken the washer and dryer. The buyer insists that it is the brokerage’s fault and sues the brokerage. A buyer client goes to a builder’s model home without their salesperson and is impressed with the workmanship and the apparent good value. They call up their salesperson and inform them that they have found a home they really like. The salesperson and the buyers agree to meet at the model home the next day to discuss a possible purchase. A buyer has entered into a buyer customer service agreement with a brokerage. One day the buyer is walking down the street and sees an open house. They visit the open house and decide to submit an offer, which is accepted by the seller. They do not inform the brokerage as this topic had not come up when the buyer signed the agreement with the brokerage.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 18 of 18

Congratulations, you have completed the lesson! There are five sections on this page with a summary of the key topics that were discussed in this lesson.

Obligations of a registrant regarding documenting a relationship

As a salesperson, your regulatory obligations for documenting a relationship include: • Providing information to a seller or a buyer describing the nature of services they would provide before entering into an agreement. Clarifying and documenting relationships as early as possible is the best way to avoid misunderstandings. • Explaining the minimum content included in the agreement, including the effective date and expiry date of the agreement and the method of remuneration payable to the brokerage. • Reducing all agreements to writing before an offer is made, signing the agreement on behalf of the brokerage, and presenting it to the seller or the buyer for signature. A seller or a buyer is not obligated to sign. • Providing written copies of the agreement to all parties involved immediately after signing. If the agreement is communicated electronically, receipt of the electronic copy constitutes receipt of the agreement. • Ensuring forms used by the brokerage comply with Section 34 of the Code of Ethics.

Obligation of a registrant regarding remuneration and other financial disclosures

Your regulatory obligations regarding remuneration and other financial disclosures include: • Calculating remuneration in a manner permitted by REBBA • Disclosing a direct or indirect interest • Disclosing when the brokerage has an agreement with more than one seller and buyer for remuneration for the same trade

©2019 Real Estate Council of Ontario

• Not indicating that remuneration is fixed or approved by the law, RECO or any other government entity • Informing the buyer client of all properties meeting the client’s criteria, regardless of the remuneration involved • Not claiming remuneration from the seller for a trade if the brokerage knows that there is an unexpired listing agreement with another brokerage

Obligations of a registrant regarding disclosure requirements relating to relationships Obligations of a seller

Obligations of a buyer

As salesperson, your regulatory obligations regarding disclosure requirements relating to relationships with a seller and a buyer include: • Disclosing the possibility of multiple representation • Disclosing before multiple representation occurs • Avoiding inaccurate representation of services being provided • Having insurance A seller’s legal obligations include: • Indemnification • Remuneration • Any other obligation that may be contained in the agreement These obligations apply only to seller clients. A seller customer’s legal obligations are limited to only what they specifically agreed to as part of their agreement with the brokerage. A buyer’s legal obligations include: ● Indemnification ● Remuneration ● Any other obligations that may be contained in the agreement These obligations apply only to buyer clients. A buyer customer’s legal obligations are limited to only what they specifically agreed to as part of their agreement with the brokerage.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 1 of 71

Lesson 2: The Seller Representation Agreement

This lesson introduces a seller representation agreement used to document a client relationship with a seller. The lesson details the key components of this type of agreement, including the information typically included and the signing or initialling requirements of both the seller and the brokerage.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 2 of 71

As you learned earlier, organized real estate includes membership with a local real estate board, OREA, and CREA. If you are a member, you will have access to standard forms and clauses available through organizations you belong to. However, not all registrants choose to be members of organized real estate and may not have access to these forms. As they are commonly used in trading, specific forms and clauses will be used throughout this module and other modules for illustrative purposes. Images of OREA standard forms and clauses are included with permission of the Ontario Real Estate Association (OREA). This lesson introduces the seller representation agreement, also known as the listing agreement. This agreement is used to document a client relationship between the brokerage and a seller. The lesson details the type of information that is required, including the type of listing being taken, the terms of and parties to the agreement, the various provisions outlining the obligations, services, and other terms agreed to by the parties, and the signing and initialling requirements.

©2019 Real Estate Council of Ontario

Documenting a seller representation agreement ensures there is no misunderstanding of the terms agreed to and the services being provided, while also ensuring compliance with REBBA. The lesson includes exercises that explain how to complete different parts of a seller representation agreement. Upon completion of this lesson, the learner will be able to: • Identify the types of listings • Describe the type of information required to identify the terms of, and parties to, a seller representation agreement • Explain what a seller typically acknowledges and consents to in a seller representation agreement • Explain what a seller typically warrants in a seller representation agreement • Explain how to document remuneration in a seller representation agreement • Explain the additional information typically included in a seller representation agreement • Explain the signing and initialling requirements of a seller representation agreement • Complete the information required to identify the terms of, and parties to, a seller representation agreement • Complete the additional information typically required in a seller representation agreement • Complete the signing and initialling requirements of a seller representation agreement Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 3 of 71

Introduction to a Seller Representation Agreement As you learned earlier in this module, the obligations of a brokerage, the salesperson, the seller, and the buyer were explained. These obligations would differ based on whether the seller or the buyer would be in a client or customer relationship. The type of relationship a brokerage and a seller can enter depends on several factors, such as the property type, the knowledge and experience of a seller, and other factors unique to each situation. Since each type of relationship has its own set of obligations, documenting the relationship under which the brokerage and the seller will work is important. While a brokerage can have the same type of listing agreement with many different sellers, the terms of each listing agreement can vary. Therefore, it is important for a brokerage to document the exact terms agreed to with each seller. A seller representation agreement documents the relationship between the seller and the brokerage, authorizing the brokerage to act on the seller’s behalf in offering a property for sale on certain defined terms. This agreement identifies the brokerage’s authority and limitations. It also identifies any seller obligations to the brokerage and outlines the services the brokerage will provide. The scope of the authority granted in an agreement depends on the type of listing. An example of a form that may be used as a seller representation agreement is shown in its entirety at the end of this lesson.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 4 of 71

Introduction to Types of Listings The first step to documenting a seller representation agreement is identifying the type of listing for the property. The listing may be an exclusive listing with one brokerage, placed on a listing service inviting co-operation from other brokerages, or an open listing. When selling a property, a seller can choose what services they want to receive from the brokerage, including the type of listing. The following screen explains each type of listing in detail.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 5 of 71

Types of Listings How a property is marketed and sold depends on the type of listing the seller chooses. The following three sections contain information about the types of listing agreements. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Exclusive In an exclusive listing, the seller gives the sole right to market and sell their property to one brokerage. The brokerage is authorized by the seller to sell their property during the time specified in the agreement and on the terms agreed to. Only the brokerage with whom a seller has signed an exclusive agreement is authorized to show the property to potential buyers and the property would typically not be advertised on a listing service. In some instances, after the listing agreement has been signed, the seller may agree to allow the brokerage to cooperate with another brokerage. However, this requires specific permission from the seller.

©2019 Real Estate Council of Ontario

Typically, a seller and a brokerage agree to an exclusive listing because the seller has given specific instructions regarding the showing of the property that the brokerage must follow. As many times an exclusive listing could be priced at the higher end of values for the trading area, this could include pre-qualifying any potential buyer before viewing the property. Sellers may request tighter control over showing the property to protect their privacy and to ensure buyers are qualified and not merely curious. One consideration with an exclusive listing is that by restricting the authority to sell the property to the listing brokerage, buyers working with other brokerages may not know of the property’s availability and miss the opportunity to view and purchase the property.

©2019 Real Estate Council of Ontario

Listing Service A listing service is a member-only database that provides access to properties that are available for sale or lease. A property may be placed on a listing service (e.g., a multiple listing service through a local real estate board) if a seller wants wider exposure to more potential buyers. This form of listing is the most common. The authority to list is granted to only one brokerage. However, the seller permits the listing brokerage to co-operate with other brokerages in the sale of the property. A co-listing or shared listing is where a seller signs a representation agreement with two or more brokerages at the same time. There is only one listing but two or more brokerages share the responsibilities and the remuneration. This does not happen very often but can be encountered when there are multiple owners and they each want their own representation. A good example is a separation or divorce. Oddly, there are usually multiple signs on the property (one for each salesperson/brokerage) that can be confusing to the public and often indicates some form of an unusual or crisis sale.

©2019 Real Estate Council of Ontario

Open An open listing or “For Sale By Owner” is when a seller does not list their property with any brokerage, however, the seller is willing to allow any brokerage to show the property to a buyer. An open listing often is identified by a sign on the property, stating “Brokers Protected.” This sign means the seller will co-operate with any brokerage and will compensate the brokerage who first acquires a buyer ready, willing, and able to meet the terms of the listing or secures the acceptance by the seller of a satisfactory offer. Typically, an agreement to pay remuneration is signed between the brokerage and the seller rather than a representation agreement. As such, the seller is not a client and the brokerage does not owe the seller any fiduciary obligations. Open listings are usually seen in transactions involving office, retail, or industrial properties.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 6 of 71

Documenting a Seller Representation Agreement A written representation agreement is used to document the brokerage’s relationship with a seller who is being represented as a client. As a salesperson, you would document this relationship at the earliest opportunity to prevent any confusion or misunderstandings about the obligations owed and the services being provided. Starting with this lesson and throughout the module, we will review the type of information required when documenting various relationships with sellers and buyers. A working knowledge of the contents of each form is required, as your obligations require you to ensure a seller or a buyer fully understands any document prior to signing.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 7 of 71

Introduction to a Seller Representation Agreement As you learned earlier in this module, the Code of Ethics sets out minimum requirements for all written representation and customer service agreements. In addition to these minimum requirements, a seller representation agreement will contain certain information to ensure the obligations owed, the authority granted, and the terms under which the seller has agreed to offer their property for sale are documented. Any information required for the completion of an agreement should be verified. For example, confirmation of the seller can be obtained by reviewing a copy of the deed, assessment notice, or a municipal tax bill. In addition to documenting the seller and property information, a representation agreement will contain additional information, such as: • The services the brokerage will provide under the agreement • The seller’s obligations for indemnification and remuneration • The brokerage’s obligations • The brokerage’s actual authorities • The limitations to the brokerage’s authority

©2019 Real Estate Council of Ontario

As a salesperson, you need to prepare an accurate and complete seller representation agreement and explain the contents to the seller. Prior to asking a seller to sign the agreement, you must ensure they have a clear understanding of its contents and the obligations owed by all parties. The seller will be asked to sign and initial the agreement, and any non-titled spouse will be asked to consent to the listing by also signing the agreement. Also remember, under the Code of Ethics, a copy of the agreement is to be provided immediately upon signing.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 8 of 71

Terms of and Parties to a Seller Representation Agreement A seller representation agreement must identify the terms of the agreement and the parties to the agreement. This includes identifying the type of listing, the brokerage’s information, the seller’s name, and the address of the property being listed. The following screens will highlight the information you will be required to document regarding the terms of, and parties to, the agreement: • • • • • • •

Listing agreement type Brokerage details Seller(s) details Address for listed property Effective and expiry dates for the agreement, and the six-month provision Listing price Seller’s representation and warranty

©2019 Real Estate Council of Ontario

Lesson 2 | Page 9 of 71

Listing Agreement Type The type of listing being taken is to be determined, as this identifies whether the seller is authorizing the brokerage to co-operate with any other brokerage in the marketing of the property. The decision on the type of listing, either exclusive or through a listing service, is based on the discussions and recommendations of the salesperson. Whichever option is selected, obtain the seller’s initials for the applicable option. Brokerage Details The full registered name and the contact information of the brokerage are identified in the agreement. As the brokerage is the agent, the parties to the agreement indicate the brokerage’s name and not that of the salesperson. The brokerage is identified as the “Listing Brokerage.” A salesperson’s name is added later in the agreement, where signing to bind the Listing Brokerage and declaration of insurance is provided.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 10 of 71

For example, OREA Form 200 contains a section at the top that lets the seller choose between listing their property as an exclusive listing or through a listing service. The seller indicates their choice by initialing the applicable option.

This section of the form also contains a line where the registered name of the brokerage will be entered, and the telephone number will also be provided. They are then referred to as “Listing Brokerage” across the agreement.

From OREA Form 200: Listing Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 11 of 71

Seller(s) Details The legal name(s) of all registered owners of the property are identified. Only the name(s) listed on the title have authority to sell the property. If the seller is an individual, use their full legal name as registered. If the seller is an incorporated company, business, or partnership, the registered name would be indicated as the owner. Under these circumstances, you must verify the individual signing has the authority to sign on behalf of the entity. Additional documents demonstrating the seller has the legal authority to sell a property, such as a power of attorney or estate trustee, will need to be verified. In an upcoming module, you will learn about the specifics of verifying and identifying parties to an agreement under various scenarios.

©2019 Real Estate Council of Ontario

A non-titled spouse is not identified as a seller. Obtaining spousal consent is required for the sale of a matrimonial home (as per the Family Law Act). Spousal consent is obtained further in a seller representation agreement, where the seller signs. Address for Listed Property The address for the property must be inserted to identify the specific property being sold. The complete address must be included and verified. A municipal address for urban properties including the town/city name may differ from some addresses of rural properties. In some instances, a rural property’s address will be recorded based on local standards (e.g., R.R. #1 Anytownship, Anyregion). The address for the property may also be found and verified by using a survey of the property, municipal tax bill, or assessment notice. In most rural locations, numerical designations are found at the entrance to identify the property; sometimes referred to the 911 number used by emergency services such as fire, ambulance, police. This number can be used to identify a rural property’s address in a listing agreement, for example 12345 Sixth Line.

Effective and Expiry Dates for the Agreement, and the Six-Month Provision In compliance with the Code of Ethics, a representation agreement must include the date on which the agreement takes effect and the date it expires. The seller needs to be aware of the time period for which they will be bound by the agreement. A new listing should not commence with a brokerage before a current listing expires, as this would obligate the seller to two brokerages should the property sell during this time period. However, if the property is being listed for sale as well as being offered for lease, two separate listings would be appropriate. Additional regulatory obligations regarding the duration of the listing agreement must also be complied with. If the listing period exceeds six months, the seller is required to provide consent by initialling next to the expiry date. This must be prominently displayed on the first page of the agreement.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 12 of 71

For example, OREA Form 200 contains a line where the legal name of the authorized seller will be entered. They are then referred to as “Seller” throughout the agreement.

This section of the form also contains an area where the property address or legal description of the property is entered and is referred to in context of the agreement as (“the Property”).

This section of the form also contains a line that sets out the term or “Listing Period” of the agreement, including the date and time when it commences and ends. Enter a commencement date and an expiry date, in accordance with Subsections 11(1)(a) and 11(3) of the Code.

This section of the form also provides details about how the listing duration is negotiable between the seller and the listing brokerage.

From OREA Form 200: Listing Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 13 of 71

Listing Price The listing price is identified in both words and figures. The listing price and other terms, such as the effective and expiry dates, are based on the seller’s request after discussing it fully with the brokerage’s salesperson. In an upcoming module, you will learn how to provide a seller with the required information to assist them in arriving at an appropriate listing price. Seller’s Representation and Warranty The seller’s representation and warranty are included to ensure the seller does not currently have the property listed with another brokerage or have any agreement to pay remuneration to any other brokerage. A leading practice is to ensure that the seller does not list their property with more than one brokerage at the same time, as this could obligate the seller to pay remuneration to more than one brokerage. The seller’s initials are obtained next to the statement to ensure the seller has read and understood this term of the agreement.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 14 of 71

For example, OREA Form 200 contains a line where the listing price for the property being listed is entered. The listing price is entered in both words and numbers on the agreement.

This section of the form also contains a statement where the seller warrants that the property is not listed with any other brokerage.

From OREA Form 200: Listing Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 15 of 71

From OREA Form 200: Listing Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Documenting Terms and Parties to the Agreement Now that you have reviewed the specific type of information required to identify the terms and parties in a seller representation agreement, let us look at how all these elements come together in OREA Form 200, as an example. 1. Listing Agreement Type: OREA Form 200 contains a section at the top that lets the seller choose between listing their property as an exclusive listing or through a listing service. The seller indicates their choice by initialing the applicable option. This section identifies the seller’s decision regarding the type of listing they want. 2. Brokerage details: OREA Form 200 contains a line where the registered name of the brokerage will be entered, and the telephone number will also be provided. They are then referred to as “Listing Brokerage” across the agreement. This section contains the brokerage’s full registered name and contact details. 3. Seller(s) details: OREA Form 200 contains a line where the legal name of the authorized seller will be entered. They are then referred to as “Seller” throughout the agreement. Legal name(s) of all registered owners of the property are identified in this section. 4. Address for listed property: OREA Form 200 contains an area to include the property’s address or legal description. Complete address is added after verification for listing of the property in this section. 5. Effective and expiry dates for the agreement, and the six-month provision: OREA Form 200 contains an area to enter a commencement date and an expiry date. The OREA form also contains a section that provides details about how the listing duration is negotiable between the seller and the listing brokerage. This section includes the date on which agreement takes effect and the date it expires and the six-month provision. 6. Listing price: OREA Form 200 contains a line where the listing price for the property being listed is entered. The listing price is entered in both words and numbers on the agreement. ©2019 Real Estate Council of Ontario

Listing price of the property is identified in both words and figures in this section. 7. Seller’s representation and warranty: OREA Form 200 contains a section in bold type on the first page, which mentions that the seller’s warranty with respect to an unexpired listing agreement is intended to protect both seller and the brokerage with respect to remuneration. In this section, the seller warrants that they have not currently listed the property with another brokerage or have any pending remuneration to pay to any brokerage.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 16 of 71

Rita of ABC Real Estate Inc. is meeting with two sellers, Mr. and Mrs. Lee. They like Rita’s recommendation to increase exposure of their property and agree with her recommendation for the type of listing. The Lees had previously tried to sell their property privately and were asking $1,500,000. It was viewed by several buyers, but no offer was received. As they want to sell within three months, they have taken Rita’s advice for the listing price of $1,290,000 as current market conditions indicate there are many listings, but not many buyers. The Lees are prepared to sign a seller representation agreement with Rita to list their property for sale. How should Rita complete the information on the seller representation agreement for Mr. and Mrs. Lee? Select the best wording. There are two options. There is only one correct answer.

1 2

“Mr. and Mrs. Lee, let’s get started. Your initials are needed to indicate that this is an Exclusive Listing Agreement.” “Mr. and Mrs. Lee, let’s get started. Your initials are needed to indicate that this is a Listing Service Agreement.”

©2019 Real Estate Council of Ontario

Lesson 2 | Page 17 of 71

Rita of ABC Real Estate Inc. is meeting with two sellers, Mr. and Mrs. Lee. They like Rita’s recommendation to increase exposure of their property and agree with her recommendation for the type of listing. The Lees had previously tried to sell their property privately and were asking $1,500,000. It was viewed by several buyers, but no offer was received. As they want to sell within three months, they have taken Rita’s advice for the listing price of $1,290,000 as current market conditions indicate there are many listings, but not many buyers. The Lees are prepared to sign a seller representation agreement with Rita to list their property for sale. How should Rita complete the information on the seller representation agreement for Mr. and Mrs. Lee? Select the best wording. There are two options. There is only one correct answer. 1 2

“The agreement is between yourselves and Rita Jonas, ABC Real Estate Inc.” “The agreement is between yourselves and ABC Real Estate Inc.”

©2019 Real Estate Council of Ontario

Lesson 2 | Page 18 of 71

Rita of ABC Real Estate Inc. is meeting with two sellers, Mr. and Mrs. Lee. They like Rita’s recommendation to increase exposure of their property and agree with her recommendation for the type of listing. The Lees had previously tried to sell their property privately and were asking $1,500,000. It was viewed by several buyers, but no offer was received. As they want to sell within three months, they have taken Rita’s advice for the listing price of $1,290,000 as current market conditions indicate there are many listings, but not many buyers. The Lees are prepared to sign a seller representation agreement with Rita to list their property for sale. How should Rita complete the information on the seller representation agreement for Mr. and Mrs. Lee? Select the best wording. There are two options. There is only one correct answer.

1 2

“I’m going to list your names as Amber Susan and David Arthur Lee in the seller’s section, given that you both are owners of this property.” “I’m going to list your names as Amber Susan Lee and David Arthur Lee in the seller’s section, given that you both are owners of this property.”

©2019 Real Estate Council of Ontario

Lesson 2 | Page 19 of 71

Rita of ABC Real Estate Inc. is meeting with two sellers, Mr. and Mrs. Lee. They like Rita’s recommendation to increase exposure of their property and agree with her recommendation for the type of listing. The Lees had previously tried to sell their property privately and were asking $1,500,000. It was viewed by several buyers, but no offer was received. As they want to sell within three months, they have taken Rita’s advice for the listing price of $1,290,000 as current market conditions indicate there are many listings, but not many buyers. The Lees are prepared to sign a seller representation agreement with Rita to list their property for sale. How should Rita complete the information on the seller representation agreement for Mr. and Mrs. Lee? Select the best wording. There are two options. There is only one correct answer.

1 2

“After our discussions about price, you have chosen to list the property at $1,290,000.” “After our discussions about price, you have chosen to list the property at $1,500,000.”

©2019 Real Estate Council of Ontario

Lesson 2 | Page 20 of 71

Rita of ABC Real Estate Inc. is meeting with two sellers, Mr. and Mrs. Lee. They like Rita’s recommendation to increase exposure of their property and agree with her recommendation for the type of listing. The Lees had previously tried to sell their property privately and were asking $1,500,000. It was viewed by several buyers, but no offer was received. As they want to sell within three months, they have taken Rita’s advice for the listing price of $1,290,000 as current market conditions indicate there are many listings, but not many buyers. The Lees are prepared to sign a seller representation agreement with Rita to list their property for sale. How should Rita complete the information on the seller representation agreement for Mr. and Mrs. Lee? Select the best wording. There are two options. There is only one correct answer.

1 2

“Finally, because you are looking to sell the property as quickly as possible, the listing period should reflect that. We will show the listing period of August 1 to October 31.” “Finally, because you are looking to sell the property as quickly as possible, the listing period should reflect that. We will show the listing period of August 1 to March 31.”

©2019 Real Estate Council of Ontario

Lesson 2 | Page 21 of 71

Abigail Monroe is meeting with her brokerage’s salesperson, Jason, in her house located at 635 Emerald Lane, City of Anycity, Region of Anyregion and has chosen XYZ Realty Ltd. to help her sell her custom-designed home. She and Jason have discussed the details of the relationship and the listing process. Abigail has requested discretion as she is concerned about the potential publicity surrounding the sale of her home. Abigail hopes to sell her estate for $7,000,000. Jason, after diligently researching the market, tells Abigail that to get that price it may take longer than six months and suggests listing to the end of January. Abigail agrees. How should Jason list this information? Select the best wording. There are two options. There is only one correct answer.

1 2

“Abigail, let’s get started. I’ve already filled in much of the information we discussed previously. Your initials are needed to indicate that this is an Exclusive Listing Agreement.” “Abigail, let’s get started. I’ve already filled in much of the information we discussed previously. Your initials are needed to indicate that this is a Listing Service Agreement.”

©2019 Real Estate Council of Ontario

Lesson 2 | Page 22 of 71

Abigail Monroe is meeting with her brokerage’s salesperson, Jason, in her house located at 635 Emerald Lane, City of Anycity, Region of Anyregion and has chosen XYZ Realty Ltd. to help her sell her custom-designed home. She and Jason have discussed the details of the relationship and the listing process. Abigail has requested discretion as she is concerned about the potential publicity surrounding the sale of her home. Abigail hopes to sell her estate for $7,000,000. Jason, after diligently researching the market, tells Abigail that to get that price it may take longer than six months and suggests listing to the end of January. Abigail agrees. How should Jason list this information? Select the best wording. There are two options. There is only one correct answer.

1 2

“Given that I’m your salesperson with XYZ Realty Ltd., I’m listing XYZ Realty Ltd. as the brokerage on this form.” “Given that I’m your salesperson with XYZ Realty Ltd., I’m listing Jason, XYZ Realty Ltd. as the brokerage on this form.”

©2019 Real Estate Council of Ontario

Lesson 2 | Page 23 of 71

Abigail Monroe is meeting with her brokerage’s salesperson, Jason, in her house located at 635 Emerald Lane, City of Anycity, Region of Anyregion and has chosen XYZ Realty Ltd. to help her sell her custom-designed home. She and Jason have discussed the details of the relationship and the listing process. Abigail has requested discretion as she is concerned about the potential publicity surrounding the sale of her home. Abigail hopes to sell her estate for $7,000,000. Jason, after diligently researching the market, tells Abigail that to get that price it may take longer than six months and suggests listing to the end of January. Abigail agrees. How should Jason list this information? Select the best wording. There are two options. There is only one correct answer.

1 2

“I’m going to list your name as Abby Monroe in the Sellers section.” “I’m going to list your name as Abigail Monroe in the Sellers section.”

©2019 Real Estate Council of Ontario

Lesson 2 | Page 24 of 71

Abigail Monroe is meeting with her brokerage’s salesperson, Jason, in her house located at 635 Emerald Lane, City of Anycity, Region of Anyregion and has chosen XYZ Realty Ltd. to help her sell her custom-designed home. She and Jason have discussed the details of the relationship and the listing process. Abigail has requested discretion as she is concerned about the potential publicity surrounding the sale of her home. Abigail hopes to sell her estate for $7,000,000. Jason, after diligently researching the market, tells Abigail that to get that price it may take longer than six months and suggests listing to the end of January. Abigail agrees. How should Jason list this information? Select the best wording. There are two options. There is only one correct answer.

1 2

“As I’ve explained, a luxury property like yours will likely take longer to sell so the duration of the listing is more than six months, your initials are not required.” “As I’ve explained, a luxury property like yours will likely take longer to sell so the duration of the listing is more than six months, your initials are required.”

©2019 Real Estate Council of Ontario

Lesson 2 | Page 25 of 71

Introduction to Additional Information Typically Included in a Seller Representation Agreement In addition to identifying the terms of, and parties to, a seller representation agreement, an agreement will require various provisions, which set out the services and duties the seller can expect from the brokerage. These provisions also help to define the obligations of the parties, namely the seller and the brokerage. As a salesperson, you should be familiar with the provisions in a representation agreement and be able to explain these to the seller. The seller should know what their own role will be in the marketing of the property and their obligations under the agreement, as well as a clear understanding of what they can expect from the brokerage and salesperson. The following screens detail the various additional provisions that can be included in a seller representation agreement.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 26 of 71

Documenting Remuneration The following provisions are typically found in a seller representation agreement to define the brokerage’s authority, which will be explained to the seller prior to the seller signing the agreement. The following screens highlight the information you require to understand the seller’s obligation to pay remuneration and how it needs to be documented in the agreement: • Definitions and interpretations • Remuneration • Holdover provision

©2019 Real Estate Council of Ontario

Lesson 2 | Page 27 of 71

Definitions and Interpretations A seller representation agreement has a “definitions and interpretations” clause to establish and explain the terms used in the agreement. The clause defines terms such as seller, buyer, real estate board, and other terms that are synonymous with/have a common function within the agreement. For example, seller also means vendor. The definitions clearly define who is considered to be introduced to the property. For example, if the property is shown to one spouse and an offer is received from the other spouse, it is deemed the other spouse was introduced to the property. This is important as an obligation of the seller relating to the payment of remuneration includes this reference.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 28 of 71

For example, OREA Form 200 contains a section that sets out definitions and interpretations of key terms used in the agreement.

From OREA Form 200: Listing Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 29 of 71

Remuneration When explaining an agreement, the seller must fully understand their obligations to pay remuneration to the brokerage. The amount of remuneration owed is negotiable between the seller and the brokerage and is based on the services being provided by the brokerage under the agreement. In cases where a seller has agreed to allow other brokerages to co-operate in the marketing of the property, the seller must agree to the portion of the gross remuneration to be paid to a co-operating brokerage. REBBA identifies the allowable ways a remuneration can be calculated: • A percentage of the sale price • A flat fee • A combination of both The seller must also understand that any remuneration paid is plus the applicable HST. Remuneration is owed for any valid offer to purchase the property from any source whatsoever obtained during the listing period, and on the terms and conditions set out in the listing agreement, or other terms and conditions the seller may accept. In cases where a sale is not completed through the fault of the seller, the seller is still obligated to pay remuneration to the listing brokerage. In cases where a sale does not complete through the fault of the buyer, the listing brokerage would have no claim for remuneration from the seller. For example, a seller has accepted an offer and the completion date is one week away. The seller’s transfer to another city has been cancelled and the seller no longer wishes to sell their property. If the transaction does not complete due to the seller’s refusal to sell, the remuneration that would have been paid upon the completion of the sale would still be owed to the brokerage. The commission clause also provides the brokerage the authority to apply any buyer’s deposit held in trust by the listing brokerage, to the remuneration payable once the transaction has been completed. If the deposit is less than the total remuneration owed, the seller is obligated to pay the difference. If the deposit is more than the remuneration owed, the surplus amount is paid to the seller.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 30 of 71

Holdover Provision Within the commission clause is a provision stating the brokerage is entitled to remuneration if a buyer is introduced to, or shown, the property during the listing period and purchases the property during an identified time period following the expiration of the listing. This is known as the holdover period and is a reasonable time-period negotiated between the seller and the brokerage that begins immediately upon the representation agreement expiring. The holdover period allows the listing brokerage to claim a remuneration in cases where a seller and a buyer negotiate the sale of the property during this time period. The buyer must be introduced or shown the property during the listing period for the holdover period to apply to that sale. The transaction does not need to be completed during the holdover period, only the accepted offer must occur during that time. Any buyer first introduced or shown the property after the listing period expires would not fall under the requirements of the holdover period. Example 1: A seller lists their property with Brokerage A and agrees to pay a remuneration rate of 5%. A buyer is shown the property during the term of the listing agreement but does not purchase the property. The listing expires and there is a 90-day holdover period that is now in effect. During this time, the seller does not list their property for sale with any brokerage; however, the seller accepts an offer from the buyer who was previously introduced. The seller is obligated to pay the full remuneration rate of 5% to Brokerage A, as agreed to in the representation agreement. ©2019 Real Estate Council of Ontario

In some instances, following the expiration of the listing, a seller could agree to list their property with another brokerage. If the holdover period falls within the term of the new listing, and a buyer who was introduced to, or shown, the property during the first listing period purchases the property during the holdover period, the original listing brokerage’s remuneration owed is reduced by the amount of remuneration paid under the new agreement. If the remuneration in the new listing is equal to or greater than the remuneration stated in the original listing, then no remuneration is payable. Example 2: A seller lists their property with Brokerage A and agrees to pay a remuneration rate of 5%. A buyer is introduced to the property during the term of the listing agreement but does not purchase the property. The listing expires and a 90-day holdover period is now in effect. During this time, the seller lists their property for sale with Brokerage B and agrees to pay a remuneration rate of 4.5% commission. If the buyer previously introduced to the property purchases it during the holdover period, the seller is obligated to pay commission as follows: • •

4.5% to Brokerage B 0.5% to Brokerage A

A seller must have a clear understanding of their obligations for remuneration, both during the active period of the listing agreement and the holdover period. Without clear knowledge, a seller may sell their property privately during this time period, so you should ensure the seller understands their obligations. Advise the seller that under these situations, they should contact the brokerage to complete the transaction, as remuneration is owed to the brokerage. As a salesperson, when listing a property for sale that was previously listed with another brokerage, you should enquire with the seller and explain any obligations they would owe under their previous agreement’s holdover period. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 31 of 71

For example, OREA Form 200 contains a clause that sets out the commission (remuneration) terms of the agreement.

From OREA Form 200: Listing Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 32 of 71

From OREA Form 200: Listing Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Documenting Remuneration Now that you have reviewed how remuneration is documented in a seller representation agreement, let us look at how it is presented in OREA Form 200. 1. Definitions and interpretations: OREA Form 200 contains a section that sets out definitions and interpretations of key terms used in the agreement. This section contains a clause to establish and explain the terms used in the agreement. 2. Commission: OREA Form 200 contains a section that outlines the remuneration terms of the agreement. This section explains the seller’s obligation to pay remuneration to the brokerage. 3. Holdover Provision: Within the Commission clause, OREA Form 200 contains information about the holdover period. This section contains a provision under which the brokerage is entitled to remuneration.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 33 of 71

Brokerage Authorities, Seller Acknowledgements, and Warranties The seller representation agreement has clauses and provisions that provide certain authorities to the brokerage to be able to sell the property and offer competent service. The seller is also required to provide the brokerage specific warranties in this regard. The following screens highlight the information you require to understand the client’s obligation towards the brokerage: • Representation • Multiple Representation • Finders Fee • Referral of Enquiries • Marketing • Warranty • Indemnification and Insurance

©2019 Real Estate Council of Ontario

• • •

Family Law Act (spousal consent) Verification of Information Use and Distribution of Information

©2019 Real Estate Council of Ontario

Lesson 2 | Page 34 of 71

Representation Clause The Code requires a salesperson to fully discuss the service options available and the types of representation (single or multiple) that could occur. As a salesperson, you are required to provide this information to a seller at the earliest opportunity, and prior to asking the seller to sign a listing agreement. The seller representation agreement contains an acknowledgement that this information has been provided to the seller. In addition, the agreement includes a clause stating that the seller consents to the brokerage listing properties similar to the seller’s property and will not claim any conflict of interest. The agreement identifies that unless otherwise informed, the co-operating brokerage is representing the interests of the buyer. This is known as assumed buyer agency. Otherwise, the salesperson must disclose any alternate relationship, that is to say, subagency. The remuneration paid to the co-operating brokerage is paid out of the remuneration the seller pays the listing brokerage, unless otherwise agreed to in writing. There could be situations where the listing brokerage also provides representation or customer service to other sellers and buyers. A seller representation agreement indicates, as required under the Code, the brokerage will, in writing, at the earliest opportunity and before any offer is made, inform all sellers and buyers of the nature of the brokerage’s relationship to each seller and buyer. This requires a disclosure to be made before a seller or a buyer is presented with an offer. The seller representation agreement does not replace the requirement for a written disclosure at a later time.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 35 of 71

For example, OREA Form 200 contains a clause called REPRESENTATION.

From OREA Form 200: Listing Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 36 of 71

Multiple Representation The Code requires you, as a salesperson, to explain the fact that the brokerage could enter into multiple representation, but that this could only be done if all of the clients represented by the brokerage for that trade consent in writing. The Code also requires you to explain the nature of the services that the brokerage could provide to each client when working under multiple representation. A seller representation agreement obtains the seller’s acknowledgement that multiple representation could occur. However, it also states that the brokerage will disclose to the seller the circumstances that have arisen and allow the seller to decide how to proceed. If the seller agrees to multiple representation, the brokerage must obtain the seller’s written consent before it could represent both the seller and the buyer for a transaction. This consent must be obtained at the earliest opportunity, and before an offer is submitted or presented. Therefore, an additional written disclosure will be required at the time of an offer as the listing agreement does not fulfill your obligations.

©2019 Real Estate Council of Ontario

Details of how multiple representation changes the relationship and the brokerage’s obligations and limitations are also described in the representation agreement. The brokerage’s obligation is to remain impartial and to treat all parties equally and fairly. The limitations to the services under multiple representation relate to the non-disclosure of the motivation or personal information about the seller or the buyer, the potential price a buyer may pay, the acceptable price a seller may accept, the price the buyer should offer or the price the seller should accept, and terms of any other offer received by the seller. Should the seller or the buyer direct the brokerage to disclose how much the seller may accept or the buyer may pay, the brokerage must receive these instructions in writing. Under multiple representation, a salesperson should provide factual market information about comparable properties and information known concerning the potential uses for the property to assist the seller and the buyer in coming to their own conclusions. In a transaction, documents given and received by the seller and the buyer are called notices. The representation agreement gives the brokerage the authority to give and receive notices on the seller’s behalf. For example, this would mean the seller is deemed to have received the notice when the brokerage has received it, whether or not the seller has actually received it. The salesperson, on behalf of the brokerage, would then provide copies of any notices received to the seller. However, when a brokerage is representing both the seller and the buyer in a transaction, that is, multiple representation, the brokerage is not entitled or authorized to give or receive these notices. This would require the notice to be provided directly to the seller or the buyer before it is deemed received. In an upcoming module, information regarding the giving and receiving of notices will be detailed.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 37 of 71

For example, OREA Form 200 contains a clause called MULTIPLE REPRESENTATION.

From OREA Form 200: Listing Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 38 of 71

Finders Fee This clause functions as both an acknowledgement and a consent for the listing brokerage to receive and retain a finder’s fee from a third party in addition to the remuneration being paid. A written disclosure must still be completed when the finder’s fee is being received, as this clause does not provide the required details for that disclosure (in accordance with Subsection 18(4) of the Code). Example: A seller’s mortgage is coming due during the term of the listing and requires additional financing. The seller would like to consult a mortgage broker and asks their salesperson for a referral. The seller selects one of the three mortgage brokers that the salesperson recommends. When the mortgage broker pays the salesperson’s brokerage a finder’s fee, the specific details of this are disclosed in writing to the seller. The brokerage is permitted to retain the finder’s fee in addition to any remuneration paid by the seller for the sale of the home.

©2019 Real Estate Council of Ontario

Referral of Enquiries A seller must notify the brokerage immediately of all enquiries about the property during the listing period, no matter who has made the enquiry. If the seller receives an offer submitted directly to them, the seller is obligated to provide the offer to the brokerage before accepting or rejecting the offer. If the seller accepts an offer during the listing period or the holdover period without notifying the brokerage, the seller is obligated to pay the remuneration as stated in the agreement, within five days of the brokerage’s request. A seller should clearly understand their obligations under this provision. Ensure there is no misunderstanding of the seller’s obligation to refer any and all enquiries to the brokerage, and the resulting obligation to pay remuneration. Example: A relative of the seller learns the property has been listed for sale and approaches the seller during the listing period to express their interest in purchasing the property. The relative is hoping to arrange a private sale with the seller and pay a lower purchase price as the transaction would be completed without paying remuneration to the brokerage. The seller declines and instead provides the relative with their salesperson’s contact information. The seller has complied with their obligations under the agreement. Marketing The marketing clause is included in a seller representation agreement to give the brokerage the authority to advertise the property. This clause should provide the actual authorities granted to the brokerage regarding the marketing of the property. The seller typically gives consent for the listing brokerage to do the following: •

Show and permit prospective buyers to inspect the property fully

©2019 Real Estate Council of Ontario

The sole and exclusive right to place a “For Sale” and a ”Sold” sign on the property The exclusive right to include information in any advertising that may identify the property, such as a photo or address • The sole and exclusive authority to make advertising decisions about the property during the course of the agreement • The listing brokerage will not be held liable for acts or omissions with respect to advertising the property by the brokerage or any other party other than by the brokerage’s gross negligence or wilful act Specific requirements under the Code of Ethics relate to any advertising done by a brokerage or salesperson. An upcoming module will provide information on a brokerage’s advertising requirements when marketing a property for sale or advertising a property as sold. • •

Warranty This clause provides the brokerage with the seller’s warranty that the seller has the exclusive authority and power to offer the property for sale. The seller must inform the listing brokerage about third-party interests or claims concerning the property that may affect the sale. This would include any rights of first refusal, options, easements, mortgages, or encumbrances. Example: A seller discloses to the listing salesperson an easement located on the property that provides access to a lake for the adjoining property. This easement is included in the listing information, so any prospective buyer is made aware of its existence.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 39 of 71

For example, OREA Form 200 contains a clause called FINDERS FEES.

This section of the form also contains a clause called REFERRAL OF ENQUIRIES.

This section of the form also contains a clause called MARKETING.

This section of the form also contains a clause called WARRANTY.

From OREA Form 200: Listing Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 40 of 71

Indemnification and Insurance As you learned earlier, indemnification is a key legal obligation a seller owes to a brokerage. It is important that this clause is included in a seller representation agreement and explained to the seller. The clause identifies the seller will not hold the brokerage liable for any damage or loss to the property and its content during the term of the agreement unless there is gross negligence or a wilful act by the brokerage. The seller will also indemnify the brokerage, all salespersons, and any co-operating brokerage from any liability, claim, loss, cost, damage, or injury caused or contributed to by any breach of a warranty or representation made by the seller in the listing agreement or data form used to collect the property information used for the listing. The seller will also warrant that the property is insured, including personal liability insurance against any claims or lawsuits resulting from bodily injury or property damage to others occurring on or at the property. The seller must indemnify the brokerage, salespersons, and co-operating brokerages if a claim is made by anyone who attends or visits the property. Example 1:

©2019 Real Estate Council of Ontario

A salesperson explains the seller’s obligations for disclosure of any known latent defects. The seller states there are no known problems that must be disclosed, and the brokerage documents this. However, the buyer discovers a serious water leak in the basement after moving in and sues the seller, the salesperson, and the brokerage. In this case, the seller may be liable to the brokerage for any losses they may suffer as a result of the seller’s nondisclosure. Example 2: An open house is attended by many people at the same time. The salesperson is unable to keep track of all the attendees and learns from the seller that an expensive statue has been stolen from the property. In this situation, the brokerage could be considered liable for not taking steps to protect the property, such as limiting the number of people in the home at the same time, insisting that all guests identify themselves and sign a guest register, and advising the seller to remove all valuables during the public open house. That said, if the salesperson secures the property both during and after the open house, and despite their caution the house is broken into, the seller would be required to indemnify the brokerage against any loss. Family Law Act (spousal consent) A seller representation agreement will address situations where spousal consent is required. As detailed under a previous module, the Family Law Act provides a non-titled spouse possessory rights to a matrimonial home. This means the non-titled spouse has the right to possess the property. This is a personal right and is not an interest in the land. A listing agreement will include a statement made by the seller warranting that spousal consent is not necessary, unless the spouse of the seller has signed the consent provided later in the agreement. Therefore, it is a leading practice when listing a matrimonial home for sale and only one spouse is on title, to obtain the consent of the nontitled spouse. For the ownership of the property to be transferred, the consent of the non-titled spouse must be obtained. Having consent by the non-titled spouse in any documents leading up to the transfer of title will prevent any misunderstandings or problems when the transaction is to be completed. Example:

©2019 Real Estate Council of Ontario

A married couple decides to list their family home for sale. The husband is not on title for the property. When explaining the listing agreement to the couple, the salesperson explains the clause warranting that if spousal consent is necessary, the spouse has signed the agreement. In this instance, the husband’s spousal consent would be obtained for the listing agreement. Verification of Information A seller representation agreement provides authority to the brokerage to verify information, whether provided by the seller or obtained elsewhere by the brokerage. This authority extends to obtaining information affecting the property from relevant regulatory authorities such as governments, mortgagees, etc. By including this provision in a seller representation agreement, the seller is authorizing others to release any and all information to the brokerage. That said, agencies and lenders may not recognize this provision. This would require separate written consent from the seller, or the party may only release information directly to the seller regardless of their written permission. Example: The seller has misplaced their current tax bill and is uncertain about the amount of tax they paid last year. The seller authorizes the salesperson to contact the local municipal office to obtain and verify the information on the seller’s behalf.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 41 of 71

For example, OREA Form 200 contains a clause called INDEMNIFICATION AND INSURANCE.

This section of the form also contains a clause called FAMILY LAW ACT. This area of the form also contains a section for the signature of the non-owner spouse to grant spousal consent.

This section of the form also contains a clause called VERIFICATION OF INFORMATION.

From OREA Form 200: Listing Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 42 of 71

Use and Distribution of Information This provision is included in a seller representation agreement to ensure the brokerage complies with privacy laws. The seller’s consent is required to allow the listing brokerage to collect, use, and disclose any information for the purpose of marketing the property. This also includes the use of photographs, surveys, floor plans, virtual tours, etc. If the listing is placed on a local listing service, the seller also consents to the sale information being posted into the database, and this information may also be shared with other parties approved by the local listing service. This could include any other brokerage, third-party service professionals such as an appraiser, government departments, and municipal organizations. In the case where information is stored on databases located outside of Canada, the listing agreement identifies the information would be subject to the laws of the jurisdiction in which the information is located. When a listing expires, the seller can select whether other brokerages and salespersons may contact them to discuss listing or marketing the property. A salesperson would obtain the seller’s initials to indicate whether or not they can be contacted. In instances where the listing is placed on a local listing service, this information would be made available to other brokerages. ©2019 Real Estate Council of Ontario

Lesson 2 | Page 43 of 71

For example, OREA Form 200 contains a clause called USE AND DISTRIBUTION OF INFORMATION.

From OREA Form 200: Listing Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 44 of 71

From OREA Form 200: Listing Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Listing Agreement, Seller Representation Agreement, Authority to Offer for Sale Now that you have reviewed various clauses in a listing agreement, let us look at how all these elements come together in OREA Form 200. The background shows a thumbnail for page 1 and 2 of OREA Form 200: Listing Agreement. This page includes the following sections: 1. Representation: OREA Form 200 contains a clause where the seller acknowledges that the listing brokerage provided the seller with information explaining agency and customer service relationships. This section identifies the requirement for the salesperson to fully disclose the service options available and the types of representation that could occur. 2. Multiple Representation: OREA Form 200 contains a clause about the possibility of multiple representation arising. This section of the form outlines to the seller the fact that the brokerage could enter into multiple representations. 3. Finders Fee: OREA Form 200 contains a clause that addresses finder’s fees paid to the brokerage. This section outlines the seller’s acknowledgement and a consent for the listing brokerage to receive and retain a finder’s fee from a third party apart from remuneration payable. 4. Referral of Enquiries: OREA Form 200 contains a clause that the seller will inform the brokerage immediately about any enquiries that are made directly to the seller. This section outlines the seller’s requirement to notify the brokerage immediately about all enquiries about the property during the listing period. 5. Marketing: OREA Form 200 contains a clause that allows the brokerage to market the property. This section outlines the clause that provides authorities to the brokerage to market the property appropriately.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 45 of 71

From OREA Form 200: Listing Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Listing Agreement, Seller Representation Agreement, Authority to Offer for Sale Now that you have reviewed various clauses in a listing agreement, let us look at how all these elements come together in OREA Form 200. The background shows a thumbnail for page 1and 2 of OREA Form 200: Listing Agreement. This page includes the following sections: 1. Warranty: OREA Form 200 contains a clause the seller warranties. This section contain a clause that is used to ensure that the seller will provide the listing brokerage with information on third-party interests or claims about the property. 2. Indemnification and Insurance: OREA Form 200 contains a clause relieving the brokerage of any damage or loss to the property. This section contain a clause that is used to ensure that the seller does not hold the brokerage liable for any damage or loss to the property and its content during the term of the agreement, unless there is gross negligence or a wilful act by the brokerage. 3. Family Law Act: OREA Form 200 contains a clause regarding the need for spousal consent. This form also contains a section on the last page for the signature of the non-owner spouse to grant spousal consent. This section contain a clause that is used to confirm that spousal consent is not necessary, unless the spouse of the seller has signed the consent provided later in the agreement. 4. Verification of information: OREA Form 200 contains a clause where the seller authorized the brokerage to verify information about the property. This section contain a clause that is used to provide authority to the brokerage to verify information about the seller(s) and the said property. 5. Use and Distribution of Information: OREA Form 200 contains a clause stating that the brokerage will comply with privacy laws. This section contain a clause that is used to ensure that the brokerage complies with privacy laws.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 46 of 71

A salesperson for ABC Real Estate Inc. is representing a seller in the sale of his property. They have signed a seller representation agreement effective January 15 and expiring on April 30. There is a 60-day holdover period and the agreed upon remuneration is 5% of the selling price. Identify the scenario in which the seller would owe remuneration to ABC Real Estate Inc. There are four options. There is only one correct answer.

1

2

3

4

A salesperson from another brokerage shows the property to a buyer a week after the listing is effective. An offer is made, but negotiations fail, and no other offer is received prior to the listing agreement expiring. Three months after the expiry, the seller sells his property privately to the same buyer. A buyer views the property with a salesperson but does not place an offer. The listing expires and the following week the seller signs a listing agreement with another brokerage and agrees to pay a remuneration rate of 5.5%. The same buyer is shown the property that week by the new brokerage and the property is sold to them at that time. A buyer views the property during an open house held by the salesperson but does not submit an offer. When the listing expires, the seller does not list the property for sale with another brokerage. Seven weeks after the expiry of the listing, the seller sells the property privately to the buyer who viewed it during the open house held by the salesperson, but the sale is not closed until after the holdover period has expired. During the holdover period of the listing with ABC Real Estate Inc., a buyer views the property for the first time. The seller has not listed the property for sale with a brokerage and the buyer purchases the property during the holdover period. The transaction is agreed to and it closes within the holdover period.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 47 of 71

Before a seller is asked to sign a representation agreement, it is important for a salesperson to explain the various possibilities of representation and multiple representation and how, in each case, the salesperson’s obligations and services provided to the seller may change. Identify the actions performed by the salesperson that comply with the seller’s representation clause of the agreement. In all scenarios, the seller has signed a representation agreement with the brokerage and there have been no revisions made to the pre-printed clause. There are four options. There are multiple correct answers.

1

2

3

4

During the listing agreement, the seller notices the same salesperson has listed for sale another property similar to theirs on the same street. The seller confronts the salesperson claiming that this is a conflict of interest. A seller has been advised the brokerage cannot disclose how much the buyer should offer or the seller should accept when the brokerage is working under multiple representation. The salesperson can, however, provide copies of sales and listings so the seller can come to their own conclusions regarding an appropriate price. An offer is received from a buyer who is also being represented by the listing brokerage. During negotiations, the buyer becomes concerned their offer will not be accepted. The buyer tells the salesperson they would offer more if the seller does not accept their offer. The seller decides the offer is too low and is about to reject it, so the salesperson informs the seller about the buyer’s willingness to pay more. The listing brokerage has received a notice from a buyer regarding their offer that was accepted two days ago by the seller. The buyer is also being represented by the listing brokerage. The salesperson indicates to the seller that although the brokerage has received the notice, the notice is not deemed to be received by the seller until it has been provided to them personally or as otherwise provided for in the Agreement of Purchase and Sale.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 48 of 71

Additional Information Included in a Seller Representation Agreement There are other important clauses that make up the seller representation agreement. These clauses establish the procedural and legal requirements of the parties (i.e., the brokerage and the seller). The following screens will highlight the additional information typically included in a seller representation agreement: • Successors and assigns • Conflict or discrepancy • Electronic communication • Electronic signatures • Schedule(s)

©2019 Real Estate Council of Ontario

Lesson 2 | Page 49 of 71

Successors and Assigns This clause identifies that when a seller representation agreement has been signed, any heir, estate trustee, or other party acting on behalf of the seller must also abide by the terms and conditions of the agreement. Conflict or Discrepancy If something is added to the agreement that conflicts with any pre-printed portion of the seller representation agreement, then the added part supersedes the pre-printed portion.

©2019 Real Estate Council of Ontario

Example: When discussing the listing agreement with a seller, the seller informs the salesperson that he does not wish for a sign to be on the property for the first two weeks of the listing, and once the property is sold the sign is to be removed. The salesperson attaches a schedule to the listing agreement identifying these terms. As a result of adding these terms, there is now a discrepancy between the pre-printed clause allowing the brokerage to place a “For Sale” and a “Sold” sign on the property. Based on the wording of the “Conflict or Discrepancy” clause, the terms added to the agreement will override the pre-printed portion. Electronic Communication In today’s marketplace, technology plays an important part in the communication between sellers and brokerages. Many times, communication is done electronically, such as through email or fax. This provision identifies that any communications may occur electronically, and the signatures are deemed to be original. The clause also states that if the seller transmits the agreement electronically to the brokerage, it is deemed the seller has retained a true copy of the agreement. This last section is important as the Code requires you to provide a copy of the agreement to each party immediately after signing. This statement facilitates compliance with the requirements under the Code. Example: A seller is out of town but has agreed to list their property for sale with the brokerage. The salesperson sends the agreement to the seller via email and explains all the terms in detail. The seller agrees with the terms, signs the listing agreement, and emails it to the salesperson. The seller’s signature is deemed to be an original, and the seller is deemed to have retained a true copy of the agreement. Electronic Signatures If the seller and the brokerage wish to sign the seller representation agreement electronically, this clause provides the consent to do so. Including such a provision in a seller representation agreement identifies if the agreement has been signed electronically, and the parties have consented, pursuant to the Electronic Commerce Act. Consent is only granted for this agreement. Any additional documentation signed by an electronic signature will require a separate

©2019 Real Estate Council of Ontario

clause indicating the parties have consented. Additional information on the Electronic Commerce Act was detailed in a previous module. Schedule(s) If any terms or documents are added to a seller representation agreement, schedules can be used. The schedules attached to the agreement should be identified on the agreement to ensure no documentation is misplaced. The schedule should contain cross-references to the original seller representation agreement, such as the address of the property, the name of the seller, the name of the brokerage, and the listing date. The seller and listing brokerage should initial each schedule and these schedules should be attached to the listing agreement in a sequential order, for example Schedule A, Schedule B, etc. Example: A seller has been negotiating the private sale of her property with a neighbour for some time. The neighbour cannot decide whether they want to purchase the property, so the seller has decided to list the property with a brokerage. The seller is concerned the neighbour will suddenly decide to purchase the property now that it is listed for sale, and does not want to pay remuneration if this occurs within a specified time period. If the brokerage agrees to these terms, this buyer can be excluded from the listing agreement by either inserting a clause in the internal remarks area or adding a schedule to the agreement detailing the terms of the excluded buyer arrangement.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 50 of 71

For example, OREA Form 200 contains a clause called SUCCESSORS AND ASSIGNS.

This section of the form also contains a clause called CONFLICT OR DISCREPANCY.

This section of the form also contains a clause called ELECTRONIC COMMUNICATION.

This section of the form also contains a clause called ELECTRONIC SIGNATURES.

This section of the form also contains a clause called SCHEDULE(S).

From OREA Form 200: Listing Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 51 of 71

From OREA Form 200: Listing Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Additional Information Included in a Seller Representation Agreement Now that you have reviewed the additional information typically included in a seller representation agreement, letus look at how all these elements come together in OREA Form 200. 1. Successors and assigns: OREA Form 200 contains a clause that addresses that the seller’s legal representatives will fulfill the transaction in the event the seller dies. This section outlines that if the party to a contract is incapable of closing the transaction for a variety of reasons, this clause requires that their lawful representatives act on their behalf to complete the transaction. 2. Conflict or discrepancy: OREA Form 200 contains a clause to address the circumstances where an addition is made to the contract and it conflicts with a pre-set clause within the agreement. This section outlines the clause used to ensure that an added part of a seller representation agreement supersedes the pre-printed portion. 3. Electronic communication: OREA Form 200 contains a clause to address the use of electronic communications. This section outlines thee clause used to make the seller aware that any communication may occur electronically, and the signatures are deemed to be original. 4. Electronic signatures: OREA Form 200 contains a clause that addresses the use of electronic signatures. This section outlines the clause used to provide the seller and brokerage consent if they wish to sign the seller representation agreement electronically. 5. Schedule(s): OREA Form 200 contains a clause that ends with the following: “…attached hereto form(s) part of this Agreement.” This section outlines the clause that is inserted in the event that if any terms or documents are added to the seller representation agreement, schedules can be used.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 52 of 71

Marketing provision allows the listing brokerage to show the property to prospective buyers and place a “For Sale” and “Sold” sign on the property. Identify if this statement is true. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 53 of 71

A salesperson should explain all the provisions included in the representation agreement at the time it is given to the seller for signature. Each party will then clearly understand what services will be provided, and the obligations each party will have under the agreement. Which provision allows the listing brokerage to confirm that the seller has the necessary authority to offer their property for sale and confirms the seller has disclosed other interests or claims concerning the property? There are two options. There is only one correct answer. 1 2

Warranty Indemnification and insurance

©2019 Real Estate Council of Ontario

Lesson 2 | Page 54 of 71

A salesperson should explain all the provisions included in the representation agreement at the time it is given to the seller for signature. Each party will then clearly understand what services will be provided, and the obligations each party will have under the agreement. Which provision is a warranty from the seller that if spousal consent is necessary, the spouse has signed the agreement? There are two options. There is only one correct answer. 1 2

Family Law Act Verification of information

©2019 Real Estate Council of Ontario

Lesson 2 | Page 55 of 71

A salesperson is required to explain the clauses in a seller representation agreement to a potential seller to ensure that they know what their obligations will be along with the obligations of the brokerage. Identify the scenarios in which the statements are correct based on the wording of the clauses in a seller representation agreement. There are four options. There are multiple correct answers.

1 2

3 4

If anything is added to a seller representation agreement that conflicts with the pre-set wording, the preset wording takes precedence as it forms part of the contract between the brokerage and the seller. A seller representation agreement is faxed to a seller who signs it and faxes it back to the brokerage. The faxed copy is sufficient to place the listing on the local real estate board's listing system, but the seller's original signature must be obtained on the seller representation agreement before an offer is presented. A salesperson completes a seller representation agreement and emails it to a seller for signature. The seller signs the agreement and emails it back to the salesperson. The seller is deemed to have retained a true copy of the original. If a seller and a salesperson sign the seller representation agreement with electronic signatures, both parties are agreeing to the use of electronic signatures with respect to the agreement.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 56 of 71

Introduction to the Signing and Initialling Requirements in a Seller Representation Agreement In addition to including relevant provisions when documenting a seller representation agreement, you, as a salesperson, must understand the signing and initialling requirements that apply to the seller and listing brokerage. A seller will be asked to sign the listing agreement, which indicates they have read, fully understood, and accept the terms of the agreement. The seller will also be asked to sign an acknowledgement indicating they have received a copy of the agreement. This will ensure that you have complied with your obligation to immediately provide a copy to the party signing. The following screen explains the specifics of the signing and initialling requirements in a seller representation agreement.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 57 of 71

Signing and Initialling Requirements in a Seller Representation Agreement You will need to make your best efforts to ensure that each person who signs the agreement also date(s) their own signature(s) to comply with Subsection 33(2) of the Act. The following screens will highlight the signing and initialling requirements of a seller representation agreement: • Signature – brokerage • Signature – seller • Spousal consent signature • Initialling • Declaration of insurance • Acknowledgement

©2019 Real Estate Council of Ontario

Lesson 2 | Page 58 of 71

Signature – Brokerage The signature on behalf of the brokerage on a seller representation agreement binds the brokerage to the agreement. The brokerage agrees to market the property and represent the seller to obtain a valid offer for the seller(s). This signature and date must come from a person authorized to bind the brokerage. The salesperson or the broker working with the seller is usually authorized to sign the agreement on behalf of the brokerage. Signature – Seller A seller’s signature on a representation agreement binds them to the terms of the agreement and acknowledges that they have read, understood, and agreed to those terms. All registered owners are required to sign all the documents pertaining to listing of a property. A seller’s signature should be consistent with their signature(s) as commonly written, that is to say, as it is on their proof of identification and other legal documentation. If the seller is a corporation, an individual authorized to bind

©2019 Real Estate Council of Ontario

the corporation is required to sign the agreement. The signature is typically followed with the individual’s title and the corporate seal placed over the signature. In the absence of the seal, the phrase, “I have the authority to bind the corporation” is included (usually immediately after or below the signature). In addition to obtaining a signature, the seller will be asked to date their signature and include a telephone number. When asking an individual to sign the agreement, advise them they are signing under seal. By signing under seal, the contract between the seller and the brokerage becomes binding. Additional information regarding the importance of signing under seal was in a previous module, where the essential elements of a contract were detailed. Spousal Consent Signature As previously discussed, to comply with the Family Law Act, spousal consent is required when there is a non-titled spouse and the property being listed for sale is a matrimonial home. Spousal consent only applies when the seller is legally married and only one spouse is on title. In addition to obtaining a signature, the spouse will be asked to date their signature and include a telephone number. In the case of a common-law spouse, no signature is required. Spousal consent applies to sellers whenever the matrimonial home is being sold or mortgaged. Spousal consent is not a consideration when a buyer is purchasing a property. Initialling Initialling is done on any page where a signature is not obtained. By initialling at the bottom of these pages of the seller representation agreement, the seller and the brokerage will acknowledge and agree to all the terms on each page. Additionally, the seller will provide their initials in the following areas: • When the duration of the agreement exceeds six months • To acknowledge the warranty statement indicating they are not a party to another listing agreement • Whether they agree to another brokerage contacting them after the listing expires or is cancelled

©2019 Real Estate Council of Ontario

Declaration of insurance As required under REBBA and detailed earlier, a salesperson, a broker, or a broker of record working with the seller must inform the seller that they are insured under the RECO insurance program. A signature is obtained on the seller representation agreement to indicate this declaration of insurance has been done. Acknowledgement In this section, the seller acknowledges that they have understood the terms of the agreement and they have received a copy of the agreement. A non-titled spouse’s acknowledgement is not required, but a brokerage may have a policy where the signature is also obtained. The date a seller is provided a copy of the agreement is inserted to assist in compliance with the obligations under the Code to immediately deliver a copy of the listing agreement to the seller after the agreement is signed.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 59 of 71

For example, OREA Form 200 contains a clause in which the brokerage agrees to market the property on behalf of the seller.

This section of the form also contains a clause where the sellers will sign.

This section of the form also contains a clause regarding spousal consent.

©2019 Real Estate Council of Ontario

This section of the form also contains areas at the bottom of each page, except the signature page, where the parties apply their initials.

This section of the form also contains a DECLARATION OF INSURANCE.

©2019 Real Estate Council of Ontario

This section of the form also contains a clause where the seller acknowledges the terms of the agreement and having received a copy of the agreement.

From OREA Form 200: Listing Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 60 of 71

From OREA Form 200: Listing Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Signing and Initialling Now that you have reviewed the signing and initialling requirements of a seller representation agreement, let us look at how it is presented in OREA Form 200. The background shows a thumbnail for page 3 of OREA Form 200: Listing Agreement. This page includes the following sections: 1. Signature – brokerage: OREA Form 200 contains a clause binding the brokerage to the agreement. This section of the form binds the brokerage to the agreement. 2. Signature – seller: OREA Form 200 contains a clause binding the seller to the agreement. This section of the form binds a seller to the terms of the agreement and acknowledges that they have read, understood, and agreed to those terms. 3. Spousal Consent: OREA Form 200 contains a spousal consent clause. This section of the form is to ensure spousal consent when there is a non-titled spouse and the property being listed for sale is a matrimonial home. 4. Initialling: OREA Form 200 contains a space for the initials of the parties on every page, except the signature page. This section of the form requires initials by the sellers, which indicates whether the sellers consent to allow other real estate board members to contact them after expiration or other termination of the agreement to discuss listing or otherwise marketing the property. 5. Declaration of Insurance - Form 200: Brokers of record, brokers and salespersons must inform sellers and buyers in writing, as soon as practically possible and prior to entering into an agreement, of whether they are in compliance with REBBA, 2002 insurance requirements. Form 200 contains a section whereby the salesperson, broker, or broker of record, by signing, confirms to a seller that the salesperson, broker, or broker of record is insured under the RECO insurance program. 6. Acknowledgement: OREA Form 200 contains a clause where the seller acknowledges they understand the terms of the agreement and that they received a copy. This section of the form is where the seller acknowledges that they have understood the terms of the agreement and they have received a copy of the agreement.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 61 of 71

©2019 Real Estate Council of Ontario

Example of a Completed Seller Representation Agreement Now that you have seen the different provisions in OREA Form 200 in partial views, let’s see how all the different parts come together to make a complete form. In one of the Decision Points above, you saw how seller Abigail Monroe had requested her salesperson, Jason Sewell of XYZ Realty Ltd. to be discreet about the sale of her custom-designed home. We have reproduced an example of a completed seller representation agreement using OREA Form 200 that Jason would have completed for his client, describing her specific requirements.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 62 of 71

Janice is a salesperson with XYZ Realty Ltd. who is meeting with the Patels who are selling their family home. Both husband and wife are on the title and have provided information to Janice to assist with documenting all the relevant terms of the agreement. The agreement has been reviewed and the Patels are ready to sign the agreement. Which signatures will Janice need to complete the process of documenting a seller representation agreement with the Patels? Select the option with best wording. There are two options. There is only one correct answer.

1

2

Janice (to Mr. Patel): “Thank you for the information you have provided. In reviewing the terms of the agreement with you, I will also explain the signature requirements that are necessary in order to process the listing. First, we have the signature on behalf of the brokerage. The broker of record’s signature is required here.” Janice (to Mr. Patel): “Thank you for the information you have provided. In reviewing the terms of the agreement with you, I will also explain the signature requirements that are necessary in order to process the listing. First, we have the signature on behalf of the brokerage. My signature is required here.”

©2019 Real Estate Council of Ontario

Lesson 2 | Page 63 of 71

Janice is a salesperson with XYZ Realty Ltd. who is meeting with the Patels who are selling their family home. Both husband and wife are on the title and have provided information to Janice to assist with documenting all the relevant terms of the agreement. The agreement has been reviewed and the Patels are ready to sign the agreement. Which signatures will Janice need to complete the process of documenting a seller representation agreement with the Patels? Select the option with best wording. There are two options. There is only one correct answer. 1 2

“The agreement is to be signed by all sellers, so I will need your signature and I will need Mrs. Patel’s signature.” “The agreement is to be signed by all sellers, so I will need your signature and I will not need Mrs. Patel’s signature.”

©2019 Real Estate Council of Ontario

Lesson 2 | Page 64 of 71

Janice is a salesperson with XYZ Realty Ltd. who is meeting with the Patels who are selling their family home. Both husband and wife are on the title and have provided information to Janice to assist with documenting all the relevant terms of the agreement. The agreement has been reviewed and the Patels are ready to sign the agreement. Which signatures will Janice need to complete the process of documenting a seller representation agreement with the Patels? Select the option with best wording. There are two options. There is only one correct answer. 1 2

“Next, I declare that I comply with the insurance requirements by REBBA.” “Next, XYZ Realty Ltd. declares that I comply with the insurance requirements by REBBA.”

©2019 Real Estate Council of Ontario

Lesson 2 | Page 65 of 71

Janice is a salesperson with XYZ Realty Ltd. who is meeting with the Patels who are selling their family home. Both husband and wife are on the title and have provided information to Janice to assist with documenting all the relevant terms of the agreement. The agreement has been reviewed and the Patels are ready to sign the agreement. Which signatures will Janice need to complete the process of documenting a seller representation agreement with the Patels? Select the option with best wording. There are two options. There is only one correct answer. 1 2

“We talked about spousal consent and I will need a signature here.” “We talked about spousal consent and I will not need a signature here.”

©2019 Real Estate Council of Ontario

Lesson 2 | Page 66 of 71

Janice is a salesperson with XYZ Realty Ltd. who is meeting with the Patels who are selling their family home. Both husband and wife are on the title and have provided information to Janice to assist with documenting all the relevant terms of the agreement. The agreement has been reviewed and the Patels are ready to sign the agreement. Which signatures will Janice need to complete the process of documenting a seller representation agreement with the Patels? Select the option with best wording. There are two options. There is only one correct answer.

1

2

“Initials are required in several different areas of the agreement. Once that is completed and acknowledged, I can provide you with a copy of the agreement. I will not need your signature to indicate you have received your copy.” “Initials are required in several different areas of the agreement. Once that is completed and acknowledged, I can provide you with a copy of the agreement. I will need your signature to indicate you have received your copy.”

©2019 Real Estate Council of Ontario

Lesson 2 | Page 67 of 71

When documenting seller representation agreements, there will be situations where there are two spouses but only one of them is on title. For the previous scenario involving the Patels and Janice, assume the property is owned by Mr. Patel only. How would the signing requirements change based on the situations identified below? There are three options. There is only one correct answer.

1

2

3

Because the property is a matrimonial home, both Mr. and Mrs. Patel would sign the agreement as a seller and acknowledge they have received a copy of the agreement. As a non-titled spouse, Mrs. Patel would also sign the “spousal consent” section to give her consent to the listing. Because the Patels are married both Mr. and Mrs. Patel are required to sign a listing agreement for any property being listed for sale. This includes a property that is not a matrimonial home. As both Patels have signed the agreement, both would acknowledge they received copies of the agreement. Because Mr. Patel is the registered owner, he will sign as the seller on the listing agreement and Mrs. Patel would provide her consent to the listing by signing the “Spousal Consent” section. Only Mr. Patel is required to sign the acknowledgement for the terms of the agreement and receipt of his copy of the agreement.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 68 of 71

Jason Sewell, a salesperson with XYZ Realty Inc., at 1224 Commerce Place, Anycity, ON (123-123-1212) is meeting with a first-time seller Martine Bousquet (123-123-1313) on March 12, 20XX to discuss how the brokerage can help her market her property located at 123 Anystreet, Anycity (Legal description: Lot 30, Plan 92M-2355). Jason explains all the service options available to a seller and Martine chooses client status. Martine’s house, a single-family dwelling in a prestigious neighbourhood, will be listed for $1.25 million. She has agreed to a 120-day listing beginning on March 17th with a 90-day holdover period. She has also agreed to a remuneration rate of 4% in total on the sale of the property with 2% going to the co-operating brokerage, if applicable. The 2% payable to the co-operating brokerage is included in the 4% total remuneration. In the event the agreement expires or is cancelled, Martine has not agreed to allow other real estate board members to contact her to discuss listing the property.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 69 of 71

Jason has completed a seller’s representation agreement with Martine.

• • • •

Brokerage is XYZ Realty Inc., 1224 Commerce Place, Anycity, ON. This is the address of listing brokerage. Listing Brokerage Telephone Number is 123-123-1212. Seller is Martine Bousquet. This is the seller’s full legal name. Property for sale is known as 123 Anystreet, City of Anycity, ON. This is the street address of listed property.

• Listing Period is commencing at 12:01 a.m. on the 17 day of March, 20XX and expires at 11:59 p.m. on the 13 day of July, 20XX. These are the details of the listing period. (For illustrative purposes, we are using 20XX, but in actual practice, we use current year.) • To offer the Property for sale at a price of 1,250,000. This is the amount of sale price in numeric form. • To offer the Property for sale at a price of one Million Two Hundred Fifty Thousand. This is the amount of sale price in written form. • The Seller hereby represents and warrants that the Seller is not a party to any other listing agreement for the Property or agreement to pay commission to any other real estate brokerage for the sale of the Property. MB is entered in this field. These are the seller’s initials to confirm listing agreement. • Listing Brokerage Commission is four percent of remuneration in text. • Four % of the sale price of the Property or… Alternate to listing brokerage remuneration is not applicable. • Co-operating Brokerage Commission is two percent (Amount of remuneration for co-operating brokerage). • Two (2) % of the sale price of the Property or… Alternate to remuneration for co-operating brokerage is not applicable. • Hold Over Period is 90 days. • Initials of Listing Brokerage are JS. These are the salesperson’s initials to confirm information on page 1. • Initials of Seller(s) are MB. These are the seller’s initials to confirm information on page 1. • Initials of Listing Brokerage are JS. These are the salesperson’s initials to confirm information on page 2. • Initials of Seller(s) are MB. These are the seller’s initials to confirm information on page 2. • MB is entered in the Does not field. These are the seller’s initials to confirm agreement to not allow other real estate board members to make contact in the event the agreement expires or is cancelled. • SCHEDULE(S) is none. This is the confirmation that there are no schedules attached to the listing agreement.

©2019 Real Estate Council of Ontario

• Authorized to bind the Listing Brokerage is J. Sewell. This is the signature of salesperson representing the brokerage. • Date is March 12. Date of signing by salesperson representing the brokerage. • Name of Person Signing is Jason Sewell. This is the printed name of salesperson representing the brokerage. • Signature of Seller is M. Bousquet. • Date is March 12, 20XX. This is the date of seller’s signing. • Telephone number is 123-123-1313. This is the seller’s telephone number. • Spousal Consent is not applicable. • Declaration of Insurance is Jason Sewell. This is the printed name of salesperson representing the brokerage confirming they are insured by REBBA. • Declaration of Insurance is J. Sewell. This is the signature of salesperson representing the brokerage confirming they are insured by REBBA. • Acknowledgement – Date is on the 12 day of March, 20XX. • Acknowledgement – Signature of Seller is Martine Bousquet. This is the seller’s signature confirming they fully understand the terms of the agreement. • Acknowledgement – Date is March 12, 20XX.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 70 of 71

©2019 Real Estate Council of Ontario

OREA Form 200: Listing Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

Seller Representation Agreement for Martine Jason has completed the seller representation agreement with Martine.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 71 of 71

Congratulations, you have completed the lesson! There are five sections on this page with a summary of the key topics that were discussed in this lesson.

Types of listings

How a seller representation agreement is drafted depends on the type of listing that the seller opts for. There are three types of listings: exclusive, open, and listing service. In an exclusive listing, the seller gives the sole right to market and sell their property to one brokerage. Normally, a seller and a brokerage agree to an exclusive listing because the seller has given specific instructions regarding the showing of the property. An open listing is one where a seller does not list their property with any brokerage but will allow any brokerage to show the property to a buyer. The seller will co-operate with the brokerage and compensate the one that secures them the most satisfactory offer. A listing service is a member-only database that provides access to properties that are available for sale or lease.

Terms of, and parties to, a seller representation agreement

Important terms of, and parties to, a seller representation agreement, such as the type of listing agreement, seller(s) details, brokerage details, address details, commencement and termination dates, listing price, six-month provision, and seller’s warranty, should be included in every seller representation agreement.

Additional information typically included in a seller representation agreement

Every seller representation agreement lists the obligations of a seller and a listing brokerage and the services that the listing brokerage will provide. Provisions included in every seller representation agreement include: definitions and interpretations; remuneration; representation; finders fee; referral of enquiries; marketing, warranty; indemnification and insurance; Family Law Act; verification of information; use and distribution of information; successors and assigns; conflict or discrepancy; electronic communication; electronic signatures; and schedule(s).

©2019 Real Estate Council of Ontario

Signing and initialling requirements for a seller representation agreement Documenting remuneration in a seller representation agreement

The signing and initialling requirements in a typical seller representation agreement are as follows: signatures from the sellers and the listing brokerage; signatures for spousal consent; a declaration of insurance by the salesperson; the seller’s initials on each page of the agreement; and an acknowledgement by the seller that they understand the terms and have received a true copy of the agreement.

The amount of remuneration owed is negotiable between the seller and the brokerage and is based on the services being provided by the brokerage under the agreement. REBBA identifies the allowable ways remuneration can be calculated. The holdover provision in a seller representation agreement protects the rights of the brokerage, wherein if a buyer is introduced to a property during the listing period, and they purchase the property after the expiry of the listing during an identified time, the seller will owe remuneration to the brokerage.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 1 of 72

Lesson 3: The Buyer Representation Agreement

This lesson introduces a buyer representation agreement used to document a client relationship with a buyer. The lesson details the key components of this type of agreement, including the information typically included and the signing or initialling requirements of both the buyer and the brokerage.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 2 of 72

This lesson introduces the buyer representation agreement and the key components required when documenting that relationship with a buyer: namely, the terms of and parties to the agreement, the various provisions, and the signing and initialling requirements. The lesson also includes exercises that will help you apply your learning and complete a buyer representation agreement. This lesson will help prepare you to explain the buyer representation agreement. You should arrange to discuss and sign the buyer representation agreement with a potential buyer as early as is possible. Both you and the buyer will benefit if you explain the advantages of working with your brokerage, review the agreement with them line-by-line, and answer any questions they may have so that each party to the agreement has a clear understanding of the services that will be provided, and their respective duties and obligations. That way, both parties can be aware of their responsibilities under the agreement throughout the duration of the relationship. Both parties will have a written copy of the agreement to prevent any confusion or misunderstandings in future. As a salesperson, you will have the obligation to be fair, honest, and act in the best interests of the client.

©2019 Real Estate Council of Ontario

Upon completion of this lesson, the learner will be able to: • Describe the type of information required to identify the terms of, and parties to, a buyer representation agreement • Explain the additional information typically included in a buyer representation agreement • Explain the signing and initialling requirements of a buyer representation agreement • Complete the information required to identify the terms of, and parties to, a buyer representation agreement • Complete the additional information typically required in a buyer representation agreement • Complete the signing and initialling requirements of a buyer representation agreement Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 3 of 72

The Buyer Representation Agreement: Overview A buyer representation agreement is used by a brokerage to document a client relationship with a buyer. It grants an authority to the brokerage to act on the buyer’s behalf in locating a suitable property for purchase, identifies any limitations to the authority granted, and states how long the agreement with the brokerage will be in effect. This agreement also: • Establishes the services the brokerage will provide to the buyer • Sets out duties and responsibilities of both the buyer and the brokerage • Details remuneration arrangements and buyer responsibilities should remuneration not be paid by the seller • Provides a general or very specific description of the area where the buyer wishes to purchase and the desired property type An example of a form that may be used as a buyer representation agreement is shown in its entirety at the end of this lesson.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 4 of 72

Exclusive Buyer Representation Agreement An exclusive buyer representation agreement, similar to the seller representation agreement, may be signed by a buyer client who will grant your brokerage the exclusive authority and sole right to represent them in their search for a property that meets their stated criteria. An exclusive representation agreement requires that the buyer give express, written authority to the brokerage. The agreement will state in direct and well-defined limits the duties that the brokerage is empowered to perform on behalf of the buyer client. A buyer representation agreement can be verbal, but you have an obligation to reduce it to writing, sign it on behalf of your brokerage, and give it to the buyer for their signature, in accordance with Section 14 of the Code of Ethics.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 5 of 72

Introduction to a Buyer Representation Agreement As a salesperson, you should be well-versed with all clauses and components of any agreement you use in the course of a trade. Due to the nature of a representation agreement, there are some similarities as well as differences between a seller and a buyer representation agreement. Here are some of the provisions in the buyer representation agreement that are similar to the seller representation agreement: • Brokerage details • Term of the agreement • Definitions and interpretations • Representation • Finders Fee • Use and Distribution of Information • Conflict or Discrepancy • Electronic Communication • Electronic Signatures • Signing and Initialling

©2019 Real Estate Council of Ontario

A key difference between the two agreements is that, unlike the seller agreement, the buyer representation agreement is an authority both for the purchase of property and the leasing of property. When the terms and provisions included in the agreement are compared, there is some alignment, but many terms and provisions are different. Below are some of the provisions in the buyer representation agreement that are distinct from the seller representation agreement: • Property type • Geographic location • Indemnification • Consumer Reports Each of the bulleted points above will be discussed in detail in the following screens. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 6 of 72

Similarities Between a Seller and a Buyer Representation Agreement Brokerage details, commencement and expiry dates will need to be recorded consistently in both types of representation agreements. The following screens will highlight the additional information in a buyer representative agreement: • Brokerage details • Term of the agreement

©2019 Real Estate Council of Ontario

Lesson 3 | Page 7 of 72

Brokerage Details The legal name of the brokerage, the complete address of the brokerage, and the telephone number are identified. A salesperson’s name is never entered. Term of the Agreement The effective date and expiry date of the agreement are identified. If the agreement exceeds six months, the brokerage must obtain the buyer’s initials.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 8 of 72

For example, OREA Form 300 contains a statement identifying the brokerage as a party to the agreement where details of the brokerage can be found.

This section of the form also contains a clause that sets out the term of the agreement, including the date and time of the commencement and expiration.

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 9 of 72

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Similarities Between Seller and Buyer Representation Agreements Now that you have reviewed information that is similar to both the seller and the buyer representation agreements, let us look at how these elements are presented in OREA Form 300. 1. Brokerage details: OREA Form 300 contains an area where the brokerage is identified. This section of the form is where the legal name of the brokerage, the complete address of the brokerage and the telephone number are identified. 2. Term of the Agreement: OREA Form 300 contains a clause that sets out the effective dates and times of the agreement. This section of the form is where the effective date and expiry date of the agreement are identified.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 10 of 72

Similarities Between Seller and Buyer Representation Agreements in Additional Information A buyer representation agreement should include additional provisions that define the brokerage’s authority and to what the buyer consents. These provisions also set out the services the brokerage provides and the obligations of the buyer. A few of the provisions in a buyer representation agreement are similar to those that would be found in a seller representation agreement. They are as follows: • Definitions and interpretations • Representation • Finders Fee • Use and Distribution of Information • Conflict or Discrepancy • Electronic Communication • Electronic Signatures

©2019 Real Estate Council of Ontario

Lesson 3 | Page 11 of 72

Definitions and Interpretations The agreement establishes and explains the terms used in the agreement including seller, buyer, purchase, related corporations, change in number, and gender, etc.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 12 of 72

For example, OREA Form 300 contains a clause called DEFINITIONS AND INTERPRETATIONS.

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 13 of 72

Representation This section confirms that the brokerage and the salesperson have explained the different types of agency and other relationships that may occur in a real estate transaction and includes single representation, multiple representation, and customer service.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 14 of 72

For example, OREA Form 300 contains a clause called REPRESENTATION.

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 15 of 72

Finders Fee This section provides consent in the event the brokerage or salesperson receives a finder’s fee or other remuneration as part of a transaction. This fee may come from a mortgage company or broker. It should be noted that specific consent will be required if a referral fee actually materializes. The buyer acknowledges that the brokerage may receive a finder’s fee in addition to the remuneration described in the agreement.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 16 of 72

For example, OREA Form 300 contains a clause called FINDERS FEE.

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 17 of 72

Use and Distribution of Information The buyer consents to the collection, use, and disclosure of personal information by the brokerage to assist with the facilitation of the transaction. It also assures the buyer that this information will not be distributed to third parties such as heating oil companies, moving companies, etc.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 18 of 72

For example, OREA Form 300 contains a clause called USE AND DISTRIBUTION OF INFORMATION.

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 19 of 72

Additional Information in Representation Agreements Conflict or Discrepancy If something is added to the agreement, then the provision(s) that were added will override the text or pre-set provisions in the form. As a salesperson, you must observe caution when adding information or other requirements to the document to ensure that important elements are not rendered inapplicable. Electronic Communication Electronic communication permits any documents or notices to be transmitted electronically. All documents and signatures are deemed originals. Electronic Signatures This clause provides consent if the parties use electronic signatures with respect to the buyer representation agreement. It is important to remember that consent only applies to this agreement. If electronic signatures are to be used in other agreements like an agreement of purchase and sale, then specific consent must be obtained from the parties for the use of electronic signatures in that document as well.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 20 of 72

For example, OREA Form 300 contains a clause called CONFLICT OR DISCREPANCY.

This section of the form also contains a clause called ELECTRONIC COMMUNICATION.

This section of the form also contains a clause called ELECTRONIC SIGNATURES.

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 21 of 72

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Similarities Between the Seller and the Buyer Representation Agreements in Additional Information Now that you have reviewed the similarities in the additional information between the buyer representation agreement and the seller representation agreement, let’s look at how these elements come together in an agreement. For example, OREA Form 300. The background shows thumbnails for page 1 and page 3 of OREA Form 300: Buyer Representation Agreement. Page 1 includes the following sections: 1. Definitions and interpretations: OREA Form 300 contains a section setting out definitions and interpretations of terms used in the agreement. This section of the form establishes and explains the terms used in the agreement. 2. Representation: OREA Form 300 contains a clause that addresses different types of relationships. This section of the form confirms that the brokerage and you, as the salesperson, have explained the different types of agency and other relationships that may occur in a real estate transaction. Page 3 includes the following sections: 1. Finders Fee: OREA Form 300 contains a clause that addresses the payment of finder’s fees. This section of the form is where the buyer consents to a finder’s fee/referral incentive being received and retained by the brokerage. 2. Use and Distribution of Information: OREA Form 300 contains a clause that addresses the use and distribution of information. This section of the form is where the buyer consents to the collection, use, and disclosure of personal information by the brokerage to assist with the facilitation of the transaction. 3. Conflict or Discrepancy: OREA Form 300 contains a clause that addresses how an addition to a term of a contract impacts pre-set terms in an agreement. ©2019 Real Estate Council of Ontario

This section of the form informs the buyer that if something is added to the agreement, then the provision(s) that were added will override the text or pre-set provisions in the form. 4. Electronic Communication: OREA Form 300 contains a clause that explains that electronic communications are permitted. This section of the form permits any documents or notices to be transmitted electronically. 5. Electronic Signatures: OREA Form 300 contains a clause that explains that electronic signatures may be used. This section contains a clause that provides consent for the parties use electronic signatures with respect to the agreement.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 22 of 72

Similarities and Differences in Terms of, and Parties to, the Buyer Representation Agreement While there are several similarities between a seller representation agreement and a buyer representation agreement, there are also some differences between the two. The major difference is that the seller representation agreement gives the brokerage the authority to sell the subject property. However, the buyer representation agreement must describe the general details of a property that will be acceptable to a buyer in a specific geographic area. These items are covered in both agreements. The remainder of the documents are generally quite similar. Differences include provisions related to indemnification and the consumer reports included as part of the additional information in the agreement. The following screens will highlight the type of information required to identify the terms of, and parties to, a buyer representation agreement: • Buyer’s details • Property type • Geographic location • Buyer representation/warranty

©2019 Real Estate Council of Ontario

Lesson 3 | Page 23 of 72

Buyer(s) Details The full legal name(s) of the buyer(s) and their complete address(es), including municipality details, would be recorded in a section documenting buyer details. You must confirm the legal name(s) that will appear on this or any agreement before signing. Complete legal names and the buyer’s address are obtained to ensure the buyer is not mistaken for another buyer with the same name under a representation agreement with another brokerage.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 24 of 72

For example, OREA Form 300 contains a line where the legal name of the buyer(s) will be entered. They are then referred to as “Buyer” throughout the agreement.

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 25 of 72

Property Type The buyer will need to provide detail about the type of property they wish to purchase in the property type section of an agreement. A description will be required to frame the salesperson’s activities in locating a property that would meet the buyer’s needs. The buyer’s obligation and commitment to the brokerage depends, in part, on the description of the desired property. An agreement describing the property type as “a home for four” would cover a lot of properties and might lead to the salesperson not being able to identify options the buyer could consider. As a salesperson, you should encourage your buyer to be as specific and detailed as possible in describing the type of property they are interested in purchasing so you have complete clarity. When completing a buyer representation agreement, you need to generally describe the property but remain sufficiently broad to permit some flexibility. Saying a “singlefamily residential property” is more useful. ©2019 Real Estate Council of Ontario

Example 1: A couple, while meeting with a salesperson, describes their family’s needs; namely a detached home with four bedrooms, a finished basement, and a double-car garage with convenient access to public transit. The salesperson, while completing this section of the buyer representation agreement, inserts “single family residential, detached home with three to five bedrooms and a garage.” This generally describes the property that the family is looking for but is sufficiently broad as to permit some flexibility. Example 2: A salesperson is completing a buyer representation agreement with a real estate investor who is looking for a small, multi-unit, residential building. The salesperson inserts the following in this section: multi-family, residential property, two to four units. In some cases, it is appropriate to complete the agreement for a specific address, i.e. 123 Pine St., Anycity, Anyregion. Sometimes a buyer would be willing to work exclusively with one brokerage for a specific property but may want to keep their options open to buy privately or to work with other brokerages.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 26 of 72

For example, OREA Form 300 contains a line where the property type (based on the use of the property) will be entered.

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 27 of 72

Geographic Location A buyer representation agreement sets out the geographic location the brokerage is authorized to search on behalf of the buyer. As a salesperson, you should ensure that the geographic location is specific and clear to ensure there is no misunderstanding of this term. The area mentioned should be reasonable and the brokerage should be able to provide their services to the buyer in the area mentioned. For example, a geographic area of Northern Ontario would not be reasonable, and any salesperson would not have the experience or expertise to advise buyers on such a vast area. However, when defining the geographical scope of the buyer representation agreement, it only applies to properties defined in the “property type” section. For example, a salesperson works with a family who is relocating to Waterloo Region from Winnipeg. They sign a buyer representation agreement for a single-family residential home in the cities of Kitchener and Waterloo, which they ultimately purchase. However, at the same time they purchase an industrial building for their business through a commercial brokerage. As this purchase is separate and distinct from the residential purchase, they do not have any obligations to the salesperson with respect to the industrial purchase and vice versa with respect to the residential purchase. The buyer warrants that they will not work with another brokerage to help them find a property in the same geographic location. To avoid any misunderstandings, the geographic location should be detailed enough that the authority is understood, but general enough that the brokerage is not restricted to one neighbourhood. As much as possible, encourage and aid the buyer to define the geographic location by using municipal boundaries as these are clearly defined. In a larger centre, it might be appropriate to describe the geographic location by identifying the boundaries in a city or region. In other areas, it might be appropriate to insert the name of the city or region in the description.

©2019 Real Estate Council of Ontario

Example: Instead of documenting the geographic location as a general area such as “Anycity, Anyregion”, describe the geographic location using “Anycity, west of route 8 and south of route 27.”

©2019 Real Estate Council of Ontario

Lesson 3 | Page 28 of 72

For example, OREA Form 300 contains a line where the geographic location of the property being considered will be entered.

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 29 of 72

Buyer Representation/Warranty Since a buyer representation agreement is an exclusive agreement with the brokerage, the buyer is providing a warranty that they are not a party to a buyer representation agreement with any other brokerage for the purchase or lease of the same property type and within the same geographic area. If the buyer has signed a representation agreement with more than one brokerage under the same terms, the buyer could be obligated to pay remuneration to more than one brokerage for the purchase. As the buyer representation agreement provides the authority to the brokerage specific to the property type and geographic location, a buyer may be a party to more than one buyer representation agreement with different brokerages at the same time. For example, a buyer could have one agreement for a residential purchase and at the same time, have an agreement with a different brokerage to locate commercial space to purchase or lease. A buyer could also have two agreements at the same time if the property type is the same, but the geographic location is different. Example: A young couple has received an inheritance and has decided to purchase both a new home in the city, and a summer cottage located in a rural township several hundred kilometres away. The buyers are searching for two different property types in different geographic locations, so the searches do not conflict with each other. In this instance, the buyers could have a representation agreement signed with one brokerage for the purchase of a home in the city and a second representation agreement signed for the purchase of a cottage with another brokerage. Having an accurate and specific description of the property type and geographic location in the agreement is important to ensure the buyer understands their obligations to the brokerage. ©2019 Real Estate Council of Ontario

Lesson 3 | Page 30 of 72

For example, OREA Form 300 contains a provision where the buyer warrants that they have not entered a representation agreement with any other brokerage.

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 31 of 72

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Terms of, and Parties to, the Buyer Agreement Now that you have reviewed certain items in the buyer representation agreement that are different from the seller representation agreement, let us look at how these elements come together in an agreement, for example OREA Form 300. 1. Buyer’s details: OREA Form 300 contains a line where the legal name of the buyer(s) will be entered. They are then referred to as “Buyer” throughout the agreement. This section of the form contains the full legal names and address of the buyer(s). 2. Property Type: OREA Form 300 contains a line where the property type (based on the use of the property will be put to) will be entered. This section of the form is where the buyer’s details about the type of property they wish to purchase is recorded. 3. Geographical Location: OREA Form 300 contains a line where the geographic location of the property being considered will be entered. This section of the form is to record the geographic location that the brokerage is authorized to search on behalf of the buyer. 4. Buyer’s Warranty: OREA Form 300 contains a provision where the buyer warrants that they have not entered into a representation agreement with another brokerage. This section of the form is where the buyer provides warranty that they are not a party to a buyer representation agreement with any other brokerage for the purchase or lease of the same property type and within the same geographical area.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 32 of 72

Jason, the salesperson from XYZ Realty Ltd., is representing Randal and Sara Smith and is preparing a buyer representation agreement for them. Randal and Sara are looking to buy a single-family residential home with four bedrooms in Anycity, Anyregion. It may take 10 to 12 weeks to find a home to purchase in this area. Select the best wording for a buyer representation agreement based on their conversation. There are two options. There is only one correct answer.

1 2

Jason: “Mr. and Mrs. Smith, let’s get started. Given that I’m your salesperson with XYZ Realty Ltd., I’m listing Jason Sewell, XYZ Realty Ltd. as the brokerage on this agreement.” Jason: “Mr. and Mrs. Smith, let’s get started. Given that I’m your salesperson with XYZ Realty Ltd., I’m listing XYZ Realty Ltd. as the brokerage on this agreement.”

©2019 Real Estate Council of Ontario

Lesson 3 | Page 33 of 72

Jason, the salesperson from XYZ Realty Ltd., is representing Randal and Sara Smith and is preparing a buyer representation agreement for them. Randal and Sara are looking to buy a single-family residential home with four bedrooms in Anycity, Anyregion. It may take 10 to 12 weeks to find a home to purchase in this area. Select the best wording for a buyer representation agreement based on their conversation. There are two options. There is only one correct answer.

1 2

Jason: “I’m going to list your names as Randal Smith in the Buyers section, given that you both want to buy the property together.” Jason: “I’m going to list your names as Randal Smith and Sara Smith in the Buyers section, given that you both want to buy the property together.”

©2019 Real Estate Council of Ontario

Lesson 3 | Page 34 of 72

Jason, the salesperson from XYZ Realty Ltd., is representing Randal and Sara Smith and is preparing a buyer representation agreement for them. Randal and Sara are looking to buy a single-family residential home with four bedrooms in Anycity, Anyregion. It may take 10 to 12 weeks to find a home to purchase in this area. Select the best wording for a buyer representation agreement based on their conversation. There are two options. There is only one correct answer.

1 2

Jason: “We discussed that finding your ideal home will take around 10 to 12 weeks based on current market conditions. Therefore, initials are not needed to extend this agreement.” Jason: “We discussed that finding your ideal home will take around 10 to 12 weeks based on current market conditions. Therefore, initials are needed to extend this agreement.”

©2019 Real Estate Council of Ontario

Lesson 3 | Page 35 of 72

Jason, the salesperson from XYZ Realty Ltd., is representing Randal and Sara Smith and is preparing a buyer representation agreement for them. Randal and Sara are looking to buy a single-family residential home with four bedrooms in Anycity, Anyregion. It may take 10 to 12 weeks to find a home to purchase in this area. Select the best wording for a buyer representation agreement based on their conversation. There are two options. There is only one correct answer.

1 2

Jason: “Speaking of the type of home you are looking at, I will enter single family residential home in the respective field. How does all this sound?” Jason: “Speaking of the type of home you are looking at, I will enter residential structure in the respective field. How does all this sound?”

©2019 Real Estate Council of Ontario

Lesson 3 | Page 36 of 72

Manikaran Singh wants to buy a detached, three-bedroom home in Anytownship, Anyregion and is prepared to sign a buyer representation agreement with ABC Real Estate Inc. Before signing, his salesperson asks him if he has signed a buyer representation agreement with any other brokerage. Manikaran replies that he has a buyer representation agreement with another brokerage, UVW Realty Inc., for a twobedroom condominium apartment in Northgate, Anyregion as an investment property that his daughter will live in when going to college. If Manikaran buys a detached, three-bedroom home in Anytownship through ABC Realty Inc., will he be liable for remuneration under the buyer representation agreement he has with UVW Realty Inc.? There are four options. There is only one correct answer.

1 2 3 4

Yes. As Manikaran signed a buyer representation agreement with UVW Realty Inc. first, he will be bound to pay them remuneration for any property he purchases. No. By signing the second buyer representation agreement with ABC Real Estate Inc., it nullifies the agreement with UVW Realty Inc. No. The agreement with UVW Realty Inc. is for a two-bedroom condominium apartment in Northgate and that is not what Manikaran is purchasing. Yes. Three-bedroom detached homes and two-bedroom condominium apartments are both residential properties and it doesn’t matter where they are located.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 37 of 72

Similarities and Differences in Additional Information in a Buyer Representation Agreement While some elements in the additional information in the buyer representation agreement are similar to that found in a seller representation agreement, certain other provisions are different. Similarities with the seller representation agreement include the provision of referral of properties and schedule(s). However, the indemnification clause is more significant in the seller representation agreement compared to the buyer representation agreement. Even though the indemnification clause in the buyer representation agreement states that the buyer must investigate the property themselves and that the salesperson cannot be held responsible for any defects found, the salesperson and brokerage are still obligated to perform their due diligence and offer competent service to the buyer. The other point of difference between the two representation agreements is the consumer reports provision in the buyer representation agreement, whereby the buyer is notified that a consumer report consisting of the buyer’s personal and credit information may be used and referred to during the transaction.

©2019 Real Estate Council of Ontario

The marketing clause is also a point of difference as it is not contained in the buyer representation agreement. The clause is part of the seller representation agreement as the salesperson and the brokerage are authorized by the seller to market their property. The following screens will highlight the additional information in a buyer representation agreement: • Referral of properties • Indemnification • Consumer reports • Schedule(s)

©2019 Real Estate Council of Ontario

Lesson 3 | Page 38 of 72

Referral of Properties A buyer representation agreement contains a provision that requires the buyer to inform the brokerage of any property they become aware of that meets the criteria as identified in the agreement. If a buyer locates a property directly during the course of their buyer representation agreement, they are obligated to inform the brokerage about the property. The brokerage would then make the necessary arrangements to show the property to the buyer. Failure to provide this information to the brokerage could result in the buyer being obligated to pay remuneration to the brokerage if they were to purchase the property. Example: While at work, a buyer discusses with her colleagues her plans to buy a home. Her co-worker informs her that his sister is selling her home on Oak Meadow Street and it has many of the features the buyer is looking for. During the buyer’s lunch break, she calls her salesperson and tells him about the said property, suggesting that he make arrangements to show her through the home that evening. This satisfies the buyer’s obligation to refer properties to the brokerage/salesperson.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 39 of 72

For example, OREA Form 300 contains a provision called REFERRAL OF PROPERTIES.

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 40 of 72

Indemnification A provision for indemnification in a buyer representation agreement is the buyer’s acknowledgement that the brokerage and its representatives are not responsible for any defects found in the properties the buyer views. Although the brokerage and its representatives are trained in dealing in real estate, they are not qualified to determine the physical condition of the properties or land. The buyer also acknowledges that they have been advised to make their own enquiries about the property as the information provided by the seller or the listing brokerage may not have been verified. You should not advise a buyer about the physical condition of a property and, if asked, should refer them to a professional.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 41 of 72

For example, OREA Form 300 contains a provision called INDEMNIFICATION.

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 42 of 72

Consumer Reports By adding this provision to a buyer representation agreement, the buyer is notified that a consumer report, consisting of the buyer’s personal and credit information, may be used and referred to during the transaction. This provision is included to ensure compliance with the requirements set out in the Consumer Reporting Act, which regulates consumer reporting agencies who furnish consumer reports. A consumer report is a written, oral, or other communication by a consumer reporting agency of credit information, personal information, or both. In a real estate transaction, a report could be requested in connection with the extension of credit, such as obtaining a mortgage, and entering into or renewing a tenancy agreement. The provision would apply if the buyer is applying for a mortgage with a lender, or the seller agrees to provide financing for the buyer’s purchase. As the buyer representation agreement is also used for the leasing of a property, the provision would apply to any tenancy agreement.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 43 of 72

For example, OREA Form 300 contains a provision called CONSUMER REPORTS.

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 44 of 72

Schedule(s) While the schedules themselves may differ, the procedures to attach schedules to a buyer representation agreement would be the same as those used in attaching schedules to a seller representation agreement. Schedules to a buyer representation agreement could include: • A list of properties that may be excluded from the buyer representation agreement; for example, the buyer may have viewed a property for private sale or a new home construction site by a builder • A pre-approval letter from a mortgage provider to assist in the brokerage assessing the buyer’s qualification

©2019 Real Estate Council of Ontario

Lesson 3 | Page 45 of 72

For example, OREA Form 300 contains a reference to SCHEDULES that form part of the agreement.

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 46 of 72

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Additional Information in the Buyer Representation Agreement Now that you have reviewed the additional information in the buyer representation agreement, let us look at how the various elements come together in an agreement, for example in OREA Form 300. Referral of property: OREA Form 300 contains a provision where the buyer agrees to inform the brokerage of any properties they become aware of that meets their criteria. This section is where the buyer agrees to inform the brokerage of any properties they become aware of that meets the criteria as identified in the agreement. Page 3 includes the following sections: 1. Indemnification: OREA Form 300 contains a provision where the buyer states that the brokerage is not responsible for any defects in the properties the brokerage identifies for the buyer. This section informs the buyer that the brokerage and its representatives are not responsible for any defects found in the properties the buyer views. 2. Consumer reports: OREA Form 300 contains a provision where the buyer acknowledges that a consumer report, consisting of personal and credit information may be used during the process. This section notifies the buyer that a consumer report, consisting of their personal and credit information, may be used and referred to during the transaction. 3. Schedule(s): OREA Form 300 contains a line that refers to schedules that form part of the agreement. This section indicates any attached schedules.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 47 of 72

Documenting Remuneration The following screens will highlight how remuneration may be paid to the brokerage by the buyer, if applicable, and how the holdover period applies. Information that must be included to establish the remuneration include: • Brokerage signature • Buyer’s signature and initials where required

©2019 Real Estate Council of Ontario

Lesson 3 | Page 48 of 72

Remuneration A brokerage will include a remuneration provision in the buyer representation agreement to clarify the remuneration obligations of a buyer. The brokerage is entitled to collect and retain a commission if the buyer purchases a property of the general description, which includes the property type and geographic location, as indicated in the agreement. A buyer’s obligations to pay a remuneration, if any, must be clearly explained and understood. The buyer’s obligations include: • The buyer agrees that the brokerage is entitled to be paid remuneration – the agreed upon amount of remuneration is then specified in the agreement. • The brokerage will advise the buyer of the amount of remuneration being paid by the seller or the listing brokerage at the earliest practical opportunity. • The buyer agrees to pay any deficiency between the agreed amount the brokerage is entitled to and the amount paid by the seller or the listing brokerage. This brokerage will inform the buyer of any such deficiency at earliest practical opportunity and prior to submitting an offer. • If no remuneration is being paid by the seller or the listing brokerage, the buyer agrees to pay the full amount of remuneration indicated if the buyer wishes to proceed with the purchase after being informed of obligation to pay remuneration. • If the brokerage receives more than what is identified in the agreement, the brokerage is entitled to retain those additional funds. The brokerage will inform the buyer of such circumstances.

©2019 Real Estate Council of Ontario

Example: If the remuneration rate specified in the buyer agreement is 2.5% and the seller is offering 1%, the buyer would be responsible for paying the remaining remuneration rate of 1.5% to the buyer’s brokerage. The agreement contains a clause specifying that the agreement also applies for the leasing of a property. If the buyer leases a property of the general description specified in the agreement, the buyer representation agreement remains in effect for the purchase of the leased property or any property of the general description indicated in the agreement. It is also mentioned that the leasing of a property does not terminate the agreement for the purchase of a property. Holdover is a significant component of the remuneration obligations of a buyer and will be discussed in more detail in the next screen.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 49 of 72

For example, OREA Form 300 contains a provision called COMMISSION.

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 50 of 72

Holdover As with the seller representation agreement, a holdover provision is also part of the remuneration provisions in a buyer representation agreement. A holdover provision obligates the buyer to use the brokerage for a purchase after the agreement expires if the buyer purchases a property that was shown by the brokerage when the agreement was in effect. Failure to do so could result in the buyer owing remuneration to the brokerage. A holdover period is typically 60 to 90 days, but is set by the brokerage and may be negotiable between the buyer and the brokerage. Should the buyer sign a subsequent representation agreement with another brokerage during the holdover period, any obligation to pay remuneration to the original brokerage is reduced by the amount paid under the new representation agreement. Example 1: On the expiry of the buyer representation agreement and during the holdover period specified in the agreement, a buyer puts an offer on a property that was introduced to him by the brokerage prior to the expiration of the buyer representation agreement. The buyer purchases the property without entering into another buyer representation agreement with another brokerage. In this case, the buyer owes the agreed-upon remuneration to their brokerage.

©2019 Real Estate Council of Ontario

Example 2: The buyer’s agreement with a brokerage expires and, during the holdover period, he signs an agreement with another brokerage. The buyer purchases a property through the new brokerage; however, the property had been introduced to the buyer by the previous brokerage. As the purchase occurred during the holdover period, the buyer is obligated to pay remuneration to the previous brokerage. However, the buyer’s obligation for remuneration is reduced by the amount paid under the new representation agreement, if any.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 51 of 72

For example, OREA Form 300 contains information about the Holdover Period within the COMMISSION clause.

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Lesson 3 | Page 52 of 72

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Documenting Remuneration in the Buyer Representation Agreement Now that you have reviewed how remuneration and the holdover provision is dealt with in the buyer representation agreement, let us look at how it is presented in an agreement such as OREA Form 300. Commission: OREA Form 300 contains a clause explaining commission. This section of the form clarifies the remuneration obligations of a buyer. Page 2 includes the following section: Holdover Provision: OREA Form 300 contains the information about the Holdover Period within the Commission clause. This section of the form obligates the buyer to pay remuneration to the brokerage if the purchase happens within a specified period after expiry of agreement.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 53 of 72

Based on the remuneration and holdover provisions agreed to between a brokerage and a buyer in a buyer representation agreement, the remuneration obligations of the buyer may change in different scenarios. Identify the scenarios in which the buyer would owe remuneration to the brokerage. There are four options. There are multiple correct answers.

1 2

3

4

The buyer has agreed to pay the brokerage remuneration on the sale price, with a 60-day holdover period. The transaction is firm and binding but does not complete as the buyer’s lender refuses to advance mortgage funds due to the buyer’s revised credit score. The buyer has agreed to an $8,000 remuneration with the brokerage. They buy a property for $500,000 and the brokerage is paid a remuneration rate of 2% of the sale price from the listing brokerage. The buyer agrees to a 90-day agreement, a remuneration rate of 2.5% of the sale price, and a 60-day holdover period. The buyer is shown several properties but does not make a purchase. Nine weeks after the expiration of the agreement, the buyer signs a representation agreement with a different brokerage and buys a property that was also shown to them by the first brokerage. The buyer pays a remuneration rate of 2% of the sale price to the new brokerage. A buyer signs a 60-day agreement at remuneration rate of 2.5%, and a 90-day holdover period. The buyer is shown several properties but does not make a purchase. Six weeks after expiry, the buyer signs a buyer representation agreement with a different brokerage and buys a property that was shown to them by the first brokerage. The buyer pays a remuneration rate of 2% to the new brokerage.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 54 of 72

When viewing a property, a buyer asks the salesperson to provide advice about the plumbing. The salesperson recommends this should be checked by a professional before the property is purchased. If the property is purchased and after the sale is completed, the buyer discovers problems with the plumbing, they cannot hold the brokerage responsible. Which clause outlines the brokerage service in this scenario? There are two options. There is only one correct answer.

1 2

Indemnification Referral of properties

©2019 Real Estate Council of Ontario

Lesson 3 | Page 55 of 72

A buyer, before finalizing the agreement of purchase and sale on a property, meets with a mortgage broker to arrange financing. As part of the financing approval process, the buyer’s credit history is referenced. Which clause outlines the brokerage service in this scenario? There are two options. There is only one correct answer. 1 2

Schedules Consumer reports

©2019 Real Estate Council of Ontario

Lesson 3 | Page 56 of 72

Signing and Initialling The signing and initialling requirements in a buyer representation agreement are similar to those in a seller representation agreement for these sections. REBBA does not require a buyer to sign a buyer representation agreement; however, a brokerage must sign and present this to the buyer for signing at the earliest opportunity, and before an offer is made. A brokerage may have a policy regarding buyer representation agreements. The following screens will highlight the signing and initialling requirements of a buyer representation agreement. These include: • Brokerage signature • Buyer’s signature and initials where required • Declaration of insurance • Acknowledgement

©2019 Real Estate Council of Ontario

Lesson 3 | Page 57 of 72

Brokerage Signature Salesperson’s signature to bind the brokerage to the agreement. Buyer’s Signature and Initials Obtain signature of the buyer, date of signing, and telephone number. The requirements for a buyer’s initials on an agreement are similar to those of the sellers on a listing agreement. By initialling each page and signing the agreement, the buyer is acknowledging that they have read and understood the terms of the buyer representation agreement. The buyer must be advised that they are signing under seal and what that means. The buyer must date their signature and insert their telephone number to facilitate future contact.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 58 of 72

For example, OREA Form 300 contains a space at the end of each page where the buyer and brokerage are to put their initials.

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 59 of 72

Declaration of Insurance It is the salesperson’s declaration that they have insurance as required under REBBA. The Declaration of Insurance when signed by the salesperson confirms that they are enrolled in the RECO Insurance Program as required by the Real Estate and Business Brokers Act, 2002.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 60 of 72

For example, OREA Form 300 contains a section towards the end of the form where the salesperson/broker/broker of record enter their names to declare they are insured as required by REBBA.

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 61 of 72

Acknowledgement Buyer’s acknowledgement of receipt of a copy of the agreement.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 62 of 72

For example, OREA Form 300 contains a section at the end where the buyer acknowledges that the Buyer(s) understand the terms of the agreement and have received a copy on the specific day and date.

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 63 of 72

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Signing and Initialling in Buyer Representation Agreement Now that you have reviewed the various signing and initialling requirements in the buyer representation agreement, let us look at how it is presented in an agreement such as OREA Form 300. 1. Brokerage Initials: OREA Form 300 contains a space at the end of Page 1 and 2 where the brokerage’s salesperson needs to put their initials. These sections of the form are where you, as a salesperson will place your initials to bind the brokerage to the agreement. 2. Buyer’s Signature and Initials: OREA Form 300 contains a space at the end of the tabs where the buyer needs to put their initials. This section of the form is where the buyer signs and initials to acknowledge that they have read and understood the terms of the buyer representation agreement. 3. Declaration of Insurance: OREA Form 300 contains a section towards the end of the form where the salesperson/broker/broker of record enter their names to declare they are insured as required by REBBA. This section of the form is where you, as a salesperson will declare that you have insurance as required under REBBA. 4. Acknowledgement: OREA Form 300 contains a section at the end where the buyer acknowledges that the Buyer(s) understand the terms of the agreement and have received a copy on the specific day and date. This section of the form is where the buyer acknowledges that they have received a copy of the agreement.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 64 of 72

©2019 Real Estate Council of Ontario

From OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Example of a Completed Buyer Representation Agreement Now that you have seen the different provisions in OREA Form 300 in partial views, let us see how all the different parts come together to make a complete form. In one of the Decision Points above, you saw that salesperson Jason Sewell of XYZ Realty Ltd. is helping buyers Randal and Sara Smith to purchase a single-family residential home with four bedrooms in Anycity, Anyregion. We have reproduced an example of a completed buyer representation agreement using OREA Form 300 that Jason would have filled out for his client, taking into consideration the features that the Smiths want in their new home.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 65 of 72

A Salesperson, Rita, from ABC Real Estate Inc. has reviewed all the terms of the buyer representation agreement with Talia and Tara Jones, who are looking for a new home. They want to buy the home together and have worked with Rita to review and complete all the relevant terms of the agreement. Rita is now going to obtain their signatures on the agreement and provide copies of the agreement. Which signatures will Rita need to collect to complete the process of creating a buyer representation agreement with the Joneses? Select the option with the best wording. There are two options. There is only one correct answer.

1

2

Rita: “Thank you for your patience while we reviewed all the terms of the agreement. I will need to obtain a few signatures from you before we will be finished today. First, we have the signature for the brokerage. The broker of record’s signature is required here.” Rita: “Thank you for your patience while we reviewed all the terms of the agreement. I will need to obtain a few signatures from you before we will be finished today. First, we have the signature for the brokerage. My signature is required here.”

©2019 Real Estate Council of Ontario

Lesson 3 | Page 66 of 72

A Salesperson, Rita, from ABC Real Estate Inc. has reviewed all the terms of the buyer representation agreement with Talia and Tara Jones, who are looking for a new home. They want to buy the home together and have worked with Rita to review and complete all the relevant terms of the agreement. Rita is now going to obtain their signatures on the agreement and provide copies of the agreement. Which signatures will Rita need to collect to complete the process of creating a buyer representation agreement with the Joneses? Select the option with the best wording. There are two options. There is only one correct answer. 1 2

“For you, I will need both Talia and Tara’s signature.” “For you, I will not need both Talia and Tara’s signature.”

©2019 Real Estate Council of Ontario

Lesson 3 | Page 67 of 72

A Salesperson, Rita, from ABC Real Estate Inc. has reviewed all the terms of the buyer representation agreement with Talia and Tara Jones, who are looking for a new home. They want to buy the home together and have worked with Rita to review and complete all the relevant terms of the agreement. Rita is now going to obtain their signatures on the agreement and provide copies of the agreement. Which signatures will Rita need to collect to complete the process of creating a buyer representation agreement with the Joneses? Select the option with the best wording. There are two options. There is only one correct answer. 1 2

“Next, I declare that the required insurance under REBBA is in place.” “Next, ABC Real Estate Inc. declares that the required insurance under REBBA is in place.”

©2019 Real Estate Council of Ontario

Lesson 3 | Page 68 of 72

A Salesperson, Rita, from ABC Real Estate Inc. has reviewed all the terms of the buyer representation agreement with Talia and Tara Jones, who are looking for a new home. They want to buy the home together and have worked with Rita to review and complete all the relevant terms of the agreement. Rita is now going to obtain their signatures on the agreement and provide copies of the agreement. Which signatures will Rita need to collect to complete the process of creating a buyer representation agreement with the Joneses? Select the option with the best wording. There are two options. There is only one correct answer.

1 2

“Initials are also required in several areas. Once this has been completed, I will provide you both with copies of the agreement. I will need signatures to acknowledge you received your copies.” “Initials are also required in several areas. Once this has been completed, I will provide you both with copies of the agreement. I will not need signatures to acknowledge you received your copies.”

©2019 Real Estate Council of Ontario

Lesson 3 | Page 69 of 72

Jason Sewell, a salesperson with XYZ Realty Inc., at 1224 Commerce Place, Anycity, ON (123-123-1212) is meeting with Elizabeth and Rob Park (123 Pine St, Anycity, ON, K0K1W0 - 123-123-1234) who are beginning to search for a new home on May 12, 20XX. The Parks want to purchase a single-family residence with two bedrooms, two baths, and a garage in the Anycity area. Jason has explained the services that the brokerage offers, and the Parks have chosen client status. The Parks, who are working exclusively with XYZ Realty Inc., have agreed to a 60-day agreement beginning on May 15, 20XX with a 30-day holdover provision. They have also agreed to a remuneration rate of 2.5% on the purchase of a property.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 70 of 72

Jason has completed a buyer representation agreement with the Parks. • • • • • • • • • • • • • • • • • • • • • • • • • • •

Brokerage is XYZ Realty Inc. Address is 1224 Commerce Place, Anycity, ON. This is the address of the brokerage. Brokerage Telephone Number is 123-123-1212. Buyer is Elizabeth Park and Rob Park. These are the full legal names of the buyers. Address is 123 Pine Street. This is the buyers’ home address. Municipality is City of Anycity. The buyers live in this municipality. Postal Code is K0K1W0. This is the postal code for the buyers’ home address. Commencing at 12:01 a.m. on the 15 day of May, 20XX. This is the commencing date of the agreement. Expiring at 11:59 p.m. on the 13 day of July, 20XX .This is expiry date of the agreement. Property Type is Single family residential. This is the description of property type. Geographic Location is City of Anycity. Buyer’s Initials are EPRP. These are to confirm they are not a party to a buyer representation agreement with any other registered real estate brokerage for the purchase or lease of a similar property. Initials of Brokerage are JS. These are the salesperson’s initials to confirm information on page 1. Initials of Buyer(s) are EPRP. These are the buyers’ initials to confirm information on page 1. The Brokerage is entitled to be paid a commission of two and one half (2.5). This is the amount of remuneration to be paid to the brokerage on the purchase of a property. Alternate to remuneration and Remuneration for a lease are not applicable. The Buyer agrees to pay the Brokerage such commission if the Buyer enters into an agreement within 30 days. Initials of Brokerage are JS. These are the salesperson’s initials to confirm information on page 2. Initials of Buyer(s) are EPRP. These are the buyers’ initials to confirm information on page 2. SCHEDULE(S) are none. This is the confirmation that there are no schedules attached to the agreement. Authorized to bind the Brokerage by J. Sewell. Date is May 12, 20XX. Name of Person Signing is Jason Sewell. Signature of Buyer 1 is Elizabeth Park. Date is May 12, 20XX. Telephone Number is 123-123-1234. Signature of Buyer 2 is Rob Park. ©2019 Real Estate Council of Ontario

• Date is May 12, 20XX. • Telephone Number is 123-123-1234. • Declaration of Insurance – Name is Jason Sewell. This is the printed name of salesperson representing brokerage confirming they are insured by REBBA. • Declaration of Insurance – Signature is J. Sewell. This is the signature of salesperson representing brokerage confirming they are insured by REBBA. • Acknowledgement – Date is on the 12 day of May, 20XX. • Acknowledgement – Signature of Buyer 1 is Elizabeth Park. • Acknowledgement – Date of signing is May 12, 20XX. • Acknowledgement – Signature of Buyer 2 is Rob Park. • Acknowledgement – Date of signing is May 12, 20XX.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 71 of 72

©2019 Real Estate Council of Ontario

OREA Form 300: Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

Buyer Representation Agreement for the Parks Jason has completed the buyer representation agreement with the Parks. ©2019 Real Estate Council of Ontario

Lesson 3 | Page 72 of 72

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Terms of, and parties to, a buyer representation agreement

There are several similarities between a seller representation agreement and a buyer representation agreement. However, there are also some important differences between the two. Important terms of, and parties to, a buyer representation agreement, such as buyer(s) details, brokerage details, property type, geographic location, commencement and termination dates, six-month provision, and buyer’s warranty, should be included in every buyer representation agreement. Brokerage details, commencement and termination dates, and the six-month provision are recorded in the same way as a seller representation agreement.

Additional information typically included in a buyer representation agreement

Every buyer representation agreement also includes provisions that better define the obligations of a buyer and a brokerage and the services the brokerage provides. Provisions such as definitions and interpretations, remuneration, representation, finders fee, referral of properties, consumer reports, indemnification, verification of information, use and distribution of information, conflict or discrepancy, electronic communication, electronic signatures, and schedule(s), are usually included in every buyer representation agreement. Provisions such as definitions and interpretations, representation, finders fee, verification of information, use and distribution of information, conflict or discrepancy, electronic communication, electronic signatures, and schedule(s), are usually recorded in the same way as in a seller representation agreement. The buyer representation agreement will include a remuneration provision to clarify the remuneration obligations of a buyer. As with the seller representation agreement, the holdover provision applies to the buyer representation agreement.

©2019 Real Estate Council of Ontario

Signing and initialling requirements for a buyer representation agreement

The signing and initialling requirements in a buyer representation agreement are similar to those in a seller representation agreement. These can be broken down into brokerage signature, buyer(s) signature, initialling requirements across the document, and declaration of insurance.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 1 of 56

Lesson 4: The Seller Customer Service Agreement

This lesson introduces a seller customer service agreement used to document a customer relationship with a seller. The lesson details the key components of this type of agreement, including the information typically included and the signing or initialling requirements of both the seller and the brokerage.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 2 of 56

This lesson introduces a seller customer service agreement and its various components – the terms of and parties to the agreement, the various provisions, and the signing and initialling requirements. Similar to agreements discussed previously, as a salesperson, you must explain all components of a seller customer service agreement and the obligations of all parties, establish the services you will provide to the seller, and set clear expectations so that there are no misunderstandings. A seller customer service agreement shares similarities with a seller representation agreement. This lesson highlights in detail these similarities and explains the difference between the two agreements. The lesson also includes exercises to guide you in completing aspects of the seller customer service agreement. Upon completion of this lesson, the learner will be able to: ● Describe the type of information required to identify the terms of, and parties to, a seller customer service agreement ● Explain the additional information typically included in a seller customer service agreement ● Explain the signing and initialling requirements of a seller customer service agreement ● Complete the information required to identify the terms of, and parties to, a seller customer service agreement ● Complete the additional information typically required in a seller customer service agreement ● Complete the signing and initialling requirements of a seller customer service agreement Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 3 of 56

Seller Customer Service Agreement Overview As you learned earlier in this module, as a salesperson, you will be required to clearly explain the services that are available to a client or a customer before documenting the relationship. A seller representation agreement is used to outline and establish client relationships, but circumstances may dictate that a seller customer service agreement may be more appropriate. For example, a buyer may have entered into a buyer representation agreement with a brokerage and is interested in purchasing a home being sold privately by the owner. To avoid any conflicts of interest associated with multiple representation, the brokerage offers customer services to the seller rather than representation. A seller customer service agreement details the limited services the brokerage will provide to the seller and gives the brokerage the authority to obtain additional information about the property. The customer service agreement will also document information about remuneration and how it may be applied. When working with a seller who has signed a customer service agreement with the brokerage, you will be required to treat the seller with fairness, honesty, and integrity and provide them with conscientious and competent service, but they will not be owed fiduciary duties, which is often characterized by providing guidance and advice.

©2019 Real Estate Council of Ontario

As the seller is a customer, you will owe them limited services. At all times, the brokerage must avoid providing advice to the seller as this could unintentionally change the relationship to that of a client. This means you would not provide advice concerning negotiating an offer, appropriate clauses or conditions to include, or the estimated value of their property. In some instances, you could provide information about recent sales in the area or active listings to support the offer being made by the buyer you are representing. Any information provided would require the seller to reach their own conclusions.

Documenting a customer service agreement must also comply with the Code of Ethics in terms of information before the agreement, contents of the agreement, documenting the customer relationship before any offer, and providing a copy of the agreement immediately upon signing.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 4 of 56

The Seller Customer Service Agreement: Remuneration Agreement for a Property Not Listed A seller customer service agreement is used to document the relationship and any remuneration agreement with a seller who does not have their property listed with a brokerage. The agreement is used when a brokerage introduces a buyer to the seller and the brokerage will not be representing the seller, but rather will be providing limited services only. When a seller, who is selling their property privately, agrees to allow the brokerage to show the property to a buyer, you, as a salesperson, will prepare a customer service agreement. The agreement will include the following: confirmation that the brokerage is providing services to the seller and is not representing the seller; remuneration amount and terms; provisions for the buyer’s deposit to be held in trust by the brokerage and then applied to any remuneration owed by the seller; permission to place a “Sold” sign on the property. Example: A buyer has signed a representation agreement with a brokerage. The salesperson locates an unlisted property that the buyer is interested in purchasing. The salesperson, on behalf of the buyer, approaches the seller to see if the seller will allow the brokerage to show the property and pay remuneration to the brokerage. The seller agrees to these terms and understands the brokerage will not be representing them in the transaction. The salesperson completes a seller customer service agreement, signs it on behalf of the brokerage, and provides it to the seller for signature. The salesperson obtains the seller’s signature prior to showing the property to the buyer.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 5 of 56

The Seller Customer Service Agreement: Overview A seller customer service agreement will contain information similar to that in a seller representation agreement. The information that is common to both includes: • Brokerage details • Seller(s) details • Property details • Effective and expiry dates • Six-month provision for the term of the agreement • Seller’s warranty • Definitions and interpretations • Finders fee • Use and distribution of information • The Family Law Act • Successors and assigns • Conflict or discrepancy • Electronic communication • Electronic signatures

Exam Study Guide

Note: Earlier in this module, you learned in detail about the bullets listed above in relation to a seller representation agreement. The same details for each of the above elements are found in a seller customer service agreement and will be touched upon briefly in the following slides. There are a few key areas, however, where a seller customer service agreement is distinct from a seller representation agreement. • Non-exclusivity disclaimer • Buyer Details • Term of the agreement • No listing price identified

©2019 Real Estate Council of Ontario

Lesson 4 | Page 6 of 56

Similarities Between a Seller Customer Service Agreement and a Seller Representation Agreement Many elements are similar between a seller customer agreement and a seller representation agreement. The following screens will highlight these similarities in the terms of, and parties to the agreement: • Brokerage details • Seller(s) details • Property details • Effective and expiry dates • Six-month provision for the term of the agreement • Seller’s warranty

©2019 Real Estate Council of Ontario

Lesson 4 | Page 7 of 56

Brokerage Information The salesperson would insert the full legal name of the brokerage and include the telephone number. Much like the seller representation agreement, the salesperson’s name would not be inserted in this area. Seller Details As a salesperson, you would insert the full legal names of the seller(s). The legal names could be verified from various source documents such as a deed, driver’s license, passport, etc. Property Details As a salesperson, you would identify the property by entering the civic address and/or the legal description. With rural properties, you could obtain the address from a tax notice or a government document. The legal description adds clarity as does the 911 numerical code at the entrance to the property from a public road, but these are not available in all areas.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 8 of 56

For example, OREA Form 201 has a section where brokerage details are entered.

This section of the form also includes a section where seller details are entered.

This section of the form also has an area where the actual address or legal description of the property is entered.

From OREA Form 201: Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 9 of 56

Effective and Expiry Dates As a salesperson, you will enter the date and time that the agreement takes effect and the date that it expires. 11:59 p.m. is the default expiry time but it can be changed if the parties prefer another expiry time. Six-Month Provision If the agreement exceeds six months in duration, the seller must acknowledge that fact by initialling to acknowledge the duration. Seller’s Warranty This clause exists in both the seller representation agreement and the seller customer service agreement and registrants generally seek initials from the seller to specifically acknowledge the warranty. The wording in different forms may be different. In addition to warranting that they are not a party to a listing with another brokerage, the seller in the seller customer service agreement also warrants that they have the sole and exclusive right to execute the agreement. This statement may not exist in the seller representation agreement.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 10 of 56

For example, OREA Form 201 has a section that allows the salesperson to fill out the time and day when the agreement will commence and when it expires.

This section of the form also has a section where the seller is to acknowledge if they agree to a term longer than six months.

This section of the form also has a statement where the seller warrants they have not listed the property with any other brokerage.

From OREA Form 201: Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 11 of 56

From OREA Form 201: Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Similarities in Terms of, and Parties to, a Seller Customer Service Agreement Now that you have reviewed the various elements that are similar between the two agreements, let’s look at how all these items come together in a form, using OREA Form 201 as an example. 1. Brokerage information: OREA Form 201 has a section where brokerage details are entered. In this section, the full legal name and telephone number of the brokerage is entered. 2. Seller details: OREA Form 201 includes a section where seller details are entered. In this section, the full legal name of the seller is entered. 3. Property details: OREA Form 201 has an area to identify the property. In this section, the property is identified by entering the civic name and/or legal description. 4. Effective and expiry dates: OREA Form 201 has a section that allows the salesperson to fill out the time and day when the agreement will commence and when it expires. In this section, the date of commencement and expiry of the agreement is entered. 5. Six-month provision: OREA Form 201 has a section where the seller acknowledges whether they agree to a listing of greater than six months. This section requires the seller’s acknowledgement if the time period of the agreement exceeds six months. 6. Seller’s warranty: OREA Form 201 has a bolded line where the seller warrants they are not working with another brokerage. In this section, the seller warrants that they are not a party to a listing with another brokerage.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 12 of 56

Similarities in Additional Information There are additional elements in the agreement that are similar between a seller customer service agreement and a seller representation agreement. The following screens will highlight these similarities: • Definitions and interpretations • Finders fee • Use and distribution of information • The Family Law Act • Successors and assigns • Conflict or discrepancy • Electronic communication • Electronic signatures

©2019 Real Estate Council of Ontario

Lesson 4 | Page 13 of 56

Definitions and Interpretations The clause defines the various terms found in the agreement. The clauses in both the seller representation agreement and the seller customer service agreement are usually quite similar, with some minor differences.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 14 of 56

For example, OREA Form 201 has a section called DEFINITIONS AND INTERPRETATIONS that includes definitions and interpretations of terms used in the agreement.

From OREA Form 201: Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 15 of 56

Finders Fee The seller acknowledges that the salesperson may receive a finder’s fee from a third-party service provider, usually a mortgage broker or lender, and provides their consent. A second disclosure and consent are required when the salesperson actually confirms that a finder’s fee will be received. Use and Distribution of Information The seller is often asked to consent to the use of personal information, such as the sale price, to be used in statistical data to provide comparative market analysis. In order to ensure compliance with privacy laws, the seller consents to the use and disclosure of personal information in order to market the property. This will include the use of photographs, videos, surveys, etc. Family Law Act The seller is asked to warranty that if spousal consent is necessary then the spouse has signed the agreement. ©2019 Real Estate Council of Ontario

Lesson 4 | Page 16 of 56

For example, OREA Form 201 has a clause called FINDERS FEES.

This section of the form also has a clause called USE AND DISTRIBUTION OF INFORMATION.

This section of the form also has a clause called FAMILY LAW ACT.

From OREA Form 201: Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 17 of 56

Successors and Assigns This clause typically states that the heirs, estate trustees or any other party legally acting on behalf of the seller must also abide by the terms of the agreement. Conflict or Discrepancy In the event something is added to the agreements, for example by way of a schedule, and the added part is in conflict or there is a discrepancy with a pre-printed clause, then the added part overrides the pre-printed provision. Electronic Communication This clause confirms that communications may occur electronically and will still be binding on the parties. Electronic Signatures The clause provides the required consent under the Electronic Commerce Act for the parties to use electronic signatures with respect to the agreements. This consent, however, does not extend to other agreements such as the agreement of purchase and sale. If electronic signatures are to be used in that document then a separate consent will be required for each agreement.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 18 of 56

For example, OREA Form 201 has a clause called SUCCESSORS AND ASSIGNS.

This section of the form also has a clause called CONFLICT OR DISCREPANCY.

This section of the form also has a clause called ELECTRONIC COMMUNICATION.

This section of the form also has a clause called ELECTRONIC SIGNATURES.

From OREA Form 201: Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 19 of 56

©2019 Real Estate Council of Ontario

From OREA Form 201: Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Similarities in Additional Information, 1 Now that you have reviewed all the additional information in a seller customer service agreement that is similar to a seller representation agreement, let’s look at how all the elements come together in an agreement, for example in OREA Form 201. Definition and Interpretation: OREA Form 201 has a section that describes the terms in the agreement. The agreement establishes and explains the terms used in the agreement.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 20 of 56

©2019 Real Estate Council of Ontario

From OREA Form 201: Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Similarities in Additional Information, 2 Now that you have reviewed all the additional information in a seller customer service agreement that is similar to a seller representation agreement, let’s look at how all the elements come together in an agreement, for example in OREA Form 201. 1. Finders fee: OREA Form 201 has a clause addressing finder’s fees. The seller acknowledges the brokerage may receive a finder’s fee in addition to the remuneration described in the agreement. 2. Use and Distribution of Information: OREA Form 201 has a clause that addresses the use and distribution of information. The seller consents to the collection, use, and disclosure of personal information by the brokerage. 3. The Family Law Act: OREA Form 201 has a clause that addresses spousal consent under the Family Law Act. Seller warranty that spousal consent is not required. 4. Successors and assigns: OREA Form 201 has a clause that addresses successors and assigns. Clause that identifies that heirs and assigns will be obligated to adhere to terms of the agreement. 5. Conflict or discrepancy: OREA Form 201 has a clause addresses possible conflicts or discrepancies that may arise with additional terms or clauses added to a standard agreement. If there is any conflict or discrepancy between any provision added and the pre-set portion, the added provision supersedes.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 21 of 56

©2019 Real Estate Council of Ontario

From OREA Form 201: Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Similarities in Additional Information, 3 Now that you have reviewed all the additional information in a seller customer service agreement that is similar to a seller representation agreement, let’s look at how all the elements come together in an agreement, for example in OREA Form 201. 1. Electronic communication: OREA Form 201 has a clause to address the use of electronic communications. Permits any documents or notices to be transmitted electronically. All documents and signatures are deemed originals. 2. Electronic signature: OREA Form 201 has a clause to allow the parties to consent to the use of electronic signatures. Provides consent if the agreement has been signed with an electronic signature.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 22 of 56

Distinct Elements in a Seller Customer Service Agreement The seller customer service agreement creates limited obligations for the seller and the brokerage. However, there are terms and conditions in this agreement that have some differences with the seller representation agreement. The following screens will highlight the information required to identify the terms of, and parties to, a seller customer service agreement: • Non-exclusivity disclaimer • Buyer’s name • Term of the agreement • No listing price identified

©2019 Real Estate Council of Ontario

Lesson 4 | Page 23 of 56

Non-Exclusivity Disclaimer A seller customer service agreement is a non-exclusive agreement with the brokerage. This means a seller can have a customer service agreement with any number of brokerages at the same time. The seller’s obligation to pay remuneration is to the brokerage that introduces the buyer whose offer is accepted by the seller. A seller customer service agreement also includes a warranty statement that the seller has not listed the property with any brokerage for sale or lease under a seller representation agreement. The seller’s initials are required by this statement to confirm the seller has understood this term. If a seller customer service agreement is signed when there is an unexpired seller representation agreement for the property, it could place the seller in a position of paying remuneration to two brokerages. As a salesperson, this warranty is important to you because of your requirements under REBBA, related to claiming remuneration if it is known that the seller is a party to a representation agreement with another brokerage. Example: A salesperson approaches a potential seller who is privately offering their property for sale. The seller informs the salesperson that they have a signed seller customer service agreement with another brokerage. The salesperson confirms the details of this agreement to ensure the seller could sign a seller customer service agreement with this salesperson’s brokerage.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 24 of 56

For example, OREA Form 201 contains a section at the top that specifically states that the agreement is a nonexclusive customer service agreement.

From OREA Form 201: Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 25 of 56

Buyer(s) Details A seller customer service agreement, although non-exclusive, has provisions where the buyer, whom the agreement pertains to, is identified. This will require a brokerage to first either have a buyer interested in the property or to believe that the property will meet a certain buyer’s criteria, before approaching the seller. In some cases, a broker or salesperson may approach a seller and obtain a verbal commitment to pay remuneration should they introduce a buyer to the seller. When the broker/salesperson has a buyer, they will return to the seller with a completed seller customer service agreement, which identifies the buyer.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 26 of 56

For example, OREA Form 201 contains a line where the details of the buyer can be recorded. Any buyer(s) identified in this section will be understood to be the “Buyer” referred to in the agreement.

From OREA Form 201: Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 27 of 56

Term of the Agreement The effective date and expiry date of the agreement are required to be identified in the agreement. Some customer service agreements, however, may exceed this requirement by indicating that they are non-exclusive agreements or, in the case of a representation agreement, may state that the agreement is exclusive and irrevocable to the brokerage.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 28 of 56

For example, OREA Form 201 contains a section to set out the term of the agreement, including the date and time of the start and expiry of the agreement.

From OREA Form 201: Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 29 of 56

No Listing Price Identified A seller customer service agreement does not include a listing price for the property. Pricing is one of the limitations of brokerage services to a customer that differs from those provided to a seller under a representation agreement. In this instance, the seller determines the listing price of their property, with no advice or assistance from the brokerage. The brokerage representing the buyer must observe due diligence in providing advice to the buyer about the property’s fair market value and assess the appropriateness of the seller’s listing price.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 30 of 56

From OREA Form 201: Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Distinct Elements in a Seller Customer Service Agreement Now that you have reviewed all the information that is different in a seller customer service agreement, let’s look at how all these elements come together in an agreement, using OREA Form 201 as an example. 1. Non-Exclusive Disclaimer: OREA Form 201 states at the very top that it is a non-exclusive seller customer service agreement. This section of the form is where a disclaimer is printed stating that the agreement is non-exclusive. 2. Buyer(s) Details: OREA Form 201 contains a line where the details of the buyer can be recorded. Any buyer(s) identified in this section will be understood to be the “Buyer” referred to in the agreement. This section of the form is where the buyer, under which the agreement pertains to, is identified. 3. Term of the agreement: OREA Form 201 contains a section the date and time of the start and end of the agreement. This section of the form is where the brokerage’s scope of service is defined, and the salesperson will insert the date and time that the agreement will begin and end.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 31 of 56

Additional Information Included in a Seller Customer Service Agreement Now, that you have reviewed information that is different in the seller customer service agreement, let us look at the additional information in the agreement that is similar or identical to the seller representation agreement. The seller customer service agreement contains important information that clearly defines the authority and obligations for both the brokerage and the seller. This includes, among other things, authority for the brokerage to obtain information about the property from regulatory authorities and indemnify the brokerage for any injury or mishap that may occur on the property during the marketing of the home. The following screens will highlight the additional information included in the seller customer service agreement.  Deposit  Insurance  Verification of information  Sold Sign  Schedule(s)

©2019 Real Estate Council of Ontario

Lesson 4 | Page 32 of 56

Deposit Should an offer between a seller and a buyer advance to the stage where a deposit is to be submitted by the buyer, a seller customer service agreement provides the terms under which the deposit will be held. As the brokerage is required to promote and protect the best interests of the buyer, the deposit for a transaction should be held in trust by the brokerage. The deposit provision also identifies the deposit will be applied towards the payment of the remuneration the seller owes to the brokerage. You should explain to the seller why the deposit is being held by the brokerage and not provided directly to the seller. A buyer will want assurance that their deposit is being safeguarded; this is accomplished by placing the deposit in the statutory trust account of the brokerage. Once the deposit is placed in trust, it may only be disbursed by the brokerage with written direction. While it is in the possession of the brokerage, it is protected against fraud and bankruptcy through the RECO insurance program.

©2019 Real Estate Council of Ontario

If the deposit amount is less than the remuneration owed by the seller, the seller agrees to pay the difference to the brokerage following completion of the transaction. If the deposit amount is greater than the remuneration amount owed to the brokerage, the brokerage refunds the difference to the seller following the completion of the transaction. Example: A seller is selling their property for $500,000. The buyer in this transaction has paid a deposit of $20,000 to their brokerage. The seller agrees to pay the brokerage a remuneration rate of 2% on the sale price. The brokerage will thus release $10,000 to the seller after $10,000 is deducted for the payment of remuneration owed.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 33 of 56

For example, OREA Form 201 contains a provision called DEPOSIT.

From OREA Form 201: Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 34 of 56

Insurance A warranty from the seller that the property is insured aligns with the provisions in the seller representation agreement. This includes maintaining personal liability insurance to ensure that any claims or resulting lawsuits from others being injured or suffering property damage are covered. This provision also requires the seller to indemnify the brokerage and their representatives against any claims made against the brokerage by anyone visiting the property. Example: A buyer, while visiting a seller’s property, is injured after slipping on an icy sidewalk. The medical costs incurred will be covered by the insurance held by the seller. Also, the brokerage is indemnified against any claims or lawsuits the buyer might file against them.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 35 of 56

For example, OREA Form 201 contains a provision called INSURANCE.

From OREA Form 201: Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 36 of 56

Verification of Information Similar to a seller representation agreement, including a provision for verification of information in a seller customer service agreement gives the brokerage authority to obtain information about the property from regulatory authorities. The seller also promises to give this authority to the brokerage, as required, in the future. In instances where there is no listing brokerage, the information provided by the seller will not have been verified by a salesperson. The due diligence of the buyer’s salesperson is critical in ensuring the information is accurate and complete.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 37 of 56

For example, OREA Form 201 contains a provision called VERIFICATION OF INFORMATION.

From OREA Form 201: Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 38 of 56

Sold Sign A seller customer service agreement often includes a provision where the seller identifies whether the brokerage may place a “Sold” sign on the property after the parties have entered into a binding agreement of purchase and sale. Consent is obtained when the seller initials the appropriate section, thereby authorizing or not authorizing a sign on the property. Example: A seller has accepted a buyer’s offer, which was conditional on the buyer obtaining financing. Notice has now been provided to the seller that the buyer has been approved, resulting in a firm and binding agreement of purchase and sale. Based on the terms of the seller customer service agreement, the salesperson would place a 'Sold' sign on the seller's property.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 39 of 56

For example, OREA Form 201 contains a provision called SOLD SIGN.

From OREA Form 201: Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 40 of 56

Schedule(s) Attaching schedule(s) to a seller customer service agreement follows the same procedure as attaching schedules to a seller or a buyer representation agreement. However, the specifics of the schedules may differ from those attached to a seller representation agreement. Example of an Alternate Remuneration Arrangement: The seller and the brokerage have agreed to a “graduated” remuneration structure and the details are described in the schedule, i.e., 3% on the first $300,000 of the selling price, 2% on the selling price between $300,000 and $500,000, and 1% on the selling price over $500,000 plus HST. Examples of Seller Instructions: No showings between 4 p.m. and 6 p.m. or after 9 p.m.

©2019 Real Estate Council of Ontario

Consent for a lockbox to facilitate further inspections by the buyer, home inspector, and appraiser, provided a representative of the brokerage is present. Example of Services to Seller: Prompt delivery of all required documentation as per REBBA; delivery of documents to the seller’s lawyer (included in the agreement of purchase and sale); information on properties that have sold on the seller’s street or in the immediate area within the last six months.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 41 of 56

For example, OREA Form 201 contains a line that references schedules.

From OREA Form 201: Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 42 of 56

From OREA Form 201: Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Additional Information in a Seller Customer Service Agreement, 1 Now that you have reviewed the additional information included in a seller customer service agreement, let’s look at how all these elements come together in a form, considering as an example OREA Form 201. 1. Deposit: OREA Form 201 contains a provision that speaks to the handling of a deposit. This section of the form is where the terms under which the deposit will be held is stated. 2. Insurance: OREA Form 201 contains a provision that addresses the seller’s commitment to warrant that the property is insured. This section of the form is where a statement informing the buyer that the seller warrants the property insured. 3. Verification of Information: OREA Form 201 contains a provision in which the seller authorizes the brokerage to obtain information about the property. This section of the form verifies that the seller authorizes the brokerage to obtain information about the property from regulatory authorities.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 43 of 56

From OREA Form 201: Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Additional Information in a Seller Customer Service Agreement, 2 Now that you have reviewed the additional information included in a seller customer service agreement, let’s look at how all these elements come together in a form, considering as an example OREA Form 201. 1. Sold Sign: OREA Form 201 contains a provision where the seller indicates whether they will allow the use of a sold sign. This section of the form is where the seller selects whether the brokerage may place a “Sold” sign on the property after the parties have entered into a binding agreement of purchase and sale. 2. Schedule(s): OREA Form 201 contains a line for the agreement to identify any schedules that form part of the agreement. This section of the form is where attached schedules are identified.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 44 of 56

Remuneration and Representation The following screens will highlight the information about remuneration and representation in the seller customer service agreement: • Remuneration • Holdover Provision • Representation Service

©2019 Real Estate Council of Ontario

Lesson 4 | Page 45 of 56

Remuneration The brokerage and the seller sign a seller customer service agreement, which introduces the buyer to the seller and provides limited services to the seller. In exchange for this, the seller agrees to compensate the brokerage through a remuneration that could be a percentage of the sale price, a specified amount, or both. One important declaration a seller will make is that this remuneration will be owed to the brokerage if the seller agrees to, or accepts, an offer from the buyer that the brokerage introduced even if the seller signs a seller representation agreement or a customer service agreement with another brokerage. This provision will usually also explain to the seller that they might owe remuneration to the brokerage even if the transaction does not close, if such non-completion is due to the default or neglect of the seller. Example: A seller signs a seller customer service agreement with a brokerage who introduces a buyer to them. While negotiating with that buyer, the seller signs a seller customer service agreement with a different brokerage. The negotiations with the first buyer materialize into an offer that the seller accepts. The seller is obligated to pay remuneration to the first brokerage even though they have a seller customer service agreement signed with the second brokerage.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 46 of 56

Holdover Provision Like other representation agreements, a holdover provision is often part of the seller customer service agreement. Through the holdover provision, a seller agrees to pay remuneration to the brokerage if they accept an offer from the buyer introduced by that brokerage within a specific timeframe after the agreement expires. Example: ABC Real Estate Inc. has a buyer interested in purchasing a property that is being privately offered for sale. A seller customer service agreement has been signed and the seller agrees to pay the brokerage a remuneration rate of 2% of the sale price, if an agreement is reached during the term and with the buyer identified on the agreement. Negotiations with the buyer fail and the seller’s customer service agreement expires. During the holdover period, the buyer decides to place a second offer on the property viewed previously and it gets accepted. The brokerage will be entitled to claim remuneration as agreed to in the “holdover” provision of the commission clause in the seller customer service agreement. This is a contractual matter that may require litigation to resolve should the seller refuse to compensate the brokerage.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 47 of 56

For example, OREA Form 201 contains a provision called COMMISSION.

From OREA Form 201: Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 48 of 56

Customer Service The obligations owed to a seller and the limited services being provided by the brokerage under a seller customer service agreement must be explained to the seller. The seller must clearly understand they are not being represented by the brokerage, even though they might be paying remuneration to the brokerage. Acknowledgement A seller customer service agreement is typically used when the brokerage is representing a buyer. Because the buyer is a client, the brokerage’s primary duty is to protect and promote the interests of the buyer. As part of this obligation, while negotiating the transaction, any information about the seller and the property will be made known to the buyer. The brokerage does not owe the duty of full disclosure to the seller. However, the seller must be treated with fairness, honesty, and integrity. It is important for the seller to understand the brokerage’s obligations to ensure there is no misunderstanding about the services provided by the brokerage.

©2019 Real Estate Council of Ontario

Example: The brokerage can prepare the agreement of purchase and sale on behalf of the buyer and deliver this to the seller. Advising on the seller’s options when addressing the offer would not be part of the services a brokerage would provide. A seller is advised that the brokerage might enter customer service agreements and representation agreements with other sellers and buyers. In instances where the brokerage represents or provides services to more than one seller or buyer for the same transaction, the Code requires the brokerage to inform all parties about their relationship with every other party as soon as possible and before an offer is made.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 49 of 56

For example, OREA Form 201 contains a provision called REPRESENTATION AND CUSTOMER SERVICE.

From OREA Form 201: Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 50 of 56

From OREA Form 201: Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Additional Information in Seller Customer Service Agreement Now that you have reviewed information about remuneration and representation in a seller customer service agreement, let’s look at how these elements come together in an agreement like OREA Form 201. 1. Commission: OREA Form 201 contains a provision that addresses commission to be paid. This section of the form is where the seller agrees to compensate the brokerage through a remuneration that could be a percentage of the sale price, a specified amount, or both. 2. Holdover Provision: OREA Form 201 contains a provision that addresses a holdover provision. This section of the form is where the seller agrees to pay remuneration to the brokerage if they accept an offer from the buyer introduced by that brokerage within a specific timeframe after the agreement expires. Page 2 includes the following section: Representation and Customer Service: OREA Form 201 contains a provision that acknowledges the type of relationship the parties have entered. This section of the form outlines to the seller they are not being represented by the brokerage, even though they might be paying a remuneration to the brokerage.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 51 of 56

Seller Raj Bindra, on signing a seller customer service agreement with XYZ Realty Ltd., agrees to certain terms for payment of remuneration. In which scenarios will the seller customer owe remuneration to XYZ Realty Ltd.? There are three options. There are multiple correct answers.

1

2

3

XYZ Realty Ltd. introduces a buyer to the seller. An offer is negotiated but the seller customer service agreement expires before the offer is accepted. The agreement, however, has a holdover provision for 60 days and the offer is accepted by the seller three weeks after the expiry of the agreement. XYZ Realty Ltd. introduces a buyer to the seller. While negotiations are ongoing with the buyer, the seller signs a seller representation agreement with Brokerage B, which introduces another buyer for the seller’s property. The seller accepts the offer from Brokerage B’s buyer while the seller customer service agreement with XYZ Realty Ltd. is still valid. XYZ Realty Ltd. introduces a buyer to the seller. While negotiations are ongoing with the buyer, the seller signs a seller representation agreement with Brokerage B. A few days later, the seller accepts the offer from XYZ Realty Ltd.’s buyer while the seller customer service agreement is still in effect.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 52 of 56

When a brokerage signs a seller customer service agreement, they are not representing the seller but still owe limited duties and services to the seller. Which of the following scenarios represent the duties a salesperson would provide to a seller when they sign a seller customer service agreement with the brokerage? There are four options. There are multiple correct answers.

1 2 3 4

The brokerage that has signed a seller customer service agreement with a seller is also representing the buyer client. The seller asks the brokerage to disclose why the buyer is interested in purchasing the property to be able to better negotiate the sale price. The seller is having a difficult time arriving at an asking price for their property and asks the brokerage’s salesperson for advice on establishing an appropriate listing price. The seller requests that the brokerage’s salesperson come to their home and collect the accepted agreement of purchase and sale. The seller wants some help in deciding the asking price for their property and has asked the brokerage for relevant information.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 53 of 56

Signing and Initialling Requirements in a Seller Customer Service Agreement The signing and initialling requirements in a seller customer service agreement are similar to those in a seller representation agreement. These similar requirements include: ● Brokerage signature ● Seller signature and initials where required ● Spousal consent ● Declaration of insurance ● Seller’s acknowledgement of the terms of the agreement and receipt of a copy of the agreement Even though a seller customer service agreement is a non-exclusive agreement, signing and initialling would still be completed by the seller and the brokerage documenting the agreement.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 54 of 56

For example, OREA Form 201 contains a section where the parties sign and date the agreement.

From OREA Form 201: Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 55 of 56

©2019 Real Estate Council of Ontario

From OREA Form 201: Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Example of a Completed Seller Customer Service Agreement Now that you have seen the different provisions in OREA Form 201 in partial views, let’s see how all the different parts come together to make a complete form. Let us consider a simple scenario where sellers Martin and Gain Raymond are entering into a seller customer service agreement with ABC Real Estate Inc. for their property located on Lot 25, Plan 92M-2345, City of Anycity, Region of Anyregion. Their salesperson, Rita Simmonds is helping them prepare the agreement. We have reproduced an example of a completed seller customer service agreement using OREA Form 201 that Rita would have filled out for her client, as per their requirements.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 56 of 56

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Terms of, and parties to, a seller customer service agreement

Additional information typically included in a seller customer service agreement Signing and initialling requirements for a seller customer service agreement

A seller customer service agreement has similarities as well as differences with a seller representation agreement. Sometimes, circumstances may dictate that a seller customer agreement may be more appropriate. In comparison to a seller representation agreement, the salesperson will owe only limited services to the seller. A seller customer service agreement contains information similar to that in a seller representation agreement. However, aspects like the buyer(s) details, non-exclusivity disclaimer, and the absence of a listing price are different in a seller customer service agreement compared to a seller representation agreement. Most of the additional information recorded in a seller customer service agreement is the same as that in a seller representation agreement. However, provisions such as remuneration, representation and customer service, sold signs, deposit, insurance, and verification of information are different in a seller customer service agreement compared to a seller representation agreement. The signing and initialling requirements in a seller customer service agreement are similar to those in a seller representation agreement. These can be broken down into brokerage signature, seller(s) signatures, spousal consent, initialling across the document, and declaration of insurance.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 1 of 31

Lesson 5: The Buyer Customer Service Agreement

This lesson introduces a buyer customer service agreement used to document a customer relationship with a buyer. The lesson details the key components of this type of agreement, including the information typically included and the signing or initialling requirements of both the buyer and the brokerage.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 2 of 31

This lesson introduces the buyer customer service agreement and its components: the terms of, and parties to, the agreement, the provisions typically included, and the signing and initialling requirements. As a salesperson, you should be able to explain the customer service agreement to a buyer so there is a full understanding of the obligations of all parties and the services provided by the brokerage. Documentation provides the buyer with a clear outline of the expectations so there are no misunderstandings about the services provided by the brokerage. Although a buyer customer service agreement is similar to a buyer representation agreement, this lesson will highlight and explain the differences between the two agreements in detail. Upon completion of this lesson, you will be able to: • Describe the type of information required to identify the terms of, and parties to, a buyer customer service agreement. • Explain the additional information typically included in a buyer customer service agreement. • Explain the signing and initialling requirements of a buyer customer service agreement. • Complete the information required to identify the terms of, and parties to, a buyer customer service agreement. • Complete the additional information typically required in a buyer customer service agreement. • Complete the signing and initialling requirements of a buyer customer service agreement. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 3 of 31

Introduction to the Buyer Customer Service Agreement A buyer customer service agreement is a non-exclusive agreement between a buyer and a brokerage for customer service. This agreement is used in situations where a buyer is not represented by the brokerage as a client but will receive limited services only. A key difference is that as a salesperson, you do not provide advice to a customer – this is only provided in a client relationship. You will have to treat a customer fairly, honestly, and with integrity, but you will not owe them any fiduciary duties or be required to promote and protect their best interests as you will if they choose to sign a representation agreement. A buyer customer service agreement can be used to avoid multiple representation and conflicts of interest if the brokerage signing the agreement is also representing the seller in the same trade in real estate. As a salesperson it will be important for you to explain to the buyer the difference between a representation agreement and a customer service agreement, including the advantages and disadvantages of each, to allow the buyer to make an informed decision. A buyer customer service agreement typically states that no remuneration will be paid for the services provided by the brokerage to the buyer unless it is specifically agreed to in writing. The agreement also confirms, in writing, that the brokerage is not representing the interests of the buyer. The buyer, through this agreement, acknowledges that they have been advised to conduct their own enquiries about the condition of the property. The seller would still have an obligation to disclose known latent defects and, on behalf of the brokerage, you would have to disclose any ©2019 Real Estate Council of Ontario

material facts to the buyer customer. The buyer customer should consider seeking independent legal advice prior to preparation of an offer to purchase the property. Example: A brokerage is representing the seller in the marketing of their property. A buyer who is interested in the property approaches the listing salesperson during an open house. The salesperson informs the buyer that they are representing the seller. At this point, the salesperson should explain the difference between a representation agreement and a customer service agreement to the buyer to help them understand what is in their best interest. The salesperson may wish to enter into a customer service relationship with the buyer to avoid multiple representation. Though technically having a seller client and a buyer customer is not multiple representation under REBBA, it’s important that the buyer be treated fairly and be provided with the necessary information to make an informed decision.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 4 of 31

The Buyer Customer Service Agreement: Overview A buyer customer service agreement will contain information similar to that in a buyer representation agreement. The information that is common to both includes: • Brokerage details • Buyer(s) details • Effective and Expiry dates • Six-month provision for the term of the agreement • Property type • Geographic location • Buyer’s warranty • Definitions and interpretations • Indemnification • Finders fee • Use and distribution of information • Conflict or discrepancy • Electronic communication • Electronic signatures Earlier in this module, you learned in detail about the bullets listed above in relation to a buyer representation agreement. The same details for each of the above elements are found in a buyer customer service agreement and will be touched upon briefly in this lesson. ©2019 Real Estate Council of Ontario

There are a few key areas, however, where a buyer customer service agreement is distinct from a buyer representation agreement which include: • Remuneration • Representation or Customer Service • Signature Areas

©2019 Real Estate Council of Ontario

Lesson 5 | Page 5 of 31

Similarities with Buyer Representation Agreement There are elements in the buyer customer service agreement that are similar to the buyer representation agreement with respect to the terms of, and parties, to the agreement. The following screens will highlight the information that is entered similarly in both types of agreements. This information includes: • Brokerage information • Buyer’s details • Effective and expiry dates • Six-month provision for the term of the agreement • Property Type • Geographic Location • Buyer(s) Warranty

©2019 Real Estate Council of Ontario

Lesson 5 | Page 6 of 31

Brokerage Information The section provides identification of the brokerage using the full registered brokerage name. Buyer’s Details This section is where the buyer is identified using the full legal name of each buyer.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 7 of 31

For example, OREA Form 310 contains an area where the brokerage’s full name, address, telephone, and fax numbers are to be completed.

This section of the form also contains a line where the legal name of the buyer(s) will be entered. They are then referred to as “Buyer” throughout the agreement.

From OREA Form 310: Buyer Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 8 of 31

Effective and Expiry Dates The salesperson inserts the date and time the agreement takes effect and the date and time that it expires. Six-Month Provision for the Term of the Agreement If the agreement exceeds six months, the buyer customer must consent and initial next to the term of the agreement to confirm their consent.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 9 of 31

For example, OREA Form 310 contains a section where the commencement and expiry of the agreement is entered.

You should note that this section of the OREA form also contains a section with bolded text stating buyer’s initials would have to be obtained if the agreement exceeds six months.

From OREA Form 310: Buyer Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 10 of 31

Property Type The contract must include a clear description of the property type being sought. The section would typically include a general description of the type of property being sought such as single family residential, multi-family residential (maximum four units), residential condominium, etc. Geographic Location The section provides a general description of the area within which the property is being sought, which would include specific and definable boundaries. This could also be a specific address of one or more properties. Buyer’s Warranty The buyer is typically expected to warrant that they have not signed a representation agreement with any other brokerage.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 11 of 31

For example, OREA Form 310 contains a line where the property type (based on the intended use of the property) will be entered.

This section of the form also contains a section where the geographic location of the property being considered will be entered.

This section of the form also contains a provision where the buyer warrants they are not party to a buyer representation agreement, which the buyer is expected to initial.

From OREA Form 310: Buyer Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 12 of 31

From OREA Form 310: Buyer Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Similarities with Buyer Representation Agreement Now that you have reviewed elements in the buyer customer agreement that are similar to the buyer representation agreement, let’s look at how they come together in an agreement, for example in OREA Form 310. 1. Brokerage details: OREA Form 310 contains a section where details of the brokerage are to be inserted. Brokerage details including telephone number is identified. 2. Buyer details: OREA Form 310 contains a line where the legal name of the buyer(s) will be entered. They are then referred to as “Buyer” throughout the agreement. Full legal name of buyer(s) is identified. 3. Effective and expiry dates: OREA Form 310 contains a section where the commencement and expiry of the agreement is entered, including the date and time of day. Commencement and expiry of the agreement is entered. 4. Six-month provision: OREA Form 310 contains a bolded text stating buyer’s initials would have to be obtained if the agreement exceeds six months and they agree. Section for buyer’s consent if agreement exceeds six months. 5. Property type: OREA Form 310 contains a line where the property type (based on the intended use of the property) will be entered. Description of property type is provided. 6. Geographic location: OREA Form 310 contains a line where the geographic location of the property being considered will be entered. General description of area being sought is entered. 7. Buyer’s warranty: OREA Form 310 contains a statement where the buyer warrants that the Buyer is not a party to a representation agreement. Buyer’s warranty that no representation agreement has been signed.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 13 of 31

Similarities in the Additional Information There is additional information entered in the buyer customer service agreement that is similar to the buyer representation agreement. The following screens will highlight the information that is entered similarly in both types of agreements. This information includes: • Definitions and interpretations • Indemnification • Finders fee • Use and distribution of information • Conflict or discrepancy • Electronic communication • Electronic signatures

©2019 Real Estate Council of Ontario

Lesson 5 | Page 14 of 31

Definitions and Interpretations The section typically defines the parties and the type of transaction that is covered by the agreement. The clause in the buyer representation agreement tends to be more detailed and includes other individuals that may be covered by that agreement, but both are expected to define specific elements of the agreement.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 15 of 31

For example, OREA Form 310 contains a clause that captures definitions such as that of buyer, seller, real estate board, and commission.

From OREA Form 310: Buyer Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 16 of 31

Indemnification Much like the buyer representation agreement, here too the customer acknowledges that the brokerage is not qualified in determining the physical condition of the land and improvements and will make their own enquiries to confirm the condition of the property. Finders Fee An acknowledgement and consent for the brokerage to receive a finder’s fee from a third-party professional in addition to any remuneration payable. This section is similar to what is found in the buyer representation agreement. Use and Distribution of Information Much like what is found in the buyer representation agreement, this is a disclosure made under the Personal Information Protection and Electronic Documents Act regarding the use of any personal information collected by the brokerage and intended to be used in a transaction with a corresponding consent by the buyer to do so. Conflict and Discrepancy ©2019 Real Estate Council of Ontario

If anything is added to the agreement by the parties, the added provision will override the pre-set provisions to the extent of such conflict or discrepancy. This is similar to the provision found in the buyer representation agreement. Electronic Communication This is an agreement by the parties that communication can be made by electronic means. Electronic Signatures This is the consent of the parties to use electronic signatures pertaining to this agreement as required by the Electronic Commerce Act. Schedule(s) Attaching schedule(s) to a buyer customer service agreement follows the same procedure as attaching schedules to any other agreement. Schedules used for a buyer customer service agreement could include the terms where the buyer agrees to pay a remuneration to the brokerage. A schedule would also be used to identify the services the brokerage is agreeing to provide under the agreement.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 17 of 31

For example, OREA Form 310 contains a clause called INDEMNIFICATION.

This section of the form also contains a clause called FINDERS FEE.

This section of the form also contains a clause regarding the use and sharing of personal information.

© 2019 Real Estate Council of Ontario

This section of the form also contains a clause that deals with conflicts or discrepancies within the contract. In particular, if a provision is added to a standard contract, the specific terms override the standard pre-set provision of the contract.

This section of the form also contains a clause that addresses the use of electronic communications, so the parties understand what is permitted.

This section of the form also contains a clause that addresses the use of electronic signatures.

This section of the form also contains a reference to any schedules that may be added to the agreement.

From OREA Form 310: Buyer Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

© 2019 Real Estate Council of Ontario

Lesson 5 | Page 18 of 31

From OREA Form 310: Buyer Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Similarities in the Additional Information Now that you have reviewed the additional similarities between the information in the buyer customer agreement and the buyer representation agreement, as well as the minor differences, let’s look at how all these elements come together in the agreement, like in OREA Form 310. Definitions and interpretations: OREA Form 310 contains a section that outlines key definitions and interpretations. This section of the form establishes and explains the terms used in the agreement. Page 2 includes the following sections: 1. Indemnification: OREA Form 310 contains a provision informing the buyer that the brokerage and its employees are indemnified, or protected, against any defects found in the property. This section of the form informs the buyer that the brokerage and its representatives are not responsible for any defects found in the properties the buyer views. 2. Finders Fee: OREA Form 310 contains a clause that allows the buyer to acknowledge that there may be a buyer’s fee. This section of the form is where the buyer consents to a finder’s fee/referral incentive being received and retained by the brokerage. 3. Use and distribution of information: OREA Form 310 contains a clause regarding the use and sharing of personal information. This section of the form is where the buyer consents to the collection, use, and disclosure of personal information by the brokerage to assist with the facilitation of the transaction.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 19 of 31

From OREA Form 310: Buyer Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Similarities in the Additional Information Now that you have reviewed the additional similarities between the information in the buyer customer agreement and the buyer representation agreement, as well as the minor differences, let’s look at how all these elements come together in the agreement, like in OREA Form 310. 1. Conflict or discrepancy: OREA Form 310 contains a clause that explains what happens if something is added to the pre-set agreement form and how discrepancies will be addressed. This section of the form informs the buyer that If something is added to the agreement, then the provision(s) that were added will override the text or pre-set provisions in the form. 2. Electronic communication: OREA Form 310 contains a clause that addresses the use of electronic communications and the sharing of documents electronically. This section of the form permits any documents or notices to be transmitted electronically. 3. Electronic signature: OREA Form 310 contains a clause that allows the parties to agree to the use of electronic signatures. This clause provides consent for the parties’ use electronic signatures with respect to the agreement. 4. Schedule(s): OREA Form 310 contains a space to identify any schedules that form part of the agreement. This section of the form indicates any attached schedules.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 20 of 31

From OREA Form 310: Buyer Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

A buyer visits the new home sales office of a condominium apartment building on Main Street. He speaks with the salesperson and discusses the possibility of buying a condo unit. The salesperson explains that she is representing the interests of the seller and can provide customer service to the buyer. The buyer informs the salesperson that he has already signed a buyer customer service agreement with a different brokerage for a condo in a new development on Jefferson Street in the same city. Identify the correct statements regarding the buyer customer service agreement. There are four options. There are multiple correct answers.

1 2 3 4

Even though the buyer is interested in purchasing a condo unit, he cannot sign a buyer customer service agreement because he has already signed a buyer customer service agreement with a different brokerage. If the buyer purchases a condo unit on Main Street, he will be liable for the paying remuneration twice of two because he has signed two buyer customer service agreements. Under the agreement, the salesperson cannot provide advice to the buyer but does have an obligation to disclose known latent defects about the property. The buyer takes the buyer customer service agreement home with him to read it completely before signing. If he signs it the next day and faxes it to the salesperson, he is deemed to have retained a true copy.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 21 of 31

Differences in the Buyer Customer Service Agreement One key aspect of the buyer customer service agreement pertains to the representation and customer service provision, which points out that the brokerage will not be representing the buyer and may be representing the seller. It is distinct from the buyer representation agreement in that there is often no obligation by the buyer to pay remuneration to the brokerage. The following screens will highlight certain aspects in the buyer customer service agreement that are different from the buyer representation agreement: • Remuneration • Representation and Customer Service

©2019 Real Estate Council of Ontario

Lesson 5 | Page 22 of 31

Remuneration A buyer customer is often not obligated to pay any remuneration to the brokerage for the services provided under a buyer customer service agreement, since the buyer’s brokerage generally expects payment to come from the seller. In some instances, a buyer may agree to a customer service agreement, and also agree to pay the brokerage a remuneration or other remuneration. In these situations, the brokerage would detail this term in writing as part of the agreement. The Code of Ethics requires a brokerage to show all properties of interest to a buyer, regardless of any offer of remuneration or other remuneration. However, this obligation only applies to a buyer who is a client. As the buyer customer is not obligated to compensate the brokerage, the brokerage is not obligated to show any property to the buyer if the remuneration payable by the seller or the listing brokerage is not approved by the brokerage and salesperson. In this instance, the buyer could agree to pay remuneration to the brokerage to ensure all properties of interest are shown.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 23 of 31

For example, OREA Form 310 contains a provision that explains the remuneration agreement between the parties.

From OREA Form 310: Buyer Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 24 of 31

Representation and Customer Service Unlike the buyer representation agreement, the buyer customer service agreement discusses and discloses customer service and includes an acknowledgement that the brokerage has provided information on other topics, such as multiple and single representation, and may disclose the buyer’s information to a client if applicable.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 25 of 31

For example, OREA Form 310 contains a clause called REPRESENTATION AND CUSTOMER SERVICE that explains the customer service relationship the buyer is entering.

From OREA Form 310: Buyer Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 26 of 31

From OREA Form 310: Buyer Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Information Unique to the Buyer Customer Service Agreement Now that you have reviewed the differences in the buyer customer agreement, let’s look at how they are presented in the agreement, for example OREA Form 310. 1. Commission: OREA Form 310 contains a provision that sets out the commission agreement between the buyer and the brokerage. This section of the form clarifies the remuneration obligations of a buyer. 2. Representation and Customer Service: OREA Form 310 contains a clause that explains the difference between representation and customer service. This section of the form confirms that the brokerage and you, as a salesperson, have explained the different types of agency and other relationships that may occur in a real estate transaction.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 27 of 31

A buyer signs a buyer customer service agreement with a brokerage. The salesperson has recently listed a property for sale that appears to meet this buyer’s criteria. Which of the following duties would the salesperson be obligated to provide to the buyer as part of the signed buyer customer service agreement? Assume the agreement has had no revisions or schedules added. There are four options. There are multiple correct answers.

1 2 3 4

Share information about the property and provide copies of recent sales and listings to help the buyer make an informed decision about buying the seller’s property. Provide the buyer advice about the offer price for the property and any other terms being negotiated. Help the buyer understand the documentation they are asked to sign, and deliver to the buyer any signed copies of these documents. Show the buyer other similar properties to ensure they have seen a full range of available listings, regardless of the remuneration.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 28 of 31

Signing and Initialling Requirements of a Buyer Customer Service Agreement A buyer customer service agreement, although non-exclusive, should still contain signatures and initials by the buyer and the brokerage. These requirements are similar to those in a buyer representation agreement and include: • Brokerage signature • Buyer signature and initials where required • Declaration of insurance • Buyer’s acknowledgement of the terms of the agreement The buyer's contact information is obtained in the agreement. The brokerage will want to ensure that the buyer is not a party to a buyer representation agreement with another brokerage (that is, a buyer with the same name but a different address).

©2019 Real Estate Council of Ontario

Lesson 5 | Page 29 of 31

For example, OREA Form 310 contains space for the necessary information and signatures.

From OREA Form 310: Buyer Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 30 of 31

From OREA Form 310: Buyer Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Example of a Completed Buyer Customer Service Agreement In the previous screens, you saw how OREA Form 310 looks and the purpose it serves. Now, let’s consider how it is filled out. Let’s consider a simple scenario where buyers Bruna and David Almeida are in a buyer customer service agreement with XYZ Realty Ltd. Jason Sewell is their salesperson. The buyers are interested in buying a property in Anycity, Anyregion. We have reproduced an example of a completed buyer customer service agreement using OREA Form 310 that Jason would have filled for his client, given their individual requirements.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 31 of 31

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Terms of, and parties to, a buyer customer service agreement

Although a buyer customer service agreement is similar to a buyer representation agreement, there are key differences between the two. All the terms of, and parties to, a buyer customer service agreement are recorded in the same way as in a buyer representation agreement. These terms include brokerage details, buyer(s) details, property type, geographic location, commencement and termination dates, six-month provision, and the buyer’s warranty. A buyer customer service agreement identifies that it is a non-exclusive and not a representation agreement. Simply put, this means that a buyer can sign any number of overlapping buyer customer service agreements without creating a conflict of interest with other brokerages that they have signed a similar agreement with. As a salesperson, you will use these agreements when you are working with an “unrepresented buyer” — in other words, a buyer who has not entered into a buyer representation agreement with another brokerage. An example would be a salesperson representing a seller is holding an open house for the public. A person visits the open house and decides they would like to submit an offer through the listing brokerage. After explaining the service options, among other things, available through the brokerage as per Section 10 of the Code, including representation and customer service, the parties agree to enter a buyer customer service agreement. The salesperson completes a buyer customer service agreement, signs it on behalf of the brokerage, and presents it to the buyer for signature. They then proceed to prepare the offer for the buyer’s signature. ©2019 Real Estate Council of Ontario

Additional information typically included in a buyer customer service agreement Signing and initialling requirements for a buyer customer service agreement

Most of the additional information recorded in a buyer customer service agreement is the same as that in a buyer representation agreement. One key aspect of a buyer customer service agreement is that there is often no obligation by the buyer to pay remuneration to the brokerage. Even though the buyer customer service agreement is non-exclusive, it should contain signatures and initials by the buyer and the brokerage. The signing and initialling requirements in a buyer customer service agreement are similar to that in a buyer representation agreement. The buyer is required to record their address while signing the agreement, so they can be identified and contacted as the transaction progresses toward closing.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 1 of 39

Lesson 6: Altering the Terms of a Representation or a Customer Service Agreement This lesson details how changes required to a representation or customer service agreement can be completed, including an amendment, suspension, cancellation, or assignment.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 2 of 39

The relationship between a brokerage and a seller or a buyer can be established in several ways, including a written document, a verbal understanding, or an implied relationship based on the actions and words of a salesperson. You will want to document this relationship by way of a written agreement as early as possible in the course of your interactions with a seller or a buyer to avoid misunderstandings and confusion regarding the obligations owed and the services being provided. The previous lessons detailed the options for documenting a relationship with a seller or a buyer, whether as a client or a customer. When changes or alterations to that relationship are required, a written document will be used to confirm the revised agreement. Typically, changes to the representation or customer service agreement include amending the terms, cancelling the agreement, terminating the agreement, or suspending the agreement. Revisions to an agreement may be initiated by the seller, the buyer, or the brokerage. Depending on the change required, as a salesperson, you will typically be involved in the initial discussion prompting the change, and the preparation and signing of the appropriate documentation. You will be required to accurately complete a document

©2019 Real Estate Council of Ontario

and competently explain it to the other party, as this will help ensure a full understanding and agreement between the brokerage and the seller or the buyer. Upon completion of this lesson, you will be able to: • Identify additional documents associated with a seller representation agreement. • Identify additional documents associated with a buyer representation agreement. • Identify additional documents associated with a customer service agreement. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 3 of 39

Introduction to Altering the Terms of a Seller Representation Agreement A seller representation agreement details the terms between a brokerage and a seller related to the listing and marketing of the seller’s property. Should any of these terms need to be revised once the agreement has been signed, the change will come into effect by way of the parties signing an additional document. When signed, the revised term(s) takes effect while all other terms to the representation agreement remain the same. For a seller representation agreement, the following four types of changes are available: amendment, suspension, cancellation, and assignment.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 4 of 39

Amendment to a Seller Representation Agreement An amendment is used to make changes to the previously agreed upon terms between the brokerage and the seller. For the amendment to take effect, the seller’s initials are required by the revised term to acknowledge the change. The seller and, when applicable, a non-titled spouse would sign for spousal consent. A representative of the listing brokerage will also sign the amendment. As a salesperson working with the seller, you will include the exact details of the terms that are being changed in the amendment and will typically sign this on behalf of the brokerage. The two most common amendments pertain to a change in the listing price and a change to the expiry date of the agreement. To extend the expiry date, the new terms must be agreed upon prior to the expiry of the current agreement; otherwise, a new seller representation agreement would be required rather than an amendment. Should the new expiry date extend the listing agreement to more than six months, to comply with the Code of Ethics, the brokerage must seek the seller’s agreement and acknowledgement by initialling the relevant clause. Other amendments could include a change, correction or update to other terms, or information originally obtained. This could include changes such as: ©2019 Real Estate Council of Ontario

● Including additional services provided by the brokerage – for example, additional open houses will be held ● Revising the right to place a “For sale” or “Sold” sign on the property – for example, the original listing does not permit the brokerage’s sign; however, the seller later agrees to permit signage ● Correcting information – for example, a previously undisclosed first right of refusal has now come to light ● Revising remuneration terms – for example, a seller wishes to increase the remuneration payable to a cooperating brokerage ● Revising other terms – for example, chattels and fixtures that may be added or deleted An example of a form that may be used as an amendment to a seller representation agreement (also known as an amendment to a listing agreement) is shown on the following screens.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 5 of 39

For example, OREA Form 240 shows how to document an amendment to a seller representation agreement.

From OREA Form 240: Amendment to Listing Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 6 of 39

Additional Forms Associated with a Seller Representation Agreement The following screens will highlight the information about other documents used to make changes to a seller representation agreement. These documents include: • Suspension of a seller representation agreement • Cancellation of a seller representation agreement • Assignment of a seller representation agreement

©2019 Real Estate Council of Ontario

Lesson 6 | Page 7 of 39

Suspension of a Seller Representation Agreement A seller representation agreement can be suspended when the marketing activities for the property need to be stopped for a specified period of time. This would include any advertising or showing of the property. A suspension may be used to accommodate an illness in the family, a major life event (such as a wedding or a funeral), or to repair damages. As the suspension of the agreement impacts the marketing and showing of the property, a suspension is required to provide notice of this change to other brokerages and salespersons. Typically, when a seller representation agreement is signed, the property is required to be available for showings at all reasonable times. Therefore, if the property is not available, an alteration to the listing is required and notice to this effect must be given to all brokerages and salespersons. When documenting a suspension to a seller representation agreement, as a salesperson you will include details about the effective date of the suspension, the date when the suspension expires, and when the marketing activities for the property will resume.

©2019 Real Estate Council of Ontario

The seller’s signature and, when applicable, the non-titled spouse’s signature for spousal consent, are required to suspend a seller representation agreement. Typically, consent for a suspension can only be executed by a broker of record or a manager of the brokerage. A salesperson is not authorized to sign a suspension of a seller representation agreement on the brokerage’s behalf. The commencement and end date for the suspension should be identified on the document. The listing is neither terminated nor expired, and the holdover period remains as previously identified. Example: A seller client calls the brokerage’s office stating that their children are going to be home for the whole of the next week due to a measles outbreak at their school. The brokerage’s salesperson and the seller discuss the situation and agree to suspend the seller representation agreement for a week to ensure the seller is not interrupted with requests for the property to be shown. An example of a form that may be used as a suspension to a seller representation agreement (also known as a suspension to a listing agreement) is shown on the following screens.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 8 of 39

For example, OREA Form 241 shows how to document a suspension of a seller representation agreement.

From OREA Form 241: Suspension of Listing Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Lesson 6 | Page 9 of 39

Cancellation of a Seller Representation Agreement Sometimes, a seller and their brokerage mutually agree to terminate their seller representation agreement before the agreement expires. A cancellation releases both the seller and listing brokerage from the terms of the seller representation agreement. All marketing activities related to selling the property cease immediately. The holdover period agreed to in the seller representation agreement remains in effect, and if the seller sells their property during the remaining portion of the original listing period or the holdover period to a buyer introduced to them when the agreement was active, the seller will have remuneration obligations to the brokerage, unless there are other terms agreed to between the parties. The seller and, when needed, the non-titled spouse’s signatures are required to cancel a seller representation agreement. Typically, consent for the cancellation on behalf of the brokerage must be obtained from the broker of record or a manager at the brokerage. Typically, a salesperson cannot cancel a seller representation agreement on behalf of the brokerage. Example: A seller receives an offer from his company to take a position in another country. The seller decides to sell his current home and list the property with a brokerage. Two weeks later, the seller learns that his transfer is cancelled due to an internal reorganization of the company. The seller discusses the matter with his salesperson and both the seller, and the brokerage mutually agree to cancel the seller representation agreement. An example of a form that may be used as a cancellation to a seller representation agreement (also known as a cancellation of a listing agreement) is shown on the following screens.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 10 of 39

For example, OREA Form 242 shows how to document a cancellation of a seller representation agreement.

From OREA Form 242: Cancellation of Listing Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 11 of 39

Assignment of a Seller Representation Agreement With the consent of the seller, the listing brokerage can assign the agreement to another brokerage by preparing an assignment of the seller representation agreement. If a seller representation agreement is assigned, it releases the original listing brokerage from all the obligations of the agreement and assigns all rights and obligations to the other brokerage. When assigning a seller representation agreement, you will include details of the brokerage that is assigning the agreement as well as details of the brokerage the agreement will be assigned to. You will also include a declaration from the brokerage that is assigning the seller representation agreement that they are releasing the seller from any claims for compensation, or any other interests the brokerage might have for that property. The seller’s and, when needed, the non-titled spouse’s signature are required to assign a seller representation agreement to a new brokerage. Typically, only a broker of record or a manager at the listing brokerage can assign a seller representation agreement to another brokerage. A copy of the assignment must be returned to the listing brokerage before the effective date of the assignment. Typically, a seller representation agreement is assigned when a salesperson transfers to another brokerage and is permitted to transfer the listing agreement with them to the new brokerage. An example of a form that may be used as an assignment to a seller representation agreement (also known as an assignment to a listing agreement) is shown on the following screens.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 12 of 39

For example, OREA Form 243 shows how to document an assignment of a seller representation agreement.

From OREA Form 243: Assignment of Listing Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Lesson 6 | Page 13 of 39

A married couple, Zubair and Munira Khan, looking to sell their home, sign a seller representation agreement with a term of 60 days and a 90-day holdover provision with XYZ Realty Ltd. One of the spouses is not an owner of the property. Six weeks after the listing was signed, they have a discussion with their salesperson Jason Sewell. The Khan’s decide they need to extend the expiry date of the agreement to have more time to sell the property and would also like to reduce the listing price. What should Jason tell the seller regarding altering the terms of the seller representation agreement? Select the option with the best wording. There are four options. There is only one correct answer. 1 2 3 4

Jason: “To alter our seller representation agreement, we will want to assign the agreement.” Jason: “To alter our seller representation agreement, we will want to amend the agreement.” Jason: “To alter our seller representation agreement, we will want to suspend the agreement.” Jason: “To alter our seller representation agreement, we will want to cancel the agreement.”

©2019 Real Estate Council of Ontario

Lesson 6 | Page 14 of 39

A married couple, Zubair and Munira Khan, looking to sell their home, sign a seller representation agreement with a term of 60 days and a 90-day holdover provision with XYZ Realty Ltd. One of the spouses is not an owner of the property. Six weeks after the listing was signed, they have a discussion with their salesperson Jason Sewell. The Khan’s decide they need to extend the expiry date of the agreement to have more time to sell the property and would also like to reduce the listing price. What should Jason tell the seller regarding altering the terms of the seller representation agreement? Select the option with the best wording. There are two options. There is only one correct answer. 1 2

“The broker of record will sign the new document on behalf of the brokerage.” “I will sign the new document on behalf of the brokerage.”

©2019 Real Estate Council of Ontario

Lesson 6 | Page 15 of 39

A married couple, Zubair and Munira Khan, looking to sell their home, sign a seller representation agreement with a term of 60 days and a 90-day holdover provision with XYZ Realty Ltd. One of the spouses is not an owner of the property. Six weeks after the listing was signed, they have a discussion with their salesperson Jason Sewell. The Khan’s decide they need to extend the expiry date of the agreement to have more time to sell the property and would also like to reduce the listing price. What should Jason tell the seller regarding altering the terms of the seller representation agreement? Select the option with the best wording. There are two options. There is only one correct answer. 1 2

“I will need the owner’s signature and will not need the non-titled spouse’s signature.” “I will need the owner’s signature and will need the non-titled spouse’s signature.”

©2019 Real Estate Council of Ontario

Lesson 6 | Page 16 of 39

A married couple, Zubair and Munira Khan, looking to sell their home, sign a seller representation agreement with a term of 60 days and a 90-day holdover provision with XYZ Realty Ltd. One of the spouses is not an owner of the property. Six weeks after the listing was signed, they have a discussion with their salesperson Jason Sewell. The Khan’s decide they need to extend the expiry date of the agreement to have more time to sell the property and would also like to reduce the listing price. What should Jason tell the seller regarding altering the terms of the seller representation agreement? Select the option with the best wording. There are two options. There is only one correct answer. 1 2

“The holdover period we agreed to previously will not change.” “The holdover period we agreed to previously will change.”

©2019 Real Estate Council of Ontario

Lesson 6 | Page 17 of 39

Relationships between a brokerage and a seller or buyer are best documented in writing to avoid misunderstandings or confusion regarding obligations owed and services being provided. When changes or alterations are required, a written document will be used to confirm the revised agreement. Identify the scenario that requires the Amendment to Listing Agreement documentation. There are four options. There is only one correct answer.

1 2

3

4

A seller lists his property with a brokerage and does not include the appliances in the asking price. A month goes by without any offers being received so the seller decides to include the appliances in hopes of making the property more attractive to buyers. A seller informs his listing brokerage that his critically ill mother will be staying with him for the next two weeks. During that time, he wants it to be known that he does not wish to be disturbed. A salesperson is working with a seller who has signed a seller representation agreement with the salesperson's brokerage. The seller wants to sell his property and move to a much larger house. The seller informs the salesperson that he can no longer purchase a larger property because his company is closing, and he is losing his job. A salesperson is leaving his existing brokerage and transferring to a new brokerage. The salesperson is currently working with a seller under a seller representation agreement. The seller would like to keep working with the salesperson.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 18 of 39

Introduction to Altering the Terms of a Buyer Representation Agreement A buyer representation agreement is used to detail the terms between a brokerage and a buyer related to locating properties that match the buyer’s needs. Should any of these terms need to be revised once the agreement has been signed, the changes come into effect by way of the parties signing an additional document. When signed, all other terms to the representation agreement remain in effect. A buyer who wishes to alter a current buyer representation agreement with a specific brokerage has four options available — an amendment, a cancellation, an assignment, or a suspension. If circumstances are such that a buyer is pleased with the level of services provided by the salesperson or brokerage, however, personal circumstances may require the buyer’s house search be put 'on hold' for a period of time, the OREA form 304 'Suspension of Buyer Representation Agreement' would be used. In most situations, depending on the nature of the request, one of the other three forms would typically be used to alter the relationship of the buyer with the brokerage. ©2019 Real Estate Council of Ontario

Lesson 6 | Page 19 of 39

Additional Forms Associated with a Buyer Representation Agreement The following screens will highlight other documents used to make changes to a buyer representation agreement, which include the following: • Amendment to a buyer representation agreement • Cancellation of a buyer representation agreement • Assignment of a buyer representation agreement • Suspension of a buyer representation agreement

©2019 Real Estate Council of Ontario

Lesson 6 | Page 20 of 39

Amendment to a Buyer Representation Agreement As a salesperson, you will make a change to one or more terms to an existing representation agreement, if both the buyer and the brokerage agree, by creating an amendment. An amendment will likely be used to: • Include additional services that the brokerage might provide to the buyer. • Revise the property-type or geographic location. • Revise the terms of any remuneration obligations of the buyer. • Revise the expiry date of the agreement – buyer’s initials required if the new expiry date is more than six months after the commencement date. • Make corrections to information recorded in the agreement. You will include the exact details of the terms that are being changed in the amendment.

©2019 Real Estate Council of Ontario

The buyer’s signature is required to execute an amendment. A salesperson is usually authorized to sign and execute an amendment on behalf of the brokerage. All other terms of the agreement that are not amended stay in effect. Example: A couple looking to purchase a home has a child on the waiting list for several private schools. The child gets accepted to one school outside the geographic location described in the buyer representation agreement. As the buyers want to alter the perimeter of their stated geographic location, the salesperson creates an amendment to revise the relevant section of the agreement. An example of a form that may be used as an amendment to a buyer representation agreement is shown on the following screens.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 21 of 39

For example, OREA Form 305 shows how you could document an amendment to a buyer representation agreement.

From OREA Form 305: Amendment to Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 22 of 39

Cancellation of a Buyer Representation Agreement To cancel a buyer representation agreement, signatures of the buyers and the broker of record or manager are required to cancel the agreement. A salesperson cannot execute the cancellation on behalf of the brokerage. There could be many reasons why the buyer and the brokerage may decide to cancel the buyer representation agreement. The buyer may change their mind for a variety of reasons, such as changes in the mortgage qualification process that no longer allows them to purchase a house in the area they prefer. There could also be changes to the buyer’s employment, which would impact their purchase. A cancellation releases both the buyer and the brokerage from the terms of the buyer representation agreement. All activities related to locating a property that matches the buyer’s preferences cease immediately.

©2019 Real Estate Council of Ontario

The holdover period agreed to in the buyer representation agreement remains in effect. If the buyer purchases a property during the remaining term of the agreement or the holdover period that was introduced to them when the agreement was active, they will owe a remuneration to the brokerage. The buyers’ signatures are required to cancel a buyer representation agreement. Typically, only the broker of record or a manager at the brokerage can execute a cancellation. Typically, a salesperson cannot cancel a buyer representation agreement on the behalf of the brokerage. Example: A buyer, looking for a new home, is unable to sell her current condominium and decides not to move out for another year, hoping that the market conditions will improve. The buyer discusses her decision with her salesperson and they mutually decide to cancel the buyer representation agreement. The next step involves the buyer signing the agreement, which is then approved and signed by the broker of record on behalf of the brokerage. An example of a form that may be used as a cancellation to a buyer representation agreement is shown on the following screens.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 23 of 39

For example, OREA Form 301 shows how you could document a cancellation of a buyer representation agreement.

From OREA Form 301: Cancellation of Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Lesson 6 | Page 24 of 39

Assignment of a Buyer Representation Agreement The brokerage in a buyer representation agreement can assign the agreement to a new brokerage, with the consent of the buyer. If a buyer representation agreement is assigned, it releases the original brokerage from all the obligations of the agreement. All rights and obligations under the agreement are assigned to the new brokerage. When assigning a buyer representation agreement, you will include details of the brokerage that is assigning the agreement, as well as details of the brokerage the agreement will be assigned to. You will also include a declaration from the brokerage assigning the buyer representation agreement that they release the buyer from any claims for compensation or any other interests the brokerage might have for that buyer. The buyer’s signature is required to assign a buyer representation agreement to a new brokerage. Typically, only a broker of record or a manager at the current brokerage can assign a buyer representation agreement to another brokerage. A copy of the assignment must be returned to the original brokerage before the effective date of the assignment.

©2019 Real Estate Council of Ontario

The assignment of a buyer representation agreement may occur when a salesperson transfers to another brokerage or if the buyer wishes to cancel the current buyer representation relationship and engage in a buyer representation relationship with another brokerage. Both the buyer and the brokerage must consent to the assignment. Only the current broker of record or a manager can authorize the assignment of a buyer representation agreement to another brokerage. The buyer initiates the request by signing the appropriate document or form and it is submitted to the brokerage to obtain the required signatures to affect the assignment of the buyer representation agreement to a different brokerage. A copy of the agreed upon assignment is kept by the brokerage. An example of a form that may be used as an assignment to a buyer representation agreement is shown on the following screens.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 25 of 39

For example, OREA Form 302 shows how you could document an assignment of a buyer representation agreement.

From OREA Form 302: Assignment of Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Lesson 6 | Page 26 of 39

Suspension of a Buyer Representation Agreement

From OREA Form 304: Suspension of Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Like the seller representation agreement, the buyer representation agreement creates obligations for both the buyer and the brokerage. It describes the services to be provided by the brokerage. In some cases, such as a family emergency, illness, vacation, etc., the buyer may choose to suspend the agreement and the provision of brokerage services as an alternative to cancellation. When the Suspension of a Buyer Representation Agreement is signed by the parties, it results in the cessation of all brokerage services for a specified period. At the end of the period, or as otherwise agreed by the buyer and the brokerage, the brokerage services are re-started. All other terms and conditions of the original agreement remain the same unless amended. This allows buyers to pause the real estate search without a full cancellation. It allows buyer clients to have more options just as seller clients do with the Suspension of a Seller Representation Agreement or Listing Agreement. The brokerage’s obligations and activities are placed on hold without having to cancel the original agreement.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 27 of 39

Buyer Mani Subramaniam has signed a representation agreement with XYZ Realty Ltd. Due to an urgent need, his company informs him that he would be required to travel overseas for a three-month period. The buyer explains this situation to his salesperson, Jason, and asks that they put any search for a property on hold until his return. What should Jason tell the buyer regarding the changes needed to the buyer representation agreement? Select the option with the best wording. There are four options. There is only one correct answer.

1 2 3 4

Salesperson: “I completely understand wanting to delay looking for a home until you return. We can do that by suspending our current agreement.” Salesperson: “I completely understand wanting to delay looking for a home until you return. We can do that by amending our current agreement.” Salesperson: “I completely understand wanting to delay looking for a home until you return. We can do that by assigning our current agreement.” Salesperson: “I completely understand wanting to delay looking for a home until you return. We can do that by cancelling our current agreement.”

©2019 Real Estate Council of Ontario

Lesson 6 | Page 28 of 39

Buyer Mani Subramaniam has signed a representation agreement with XYZ Realty Ltd. Due to an urgent need, his company informs him that he would be required to travel overseas for a three-month period. The buyer explains this situation to his salesperson, Jason, and asks that they put any search for a property on hold until his return. What should Jason tell the buyer regarding the changes needed to the buyer representation agreement? Select the option with the best wording. There are two options. There is only one correct answer.

1 2

“The broker of record will sign on behalf for the brokerage and we will require your signature as well.” “I will sign on behalf for the brokerage and we will require your signature as well.”

©2019 Real Estate Council of Ontario

Lesson 6 | Page 29 of 39

Buyer Mani Subramaniam has signed a representation agreement with XYZ Realty Ltd. Due to an urgent need, his company informs him that he would be required to travel overseas for a three-month period. The buyer explains this situation to his salesperson, Jason, and asks that they put any search for a property on hold until his return. What should Jason tell the buyer regarding the changes needed to the buyer representation agreement? Select the option with the best wording. There are two options. There is only one correct answer.

1 2

“The holdover period we agreed to will change after we make the required alteration to the agreement.” “The holdover period we agreed to will not change after we make the required alteration to the agreement.”

©2019 Real Estate Council of Ontario

Lesson 6 | Page 30 of 39

A buyer representation agreement details the terms between a brokerage and a buyer but sometimes a term needs to be revised. This has to be done by written document to avoid confusion or misunderstandings regarding obligations owed and services being provided. What scenario will require the Assignment of buyer representation agreement documentation? There are three options. There is only one correct answer.

1

2 3

A buyer who signed a buyer representation agreement was shown quite a few properties but did not make any offers. The agreement is expiring in a week and the buyer would like to keep working with the same salesperson. A buyer signs a buyer representation agreement and is actively looking for homes with his salesperson. Unfortunately, the buyer receives a notice that his employer is downsizing, and that his job is being eliminated. The buyer can no longer afford to buy a home. A salesperson is working with a buyer under a buyer representation agreement. The salesperson is transferring to a different brokerage and the buyer would like to continue working with the salesperson.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 31 of 39

Introduction to Altering the Terms of Customer Service Agreements A customer service agreement that a brokerage signs with a seller or a buyer defines the obligations, duties, and services the brokerage owes to the seller or the buyer and also outlines the obligations of the seller or the buyer towards the brokerage. If changes need to be made to the terms of these customer service agreements, they can be made by using additional documents after the changes have been mutually agreed upon by the customer and the brokerage. As a customer service agreement for both a seller and a buyer are non-exclusive, an amendment can be used to make any of the required changes. A situation may require the customer service agreement to be amended, such as a change to the expiry date, the scope of services being provided by the brokerage, remuneration arrangements, etc. A buyer customer service agreement is little more than a disclosure of what the buyer can expect from the brokerage. Rarely does this document need to be amended. Conversely, a seller customer service agreement stipulates several things that can place obligations on both the seller and the brokerage. As a result, this document can, and sometimes does, require changes.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 32 of 39

Amending a Customer Service Agreement The following screens will highlight information about amendments that can be made to a customer service agreement. These amendments include: • Amendment to a seller customer service agreement • Amendment to a buyer customer service agreement

©2019 Real Estate Council of Ontario

Lesson 6 | Page 33 of 39

Amendment to a Seller Customer Service Agreement When the seller and the brokerage mutually agree to make changes to one or more terms of the customer service agreement, they can revise the terms by creating an amendment. These changes could pertain to: ● The services that the brokerage will provide to the seller ● Changes to the terms of remuneration ● Changes to the expiry date of the agreement; the seller’s initials will be required if the new expiry date is more than six months after the commencement date ● Corrections to information recorded in the agreement You will include the exact details of the terms that are being changed in the amendment. The seller must sign the amendment. The signature of the non-titled spouse is also obtained to give spousal consent, if applicable. Typically, salesperson can sign an amendment on behalf of the brokerage. All the other terms of the agreement not indicated on the amendment remain in effect. Example: A seller, who signed a seller customer service agreement with a brokerage, did not permit the brokerage to place a “Sold” sign on the property. The seller has now sold the property to the buyer introduced by the brokerage, and the seller has agreed to allow a sign. This change in the terms can be documented through an amendment to the seller customer service agreement. An example of a form that may be used as an amendment to a seller customer service agreement is shown on the following screens.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 34 of 39

For example, OREA Form 205 shows how you could document an amendment to a seller customer service agreement.

From OREA Form 205: Amendment to Seller Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Lesson 6 | Page 35 of 39

Amendment to a Buyer Customer Service Agreement When the buyer and the brokerage mutually agree to make changes to one or more terms of the agreement, they can execute the changes through an amendment. These changes could pertain to: ● Additional services that the brokerage might provide to the buyer ● The buyer agreeing to pay remuneration to the brokerage for their service during the term of the agreement ● Changes to the expiry date of the agreement; buyer’s initials will be required if the new expiry date is more than six months after the commencement date ● Corrections to information recorded in the agreement You will include the exact details of the terms that are being changed in the amendment. The buyer’s signature is required to execute an amendment. Typically, a salesperson can sign and execute an amendment on behalf of the brokerage. All the other terms of the agreement that aren’t amended remain in effect. ©2019 Real Estate Council of Ontario

Example: Under the agreement, a buyer is not obligated to pay remuneration to the brokerage by signing a customer service agreement. During the course of the agreement, the buyer is pleased with the services being provided by the salesperson and understands the importance of having guidance in a real estate purchase. A private seller’s home becomes available, which appears to meet the buyer’s criteria. The seller agrees the salesperson can show the property but is not willing to pay a remuneration to the buyer’s brokerage. The salesperson approaches the buyer, and the buyer agrees to pay the brokerage a remuneration if the property is purchased. This is documented using an amendment to the buyer customer service agreement. An example of a form that may be used as an amendment to a buyer customer service agreement is shown on the following screens.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 36 of 39

For example, OREA Form 315 shows how you could document an amendment to a buyer customer service agreement.

From OREA Form 315: Amendment to Buyer Customer Service Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 37 of 39

From OREA Form 240: Amendment to Listing Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Example of an Amendment to the Listing Agreement: In the previous screens, you saw how OREA Form 240 looks and the purpose it serves. Let’s now consider how it is filled out. In one of the Decision Points above, you saw how Zubair and Munira Khan, who were looking to sell their home, sign a seller representation agreement with XYZ Realty Ltd., located at Lot 06, Plan 92M-4000, City of Anycity, Region of Anyregion. Munira Khan is not a registered owner of the property. We also learnt how a month after the listing is signed, they have a discussion with their salesperson, Jason, telling him that they would like to reduce the listing price. Let’s see how their agreement may look after an amendment is added. You will now see a reproduced example of an amendment to the listing agreement using OREA Form 240, which Jason would have filled for his clients, given their individual requirements.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 38 of 39

From OREA Form 301: Cancellation of Buyer Representation Agreement. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Example of a Cancellation to the Buyer Representation Agreement In the earlier screens, you saw how OREA Form 301 looks and the purpose it serves. Now, let’s consider how it is filled out. In one of the Decision Points above, you saw that buyer Mani Subramaniam had signed a buyer representation agreement with XYZ Realty Ltd., but was looking to cancel the agreement due to an urgent personal matter. We have reproduced an example of cancellation of a buyer representation agreement using OREA Form 301 that Jason would have filled for his client, given his specific situation.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 39 of 39

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Alter terms of a seller representation agreement

A seller representation agreement can be amended, cancelled, suspended, or assigned. A suspension or cancellation of the agreement typically must be signed by the seller and the broker of record or manager. An amendment is used when specific terms in the agreement need to be changed. When the activities related to the selling of a property need to be stopped for some time, a suspension can be used. If these activities are to be stopped altogether, a cancellation is used. An amendment can be signed by the seller and a representative of the brokerage, usually the listing salesperson.

Alter terms of a buyer representation agreement Alter terms of customer service agreements

An assignment is used if the agreement is to be moved from one brokerage to another. An assignment must be signed by the seller, the listing brokerage, typically the broker of record or manager, and the receiving brokerage’s broker of record/manager. Copies must be given to the seller immediately upon signing. A buyer representation agreement can be amended, cancelled, assigned, or suspended. Situations where each type of change is required for a buyer representation agreement are similar to those when changes are made to a seller representation agreement. As with representation agreements, customer service agreements are amended when any terms in those agreements need to be changed. Customer service agreements differ from representation agreements in that, usually, they are only amended. As they are non-exclusive, meaning the customer is free to sign another agreement with another brokerage without repercussions, these agreements are often left to expire rather than be cancelled.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 1 of 9

Lesson 7: Salesperson’s Obligations Regarding Services Provided

This lesson details your obligations as a salesperson regarding the services you provide to a seller or a buyer, introduces leading practices when documenting a relationship, and describes how to avoid mistakes and misunderstandings.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 2 of 9

When documenting a relationship with a seller or a buyer, it is important for you, as a salesperson, to ensure the services being provided are in compliance with REBBA and meet the needs of the client or the customer. As a salesperson, you are expected to have full understanding of your obligations to reduce any risk for yourself and your brokerage. This lesson will identify mistakes that could occur while documenting relationships and the leading practices to avoid them. Upon completion of this lesson, you will be able to: • Identify a brokerage’s obligations to maintain business records. • Identify a salesperson’s obligations regarding document retention. • Identify a salesperson’s obligations regarding inducements made to a seller or a buyer. • Identify leading practices to avoid common mistakes made while documenting relationships. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 3 of 9

Brokerage’s Obligations to Maintain Business Records A brokerage has certain regulatory obligations for maintaining business records. These include: • Retaining all documents and records created during the course of a trade for at least six years: If a brokerage has files relating to a contentious trade (which may result in a lawsuit or other legal action), the brokerage should store those documents indefinitely. These could include any relationship agreements that are created along with schedules or any changes that are made to the terms of these agreements. • Maintaining records for other activities required to conduct the brokerage’s business: These could include documents such as records of trust money transactions, monthly reconciliations, records of trust property, accounting records, employee records, etc. • Retaining documents at the appropriate location: For a brokerage that does not have any branch office, all documents should be retained at the brokerage’s main office. If the brokerage does have a branch office, records are retained at the location specified by the Registrar or, if the Registrar hasn’t specified a location, at the main office of the brokerage. If a brokerage does operate out of branch offices and records are to be kept ©2019 Real Estate Council of Ontario

at the main office, then all documents created at a branch office should, as soon as possible, be moved to the main office. Salesperson’s Obligations Regarding Documentation As a salesperson, you typically will be the individual who is directly involved with many of the documents associated with a trade. The requirement to maintain records will extend to you. As such, you should ensure that all documents created or obtained are submitted to the brokerage in a timely manner for appropriate recordkeeping. The documentation required from a salesperson, in addition to representation agreements and customer service agreements, may include: • Surveys or other information related to the listing • Identification verification of the seller or the buyer as required by FINTRAC • Disclosures from sellers about any issues with their property, repairs conducted on the property, etc. Example: Demonstrating Compliance with a Salesperson’s Obligations A salesperson has an evening appointment with a seller to list their property for sale. The documents obtained by the salesperson during the listing appointment include a survey, a seller disclosure statement, and copies of receipts from recent repairs completed in the basement. The seller representation agreement, verification of the seller’s identification, and the associated listing document are securely retained by the salesperson when the appointment is completed. The following morning, the salesperson submits all documents to their brokerage to process the listing.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 4 of 9

According to REBBA, a brokerage and a salesperson are obligated to maintain and retain documents. Which of the following actions would be appropriate for a brokerage and salesperson to take to meet their obligations regarding maintaining records and retaining documents? There are four options. There are multiple correct answers.

1 2 3 4

A brokerage leases a portion of a warehouse for storage, which is located close to the main office because their current location does not have sufficient space. A salesperson works in a branch office and travels to the main office every week. With each visit to the main office, he submits to the brokerage, all the original documents made during the real estate trading in that week. A salesperson registered with XYZ Realty Ltd. has listed a builder’s new home and works on site in a model home. The salesperson securely stores all documents related to trades in the model home. A salesperson lists a seller’s property for sale that was recently repaired. The seller provides the salesperson copies of the documents detailing the repairs. The salesperson attaches the document to the seller representation agreement and submits it to the brokerage for retention.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 5 of 9

Salesperson’s Obligations Regarding Inducements Made to a Seller or a Buyer (Section 25 of O. Reg. 567/05) REBBA details requirements concerning promises made to a seller or a buyer as an inducement to buy or sell real estate. Certain promises must be detailed in a written contract with the seller or the buyer to ensure the person making the promise complies and the party is not misled. This promise is a personal promise from the salesperson and does not obligate the brokerage. As a salesperson, this requires you to document and sign a contract detailing the specific aspects of the promise you are making to the seller or the buyer. As a leading practice, you should discuss full details with your brokerage prior to making any such promises. Inducements to Sell Promises include that the salesperson or any other person will: • Buy any of the seller’s real estate. • Acquire a mortgage, an extension of a mortgage, a lease, and/or an extension of a lease for the seller. • Buy or sell a mortgage or acquire a loan for the seller. Inducements to Buy Promises include that the salesperson or any other person will: • Sell, lease, or exchange the real estate. • Buy or sell any of the buyer’s real estate. • Acquire a mortgage, an extension of a mortgage, a lease, and/or an extension of a lease for the buyer. • Buy or sell a mortgage or acquire a loan for the buyer.

©2019 Real Estate Council of Ontario

These types of promises must be made in writing and include full details so the seller or the buyer fully understands the rights and obligations of the person making the promise: • Promises that the salesperson or any other person will buy, sell, or lease said property, or arrange to finance it. For example, a salesperson, when listing a property, states that if the property does not sell within a specified period of time for a price acceptable to the buyer then the listing salesperson will buy the property. The details of this offering must be thoroughly documented and signed by the salesperson to avoid any confusion that may arise later in the relationship. • Promises that the salesperson or another person will buy or sell any of the buyer’s real estate, or procure a mortgage, an extension of a mortgage, a lease, an extension of a lease, or buy or sell a mortgage, or procure a loan for them. For example, a salesperson doing a presentation to a potential buyer client states that through his contacts in the mortgage brokerage industry he can secure a mortgage for the buyer at rates below market. Again, the representation or “inducement” must be thoroughly documented and signed by the salesperson to avoid later confusion. • Promises that the salesperson or another person will buy any of the seller’s real estate, or procure a mortgage, an extension of a mortgage, a lease, an extension of a lease, or buy or sell a mortgage, or procure a loan for them. For example, an agreement of purchase and sale is presented to a seller and a component of the agreement requires that the seller take back a second mortgage on the property at current market rates. The listing salesperson, in an attempt to assuage the seller’s concerns, states that he will arrange for someone to buy the mortgage after the transaction closes. Again, this is considered an inducement and must therefore be committed to writing and signed by the salesperson.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 6 of 9

A salesperson is permitted to make promises to a seller or a buyer to induce them to sell, buy, or lease a property. However, GEN, Sec. 25 of the Real Estate and Business Brokers Act requires that certain promises cannot be made unless the salesperson enters into a written contract with the person to whom the promise is made that obligates the salesperson, to ensure that the promise is complied with. Which of the following promises would require the written contract as specified under the Real Estate and Business Brokers Act? There are five options. There are multiple correct answers.

1 2 3 4 5

A salesperson promises a buyer that if the buyer purchases a property without first selling his existing property, the salesperson will purchase the buyer’s property himself. A salesperson promises a buyer that the in-house mortgage broker will guarantee a mortgage interest rate of at least one percentage point below the market rate A salesperson promises a buyer that if an income property is purchased through the brokerage, the salesperson will find the buyer a tenant who will pay $2,000 a month. A salesperson promises a seller that if the seller lists his property with the salesperson’s brokerage, the salesperson will pay to have the house staged. A salesperson promises a buyer that he will pay for a property inspection if the buyer purchases a property through him.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 7 of 9

Mistakes a Salesperson Should Avoid While Documenting Relationships While documenting relationships, it is important for you, as a salesperson, to be aware of potential mistakes, so you can avoid these. When providing services to sellers and buyers, understanding problematic areas can help ensure you are conscientious, competent, and providing the highest quality service. The mistakes highlighted here address various aspects of documenting a relationship. The following five sections contain information about the mistakes to avoid when documenting relationships. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Documentation errors

Incorrect words, statements, and predictions

• Failing to carefully obtain, read, and analyze source documents. Examples when working with a seller include reviewing a survey, maintenance records, tax bill, deed, lawyer’s reporting letter, and other documents a salesperson can refer to in order to obtain information that would be part of a listing agreement. • Transposing information from source materials to the representation agreement. • Making errors with regard to documenting specifics of the land, property, and defects (for example, lot dimensions are misstated, easements and local improvement charges are overlooked). • Failing to ensure that all parties on title appear and sign the listing agreement or any other document. • Failing to enquire about the requirement to obtain spousal consent. • Making statements to a seller or a buyer with regard to a transaction that advance opinions or promote comparisons, and using exaggerations such as “best property,” “greatest return,” etc., and not stating only the facts.

©2019 Real Estate Council of Ontario

Misrepresentation

Lack of due diligence

Breach of duties, obligations, and disclosure requirements

• Making predictions or giving absolute assurances to a seller, a buyer, or in advertising material through words such as “guarantee,” “great investment.” • Failing to use operative words carefully (“can,” “will,” “might,” “must,” etc.). Statements such as, “I can get you the highest price possible” or “you will get many showings on your property immediately after the sign is installed” should be avoided. • Failing to seek confirmation that the client or customer fully understands what is being shared with them with regards to the services provided by the brokerage, the obligations of the brokerage, and the obligations the client or the customer owes to the brokerage. • Failing to defer to other professionals, such as a home inspector, a lawyer, or an insurance broker when appropriate. • Exceeding the scope of authority granted by the client. • Not properly addressing issues during negotiations with sellers and buyers. Examples include failing to address an agreement of purchase and sale accurately during offer negotiations, disclosing confidential information to other interested parties when there are multiple buyers offering on the property. • Failing to present all aspects of a property to a buyer in a diligent manner. • Failing to market a property in a diligent manner for a seller client. • Failing to diligently pursue all suitable properties on behalf of a buyer client. • Misrepresenting or failing to disclose material information to the client. • Breaching duties as specified in the agreement. Examples include failing to provide all the services promised and documented in the agreement, such as reducing the marketing exposure of the property or cancelling any open houses promised to the seller. • Failing to carry out obligations in a conscientious and competent manner. • Failing to discuss representation, customer service, and the possibility of multiple representations with sellers and buyers at the earliest opportunity.

©2019 Real Estate Council of Ontario

• Failing to provide a disclosure, or providing an incomplete disclosure, to clients and customers as required by REBBA. For example, a salesperson receives a referral fee from a mortgage broker and fails to disclose the amount as a financial benefit to a client as required by Subsection 18(4) of the Code of Ethics. • Failing to recognize conflicts of interest that may arise when acquiring property for personal use and not making complete required disclosures. • Failing to disclose additional remuneration obtained (for example, finder’s fees) to the client.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 8 of 9

Leading Practices in Documenting Relationships As a salesperson, you must keep in mind several leading practices that can be followed to avoid making mistakes when documenting a relationship. By adhering to legislated requirements and following leading practices, you can avoid making errors that could result in liability and a tarnished reputation for you and your brokerage. The following four sections contain information about the leading practices to remember when documenting relationships.

While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Reviewing agreements

Research and analysis

• Corroborating key information included in representation agreements and insisting on further investigation where necessary. For example, when listing a property for sale, verify the ownership using a source document such as the transfer/deed. Carefully reviewing a representation or customer service agreement to ensure the party fully understands the terms and obligations. • Interviewing every client or customer carefully and understanding and analyzing their needs and wants. • Selecting properties based on the client’s preferences and financial ability and knowing all comparable sales. • Compiling data on neighbourhood trends, features/benefits of living in the particular community, school locations, market reports, and press releases available to the brokerage. • Analyzing properties and consulting with other professionals, as needed, to understand every aspect of the information available about a property. For example, when dealing with a property that has a basement apartment, consult with the building department or a home inspector for advice on how to comply with the various obligations and requirements associated with these. • Helping the client make a rational decision after the preliminary excitement of seeing a property or receiving an offer. ©2019 Real Estate Council of Ontario

Clarity and honesty

Timely Advice

• Putting well-worded conditions in every offer and ensuring that clauses that include conditions are drafted correctly and are easy to understand • Being honest and forthright with the seller and the buyer at all times • Promoting and protecting the client’s best interests at all times • Advising a client when they need to conduct further investigation into a property. For example, a client wants to put an addition in the rear of a home – the prudent option would be to find out if this would be allowed under the zoning provisions and that a building permit would be available before they purchase the property. • Helping the client negotiate an offer based on current conditions in the marketplace.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 9 of 9

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Obligation of a brokerage and a salesperson to maintain business records and retain documents

It is important to remember that a brokerage is obligated to retain documents related to trades in real estate and other administrative documents in accordance with REBBA. The brokerage’s regulatory obligation to maintain business records include: • Retaining all documents and records created during the course of a trade for at least six years • Maintaining records for other activities required to conduct the brokerage’s business • Retaining documents at the appropriate location As a salesperson, you should ensure your activities do not cause the brokerage to be in non-compliance. Ensuring you bring all the documents related to any aspect of your relationship with a seller or a buyer to the brokerage in a timely manner is required. Proper document storage and retention is critical to keeping confidential information secure.

Obligation to not make certain promises as inducements to a seller or a buyer to sell or buy real estate

As a salesperson, certain promises that are made to a seller or a buyer must be in writing. For example, you must not make promises to a seller or a buyer to induce them to sell or buy a property, such as promising to resell a property, obtaining a mortgage, or guaranteeing a tenant. These promises must be documented in a written contract with the seller or the buyer to ensure the parties understand and agree to the terms of the promise.

©2019 Real Estate Council of Ontario

Mistakes a salesperson should avoid and leading practices they can follow while documenting relationships

When documenting relationships, it is important for you, as a salesperson, to avoid mistakes, such as exceeding the authority granted by the agreement, failing to carefully read source documents, failing to make sure the client or customer understands everything explained to them and making incomplete disclosures to sellers and buyers, etc. As a salesperson, you should also be aware of leading practices, such as carefully reviewing every aspect of an agreement with a seller or a buyer, carefully interviewing a seller or a buyer, and analyzing their needs, providing competent advice after analyzing market data, being honest and forthright at all times, etc. Recognizing the areas where mistakes can sometimes happen and working diligently to provide professional service helps to ensure that you perform your day-to-day activities in full compliance with REBBA.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 1 of 11

Lesson 8: Summary Practice Activities

This lesson includes scenarios and activities that expand upon the differences between the various agreements discussed in the module.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 2 of 11

It is important for you, as a salesperson, to understand the different types of agreements detailed throughout the module and be able to explain the content in an agreement to a seller or a buyer. As a brokerage’s relationship with a seller or a buyer can be either expressed or implied, documenting the relationship early in your interactions with a seller or a buyer is important. This leading practice will reduce misunderstandings or confusion regarding the services being provided by the brokerage and the obligations of the other party. As the obligations owed can differ significantly with the relationship being created, distinct agreements are used to document the relationship between a brokerage and a seller or a buyer. If a client relationship is being created, a representation agreement is used. If a customer relationship is created, a customer service agreement is used. The key terms used here reflect the type of relationship. As a client, the brokerage represents the seller or the buyer. As a customer, the brokerage provides services only. Through decision points, this lesson will highlight key differences between the terms and provisions included in a seller representation agreement and a seller customer service agreement, and the key differences between the terms and provisions included in a buyer representation agreement and a buyer customer service agreement. Understanding the specifics of each and how they differ will reinforce the fundamentals of agency and the obligations and duties stemming from that. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 3 of 11

A salesperson is meeting a first-time seller to discuss how the salesperson’s brokerage can help the seller in the marketing of their property. The salesperson explains all the service options available to the seller. The seller wants to know more about the difference between a seller representation agreement and a seller customer service agreement and how the obligations of the seller and the salesperson’s brokerage will change under the different agreements.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 4 of 11

A seller asks their salesperson to highlight the differences between a seller representation agreement and a seller customer service agreement. Which of the following differences are correct? There are four options. There are multiple correct answers. 1 2

3 4

As a seller customer service agreement is non-exclusive, there is no requirement to obtain the seller’s initials if the duration of the agreement exceeds six months. A seller customer service agreement does not include the listing price as the property is not being listed and marketed by the brokerage. A seller representation agreement must include a listing price as this is a key component of ensuring the listing is complete and accurate. A seller customer service agreement does not include the seller’s warranty that they do not have a listing agreement signed with another brokerage, as a seller customer service agreement is a non-exclusive agreement. A seller representation agreement includes that warranty. A seller customer service agreement includes details about the buyer interested in the property or to be introduced to the property. A seller representation agreement does not include any buyer(s) details.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 5 of 11

A seller asks the salesperson to highlight the difference between a seller representation agreement and a seller customer service agreement to understand how the services provided to the seller, and the obligations of the brokerage and the seller will change accordingly. Additional provisions included in these agreements related to defining the duties, obligations, and services provided, differ in a few key ways between the two types of agreements. Mentioned below are explanations for a few provisions that are included in either a Listing Agreement - Seller Representation Agreement - Authority to Offer for Sale (Seller Representation Agreement) or a Seller Customer Service Agreement - Commission Agreement for Property (Seller Customer Service Agreement). For each provision, choose the corresponding agreement. There are four options. There are multiple correct answers.

1 2 3 4

A provision that specifies the seller’s obligations for remuneration to the brokerage and implies that if the seller sells their property to a different buyer, they will not be obligated to pay remuneration to the brokerage. A provision that mentions that any enquiries the seller receives for their property during the term of the agreement, from any source whatsoever, is to be disclosed to the brokerage. A provision allowing the seller to select whether other brokerages can contact the seller if the agreement expires and the seller’s property is still unsold. A specific provision to obtain the seller’s consent to place a “Sold” sign in the seller’s front yard denoting the brokerage sold their property, but no provision for a “For Sale” sign.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 6 of 11

The salesperson explains the difference in the terms of, and parties to, an agreement and the additional provisions included in an agreement for a seller representation agreement and a seller customer service agreement. These differences typically include non-exclusivity, the buyer’s details, the listing price, remuneration, referral of enquiries, use and distribution of information, and sold signs. A salesperson should know these differences; why they exist, and how they would affect the relationship of the brokerage with the seller.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 7 of 11

A salesperson is meeting a first-time buyer to discuss how the salesperson’s brokerage can help the buyer find a home that matches their requirements. The salesperson explains all the service options available to the buyer. The buyer wants to know more about the difference between a buyer representation agreement and a buyer customer service agreement and how the obligations of the buyer and the salesperson’s brokerage will change from one type of agreement to the other.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 8 of 11

A buyer asks his salesperson to highlight the similarities between a buyer representation agreement and a buyer customer service agreement to learn how the service provided to him under each agreement will differ, and the specific obligations that will apply to him and the brokerage. Which of the following statements about buyer representation agreements or buyer customer service agreements are correct? There are four options. There are multiple correct answers. 1 2 3 4

If the duration of the representation agreement or the customer service agreement exceeds six months, the buyer must show consent by initialing the agreement. Both types of agreements include information about the location and the type of property the buyer is interested in. A buyer representation agreement and a buyer customer service agreement are exclusive with one brokerage. Both types of agreements include details regarding the buyer’s obligation to pay a remuneration to the brokerage under certain circumstances.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 9 of 11

A buyer asks the salesperson to highlight the difference between a buyer representation agreement and a buyer customer service agreement, as they want to know how the services provided to them and how the obligations of the brokerage and the buyer will change under the two agreement. The additional provisions included in these agreements defining the duties, obligations, and services provided, differ in a few key ways between the two types of agreements. Select the provisions that are included in a buyer customer service agreement. There are four options. There are multiple correct answers.

1 2 3 4

A provision detailing the remuneration obligations of the buyer when the brokerage finds a property that matches their requirements and the buyer agrees to purchase it. A provision explaining the limited duties the brokerage owes the buyer as part of the agreement. An additional document detailing the remuneration obligations of a buyer in case the brokerage finds a property that matches their requirements and the buyer agrees to buy it. A provision that states that, while the agreement is active, if a buyer locates a property that matches their interest, whatever the source may be, they should inform the brokerage about it.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 10 of 11

The salesperson in explaining the differences between a buyer representation agreement and a buyer customer service agreement outlines the additional provisions included in the buyer representation agreement; for example, referral of properties, remuneration, representation, and multiple representation. A salesperson should know and be able to explain the differences between these two types of buyer agreements and how they would affect the buyers’ relationship with the brokerage.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 11 of 11

Congratulations, you have completed the lesson! You have tested your understanding of key differences between a seller representation agreement and a seller customer service agreement, as well as between a buyer representation agreement and a buyer customer service agreement. The differences when documenting a relationship should be fully understood as there are key components of each that must be understood by a seller or a buyer before choosing between representation and customer service. When explaining the various service options and documenting your brokerage’s relationship with the seller or the buyer, it is important for you to know why these differences exist and how they change the services you will provide to your seller or your buyer. It is also important for you to know and be able to explain your duties and obligations towards the seller or the buyer and ensure they understand their obligations to the brokerage.

©2019 Real Estate Council of Ontario

Module Summary | Page 1 of 4

Module Summary

This lesson contains a summary of the entire module and a list of helpful resources available in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 2 of 4

Congratulations, you have completed this module! This lesson will present a summary of Learning Objectives and a list of helpful resources that you can search for in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 3 of 4

There are seven sections on this page with a summary of the key topics that were discussed in this module.

Registrant, Seller, and This lesson details the regulatory obligations of a registrant regarding documenting a relationship, remuneration, and other financial disclosures. Buyer Obligations The lesson also explains the legal obligations of the seller and the buyer with respect to indemnification and remuneration to the brokerage.

The Seller Representation Agreement

When a salesperson understands their obligations as well as those of the client or customer, it reduces the risk of unintentionally misleading a consumer. Completion of this lesson has enabled you to: • Identify the regulatory obligations of a registrant regarding documenting a relationship with a seller and a buyer. • Identify the regulatory obligations of a registrant regarding remuneration and other financial disclosures with a seller and a buyer. • Identify the regulatory obligations of a registrant regarding disclosure requirements relating to relationships with a seller and a buyer. • Identify legal obligations of a seller. • Identify legal obligations of a buyer. This lesson introduces the learner to the seller representation agreement that is used to document the relationship between a seller client and a listing brokerage. The lesson details the types of listings, terms of, and parties to, the agreement, additional information typically included in the agreement, and signing and initialling requirements for the agreement. Completing a seller representation agreement sets expectations for the seller client and establishes a commitment between both parties. Completion of this lesson has enabled you to: • Identify the types of listings.

©2019 Real Estate Council of Ontario

The Buyer Representation Agreement

• Describe the type of information required to identify the terms of, and parties to, a seller representation agreement. • Explain what a seller typically acknowledges and consents to in a seller representation agreement. • Explain what a seller typically warrants in a seller representation agreement. • Explain how to document remuneration in a seller representation agreement. • Explain the additional information typically included in a seller representation agreement. • Explain the signing and initialling requirements of a seller representation agreement. • Complete the information required to identify the terms of, and parties to, a seller representation agreement. • Complete the additional information typically required in a seller representation agreement. • Complete the signing and initialling requirements of a seller representation agreement. This lesson introduces the learner to the buyer representation agreement used to document the relationship between a buyer client and a brokerage. The lesson details the terms of, and parties to, the agreement, additional information typically included in the agreement, and signing and initialling requirements for the agreement. Completing a buyer representation agreement sets expectations for the buyer client and establishes a commitment between both parties. Completion of this lesson has enabled you to: • Describe the type of information required to identify the terms of, and parties to, a buyer representation agreement. • Explain the additional information typically included in a buyer representation agreement. • Explain the signing and initialling requirements of a buyer representation agreement. • Complete the information required to identify the terms of, and parties to, a buyer representation agreement. ©2019 Real Estate Council of Ontario

The Seller Customer Service Agreement

The Buyer Customer Service Agreement

• Complete the additional information typically required in a buyer representation agreement. • Complete the signing and initialling requirements of a buyer representation agreement. This lesson introduces the seller customer service agreement used to document the relationship between a seller customer and a brokerage. The lesson details the terms of, and parties to, the agreement, additional information typically included in the agreement, and signing and initialling requirements for the agreement. Completing a seller customer service agreement sets expectations for the seller customer and establishes a commitment between both parties. Completion of this lesson has enabled you to: • Describe the type of information required to identify the terms of, and parties to, a seller customer service agreement. • Explain the additional information typically included in a seller customer service agreement. • Explain the signing and initialling requirements of a seller customer service agreement. • Complete the information required to identify the terms of, and parties to, a seller customer service agreement. • Complete the additional information typically included in a seller customer service agreement. • Complete the signing and initialling requirements of a seller customer service agreement. This lesson introduces the buyer customer service agreement used to document the relationship between a buyer customer and a brokerage. The lesson explains the terms of, and parties to, the agreement, additional information typically included in the agreement, and signing and initialling requirements for the agreement.

©2019 Real Estate Council of Ontario

Completing a buyer customer service agreement sets expectations for the buyer customer and establishes a commitment between both parties.

Altering the Terms of a Representation or Customer Service Agreement

Completion of this lesson has enabled you to: • Describe the type of information required to identify the terms of, and parties to, a buyer customer service agreement. • Explain the additional information typically included in a buyer customer service agreement. • Explain the signing and initialling requirements of a buyer customer service agreement. • Complete the information required to identify the terms of, and parties to, a buyer customer service agreement. • Complete the additional information typically included in a buyer customer service agreement. • Complete the signing and initialling requirements of a buyer customer service agreement. This lesson introduces and explains how agreements can be altered and how those alterations are documented. A seller representation agreement can be amended, suspended, cancelled, or assigned. A buyer representation agreement can be amended, cancelled, or assigned. Customer service agreements are usually only amended. It is important for a salesperson to know which documents can be altered, and in what ways and why, to take appropriate action when necessary and explain the same to the seller or the buyer. Completion of this lesson has enabled you to: • Identify additional documents associated with a seller representation agreement. • Identify additional documents associated with a buyer representation agreement. • Identify additional documents associated with a customer service agreement.

©2019 Real Estate Council of Ontario

Salesperson’s Obligations Regarding Services Provided

This lesson discusses the obligations of the salesperson while providing services to the client or the customer. The salesperson, along with the brokerage, has the obligation to accurately document the agreements and to be diligent with retaining and maintaining records from the transaction. The salesperson also has the obligation to refrain from making any promises to the seller or the buyer that may be viewed as inducements for them to buy, sell, or lease a property. All promises must be in writing to ensure that the salesperson is bound by the agreement. The lesson also explains some common mistakes salespersons make while documenting relationships and highlights leading practices for a salesperson to follow to avoid these mistakes. Completion of this lesson has enabled you to: • Identify a brokerage's obligations to maintain business records. • Identify a salesperson’s obligations regarding document retention. • Identify a salesperson's obligations regarding inducements made to a seller or a buyer. • Identify leading practices to avoid mistakes made while documenting relationships.

©2019 Real Estate Council of Ontario

Module Summary | Page 4 of 4

Module Resources There are five helpful resources related to this module that you can search for in the Knowledge Management System. 1. Seller Contractual Obligations Regarding Remuneration: This table provides a list of remuneration obligations owed by a seller to the listing brokerage under specific circumstances. A salesperson can use this job aid to understand and better communicate to a seller the various legal obligations a seller has regarding remuneration. 2. Types of Listings: This job aid provides a salesperson with a description of the three different types of listing agreements available and their key features. When a seller decides to list their property for sale, they choose the listing option that best suits their needs. A salesperson can use this job aid to understand how each listing type differs from the other to be able to guide their sellers correctly. 3. The Holdover Period - FAQ: This Frequently Asked Questions (FAQs) job aid provides a quick refresher on the principal features of the holdover period within the holdover clause. A brokerage needs to know whether remuneration is due to them if a sale or a purchase happens during the holdover period. A salesperson can use it to understand and explain the holdover provision to sellers and buyers before they sign a representation agreement. 4. Buyer Client Expectations of Brokerages: This list provides general guidelines regarding the responsibilities owed to a buyer by a salesperson and the brokerage under the buyer representation agreement. A salesperson can use this job aid to help them understand their various obligations and duties towards their buyer client when a buyer client signs a representation agreement. 5. Completing Representation and Customer Service Agreements: This table provides the DOs and DON’Ts a salesperson must observe while completing representation agreements and customer service agreements. A salesperson can use this job aid to ensure accuracy while documenting a legal relationship. While navigating through the online module, click the KMS button for tools and information on this topic.

©2019 Real Estate Council of Ontario

V7

Module 3: Understanding Residential Property Types, Ownership, and Planning Disclaimer: This is a reference document which contains pages from the Accessible eLearning module. You should complete the eLearning module to proceed to the next step. Please note that the accessible module on the LMS only contains the interactive pages and you need to go through the content of this document thoroughly to attempt the interactive activities in the module. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Salesperson Program ©2019 Real Estate Council of Ontario. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or in any means – by electronic, mechanical, photocopying, recording or otherwise without prior written permission, except for the personal use of the Real Estate Salesperson Program learner.

©2019 Real Estate Council of Ontario

Module 3: WELCOME TO UNDERSTANDING RESIDENTIAL PROPERTY TYPES, OWNERSHIP, AND PLANNING As a salesperson, you will need to be well-versed in the essentials of the profession to meet your obligations in providing services and building relationships with sellers and buyers. You will also need to know transactional process information but also use general product knowledge to frame your research into material facts. Demonstrating your knowledge will help your sellers and your buyers feel confident that they have the support of an educated, thorough, and conscientious salesperson. In turn, you will strengthen those relationships and grow your professional reputation. To check your understanding of this module, you must complete all the activities in the online module. While navigating through the online module, click the Legislation button to view laws and regulations related to this module. While navigating through the online module, click the KMS button to access the Knowledge Management System or visit the Module Resources to find the list of all the KMS assets for this module. The contents of the thumbnail icon and References from the module are added to support your learning throughout this Accessible PDF.

©2019 Real Estate Council of Ontario

Menu: UNDERSTANDING RESIDENTIAL PROPERTY TYPES, OWNERSHIP, AND PLANNING Number of Lessons

Lesson Number Lesson 1 Lesson 2 Lesson 3 Lesson 4 Lesson 5 Lesson 6 Lesson 7

8 Lessons

Lesson Name Types of Residential Properties Fundamentals of Ownership Ownership Alternatives Municipal Role in Land-Use Planning Official Plan and Zoning Considerations for Heritage Properties Summary Practice Activities Module Summary

©2019 Real Estate Council of Ontario

Lesson 1 | Page 1 of 16

Lesson 1: Types of Residential Properties

This lesson provides an overview of common residential structure types and styles, noting marketable features that would appeal to buyers during the listing and selling process.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 2 of 16

Types of Residential Properties Having a firm understanding of property structure types and styles, and being able to differentiate between them, will prepare you to effectively market a seller’s property, and to provide buyers with advice relevant to their stated wants and needs. Without such product knowledge you could show properties that are not appropriate. Upon completion of this lesson, you will be able to: • Differentiate between detached and attached residential structures • Describe the different types and styles of single-family residential structures • Describe the different types and styles of multi-unit residential structures Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 3 of 16

Residential Structures: Overview

As a salesperson, it will be essential for you to be able to differentiate between types of residential structures when providing services to sellers and buyers. When listing a property, you will be required to provide an accurate description of the structure to avoid misrepresentation of the property for sale. When selecting properties to show, a buyer’s needs and wants might influence the types of properties you will find that match their requirements. For instance, a home that abuts another home, or is located quite close to another home, may not be right for a buyer seeking a private, quieter yard. You will also need to demonstrate an understanding of property types to fulfill your obligations under REBBA. Misrepresenting a property when listing or advertising on behalf of the seller could put both a salesperson and the brokerage at risk of being reported for false advertising. Failing to provide conscientious and competent services to a seller or a buyer could damage working relationships, which could also result in loss of reputation for you and your brokerage. Next, you’ll review some common categories of residential structures.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 4 of 16

Comparing Residential Structure Types As you learned earlier, residential structures can be broadly grouped under a few categories. The following four sections contain information about some common types of residential structures.

Detached structures A detached structure is on an individual lot and is not attached to any other building. A single-family detached home ranks as one of the most popular types of homes and is often preferred by buyers who want more privacy and the ability to make changes to their property without the input of a neighbour. As the sole owner of both the house and the land that it is on, owners are responsible for repairs and general upkeep, but can determine when and how these are done. For example, if the roof shingles need to be replaced, there is no concern about the condition, style or colour of the roof shingles on an adjoining property. Detached homes are typically among the more expensive properties, because they tend to sit on larger lots. Prices can vary considerably, based on location, lot size, condition, and a number of other factors.

©2019 Real Estate Council of Ontario

Attached structures: Townhouses An attached structure has at least one or both of the side walls, or the floor/ceiling components of a structure, attached to another structure. These are commonly referred to as townhouses and can be built side-by-side or stacked. Townhouses are built in areas to accommodate a denser population as this type of construction allows for more structures to be built within an area. A potential drawback of an attached structure is the close proximity to neighbours, smaller yard area, reduced privacy, and the potential for noise transmission through the common party wall(s).

Semi-detached structures A semi-detached structure has only one side wall that is attached to another structure. The attached dwellings are on separately deeded lots and are divided vertically above ground by way of a party wall. The two dwellings are often laid out as mirror images of one another. A buyer usually owns one side of the structure (including the land it sits on) and is responsible for repairs and upkeep to their side. Semi-detached structures are popular as they provide many features associated with detached homes (i.e., size, and individual title to the land) and can be less expensive than detached homes. They may appeal to

©2019 Real Estate Council of Ontario

young families or individuals who want to buy a house and not a condominium. A potential drawback of a semi-detached home is the proximity to a neighbour. This can be an issue when the driveways abut, or maintenance issues that affect both units need to be agreed upon. For example, when the roof shingles are to be replaced, it can appear less attractive if the style and colour of the shingles do not match for both sides of the structure.

©2019 Real Estate Council of Ontario

Link structures A link structure is where two or more buildings are attached either below ground with the foundation wall, or above ground with a garage wall. Link structures are often characterized by their misleading appearance, as some may appear to be detached from above ground. In some modern link structures, where the linking element is a shared party wall between garages, the attachment between structures is visible. Since the attachment between link structures does not extend to the entire home, some buyers might find them a good compromise between detached and attached properties. When listing this type of property for sale, the listing must include information identifying this is not a detached home. One visible sign of a link home where the attached portion is below grade, could be the placement of the structure on the lot. A link home might not be centred on the lot, but rather is placed closer to the side of the property where it is linked.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 5 of 16

A salesperson is preparing to meet with a couple who are unsure of the property type that best fits their lifestyle. The salesperson has developed a few questions to help them determine which property type would be the best suited for their needs and preferences. The first question asks how important privacy, quietness, and yard space is when purchasing a new home. The couple replied that it is important that they have significant quietness because her husband works from home and does not want to be disturbed by noisy neighbours. They also have a dog that needs a fenced back yard to run in and they would prefer not to share any yard with a neighbour because of the dog. This couple would prefer a detached structure. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 6 of 16

A salesperson is preparing to meet with a couple who are unsure of the property type that best fits their lifestyle. The salesperson has developed a few questions to help them determine which property type would be the best suited for their needs and preferences. The first question asks how important privacy, quietness, and yard space is when purchasing a new home. The couple replied that they don’t mind sharing a wall with a neighbour as long as it’s not a wall between any of the living areas. In their current home, their bedroom abuts their neighbour’s living room and they hear their neighbour’s television until late at night. They don’t mind being close to the neighbours, they just don’t want the noise. They also don’t have much time for yard work, so a smaller property is fine for them. This couple would prefer a link structure. There are two options. There is only one correct answer. False

True

©2019 Real Estate Council of Ontario

Lesson 1 | Page 7 of 16

A salesperson is preparing to meet with a couple who are unsure of the property type that best fits their lifestyle. The salesperson has developed a few questions to help them determine which property type would be the best suited for their needs and preferences. The first question asks how important privacy, quietness, and yard space is when purchasing a new home. The couple replied that they are about to start a family and want to move out of their small apartment and into their first home. They would like to purchase a property that is reasonably priced and where they don’t want to do any yard work. They’re not too concerned about how close the neighbours are because they are used to living in an apartment. This couple would prefer a semi-detached structure. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 8 of 16

A salesperson is preparing to meet with a couple who are unsure of the property type that best fits their lifestyle. The salesperson has developed a few questions to help them determine which property type would be the best suited for their needs and preferences. The first question asks how important privacy, quietness, and yard space is when purchasing a new home. The couple replied that they like the style of their friend’s house. She has a neighbour on the other side who is quite good at construction and very friendly. When last year the roof shingles needed to be replaced, the neighbour asked her mother if they wanted to do it at the same time. She was glad about this because now the property looks nicer with matching roofs. They wouldn’t mind finding a neighbour like that. This couple would prefer a detached structure. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 9 of 16

Dwelling Units When discussing property types with a buyer, it should be determined whether the use of the structure should be limited to a single-family dwelling, or if there is an interest in purchasing a multi-unit dwelling. To make this distinction, it is important to understand what is considered a “dwelling unit.” A dwelling unit is described as a selfcontained housing unit with one or more habitable rooms containing at minimum a kitchen, bathroom facilities, and an exit from the building. A single-family detached dwelling is best described as a building comprised of one dwelling unit, while multi-unit dwellings are comprised of more than one dwelling unit. This terminology is used in residential zoning bylaws, which treat single and multi-unit dwelling types differently. Next, you’ll learn more about styles of single-family and multi-unit dwellings.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 10 of 16

Residential Structures: Single-Family Dwelling Styles Understanding single-family residential dwelling styles will help you to search for properties that accommodate your buyer’s needs. Various styles offer different characteristics that could be important considerations for a buyer when viewing properties. Understanding these characteristics will help when selecting the most appropriate properties to be shown. The following four sections contain information about the styles of single-family residential structures you may encounter in your trading area.

Bungalow Bungalows are characterized by the primary living area contained on one floor with few or no stairs. This style has remained popular for many decades, particularly with seniors or those with limited mobility. A bungalow requires a larger lot size in order to provide the same overall house size as a two-storey home. Given that the cost of land, foundation, and roof represent a sizeable component of total building costs, those requiring additional floor area could select a two-story design due to the cost advantages associated with constructing a second floor. Variations of bungalows include: • Ranch Style: This variation of the bungalow offers a larger overall size and typically features an attached garage and a basement. Many of

©2019 Real Estate Council of Ontario

these homes contain approximately 2,000 square feet of living area or more on one floor and are normally oriented horizontally on a lot. • Bi-Level/Split Entrance: This variation of the bungalow usually have a front entrance at the split between the upper and lower levels. The basement rests at a higher level above grade than other bungalow types which allows for more windows and greater sunlight in the basement area. This has led to the basement area being finished in a similar condition to the main floor, rather than remaining unfinished.

©2019 Real Estate Council of Ontario

One-and-one-half storey

This style of dwelling contains approximately 60% of the overall floor area on the main floor, and features a high-pitched roof, which provides additional living space on the second floor. The roof pitch results in slanted ceilings on the upper level and reduced head clearance. Some styles will include dormers (vertically projecting windows) and may be referred to as a, “Cape Cod” design, originally popular in the northeastern United States. This design is usually located in more mature neighbourhoods that provide larger lots as most of these styles were built in the 1940s and 1950s. Oneand-one-half storeys remain popular today given the cost savings for additional living space when compared to a bungalow.

©2019 Real Estate Council of Ontario

Two-storey This style of dwelling is characterized by a combination of an expansive living area and a separate bedroom area level. Two-storey dwellings differ from one-andone-half storeys, due to their lack of slanted ceilings on the upper level. There are many variations of twostoreys, and they are popular in most major urban areas. Two-storey dwellings may be shown to prospective buyers who desire a large space, such as families with children. This style also appeals to those who prefer a style that typically has bedrooms on a different level from the rest of the living space.

Split level This type of dwelling can combine features of other styles, ranging between the bungalow, split-entrance bungalow, and the two-storey home. The ease with which occupants can move from one area of their home to another is a primary characteristic. Side and back splits may have anywhere from three to five levels and are characterized by several sets of stairs. Split levels may be popular among families, as this style provides a large livable area on a smaller lot.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 11 of 16

Residential Structures: Multi-Unit Dwelling Styles The previous styles of homes were single-family dwellings, where only one dwelling unit is contained in the structure. Buyers interested in purchasing a property where they could live, as well as generate additional income by leasing a unit to a tenant, could consider purchasing a multi-unit dwelling. The following three sections contain information about multi-unit residential structure types.

Duplex A duplex is described as a building divided into two individual dwelling units. Each dwelling unit can be accessed through its own private entrance or a shared entryway. Duplexes can be divided horizontally, as in the style of a two-storey, or vertically as in a bungalow. Many duplex structures are converted from a singlefamily use to a multi-unit use. A vertically-divided duplex should not to be mistaken for a semi-detached structure, although the style of each could be similar. While a duplex structure is under single ownership (under one title), the two dwelling units in a semi-detached structure are each owned separately (under two titles). Seen from the street, a casual observer could easily confuse the two.

©2019 Real Estate Council of Ontario

Triplex A triplex is described as a building divided into three individual dwelling units. Each dwelling can be accessed through its own private entrance, a shared entryway, or both. Triplexes are also divided horizontally and/or vertically depending on the style of the structure and many are converted from a singlefamily or other use to a multi-unit use.

©2019 Real Estate Council of Ontario

Fourplex A fourplex is described as a building divided into four individual dwelling units. Most fourplex structures were purpose-built, containing a separate entry rather than a shared entryway. Fourplexes are typically in the style of a bungalow, one-and-one-half storey, or a twostorey dwelling that is divided vertically.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 12 of 16

There are many types and styles of homes a salesperson may encounter in the listing and selling process. To provide services to sellers and buyers, a salesperson should be aware of the different characteristics and benefits of each style to accurately represent the sellers’ property and to tailor the property search to meet the buyers’ needs. A duplex property is a residential building containing two dwelling units. There are two options. There is only one correct answer. True

False

Lesson 1 | Page 13 of 16

There are many types and styles of homes a salesperson may encounter in the listing and selling process. To provide services to sellers and buyers, a salesperson should be aware of the different characteristics and benefits of each style to accurately represent the sellers’ property and to tailor the property search to meet the buyers’ needs. A one-and-one-half storey is a home that has a reduced ceiling height clearance on the second floor. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 14 of 16

There are many types and styles of homes a salesperson may encounter in the listing and selling process. To provide services to sellers and buyers, a salesperson should be aware of the different characteristics and benefits of each style to accurately represent the sellers’ property and to tailor the property search to meet the buyers’ needs. The key feature of a two-storey is that it provides for the living areas to be close to the bedrooms that isn't a bungalow. There are two options. There is only one correct answer. True

False

Lesson 1 | Page 15 of 16

There are many types and styles of homes a salesperson may encounter in the listing and selling process. To provide services to sellers and buyers, a salesperson should be aware of the different characteristics and benefits of each style to accurately represent the sellers’ property and to tailor the property search to meet the buyers’ needs. A one-and-one-half storey home has living area and bedroom area separated from one another and all rooms of this type of home have full ceiling height. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 16 of 16

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were discussed in this lesson.

Detached and attached residential structures Dwelling units

Residential structures: single-family dwelling styles Residential structures: multi-unit dwelling styles

Residential structures fall into one of several categories: • A detached residential structure • An attached residential structure • A semi-detached residential structure • A link residential structure A dwelling unit is a housing unit that has one or more habitable rooms as selfcontained living quarters. Single-family structures are comprised of a single dwelling unit. Multi-unit structures are comprised of more than one dwelling units. Styles of single-family residential structures include: • Bungalow, ranch, bi-level/split-entrance • One-and-One-Half Storey • Two-Storey • Split Level Multi-unit residential structures include: • Duplex • Triplex • Fourplex

©2019 Real Estate Council of Ontario

Lesson 2 | Page 1 of 18

Lesson 2: Fundamentals of Ownership

This lesson reviews leasehold, freehold, concurrent ownership rights and the differences between them, types of restrictions and limitations, and how they can impact the listing and selling process.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 2 of 18

Fundamentals of Ownership In the listing and selling process, you will encounter various forms of property ownership, each with their unique set of rights and restrictions to consider. You will need to be prepared to explain the differences to sellers and to buyers so that they can make informed decisions. You will also be required to research the rights, restrictions, or limitations related to properties of interest to a buyer and communicate anything that could impact their rights, use, or enjoyment of the property before they make an offer. Upon completion of this lesson, you will be able to: • Define fee simple and leasehold interests • Define concurrent ownership • Describe the difference between joint tenancy and tenants in common Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 3 of 18

Types of Estates An estate in land is the interest or rights associated with real property. The type of estate held will identify the extent of those rights or interest, with the highest estate or absolute right in real property being known as fee simple. There are also rights, or an interest, granted to an individual with occupancy rather than ownership of a property. This is known as a leasehold estate and is held by a tenant or lessee. These rights stem from old established rules of common law and partly by the tenancy legislation in the province. Familiarity with the rights attached to property ownership is key foundational knowledge you will use throughout your career. Fully understanding the various forms of ownership and the rights associated with that is critical when explaining ownership options to a seller or a buyer. You will have the opportunity to review information about the differences between fee simple and leasehold interests on the next screen.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 4 of 18

Fee Simple Interest and Leasehold Interest Salespersons not only work with sellers and buyers, but increasingly, work with landlords and tenants by showing premises to lease, negotiating leases and sometimes, managing leased properties. For centuries, only fee simple interests evolved, with little regard for leasehold. However, common law now embraces a wide range of leasehold rules, rights, and procedures impacting both residential and commercial properties. The key difference between fee simple and leasehold interests involves time. In fee simple, ownership is for an indeterminate period. This means the owner can choose the time period in which they own the land. With leasehold, a time limit for the right to occupy the property is, or can be, pre-determined. Holding a fee simple interest in a property can also be referred to as freehold ownership or a freehold estate. Freehold identifies the property is free from being held by any entity other than the owner, thus allowing the land to be owned for an indeterminate period. Freehold ownership includes the fee simple interest and all the rights associated with that type of interest. The terms fee simple and freehold are often used interchangeably in the marketplace.

Fee Simple

● Ownership for an indeterminate amount of time ● The highest form of ownership, with the most rights and the fewest limitations ● These rights are commonly referred to as the “bundle of rights” and include: o Sell: the right to sell their property for many reasons, such as for profit. o Lease: the right to rent their property to a tenant, subject to the provisions of the Residential Tenancies Act (RTA) and other government legislation. o Use: the right to use their property for many uses, such as for living, renovating, and improving. o Do nothing: the right to buy a property and leave it dormant.

©2019 Real Estate Council of Ontario

o Give away: the right to give the property away, often encountered in the settlement of an estate. o Enter the property: the right to access one's property. This right is clear when a property fronts onto a public road but if the property cannot be directly accessed, an implied easement exists under the Road Access Act permitting the owner to cross over someone else's property to achieve access. (Note: Use the SLUDGE acronym to recall rights under fee simple ownership. While the key rights in fee simple ownership, this is not inclusive of all property rights/restrictions you may encounter.)

Leasehold

• Occupancy rights NOT ownership. • Rights can or do last for a pre-determined amount of time. • Fewer rights than fee simple (tenants do not have the right to sell or give away the property, but may sublet, for instance, with express permission from their landlord)

©2019 Real Estate Council of Ontario

Lesson 2 | Page 5 of 18

Government Limitations As you learned earlier, legal title to land does not imply unrestricted exercise of the bundle of rights as there are limitations to these rights. Government limitations can be grouped under four categories that impact the listing and selling of a property. These categories include: • The right to take property • The right to regulate • The right to levy taxes • Escheat

©2019 Real Estate Council of Ontario

Lesson 2 | Page 6 of 18

Right to Take Property Expropriation is the term that describes a government body exercising its right of eminent domain to take private property from an owner for greater public use or benefit in exchange for a fair price at market value. Impact on the Listing and Selling Process As a salesperson, you would rarely be involved in expropriation matters, however, you should have a general understanding of the expropriation procedures, including who is empowered to expropriate. An expropriating authority is the Crown, or any other agency empowered by the Expropriations Act.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 7 of 18

Right to Regulate It is the right of government to regulate property for the promotion of public safety, health, morals, and general welfare. It is also referred to as police power. Zoning bylaws, building codes, traffic, and sanitary regulations are also based on this right to regulate. Various federal and provincial statutes impact land ownership, such as land planning. Impact on the Listing and Selling Process Every transaction will be impacted by some level of government regulation. As a salesperson, you will need to inform buyers of any regulations relevant to a transaction, as these regulations could be considered material facts that must be disclosed. Example: A buyer is interested in purchasing a property but would like to change the use from a single-family home to a multiunit property, which would be leased out. The salesperson advises the buyer that the zoning bylaw would need to be consulted to ensure a change in use to the property is permitted under the current zoning bylaw.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 8 of 18

Right to Levy Taxes Municipalities in Ontario generate revenue by charging taxes to owners based on their property’s value. The requirement that property tax be paid is one of the basic limitations on ownership rights. In addition to the annual taxes, a property may also have a special tax levy for local improvements. Impact on the Listing and Selling Process As a salesperson, your understanding of taxation will help you communicate important information about tax requirements for properties you will research for a seller or a buyer. These tax requirements must be disclosed as material facts, and you will also need to accurately document relevant tax information when preparing agreements. Example: A seller’s salesperson is verifying the annual taxes for a property prior to finalizing the listing. The salesperson uses the seller’s most recent tax bill to confirm the amount. During a conversation with the seller, it is identified that new sidewalks and curbs are being considered for the area. The salesperson confirms with the municipality whether this will be paid for by imposing a local improvement tax on the affected properties, or from the city’s budget.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 9 of 18

Escheat The Escheat Act, 2015 pertains to property of individuals who die intestate or without lawful heirs. Impact on the Listing and Selling Process Unlike properties that are being sold by a lawful heir, as a salesperson you may be selling properties on behalf of the public trustee of Ontario. As with all sales where the seller is not the registered owner, the salesperson needs to exercise caution and obtain documents establishing the trustee's authority to sell.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 10 of 18

Private Limitations Private limitations are restrictions placed on a property by a landowner rather than by a government body. You’ll learn about two common types of private limitations, restrictive covenants and easements. You will need to be mindful that once granted, these private limitations “run with the land”, meaning they attach to the property title and bind both current and subsequent owners.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 11 of 18

Restrictive Covenant A restrictive covenant is a limitation placed on the use of property and is registered on title for that property. It is a contract between two land owners, where one owner (the covenantee) acquires the right to restrain the other owner (the covenantor) from putting the land to certain specific uses. A restrictive covenant remains in effect if either property is sold. Impact on the Listing and Selling Process When purchasing a property, the buyer will first need to be informed of any restrictive covenants registered on the property. These covenants are not always apparent, and a title search could be required to learn if this type of limitation has been placed on the property’s use. If a restrictive covenant is revealed by the buyer’s lawyer, and it is being complied with, a buyer would not be permitted to terminate an agreement.

©2019 Real Estate Council of Ontario

As a salesperson, you should make the appropriate enquiries to verify what is registered on title for the property, prior to presenting an offer. This step is necessary to discover or confirm if there is a restrictive covenant that will be unacceptable to a buyer. It will also ensure that the offer gives the buyer an opportunity to complete their due diligence before the agreement becomes binding. Example: A homeowner, who has been an active member of a church, has left her estate to the church in her will. Years later, the church decides they would like to sell the property and contacts a brokerage to list the property for sale. The church officials identify the property was left to them with strict instructions on its use. The salesperson is concerned over this disclosure and recommends a title search be completed prior to listing the property for sale. During the title search, the lawyer discovers that the homeowner placed a restrictive covenant on the title prohibiting the property’s use for non-religious purposes.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 12 of 18

Easement Like a restrictive covenant, a property easement is usually registered on title and “run with the land”. Exceptions are statutory easements like utility agreements put in place to maintain and install wiring. An easement also binds subsequent owners of the property, and therefore, should be disclosed to any prospective buyer. Easement rights are granted by one property owner (the servient tenement) for the benefit of at least one other property owner (the dominant tenement), usually allowing them special use of the granter’s land, such as a right of way. Impact on the Listing and Selling Process As a salesperson, you will be required to make all reasonable enquiries with the seller to determine the existence of any easement when listing a property for sale. The disclosure of the easement should be made to prospective

©2019 Real Estate Council of Ontario

buyers and included within the offer, as easements that materially impact the intended use of the property can void an agreement. When listing and selling property, you will need to verify what is registered on title for the property to confirm or discover if any easements are attached to the property by reviewing a survey or the ownership documentation. Failure to disclose could result in the cancellation of the sale or, in the case of a completed sale, future legal liability for the seller and your brokerage. Example: Emma’s ability to access the lake by a right of way over her neighbour Talish’s property is permitted by an easement. Talish decides to sell his property and discloses the easement to his salesperson. The salesperson states this information will be disclosed to prospective buyers as the easement will remain once the property is sold.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 13 of 18

An owner of a home, upon purchasing it, made a will stating that the property will go to her son upon her passing. She has been transferred to another city for a one year work project and decides to lease out her home to a couple while she is away. Which of the given statements is true? There are four options. There is only one correct answer. 1 2 3 4

The tenants will have a fee simple interest in the property during her absence. The owner holds the highest form of ownership and rights in land. She is, therefore, free to rent her property as she is not subject to any property restrictions or limitations. The owner’s son cannot inherit the property upon her passing if the tenants are occupying the home at that time. The tenants have a leasehold interest in the property.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 14 of 18

Concurrent Ownership As you have previously learned, concurrent ownership occurs when two or more persons hold ownership of a property simultaneously. Concurrent ownership interests normally fall into two primary categories, joint tenancy and tenants in common. In most instances, unless joint tenancy is made explicitly, tenants in common is the default form of concurrent ownership. As a salesperson, when preparing to list a property for sale, you will be required to confirm the ownership of the property. All registered owners' name must be shown on the listing, and they have to give their consent to the sale of the property. When working with a seller, your activities when listing the property for sale do not change whether the form of concurrent ownership is joint tenancy or tenants in common. However, the financial aspects of the sale can be impacted, so advising sellers to seek legal advice prior to listing the property for sale should be pursued when required. Many times, the type of ownership chosen is impacted by personal and financial reasons. When working with buyers, they may have questions about how they should register concurrent ownership on title. You can answer their questions to the extent of your expertise but if asked to advise in more depth, you are obligated to suggest the buyer to consult a lawyer. ©2019 Real Estate Council of Ontario

Lesson 2 | Page 15 of 18

Joint Tenancy and Tenants in common You will need to understand forms of concurrent ownership and be able to explain and distinguish between taking title as joint tenants or tenants in common. The following four sections contain descriptions and distinguishing characteristics of joint tenancy and tenants in common.

©2019 Real Estate Council of Ontario

Joint tenancy Joint tenancy is a form of ownership in which each owner has an equal and undivided interest in the property. This form of ownership is commonly, but not exclusively, found among married couples. The distinguishing feature of joint tenancy is the right of survivorship. This means that on the passing of one owner in a joint tenancy, that person’s ownership interest automatically passes to the surviving owner(s) rather than to the estate. The transfer happens automatically upon the death of the joint tenant, even if the title isn’t updated at that time. Four conditions, known as the four unities, must be present to constitute joint tenancy: • Possession: Each joint tenant is entitled to undivided possession of (or occupancy rights to) the whole of the property. All joint tenants have the same rights to possession, without exclusions. • Interest: Each joint tenant holds an equal interest in the property. All interest must be identical in nature, extent, and duration. • Time: Each joint tenant’s interest in the property must begin at the same time (i.e., all owners must take title to the property at the same time). • Title: All joint tenants must obtain their ownership or title of the property from the same document, such as a will or a deed.

©2019 Real Estate Council of Ontario

If any of the four unities are missing, or cease to exist during joint tenancy, then the owners will automatically become tenants in common. Example: Henrietta has owned her home for several years and was married to Garth. Henrietta would like Garth’s name to also be on the title to the property, so they attend her lawyer’s office with the intent of just adding Garth’s name. Her lawyer advises them that in order to own the property as joint tenants, a deed will be used to transfer title from Henrietta to both Henrietta and Garth. The lawyer explains that title must be taken at the same time by the same document, so she cannot just add a name to the ownership.

Joint tenancy: Spousal interest There is a notable exception to the right of survivorship associated with joint tenancy. Under Ontario legislation, if a married person passes away while owning an interest in a matrimonial home as a joint tenant with an individual who is not their surviving spouse, the joint tenancy is immediately severed and reverts to tenants in common. This provision, termed spousal interest, allows for the deceased’s interest in assets of the property to revert to their legal spouse.

©2019 Real Estate Council of Ontario

Joint tenancy: Termination If joint tenants sever their joint tenancy relationship, they automatically become tenants in common. Obviously, if both parties agree to sever voluntarily, then the parties become tenants in common as a result of that agreement. A joint tenant may destroy the right of survivorship before their death without the consent of the other joint tenant(s). This process, called severance, turns the joint tenancy into a tenants in common with the other tenant or tenants. Even after an act of severance, if there are two or more other tenants remaining, they still remain joint tenants with each other, but are tenants in common with the person who holds the severed interest. The most common method of severance is by a joint tenant granting their interest to a third party. The grant has the effect of turning the interest transferred into a tenants in common with the remaining interests. Other modes of severance exist, such as when all the joint tenants mutually agree to end the joint tenancy and instead hold their interests as tenants in common. For example, with a marriage separation, the joint tenancy termination can be mutually agreed upon as part of the separation agreement. A joint tenancy may also terminate by partition; i.e., splitting the land by means of an application to a court. As the termination or severance of a joint tenancy has a significant impact on property ownership, you will always recommend that a lawyer be consulted. ©2019 Real Estate Council of Ontario

Tenants in common Tenants in common involves concurrent ownership of land by two or more persons, however, there are distinct differences between this and joint tenancy. This form of ownership is commonly found among business partners or friends, but can also be within married couples, especially when there is a difference in the equity being brought into the purchase. With tenants in common, there is only the unity of possession required. Tenants in common may hold different interests and acquire those interests in different ways at different times. The distinguishing feature of tenants in common is its lack of a right of survivorship. Upon the passing of one owner, their share or interest in the property would go to the estate rather than the remaining owner(s). A tenant in common is also able to sell or dispose of their interest in the property to another at any time. Example: Two business partners want to buy a residential investment property. The value of the investment property is $300,000. One partner contributes $100,000 and the other contributes $200,000. Their lawyer assures them that in the event of one of the partner’s death, their interest in the property will

©2019 Real Estate Council of Ontario

transfer to their subsequent heirs, rather than the surviving owner (as they are not joint tenants).

©2019 Real Estate Council of Ontario

Lesson 2 | Page 16 of 18

An individual owns a single-family home as an investment property and has owned it for 10 years. He does not want to sell the property outright but needs to make some necessary improvements to the property. He sells a 50% interest in the property to his partner to make her a business partner rather than re-financing the property. The two owners are both on title and have an equal interest in the property. Select the statements that are true in this scenario. There are five options. There are multiple correct answers. 1 2 3 4 5

The owners meet three of the four unities, so they automatically become joint tenants. The owners are concurrent owners of the property. The owners are tenants in common. Upon one of the owner’s passing, the portion of title in the property reverts automatically to the surviving owner. Should either of the owners decide to sell their interest in the property, they are able to dispose of their interests at any time.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 17 of 18

Joint tenancy and tenants in common are both types of concurrent ownership. Which of the given relate specifically to joint tenancy? There are four options. There are multiple correct answers. 1 2 3 4

Right of survivorship Termination and severance Owners may hold separate interests in a property Spousal interest

©2019 Real Estate Council of Ontario

Lesson 2 | Page 18 of 18

Congratulations, you have completed this module! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Fee simple and leasehold interests

Fee simple is the highest form of ownership, with the fewest number of restrictions, while leasehold is an occupancy right, not a form of ownership, and has fewer rights than fee simple. The bundle of rights associated with fee simple are: • Sell • Lease • Use • Do nothing • Give away • Enter the property Government and private limitations to ownership can impact the listing and selling process. Primary government limitations include: • Right to take property (expropriation) • Right to regulate (e.g., zoning) • Right to levy taxes (property taxes)

Concurrent ownership Joint tenancy and tenants in common

Private limitations include: • Restrictive covenants • Easements Concurrent ownership occurs when two or more people hold simultaneous ownership in a property. Joint tenancy occurs when four criteria, known as unities, under concurrent ownership exist:

©2019 Real Estate Council of Ontario

• • • •

Unity of time Unity of interest Unity of possession Unity of title

Joint tenancy is distinguished by the right of survivorship. Tenants in common only requires the unity of possession and does not include the right of survivorship. Tenants in common can have different interests in the property and may acquire those interests in different ways at different times. In most instances, it is the default form of concurrent ownership. Sellers and buyers should be referred to a lawyer for advice and guidance regarding concurrent ownership.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 1 of 34

Lesson 3: Ownership Alternatives

This lesson provides an overview of alternate forms of ownership and the differences between them. It also discusses how they can impact the listing and selling process.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 2 of 34

Ownership Alternatives In this lesson you will build on what you learned earlier, regarding ownership interests by exploring other forms of ownership that do not involve ownership of the land. Understanding all forms of ownership is fundamental to providing informed and competent service and advice during the listing and selling process. Upon completion of this lesson, you will be able to: • Describe the characteristics of a condominium, equity co-operative, and co-ownership • Describe the differences between a condominium, equity co-operative, and co-ownership • Describe the characteristics of a life lease complex and a land lease community • Describe the differences between a life lease complex and a land lease community Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 3 of 34

Condominium: Units and Common Elements A condominium can be either freehold or leasehold, the difference being whether the land upon which the condominium units are built is owned by the condominium corporation (freehold), or leased (leasehold). Most condominiums are a freehold – standard condominium, and when purchased, the buyer acquires a fee simple interest in a unit along with co-ownership interest as a tenant in common relating to the common elements. The proportionate share of the common elements for each unit is identified in the condominium’s declaration, one of two documents required to create a condominium corporation. The unit is that portion that the owner has fee simple ownership of and exclusive use of, when they purchase a condominium. Examples of a condominium unit include: a townhouse, an apartment-style unit within a building, or a detached dwelling. The common elements consist of all property within the condominium corporation, except the units. The common elements are features of the condominium complex that are outside of the units that belong to all owners. There are many kinds of common elements that could be included, such as: the exterior facade (e.g., the ©2019 Real Estate Council of Ontario

brick exterior), windows, mechanical and heating systems, driveways and parking areas, front lobbies, elevators, recreation rooms, and exercise facilities. The condominium corporation is responsible for the maintenance, repair and replacement of any common element. Some condominiums may allow unit owners exclusive use of specific common elements (e.g., a porch or balcony that is attached to a specific unit). Parking and/or storage areas may or may not be included with the unit. If parking and/or storage areas are provided, owners may own such facilities, lease them, be granted exclusive rights to use, or simply be assigned such facilities on a discretionary basis. Most parking and storage areas in Ontario condominiums are either owned with the unit or as exclusive-use common elements. As a salesperson, you will need to understand and be able to explain the scope of ownership with respect to units and common elements when listing and selling condominiums. You will learn more about this later.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 4 of 34

Considerations with Condominium Ownership Condominium ownership comes with new considerations not associated with other types of ownership. The condominium corporation will include a board of directors who oversee the running of the corporation. This would include setting a budget, paying the expenses related to the corporation, and implementing rules and bylaws. The following four sections contain information about aspects of a traditional condominium that you will need to be able to explain to potential buyers. You will learn more about condominium ownership later.

Maintenance/Condominium fees The maintenance and repair of all common elements is funded through maintenance fees (also called common expenses or condominium fees), which are paid by unit owners. Maintenance fees are typically assessed monthly on unit owners and are based on the proportionate share identified for each unit in the declaration for the condominium corporation. A buyer will need to review the maintenance fees associated with each condominium unit as these can be a significant expense. However, a buyer will also want to assess the amenities associated with that fee and whether this includes any utilities, such as heating or water. The buyer must also factor in these costs when determining mortgage qualification and budgeting for other expenses, such as the property taxes. Although a maintenance fee is an added expense, there could be a reduction in other expenses that offsets a portion of these fees.

©2019 Real Estate Council of Ontario

Rules Rules are directives and regulations developed by a condominium corporation. They promote the safety, security, and welfare of owners, as well as the property and assets of the corporation. Rules also prevent interference with the use and enjoyment of common elements. If you are showing condominium properties to a buyer, you will have to be aware of their rules since they may permit, prohibit or otherwise regulate lifestyle choices that can influence a decision to purchase (e.g., pet ownership, noise regulations beyond those established by the municipality, balcony furniture, decorations, as well as window coverings and flooring material). It is important to ensure a buyer has an opportunity to review the rules as part of due diligence during the offer process.

©2019 Real Estate Council of Ontario

Board of Directors A condominium board of directors must ensure the corporation is run in compliance with the Condominium Act. They enact rules to promote the safety, security, and welfare of all owners and propose changes to condominium by-laws. For these proposed changes to take effect, a majority of unit owners must vote in favour of the changes. The board must provide owners with a copy of the rules (made, amended or repealed), and the effective date and provide notice that the owners have 30 days to requisition a meeting if someone wants to challenge any of the rules. If a meeting is requisitioned, rules are not effective until approved by the owners at the requisitioned meeting. If no meeting is requisitioned within that period, the rules become effective.

©2019 Real Estate Council of Ontario

Bylaws Bylaws are standard procedures and requirements regarding a condominium’s internal operations. Among other points of issue, bylaws may detail: • How directors are elected • How units and common elements are maintained • How to assess and collect maintenance fees • When and how the corporation can borrow money Bylaws are passed, amended, or repealed by the condo board. Most by-laws require approval from the owners of a majority of the units in the condo corporation to be adopted and enforceable. However, a few specified by-laws only require approval from a majority of the owners present at the particular meeting. Bylaws (or a change in bylaws) are not effective unless the majority of unit owners vote in their favour. This requirement makes it more challenging to change bylaws than rules. A copy of bylaws must be registered in the land registry office. This differentiates bylaws from rules that do not have to be registered. Registered bylaws made by the declarant (the owner/ developer) are valid until replaced.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 5 of 34

Common Elements Condominium Corporation (CEC) A common elements condominium corporation (CEC) consists only of such common elements as roads, parking lots, a golf course, a ski hill, or a community centre. There are no units, rather owners enjoy the common elements and pay a maintenance fee for the repair, maintenance and replacement of any common element. Each owner of a common elements’ interest must also own a freehold parcel of land to which the common interest attaches. Therefore, the parcel of land the house is constructed on is considered a parcel of tied land, commonly referred to as a POTL. As the common interest in the CEC is attached to the title to the parcel of tied land, the common interest is transferred upon the sale of that property. You should be able to recognize and explain this type of ownership to a buyer, identifying that because the parcel of tied land and any dwellings or other improvements are not part of the condominium corporation, the maintenance, repair and replacement of these are the sole responsibility of the owner.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 6 of 34

Owning a condominium presents different considerations than other types of property ownership. Which of the given statements are correct? There are four options. There are multiple correct answers. 1 2 3 4

Condominium unit is a jointly owned area. Common elements are private living space. Rules promote the safety and security of condominium owners. Bylaws detail how the condominium is governed.

Lesson 3 | Page 7 of 34

The board of directors has an important role in the operation of a condominium corporation. Which of the following statements with respect to the role of a condominium board of directors are true? There are five options. There are multiple correct answers. 1 2 3 4 5

Creates rules and bylaws Elected by condominium residents Conducts the business of the condominium corporation Their role is defined by the Residential Tenancies Act Sets condominium fees

©2019 Real Estate Council of Ontario

Lesson 3 | Page 8 of 34

One of a salesperson's past clients owns a two-bedroom home in a standard condominium. She has heard about a CEC (common elements condominium) and asks the salesperson to clarify the differences and similarities between CEC ownership and standard condominium ownership. Which of the given information can you relay to the buyer about this form of ownership? There are four options. There is only one correct answer. 1 2 3 4

Both common elements condominiums and standard condominiums include common elements that may only be used by the tenant in common owners or their invited guests. Unlike standard condominiums, CECs include units. Unlike standard condominiums, an owner’s partial interest in a CEC is attached to the land only. Unlike standard condominiums, an owner’s home is partially maintained through the CEC corporation.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 9 of 34

Equity Co-operative: Overview An equity co-operative (also known as an equity co-op) is another ownership option. The property is owned by a corporation made up of shareholders – also referred to as members. Ownership involves the purchase of share capital in the property that entitles the owner to use and occupy a specific unit under an arrangement defined in an occupancy agreement. An occupancy agreement may also provide for the exclusive use of a parking spot or storage locker. Let’s take a closer look at some aspects of equity co-operatives in more detail on the next screen.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 10 of 34

Equity Co-operative: Management, Monthly Charges, and Financial Considerations Equity co-operatives, a form of housing, differs from condominiums. A co-operative ownership involves buildings with several units and their legal organization is different from that of condominiums. In a co-operative, a corporation owns the land and the building, including all the units. Each buyer of a co-operative buys shares in the corporation as opposed to buying a specific unit and does not own their units but are given the right to occupy them by the corporation. Thus, the legal interest of the co-operative dweller is that of a shareholder of the corporation that owns the property. This is why the co-operative dweller is often referred to as a tenant-shareholder. The legal interest of the tenant-shareholder is different from that of the condominium owner who has the greatest ownership right in their particular condominium unit, called a fee simple interest. The following three sections contain information on the management, monthly charges, and financial considerations of equity co-operatives.

©2019 Real Estate Council of Ontario

Management Since equity co-operatives are member-owned and controlled corporations, the Co-operatives Corporations Act does not regulate the day-to-day business of a cooperative, or its bylaws. Co-op members elect the board of directors, and directors are usually selected from membership. The allocations for the annual budget and rules and bylaws are set by the board. You will discover that some buyers will not appreciate an equity co-op board of directors’ oversight and share ownership because they consider these as restrictions on their individual property rights. Other buyers may feel more secure knowing that electing other shareholders to a board could help to protect their share of the property and that other equity co-op members are held to the same standard.

©2019 Real Estate Council of Ontario

Monthly Charges Members pay a monthly housing charge that is similar to condominium maintenance fees, and the equity coop board, like the condominium board, may also vote for increases to those charges if operating costs rise. A key difference in these fees is that a co-op’s monthly housing charges also include a share of the property tax that is charged for the entire property. Since each member contributes toward the larger bill rather than having to pay individual property taxes, they are indirectly liable if others fail to pay their property tax.

Financing Considerations Many equity co-ops originally financed the building’s development with blanket mortgages, and if one is still in place, a buyer will also be required to pay toward it, in addition to their own personal secondary financing for their share purchase, as part of the monthly housing charges. To offset the risk of non-payment toward these common liabilities, equity co-ops require that their boards give approval to buyers, sellers, or the leasing of all member units.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 11 of 34

Equity Co-operative: Buyer Perceptions Now that you have learned about some of the financing challenges of an equity co-op units, it should not be a surprise that they tend to be older buildings. Buyers may be attracted to older equity co-op units as they often have larger units than those offered in new standard condominium buildings and they may be more economical. As a salesperson, you should be aware that in an equity co-operative the unit is not purchased, rather it is the buying of an interest or shares in a corporation that owns the building. It is important to remember that the major decisions are made by the co-operative board of directors, and the board’s approval is required to buy shares and move in. If the board approves the purchase and the co-operative's bylaws governing the admission of members is complied with, the buyer will become a member of the co-operative. The buyer of the shares will be provided with a share certificate, rules and regulations, bylaws, and the amount of the mortgage registered against the entire property owned by the co-operative corporation. A mortgage cannot be placed on an individual unit by the occupant. For those interested in an equity co-operative property, you will want to underscore that the major difference between a condominium and an equity co-operative is the form of ownership, since an equity co-operative is

©2019 Real Estate Council of Ontario

defined by share capital, which is not applicable to a condominium purchase. Others may balk when they see what appears to be a much higher maintenance fee than that of a condominium, but they should be reminded that those charges include property tax, which is charged to unit owners separately and individually on standard condominiums. You will also want to be provided information about any rules, bylaws, or approvals required by the board when listing a property to sell or lease. Be prepared to refer the buyer to a lawyer and/or financing specialist who specializes in equity co-operatives.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 12 of 34

A buyer is interested in purchasing a unit in an equity co-op called Northfield Cooperative Housing Corporation. Which of the given statements are correct regarding the purchase of an equity co-op? There are four options. There is only one correct answer. 1 2 3 4

The buyer will have fee simple ownership of a unit. An occupancy agreement will outline a specific unit the buyer has the right to occupy. The buyer will have to be approved by the Board of Directors to purchase a unit. When a buyer purchases a share, he does not have to pay maintenance fees.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 13 of 34

Co-ownership Most commonly, co-ownership is a fractional interest held by two or more people who are registered on title as owners of a property. It is a tenant in common ownership alternative, in which the deed outlines the percentage of interest in property held by each owner. This percentage does not need to be equally divided. Many variations of coownership are possible; it can apply to two individuals owning a home, four family members owning a recreational property, or ten investors owning a parcel of land. An exception to the common co-ownership alternative described is the more formalized co-ownership building that can exist in urban areas (usually referred to as a multi-unit co-ownership building). Owners may receive an occupancy agreement in addition to the deed. The agreement gives them the right to occupy a specific unit within the structure, since the deed only documents the fractional interests held in the building. The tenants in common owners have exclusive right to occupy and use a specific unit. They are issued a share certificate in the co-ownership corporation, reflecting their proportionate interest. In this way, they are very similar to equity co-operatives, though they differ in concurrent ownership types.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 14 of 34

Considerations When Purchasing a Co-ownership Property Co-ownership has not been in high demand in the past, likely due to a lack of awareness in the marketplace and availability of properties. Similar to equity co-ops, other concerns may be traditional financing models not intended for co-ownership, or from interdependencies such as being jointly liable with other owners in regard to a blanket mortgage. There is often a co-ownership agreement amongst co-owners. This agreement establishes the rights and uses permitted by co-owners over common elements. You should advise that the contents of a co-ownership agreement be reviewed by a lawyer, as the co-owner’s enjoyment and use of the property can be restricted by the co-ownership agreement. Items in the agreement for review may include maintenance and repairs, rent and finances, splitting of expenses, and what happens when one wants to sell (e.g., procedures to dispose of the property should the tenants in common wish to disband the arrangement, or if one of the owners wish to sell, whether the others have a first right of refusal). When you begin trading in real estate, depending on where you are in the province, you may find coownership to be an appealing option for budget-conscious buyers in an economically challenging market or something that is more common in areas with a high density of vacation properties. You will want to inform buyers of potential issues that can arise related to financing and advise that they seek legal counsel if they decide to purchase an interest in a co-ownership property.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 15 of 34

Similarities and Differences Between Co-ownership, Condominium, and Equity Cooperative Ownership Alternatives Co-ownership combines some characteristics of both standard condominiums and equity co-operatives but usually shows marked differences from each. The given chart describes major similarities and differences in these three ownership alternatives.

Condominium • Purchase provides a fee simple interest in a unit • Co-ownership interest as a tenant in common relating to the common elements • Board of directors to oversee the corporation • Rules and bylaws applicable to all owners • Monthly maintenance fee based on proportionate share of ownership • Property taxes paid separately by the unit owner

Equity Co-operative • Property is owned by a corporation • Purchase provides a share certificate • Requires an occupancy agreement to specify the unit as the share identifies only the percentage of interest owned • Board of directors to oversee the day-to-day business • Rules and bylaws • Monthly fee to pay for the operating expenses, which includes property taxes • Must also pay towards any financing on the property, plus any secondary financing to purchase the share

Co-ownership • Tenant in common ownership with one or more other persons • May require an occupancy agreement to specify the unit as the purchase identifies only the fractional interest owned in the property • Co-ownership agreement to establish the foundational rules regarding the maintenance and management of the property • Jointly liable for any mortgage or other expense related to the property

While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic. ©2019 Real Estate Council of Ontario

Lesson 3 | Page 16 of 34

What is the correct statement regarding co-ownership? There are four options. There is only one correct answer. 1 2 3 4

Co-ownership always includes an occupancy agreement. Not all owners are listed on title of the co-ownership property. Co-ownership is an alternative that can appeal to buyers who want to purchase a home but may not be able to afford what they want on their own. Co-ownership requires that the fractional ownership percentage be divided equally among all individuals.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 17 of 34

Life Lease Complex Life lease complexes are considered to be leasehold-based ownership alternatives. Life lease complexes are properties in which the buyer purchases the right to occupy a given dwelling unit within a community for the duration of their lifetime. Buyers of life leases are referred to as occupants, rather than owners. The following three sections contain information on management, monthly charges, and buyer considerations for equity co-operatives.

Management A life lease complex usually has an organization acting as the sponsor for the development. The buyer purchases their right to occupy from the sponsor. Sponsors could be a non-profit or charitable housing provider, seniors’ organization, church or faith group, service club, or ethnic association.

©2019 Real Estate Council of Ontario

Monthly Charges A life lease requires the payment of a lump sum (deposit) upfront, followed by monthly fees. These monthly fees include a range of expenses, including snow removal, landscaping, garbage disposal, repairs, building insurance, and possibly meals. A reserve fund is used for the ongoing repairs and maintenance of the assets of the complex. This would include setting funds aside for roofs, exteriors, buildings, roads, sidewalks, sewers, heating, electrical or plumbing systems, elevator, laundry, recreational, parking facilities, etc. The adequacy of any reserve fund is an important consideration for a buyer.

Buyer Considerations As with other ownership alternatives discussed, like coownership, a key appeal of life lease communities lies in their shared maintenance costs, which can make such properties more affordable. Many life lease communities also hold appeal due to the inclusion of services supported by fees, such as lawn care, landscaping, snow and garbage removal, or additional services like housekeeping, meals, group outings, or activities.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 18 of 34

Considerations When Purchasing Occupancy in a Life Lease Complex Although many life lease complex transactions are managed internally by the sponsor, there are some instances when a salesperson may become involved with the transaction. You will want to make it clear to buyers that with a life lease complex, they are purchasing an occupancy right, not ownership, and that it is the best that they work with a lawyer through all aspects of the transaction. You will want to advise buyers to make their offer conditional upon review of the agreement by their lawyer. While the occupancy right purchased is set up to last for their lifetime, it is still possible to terminate a life lease with advice from a lawyer. Methods of termination can vary. A fairly common one is if an occupant moves out, their unit will usually be re-listed in “as-is” condition at the current market value. Upon the signing of a new occupancy agreement, the former occupant is owed the sale amount, minus the resale fees and any other additional fees, such as the salesperson’s remuneration. If there is more than one occupant named on the occupancy agreement, in the event of a death of one occupant, the occupancy will be transferred to the surviving occupant, as long as monthly maintenance fees continue to be paid.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 19 of 34

Salespersons may become involved in a transaction involving a life lease community. This is a specialized area and clients should always be advised to obtain legal advice before committing themselves to a transaction. An upfront purchase price and annual maintenance fees are required to purchase a unit in a life lease community. This statement applies to a life lease community. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 20 of 34

Salespersons may become involved in a transaction involving a life lease community. This is a specialized area and clients should always be advised to obtain legal advice before committing themselves to a transaction. A typical life lease unit includes maintenance and may also include meals. This statement applies to a life lease community. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 21 of 34

Salespersons may become involved in a transaction involving a life lease community. This is a specialized area and clients should always be advised to obtain legal advice before committing themselves to a transaction. A unit in a life lease property will be held in fee simple. This statement applies to a life lease community. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 22 of 34

Salespersons may become involved in a transaction involving a life lease community. This is a specialized area and clients should always be advised to obtain legal advice before committing themselves to a transaction. Life lease communities are usually sponsored by the municipality in which they are located. This statement applies to a life lease community. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 23 of 34

Land Lease Community A land lease differs from a life lease, as it involves a tenant leasing (i.e., having occupancy rights to) the land their owned dwelling sits on. There is more demand for mobile and land lease homes for retirement properties. Depending on your trading area, you may find that you will be much more involved in transactions for this type of property. Land lease community occupancy rights may also have certain pricing advantages. The terms of these leases can range from 20 to 99 years. Although manufactured homes used to dominate land lease communities, today’s trends lean toward modular homes and those built on-site. Structures can be seasonal (such as those found in a mobile home park), or permanent (called land lease homes). The amount paid for land lease is typically calculated based on the lot size, location, and view. Land lease homes (i.e., homes without wheels that are not seasonally occupied) are regulated by the Residential Tenancies Act (RTA). The RTA does not apply if the site is used by travellers or people on vacation.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 24 of 34

Land Leases Land leases are considered to be leasehold-based ownership alternatives and have their own special considerations. The following three sections contain information on land lease monthly fees and considerations for sellers and buyers.

Monthly Fees In addition to the land lease, tenants pay a monthly maintenance fee used by the landlord to maintain any of the common areas or to repair damage to any of the tenant’s property caused deliberately or by neglect by the tenant.

©2019 Real Estate Council of Ontario

Considerations for Sellers Unlike life lease communities, land lease tenants own their residence and have the right to sell or lease the dwelling. If the tenant chooses to sell their home, and they signed a tenancy agreement providing the landlord with the right of first refusal, the landlord is given 72 hours, from the time that the seller receives an acceptable offer from a buyer, to purchase the land lease home on the same price and conditions. If the landlord does not agree, the tenant can accept the offer previously made. Sellers should be informed that upon selling or leasing, there is often a sign restriction in mobile home parks that prevent “for sale” signs from being posted. However, signage in the window of the mobile home is often allowed. You will want to confirm with sellers and buyers that while they will have the right to lease or sell their home, the lease or sale does not include the land but the structure only. If a buyer wishes to remain on the same site after a mobile home purchase, they would seek permission from the land lease landlord.

©2019 Real Estate Council of Ontario

Considerations for Buyers It is important to note that there is no standard land lease agreement. For this reason, you will want to advise buyers to make their offer conditional upon review of the landlord’s agreement by their lawyer. This review will inform buyers of their specific rights, restrictions, and obligations. Finally, buyers should be aware that financing for this kind of property can be difficult to obtain, as they will not technically own any land to pledge as security.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 25 of 34

Another consideration for a buyer is a land lease community. A buyer could purchase a dwelling that is situated on leased land. Which of the given statements are true regarding land lease communities? There are four options. There are multiple correct answers. 1 2 3 4

A land lease landlord will manage all of the upkeep in the community. A home owner can lease or sell their home and land with their landlord’s consent. Land lease communities typically include amenities for the enjoyment of home owners. Some land lease communities are strictly seasonal, some are permanent, and some may be a mixture of seasonal and permanent structures.

Lesson 3 | Page 26 of 34

There are a variety of ownership interests available to suit most buyers. In life lease community, the buyer owns the housing structure on a property, but not the property the structure sits upon. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 27 of 34

There are a variety of ownership interests available to suit most buyers. In land lease community, the buyer has the right to occupy a property structure only. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 28 of 34

There are a variety of ownership interests available to suit most buyers. In equity co-operative, the buyer owns a share(s) in a corporation and acquires the right to use and occupy a specific unit. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 29 of 34

There are a variety of ownership interests available to suit most buyers. In co-ownership, multiple buyers with fractional interest share ownership of a single property as tenants in common. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 30 of 34

There are a variety of ownership interests available to suit most buyers. In condominium, the buyer owns a specific unit and an undivided interest in the common elements as tenant in common with all other unit owners. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 31 of 34

Imagine you will be working with a buyer who says they are tired of trying to secure summer rentals and really wants to have their own vacation property. While you are researching appropriate listings, your client emails you about several properties that represent different ownership alternatives, but otherwise fit most of their stated requirements. They have told you they want to use the property for a minimum of two months each summer and two weeks in all the other seasons. They want to lease the property to others for income in other parts of the year before they eventually retire there. They want a three-bedroom dwelling where they can hike and swim, ideally, near the woods with both a lake and a pool (and even better with a lake and/or pool on the property). To fulfill your obligations to the client, you will need to explain the differences to help the buyer decide whether they are interested in these properties despite the deterrents described. The listing the buyer found for an equity co-operative is near a favourite forest, notes the monthly housing charges and that they are used for upkeep on the property, which includes a pool. The board of directors needs to give approval prior to any leasing of member units. This ownership alternative meets most of the buyer’s requirements. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 32 of 34

Imagine you will be working with a buyer who says they are tired of trying to secure summer rentals and really wants to have their own vacation property. While you are researching appropriate listings, your client emails you about several properties that represent different ownership alternatives, but otherwise fit most of their stated requirements. They have told you they want to use the property for a minimum of two months each summer and two weeks in all the other seasons. They want to lease the property to others for income in other parts of the year before they eventually retire there. They want a three-bedroom dwelling where they can hike and swim, ideally, near the woods with both a lake and a pool (and even better with a lake and/or pool on the property). To fulfill your obligations to the client, you will need to explain the differences to help the buyer decide whether they are interested in these properties despite the deterrents described. The listing for the land lease community dwelling notes several recreational amenities, including two pools, and a nature walk path. A landlord does not need to approve the leasing of a dwelling. This ownership alternative meets most of the buyer’s requirements. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 33 of 34

Imagine you will be working with a buyer who says they are tired of trying to secure summer rentals and really wants to have their own vacation property. While you are researching appropriate listings, your client emails you about several properties that represent different ownership alternatives, but otherwise fit most of their stated requirements. They have told you they want to use the property for a minimum of two months each summer and two weeks in all the other seasons. They want to lease the property to others for income in other parts of the year before they eventually retire there. They want a three-bedroom dwelling where they can hike and swim, ideally, near the woods with both a lake and a pool (and even better with a lake and/or pool on the property). To fulfill your obligations to the client, you will need to explain the differences to help the buyer decide whether they are interested in these properties despite the deterrents described. The listing is for a fractional interest in a co-ownership property. It is in the woods with great hiking trails and has lake access. The listing says the other owners of the property want to set up new rules and regulations for the property’s use during specific periods of the year, which could include rentals. This ownership alternative meets most of the buyer’s requirements. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 34 of 34

Congratulations, you have completed the lesson! There are five sections on this page with a summary of the key topics that were discussed in this lesson.

Condominium

Condominiums consist of fee simple interest in a unit and co-ownership interest as a tenant in common for the common elements. A CEC consists of only common elements and does not include units.

Equity co-operative

Considerations when purchasing a condominium: • Maintenance fees based on proportionate share of ownership • Rules and bylaws • The board of directors to oversee the corporation Equity co-operative (with share capital) is a form of ownership in which a buyer purchases a share in the corporation that owns the property. An occupancy agreement is required to identify which unit corresponds with the share purchase. Considerations when purchasing an equity co-operative: • Maintenance fees, which includes property taxes • Rules and bylaws • The board of directors to oversee the day-to-day business

Co-ownership

Obligation to pay proportionate share of any financing on the property, plus any secondary financing to purchase the share. Co-ownership is a fractional interest held in land with one or more other owners as a tenant in common. Considerations when purchasing a co-ownership: • May include an occupancy agreement • A co-ownership agreement will set out the rules regarding maintenance and management of the property ©2019 Real Estate Council of Ontario

Life lease complex

• Jointly liable for any mortgage or other expense related to the property Life lease complex provides a buyer with the right to occupy a life lease unit for their lifetime. They require an upfront payment and monthly fees. Life lease projects are developed by non-profit organizations, charities, clubs, etc. The life lease organization is called the sponsor.

Land lease community

Life leases can be intricate. In the case of obtaining or terminating a life lease, clients should be advised to obtain legal advice. Land lease communities consist of ownership of a structure situated on leased land. Structures can be seasonal, such as a manufactured or mobile home, or permanent, such as a modular home. A land lease tenant is required to pay a monthly maintenance fee as well as a fee to lease the site. There is no standard lease agreement, so a tenant should seek legal advice prior to entering into a lease agreement. The Residential Tenancies Act applies to a land lease home.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 1 of 23

Lesson 4: Municipal Role in Land-Use Planning

This lesson reviews the role of a municipality in land-use planning, and how this may affect sellers and buyers.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 2 of 23

Municipal Role in Land-Use Planning As you learned earlier, the Planning Act is legislation that, among other things, regulates and provides authority to municipalities governing land use and development. In this lesson, you will review aspects of the Planning Act, the municipality’s role in planning and associated processes, and approvals required for a plan of subdivision or a consent for severance of land. Upon completion of this lesson, you will be able to: • Outline the purpose of the Planning Act • Describe the role of a municipality in local planning decisions and areas of responsibility • Describe the requirements for the sale of land under the Planning Act • Identify new trends in land use As a salesperson, you will need to understand the legislation and how it impacts your listing and selling activities. A general understanding of the requirements to subdivide land, whether as a plan of subdivision, or a consent to sever, is required as a transfer of title cannot occur until the requirements under the Planning Act have been fulfilled. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 3 of 23

The Planning Act and Provincial Interests The Planning Act is provincial legislation that sets out rules for land-use planning and recognizes the authority of municipalities and planning boards in Ontario to make planning decisions. The Ministry of Municipal Affairs and Housing (MMAH) administers the Planning Act and provides advice and information on land-use planning to municipalities. The legislation also defines specific provincial interests to guide municipalities in future land use so that they are consistent with policy. The Planning Act sets out provincial interest matters that the Minister, municipalities, local planning boards, and the Local Planning Appeal Tribunal (LPAT) must be consistent with when carrying out their responsibilities. Section 2 of the Planning Act describes areas of provincial interest. A municipal authority’s decision to grant or deny a seller’s plan of subdivision is driven in part by its requirement to be guided by provincial interests. They must be consistent with the legislation but also make the best possible use of the resources for their community. Since most Planning Act initiatives are carried out at a municipal level, you will need to be familiar with the overall planning policies of the municipalities within your trading area. Now let’s explore the salesperson’s role related to the Planning Act in more detail. ©2019 Real Estate Council of Ontario

Lesson 4 | Page 4 of 23

The Salesperson’s Role and the Planning Act As you begin to trade in real estate, severance and subdivision approvals and zoning bylaws will be the most direct ways that the Planning Act affects your activities. The legislation’s influence will become more apparent as you become more familiar with your trading area and its infrastructure. With experience, you will become comfortable providing general explanations of the process and issues related to land division and the larger roles that various government agencies and ministries play. You will still want to exercise caution regarding land use applications and related matters involving land owners in the local marketplace. The approval authority for such applications can vary depending on the particular municipality, as well as the specific type of application being submitted. Common applications involve changes to an official plan, zoning bylaw amendments, severances, and plans of subdivision. Property owners contemplating such applications should contact local municipal staff to assess whether or not a contemplated change is possible and be directed to the appropriate approval authority. You may need to refer sellers and buyers to professional planners and lawyers who can provide expert advice. The process is technically and legally complex and beyond the expertise required of a salesperson. You may also need to direct them to the appropriate authorities for questions regarding land use and make referrals to third-party professionals. These actions will help you meet your obligations to provide conscientious and competent service.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 5 of 23

The Salesperson’s Role and the Planning Act Example A developer wants to create a subdivision from vacant land. They apply for subdivision and residential zoning variance approvals. The subdivision will provide homes for 200 families in the south end of a town where there is already a dense population. Even though building the subdivision would have created jobs and increased the tax base, the municipality denies the request because it will overextend the resources of the community. There are not enough schools or hospitals in the area to support the families (adequate provision and distribution of educational and health facilities) and they see that an influx to the area population would burden the transportation system (provision/efficient use of transportation). These factors support the decision that the land cannot be used for residences.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 6 of 23

Local Planning Now that you have a deeper understanding of how this legislation affects a salesperson’s role, let’s take a closer look at how it impacts local planning. As you learned earlier, the Planning Act establishes parameters for the creation of local planning advisory committees, planning areas, and the development of official plans. Most local planning is focused on the preparation, adoption, and revision of official plans within respective planning areas, the adoption of zoning bylaws for land use control and strict controls over the process of dividing and developing land. Municipalities develop official plans to describe local policies that outline how land in a given community should be used. With input from the community, these plans promote future land use planning and development that meet the community’s needs. The Planning Act also allows municipalities to create local planning advisory committees, such as a committee of adjustment, that is empowered to grant variances from the provisions of zoning bylaws, to grant consents, and to control the continuance of non-conforming uses that would alter current land use regulations. Municipalities are also authorized by the Municipal Act to review and approve applications related to land usage, provided the request is in compliance with the provincial government’s Planning Act. On the next screen, we’ll review different types of municipalities and their rights and responsibilities in the local planning process.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 7 of 23

Tier Classifications of Municipalities Municipalities, empowered to enact local planning, are classified as either upper tier, lower tier, or single tier, each having specific rights and responsibilities in the process. For instructional purposes, references will be made to distinguish between an upper tier and lower tier municipality. The following five sections contain information on municipal tiers.

Upper tier

(region, county, or district) Responsible for:

Lower tier

Preparation, adoption, and revision of the official plan, and the process of dividing and developing land. (municipality) Responsible for:

Single tier

Preparation, adoption, and revision of the official plan and the adoption of zoning bylaws, interim control bylaws, and other bylaws. (district, county, region, township, city, or municipality) Responsible for:

Relationship between upper and lower tiers

Assumption of all municipal responsibilities where a municipality does not form part of an upper tier municipality. Where an upper tier municipality exists, its council will often coordinate planning between the respective lower tier municipalities, as well as address matters for which it may be directly responsible, including roads and water/sewer systems. In some instances, the upper-tier municipality may assume, by agreement, any of the planning responsibilities of the lower-tier municipality. Otherwise the lower-tier

©2019 Real Estate Council of Ontario

A salesperson’s role

municipality will handle land-use matters within its jurisdiction, such as location, type, and density of development. As a salesperson, you will advise sellers or buyers to contact local municipal staff to assess whether or not a contemplated change is possible and be directed to the appropriate approval authority. With greater familiarity of your trading area, you will gain an understanding of how the approval process works and the scope of any upper or lower tier authority. You will also become more familiar with the zoning bylaws and how likely it will be for an alteration to be approved.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 8 of 23

The following five sections contain information on a municipality’s responsibilities and spotlight some of the ways restrictions or provisions they enforce can impact on the listing and selling process.

Municipal responsibilities impacting the listing and selling process Municipal government responsibilities, such as those related to the 10 spheres of influence, can impact the listing and selling process in many ways. For instance, municipalities regulate the construction of fences, the removal and placement of soil and grading, and other aspects that can impact the listing and selling process. We will further discuss some municipal initiatives’ impact on real estate activities: • Restrictions relating to the placement of signs, notices, or advertising on property • Establishing provisions regarding flood control that affect properties in flood-prone areas • Requiring property owners to meet various standards in the control of noise, vibration, odour, dust, and outdoor illumination (e.g., operation of commercial enterprises and noise bylaws relating to residential uses)

©2019 Real Estate Council of Ontario

Spotlight on sign placement bylaws Most municipalities have a sign bylaw that regulates the size, message content, and location of signs on property. As a general rule, no signs can be placed on public lands without permission from the government body. Municipal bylaws differentiate between permanent signs (which require permits) and temporary signs (which do not require permits). Real estate signs are considered temporary signs; however, there are still municipal concerns, such as the location of the signs (usually in the front yard at a designated distance from the sidewalk) and they must be on the property itself (rather than on the road). If the property is a corner lot, the sign cannot be placed on the property’s corner, as this can obstruct traffic. Open house signs are also considered to be temporary and the municipality dictates when they can be put up and be taken down. Open house signs can be placed on public lands (such as at traffic intersections, sidewalks, and boulevards) without a permit. Rural property signs have additional considerations. Even though a sign is on private property, it may still obstruct traffic and require a permit if in close proximity to a provincial highway. A salesperson should contact the Ministry of Transportation (MTO) if a permit is required and to inquire about sign restrictions (such as setbacks and location).

©2019 Real Estate Council of Ontario

Spotlight on flood control provisions Most municipalities have taken steps to prevent flooding through infrastructure, such as dams and storm sewers. Areas that are still considered floodprone are designated by municipalities in accordance with the severity of their potential flooding. If there is extreme risk of property damage or danger to human life, municipalities can prohibit or limit land development on a site. As a result, some residential properties in flood plains have construction restrictions placed on them (e.g., restrictions on having furnaces in the basement, or basements may be disallowed altogether). A salesperson should ask sellers if their property is flood-prone. If it is, they should investigate the area’s history and discover any flood-related restrictions placed on the area’s properties. Often, a clause should be included in the offer to acknowledge that a buyer is aware of any flood risks.

©2019 Real Estate Council of Ontario

Spotlight on noise standards for property owners Most municipalities that are in close proximity of an airport or other source of noise pollution will restrict the hours of operation if the noise cannot be reasonably reduced or eliminated. In many cases, the municipality will place a “noise caution” on the title of affected properties so that anyone searching the title will be aware that noise in the area may exceed the municipality’s guidelines. A salesperson should inquire with a seller if there are potential sources of noise (from traffic, airports, railways, commercial activities, etc.), light encroachment (from a commercial plaza, etc.), or odours or vibrations related to industrial operations. Often, a clause should be included in the offer to acknowledge that a buyer is aware of any such disturbances.

©2019 Real Estate Council of Ontario

Municipal impact on salesperson activities: Noise example Example: A salesperson shows a property to a potential buyer family. While standing in the driveway, they say that they are in love with the house but are curious to know more about the area. Being familiar with the neighbourhood, the salesperson informs the buyers that they should be aware of some noise disturbances associated with overflying planes. As if on cue, a plane on final approach flies right over the house, the sound of which is quite disturbing! The family decides to look at other properties.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 9 of 23

As a salesperson, it is important to understand the Planning Act legislation sets rules for land-use planning and to recognize the authority of municipalities and planning boards in making planning decisions. A municipal authority’s decision to grant or deny a developer’s plan of subdivision is driven in part by its requirement to be guided by provincial interests. There are two options. There is only one correct answer. True

False

Lesson 4 | Page 10 of 23

As a salesperson, it is important to understand the Planning Act legislation sets rules for land-use planning and to recognize the authority of municipalities and planning boards in making planning decisions. Land use applications and related matters involving land owners are consistent throughout all municipalities in Ontario. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 11 of 23

As a salesperson, it is important to understand the Planning Act legislation sets rules for land-use planning and to recognize the authority of municipalities and planning boards in making planning decisions. In cases where an application for a subdivision approval is submitted, municipalities will always approve such to promote job creation and an increase in tax revenue. There are two options. There is only one correct answer. True

False

Lesson 4 | Page 12 of 23

As a salesperson, it is important to understand the Planning Act legislation sets rules for land-use planning and to recognize the authority of municipalities and planning boards in making planning decisions. Municipalities develop official plans to describe local policies that outline how land in a given community should be used. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 13 of 23

A salesperson is showing properties to a buyer in a newer residential subdivision. The buyer wants to find a home where he can live and run a small engine repair business out of the garage. The buyer would like to erect a sign on the front lawn advertising the business. Which of the given statements regarding the small engine repair business is correct? There are four options. There is only one correct answer. 1 2 3 4

The buyer can run the business if it is restricted to the garage and not the house The buyer can erect a sign on the front lawn if it does not exceed two square metres in size. The buyer must get approval from the local municipality to run a business out of the garage. The business would be considered a legal non-conforming use and the buyer would be permitted to run it.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 14 of 23

Subdivision Control and the Planning Act As you learned earlier, the subdivision and part lot control sections of the Planning Act prevent any transfer of a portion of land unless the owner has received permission. Certain requirements under the legislation will impact your activities as a salesperson. For example, a person is not allowed to convey (sell) land or lease it to someone for more than 21 years unless: • The person conveying does not retain ownership of any abutting land • The person conveying has received a consent to divide the land • The land is within a registered plan of subdivision (i.e., has gone through a subdivision approval process) In practicing due diligence, you will need to be able to explain the requirements under the Planning Act for title to be transferred. In some instances, a seller could approach a brokerage to list a property for sale, prior to the property being approved for a plan of subdivision or severance. A general understanding of the major steps in the approval process, the time involved to obtain approvals, and the impact of any delays to a seller or a buyer is required when involved in any land development trades. Let’s explore the approval process further.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 15 of 23

Consent for Severance Approval to divide one parcel of land into two or three parcels is typically done by way of a consent for severance. Standards concerning the number of lots to be created by severance can vary. Some municipalities may identify this in the official plan while in other areas, no policy exists. If the appropriate authorities in the jurisdiction are satisfied that a plan of subdivision of the land is not necessary for the proper and orderly development of the land, then a consent for severance can be used. The following seven sections contain information on the major steps involved in applying for consent to sever a property.

Step 1: Consult and Determine Authority

Contact the local municipality to determine which authority grants consents for severance. The approval can rest with one of a number of different governing bodies, such as upper, single, or lower tier municipalities.

©2019 Real Estate Council of Ontario

Step 2: Complete Application Step 3: Application Review Step 4: Decision Issued Step 5: Appeal Process (if applicable) Step 6: Issuing of Certificate A Salesperson’s Role in Severances

Complete the application form and include the required documentation, such as a sketch outlining the boundaries of the land and any abutting lands owned by the applicant. The Consent-granting authority reviews the application. Consent is evaluated based on a variety of factors. The application review is done in consultation with other agencies within a time frame of 20 days. A decision is made by the consent granting body to refuse, consent, or grant provisional consent (acceptance with conditions) within a time frame of 90 days. An appeal of the decision may be made to the Local Planning Appeal Tribunal. If there is no appeal and the conditions of provisional consent are satisfied, a certificate is issued, and lots can then be transferred. A salesperson is not normally involved in the severance process, but you should be able to discuss it in general terms with sellers and buyers. An agreement of purchase and sale is automatically conditional upon compliance with the Planning Act. As such, if the Planning Act is not complied with, the agreement is void as the property being sold is not lawful. This requirement however, does not need to prevent a seller and a buyer from entering into an agreement for the sale of a property not yet severed. The agreement can be made conditional on obtaining a consent prior to the transaction closing. Example: A salesperson represents a seller who would like to sever their two-acre property into two separate one-acre lot to list and sell immediately, but the seller is unsure of the process. The salesperson explains that the seller must go through the steps for severance. Alternately, he can list the two properties prior to following the steps, but any offer received must be conditional upon obtaining the consent for severance.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 16 of 23

Plan of Subdivision, I Land owners intending to divide land into more than two or three parcels will need to apply for approval of a plan of subdivision. Much of the same criteria for a consent to sever must be met, however due to the impact on existing services, roads, schools, hospitals, etc. that the new subdivision would place, the approval process is more complex and could require years before approval is received. The following four sections contain information on the major steps involved in applying for approval for a plan of subdivision. A plan of subdivision can be done in one or multiple phases.

©2019 Real Estate Council of Ontario

Step 1: Consult and Determine Authority

Consult with local municipality/planning department and determine approving authority.

Step 2: Prepare a Draft Plan Step 3: Complete Application

The land developer prepares a draft plan of subdivision.

Step 4: Approval Authority (Provide Notices and Hold Public Meetings)

The subdivision application form provided by the approval-granting authority needs to be filled out. An appeal is made to LPAT regarding the completion of the application. The approval-granting authority ensures notices of the application are sent to surrounding properties, and a public meeting may be held. Other agencies/bodies may also be consulted.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 17 of 23

Plan of Subdivision, II The following four sections contain about the subsequent steps involved in applying for approval for a plan of subdivision.

Step 5: Decision and Notice of Decision (Draft Plan Approval)

Following review, the approval authority will either approve the draft plan of subdivision with conditions or refuse it. Notice of the decision is sent to the applicant and those requesting notification. The time frame between preparation of a draft plan and the notice of the decision is 180 days.

Step 6: Appeal Decision (if applicable) Step 7: Final Approval and Registration A Salesperson’s Activities Related to Plans of Subdivision

Any qualifying person or public body wishing to appeal the decision, would contact the Local Planning Appeal Tribunal (LPAT).

After applicant fulfills all conditions, the final plan is approved. At this stage, the plan of subdivision can be registered in the appropriate land registry office and a salesperson may become involved. As a salesperson, there will be little direct involvement in the approval of a plan of subdivision; however, this is not always the case. An understanding of the procedures is required when discussing any land development with a seller or a buyer. Example: A developer purchases a large piece of land outside of the city and proceeds to have the land subdivided with the intention is to sell the lots in three phases to local builders. After the developer undertakes the formal steps in the subdivision approval process, the final plan of subdivision has been approved and registered. The developer approaches a salesperson who comes highly recommended because the salesperson and their brokerage have experience selling development lands and subdivisions. Since the plan of subdivision is now registered and the developer is

©2019 Real Estate Council of Ontario

impressed with the salesperson’s level of expertise, the developer hires the brokerage to proceed with the sale of the lots in phase 1 to the builders.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 18 of 23

Before ownership of land can be transferred, the status of the property must comply with the provisions of the Planning Act. A salesperson may encounter sellers who wish to divide their land into new lots, and the salesperson will have to demonstrate an understanding of applicable processes for land division. A land owner wishes to divide their current property into two adjoining properties. For this, the owner needs plan of subdivision. There are two options. There is only one correct answer. False

True

©2019 Real Estate Council of Ontario

Lesson 4 | Page 19 of 23

Before ownership of land can be transferred, the status of the property must comply with the provisions of the Planning Act. A salesperson may encounter sellers who wish to divide their land into new lots, and the salesperson will have to demonstrate an understanding of applicable processes for land division. A salesperson informs a land owner who wishes to divide their property into eight parcels, that circulation of public notices will be required in plan of subdivision application process. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 20 of 23

Before ownership of land can be transferred, the status of the property must comply with the provisions of the Planning Act. A salesperson may encounter sellers who wish to divide their land into new lots, and the salesperson will have to demonstrate an understanding of applicable processes for land division. A salesperson informs a developer that upon completion of draft plan, they can apply to the designated approval body. There are two options. There is only one correct answer. False

True

©2019 Real Estate Council of Ontario

Lesson 4 | Page 21 of 23

Before ownership of land can be transferred, the status of the property must comply with the provisions of the Planning Act. A salesperson may encounter sellers who wish to divide their land into new lots, and the salesperson will have to demonstrate an understanding of applicable processes for land division. In the case of a denied consent for severance, the salesperson tells a client that they can appeal to LPAT. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 22 of 23

Intensification Intensification is an alternative to land severance and subdivision. This solution to increasing housing demands involves expanding the use of existing land, buildings, and municipal services, rather than increasing housing through urban sprawl. Intensification often occurs through adding additional dwelling units in existing homes. Secondary suites, as explored, are a common form of intensification. However, mixed-use development and redevelopment of industrial lands are other common initiatives. Government policies in Ontario include intensification initiatives to develop high density downtown areas and to maximize current municipal services (such as public transportation and other infrastructure, including sewage and water capacity, to properly service more densely populated areas). Example: Running a small café downtown in a two-storey commercial building, up until now, Kevin has been using the upper floor of his building as a storage unit. Kevin is interested in increasing his revenue and contacts the municipality to inquire about mixed-use options in his current commercial space. Due to intensification initiatives, Kevin learns that he may be able to convert his upper floor into a residential unit for lease, provided certain criteria is met.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 23 of 23

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were discussed in this lesson.

The purpose of the Planning Act

The Planning Act sets the regulatory guidelines for land use planning in Ontario. The Planning Act is administered under the Ministry of Municipal Affairs and Housing. The Planning Act sets out specific provincial interests to guide municipalities when making planning decisions.

The municipal role in local planning

Under the Municipal Act and in keeping with the Planning Act, municipalities of Ontario play a key role in land use planning. Upper tiers are responsible for preparing, implementing, and revising the official plan as needed; and dividing and developing land. Lower tiers share the responsibility of upper tiers in preparing, implementing, and revising the official plan. Single tiers may assume all municipal responsibilities where a municipality does not form part of an upper tier municipality.

Selling land under the Planning Act

Your listing and selling transactions may be impacted by municipal land use restrictions. Before ownership of land can be transferred, the status of the property must comply with the subdivision control provisions of the Planning Act. By the time a salesperson is involved, this has most likely already happened. ©2019 Real Estate Council of Ontario

New trends in land use

To ensure a new property lot can be legally transferred, sellers must contact their Local Planning Appeal Tribunal. In some cases, a consent for severance suffices, while in others, a plan of subdivision may be required. In contacting the proper authority, your client can go through the appropriate approval process, and file for appeal, as needed. Intensification is an alternative to severances and subdivisions that addresses increasing housing demands. Intensification involves expanding the use of existing land and buildings, and using existing municipal services, rather than increasing housing through expanding urban spaces.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 1 of 19

Lesson 5: Official Plan and Zoning

This lesson reviews how a municipality’s official plan dictates zoning bylaws, how they affect sellers and buyers, and a salesperson’s obligations to a seller or a buyer during the real estate transaction.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 2 of 19

Official Plan and Zoning Now that you have reviewed the municipal role in land planning, you will focus on official plans and zoning, and how they can impact the development of land. As a salesperson, you may encounter buyers who want to change the present use of a property. This would require a review of the zoning bylaw to assess the likelihood this can be completed, as some changes may require an amendment or rezoning. Knowledge of official plan and zoning bylaws during a real estate transaction is fundamental to ensuring you provide conscientious and competent service, and meeting your obligation to refer sellers or buyers to the municipal authorities and other professionals, if they require expert advice. Upon completion of this lesson, you will be able to: • Outline the purpose of the Official Plan, including the approval and amendment process • Outline the purpose of a zoning bylaw • Identify typical zoning classifications • Describe the impact of zoning bylaws on property owners Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 3 of 19

Official Plan Overview As you learned earlier, an official plan is a document that is designed to provide a framework for future decisions on how land in a community should be used. An official plan: • Is approved by the Ministry of Municipal Affairs and Housing • Contains the goals, objectives, and policies concerning the management and direction of how land will be developed • Describes the measures and procedures used to attain these objectives and how to inform and involve the public in any amendments to the plan • Is based on growth projections for the community extending 10 to 15 years • Is reviewed every five years to ensure that the plan implements any changes to the Provincial Policy Statement or provincial plans, and to ensure the plan continues to address local priorities and changing needs

©2019 Real Estate Council of Ontario

Lesson 5 | Page 4 of 19

Approval and Amendment of an Official Plan Before formal recognition, an official plan requires approval. Many upper tier municipalities are the approval authority for lower tier official plans and amendments. In all other cases, the Minister of Municipal Affairs and Housing is the approval authority. To confirm who the approval authority is for any area, you should contact the municipal or planning board office. An official plan amendment documents any alterations to an existing official plan. The need for revisions may arise due to new circumstances that impact a given municipality. An official plan amendment will go through a process similar to that of creating the official plan—that is, the amended plan will be subject to community consultation and its adherence to the Provincial Policy Statement issued under the Planning Act. Knowing the process for changing land use will help you understand a buyer's potential questions about what they can do with a given property. You will want to direct an interested buyer to the appropriate municipal department for answers to their questions.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 5 of 19

Understanding the general purpose of an official plan is important when discussing property development with sellers and buyers. An official plan is reviewed and updated on an annual basis. There are two options. There is only one correct answer. False

True

Lesson 5 | Page 6 of 19

Understanding the general purpose of an official plan is important when discussing property development with sellers and buyers. Many lower tier municipalities will have their official plan approved by the upper tier municipality. There are two options. There is only one correct answer. False

True

©2019 Real Estate Council of Ontario

Lesson 5 | Page 7 of 19

Understanding the general purpose of an official plan is important when discussing property development with sellers and buyers. When considering an official plan, a five year review, or amendment, the local council or planning board must ensure that at least one public meeting is held, notice of which must be given at least 20 days ahead of time, usually through local newspapers or by mail. There are two options. There is only one correct answer. True

False

Lesson 5 | Page 8 of 19

Understanding the general purpose of an official plan is important when discussing property development with sellers and buyers. An official plan will identify not only the type and location of future development, but also the services that will be needed for development to take place. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 5 | Page 9 of 19

Zoning Bylaws As you learned earlier, while an official plan sets out the general policies for future land use, a zoning bylaw implements these plans and provides criteria for the day-to-day administration. Any construction or new development must comply with the zoning bylaw in order to be issued a building permit. In alignment with the Planning Act, zoning bylaws typically address: • The use to which the land may be put (e.g., residential) • Where buildings and other structures can be placed on the land • The type of building permitted, building height, and how that building may be used • Lot sizes, dimensions, and setbacks (minimum clearance) from the street or property line, and • Parking requirements A zoning bylaw identifies many standards for land use and future development. When purchasing a property, compliance with the zoning bylaw is part of the due diligence completed by the buyer’s lawyer. However, as a salesperson, if a buyer is proposing a new use or a change to the existing use, you will need to completely investigate the legalities of their proposal prior to a binding agreement. It is important to understand that each municipality will have their own set of zoning bylaws. You will need to be familiar with zoning bylaws in your trading area to provide conscientious and competent service to sellers and buyers.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 10 of 19

Zoning: Classifications Generally, zoning bylaws divide a municipality into six or more zoning classifications (general uses). These are then further defined into sub-classes along with an appropriate symbol. Classification systems vary throughout the province, but could generally consist of: • Residential • Commercial • Industrial • Institutional • Open space • Agricultural Each classification (e.g., Residential) is further divided into subclasses or zones along with appropriate symbols (e.g., R-1 – Detached single-family dwelling). Each subclass would provide specific guidelines for land use development within that designation.

©2019 Real Estate Council of Ontario

For illustration purposes, the given chart describes various residential zoning classifications and their related symbols/abbreviations, as they relate to one component of a bylaw (minimum clearance).

Zone Class

Zone Symbol

R

R1 R2 to R5

RS

RS1

RM

RM 1 RM2, RM3

RR

RR1 RR2

Minimum Clearance Detached single-family dwellings To accommodate varying urban densities in detached single-family developments Semi-detached single-family dwellings Multiple-unit residential buildings To accommodate varying urban densities in multiple-unit residential buildings Rural non-farm dwelling units within rural settlement areas Rural non-farm dwelling units outside of rural settlement areas

©2019 Real Estate Council of Ontario

Lesson 5 | Page 11 of 19

Zoning: Building Restrictions Zoning-related building restrictions either directly refer to the structure (e.g., minimum gross floor area, height of structure, type of structure based on use, and construction of accessory buildings) or indirectly limit it (e.g., various setback requirements dictating overall building size and shape). The specific location of a building on a lot is also regulated under the zoning bylaw. Zoning requirements typically achieve this by identifying restrictions relating to: • Setbacks from the front, rear, and side yards • Maximum lot coverage • Minimum landscaped open space • Parking requirements • Various requirements concerning additional buildings located on the same lot As a salesperson, you should make buyers aware that building restrictions may have a potential impact on their enjoyment of, or intended use for, a residential property. You should advise buyers to consult with the appropriate local zoning/building department if they have more questions about building restrictions.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 12 of 19

Zoning Bylaw: Contents To investigate the restrictions for the use and development of a property in a particular area, you can consult its zoning bylaw. A sample zoning bylaw identifying the regulations for a detached residential dwelling is:

©2019 Real Estate Council of Ontario

Lesson 5 | Page 13 of 19

Municipal zoning bylaws dictate how land can be used, and these bylaws must adhere to provisions in the Planning Act. You should understand zoning complexities to avoid misrepresenting the permitted uses of a parcel of land. Which of the given statements about various provisions in the Planning Act are correct? There are five options. There are multiple correct answers. 1 2 3

4

5

A building is taller than other buildings in the area. It exceeds height regulations. It comes under Holding Provision in the Planning Act. A sign is placed on a vacant lot, which indicates that it is to be used for a future purpose. This comes under increased density provision in the Planning Act. Several residents in a community have properties, which do not comply with a new bylaw regarding reduced setbacks. However, as their land’s use was lawful prior to adoption of the new bylaw, the current use is permitted. This comes under non-conforming provision. In an apartment building, one dwelling is occupied by two siblings, whereas another is occupied by two unrelated friends. This provision disallows for a bylaw to treat these cases differently based on the occupants’ relation to one another, or lack thereof. This comes under residential restriction in the Planning Act. Development of a residential lot has been halted. Locals learn that construction may resume after a period of one year. This comes under interim control provision in the Planning Act.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 14 of 19

Additional Zoning Bylaw Considerations As a salesperson, understanding how property owners and buyers may be impacted by various aspects of a zoning bylaw is important. A municipality’s zoning bylaw will identify the zoning designation for each property. That designation may or may not be the same designation as a property that abuts the land, or is nearby. Additional considerations related to a zoning bylaw, which a salesperson could become involved in, include: • Amending a zoning bylaw • Granting a minor variance from a zoning bylaw • Legal non-conforming uses and non-conforming uses You will always recommend that interested or impacted sellers or buyers contact their local planning department to determine which, if any, application is required for their specific situation. Let’s look at these three additional considerations more closely.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 15 of 19

Spotlight on Amending Zoning Bylaws, Minor Variances, and Conforming and Legal Non-Conforming Uses While you should always advise a seller or buyer who asks you about possible changes to a zoning bylaw to consult their local planning office, you will need to understand the differences between these additional considerations. The following three sections contain information on amending zoning bylaws, minor variances, and conforming and non-conforming uses with illustrative examples.

Amending Zoning Bylaws If a property owner wants to use or develop their property in a way that is not allowed by the zoning bylaw, a zoning change will be required. This change is known as an amendment and is reserved for major changes requested to a zoning bylaw. Many times, these changes will also affect surrounding properties. A change to the zoning can only be considered if the new use is allowed by the official plan. An amendment to the zoning bylaw may also be referred to as a rezoning. If a municipality has passed a new comprehensive zoning bylaw within the past two years, a rezoning may not be available. Before an application for a change to the zoning is made, the buyer should be advised to contact the municipal planning staff for advice and information. Example:

©2019 Real Estate Council of Ontario

A developer buys two adjacent properties that are currently being used as single-family homes and are zoned R2. The intent is to re-develop the lots by demolishing the homes and building a 10-storey apartment building. Because of the impact this proposal will have on the entire neighbourhood and the increase in density, re-zoning these two specific properties would be required.

Minor Variances If the proposed change is deemed to be minor, the municipal planning department may advise a property owner that they can apply for a minor variance. As its name implies, a minor variance applies to situations in which a proposed change is still in keeping with the overall intent of the official plan. Minimum setback requirements for the location of a building and parking requirements are common examples of minor variances. Minor variance applications are addressed by the Committee of Adjustment (or the Land Division Committee at the upper tier). The Planning Act gives much leeway to the Committee in deciding what can be considered a “minor” change, and applications tend to be approved on a case-by-case basis. Final approval by the municipal council is required in the form of a bylaw.

©2019 Real Estate Council of Ontario

Non-conforming and legal non-conforming uses A committee of adjustment also addresses applications related to non-conforming uses. A nonconforming use refers to a property use that does not comply with the requirements under the current zoning bylaw. Many times, a non-conforming use is the result of a change to the zoning designation for the property. In such instances, the committee may permit certain uses that were already in place prior to a conflicting bylaw’s enactment to continue. An existing use is referred to as a legal, non-conforming use. In cases where a property is a legal, non-conforming use, additional restrictions may apply. For example, there may be restrictions placed on making any changes to the property, such as an addition being constructed. In most instances, once the nonconforming use is changed, the property may not revert back to the non-conforming use in the future. Example: Romilda owns a family restaurant located in an area that is zoned for residential uses. Romilda’s restaurant has been located in this area since 1998. Although her use of a commercial purpose within a residential zoning does not comply with the current zoning bylaw, the use would be considered legal, non-conforming

©2019 Real Estate Council of Ontario

and is permitted to continue as it was legally in existence prior to the bylaw’s adoption in 2013. However, Romilda is considering extensive renovations to the storefront and extending the patio to accommodate more patrons. In such a case, Romilda will need to file an application with the committee of adjustment for approval of her changes as the property currently does not conform to the zoning bylaw.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 16 of 19

Knowing the parameters and governance of zoning bylaws can help you to provide clients with informed and competent service. Which of the given statements are accurate for zoning bylaws? There are four options. There are multiple correct answers. 1 2 3 4

Under the Planning Act, all zoning bylaws are identical for each municipality within the province. Zoning bylaws set out the permitted uses of a building, e.g., single-family residential, multi family, but do not place restrictions on the height of a building or its size. A zoning bylaw will also contain regulations on parking. A zoning bylaw is based on the official plan set out by the municipality.

Lesson 5 | Page 17 of 19

Municipalities in your future trading area may have different zoning considerations related to residential properties. Which of the given statements accurately describe zoning? There are three options. There is only one correct answer. 1 2 3

Individual types of residential structures (such as single-family dwellings and multi-unit residential structures) typically have a unique zoning symbol. A developer who must meet regulations on lot coverage is an example of a zoning-related building restriction. Residential zones are divided into zone classes. All zone classes are associated with a single zone symbol.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 18 of 19

A buyer wants to purchase a lot and build a new home. The buyer’s plans for the new home are not quite in compliance with the front yard setback from the street under the municipality’s zoning bylaw for the property. While the zoning bylaw stipulates a minimum setback of seven metres, the buyer’s plans show a setback of only six metres. Which of the given recommendations should a salesperson give to the buyer? There are four options. There is only one correct answer. 1 2 3 4

Advise the buyer to apply for a zoning bylaw amendment. Advise the buyer to inquire further with the local planning department to determine if his plans will require a minor variance. Advise the buyer that the one-foot variance would constitute a non-conforming use and that he should apply for legal non-conforming status in order to construct his home. Advise the buyer to make application to the Land Division Committee at the upper tier to approve the construction of his new home.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 19 of 19

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were discussed in this lesson.

Official Plan’s Purpose

Zoning Bylaws’ Purpose

Typical Zoning Classifications The Impact of Zoning Bylaws

The official plan’s purpose is to describe how land within a municipality should be used in adherence to the Planning Act. The plan projects current and future land use planning for the next 10-15 years. Revisions require community consulting and are reviewed every five years. Zoning bylaws are enacted by a municipality to dictate how property can be used. Zoning bylaws must support the official plan’s goals in defining and refining land use. Each municipality within the province will have their own set of zoning bylaws. Residential properties are divided into zoning sub-classes. Other considerations regarding existing zoning bylaws include: • A zoning bylaw amendment • A minor variance through the committee of adjustment • Impact of a legal non-conforming status

©2019 Real Estate Council of Ontario

Lesson 6 | Page 1 of 20

Lesson 6: Considerations for Heritage Properties

This lesson describes how a heritage property or district can be designated, a salesperson’s obligations related to such properties, and considerations for sellers and buyers when owning or renovating properties that carry a heritage designation

©2019 Real Estate Council of Ontario

Lesson 6 | Page 2 of 20

Considerations for Heritage Properties Municipalities are empowered to identify properties or districts as heritage properties if they have significant historical or cultural value to the community. Under the Ontario Heritage Act, these properties receive protection if listed on a municipality’s heritage register, and preserved by restricting changes that can be made to a designated heritage property. As a salesperson, you will need to understand why and how a property is listed or designated, how to customize your services for sellers and buyers, and meet your obligations in transactions involving a heritage property. Upon completion of this lesson, you will be able to: • Describe the purpose and process of heritage designation • Describe the impact of a heritage designation on the listing and selling of a property Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 3 of 20

Heritage Property Designation Overview Every municipality, city, town, and township has places that are an important part of their history. Under the Ontario Heritage Act, bylaws can be passed to formally place a heritage designation on properties deemed to have cultural heritage value. A wide variety of properties may be selected for heritage designation. They may be residential structures, but also commercial, industrial or public buildings, cemeteries or churches. Buildings are not required for designation, which means that vacant lots, cultural landscapes or landscape features, marine heritage and archaeological sites, ruins, or properties only considered to be areas of archaeological potential may also qualify as heritage properties. The Ontario Heritage Act defines processes that protect our past, even as municipalities plan for strong, and vibrant futures. Heritage designation publicly recognizes, promotes, and preserves places of cultural history, provides protection from demolition, and ensures that any alterations respect the property’s heritage value. As a salesperson, you will need to be familiar with this legislation so that you will be able to provide appropriate services during real estate transactions that involve individually designated properties, or those designated as part of a heritage conservation district. ©2019 Real Estate Council of Ontario

Lesson 6 | Page 4 of 20

Heritage Conservation District A defined area can be designated as a heritage conservation district after a proposal has been approved through the process outlined in the Ontario Heritage Act and the municipality passes a heritage designation bylaw. This allows a municipality to ensure future changes to the district follow the guidelines and policies to retain and protect the area’s historical character. These districts could include residential, commercial, industrial, rural landscapes and plots of land, small villages or hamlets, as well as chattels (like garden sculptures) and fixtures (like street lamps or murals). Examples of heritage districts in Ontario include: • The Galt Downtown Heritage Conservation District – now part of the City of Cambridge • Fort York in Toronto – more than 40 acres of original earthen fortifications, blockhouses, a cemetery, magazines, and garrison buildings • The former Village of Rockcliffe Park – now part of the City of Ottawa • Cabbagetown and North and South Rosedale in the City of Toronto – Ontario’s largest residential heritage districts with over 2,000 properties in total • Waverley Park – Thunder Bay • St. Mary’s Conservation District – City of Kitchener

©2019 Real Estate Council of Ontario

A municipality is required to adopt a district plan for every historical conservation district and consult their heritage committee (if one has been established) and the public. Under the Provincial Policy Statement of the Planning Act, there is additional protection for Heritage conservation districts that allows municipalities to place restrictions on lands adjacent to designated heritage properties. These lands can only be developed or altered if the heritage attributes of the designated property are conserved. As a salesperson, this requires due diligence not only for the property itself having a heritage designation, but properties that abut those within the Historical Conservation District. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 5 of 20

Heritage Property Designation Process Overview A heritage designation is intended to recognize the historical importance of a property and protect its cultural value by encouraging owners to maintain and conserve the cultural importance of the property. Municipalities play a key role in identifying properties that should be considered for the designation. The following three sections contain information on key aspects of designating an individual property under the Ontario Heritage Act. Before proceeding, click the KMS button and read the document "Designating Heritage Properties Tool Kit" in the "For More Information" section of the "Individual Heritage Property Designation Process" asset.

Identifying, researching, and evaluating a property The first step towards conserving and protecting heritage resources is to identify them. Typically, potential properties for a heritage designation are identified by a municipal heritage committee, should one be established for the municipality. The committee ensures all relevant information is considered when assessing a potential property. This requires research on the history of the property and its place in the community, along with a site analysis, before a property is recommended for a designation.

©2019 Real Estate Council of Ontario

Providing a notice to the owner If council determines a property meets the criteria to proceed with a designation, the owner and the Ontario Heritage Trust are notified, along with a notice in a newspaper that services the municipality. The Ontario Heritage Trust offers programs to aid in the restoration and to protect heritage properties. They are also involved in management of provincially held properties including buildings, natural heritage sites, registered archaeological sites, and the support of heritage conservation easement properties.

Passing and registering a heritage designation bylaw If there is any objection to the designation filed, council will refer the objection to the Conservation Review Board to conduct a hearing and make recommendations on whether the property should be designated. Council is not bound to follow these recommendations, but rather ensure they are considered in their final decision. When the decision is to proceed with the designation, a bylaw is passed and registered on the title of the property. The owner and the Ontario Heritage Trust are notified, as well as the decision published in the newspaper.

©2019 Real Estate Council of Ontario

Over time, there may need to be updates to the bylaw due to new information being discovered about the historical attributes, information needing to be corrected, or additional information required to aid in managing alterations to the property. There are rare instances where a designation bylaw may need to be repealed. If a building on a designated property has been relocated or demolished, council must repeal the designation bylaw in question to clarify the legal title of the affected property. Once a property is designated, then it must be listed on the municipal register of property that is of cultural heritage value or interest, as well as the provincial register of heritage properties.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 6 of 20

Municipal Register of Heritage Properties Now that you have reviewed the process to approve an individually designated property, you should know that the Ontario Heritage Act requires each municipality to maintain their own register of heritage properties, which lists designated heritage properties and heritage conservation districts and includes the details of the designation bylaw attached to heritage property’s deed. The municipal register lists all heritage properties declared designated by municipal bylaw on an individual basis or within a district. The property is also registered on the provincial register and is eligible to be listed on the Canadian Register of Historic Places. In addition to the two types of designated properties, a municipality may also include non-designated properties in their heritage register, referred to as a “listed property”, often because the property may later be put forward as a candidate for designation or because the municipal council or heritage committee wants to provide it limited protection from demolition. The register will show you if the property is: • Non-designated but listed in the municipal registry of heritage properties, or a • Designated heritage property, and/or • Part of a designated heritage conservation district

©2019 Real Estate Council of Ontario

Lesson 6 | Page 7 of 20

Now that you have learned that legislation requires each municipality to maintain a register for heritage properties and about the types of properties that may be listed there, you will explore more information related to restrictions, limitations such as special heritage property easements and restrictive covenants, and requirements and constraints in making alterations to a designated heritage property. As a salesperson, you will want to share any information you learn about the specifics related to restrictions, limitations, and making alterations for a heritage property with a buyer who has expressed interest in its purchase.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 8 of 20

Restrictions, Limitations, and Making Alterations A heritage designation bylaw will require that the owner preserve any specific heritage attributes that form part of the property’s description and support the approval of its designation (e.g., building materials of the period or architectural features of the property). They may also be required to repair any damages to the attribute by using original materials (especially if these have been noted as heritage attributes) and workmanship. These requirements can result in added costs and increased insurance premiums to any owner of the property because the designation bylaw runs with the land. If the owner of either type of designated property wishes to make alterations that could affect its heritage attributes, they must submit an application for a permit for the proposed work and obtain written consent from their municipal council before making any changes. This applies not only to alterations of buildings or structures but also to other aspects of a designated property, such as landscape features or natural features if they have been identified as heritage attributes to be preserved under the designation bylaw. Any plan that might result in the loss, ©2019 Real Estate Council of Ontario

damage, alteration, or removal of one or more designated heritage attributes on a property requires approval from municipal council before the work can begin. Municipal staff will work with property owners to ensure that changes to a heritage property respect its value. General maintenance work, such as repainting trim, repairs/replacement to an asphalt roof, or any alterations or repairs that are not part of the designation bylaw, do not usually require heritage approvals. Whenever a property has heritage restrictions, these will need to be disclosed to a buyer, along with a recommendation to obtain professional advice from a real estate lawyer to ensure they understand all the legal requirements related to the property. You may also inform them that they can apply for financial assistance through various government programs to help them comply with the property’s bylaw if they make changes to the property.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 9 of 20

Financial Support for Maintaining a Heritage Property and its Heritage Attributes Many municipalities have their own financial incentive programs to assist property owners with ongoing maintenance and conservation of their property or provide support in conjunction with the Heritage Property Tax Relief program. Grant and loan programs are also available from the provincial and federal levels of government to assist with individual projects. Some financial assistance programs will require that a heritage easement be registered on title defining the owner’s responsibilities to maintain their property in exchange for this financial support. Next, we’ll look at some different requirements around demolition and/or removal of structures property owners would need to be aware of, based on the three classifications of properties on the municipal register.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 10 of 20

Demolition of a Building or Structure The municipal council has the authority to prevent the demolition of a building or structure on any property listed on their heritage register, though the restrictions for demolition on designated properties are more extensive (a non-designated listed property receives limited interim protection and a listed property’s owner who wishes to demolish or remove a structure from the property must give the municipality at least 60-days’ notice and submit an application for a demolition permit). If a designated heritage property owner wishes to demolish or remove a building or structure, they are only permitted to do so by obtaining written consent from council. In many cases, an alternative to demolition might be agreed to with the owner and the municipal council. These could include: • Identify how the building or structure could contribute to the future use of the property, such as proposed development • Identify alternative uses for the building or the property • Potentially selling the heritage property to the municipality or a buyer who will conserve it • Expropriate the property Next, let’s look at how restrictions and expenses may affect the marketability of a heritage property.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 11 of 20

Impact on Value and Marketability of a Property A heritage designation may or may not impact either the value or the marketability of a property. There are many factors that impact value and some buyers may have preconceived opinions that the designation might be a negative factor, resulting in a lower value and longer marketing times. Others could argue that the value of a property with a heritage designation is increased due to the designation and the requirement to maintain and upgrade the property to certain standards. Owners of a heritage property may be more motivated to care for the property and ensure the historical significance is sustained. As a salesperson, your obligations would be to ensure a buyer is fully informed on any impact a heritage designation has on a property. Providing for the appropriate due diligence and reliance on third-party professionals should be part of any transaction. Next, we’ll examine considering regarding heritage designation when obtaining property insurance.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 12 of 20

Obtaining Insurance for Designated Heritage Properties As we indicated in the previous discussion on marketability and value, there are always many factors to consider, and the same is true when we consider variables that affect a property owner’s ability to acquire insurance and the cost of their premium. Arranging insurance on a home with a heritage designation should be no different than arranging insurance for any other property. There are many reasons why an insurer will increase premiums for older buildings, typically due to a higher level of risk being associated with the building’s age. The insurer will look at out-dated wiring, older heating systems, and the general condition of the property when placing insurance. Some insurance companies may choose not to provide insurance on buildings over a certain age. If a building on a heritage property is completely or partially destroyed, the designation bylaw does not require the owner to replicate any lost heritage attributes. The replacement building can be of a different design and constructed using different materials. If the owner wants the original features of the property to be replicated in case of damage, this should be discussed with the insurance company and a copy of the designation bylaw reviewed by the insurer. As a salesperson, you will need to ensure the buyer understands that a heritage designation itself should not cause insurance premiums to go up. Recommend a buyer speak with several different insurance brokers to obtain a quote ©2019 Real Estate Council of Ontario

and stay proactive when preparing an offer for the buyer by including a condition allowing the buyer time to investigate and obtain insurance. In addition, you may wish to recommend that a condition be added to an offer, allowing the buyer time to investigate the property and acquire insurance. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 13 of 20

Salesperson’s Obligations in Transactions Involving Heritage Properties A property owner is a key component in the conservation of heritage properties. Understanding the heritage attributes of the property helps identify how future alterations to the property will be impacted to ensure the property is protected and conserved. As a salesperson, it will be your obligation to be aware of the unique aspects of owning a property with a heritage designation to ensure all necessary disclosures and required information is made available to a seller and a buyer, so they can make informed decisions relating to the transaction. When preparing to list a property for sale, the seller will be able to share any documentation they have relating to the heritage designation and bylaw registered on the title. You will need to ensure that all required documentation is made available to any interested buyer. In instances where the property does not contain a heritage designation, confirm if the property is being considered for a designation as this information will need to be disclosed to a prospective buyer as well. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 14 of 20

Salesperson’s Obligations to Buyers in Transactions Involving Heritage Properties When working with a buyer, confirmation of whether the property is on the heritage register can be done by contacting the municipality. The register will also contain a statement explaining the cultural heritage value or interest of the property and a description of its historical attributes. Once it is determined that the property has a heritage designation, or is being considered as a designated heritage property, you must advise the buyer to obtain professional advice since it may impact their decision to place an offer. These professionals would include: • A real estate lawyer as the buyer may need more information regarding their property rights, obligations, and limitations • Municipal office officials related to zoning, building permits, and requirements to complete any alterations to the property • An appraiser to provide a valuation for mortgage lending purposes • A contractor to assess any renovation requirements • An insurance broker to provide information on obtaining insurance and the associated costs You will also want to make sure the buyer is aware they must give notice of the change of ownership to the municipality’s clerk within 30 days of taking possession.

©2019 Real Estate Council of Ontario

Failure to provide the proper disclosures or make the necessary enquiries regarding the heritage designation can have significant consequences, both in terms of civil liability to the seller or buyer, and under REBBA. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 15 of 20

A salesperson received a call from a potential buyer regarding a property that has been recently listed for sale. The buyer is very interested in the unique architecture of the building. After researching the property, the salesperson discovers that the property is listed as a heritage property. What details are accurate regarding heritage properties? There are four options. There are multiple correct answers. 1 2 3 4

All heritage property owners receive a set property tax discount depending on the property type from their municipality. A property that is not designated can appear on the municipal heritage register. A designated heritage property does not need to have a building on it to appear on a municipal register. If an owner wishes to demolish a heritage structure, 60 days’ notice must be provided to the designating authority.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 16 of 20

A salesperson is working with a couple who are interested in purchasing a property, which is going through the process of a heritage property designation. The salesperson gets in touch with the seller who tells her that the Notice of Intention to Designate was sent to their home and posted in the newspaper. The buyers are pretty sure they will buy the property whether it is designated or not, as long as they can use it to open a bedand-breakfast, converting the space as necessary. The buyers ask the salesperson to provide them with a sense of the next steps in the process and how it affects the potential purchase of the property. What should the salesperson explain to the buyers about how the designation process could impact their potential purchase of the property? There are four options. There is only one correct answer.

1

2

3 4

The salesperson should explain that in the Notice of Intention there is a description of heritage attributes for the property including any interior and exterior features of the property that might impact the decision of the municipal council or heritage committee. The salesperson should explain that the owner who receives the designation on title through municipal bylaw is the only one who is required to maintain the property in a manner that complies with any restrictions or limitations on changes to the property, so it will not affect the buyers. The salesperson should explain that if the property is designated, then it will have to be registered on the municipal heritage register, the Ontario Heritage Trust register, and the Canadian Register of Historic Places. The salesperson should explain that if there is only one feature of the property that is historically significant, it cannot be created as a designated heritage property by the passing of a municipal bylaw.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 17 of 20

A salesperson is meeting with a buyer, a recurring client, who loves to invest in property. The buyer has been informed that one of the properties, bought a year ago, has been identified as a candidate for designation as part of a heritage conservation district. The buyer’s mother-in-law lives on the property as a tenant and mentioned that a chatty neighbour said she was the one who sent information about the properties in their neighbourhood to the municipal heritage committee. The buyer is certain the neighbour was less interested in preserving the home for cultural heritage value and more intent on preventing the installation of a wheel chair lift planned to assist the mother-in-law. The neighbour previously suggested it would be unsightly and potentially damage the value of not only the property being altered but her own as well. The buyer asks the salesperson if they’re aware of anything about the HCD designation and if there’s any way it can be stopped. Based on the situation, what should the salesperson tell the buyer about Heritage Conservation districts? There are four options. There are multiple correct answers.

1 2 3

The salesperson should tell the buyer that if a notice of intention to pass an HCD bylaw has not been received, the research into the designation is probably in early stages and that the buyer may want to attend a public consultation meeting when it is announced. The salesperson should tell the buyer that the next-door neighbour had no right to identify the property for individual property heritage designation. The salesperson should tell the buyer that a property can’t be included on the municipal heritage register as both an individually designated heritage property and as part of a heritage conservation district.

©2019 Real Estate Council of Ontario

4

The salesperson should tell the buyer that there is an appeal process if the property does become designated as part of the HCD and the buyer might be able to convince the municipality to exclude the property.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 18 of 20

Understanding the process, restrictions, and other considerations surrounding heritage properties is the key to acting in a buyer’s best interest. Even when a buyer has indicated no concern about any restrictions or limitations on a property, a salesperson may provide more information to ensure clarity about what restrictions, limitations, and insurance concerns might mean if the buyer purchases the property. What information should a salesperson provide to a buyer regarding heritage property restrictions, limitations, and insurance? There are four options. There are multiple correct answers. 1 2 3 4

All changes to a heritage property require heritage approvals. Advise the buyer to discuss heritage restrictions with a lawyer. The materials used to make heritage attributes (e.g., stained-glass windows, a turret) could also be part of the heritage designation and may require an owner to find a contractor who can source original materials for repairs, which can be expensive. The salesperson can help determine the replacement cost to repair or rebuild a property so that the buyer will have an idea of how much the property insurance will cost.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 19 of 20

A salesperson is showing another brokerage’s listing, which is part of a Heritage Conservation District and has an individual designation on title. A famous architect had originally built it for his daughter and had imported a beautiful stained-glass window and a hand-carved fireplace mantle. The buyer likes the property and is considering making an offer. Since the house is old, the buyer has mentioned that the probability of updating the furnace and having new windows installed for energy conservation. The salesperson wants to ensure that they are fulfilling their obligation to provide all of the information about the property before having the buyer make an offer. What the salesperson must do to fulfill their obligations to the buyer? There are three options. There are multiple correct answers.

1

2

3

The salesperson should caution the buyer that a restriction may apply to replacing the stained-glass window if it falls under the individual designation for the property. The buyer should be advised to consult with a third-party professional. The salesperson must fulfill their obligations by checking the municipal register for the property’s status, reviewing the individual designation on title, following up with the listing salesperson, doing additional research, discovering and disclosing all material facts, and referring the buyer to a selection of qualified third-party professionals. As part of the salesperson’s obligations, the salesperson must check with the neighbouring properties in the Heritage Conservation District to determine how much they are paying for insurance.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 20 of 20

Congratulations, you have completed the lesson! There are five sections on this page with a summary of the key topics that were discussed in this lesson.

Why is a property given heritage designation?

What kinds of properties can be included on a Municipal Heritage Register?

The Ontario Heritage Act (OHA) grants the province and its municipalities the power to identify and preserve properties that have cultural heritage value because communities are not built solely through new developments but with an understanding of their history. There is a designation process the property must go through that identifies heritage attributes (i.e., features) that the municipality deem to be of cultural heritage values and wants to protect. Properties that qualify for heritage designation include individual buildings or structures, groups of buildings, vacant lots or other properties that may be considered areas of historical or archaeological potential. There are three classifications for properties that can be included on a municipal register: • Listed (or non-designated) property: not yet designated but included by the municipality if they may: a) want to designate the property in future b) want to protect the property from demolition because it may have cultural value • Designated properties approved as individual heritage properties through the designation process • Designated properties that are part of an approved Heritage conservation district

©2019 Real Estate Council of Ontario

Making alterations

Restrictions and limitations

Salesperson’s obligations regarding heritage properties

The owner must submit a permit application for any proposed work and obtain written consent from the municipal council before making any changes that could impact the heritage attributes of the property. Any plan that might result in the loss, damage, alteration, or removal of one or more designated heritage attributes on a property requires approval from municipal council before work can begin. Not all changes to a heritage property require heritage approvals. A heritage conservation district bylaw should include a list of minor changes that can be made to properties within its boundaries without a permit, and an individual property’s designation bylaw may clarify that interior changes can be made if there are no interior heritage attributes. There may be restrictions and limitations in the ownership of a heritage property that you will need to be aware of and disclose during the selling and buying process. • A designated property may carry an easement or restrictive covenant on title. • Easements and restrictive covenants are usually entered into by the owner with the Ontario Heritage Trust or their municipality in exchange for tax breaks or other financial support. It is also possible for a property to be expropriated by the municipality because of its heritage value, but this is rare. You will need to understand the process and the significance of heritage designation properties so that you will be able to: • Research heritage properties • Make required disclosures, including any material facts • Act in the client’s best interests • Know when to advise services from others You will need to do more to promote the best interests of buyer clients in the selling and listing process.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 1 of 13

Lesson 7: Summary Practice Activities

This lesson provides a series of activities that will test your knowledge on the entire module.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 2 of 13

Summary Practice Activities This lesson provides summary practice activities. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 3 of 13

You will be representing a seller client. The seller’s home shares a party wall with another home above grade. The dwelling attached to the seller’s is almost a mirror image of the home being listed for sale. The top floor of the seller’s home features slanted ceilings. There are two floors in the home. In the listing of the seller’s property, which of the given information would be included? There are four options. There is only one correct answer. 1 2 3 4

The home is an attached townhouse structure. It is a two-storey. The home is a linked structure. It is a one-and-one-half storey. The home is a semi-detached structure. It is a one-and-one-half storey. The home is a semi-detached structure. It is a two-storey.

Lesson 7 | Page 4 of 13

The concurrent owners are told by their lawyer that upon one’s passing, the title in their two-storey home will automatically revert to the surviving owner. This is a case of tenants in common. There are two options. There is only one correct answer. False

True

©2019 Real Estate Council of Ontario

Lesson 7 | Page 5 of 13

Residents of a condominium share ownership and operational upkeep of shared amenities, such as the main foyer, pool, and tennis court. This is a case of joint tenancy. There are two options. There is only one correct answer. True

False

Lesson 7 | Page 6 of 13

A co-owner holds 25% interest in a given property, shared jointly with two other owners. This is a case of tenants in common. There are two options. There is only one correct answer. False

True

©2019 Real Estate Council of Ontario

Lesson 7 | Page 7 of 13

A buyer buys a home on July 31st. On August 31st, another individual buys a 50% interest in the buyer’s home. This is a case of tenants in common. There are two options. There is only one correct answer. False

True Lesson 7 | Page 8 of 13

A salesperson has found vacant land for a developer who wants to sever it to create two building lots. Which of the given statements is correct as it relates to severing the property? There are three options. There is only one correct answer. 1 2

3

Given the effect the two proposed houses would have on the services supplied by the municipality, the developer will likely require a plan of subdivision to sever the lot. Provided that the two new lots are each large enough to satisfy the minimum lot size requirements of the zoning bylaw, there is no need to apply for a severance. The buyer can purchase the property and build a house on each of the lots. The developer would apply to the Committee of Adjustment for a consent to sever. If there was no Committee of Adjustment at the lower tier, the developer would apply to an upper tier Land Division Committee.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 9 of 13

A homeowner wishes to construct a deck on the side of his house which will extend to within 4 feet of his neighbour’s property. The zoning bylaw for side yard setbacks prohibits any structure being built within 6 feet of the lot line. In order for the homeowner to build the deck, what must be done? There are three options. There is only one correct answer. 1 2 3

The homeowner will need to request a bylaw amendment if he wishes to construct a deck that does not comply with current zoning bylaws. Provided that the neighbour doesn’t object, the homeowner can legally construct his proposed deck. This would be considered a minor variance and the homeowner would need to apply to the Committee of Adjustment for approval to build his deck.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 10 of 13

A buyer is a history enthusiast who wants to buy a property listed on the municipal heritage register. The buyer is interested in the town’s first schoolhouse, which was later converted into a single-family home. The interior of the home was updated at that time, but the structure retained its iconic old school bell tower, and this is the chief heritage attribute on the property, designated in 2004. The buyer noticed a few rickety hand railings in the home’s interior when he went through the property during the open house held by the listing salesperson. The listing salesperson knows about the building’s history, which includes it being half burnt down and rebuilt in the 1950s. The seller also mentions that the property insurance is more than what he paid at his previous home, even though all the old wiring was updated after the fire. It is advisable that the salesperson should inform the buyer of any previous damage to the property, for insurance purposes, to fulfill their obligations to the buyer. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 7 | Page 11 of 13

A buyer is a history enthusiast who wants to buy a property listed on the municipal heritage register. The buyer is interested in the town’s first schoolhouse, which was later converted into a single-family home. The interior of the home was updated at that time, but the structure retained its iconic old school bell tower, and this is the chief heritage attribute on the property, designated in 2004. The buyer noticed a few rickety hand railings in the home’s interior when he went through the property during the open house held by the listing salesperson. The listing salesperson knows about the building’s history, which includes it being half burnt down and rebuilt in the 1950s. The seller also mentions that the property insurance is more than what he paid at his previous home, even though all the old wiring was updated after the fire. There is no need for the salesperson to verify the information in order to fulfill obligations to the buyer as the buyer will have the opportunity to consult with his lawyer after an offer has been made. There are two options. There is only one correct answer.

True

False

©2019 Real Estate Council of Ontario

Lesson 7 | Page 12 of 13

A buyer is a history enthusiast who wants to buy a property listed on the municipal heritage register. The buyer is interested in the town’s first schoolhouse, which was later converted into a single-family home. The interior of the home was updated at that time, but the structure retained its iconic old school bell tower, and this is the chief heritage attribute on the property, designated in 2004. The buyer noticed a few rickety hand railings in the home’s interior when he went through the property during the open house held by the listing salesperson. The listing salesperson knows about the building’s history, which includes it being half burnt down and rebuilt in the 1950s. The seller also mentions that the property insurance is more than what he paid at his previous home, even though all the old wiring was updated after the fire. It would be advisable that the salesperson should request that the seller provide any documentation related to the property’s designation and repairs to the building that they, or any previous owners, made for insurance purposes to fulfill their obligations to the buyer. There are two options. There is only one correct answer.

True

False

©2019 Real Estate Council of Ontario

Lesson 7 | Page 13 of 13

Congratulations, you have completed this module!

©2019 Real Estate Council of Ontario

Module Summary| Page 1 of 4

Module Summary

This lesson contains a summary of the entire module and a list of helpful resources available in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary| Page 2 of 4

Congratulations, you have completed this module! This lesson will present a summary of Learning Objectives and a list of helpful resources that you can search for in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary| Page 3 of 4

There are six sections on this page with a summary of the key topics that were discussed in this module.

Types of residential properties

An understanding of residential property structure types and styles will be instrumental when providing services to sellers and buyers. You will need to be able to recognize the characteristics and differences between structure types, such as: • Detached • Attached • Semi-detached • Linked structures and whether they are single-family or multi-unit dwelling structures. You will also need to be conversant with a range of styles including: one-level, detached bungalows, and multi-unit fourplexes. Shared party walls and lot ownership may be important aspects of consideration for a buyer’s criteria to purchase a property. In addition to factoring in a buyer’s needs and wants, you should always keep in mind affordability and cost-effective options, depending on their budget.

Fundamentals of ownership

Completion of this lesson has enabled you to: • Differentiate between detached and attached residential structures • Describe the different types and styles of single-family residential structures • Describe the different types and styles of multi-unit residential structures Properties that are the subject of a leasehold estate offer fewer rights to the tenant than those enjoyed by the owner of the property in fee simple. Limitations attached to a title can impact the listing and selling process. You should verify what is registered on title for the property and reference other source documents to avoid failed transactions and legal liability. Cases of concurrent ownership are common. If the four unities (PITT) are met, owners can become joint tenants. Joint tenancy is distinguished by the right of survivorship. ©2019 Real Estate Council of Ontario

Completion of this lesson has enabled you to: • Define fee simple and leasehold interests • Define concurrent ownership • Describe the difference between joint tenancy and tenants in common

Ownership alternatives

Ownership alternatives include: • Condominiums • Equity co-operatives • Co-ownership • Life lease complexes • Land lease communities Regarding any form of the ownership variations, you should always refer sellers and buyers to a lawyer if asked to advise on legal matters.

Municipal role in landuse planning

Completion of this lesson has enabled you to: • Describe the characteristics of a condominium, equity co-operative, and coownership • Describe the differences between a condominium, equity co-operative, and coownership • Describe the characteristics of a life lease complex and a land lease community • Describe the differences between a life lease complex and a land lease community The Planning Act sets the regulatory guidelines for Ontario land use. Under the Planning Act, municipalities in lower and upper tiers (or in single-tier municipality if there is no two-tier municipal system in place) hold responsibility for local planning. Your real estate activities may be affected by land use restrictions related to a municipality’s responsibilities outlined in this legislation. The status of a given property must comply with the subdivision control provisions described in the Planning Act. Your client’s title in a property cannot legally transfer in cases of new lot creation without a severance or subdivision approval. ©2019 Real Estate Council of Ontario

Intensification and creatively planned residential properties can address increasing housing demands. Completion of this lesson has enabled you to:

Official plan and zoning

• Outline the purpose of the Planning Act • Describe the role of a municipality in local planning decisions and areas of responsibility • Describe the requirements for the sale of land under the Planning Act • Identify new trends in land use With community input and approval from the MMAH, a municipality’s official plan outlines local land uses for the next 10 to 15 years. Zoning bylaws execute the requirements of the official plan. A typical zoning bylaw can be referenced for guidelines regarding regulations and requirements for residential areas. If a property does not comply with the current zoning bylaw, an owner can apply for a zoning amendment, legal non-conforming status, or a minor variance, as appropriate. It is important to be aware of and inform clients of any non-conforming or legal non-conforming land uses that can impact the listing and selling process. Completion of this lesson has enabled you to: • Outline the purpose of the Official Plan, including the approval and amendment process • Outline the purpose of a zoning bylaw • Identify typical zoning classifications • Describe the impact of zoning bylaws on property owners

Considerations for heritage properties

The process to designate a heritage property or cultural district is outlined and encouraged through provisions in the Ontario Heritage Act (OHA). Designation is carried out through municipal bylaws that are attached on title. Heritage properties

©2019 Real Estate Council of Ontario

represent a niche market that appeals to clients who appreciate their historical or cultural value. The listing and selling process for such properties will require the salesperson to do additional research to discover all material facts to act in the client’s best interest. It is important to communicate to buyers that any restrictions or limitations attached to heritage bound to title in use or alteration of the property through designation are communicated – either by doing research that is documented and shared with your buyer; or, if working with a seller, ensuring they have made all the necessary disclosures regarding the property in terms of making alterations. Further, you should outline unique considerations, such as obtaining insurance and special costs associated with potential renovations. Completion of this lesson has enabled you to: • Describe the purpose and process of heritage designation • Describe the impact of a heritage designation on the listing and selling of a property

©2019 Real Estate Council of Ontario

Module Summary| Page 4 of 4

MODULE RESOURCES There are five helpful resources related to this module that you can search for in the Knowledge Management System. 1) Comparing Condominium, Equity Co-operative, and Co-ownership: This table compares condominiums, equity co-operatives, and co-ownerships. A salesperson can use this job aid to help buyers understand key aspects of these types of ownership rights. 2) Heritage Conservation District Designation Process: This list describes the process for designating a heritage conservation district. A salesperson can use this list as a reference to understand and explain the heritage conservation district designation process to interested or impacted sellers and buyers. 3) Individual Heritage Property Designation Process: This list describes the process for designating a heritage property. A salesperson can use this list as a reference to understand and explain the individual heritage designation process to interested or impacted sellers and buyers. 4) Insurance for Properties: This checklist contains tips related to keeping home insurance premiums down for prospective buyers. A salesperson can use this job aid to inform buyers of items that may impact insurance

©2019 Real Estate Council of Ontario

premiums upon purchase. Disclaimer: A salesperson should provide this information at a high-level only and refer buyers to a third-party professional for advice. 5) A Salesperson’s Heritage Property Checklist: This checklist includes considerations a salesperson may reference when involved in the listing or selling process for heritage properties. A salesperson should keep in mind that some items may not apply depending on the property and whether they are working with a seller or a buyer. A salesperson can use this job aid when working with a seller who is selling a heritage property, or a buyer who is purchasing a heritage property. While navigating through the online module, click the KMS button for tools and information on this topic.

©2019 Real Estate Council of Ontario

V7

Module 4: Factors Impacting Residential Real Estate Negotiations Disclaimer: This is a reference document which contains pages from the Accessible eLearning module. You should complete the eLearning module to proceed to the next step. Please note that the accessible module on the LMS only contains the interactive pages and you need to go through the content of this document thoroughly to attempt the interactive activities in the module. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Salesperson Program ©2019 Real Estate Council of Ontario. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or in any means – by electronic, mechanical, photocopying, recording or otherwise without prior written permission, except for the personal use of the Real Estate Salesperson Program learner.

©2019 Real Estate Council of Ontario

Module 4: Factors Impacting Residential Real Estate Negotiations As a salesperson, you will have to accurately assess the needs of sellers and buyers to match your services to their requirements. In this module, you will learn about your obligations relating to the disclosure of material facts and how your obligations differ based on a client or customer relationship. You will review information on how to identify a patent defect and a latent defect, and which should be disclosed. You will also learn to identify how different market conditions can require various negotiation skills and strategies. This module gives focus to understanding: • • • • •

How to identify requirements and best interests of a seller client How to identify material facts for a seller How to identify requirements and best interests of a buyer client How to identify material facts for a buyer How to identify strategies for sellers and buyers under different market conditions

In this module, you will have opportunities to review different examples that demonstrate how these topics are integrated as factors that affect real estate negotiations. This module also describes your duties and obligations during the listing and selling process.

©2019 Real Estate Council of Ontario

To check your understanding of this module, you must complete all the activities in the online module. While navigating through the online module, click the Legislation button to view laws and regulations related to this module. While navigating through the online module, click the KMS button to access the Knowledge Management System or visit the Module Resources to find the list of all the KMS assets for this module. The contents of the thumbnail icon and References from the module are added to support your learning throughout this Accessible PDF.

©2019 Real Estate Council of Ontario

Menu: Factors Impacting Residential Real Estate Negotiations Number of Lessons Lesson Number Lesson 1 Lesson 2 Lesson 3 Lesson 4

5 Lessons Lesson Name Needs, Material Facts, and Best Interests of a Seller Needs, Material Facts, and Best Interests of a Buyer Impact of Market Conditions on Negotiation Strategies Summary Practice Activities Module Summary

©2019 Real Estate Council of Ontario

Lesson 1 | Page 1 of 32

Lesson 1: Needs, Material Facts, and Best Interests of a Seller

This lesson describes the importance of assessing a seller’s needs during the listing and selling process. It also outlines how the salesperson can leverage tools like demographics and technology to meet those needs when providing services. It also describes a salesperson’s obligations regarding material facts, distinguishing between those owed to customers and those to clients, as well as the legal obligation to act in the client’s best interest. This unit introduces two types of defects and the seller’s legal obligations related to disclosing known latent defects.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 2 of 32

To build your career in real estate, you will need to get to know your sellers and understand the different levels of obligations you will owe to them. In this lesson, you will explore how to identify a seller’s requirements when listing their property for sale, review your obligations relating to material facts, to deal fairly and honestly with all parties, and to promote and protect the best interests of a seller client. You will need to make every effort to acquire complete and accurate information regarding the property to be listed, and depending on the relationship established, be ready to provide support and advice that is relevant to the seller’s needs. In all situations, you will need to ensure you fulfill all your obligations under the Code of Ethics. Leading practices include documenting all decisions and directions provided by a seller during the course of the trade. Upon completion of this lesson, you will be able to: • Recognize the importance of assessing a seller’s needs • Describe the regulatory requirements of a salesperson regarding material facts for a seller • Describe the regulatory requirements of a salesperson regarding the promotion and protection of the seller client’s best interests • Identify a seller's legal obligation for disclosure of known latent defects Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 3 of 32

Residential transactions involve extensive work with clients and customers, and their potentially evolving needs and wants. A typical seller may be listing their family home because of changes in employment, to their finances, or within the family. You will need to keep in mind that selling a home can be an emotional time for sellers as they have likely created many memories there. As a salesperson, you will need to show sensitivity and understanding when first meeting with the seller and asking questions about their reasons to list the property. Spending time with the seller is one of the best ways to understand and assess their needs.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 4 of 32

Understanding Seller Needs: Asking Appropriate Questions Asking a seller the right questions at the right time will help you to understand their needs and motivations, and to obtain accurate and complete information on the property. If you do not ask questions to identify their requirements and document the answers, you could misunderstand what is important to the seller, waste their time, and frustrate them. Typically, a salesperson asks questions like this while visiting a seller at their property. It is most effective when the questions flow naturally into the conversation. You will need to listen to what the seller is telling you and recognize opportunities to follow up with additional questions. Be sure that you are equipped to take notes that you can refer to after the meeting is over. Keeping detailed notes throughout the transaction will help you track the seller’s needs and avoid adding inaccurate or incomplete information in listing and advertising materials.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 5 of 32

Understanding Seller Needs: Sample Questions When you begin working at a brokerage, it is likely that they will provide you with a custom list of questions as part of their in-house training. Some questions a salesperson may ask are designed to explore a seller’s needs and motivations. The given questions are not a comprehensive list of possible questions, your questions may vary. You may also choose to create your own questionnaire by customizing questions. • • • • • • • • • • •

Why do you want to sell the property? What are your plans once you sell? When do you hope to have the home on the market? What is your ideal closing date? Do you have a list price in mind for the property for sale? Is there a minimum selling price or net amount you are expecting in the sale of the property? Is there a definite time period in which the property must be sold, and the transaction closed? Have you already purchased another property? What improvements have you made to the property? When were the improvements made? How long have you owned the property? Are there any current issues with the property? Who will be making decisions on the sale of this property?

While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 6 of 32

Demographics and the Seller Demographics is the study of statistical information about a particular population using measurable data, such as average age, income, educational background, ethnic origin, and language. It can be a useful tool in helping to analyze a seller’s needs and motivations. Some sources of demographical information that a salesperson may access include: real estate boards, subscription-based databases (e.g., Geowarehouse®), and Canada Mortgage and Housing Corporation (CMHC). Combining demographics with current knowledge of local news and events affecting the housing market in the neighbourhoods of your trading area can help you create marketing and advertising strategies that show the value of your services by attracting likely buyers to your seller’s property.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 7 of 32

Evolution of the Neighbourhood The value of doing research (including reviews of demographical data and keeping up-to-date with current events in the neighbourhoods of your trading area) cannot be overstated. You will want to ensure you are aware of economic, political, and cultural trends that can influence the decision to sell and buy property in your area. As a salesperson, you should be aware of businesses that are opening and closing, legislation or disbursement of funds to support housing development, or a new wave of immigrants moving into the area. For example, if a large company opens a new office in your area, it could mean existing employees will be moving there as well. This could mean a major influx of buyers. Similarly, if the company employees fit a specific demographic, you may find demand for certain types of properties is higher than for others. This may influence the community’s development and culture. The reverse may also be true; if a well-established business in the area goes out of business or decides to move offices elsewhere, the loss of jobs may mean that there is more inventory in the area than usual. This could

©2019 Real Estate Council of Ontario

create challenges in selling a property or attracting prospective buyers who will offer a price that the seller feels will reflect fair-market value. You will need to be aware of how changes in the community can change the market. Then you can inform your sellers about possible outcomes and plan to address such trends in your recommendations for marketing and negotiation strategies. Being knowledgeable and prepared will demonstrate your expertise and value to the seller. Developing sound foundational knowledge and remaining current will not only put you in the best position to provide quality service to sellers (by increasing the likelihood of attracting the right buyer to their property), it will also provide you with the opportunity to promote your reputation and grow your personal professional brand, and reflect well on your brokerage.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 8 of 32

Community Development As a salesperson, you will also want to be aware of the Official Plan in your trading area since government longrange planning must be in place to ensure that adequate serviced land is available for development. You should also be familiar with any future plans by local development groups that can affect selling and buying property trends. Development of a new school, church, or other amenity can influence or alter a community because of the buyers they attract, as can the influx of new residents that could be attracted to a neighbourhood by a major development, such as a new subdivision. Tracking progress of new housing developments and when they will be available to the market may help you to better counsel an individual seller on when they should put their property up for sale. For example, a development with 100 new homes could create unplanned-for competition in the market for a seller if they become available at the same time; conversely, a major development of this kind could spark interest in the area, bringing more buyers ©2019 Real Estate Council of Ontario

to the community who may not have considered it before, and may prefer, in the end, to buy a resale property from one of your sellers. A delay in a planned development could also put an individual seller with a property on the market at an advantage if a buyer who has been waiting for units to be released decides they do not want to wait. Housing developers do research in their project planning stages so that when they commit to a project, it has every chance of being successful. They may consider demographics in an effort to ensure they will reach the right buyers. The type of the development can also give an indication of the demographic that they are trying to attract. If they are building high-rise condominiums for example, they are likely targeting the first-time buyer market; if they are developing bungalows, they may have planned to sell homes to those looking to retire or downsize. You will want to share your research with sellers, to help inform their decisions during the listing and selling process, reminding them that though demographics and trends are good indicators, they should not be considered definitive.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 9 of 32

Demographics and the Seller: Spotlight on Downsizing Statistics that illustrate the weighting of different age groups or income levels within an area can signal changes in community lifecycle. For example, many neighbourhoods are experiencing an emerging trend toward downsizing. For example, if statistics indicate: • An increase in the proportion of seniors • An increase in the proportion of people in the later stages of their careers • A decrease in average income levels

©2019 Real Estate Council of Ontario

If a salesperson considers this data, they can anticipate that many of these people may be ready to sell their existing homes to downsize to a smaller home. Their motivations for downsizing could include: • Reducing monthly expenses and carrying costs as their income has decreased from pre-retirement levels • Reducing their monthly expenses to fund different lifestyle choices, such as extensive travel • Reducing the amount of maintenance and upkeep required at their property or shifting the responsibility to someone else • Addressing mobility issues by finding a home with ramps, elevators, or fewer stairs Researching demographic information applicable to local trends and your seller’s situation will help you gain a deeper understanding of the composition of the neighbourhood to identify prospective buyers. You will also be better equipped to create appropriate listing and marketing materials, and provide support and referrals to relevant third-party services.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 10 of 32

Understanding Seller Communication Preferences With the shift toward new communication technologies, people across all demographics are using email and texting more than ever. As a society, we are leaving behind traditional mail and telephone services. Though some people are still more comfortable using a fax machine, others are not quite sure what a fax machine is or how it would be used. The preferred method(s) of interaction between a salesperson and sellers will vary. Some sellers may prefer telephone or in-person contact, while others may prefer to rely on email or text. Sellers with limited English skills may need family members, friends, or translation services to facilitate a transaction. Those who have limited experience with newer technologies may still wish to use them and may require additional support (e.g., when providing electronic signatures). In fact, as you learned previously, every aspect of the real estate transaction can now be completed electronically, but it is not mandatory to do so. Both parties must agree to using electronic signatures during the offer process and for communications regarding the offer. As a salesperson, you will need to ask sellers for their preferences when creating a communication strategy, and you will have to respect those preferences. You will also need to comply with privacy requirements and other legislation for use of their contact information.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 11 of 32

A salesperson meets with a young couple who want to list their home. Their property has two bedrooms and one bathroom on the second floor, and an open concept kitchen, a living room, a dining room, and a family room on the main floor. The salesperson notices the family room seems to be an addition to the original floor plan. When the salesperson asks why the couple wants to sell, they mention that they need a bigger house as they just found out they are expecting their third child. However, they can’t afford larger mortgage payments as they’re already finding it difficult to make ends meet. Which of the given questions are appropriate for the salesperson to build into discussion with the couple to understand their needs and motivations? There are four options. There are multiple correct answers. 1 2 3 4

Do you have a list price in mind? What do you think has caused your financial challenges? When do you think you’ll be ready to put your home on the market? Are there any current problems with the property?

©2019 Real Estate Council of Ontario

Lesson 1 | Page 12 of 32

Material Facts and the Seller The answers that a seller provides to your questions about their needs and wants may also prompt them to provide insight into what they might consider to be a material fact. You will need to discuss material facts with the seller before they offer their home for sale. As you learned earlier, the Code of Ethics, Subsection 1(1) defines a material fact as “a fact that would affect a reasonable person’s decision to acquire or dispose of” an interest in real estate. Generally speaking, a material fact could be something that happened in the home, something that is about to, or has happened in the area, the intended use of the property, or anything that may:

©2019 Real Estate Council of Ontario

• Affect the decision to sell or purchase the property • Influence the listing price • Influence what conditions are included in an offer When working with sellers, as a salesperson, you will consider material facts for disclosure from two perspectives: 1) Those you must disclose that may impact a seller’s decision-making process with respect to the bullet points on the previous screen. 2) Those which are known latent defects that a seller must disclose that may affect a potential buyer’s decisionmaking process. As a salesperson, you will need to explain the concept of material facts at the outset of your relationship. The seller will need to understand what material facts are, and why they may need to make disclosures. Starting this conversation right from the beginning may provide you with early insight into the types of information the seller may consider to be material to their decision-making process.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 13 of 32

Material Facts: Specific and Personal Regardless of whether the seller has prior knowledge of facts material to the sale of their property, your obligation to disclose them to your client or customer still exists. When working with a seller client, you will take additional steps to confirm any material facts. For virtually all material facts, the “reasonable steps” required for determining those facts will go beyond simply accepting the seller’s verbal representations. Some research and obtaining supporting documentation will be necessary. Since the definition of a material fact only requires that the fact itself influences a reasonable person’s decision to acquire or dispose of an interest in real estate, it can have broad application. Material facts are subjective and personal to the parties involved in a real estate transaction. One seller may deem a fact to be of material importance so that they change their listing price or their decision to sell their property while another seller or buyer who is presented with that same fact might not consider it material, and it will not alter their decision-making process. Through your conversations with the seller, you will learn what is material to them.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 14 of 32

Material Facts for a Seller: Examples Since material facts can be personal, examples are provided only to demonstrate how material facts may impact a transaction and illustrate how disclosures might be made. The following seven sections contain examples of how some material facts might impact individual sellers and their decision to sell.

Credit report Example: A seller is presented with an offer, and one of the terms requires the seller to hold a second mortgage. The salesperson representing the buyer provides a copy of the buyer’s recent credit report that indicates a high credit score. The credit report is a material fact that would help the seller in deciding whether to accept the offer.

©2019 Real Estate Council of Ontario

Zoning designation Example 1: A salesperson learns that a change in zoning bylaws has been approved in their seller’s neighbourhood. This will allow high-density buildings to be built in the area. The salesperson anticipates this may potentially negatively affect the market value of single-family residences in the neighbourhood. The salesperson discloses the change in bylaws to the seller since this information might alter their decision to sell. Example 2: A seller is basing their listing price on a private property sale that occurred in the recent past. The salesperson is aware that the property had a different zoning designation on it, which allowed for the property to be redeveloped for another use. As such, the selling price was higher than the market value of the seller’s property. The salesperson discloses this information to the seller to help them arrive at a suitable listing price.

©2019 Real Estate Council of Ontario

Proximity to schools or other public activities Example: A salesperson learns that a new school is opening in the seller’s neighbourhood. It will be an educationally progressive French immersion school with strong academics and a Spanish-language program. The salesperson anticipates the school will attract buyers to the neighbourhood and increase demand for single family homes. The salesperson advises the seller of the news and potential implications. The seller decides to delay the sale of their home as they believe they will be able to fetch a higher sale price once the school is established.

Dwelling measurements Example: Before taking a listing, the salesperson asks if the seller can provide a copy of plans for the irregularly shaped deck that was an addition to the property. The deck is elaborate and has several special design features, including a fire pit, pergola, and privacy screens. The seller shares the plans provided by their contractor from when the deck was built. The salesperson thinks that the area on the plans does not align with the finished deck and advises that the seller may want to hire a measurement specialist to confirm its size. ©2019 Real Estate Council of Ontario

The measurement specialist confirms that the measurements are inaccurate and that the deck is smaller than the seller thought. The salesperson revises the draft listing based on the corrected area measurement and explains to the seller that they may want to reduce their price. Despite the measurement discrepancy, the seller resolves to stay with the price originally discussed because they feel sure the deck’s features will attract buyers.

Recent neighbourhood property sales Example: A seller receives an offer that is slightly below their list price. The salesperson learns that another home has just come on the market in the seller’s neighbourhood that is very similar to their home, but the price is significantly higher. The salesperson informs their seller client of the new listing while advising them about their options. The seller decides to counter offer at list price rather than accept the original offer.

©2019 Real Estate Council of Ontario

Right-of-way easement Example: A seller who recently inherited a vacation home tells their salesperson that it is a family tradition to allow the neighbours to use their path by the lake. The salesperson’s verification of what is registered on title for the property reveals there is an easement that was put in place by the current owner’s grandmother that allows seven neighbouring properties to enjoy a rightof-way. The salesperson informs the seller that it is not just a family tradition but a limitation that has been attached to the property. They also explain to the seller they will have to disclose the easement in the listing and that it could influence both the decision to buy and the quality of the offers. The seller decides to follow the salesperson’s recommendation and reduce the listing price.

©2019 Real Estate Council of Ontario

New developments Example: A salesperson who is about to list a rural home goes to the local municipal office to find out if there are any new developments scheduled near the property. The salesperson discovers that permits have been approved for the installation of wind turbines on a neighbouring property in the upcoming year. As this plan will affect the value of properties near the wind turbines, and the number of offers, the salesperson discloses it to the seller right away. The salesperson explains that with this new information, they recommend a revised listing price to the seller. The seller chooses to change the price as recommended.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 15 of 32

The Salesperson’s Obligation to Discover and Disclose Material Facts to Seller Clients As discussed earlier, as a salesperson, you will need to disclose material facts to all sellers, but there is a higher level of obligation to the seller client. You must first make an effort to determine what material facts are for the seller client, per Subsection 21(1) of the Code. To fulfill your obligations, you will need to take reasonable steps on their behalf to research and discover any material facts prior to making disclosures. You will need to make certain that you promptly disclose those facts so that your client is in possession of all relevant information that might influence their decisions in the listing and selling process as soon as is practical. Depending on the type of material fact, you may advise your client to speak to a third-party professional to learn more about the possible impact that material fact could have on the value of their property, their listing price, or on determining conditions they will accept or use to counter an offer. You may also suggest speaking with a lawyer if they need advice about making a disclosure. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic. ©2019 Real Estate Council of Ontario

Lesson 1 | Page 16 of 32

The Salesperson’s Obligation to Disclose Material Facts to Seller Customers To fulfill your obligation to customers regarding material facts as described in Subsection 21(2) of the Code, you will be required to disclose material facts that are known or ought to be known by a salesperson. This means you will disclose material facts to customers based on your existing knowledge or based on information that could be considered material learned through the course of your day-to-day activities. This means you are not obligated to conduct any research to discover material facts for the customer seller that you would for a seller client, as was discussed earlier. Customers are required to make their own inquiries to determine if there are any facts affecting a property that would be material to them. As a salesperson, your obligation to disclose material facts will supersede any direction otherwise given by a seller client or customer. Making appropriate disclosures will protect you from disciplinary action and may also protect both you and your sellers from potential litigation.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 17 of 32

The Salesperson’s Obligations to a Seller Client versus Seller Customer Regarding Material Facts These two examples are related to the same material fact and illustrate the differences in the salesperson’s obligations regarding material facts to seller clients and seller customers. Discovery and Disclosure: Seller Client While doing a visual walkthrough of their seller clients’ property prior to listing, a salesperson notices what looks like the beginnings of a termite mud trail. After doing some further research on potential infestations and how to remediate them, the salesperson points it out to the sellers and advises them to consult an exterminator to provide an opinion on the severity of the infestation. They may also recommend that it would be better for the sellers to address the issue prior to putting the property on the market. If it is a termite trail, it could impact the marketability or the value of the property. The sellers ask for a referral, and the salesperson provides the names of three pest control companies. ©2019 Real Estate Council of Ontario

Disclosure: Seller Customer A property is being sold privately. The sellers have signed a customer service agreement with a salesperson’s brokerage that states that if they accept an offer from a buyer the salesperson introduces to the property, they will pay the salesperson’s brokerage remuneration. While doing a visual walkthrough of the property before bringing any buyers to see it, the salesperson notices what looks like the beginnings of a termite mud trail. The salesperson points it out to the sellers and suggests they may want to hire an exterminator to investigate.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 18 of 32

Common Material Facts for a Seller As a salesperson, you will need to familiarize yourself with a seller’s property so that you will be able to disclose any material facts to them, and to ensure you provide accurate information when preparing their listing. You will need to ask the seller questions to help discover material facts. They may have not revealed these facts when you inquired about their needs and wants, or even realize they could be a potential issue. They may also have known about the issue at one time but have since forgotten. It is advisable to document the seller’s answers for your records. Here are some examples of common material facts that you may need to disclose to the seller: • Structural conditions and results (e.g., age, maintenance issues like roof leaks, foundation damage, mechanical or electrical deficiencies, basement water seepage, mould, or insect infestations) • Outdated materials that can be personally or environmentally hazardous (e.g., asbestos insulation, knob-andtube wiring, lead or Kitec plumbing, or underground storage tanks) • Building and/or dwelling measurements or lot size (e.g., discrepancies in measurements cited in listings or specific measurements of a balcony) • Previous use of a property (e.g., former illicit activity such as a grow-op, meth lab, or murder) • Zoning (e.g., bylaws, land use, or fence height requirements) • Government limitations (e.g., HST, property taxes, or any expropriation plans) • Private limitations (e.g., easements or restrictive covenants) • Alterations (e.g., renovations completed without permits or inspections, or demolitions) • Existence of nearby businesses or facilities that may impact quality of life (such as an upcoming development, or nearby industrial facility, airport, or railway line) • Recent sales in the neighbourhood • Proximity to schools, churches, or other public amenities While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic. ©2019 Real Estate Council of Ontario

Lesson 1 | Page 19 of 32

Due Diligence in Determining Seller Material Facts As a salesperson, you will need to make a reasonable attempt to determine all material facts and ensure they are disclosed to your seller client as soon as possible. When working with a seller customer, you must ensure you disclose any material facts that are known or ought to be known by a seller to potential buyers. These facts may be material to their decision to sell or affect the price they wish to set for their property. When interviewing a seller for the first time, you may supplement your questionnaire about the seller’s needs and wants with questions designed to help uncover any material facts they may not have remembered or considered. These questions could include: • • • • • • •

Has there been any water damage? Has the drinking water from the well been tested regularly? Are there any problems with the septic system? Have there been circumstances that may have resulted in soil contamination? Has there ever been an oil-heating system on the property? Are you aware of any buried oil tanks? Has there been any illegal activity on the property, such as a grow-op? Have there been any deaths on the property other than by natural causes?

Remember that some of these questions may not be relevant to the seller’s property; for example, not all properties have wells or septic tanks. It is advisable to customize your questions based on information you already have about the property.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 20 of 32

Due Diligence in Determining Seller Material Facts Engaging your seller clients by completing questionnaires with them is a good starting point to help you better understand them and their property. The questionnaire should lead to open conversations with the seller about material facts. When representing a seller, you will want to have frank conversations to aid them in identifying any facts about their property that could be considered material. This will enable you as a salesperson, to provide the best service and support possible while at the same time helping ensure you have completed your due diligence. You should be prepared to answer any questions they have. You must help them understand there are different types of material facts (physical and non-physical issues that may sway a buyer’s decision to purchase property and require seller disclosure) and also that material facts are personal: not only to them but to prospective buyers of their property.

©2019 Real Estate Council of Ontario

The last two questions on the previous slide, which ask about illegal activity or deaths on the property, are examples of some concerns commonly referred to as stigmatizing issues. A stigma may elicit a psychological or emotional response that could negatively influence a prospective buyer’s interest in a property. In terms of disclosures, you will also inform sellers that while it may be best for them to do so, they are not required by law to disclose a potential stigma on their property. Regardless, you will want to direct clients to seek legal advice if you believe that a stigmatizing issue may become a factor in selling the property. You will learn more later about types of stigmatizing issues and their significance, disclosure issues, and how your obligations regarding the disclosure of stigmas will change in cases of multiple representation. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 21 of 32

Salesperson’s Due Diligence in Verifying Material Facts of a Seller Client In addition to asking appropriate questions, there will be other ways you will verify material facts. For virtually all material facts, the reasonable steps required for determining those facts will go beyond simply accepting the seller’s verbal representations. These steps can include: verifying what is registered on title for the property (such as confirming whether there are any easements) by looking at the survey, deed, tax bill, or a subscription-based database, verifying seller-provided information or documentation of permits, renovations, or water tests, conducting a web search for newsworthy events on or near the property, determining if any contamination has been reported, and verifying zoning and permitted uses at the local municipal office. As always, you will want to keep records of all documentation and share anything you find with the seller that has not already been provided by them. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic. ©2019 Real Estate Council of Ontario

Lesson 1 | Page 22 of 32

A salesperson recommends a seller client list their property at $650,000, based on three comparable sales over the past six months. They are quite disappointed by this suggestion because they feel their property is worth much more. After several discussions, the seller reluctantly agrees to list at $650,000. Within two weeks of listing the home, two comparable properties sell for $610,000 and $595,000. Which of the given actions should the salesperson take in this situation? There are three options. There is only one correct answer. 1 2 3

Inform the seller about the recent sales and recommend they decrease their list price. Delay sharing the information with the seller until the downward trend in pricing can be confirmed with one or two more sales. Don’t share the information with the seller as it will just further upset them and they’re not likely to take any action anyway.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 23 of 32

Seller Client’s Best Interests As we have seen, you will owe different levels of service to clients and customers when fulfilling your obligations regarding material facts. When you are working as a salesperson, Section 4 of the Code of Ethics underscores an additional obligation to the client. It states that salespersons shall promote and protect the best interests of their clients. As a salesperson, you will begin to demonstrate your intention to promote and protect the seller’s best interests when you make inquiries into the full scope of the seller’s needs. You will continue to do so throughout the listing and selling process until the transaction has closed. You will need to ensure that your personal interests never take precedence over the client’s interests. Example: A salesperson is advising a seller client about two competing offers. One was obtained by the salesperson while the other was obtained by the co-operating brokerage. The seller needs advice on which is the best offer. While the offer prices are similar, the terms in the offer from the co-operating brokerage have distinct advantages for the client. The salesperson reviews both offers with the seller without regard for personal interest, such as a lesser remuneration if the co-operating brokerage’s offer is accepted. ©2019 Real Estate Council of Ontario

Lesson 1 | Page 24 of 32

Due Diligence to Protect Seller’s Best Interests When preparing to list a property for sale, you have an obligation to carry out due diligence in investigating the property and the circumstances of the sale. To protect and promote the best interests of a seller client, you will need to take several steps including: • Inspecting the property and asking the seller questions that would reveal defects and material facts that should be disclosed • Documenting information shared with and by the seller with back-up copies stored in a second location • Protecting the seller’s personal information and motivations for selling unless you have written consent to share specific information • Verifying that the information included in the listing or any advertising/promotional materials is accurate • Excluding any detail about a home that you cannot verify from the listing or adding a qualifying statement or disclaimer to the unverified information • Ensuring that you fully explain the content of all documents that you ask the seller to sign, and making sure that they have received copies in a timely fashion If you are not able to provide the required level of advice and support, you will need to refer the client to someone who can provide this necessary support, such as a lawyer or a tradesperson. At all times, you will need to protect and promote the client’s best interests, but also be mindful of your obligations to treat every party to the transaction fairly, honestly, and with integrity.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 25 of 32

Factors that Require Due Diligence In learning more about a seller’s needs and wants, and keeping in mind your obligations to act in the seller client’s best interests, you may identify other topics or factors which could require some discussion, such as HST, capital gains, and tax considerations for non-resident sellers. As a salesperson, you will want to refer sellers to outside professionals, such as accountants or lawyers, for expert advice. HST may be applicable in certain situations beyond HST levied on remuneration, such as a property that is used wholly or in part for commercial purposes, or new construction. HST can be included in addition to the purchase price or can be treated as a separate item per the clauses in an offer. You will need to ensure that clients are aware of HST charges relating to remuneration. For HST and all taxation matters, you will need to advise your client to consult with an accountant or other tax professional for advice and guidance regarding the applicability of a particular type of tax. Most of the time, HST

©2019 Real Estate Council of Ontario

does not apply to a residential resale property, but there can be exceptions. Sellers will need to be referred for expert advice in those areas. The same would apply for capital gains tax and special circumstances of a non-resident seller. Example 1: The salesperson determines during their due diligence investigation that a portion of the residential property has been used for a commercial purpose, namely a private day-care centre. Since HST may be applicable to the sale as a result of this commercial activity, the salesperson recommends to the homeowner that they speak with an accountant for clarification. Example 2: A couple spends half the year at their recreational cottage and the other half in their urban home, which they are considering selling. If the home is not their principal residence, then capital gains tax may apply to the proceeds of the sale. The salesperson advises that they should consult with their accountant for advice on the matter.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 26 of 32

The seller clients want to sell their home for $850,000. They confide in the salesperson, explaining that they really need to sell the house because they are in a tight financial position. They would therefore accept less than the asking price. At an open house, potential buyers approach the salesperson and indicate that they love the house but ask if the sellers would accept less. What should the salesperson do to act in the best interests of the seller? There are three options. There is only one correct answer. 1 2 3

Tell the buyers that the sellers would accept less to increase the likelihood that they will make an offer. Tell the buyers that the sellers will not accept less to increase the chances of a higher offer. Tell the buyers that the only way to find out is to submit an offer for the sellers’ consideration.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 27 of 32

When discussing the seller’s property, you will want to ask the seller about any damages, repairs, or issues the property currently has or previously had, if they have not already shared this information with you. Next, we will learn about the two types of defects: patent and latent defects, and the most severe type of latent defect, described as a material latent defect. As a salesperson, you will also need to advise the seller about their legal obligation to disclose known latent defects, and you will also need to be mindful of your own obligations.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 28 of 32

Types of Defects As a salesperson, you will need to be able to identify the two types of property defects, patent and latent, the differences between them, and if they require seller disclosures. You will continue to learn more detail about defects later. The following three sections contain information on the types of defects and illustrated examples. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Patent defect A patent defect is readily visible upon reasonable inspection. Since these are visible, seller disclosure is not required. For patent defects, the principle of caveat emptor (“buyer beware”) applies. Examples of patent defects include: • A missing railing • Visible cracks in a foundation wall • Broken stairs on a staircase • A slanted floor or staircase • Evidence of mould • Water stains on the ceiling • Shingles missing from the roof • A broken window pane

©2019 Real Estate Council of Ontario

Latent defect A latent defect is not readily observable by the untrained eye during the reasonable inspection of a property. This includes any hidden flaw, weakness, or imperfection that a salesperson or buyer would not be able to see when viewing the property. Some latent defects may require the assistance of third-party experts to be identified. The seller has an obligation to disclose any known latent defects. Examples of latent defects include: • Hidden water damage behind shower or bathtub surround • Fence encroachment onto a neighbouring property • Vermiculite insulation • Minor seasonal flooding in the basement

©2019 Real Estate Council of Ontario

Material latent defect The most severe type of latent defect is a material latent defect. This defect poses a serious risk, which can render the home unsafe, unhealthy, or otherwise uninhabitable. Like other latent defects, if the seller is aware of a material latent defect, they are obligated to disclose it to a buyer. This type of defect is judged material to the enjoyment of a property and would include defects that cause the property to become: • Dangerous or potentially dangerous for the buyers (e.g., high indoor concentration of radon gas which has reached hazardous levels • Potentially unsafe (e.g., a substantial crack found in the basement behind the drywall that can affect the structural integrity of the house) • Unfit for habitation (e.g., a property with a mould infestation found during renovations that results in seller disclosure of the building being condemned) • A concern to municipal authorities (e.g., a property that has been identified as a grow house that requires remediation)

©2019 Real Estate Council of Ontario

Lesson 1 | Page 29 of 32

Salesperson’s Role in Identifying Defects To satisfy due diligence requirements, you will need to ask the seller questions to determine whether they are aware of any latent defects. As discussed, known latent defects must be disclosed by the seller. When walking through the property with the seller, you will have to look for any signs of potential defects and ask follow-up questions about these indicators to determine if they are indicators of a latent defect that must be disclosed by the seller. In addition to conducting a visual inspection, when verifying information about the property, you will also consider information you gather from the seller and involve expert third-party professionals, if necessary, to address matters that are beyond the scope of the salesperson’s role. Third-party professionals can include home inspectors, surveyors, tradespeople, lawyers, and insurance professionals. As a salesperson, while inspecting the subject property in preparation for creating a listing agreement you will need to: • Watch for alterations, additions, or works-in-progress that may indicate defects that require disclosure by the seller. Ask questions about when the work was done, if a building permit was issued, and if there are any additional changes that are not readily observable. • Look for general deterioration, water stains, moisture, mould, sagging, and other signs of neglect and damage. Query the seller accordingly, making recommendations for further investigation, repairs, and their disclosure of mandatory items to prospective buyers. • Seek information on and watch for any indications that the property may have been used as a grow house. • Look for out-of-date systems, particularly involving wiring (e.g., knob-and-tube and aluminum wiring, 60-amp service, or oil-burning appliances with tanks more than 10 years old). • Watch for significant problem areas that warrant further analysis, and do not hesitate to seek appropriate help and expertise as the need arises. • Pay particular attention to environmental considerations including flood plains, flooding potential, any environmental problems or soil contamination, and underground fuel tanks.

©2019 Real Estate Council of Ontario

• When in doubt regarding any uncertain issues concerning a property, seek expert advice. (e.g., mould resulting from flooding could require a professional to confirm the extent of any potential problems, or an electrician may be employed to confirm the type of wiring and identify any potential problems). You will learn more on the topics of visual inspections and defects later. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 30 of 32

Seller’s Obligation to Disclose Defects As discussed earlier, the seller is only obligated to disclose known latent defects. To avoid any kind of misunderstanding, you will want to clearly explain the differences in the types of defects. As a salesperson, you should explain both the obligations of the salesperson and brokerage, as well as the seller’s obligations regarding disclosures. This will need to be done when initially reviewing services and the terms of the types of agreements prior to signing so this is clearly outlined for the seller. You will also want to explain that if known latent defects are not disclosed to prospective buyers there could be legal ramifications for the seller, and for you and your brokerage. Example: A seller knows about a problem with the well on their property. However, the seller does not want anyone to know, maintaining the belief that the problem is seasonal and due to spring water runoff. During the summer, there is no problem. The salesperson explains to the seller that a problem with the well is a material latent defect (a dangerous or potentially dangerous situation) that must be disclosed to the buyer. If they do not disclose this defect and the buyer’s family becomes ill because of the well water, the buyer may be entitled to take legal action against the seller.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 31 of 32

A salesperson is meeting a new seller client at their home to have a look at the property and notices a few things to be repaired. The salesperson asks if they have completed any renovations and the seller does not admit to any. The salesperson recommends a home inspection. The home inspection reveals a few defects. Which of the given should be disclosed by the seller to potential buyers? There are three options. There is only one correct answer. 1 2 3

The home inspector sees signs that the property may have been used as a grow-op. The home inspector sees water stains on the ceiling which has a bathroom overhead. The home inspector sees that there is hardwood under the wall-to-wall carpet but could not verify the condition of the hardwood.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 32 of 32

Congratulations, you have completed the lesson! There are five sections on this page with a summary of the key topics that were discussed in this lesson.

Assessing seller needs Disclosure of material facts

Stigmatizing issues

Best interest of a seller Disclosure of known latent defects

• Ask appropriate questions to accurately assess a seller’s needs. • Consider the demographic factors that may influence seller needs and motivations. • Respect the wishes of the seller regarding the mode of interaction they prefer for regular communication. • Disclose known material facts to both clients and customers, per Section 21 of the Code of Ethics. • For clients, take reasonable steps to determine and disclose material facts. • For customers, the obligation is to disclose only those material facts that are known or ought to be known by a salesperson. • Stigma can be created by events on the property, such as a death or illegal activities. • Advise the seller to seek legal advice regarding their rights and obligations related to the issue. • Explain that your obligations regarding the disclosure of stigmas will change in cases of multiple representation. • Always work in the best interests of the client and actively protect and promote that interest, per Section 4 of the Code. • Ensure that your personal interests never take precedence over the client’s interests. • The given are two types of defects: patent and latent; the most severe form of a latent defect is known as a material latent defect. • A material latent defect is considered to be a subcategory of a latent defect. • Identifying defects is a due diligence obligation of a salesperson. • A seller must disclose known latent defects to the salesperson, and you will need to exercise due diligence to disclose these defects while listing the property.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 1 of 21

Lesson 2: Needs, Material Facts, and Best Interests of a Buyer

This lesson describes the importance of assessing a buyer’s needs during the buying process. It also outlines how the salesperson can leverage tools like demographics and technology to meet those needs when providing services. It also describes a salesperson’s obligations regarding material facts. Distinguishes between those owed to customers and those to client. The lesson also explains a salesperson’s legal obligation to protect a buyer client’s best interests and indicates when they should recommend third-party services be obtained.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 2 of 21

You have learned about working with sellers and the importance of building your relationships with them by asking questions, doing research, and considering demographics when providing services while meeting your obligations under the Code of Ethics. In this lesson, the focus will be on learning how to develop relationships with buyers. You will need to ask appropriate questions to help you understand buyer needs and wants, their financing capability, and document their answers. You need to fulfill obligations under the same sections of the Code of Ethics as you do for sellers, but there will be slight differences in your approach to working with buyers. You will need to take appropriate actions to disclose material facts to both clients and customers. You will need to do research and verify material facts for and act in the best interests of a buyer client. Failing to do so can result in a number of consequences, the least of which is damaging a relationship that you are trying to build. If concerns are directed to RECO, these could lead to the possible investigation of complaints and penalties imposed by RECO’s Disciplinary committee, or to civil liabilities. Upon completion of this lesson, you will be able to: • Recognize the importance of assessing a buyer’s needs • Describe the regulatory requirements of a salesperson regarding material facts of a buyer • Describe the regulatory requirements of a salesperson regarding the best interests of a buyer client Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 3 of 21

As a salesperson, when working with potential buyers, you will need to ask them appropriate questions to understand their needs and motivations in their search for a property, and the type of property that will best suit them. You will want to be patient and take time to discover the interests and sensitivities of the buyer. By asking the right questions that clearly identify the buyer’s needs and wants, you will be better prepared to provide services and target your property search effectively. This will reduce the risk of recommending properties that are not of interest or completely not to their taste, which can frustrate the buyer.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 4 of 21

Assessing Buyer Needs: Asking Appropriate Questions When you begin working at a brokerage, they may provide you with a custom list of questions as part of their inhouse training. No matter where you get your list of questions, you will want to document your buyer’s answers. The given questions are not a comprehensive list of possible questions; your questions may vary. You may also choose to customize your questions and create your own questionnaire. • Why are you interested in purchasing a property? (e.g., job change, marriage, upgrading to a bigger house, and so on) • What is your timeline for purchasing a property? • Do you own a property already? • Do you need to market/sell your existing property first before purchasing the new property? ©2019 Real Estate Council of Ontario

• • • •

How are you planning to finance the purchase? How much money are you planning for the down payment and the closing cost? Have you been pre-qualified for financing? Are you open to looking at different types of properties (such as a house or a condo)? o How many bedrooms do you need? o Do you want an eat-in kitchen? o Do you want a main floor family room? o Would you like a dining room? o Do you need a garage? If so, for one car or two? o Do you have any specific requirements (such as no stairs, ramps, or accessibility requirements)? o Is there a specific area that you prefer? o Do you need proximity to schools, medical services, public transportation, or any other location-specific public amenity?

While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 5 of 21

Qualifying a Buyer Asking questions like the ones you have just reviewed will help you as a salesperson, determine a buyer’s needs and wants but will also help you assess their financial readiness. This process is commonly known as qualification. Confirming a buyer’s financial qualifications to buy a property and comparing what you learn about their requirements against the financial details they will share with you are key parts of this process. This includes information about any pre-approved financing from mortgage brokers or banks, the amount they have budgeted for the purchase, and what they want to spend. The scope of activities involved in the qualifying process depends on whether the brokerage is representing the buyer (working in the best interests of the client) or providing limited services to the buyer as a customer (not representing that individual but providing information in an honest manner while exercising care and skill). You will

©2019 Real Estate Council of Ontario

need to fully disclose the level of services to both types of buyers to ensure that they understand what will or will not be done during the process of qualifying and showing property, as well as in subsequent negotiations. Qualifying the buyer will also help you select properties that meet their needs and their budget. This process can also aid buyers by affirming their existing plan, or helping them to recognize the need to re-prioritize their criteria or revise their budget and/or savings plan based on their financial readiness.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 6 of 21

Requalifying a Buyer After the qualifying process, you will select a limited number of properties for the buyer to consider. You will need to show the properties and provide accurate and complete information about them to the buyer. If you show a buyer several properties based on their stated needs and they are not able to find one that suits them, you will probably want to suggest revisiting and refining their criteria. You will periodically requalify buyers to confirm whether you have understood their priorities correctly, or whether the buyer’s needs have evolved since you initially discussed their criteria. Requalifying a buyer several times during this phase of the buying process will be a common practice when you are working as a salesperson. You will have to be understanding and supportive with buyers as they refine their criteria since, for many, this will be one of the biggest purchase of their lives.

©2019 Real Estate Council of Ontario

A buyer may rethink their needs after viewing properties and realize that they had forgotten something that is a real priority to them. They may also decide, after seeing properties in their price range, that they need to reassess or scale down their expectations and requirements. Your goal will be to clearly understand and refine the criteria to narrow your search to properties that will be more appealing to them. Example 1: A young couple is attempting to locate a suitable home for their growing family. They signed a buyer representation agreement and specified that the brokerage should seek out properties in the range of $450,000 to $550,000 within an area close to their extended family. The salesperson identifies two properties that meet the buyers’ criteria. The salesperson shows both properties to the buyers, but they are not to their liking. The buyers reassess their needs and ask the salesperson to widen the geographic location they originally requested. Example 2: A salesperson is unable to find an accessible single-family home in the buyer’s price range and preferred location. They decide to pursue another alternative: looking at bungalows with an entry at grade levels that they could renovate to meet their requirements after closing the transaction. In subsequent discussions, the buyer indicates that they are now willing to look at more modern condominium apartment properties with ramps and elevators in that same neighbourhood. They decide against continuing to pursue properties that they could renovate to meet their requirements.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 7 of 21

Buyers and Technology New property technology (popularly known as “proptech”) is regularly introduced to the marketplace. When engaging with buyers during the qualification process, you may hear a buyer enthusiastically announce that they found amazing houses by searching property listings on the web. This is one way that technology has significantly changed real estate because web research has become a common way to search property listings. There are many public and private websites that feature a variety of real estate listings and information. Realtor.ca® is one such public website, but there are many others that a buyer may use to research properties, such as non-broker aggregator sites like Zillow®. Some of these sites may have virtual tours posted in addition to photographs. Buyers may also be interested in using your brokerage’s website or your own personalized website, if you commit to developing and maintaining one. The listings buyers view online may influence their list of requirements. Buyers may also bring properties they discovered in their online research to you as potential homes they wish to view. You may also consider leveraging content on your own personal website or creating social media profiles on popular

©2019 Real Estate Council of Ontario

platforms. You will want to take steps to ensure you comply with your requirements under REBBA and that you consult the RECO’s Guide to Social Media and Advertising Guidelines found on the RECO website, so that you will be confident you are conducting your business in compliance with the Act. Technology is also changing the way a salesperson engages with the public. Some salespersons add bar codes (QR codes) to “For Sale” signs so buyers can access information about the property on their cell phone. Salespersons also add code numbers to their signs that prospective buyers can text to connect to auto-responders that provide more information on the property and give salespersons access to the individual who made the inquiry. Buyers are now exposed to more information about market conditions and the availability of properties than ever before. As a salesperson, you will still play an integral role in separating fact from fiction by providing real insight into information that the buyer has gathered from the internet, which might not be accurate (or relevant to this province), and of course, in representing the buyer in a transaction to ensure that the buyer’s best interests are protected.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 8 of 21

Demographics and the Buyer A buyer’s needs and motivations may be impacted by changing demographics, such as growth, size, distribution, and composition of population. The following five sections contain information on demographics and its impact on a buyer’s needs and motivations.

Demographics impact You will encounter individuals of diverse age ranges, and socio-economic and cultural backgrounds (with widely different income levels, abilities, lifestyles, and needs) when engaging with clients and customers in the process of looking for a suitable property. It is important to ask the buyer about their lifestyle so you can identify an area that suits them. Example: A young, single buyer may wish to live in a neighbourhood that is close to a bus route for an easy commute to work and shopping. After viewing several properties in the area, they realize that the demographics are predominantly retired families who have lived there since the area was first developed. Based on this observation, the buyer may wish to look in a different location, which appeals to a younger generation.

©2019 Real Estate Council of Ontario

Aging population Interestingly, the aging population is not focused entirely on traditional retirement living configurations. Downtown condominium markets have proven attractive as empty nesters and retirees seek the convenience of urban centres. Retirement for many is much more than scaling down house size. Seniors may choose to buy into destination communities that are self-contained complexes complete with recreational and social amenities, as well as support services. All kinds of real estate may be of interest (e.g., bungalows, retirement homes, assisted living complexes, or apartment units). Housing developments, now and in the future, must look at innovative structures, such as stairless entryways and homes, structural provisions for elevators, flexible configurations (to accommodate multigeneration families and in-law suites), wider hallways, walk-in bath enclosures, or tracking for lift mechanisms. Example: One senior may be looking for a senior’s complex with lots of recreational activities, so they can meet new friends. Another senior may want to move into an inlaw suite in their favourite nephew’s home.

©2019 Real Estate Council of Ontario

Lifestyle choices and locations There is no right or wrong location for a buyer based on demographics. For example, you can’t be certain that a young buyer would like to live in a downtown condominium simply because it offers many amenities. Location or proximity to places of importance may be their primary focus. Some places that might be drivers for lifestyle requirements include: • • • • • • • • •

Places of worship Parks Cultural centres Club facilities Fitness centres Golf courses Grocery stores Entertainment centres Sports facilities

Example 1: A married couple wants to move to a downtown condominium near the concert hall and theatre district. Example 2: A young couple planning a family wants a bigger house with a yard that is located near a Catholic school.

©2019 Real Estate Council of Ontario

Culture and ethnicity Ethnic and cultural origins, as well as settlement patterns, can also influence real estate decisions. Some consumers may want to be located close to cultural connections, in close proximity to ethnic food stores, or near family and friends from a particular background. Consider aspects such as ethnicity, language, and shifting settlement patterns, as appropriate. Example: A family who has recently immigrated to Canada with limited English may want to purchase a property in an area where their language is widely used in the community.

©2019 Real Estate Council of Ontario

Social trends Social trends are another important component of demographics. Some are the natural result of the passing of time, such as the changing needs of an aging population. Others are a response to economic conditions or housing preferences. Example: A single person decides they want to buy a house in an older, less affluent neighbourhood near their workplace. They hope that recent trends of redevelopment in the area means that if they purchase a property there, it will eventually increase in value.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 9 of 21

During the qualifying process, a salesperson takes notes on the price range, financing, and features the buyer describes, to search for properties that match their criteria. The buyer also indicates a preference for a home located on a quiet street. The salesperson finds five homes that meet most of the needs discussed. Two of them are on a street that is quiet during the day but can get busy at rush hour. The pricing on all properties is comparable. What should the salesperson do in this situation? There are three options. There is only one correct answer.

1 2 3

Inform the buyer about all the properties and allow them to make a selection as to which ones they want to see. Avoid telling the buyer about the two homes located on busier streets and show only the three other homes. Schedule appointments for all the homes that the salesperson selected and let the buyer decide.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 10 of 21

Material Facts and the Buyer Client As you learned earlier in this module, the obligations differ between client and customer. If the buyer is a client, they are entitled to a higher level of service because you will have obligations to them that are greater than those you are required to provide to a buyer customer. The Code specifies that you will have to make disclosures for the client promptly, but first, you will be required “to make a reasonable attempt to determine all material facts” that might affect a buyer’s decision to purchase a property. This involves following up with listing salespersons, reviewing brokerage resources, and doing research to discover material facts on properties you intend to show the buyer. You will need to verify information you have researched before you disclose it and only share information from a reliable source, like the ones listed in the page. Other reliable sources could include a subscription-based database; or municipal, provincial, and federal government websites. Research into material facts can also result in recommending services, such as those of a home inspector or another third-party professional (e.g., licensed TSSA technician, surveyor, lawyer, or accountant) where expert advice is necessary. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic. ©2019 Real Estate Council of Ontario

Lesson 2 | Page 11 of 21

Material Facts and the Buyer Customer If the buyer is a customer, under Subsection 21(2) of the Code, you are required to disclose information to them that is “known or ought to be known by the broker or salesperson” as soon as is possible to fulfill your obligation. You will need to suggest a buyer customer obtain advice from a third-party service professional if you think they need expert advice. Customers will need to do their own research to determine if any material fact affects a property. Remember that if you are aware of something that could be considered a material fact to any buyer, either a client or a customer, you will have to disclose it. Failure to do so can have significant consequences under REBBA

©2019 Real Estate Council of Ontario

Lesson 2 | Page 12 of 21

Material Facts and the Buyer Example: Buyer as a client A salesperson representing a buyer is showing a property. The buyer asks about the vacant land across the street from the property. The salesperson tells the buyer that they will find out more about it and report back. After the showing, the salesperson obtains the contact number from the sign posted on the vacant property. The salesperson contacts the building department at the local municipality and determines that permits have been obtained to build a high-rise condominium. There are plans to construct two buildings in the near future on the property. The salesperson discloses this information to the buyer who decides that this is not the right property for them as the new development will bring a lot more people, traffic, and noise to an already busy area. The buyer decides to look for properties in a quieter, older neighbourhood.

©2019 Real Estate Council of Ontario

Example: Buyer as a customer A salesperson is working with a buyer customer couple. They ask the salesperson to show them a property in an older neighbourhood just north of the city. The couple has two young children. They are looking at this area as it is close to the wife’s parents’ home and the local public school. Prior to the showing, the salesperson tells the couple that they heard rumours that the local public school may be closing due to lack of registration and funding. The salesperson also suggests that the couple contact the school or school board directly for further information regarding the status of the school.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 13 of 21

Common Material Facts for Buyers There are many issues that can be considered to be material facts for a buyer. When you are working at a brokerage, they may provide their own list for you to use. Some of the most common are: • Structural conditions and results (e.g., age or maintenance issues like roof leaks, foundation damage, mechanical or electrical deficiencies, basement water seepage and mould or insect infestation) • Outdated materials (e.g., knob-and-tube and aluminum wiring or Kitec plumbing), some of which may also be personally or environmentally hazardous (e.g., asbestos insulation, lead or galvanized plumbing, or underground storage tanks) • Building and/or dwelling measurements or lot size (e.g., discrepancies in measurements cited in listings or specific measurements of a balcony) • Previous use of a property (e.g., former illicit activity such as a grow-op, meth lab, or murder) • Zoning (e.g., bylaws, land use, or fence height requirements) • Government limitations (e.g., HST, property taxes, or expropriation) • Private limitations (e.g., easements or restrictive covenants) • Alterations (e.g., renovations completed without permits or inspections, or demolitions) • Existence of nearby businesses or facilities that may impact quality of life (e.g., an upcoming development or industrial facility, airport, or railway line) • Proximity to schools, churches, or other locations of interest While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 14 of 21

A salesperson shows a property to a buyer client that has an underground oil tank. The listing states that the buyer is responsible for the maintenance, repair, or removal of the tank. Which of the given texts are viable options for the salesperson to recommend to the buyer? There are four options. There are multiple correct answers. 1 2 3 4

Do an internet search to find the cost of removing the tank and advise the buyer accordingly. Advise the buyer they should just leave the tank on the property. Suggest that the buyer consult with a licensed TSSA technician about the removal of the tank. Suggest that a clause be inserted in the offer asking that the seller remove the tank and remediate any contamination.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 15 of 21

Buyer Client’s Best Interests As a salesperson, in addition to discovering and disclosing material facts for buyer clients, you will have other obligations under the Code, such as the requirement to always protect the best interests of your clients and to actively promote that interest. As you learned earlier, this is a fiduciary duty of a salesperson and has been outlined in Section 4 of the Code of Ethics. You will need to ensure that your personal interests never take precedence over the client’s interests. You will also need to treat customers and all other parties to a transaction fairly, honestly, and with integrity. Remember that your buyer client will be putting their trust and confidence in you and your brokerage.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 16 of 21

Buyer Client’s Best Interests: Examples There are many situations in which you will be required to actively promote and protect the interests of buyer clients. The following three sections contain examples of how a salesperson might protect the best interests of their clients.

Example 1 The buyer client informs the salesperson in confidence that they will offer $365,000 for a resale condominium unit (which was listed through another brokerage for $385,000) but admits that it is simply a starting point. The buyer is quite prepared to pay the full listing price if necessary and shares this with the salesperson as they have trust and confidence in their relationship with the salesperson. The listing salesperson, when presented with the offer, asks if the buyer will pay more as the seller is not ready to accept the offer as presented. The salesperson does not disclose that the buyer is anxious to buy and will probably pay full list price. By doing so, the salesperson protects the buyer client’s best interest and complies with Section 4 of the Code of Ethics.

©2019 Real Estate Council of Ontario

Example 2 The buyer makes an offer of $462,000 on a property listed at $488,900. The seller makes a counter offer for $475,000. The buyer, in considering the counter offer, wants to know if the amount countered is realistic. The salesperson provides the buyer client details about comparable properties that are for sale, have been sold, or have expired (unsold) over the past two months in that particular area. The salesperson also updates the buyer on recent market trends and generally ensures that the buyer client is well informed prior to deciding about the seller’s counter offer.

Example 3 The buyer client asks the salesperson to prepare an offer for a rural home. Once completed, the buyer immediately takes the agreement and asks for a pen to sign. The salesperson ensures that the buyer client understands the nature of the document they are about to sign. The salesperson summarizes and explains the content of the offer before asking the client to sign.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 17 of 21

Due Diligence to Protect Buyer Client’s Best Interests When representing the buyer, due diligence is required throughout the buying process to ensure you are fulfilling your obligations and acting in their best interests. The following five sections contain information on requirements and strategies that help ensure you are protecting the best interests of your buyer client.

Show properties that meet the buyer’s criteria As you learned earlier in this module, it is important to qualify your buyer’s needs and wants in order to show the buyer properties that meet their requirements. It is also important to take reasonable steps to determine and disclose to the buyer any material facts that may affect their decision to view a specific property. According to Section 19 of the Code, you are required to inform a buyer client about any property meeting the client’s criteria regardless of the amount of remuneration being offered to the brokerage. This is to ensure the salesperson and brokerage are promoting the best interest of the client.

©2019 Real Estate Council of Ontario

Accurately prepare offers As a salesperson, you will be accountable for the accuracy of the terms of any document you prepare on behalf of a consumer and for the content of any agreements you advise on. You must act to protect your client’s interests. If a buyer’s offer is prepared without attention to accuracy, it could put the buyer client in the undesirable position of being bound to terms and obligations that they did not originally want or ever intend to accept.

Assist in negotiations As a salesperson, you will need to assist with buyer negotiations, developing strategies or options to advance the client’s interests. In addition, you will be required to negotiate for the buyer client to obtain the lowest price and best possible terms. You will need to negotiate effectively, otherwise a buyer might pay too much for the property.

©2019 Real Estate Council of Ontario

Assist with third-party professionals As a salesperson, you will need to recommend that the buyer seek expert advice from mortgage lenders, home inspectors, and other third-party professionals as required. If you do not refer the buyer to third-party professionals when needed, you will be in violation of Section 8 of the Code of Ethics. You will also put your buyer at risk of incurring unplanned expenses.

Assist with documentation

As a salesperson, you will need to review or assist the buyer (as appropriate) with reviewing reports received and other documentation involved in the property buying process. You will need to ensure that the buyer thoroughly understands the contents of all documents during the buying process, and if you cannot properly explain the contents, you will need to refer them to someone who can, such as a lawyer.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 18 of 21

Salesperson’s Due Diligence: Other Factors There are other factors that may require due diligence, such as HST and foreign buyers’ tax. As a salesperson, you will perform your due diligence by outlining HST and foreign buyers’ tax, in situations where they could impact a buyer, prior to submitting an offer. You would also ensure you advise the buyer to consult their lawyer, accountant, or another qualified professional for definitive advice on taxation matters, as these are beyond your area of expertise. The following three sections contain information on the HST and tax liabilities a buyer may face.

HST A buyer could face HST obligations if the property was being used for a commercial purpose, or for a fully renovated home. In addition, HST could be applicable on the purchase of a new home and all services associated with the transaction, such as legal fees and moving costs. HST liability would also be dependent on how an offer is constructed. As a salesperson, you will need to ensure the buyer clearly understands if the HST is included in the purchase price or if it is in addition to the purchase price.

©2019 Real Estate Council of Ontario

Tax liabilities of non-residents A buyer needs to be concerned about the capital gains tax incurred by a non-resident seller. Section 116 of the Income Tax Act gives the buyer an opportunity to protect themselves from tax liability if the non-resident seller leaves the country without paying the tax. The buyer will need to see evidence that the nonresident seller has paid the tax, or the buyer will have to withhold a portion of the purchase price to satisfy the non-resident seller’s tax obligation. A pre-printed clause in the agreement of purchase and sale addresses this provision. If the buyer is a non-resident of Canada and is purchasing a property in the Greater Golden Horseshoe area of southern Ontario, the foreign buyers’ tax would apply.

©2019 Real Estate Council of Ontario

Other applicable taxes As a salesperson, for all taxation matters, you will advise the buyer to consult with an accountant or other tax professional for advice and guidance regarding the applicability of a particular type of tax.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 19 of 21

Obtaining Services from Third-Party Professionals As a salesperson, another obligation you will need to meet under the Code of Ethics requires that you demonstrate your education and growing experience as a salesperson. However, you will not be expected to know everything there is to know about related fields like construction, appraisal, or real estate law simply because you trade in real estate. As a salesperson, to fulfill your obligations under Section 8 of the Code. You will need to advise clients and customers to seek services from others whenever they require expert advice beyond the scope of your knowledge. Section 8 of the Code requires that you advise a client or customer to obtain services from other better-qualified professionals, and under no circumstances, discourage clients or customers from seeking such services. It is always a good idea to recommend that the buyer gets an opinion from a qualified service professional, such as a home inspector, experienced general contractor, or a structural engineer as needed. These professionals can give the buyer an accurate assessment of a home’s key components, including roofing, floors and walls, doors and windows, ©2019 Real Estate Council of Ontario

foundation, plumbing, electrical, heating, ventilation, and air conditioning. They can tell the buyer if the wiring is upto-date or if a crack in the wall is anything to worry about. A leading practice in making referrals when requested is to always provide three names of third-party professionals. Example 1: A buyer has looked at several properties and thinks they want to put in an offer on an older home needing some repairs. The buyer feels confident that financing will be readily available at an attractive rate of interest. The salesperson explains that the amount of mortgage and interest rate charged might be affected given the age, location, and general condition of the property. After discussion and the buyer’s approval, the salesperson inserts an appropriate condition in the offer and then refers the buyer to three mortgage brokers they can contact to secure acceptable financing. Example 2: A buyer hires a home inspector who is also a friend. The home inspector observes that the furnace in the house is about 15 years old and appears to be in good condition. But when asked about the interior of the furnace, the inspector reveals they are not a licensed TSSA technician and cannot inspect the interior of the furnace. The client asks the salesperson if the furnace needs to be replaced in the near future. The salesperson recommends the buyer get the furnace fully inspected by a licensed TSSA technician and offers to make a referral, if needed.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 20 of 21

A buyer client is seriously considering an older duplex with out-dated wiring and a deteriorating chimney but is concerned about insurance coverage. They ask their salesperson if an insurance company would be willing to insure the home in its present condition, and if so, at what cost. What should the salesperson do to act in the buyer’s best interest? There are four options. There are multiple correct answers. 1 2 3 4

Explain that the insurance coverage is easily available, and the buyer has no reason to be concerned. Suggest the names of two or three insurance companies who specialize in these types of properties. Add a condition in the offer allowing the buyer to complete a home inspection. Add a condition in the offer allowing the buyer to confirm that insurance can be obtained at a price acceptable to the buyer.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 21 of 21

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Assessing buyer needs

Disclosure of material facts

• Ask appropriate questions to accurately assess a buyer’s needs. • Asses the buyer’s financial readiness and qualify them to select properties that meet their needs and their budget Buyers have to make decisions quickly. • If needed, revisit and refine the buyer’s criteria and requalify them to confirm their needs and priorities. This will help in identifying the best suited properties for them. • Consider the demographic factors that may influence the buyer’s needs and motivations to select or buy a property.

• Disclose material facts to both clients and customers, per Section 21 of the Code of Ethics. • For buyer clients, take reasonable steps to determine and disclose material facts. • With customers, disclose only those material facts that are known or ought to be known by a salesperson.

©2019 Real Estate Council of Ontario

Best interest of a buyer

• Always work in the best interest of the client and actively promote that interest, per Section 4 of the Code. • Be careful not to overstep your abilities when providing services and advise clients or customers to seek advice from third-party professionals when needed, per Section 8 of the Code. • Show properties that meet buyer’s criteria without regard for remuneration, per Section 19 of the Code. • Accurately and professionally prepare and convey offers on behalf of the buyers. • Negotiate for the buyer client to obtain best price for the property. • Assist the buyer client with documentation.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 1 of 15

Lesson 3: Impact of Market Conditions on Negotiation Strategies

This lesson describes the characteristics of a seller’s market, a buyer’s market, and a balanced market. It describes different market conditions and highlights how these influence negotiations and strategies used during the offer process.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 2 of 15

This lesson outlines the various market conditions that a salesperson can encounter. You will be introduced to market types known as a “seller’s market”, a “buyer’s market”, and a “balanced market”. Different market conditions, demographics, consumer vulnerabilities, and other factors can impact the strategies a salesperson will suggest to sellers and buyers during a real estate transaction. Upon completion of this lesson, the learner will be able to: • Describe the characteristics of a seller's market, buyer's market, and balanced market • Identify the strategies for addressing consumer vulnerabilities under different market conditions Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 3 of 15

Seller’s Market In a seller’s market, the number of buyers wanting properties exceeds the supply. This type of market is characterized by properties that sell quickly, rising prices, and minimal inventory available for sale. Often, sellers have the luxury of considering several offers and counter-offers for higher prices. These characteristics have implications for buyers. They do not have the liberty of looking around at various properties for any considerable amount of time and have to make decisions quickly. In addition, the buyer may have to offer more than the listed price, be ready with financing, and may want to consider submitting an unconditional offer even if they are uncomfortable with the risks that may entail. Conditional offers are frequently rejected by sellers in a seller’s market as the seller can often demand a firm offer for their property.

©2019 Real Estate Council of Ontario

How will you advise clients when drafting an offer in a seller’s market? Should they submit the best offer or hold back hoping for give and take with the seller? While there is no single strategy, you will need to consider these factors: • If you inform the seller that the offer is your buyer client’s best offer, then it should be. However, if the right house is slipping away, the buyer might change their mind. The only thing at stake when making such statements is your credibility. • The "best-offer-first” strategy is associated with strong seller markets where demand for housing is high. Going in with the best offer may be the only opportunity to catch the seller’s attention amidst competing offers. But you must prepare the buyer as their best may not be good enough. • Buyers are often tempted to delete conditions in order to make their offers more competitive in a seller’s market. For example, buyers may remove a home inspection and assume the associated risk. You will need to advise caution in such cases. You should obtain the buyer’s acknowledgement in writing that you advised the buyer to get a home inspection, and the buyer has decided to forgo it. You can provide advice to a buyer client, but you must not make decisions for them, regardless of market conditions. Sellers and buyers must decide on the price that they should accept or offer.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 4 of 15

Buyer’s Market In a buyer’s market, the supply of properties on the market exceeds the demand. Characteristics of this market include longer selling periods for properties on the market, fewer buyers compared to properties available, higher inventory, and stabilized or declining prices. The implications for buyers in this type of market are more favourable. They have the negotiating leverage, more choice, and the luxury of additional time in searching for the right property. How will you advise clients when drafting an offer in a buyer’s market? As with the seller’s market, there is no single strategy, but there are a few factors you will need to consider. Since sellers are anxiously looking for willing buyers in a strong buyer’s market, buyers may state, “this is my only offer” as a tactic. Positioning an offer as an ultimatum is a powerful negotiating tool. Remember, the individual having the least motivation has the most negotiating power. Conversely, the seller may be insulted by the offer and elect not to consider it further. Re-establishing negotiations after a rejection can be challenging.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 5 of 15

Balanced Market In a balanced market, the number of properties on the market equals the demand. The characteristics of this market include properties selling within a reasonable period, sellers accepting reasonable offers, and prices generally stabilized. The atmosphere is usually more relaxed. In a balanced market, the strategy would be a less pressured approach to negotiations as neither the seller or buyer is in a superior position. Sellers and buyers compromise and negotiate to reach an agreement. Balanced markets rarely exist, and if they do, they are usually short lived.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 6 of 15

Factors Affecting Market Conditions As a salesperson, you will need to understand that the real estate market is sensitive to changes in the balance of economic, political, and social forces within our society, which in turn influence the supply and demand for real estate, and otherwise contribute to changes in market conditions. The following four sections contain information on some additional factors that affect market conditions.

Demographic changes As you learned earlier in this module, demographic changes include immigration, migration from one part of the country to another, increase or decrease in family size, and unemployment rates. Of all these factors, an increase or decrease in family size is one of the most significant. Families are the primary consumers of housing. The family unit, which may be comprised of two adults, who may or may not have children, or one adult caring for at least one child, will often want to establish an independent household. This is known as the family formation rate. As more families are created there may be a corresponding increase in demand for housing. A high family formation rate may predict a seller’s market in the short term in a strong economy. If the demand remains constant or increases, the marketplace subsequently will need to make more housing units available for the market to equalize.

©2019 Real Estate Council of Ontario

Employment conditions With increases in employment and economic prosperity, the demand for housing also increases. Earning good wages, a buyer will be better able to afford a starter home; current homeowners and those with growing families may also begin looking for a larger home. Stable employment rates across the labour force can sometimes predict a balanced market. In periods of economic hardship and higher than normal unemployment rates, demand for real estate drops. Some properties will be put up for sale because the owners cannot afford to keep the property due to personal financial hardship. Leasing property may be considered an appealing, less risky alternative to home ownership at such times. Pensions and other social security programs, coupled with an increase in life expectancy, may allow seniors to continue as homeowners after retirement, although they may buy a smaller home or apartment. Regardless, economic downturns have typically indicated a weakening real estate market.

©2019 Real Estate Council of Ontario

Interest rates and mortgage availability Interest rates are a key motivator in determining the demand for housing. When rates are high, the real estate market tends to take a downturn as potential consumers remain in their current housing rather than taking on the risk of greater debt. If interest rates are low, mortgages become more affordable and consumers are more likely to consider buying real estate. As lenders react to market conditions, they may loosen or tighten up lending criteria, which impacts the availability of financing.

Building activity Substantial building activity normally indicates a strong real estate market. However, overbuilding can increase supply resulting in reduced real estate values. Unless the increase in supply is coupled with a corresponding increase in consumer demand, real estate prices can experience a downward trend and create a buyer’s market. Conversely, a sudden increase in demand can indicate an upward trend in real estate prices given the time it takes to build additional inventory.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 7 of 15

Consider the following scenario, “Buyers are searching for a home to purchase. However, it seems that every property they express interest in is promptly snatched up by someone else for much more than the asking price.” The above scenario describes a seller’s market. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 8 of 15

Consider the following scenario, “A young couple is expecting a baby in the fall. They’re excited to look for their first home together at the same time as their friends. As the two couples attend a series of open houses, they notice many homes are up for sale and are glad they have many options to choose from.” The above scenario describes a buyer’s market. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 9 of 15

Consider the following scenario, “A buyer is in negotiations with a seller to purchase a home. The buyer is confident that given the asking price and their generous offer, both parties can eventually come to an agreement where they’re both happy. If not, the buyer knows they have seen a few other homes in their price range.” The above scenario describes a balanced market. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 10 of 15

A salesperson is meeting with a seller who has accepted a company transfer that requires them to relocate across the country. They want to ensure that the transaction closes on time so that their children can enrol in their new school in time for the beginning of the school year. The salesperson explains to the seller that they are currently in a buyer’s market. The property is listed for sale and as the weeks pass, the seller becomes nervous due to the limited number of showings being requested. They notice that several homes in their neighbourhood are also up for sale. After several weeks, the seller gets an offer, but the price is lower than what they were expecting. What should the salesperson suggest to the seller regarding the offer? There are three options. There is only one correct answer. 1 2 3

Suggest that the seller accept the offer. Suggest that they discuss the advantages and disadvantages of the seller accepting the offer. Suggest that the seller make a counter offer at the list price to show that they are serious.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 11 of 15

Best Advice Under Varying Market Conditions The market type influences the recommendations you will make to sellers and buyers during the offer process. The following six sections contain information on how a salesperson may best advise sellers and buyers under varying market conditions.

Seller’s market: Advising the seller In a seller’s market, you will need to be prepared to offer advice to your seller client. You may recommend that the seller: • Seek a large deposit as a sign of the buyer’s commitment • Hold out for an unconditional offer and/or a counter offer for terms in their favour • Negotiate for a higher selling price, particularly when multiple offers are received. The strategy to delay offer presentations to attract multiple offers may be commonplace in some areas but carries its own risks. If this strategy is discussed, you will want to make sure that the seller understands the pros and cons of delaying offers

©2019 Real Estate Council of Ontario

Seller’s market: Advising the buyer In a seller’s market, you will need to be prepared to offer advice to your buyer client. You may recommend that the buyer consider: • Offering the highest price within the buyer’s means and/or accompanying their offer by a larger deposit than expected in current market conditions, preferably in the form of a bank draft or certified cheque on offer presentation so they are taken more seriously by sellers • Weighing the benefits and risks of submitting an offer without conditions There is also a higher risk that conditional offers will be rejected since the sellers may have multiple offers that do not include conditions. However, a buyer needs to understand the risks if they do not include conditions (such as those for home inspection and financing) in their offer. If they buy a property with undetermined defects, the appraised value may fall below the purchase price requiring a larger down payment. They may also have to later make costly repairs that they did not budget for. You will also have to remember that advising a buyer to convey any offer without conditions could be a risk and could be seen as a failure to protect their best interests. The salesperson should ensure that the ©2019 Real Estate Council of Ontario

buyer understands the risks and obtains written acknowledgment from the buyer that they were given the opportunity to include various due diligence conditions in their offer.

Buyer’s market: Advising the seller In a buyer’s market, you will need to be prepared to offer advice to your seller client. You may recommend that the seller: • Keep their home in good condition so that the property’s potential is apparent • Make the property available for as many viewings as possible • Expect to receive conditional offers, and be aware of the risks of making counter offers when there is a surplus of properties on the market • Expect that they may receive offers at a lower price point than desired with less interest in negotiations

©2019 Real Estate Council of Ontario

Buyer’s market: Advising the buyer In a buyer’s market, you will need to be prepared to offer advice to your buyer client. You may recommend that the buyer: • Make informed choices that focus on their priorities, and consider making offers on properties that satisfy most (if not all) their wants and needs • Take their time in viewing properties and putting together an offer • Submit a conditional offer to protect their best interests by including conditions (e.g., requiring a home inspection or repairs be done) • Make an offer that allows room for negotiation rather than one that is based on their maximum budget • Consider adding a clause making the purchase conditional upon the sale of their own property, as applicable

©2019 Real Estate Council of Ontario

Balanced market: Advising sellers and buyers In a balanced market, you will need to be prepared to offer advice to both your seller and buyer clients. You will usually recommend that the client: • Be prepared to make conditional and/or counter offers since these are commonplace in a balanced market; neither party is at a distinct advantage or disadvantage • Be prepared to negotiate the selling price and terms (e.g., closing dates and other matters important to both parties)

©2019 Real Estate Council of Ontario

Conditions and clauses: Protecting interests of sellers and buyers You will need to be prepared to advise on conditions and clauses that can be added to protect and promote the interests of your seller or buyer clients. You will consider including conditions regarding: The buyer arranging financing Having a home inspection done Arranging insurance The seller making certain guarantees regarding the condition of the property, chattels, and fixtures, or major improvements (e.g., swimming pools or garages) • The seller agreeing to repair damages (e.g., fixing a crack in a wall and repainting it) • • • •

Clauses could also be inserted that acknowledge certain actions to be done or permissions being granted to the parties (such as visits by the buyer to the property prior to closing).

©2019 Real Estate Council of Ontario

Lesson 3 | Page 12 of 15

Competing Offers In addition to bringing an understanding of market conditions to your relationship with your seller and buyer clients, as a salesperson, you will need to identify strategies for addressing consumer vulnerabilities under the different market conditions. In a competing offer situation, for example, you will need to provide certain pieces of information to potential buyers when you are working for a seller. These are: • • • •

The number of competing offers If a competing offer has been made by the listing salesperson If a competing offer has been made by a buyer representative within their brokerage If two buyer representatives from the same co-operating brokerage have submitted offers (as this may be a multiple representation situation for the co-operating brokerage and consent needed)

©2019 Real Estate Council of Ontario

You will not provide information about the amounts of competing offers or any terms included. Typically, the seller chooses to accept a buyer’s offer, reject it, or make a counter offer. Sometimes a seller will give one or more buyers a chance to improve their offer, but they may only get one chance. All offers will need to be in writing and signed, and you will need to work with your brokerage to keep a record of those offers on file for a year. In a housing market where there are more buyers than sellers, it is understandable that buyers can become frustrated—especially if they have submitted unsuccessful offers on several homes. In some cases, buyers may question how many other offers the seller received. In a competing offer situation, a buyer may have concerns that the offer process was not conducted fairly. When you are representing the buyer, you might be asked to obtain evidence of how many offers the seller’s brokerage received. If the seller’s brokerage cannot supply this information to your client’s satisfaction, you or the buyer may need to inquire with the Real Estate Council of Ontario (RECO). RECO will contact the seller’s brokerage to confirm the offer information. Be aware that RECO will only provide the total number of offers and it may take some time for the request to be processed.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 13 of 15

A salesperson is showing a property to a buyer who currently owns a home. The buyer is interested in making an offer but can only afford it if they sell their own home. The buyer expects that their home, once listed, would sell within 30 days. What advice should the salesperson give to the buyer if it is a buyer’s market? There are three options. There is only one correct answer. 1 2 3

The buyer should submit an offer on the home only after they sell her current property. The buyer should submit an unconditional offer as soon as possible. The buyer should make an offer as soon as possible and include a condition that the purchase is contingent upon the sale of their current property within 30 days.

Lesson 3 | Page 14 of 15

A salesperson presents an offer on a unit in a condominium to their seller on the first day after it is listed. The offer is lower than the list price and is conditional upon the buyer obtaining financing. What advice should the salesperson give to the seller regarding the offer if this is a seller’s market? There are three options. There are multiple correct answers. 1 2 3

The seller could counter the offer for terms in their favour. The seller could reject the offer and instruct the salesperson to delay all offer presentations for two days in an effort to encourage multiple offers. The seller could accept the offer and agree to the condition.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 15 of 15

Congratulations, you have completed the lesson! There are six sections on this page with a summary of the key topics that were discussed in this lesson.

Seller’s market characteristics

Buyer’s market characteristics

Balanced market characteristics

Seller’s market: Advice to sellers and buyers

In a seller’s market: • The number of buyers wanting properties exceeds the supply. • Properties sell quickly, and prices are high with few or no conditions. • Sellers can demand a firm sale on the property. • Buyers have to make decisions quickly. • Buyers should be ready with financing. In a buyer’s market: • The supply of properties exceeds the demand. • The selling periods of properties are longer. • The prices are stable and more affordable. • Buyers have negotiating leverage. • Buyers have time to search for the right property. In a balanced market: • The number of properties on the market satisfies the demand. • Properties sell within a reasonable period of time. • Prices are stable. • Negotiations are less pressured. In a seller’s market: • Sellers can seek high deposits, hold out for unconditional offers, and negotiate for a higher selling price. • Buyers should provide a significant deposit and consider all the risks associated with submitting unconditional offers.

©2019 Real Estate Council of Ontario

Buyer’s market: Advice to sellers and buyers Balanced market: Advice to sellers and buyers

In a buyer’s market: • Sellers should keep their homes in good condition, be open for viewings, and expect to receive conditional offers and lower prices. • Buyers can make informed choices, make conditional offers, and negotiate for a better price. In a balanced market: • Conditional and counter offers are commonplace. • Sellers and buyers have room to negotiate a reasonable selling price.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 1 of 11

Lesson 4: Summary Practice Activities

This lesson contains several review activities to test your knowledge on the entire module.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 2 of 11

This lesson contains summary decision points that will test your knowledge regarding the factors impacting residential real estate negotiations covered in this module. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 3 of 11

A salesperson is inspecting a property prior to listing it. While in the basement, the salesperson notices a number of rusty staples in the wall panelling and some efflorescence on the concrete block wall. The seller states that there was some leakage from a basement window a couple of years ago but assures the salesperson that it was repaired by a contractor and has not leaked since. What should the salesperson do in this situation? There are four options. There are multiple correct answers.

1 2 3 4

Recommend that the seller get the problem inspected by a third-party professional before putting the home on the market. Since it was repaired, there is no need to disclose the problem as the seller has assured the salesperson that it no longer leaks. Make the seller aware that the presence of the rusty staples and efflorescence will likely be pointed out by any salespersons who show the property to buyers. Obtain documents from the seller regarding the repairs.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 4 of 11

A listing salesperson is presenting two competing offers on their seller’s home which is listed at $250,000. The first offer presented is from a buyer being represented by the salesperson’s brokerage. It is for $240,000 and has a condition for three days on a home inspection. The second offer presented is from a buyer being represented by another brokerage and is for $240,000 with no conditions. What should the listing salesperson do to promote and protect the seller’s best interests? There are three options. There is only one correct answer.

1 2 3

Suggest that the seller accept the listing brokerage’s offer as it was presented first. The condition is minor and is only for three days. Suggest that the seller accept the offer from the other brokerage as it is unconditional. Suggest that the seller counter offer both offers for $5,000 more and see which one is accepted.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 5 of 11

In preparation for creating a listing agreement, a salesperson has the responsibility to identify defects in a property. Which of the given are the salesperson’s responsibilities during an inspection? There are four options. There are multiple correct answers. 1 2 3 4

Look for signs of defects that may not be obvious Use their experience to assess the extent of a defect Watch for outdated electrical, plumbing and HVAC systems Note any evidence of alterations and additions

©2019 Real Estate Council of Ontario

Lesson 4 | Page 6 of 11

A salesperson is meeting with buyer clients who have explained that they prefer a specific neighbourhood but realize that a suitable property might not be available there. Following the qualification process, the salesperson determines that they are looking for a three-bedroom house with a pool in the $435,000 to $460,000 range. The salesperson finds a property that meets their criteria in the neighbourhood they prefer. However, when making the appointment to show, the listing brokerage tells the salesperson there was a fire on the property two years ago that led to damages amounting to $50,000. The brokerage also discloses that while making the repairs, an ensuite bathroom was added to the master bedroom. What actions should the salesperson take to fulfill the obligations to the buyers? There are three options. There are multiple correct answers. 1 2 3

Obtain documentation regarding the repairs and additions from the listing salesperson. Avoid this property and instead look for properties in other locations as the buyers are not particular about the area. Add a condition in the offer for a home inspection.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 7 of 11

A salesperson, while showing an older cottage property to a buyer client, notices a crack in the exterior wall and advises the buyer that the crack is only minor and they need not be concerned. The salesperson assures them that this sort of thing is common in nonwinterized cottages as the perimeter foundation may move slightly, but things would return to normal in the spring. The action that the salesperson demonstrates is in the best interests of the buyer. There are two options. There is only one correct answer. True

False

Lesson 4 | Page 8 of 11

A salesperson, while showing an older cottage property to a buyer client, notices water stains above a window frame in the master bedroom that appears to have been recently patched. The salesperson makes a point of discussing the potential leakage problem with the buyer. The action that the salesperson demonstrates is in the best interests of the buyer. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 9 of 11

A salesperson, while showing an older cottage property to a buyer client, notices that the floor in the kitchen slopes significantly towards the back of the home. The salesperson advises the buyer that if they wish to submit an offer they should include a condition permitting a home inspection and possibly an assessment by a structural engineer. The action that the salesperson demonstrates is in the best interests of the buyer. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 10 of 11

In a buyer’s market, a buyer asks a salesperson to put in an initial offer of $473,000 on a property listed at $499,900. The salesperson presents the offer and receives a counter offer for $489,000. The buyer has been pre-approved by a lender for a mortgage not exceeding $440,000 and has $50,000 in the bank they can use as a down payment. They ask the salesperson for advice regarding the counter offer. What advice should the salesperson give to the buyer? There are three options. There is only one correct answer.

1 2 3

The buyer should consider any recent comparable sales which may indicate that the amount of the counter offer is appropriate. The buyer should accept the counter offer as the value is within the range that was approved by the mortgage specialist when they were pre-qualified. The buyer should make a counter offer for $481,000 as that would be halfway between their first offer and the seller’s counter offer.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 11 of 11

Congratulations, you have completed the lesson!

©2019 Real Estate Council of Ontario

Module Summary | Page 1 of 4

Module Summary

This lesson contains a summary of the entire module and a list of helpful resources available in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 2 of 4

Congratulations, you have completed this module! This lesson will present a summary of Learning Objectives and a list of helpful resources that you can search for in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 3 of 4

There are three sections on this page with a summary of the key topics that were discussed in this module.

Needs, Material facts, and Best Interests of a Seller

Residential resale transactions involve extensive work with sellers and buyers and their changing needs and wants. To accurately assess a seller’s needs, you will ask them questions that will help you in assessing their needs and motivations to get accurate and complete information on the property. You will need to take reasonable steps to determine and disclose material facts relating to the purchase or sale of the property to seller clients, per Subsection 21(1) of the Code of Ethics. You will always need to take care to work in the best interest of the client and actively promote that interest, per Section 4 of the Code. You will only need to disclose material facts that are known or ought to be known by a salesperson when working with seller customers, per Subsection 21(2) of the Code of Ethics. You will have to perform due diligence to fulfill your obligation to identify defects, which can be patent defects, latent defects, or the most severe type of latent defect, material latent defects. You will also need to verify information the seller provides related to defects. The seller is not obligated to disclose patent defects to potential buyers. However, the seller must disclose known latent defects. Non-disclosure of known latent defects may result in civil liabilities. Completion of this lesson has enabled you to: • Recognize the importance of assessing a seller’s needs • Describe the regulatory requirements of a salesperson regarding material facts of a seller • Describe the regulatory requirements of a salesperson regarding the best interests of a client • Identify a seller's legal obligation for disclosure of known defects

©2019 Real Estate Council of Ontario

Needs, Material Facts, and Best Interests of a Buyer

To assess a buyer’s needs and determine the property that will best suit them, you will take several steps, including asking appropriate questions of the buyer, qualifying the buyer, revisiting the buyer’s criteria during the sale process, and understanding the impact of demographics on the buyer’s needs and motivations. Subsection 21(1) of the Code will require you to determine and disclose material facts about a property to buyer clients. You will always need to work in the best interests of a buyer client and actively promote and protect that interest. You will only need to disclose material facts that are known or ought to be known by a salesperson when working with buyer customers, per Subsection 21(2) of the Code of Ethics. If situations arise that require knowledge and skills that exceed a salesperson’s area of expertise, you will advise the client or customer to obtain services from thirdparty professionals.

Impact of Market Conditions on Negotiation Strategies

Completion of this module has enabled you to: • Recognize the importance of assessing a buyer’s needs • Describe the regulatory requirements of a salesperson regarding material facts of a buyer • Describe the regulatory requirements of a salesperson regarding the best interests of a buyer client The market type influences the recommendations you will make to sellers and buyers during the offer process. There can be three market types: the seller’s market, the buyer’s market, or the balanced market. You will need to ensure that seller and buyer clients understand the market conditions, prepare them for negotiations, and give appropriate offer advice. However, you will never make decisions on behalf of the client. Completion of this module has enabled you to: • Describe the characteristics of a seller's market, buyer's market, and balanced market • Identify the strategies for addressing consumer vulnerabilities under different market conditions

©2019 Real Estate Council of Ontario

Module Summary | Page 4 of 4

Module Resources There are five helpful resources related to this module that you can search for in the Knowledge Management System. 1. Discovery Questions to Assist a Salesperson When Working with Sellers or Buyers: These tables contain lists of sample questions used to assess a seller’s needs and wants, as well as questions used to qualify a buyer and to assess their needs. This job aid can help a salesperson prepare to list a seller’s subject property or recommend available properties to a buyer. 2. Identifying and Disclosing Material Facts: This job aid provides an overview of material facts, including the definition and obligations under the Code. It also identifies sample questions a salesperson may ask a seller about their property to assist in identifying material facts, and some examples of common property issues related to material facts for both sellers and buyers. A salesperson can use this job aid to develop strategies to discover material facts, and disclosure requirements for the salesperson and the seller. 3. Verifying Property Information: This table contains a list of sources that a salesperson may use when verifying information about a property they are listing for sale. A salesperson can use this job aid to develop strategies to verify property information while working with a seller or a buyer. 4. Types of Defects and Required Disclosures: This table differentiates between the two types of defects, reviews disclosure requirements, and provides illustrative examples. This job aid can help a salesperson understand how to identify defects. 5. Identifying Defects: This checklist contains a non-exhaustive list of actions that a salesperson may take to identify defects in a property. This job aid can help a salesperson better assess the property and identify aspects to research further, or aspects that may need to be disclosed by a seller to a buyer. While navigating through the online module, click the KMS button for tools and information on this topic.

©2019 Real Estate Council of Ontario

V7

Module 5: The Financial Aspects of the Buying and Selling Process and the Role of Third-Party Professionals Disclaimer: This is a reference document which contains pages from the Accessible eLearning module. You should complete the eLearning module to proceed to the next step. Please note that the accessible module on the LMS only contains the interactive pages and you need to go through the content of this document thoroughly to attempt the interactive activities in the module. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Salesperson Program ©2019 Real Estate Council of Ontario. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or in any means – by electronic, mechanical, photocopying, recording or otherwise without prior written permission, except for the personal use of the Real Estate Salesperson Program learner.

©2019 Real Estate Council of Ontario

Module 5: The Financial Aspects of the Buying and Selling Process and the Role of Third-Party Professionals In this module, you will learn about various expenses incurred by a seller and a buyer in a real estate transaction. You will also learn about the types of services provided by third-party professionals, your obligations when you refer a seller or a buyer to them, and why it is important to suggest to sellers and buyers that they obtain advice from these professionals. Lastly, you will learn when to suggest that a buyer contact a mortgage specialist, and you will gain some insight into mortgage essentials. As a salesperson, in your effort to provide conscientious and competent service, you should be able to understand, explain, and answer the general questions you receive from sellers and buyers on the financial aspects of the real estate transaction. Possessing this knowledge will help you complete your due diligence, strengthen your relationships with sellers and buyers, and build your professional reputation. To check your understanding of this module, you must complete all the activities in the online module. While navigating through the online module, click the Legislation button to view laws and regulations related to this module. While navigating through the online module, click the KMS button to access the Knowledge Management System or visit the Module Resources to find the list of all the KMS assets for this module. The contents of the thumbnail icon and References from the module are added to support your learning throughout this Accessible PDF. ©2019 Real Estate Council of Ontario

Menu: The Financial Aspects of the Buying and Selling Process and the Role of Third-Party Professionals Number of Lessons

6 Lessons

Lesson Number Lesson 1 Lesson 2 Lesson 3 Lesson 4 Lesson 5

Lesson Name Expenses for Sellers and Buyers Mortgage Essentials Mortgage Approval and Mortgage Specialists Role of Lawyers and Other Third-Party Service Providers Summary Practice Activities Module Summary

©2019 Real Estate Council of Ontario

Lesson 1 | Page 1 of 15

Lesson 1: Expenses for Sellers and Buyers

This lesson identifies the typical expenses incurred by a seller and a buyer in a real estate transaction such as expenses related to third-party professionals, legal fees, taxes, remuneration, moving, and adjustments on closing, and how these expenses differ for a seller and a buyer.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 2 of 15

This lesson details the typical expenses incurred by a seller and a buyer in a real estate transaction such as expenses related to third-party professionals, legal fees, taxes, remuneration, moving, and adjustments on closing. This lesson also covers how these expenses differ for a seller and a buyer. You cannot predict an extensive list of every seller’s or buyer's expenses. However, general knowledge will help you to better understand and prepare the seller and buyer. For example, you can discuss the range of closing costs with sellers and buyers, but not the specifics. The information you provide must be limited to general estimates only, leaving precise details to the appropriate experts. Understanding this will also help you fulfill your obligations under REBBA and prevent any risk of damage to your reputation or relationship with a seller or buyer. Upon completion of this lesson, you will be able to: • Identify typical expenses incurred by a seller in a real estate transaction • Identify typical expenses incurred by a buyer in a real estate transaction Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 3 of 15

Third-Party Expenses for a Seller, I The home selling process entails several third-party expenses that the seller may not be aware of, such as the costs of obtaining services from a home stager, lender, surveyor, and other third parties. As a salesperson, you will need to demonstrate knowledge and skill when advising a seller on potential expenses associated with selling their home.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 4 of 15

Third-Party Expenses for a Seller, II Now, we will take a closer look at some third-party expenses that a seller may incur in a typical real estate transaction. The following four sections contain information about the typical third-party expenses for a seller. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Home stager Home staging is the process of making a home esthetically attractive to potential buyers. The aim is to sell a home quickly and for the most money possible by highlighting its key features and conveying a positive visual impression to potential buyers. A seller has several options when staging a property: • Use a professional stager to spotlight their home • Obtain guidance from a real estate professional trained in staging concepts • Rely on the many do-it-yourself home staging guides It is important to note that home staging is not a regulated field and there are no industry standards. Staging costs can vary depending on the stager, the amount of work involved, and the number of furnishings required.

©2019 Real Estate Council of Ontario

Lender A seller may need to obtain expert advice from a lender for certain aspects of the selling process. For example, if the seller wants to discharge a mortgage before the term has expired and there is a discharge penalty, the seller would be required to pay the cost of discharging the mortgage. The seller should contact their lender to determine the amount, if any, that would be charged for this early discharge. As another example, the seller may want to take their existing mortgage to another property that they buy and speak to the lender regarding any additional costs.

©2019 Real Estate Council of Ontario

Surveyor A seller may require a surveyor to verify the size and extent of the current land ownership. The cost of the survey depends on various factors such as the size of the property and if there is an old survey in existence. Surveyors prepare a report that sets out the property's boundaries and all structures on the property. The report is accompanied by a written document that sets out any issues arising from the survey and the surveyor's opinions on such matters.

©2019 Real Estate Council of Ontario

Lawyer The seller will require the services of a lawyer to: • Review the Agreement of Purchase and Sale • Note any deadlines to ensure the transaction proceeds as scheduled • Respond to any questions or concerns received from the buyer’s lawyer as a result of title and non-title searches • Prepare and deliver the Statement of Adjustments to the buyer's lawyer • Fulfill any other requirements of the transaction • Ensure that prepaid expenses are returned to the seller by way of adjustments and that they have settled any outstanding property tax or utility payments before closing • Transfer the property title to the new owner Legal fees will range in price depending on the complexity of the transaction. They include fees for the lawyer's time and expenditures to address the transaction on behalf of the seller. Expenditures can include document preparation, registration of a discharge of the charge/mortgage, and other miscellaneous disbursements.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 5 of 15

Additional Expenses for a Seller There are several other expenses that a seller may have to incur when selling their home. Taxes such as the Harmonized Sales Tax (HST) or capital gains tax could be applicable to the sale. Other expenses could include brokerage remuneration, moving expenses, and adjustments made on closing by the lawyer. Possessing this knowledge will help you as a salesperson comply with various ethical requirements, such as referring the seller to third-party professionals, ensuring the seller understands the costs associated with the sale, and working in their best interests when selling their home.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 6 of 15

Additional Expenses for a Seller Now let's understand some other expenses that a seller may incur during the selling process. The following four sections contain information about additional expenses for a seller.

Harmonized Sales Tax (HST) and capital gains tax Expenses related to taxes include the Harmonized Sales Tax (HST) and capital gains tax. HST is applicable on various services associated with the closing such as lawyer fees, brokerage fees or remuneration (if applicable), and moving costs. The capital gains tax is applicable to any capital gain realized on the sale of a seller's rental or investment property or non-principal residence. The capital gains tax would not be payable on closing but would be paid by the seller on their next income tax return. The capital gains tax is not normally considered a closing cost, but it can create closing complexities in the event that the seller is a non-resident. The seller would be advised by the salesperson to contact their accountant for an estimate of the tax payable as this is beyond the expertise of a salesperson. If the seller is a nonresident of Canada, then they would have to pay the capital gains tax on or before closing and provide evidence to the buyer's lawyer by means of a

©2019 Real Estate Council of Ontario

Clearance Certificate, or the buyer's lawyer could withhold the capital gains tax from the purchase price.

Remuneration Generally, the seller pays the remuneration owed to both the brokerage(s). The listing brokerage then shares remuneration with the co-operating brokerage (when applicable) as stipulated in a seller representation agreement. In most cases, the brokerage has the right to first apply the deposit to reduce remuneration owed on closing. If there is any deficiency, the balance of the remuneration (plus the HST applicable on the full remuneration owing) is paid by the seller's lawyer to the listing brokerage once the transaction has closed. A brokerage may not disburse the deposit from their statutory trust account until they have received confirmation from the seller’s lawyer that the transaction has been completed.

©2019 Real Estate Council of Ontario

Moving expenses Moving expenses can include incidental costs associated with change of address, legal documents, drivers' licenses, and vehicle permits. The cost of moving may vary greatly depending on the moving company selected. For example, the seller may decide to rent their own truck and pack themselves, or they may decide to hire professional movers for the entire process. Other expenses may include the costs of transferring utility accounts or opening new accounts. In some cases, a seller may have installed a new furnace on a rent-to-own basis or conditional sales contract. Prior to closing, any outstanding balance for the furnace would be paid by the seller. The buyer would not normally assume the contract to pay for the furnace.

©2019 Real Estate Council of Ontario

Expenses related to adjustments made on closing Adjustments are costs that are allocated between the seller and buyer on closing. It could be a debit or credit to either party depending on the situation. The expenses that are most commonly adjusted for include unmetered utility costs and property tax. Property taxes would be payable or credited on closing. This would become an adjustment item on the Statement of Adjustments. If the seller has paid the tax until the end of the year and the closing is earlier, the seller would be credited the amount representing the time they will not own the property. In some cases, there could be an outstanding bulk of utility costs (such as water and electricity) that would become an adjustment item to the credit of the buyer on closing. You will learn more about this later.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 7 of 15

A seller is selling their investment property. The seller has agreed to let the current tenants stay until closing or longer if the new owner agrees. Despite nominal outlays for upkeep, the home is in good condition although the wallpaper and the tenants’ furniture look a bit dated. The home has a mortgage. The seller is planning to list the property at an amount that is twice what they originally paid.

The salesperson wants to ensure the seller is aware of the expenses they are likely to incur. Which of the following expenses should the salesperson discuss with this seller? There are six options. There are multiple correct answers.

1 2 3 4 5 6

Capital gains tax Fees charged by a professional home stager Brokerage remuneration Lawyer’s fees and disbursements Adjustment expenses Moving expenses

©2019 Real Estate Council of Ontario

Lesson 1 | Page 8 of 15

Third-Party Expenses for a Buyer, I Just as a seller will incur expenses during the home selling process, a buyer will incur expenses during the home buying process. The home buying process could entail third-party expenses that the buyer may not be aware of, such as the costs of obtaining services from a property inspector, appraiser, and a surveyor. As a salesperson, you should make the buyer aware of any potential expenses when buying a home. This will help ensure the buyer has sufficient funds to complete the transaction and will help you build confidence with potential buyers.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 9 of 15

Third-Party Expenses for a Buyer, II Now let us take a closer look at some third-party expenses that a buyer may incur in a typical real estate transaction such as the costs of obtaining services from a property inspector, appraiser, lawyer, and surveyor. The following four sections contain information about the typical third-party expenses for a buyer. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Property inspector A buyer may require the services of a property inspector to learn about the condition of a property prior to purchase. An inspection report includes information about the physical structure, including the roof, attic, walls, floors, ceiling, windows, doors, insulation, and all other visible components of the structure. The mechanical systems are also inspected, including the condition of the heating system, central air conditioning, electrical, plumbing, and other systems.

©2019 Real Estate Council of Ontario

Appraiser An appraisal is the act or process of estimating value and providing an opinion concerning that value. The lender may require an appraisal of the property when arranging the mortgage for the buyer to ensure that the value of the property is sufficient in the event the buyer defaults on the mortgage payment. Although a lender requests most appraisals, the borrower (buyer) often pays the appraisal cost.

©2019 Real Estate Council of Ontario

Surveyor A buyer may require a survey to identify any encroachments, improvement locations, or other issues that their lawyer believes would not be addressed by title insurance. In addition, if the buyer was contemplating improvements after the closing that would require a building permit, minor variance, and severance, then a survey would often be required. Obtaining a survey will help the buyer learn about any encroachments or easements that will prevent them from making future changes to it. It will also identify the property boundaries (scope of ownership) and the location of most improvements to the property such as the house, garage, and fence. The surveyor’s fee may vary depending on a few conditions such as the property’s size, shape, terrain, and accessibility.

©2019 Real Estate Council of Ontario

Lawyer A buyer will require the services of a lawyer to review the agreement of purchase and sale, and to perform a title search, which verifies the seller's ownership of the property and identifies if there are any encumbrances against the title that will affect the buyer's ability to acquire a clear, free, and marketable title. The buyer will also pay certain expenses related to documents, such as the cost of registering the transfer/deed and any charge/mortgage. You will learn more about this later in the module.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 10 of 15

There are several other expenses that a buyer may have to incur when buying a home. Some of these include land transfer tax, remuneration, moving expenses, and adjustments made on closing. Understanding and explaining to the buyer that they will have expenses which they may not have considered when purchasing a home will show that you as a salesperson are knowledgeable and professional.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 11 of 15

Additional Expenses for a Buyer Now, you will take a closer look at some other expenses that a buyer may incur during the buying process. The following four sections contain information about these other expenses for a buyer.

Land transfer tax and Harmonized Sales Tax (HST) When a buyer purchases a property, they are required to pay Ontario provincial land transfer tax, which is based on the price paid for the property. The land transfer tax is assessed when a deed is registered, transferring ownership of the property from the seller to the buyer. First-time home buyers may qualify for a refund of some or all of the land transfer tax that would be applicable. Other tax-related expenses include the HST on the various services associated with the transaction such as lawyer, home inspectors, appraisals, brokerage remuneration (if applicable), etc. In addition to the Ontario provincial land transfer tax, the city of Toronto levies a municipal land transfer tax equal in value to the provincial Ontario land transfer tax.

©2019 Real Estate Council of Ontario

Remuneration Remuneration paid to the brokerage(s) is most commonly paid to the listing brokerage by the seller's lawyer (as per the terms of the seller representation agreement) and appear as an adjustment item on the Statement of Adjustments. On some occasions, the buyer may be obligated to pay remuneration to the brokerage that is representing them under the terms of a buyer representation agreement. In those cases, the buyer can pay the remuneration directly to their brokerage or instruct their lawyer to pay the fee.

©2019 Real Estate Council of Ontario

Moving expenses Expenses that are related to moving may include the cost of renting a truck to transfer belongings to a new home and hiring professional movers to assist with the move. There may be incidental costs associated with change of address, driver’s licenses, and vehicle permits. Other expenses may include the costs associated with arranging new utility accounts or transferring existing accounts such as electricity, telephone, and internet services.

©2019 Real Estate Council of Ontario

Expenses related to adjustments made on closing The expenses related to adjustments include the costs that are allocated between the seller and the buyer. The seller is responsible for costs associated with the property until the day before closing, and the buyer is responsible from the date of closing forward. The expenses that are most commonly adjusted for include unmetered utility costs (such as an oil tank) and property taxes. Example: • If the seller has paid the taxes in full to the end of the year, then the seller will be entitled to a credit for that portion of the year during which they did not own the property. The buyer is responsible for the amount from the day of closing until the end of the tax year. • If the house is equipped with a heating system that is heated using oil, it will require that the seller purchase a full tank of fuel oil. This amount would be charged back to the buyer by way of credit to the seller.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 12 of 15

Land Transfer Tax and Credits When a buyer purchases a property or land in Ontario, the transaction is subject to provincial land transfer tax, which is due from the buyer on closing. First-time buyers may be eligible for a full or partial refund of the land transfer tax. The following two sections contain information about the land transfer tax and credits for first-time home buyers.

Calculation of land transfer tax First-time buyers refund (new and resale houses)

The land transfer tax uses a sliding scale of percentages based on property value. The lawyer will arrange for the land transfer tax to be paid when the deed to the property is transferred to the buyer's name. First-time buyers of newly constructed and resale homes are eligible for a full or partial refund of the land transfer tax. The criteria to qualify for this refund are as follows: • The buyer must be a Canadian citizen or a permanent resident of Canada. • The buyer must be 18 years of age or older. • The buyer must occupy the home as a principal residence within nine months of registration. • The buyer cannot have owned a home anywhere in the world. (This is confirmed by signing an affidavit with a lawyer.) • If the buyer has a spouse, the spouse cannot have owned an eligible home or had any ownership interest in an eligible home anywhere in the world while he or she was the buyer's spouse. (This is confirmed by signing an affidavit with a lawyer.) If they have, then a refund would not be available to either spouse. The maximum amount of a refund of the land transfer tax to buyers of a resale home is $4,000. Based on Ontario’s land transfer tax rates, this refund will cover the full tax for homes with a purchase price of up to $368,000. For homes ©2019 Real Estate Council of Ontario

purchased for more than $368,000, buyers will receive the full $4,000 rebate and pay the remaining balance of the land transfer tax owing. The land transfer tax on a newly constructed home purchased from a builder is calculated on a purchase price net of HST; therefore, the Ontario land transfer tax will be slightly less and will be reflected on the amount of refund to a buyer. The maximum amount of the rebate remains the same for both resale and newly constructed homes purchased from a builder.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 13 of 15

Costs for the Day of Closing Most adjustments are made on a per day or per diem basis. The day of closing is the day upon which ownership of the property is transferred to the buyer from the seller. To simplify the adjustment process and eliminate the need for a "part day" adjustment, the Vendors and Purchasers Act stipulates that the buyer is responsible for the costs that are incurred on the day of closing.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 14 of 15

A first-time buyer is interested in purchasing a home. The buyer meets with their salesperson to ask about any expenses they might encounter in the home buying process.

Which of the given expenses should the salesperson advise the buyer to consider? There are four options. There are multiple correct answers. 1 2 3 4

Capital gains tax Expenses the seller may have prepaid for which the buyer may be responsible Land Transfer Tax (LTT) The cost of a home inspection

©2019 Real Estate Council of Ontario

Lesson 1 | Page 15 of 15

Congratulations, you have completed the lesson! In this lesson, you learned about the typical expenses that a seller and a buyer may incur in the selling process, such as those related to third-party professionals, lawyer's fees, real estate remuneration, moving costs, unmetered utility amounts, and various types of taxes, including HST and capital gains tax. You have also learned about the additional expenses that a buyer may incur, such as the land transfer tax. Understanding these expenses will help you as a salesperson demonstrate reasonable knowledge, skill, and judgement in providing advice or information to the sellers and buyers in the process of selling or buying a property.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 1 of 30

Lesson 2: Mortgage Essentials

This lesson describes the essentials of a mortgage such as types of mortgages, amortization, term, and legal and equitable mortgage. This lesson also describes the sources of mortgage funding for buyers and the services they provide, how mortgages are funded, and factors that impact mortgage interest rates.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 2 of 30

This lesson describes the terms relating to mortgage financing, such as the types of mortgages, amortization, term, and loan-to-value ratio. This lesson also discusses the covenants (promises), rights, and privileges under mortgages; sources of mortgage funding for buyers and the services that will be provided; factors that impact mortgage interest rates; and how to calculate a mortgage payment under various scenarios. Understanding the basics of a mortgage will help you demonstrate reasonable knowledge and competence in providing information to sellers and buyers. As a salesperson, you should be capable of providing general information about mortgages and recommend the seller or the buyer speak to a professional, such as a lender or mortgage broker, when financing aspects of a transaction need to be addressed. Upon completion of this lesson, you will be able to: • Describe a mortgage • Identify sources of funding for buyers Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 3 of 30

Mortgage Basics A mortgage is a claim or encumbrance upon a property given by the owner of the property to the lender as security for the money borrowed. The two parties to a mortgage transaction are referred to as the mortgagor (borrower) and the mortgagee (lender). The borrower gives the mortgage as security for the loan, receives the funds, makes the required payments, and maintains possession and ownership of the property. The lender gives or lends the money and registers the mortgage against the property. The borrower has the right to have the mortgage discharged from the title once the debt is fully paid. Knowing the basics of mortgages will help you as a salesperson to understand the concerns of buyers and provide informed and effective service. It is important to note that you should refer buyers to a mortgage specialist for precise details. Section 8 of the Code states that the salesperson will advise sellers and buyers to obtain the services of a professional when they do not have the knowledge, skill, judgement, or competence to provide the services.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 4 of 30

Types of Mortgages Historically, borrowed funds were traditionally secured by the lender taking physical possession of the property. The property reverted to the original owner on a specified date, assuming the loan was paid with interest. Otherwise, the property was lost forever due to lack of payments on agreed dates. Over the years, the intent underlying a mortgage changed. The borrower came to retain possession of the land but pledges it to the lender as security. Mortgages are referred to in terms of their priority of registration. For example, a property may have two mortgages registered on title. Distinguishing these mortgages is required as the priority of registration can impact the ability of the lender to recover the debt owed should a default occur. Let's look at the various types of mortgages and how they differ from each other. The following two sections contain information about the types of mortgages.

Legal mortgage

As the mortgage historically transferred the owner’s interest in the land to the lender until the loan was repaid, it was termed the legal mortgage as transferring title could only occur once. It is commonly referred to as a first mortgage today. In the event of default, the lender can take action against the borrower. This could include either foreclosure, where the borrower forfeits any equity that they may have in the property, or it could include forcing the sale of the property under power of sale. In the event of a sale or some disposition of the property, the first mortgage is first in priority to be paid. Any mortgage registered after this would be paid based on the funds remaining after full payment to the legal or first mortgage.

Equitable mortgage

An equitable mortgage is commonly known as a second mortgage, third mortgage, and so on. This is sometimes used when a borrower requires additional funding but does not want to disturb the existing legal (first) mortgage, or the mortgagee does not want added risk by increasing the first mortgage but is agreeable to another secondary lender assuming that risk.

©2019 Real Estate Council of Ontario

The secondary lender is content with this added risk if they feel that the property and borrower’s ability to pay are acceptable. This subsequent mortgage often requires a higher interest rate to offset the increased risk of the mortgage being in second place if a default occurs.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 5 of 30

Amortization and Term Amortization refers to the gradual retirement of a debt by means of periodic partial payments of principal and interest. After a number of years of scheduled payments, the total loan amount will be paid in full. Term refers to the time period a lender agrees to loan the funds for on agreed upon specifics, such as the interest rate or any privileges. The following three sections contain information about the amortization options and the term of a mortgage.

Fully amortized mortgage

A fully amortized loan is a mortgage loan with specified scheduled payments, which include principal and interest that a borrower will pay over a designated period of time until the maturity date when the loan is paid in full. Amortization periods typically range from five to 30 years, and commonly residential mortgages range between 15 and 25 years. A longer amortization results in a lower mortgage payment; however, the amount of interest paid over the amortization increases. A fully amortized mortgage is where the amortization and the term of the mortgage are the same.

Partially amortized mortgage

In a partially amortized mortgage, the borrower makes payments of principal and interest, but these installment payments are not sufficient to pay back the total principal amount at the end of the term. Therefore, a final payment on the mortgage at its maturity date would be required to pay off the debt in full. This is known as a balloon payment. Instead of paying the full amount by way of the balloon payment, the borrower may renew the mortgage for another period of time (called a term) until the total debt has been paid. A mortgage may be amortized over 30 years yet broken down into smaller terms that are renewed.

©2019 Real Estate Council of Ontario

Term

The mortgage term is the length of time the borrower is committed to the lender. The mortgage will have a specified interest rate, payment schedule, and privileges associated with it for the term. When the term has ended and there is an outstanding amount of money still owed to the lender, a borrower will renew the mortgage. This could be with the same lender or a different lender, and the interest rate, payment schedule, and privileges associated with the loan may differ from what was previously agreed to. The term of a mortgage can vary based on many factors, such as the anticipated direction of interest rates. For example, if interest rates appear to be falling, a borrower may have a short term to the mortgage, such as six months. If interest rates are stable or increasing, a borrower may choose a longer term, such as five years, to be assured of the lower or stable interest rate.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 6 of 30

Loan-to-Value The loan-to-value ratio is a term used to express the ratio of a loan to the value of a property. The amount of the mortgage is divided by the value of the property to provide a ratio, which would be expressed as a percentage. The higher the percentage, the more risk the lender has because the loan amount is high in relation to the amount of equity the borrower has in the property. Most lenders use a conservative loan-to-value ratio as a way to reduce their risk associated with a loan. Additional security or collateral is usually sought in instances when the loan-to-value ratio meets or slightly exceeds a predetermined comfort level for the lender. Example: A property’s estimated value is $550,000, and the borrower wishes to obtain a mortgage in the amount of $375,000. The lender assesses the loan-to-value ratio when considering the mortgage application. The loan-to-value ratio for this borrower is 68% ($375,000/$550,000). The lender is satisfied with this ratio when reviewing the application. You will learn more about this later in this module.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 7 of 30

Fixed Rate Versus Variable Rate Mortgages A fixed rate mortgage is a mortgage in which the rate of interest does not change throughout the term of the loan. The amount of principal and interest paid each month in a blended payment may vary, but the total payment remains the same. The standard blended mortgage is generally referred to as a fixed mortgage; namely, a blended principal and interest payment is fixed throughout the term. A variable rate mortgage is a mortgage in which the interest rate is adjusted periodically to reflect market conditions. Variable rate mortgages fluctuate with the applicable bank prime rate. Corresponding adjustments are made to payments or amortization. Typically, payment adjustments are made quarterly, half yearly, or yearly.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 8 of 30

Repayment Options Mortgages are repaid using a series of payments over a period of time. These payments usually include an interest amount calculated on the unpaid balance plus a portion of the unpaid balance of the mortgage amount. Any payment made against the principal amount of the mortgage owing is called a principal payment. Most mortgage products flow from four basic payment arrangements: interest only, interest accruing, interest plus specified principal, and blended (amortized). The final option can be either a fixed or variable rate. The following four sections contain information about the basic mortgage payment arrangements. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Interest only

Interest accruing Interest plus specified principal Blended (amortized)

The borrower does not repay any principal, but remits interest payments at regular, specified intervals. The principal amount is due at the end of the mortgage term. Interest only mortgages are sometimes used in short-term private or interim financing to avoid complex interest calculations. The lender receives no payment of interest or principal during the mortgage term. Interest due and payable is accrued. Consequently, the lender's risk grows during the term. Interest accruing mortgages are rarely found in today's marketplace and, if used at all, would undoubtedly be for a very short time period. This plan, sometimes referred to as a straight principal reduction plan, requires the borrower to repay a fixed principal amount at specified times during the term. At regular intervals, the borrower is also asked to pay interest on the outstanding balance. This type of payment arrangement is uncommon and would probably come from a private lender as an equitable mortgage. This plan is the most common type of payment arrangement for residential mortgages. It provides for equal payments made at regular specified intervals during the mortgage term. Each payment is a blend of principal and interest based on the amortization schedule for the mortgage. Blended mortgages can be either fixed or variable. The fixed mortgage has a set ©2019 Real Estate Council of Ontario

interest rate for the blended mortgage during the term of the mortgage. The variable rate mortgage has an interest rate that varies based on the lender's prime rate or some other identified index.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 9 of 30

Covenants A mortgagor (borrower) makes various promises (covenants) to the mortgagee (lender). These are clearly identified in the lender’s standard charge (mortgage) terms or statutorily set out in provincial legislation under the Mortgages Act. There are certain covenants that will apply to every mortgage registered; these are known as the implied covenants, which are different from the lender-specific covenants found in their set of standard charge terms. The following three sections contain information about the covenants under mortgages. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

First implied covenant

The first implied covenants are listed as: • The mortgagor will make payments (including interest) and pay taxes. This is also called a “personal covenant”. It is a promise by the borrower to pay the mortgage as agreed to in the mortgage documents. The borrower also agrees to pay the property taxes. • The mortgagor has the legal right to give the mortgage. The borrower has the authority to give the property to the lender as security for the loan. • The mortgagor will provide insurance on the buildings. The lender wants to ensure the property will be protected against any damage that could affect the value or condition of the property. The borrower promises to insure the property, including against the risk of fire. • The mortgagor has no other encumbrances other than those registered on the specific property. The lender wants assurance there is no other debt associated with the property. • The mortgagee, when the mortgagor is in default, has the right to take possession, collect rents from tenants, and sell the land. This gives the lender the right to sell the property, if in default, to pay the outstanding balance of the loan. This action is known as “power of sale”. ©2019 Real Estate Council of Ontario

Second implied covenant Third implied covenant

• The mortgagee in possession by default shall be granted quiet possession. If the lender takes possession of the property, there can be no interference from any other party which would include the borrower. • Upon default, total monies owing shall become due and payable. If the borrower does not make the scheduled payments, they are in default. If that occurs, the lender informs the borrower that they will be required to pay the whole mortgage balance rather than just the outstanding payments. • Interest in arrears may be collected. The lender may charge and collect interest on any outstanding payments by the borrower. • The mortgagor in default agrees to do such things as reasonably requested by the mortgagee in possession relating to the land. The borrower agrees to co-operate with the lender with reasonable requests. The mortgagor covenants that the land is held in fee simple, which means they have the most rights and the fewest limitations to ownership, and the land is owned with good title. The mortgagor covenants that the lease, in the case of a leasehold property, is valid and up-to-date, and that reimbursement to the mortgagee will be made by the mortgagor for non-payment or non-performance of other covenants under the lease.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 10 of 30

Rights Both borrowers and lenders are guaranteed certain rights under a mortgage contract. These rights are explicitly outlined in the mortgage document. The Mortgages Act also stipulates additional basic rights that are granted to both parties. The mortgagee rights are: 1. Right to assign the mortgage: The mortgage, as an interest in land, can be sold, transferred, or assigned without the consent of the mortgagor. The mortgagor must be notified of the assignment. The assignee acquires the rights of the mortgagee. This individual acquires only the rights that the mortgagee had and no agreement between the mortgagee and the assignee changes any right that the mortgagor already has or imposes any additional burden on the mortgagor. The terms of the mortgage remain the same if assigned to another mortgagee until the date of renewal. The mortgagor will make payments to the new mortgagee. 2. Right to be paid: The mortgagee also has the right to be paid the principal sum that is loaned, and the interest based on arrangements spelled out in the mortgage document. Failure on the part of the mortgagor to pay on those terms, to fulfill covenants (promises), or to observe the provisions of the mortgage will give rise to several remedies that can be exercised by the mortgagee including power of sale and foreclosure. If all covenants are fulfilled and the full amount of the mortgage has been paid by the mortgagor, a discharge is provided to the mortgagee. The mortgagor rights are: 1. Right to quiet possession: The mortgagor has the right to quiet uninterrupted possession and no interference by the mortgagee when not in default. They have the right to use the property and are not responsible to the mortgagee for ordinary wear and tear on the structures but must exercise reasonable care and maintain the property. 2. Right to redeem the property free of the mortgage: The mortgagor retains the right to sell or mortgage their interest, and to deal with it in the same manner as any interest in property. This right is extremely important. Any provision inserted in the mortgage document that attempts to prevent the mortgagor from exercising this right will be struck down as invalid.

©2019 Real Estate Council of Ontario

3. Right to discharge the mortgage: When the loan is fully paid, the mortgagor obtains a discharge signed by the mortgagee. The discharge fee is normally paid by the mortgagor. If a discharge cannot be obtained, the provincial statute relating to mortgages typically provides for the mortgagor to make application through the courts to obtain a court order based on supporting evidence. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 11 of 30

Privileges In addition to rights, mortgagors may have certain privileges requested by the mortgagor and granted by the mortgagee. Whereas rights are absolute, privileges may be granted to a borrower at the discretion of the lender, provided that the borrower has complied with the terms and conditions of the contract. These privileges may be outlined in the mortgage contract or negotiated between the two parties as needed. The following five sections contain information about the four main privilege categories. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Pre-payment

Renewal Transfer

Pre-payment is a privilege, and unless otherwise specified, the mortgagor has agreed to make payments according to a specified schedule and the contract is written to run for a specified period. No additional payments (such as prepayments) are permitted unless provided for in the mortgage document. The prepayment option will allow the mortgagor to make additional agreed upon payments towards the principal. This privilege will benefit the mortgagor because the additional payments will reduce the amortization period and therefore the interest payable. Some mortgages have a built-in renewal privilege. However, this is an exception to the general rule. Most Canadian mortgages do not specifically spell out the opportunity to renew and, consequently, this opportunity does not exist. The ability to transfer a mortgage again depends on the wording of the mortgage document. Generally, three different approaches exist in the Canadian mortgage marketplace: 1. The mortgagor may be able to transfer without the consent of the mortgagee, but they may remain liable through their personal covenant. The mortgage may be assumed by another mortgagor, but the original mortgagor will remain responsible for the payments if the new mortgagor defaults, unless they are removed from the mortgage document. ©2019 Real Estate Council of Ontario

Postponement

2. The mortgagee may insert sale and approval clauses requiring approval of any person who will be assuming the mortgage at the point of property sale. 3. The mortgagee may not allow a mortgage to be transferred or insist a nontransferability clause be included in the mortgage documents. For example, a borrower has mortgaged their property with a lender as security for business loans. An existing mortgagee, if provided with a reasonable degree of security, may agree to postpone the priority of their mortgage in favour of a prior mortgage being replaced or another mortgage being created. Example: A property has two mortgages registered on title. When the first mortgage is due to be renewed, it must be discharged off title and the renewed mortgage registered on title. When the mortgage is discharged off title, the second mortgage would automatically move up into first place, and the renewed mortgage would now be registered in second place.

Discharge penalty

This would add risk to the mortgage that is in second place and could result in a higher interest rate for the renewed mortgage. A postponement would allow the first mortgage to be renewed and registered on title in first place while the second mortgage remained in its position as the second mortgage. If a mortgagor decides to terminate the mortgage before the end of the term, they could incur a discharge penalty. The amount of the penalty would be stipulated in the mortgage document. The mortgagor may also be subject to any other costs associated with early termination, such as legal fees. If a seller is planning to discharge their mortgage on closing, the salesperson should recommend that they contact their lender to determine what the discharge penalty, if any, will be.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 12 of 30

Mortgage Default Default is defined as a failure to fulfill a promise or obligation. A mortgagor would be in default if they failed to satisfy any of the covenants in the mortgage. However, most defaults specifically arise from failure to make the mortgage payments. When in default, the mortgagee will often rely on an acceleration clause in the mortgage document in which the full mortgage amount becomes due and payable upon default. Non-legal remedies: The failure to fulfill obligations under a mortgage is often addressed by non-legal means. Often practical considerations are the driving force behind non-legal remedies. An attempt is made to remedy the situation through correspondence and/or personal contact with the mortgagor, given certain practical realities. For most mortgagees (particularly larger lenders) the advantages of immediate direct negotiations are evident. A wide range of non-legal actions can be taken to remedy default. Creativity in this regard rests solely with individual lenders (for example, restructuring loan payments and extended amortization).

©2019 Real Estate Council of Ontario

Lesson 2 | Page 13 of 30

Legal Remedies for Mortgage Default Six courses of legal actions are available against a mortgagor in case they default on a mortgage payment, assuming that the mortgagee has direct control over the loan and can proceed to enforce the mortgage document. The use of these remedies can indirectly involve real estate practitioners. Salespersons and brokers may be called upon to sell property on behalf of a mortgagee or be otherwise involved with property in default. The following six sections contain information about the legal remedies for mortgage default. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Foreclosure

Judicial sale

Quit claim deed

A remedial court action taken by a mortgagee, when default occurs on a mortgage, to cause forfeiture of the equity of redemption of the mortgagor and subsequent encumbrancer's equities of redemption. There is a specific time limit in which the mortgagor can redeem (pay the mortgage), failing which the mortgagee forecloses on the mortgagor's equity of redemption, that is, the equitable right to redeem. The mortgagor forfeits any equity that he or she may have in the property. The mortgagee assumes ownership of the property after receiving an Order of Foreclosure from the Court. The mortgagee will now be the registered owner of the property. Legal remedy involving the disposition (sale) of mortgaged property by court action. A mortgagee facing a default by a mortgagor may elect a judicial sale by the court with the proceeds applied to the mortgage debt. If a deficiency occurs, the mortgagee can obtain judgement against the mortgagor under the personal covenant. A legal document wherein a person agrees to release any right that they may possess in a parcel of land. In a mortgage, the quit claim deed would involve the mortgagor's release of their equity of redemption. If equity exists, the mortgagor

©2019 Real Estate Council of Ontario

could potentially bargain with the mortgagee for a payment to satisfy equity in return for giving the quit claim deed.

Payment (personal covenant)

The property serves as the basis for security of the mortgagee; however, the fundamental relationship between mortgagor and mortgagee is one of debtor and creditor. This relationship involves a covenant to pay and, consequently, any remedy available to an ordinary creditor is also available to the mortgagee. The personal covenant is much like a personal commitment on a promissory note. The mortgagee is perfectly within his/her legal rights to sue for payment based on the strength of that personal covenant.

Possession (by mortgagee)

The actual holding and legal occupancy of a property by a mortgagee due to default by the mortgagor, typically would happen with some other action (for example, power of sale or foreclosure). If the mortgagee takes possession on default, the mortgagor and any other occupants may be removed from the property. The action is taken against the mortgagor and anyone else occupying the property (for example, a tenant). The tenancy must be respected by the mortgagee.

Power of sale

The legal right of the mortgagee to force the sale of a property without judicial proceedings should default occur. Power of sale is the most frequently used method by which a mortgagee remedies a default by a mortgagor. When the property is sold, the mortgagee will subtract the amount of the mortgage owed, expenses, and any other debt registered against the property. The balance would be paid to the mortgagor. The power of sale allows the mortgagee to retrieve only what they are entitled to, and no more. If a surplus occurs, then the owner/mortgagor will benefit. The mortgagee, when marketing property under power of sale, must ensure that the property is actively promoted to the public to obtain fair market value to protect the equity of the mortgagor.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 14 of 30

Identify which of the given statements is true regarding the essentials of a mortgage with buyers. There are two options. There is only one correct answer.

1 2

To finance the purchase of their new home, a buyer arranges for a mortgage with a lender. The buyer is the mortgagor, and the lender is the mortgagee. To finance the purchase of their new home, a buyer arranges for a mortgage with a lender. The buyer is the mortgagee, and the lender is the mortgagor.

Lesson 2 | Page 15 of 30

Identify which of the given statements is true regarding the essentials of a mortgage with buyers. There are two options. There is only one correct answer. 1 2

The buyer will make blended payments, which will include principal and interest. The buyer will make blended payments, which will include principal only.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 16 of 30

Identify which of the given statements is true regarding the essentials of a mortgage with buyers. There are two options. There is only one correct answer. 1 2

As the interest rate is a fixed rate, it will fluctuate. As the interest rate is a variable rate, it will fluctuate.

Lesson 2 | Page 17 of 30

Identify which of the given statements is true regarding the essentials of a mortgage with buyers. There are two options. There is only one correct answer.

1 2

The blended payments will be sufficient to repay the mortgage in full by the end of the stipulated amortization period as the mortgage is partially amortized. The blended payments will be sufficient to repay the mortgage in full by the end of the stipulated amortization period as the mortgage is fully amortized.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 18 of 30

Mortgage documents include terms that are agreed to by the mortgagor and mortgagee. Some terms are covenants, others describe rights, and some describe privileges. Identify which of the following statements are categorized as rights. There are five options. There are multiple correct answers. 1 2 3 4 5

The mortgagor will make payments including interest and pay taxes. The mortgagor will provide insurance on the buildings. The mortgagee, when the mortgagor is in default, will be able to take possession, collect rent from tenants, and sell the land. The mortgagee can sell, transfer, or assign the interest in the land (the mortgage) without the consent of the mortgagor. The mortgagee will be paid the principal sum that is loaned and the interest based on arrangements spelled out in the mortgage document.

Lesson 2 | Page 19 of 30

Mortgage documents include terms that are agreed to by the mortgagor and mortgagee. Some terms are covenants, others describe rights, and some describe privileges.

Identify which of the following statements are categorized as privileges. There are four options. There are multiple correct answers. 1 2 3 4

The mortgagor will obtain a discharge signed by the mortgagee when the loan is fully paid. The mortgagor can make additional payments over and above the defined payment schedule. The mortgagee may choose not to renew a mortgage at the end of a term. The mortgagor may transfer the mortgage to another property.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 20 of 30

A borrower is in default on their mortgage. As a result of the default, the lender has various options to collect on the outstanding debt. Following all reasonable attempts to settle the matter, the lender gives the borrower a notice of two months to repay. If the borrower remains in default after the notice period, the lender will have to take further action which may or may not involve judicial proceedings.

Which course of action enables a lender to sell a property without any judicial proceedings? There are four options. There is only one correct answer. 1 2 3 4

Foreclosure Sue the borrower for payment (personal covenant) Quit Claim Deed Power of Sale

©2019 Real Estate Council of Ontario

Lesson 2 | Page 21 of 30

Basics of Mortgage Funding A lender (mortgagee) is an individual, a financial institution, or a public or private group that provides funds to a borrower (mortgagor) with the expectation that the funds will be repaid. Repayment of these funds will include the payment of any interest or fees and may occur in increments or as a lump sum. Understanding the basics of mortgage funding will help you as a salesperson demonstrate reasonable knowledge and competence in providing information to sellers or buyers.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 22 of 30

Lenders Lenders can be chartered banks, trust companies, credit unions, pension funds, life insurance companies, loan companies, mortgage investment companies, government agencies, or individuals. In an attempt to be more competitive, most lenders (with the exception of private lenders) provide services that appeal to their borrowers, such as waiving legal and appraisal fees, enhancing certain privileges, and sometimes even lowering the interest rate. Consumers should carefully review individual lender policies when seeking financing. The following six sections contain information about some sources of mortgage funding for buyers and the services they provide.

Chartered banks

Banks, governed under the Bank Act, have a dominant position in residential mortgage lending. Banks can loan up to 80% of the value of a property, but any loan that has a higher loan-to-value ratio than that must have mortgage insurance. Although using this type of lender may be expensive (because banks tend to have rigid requirements and are not open to negotiations), it is overall the most common and convenient way to secure a residential mortgage.

Trust and loan companies

Trust and loan companies often offer the same products as chartered banks but can be more flexible with respect to the terms and conditions. The main distinction between trust companies and banks is that trust companies are able to act as trustees—meaning that they are able to manage a customer’s individual wealth. It is important to note that many trust and loan companies are actually owned by chartered banks. It is also important to note that while trust companies offer mortgages and other banking services, loan companies usually offer non-residential consumer loans and secondary mortgage financing. They are also more commonly used by highrisk borrowers.

©2019 Real Estate Council of Ontario

Life insurance companies

Pension funds

Credit unions/caisses populaires

Private sources

Life insurance companies, unlike banks and other lenders, must align cash flows with long-term commitments to policy holders. Funds invested in mortgages come primarily from policy premiums paid on whole, term, and group life policies. Life insurance companies remain actively involved in both residential and commercial mortgages through subsidiary operations in banking and mortgage brokerages. Life insurance companies are regulated under the Insurance Companies Act. Pension funds, as a regulated entity, account for a low percentage of residential mortgages, according to the Bank of Canada’s statistics. Pension fund managers continuously seek an asset mix that maximizes yields while ensuring that pension commitments are fulfilled. These funds typically favour bonds and equities, but mortgages and real estate factor into the mix. In Ontario, credit unions and caisses populaires are incorporated and regulated under the Credit Unions and Caisses Populaires Act, administered by the Financial Services Regulatory Authority (FSRA). A caisse populaire is a credit union conducting business primarily in the French language. Credit unions must conduct business only with members. Larger credit unions offer similar services as banks. Private sources include individuals and corporations who provide mortgage financing but are not constrained by underwriting policies typically associated with major regulated lenders. These sources are not regulated beyond the requirements of the Mortgages Act (which regulates all mortgages in Canada). Borrowers may use private financing sources, particularly when dealing with unique properties or sellers seeking a private investment by offering to take back the mortgage to the buyer with the sale of their property. Mortgage brokers can also utilize private lenders. Private lenders are often viewed as lenders of last resort. As such, they tend to have more rigid terms and higher interest rates.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 23 of 30

Lender Services The given services are commonly offered by the lending sources you just learned about. The following four sections contain information about the common lender services.

Financing/refinancing

Refinancing a mortgage means altering the original terms of the loan. For example, if it is time for a borrower to renew their mortgage at the end of the term, and the property’s value and corresponding equity has increased, they may choose to renew their mortgage and increase the outstanding principal. This is called an “equity take-out”. Alternatively, a borrower may have acquired some savings during that time and may wish to apply that extra money towards reducing the principal of their mortgage.

Purchase plus improvements

Construction loans

A buyer can apply for a mortgage to cover the closing costs plus the costs of any necessary improvements that will be made following the closing, such as a new furnace, or new windows and doors. This type of service can be of particular interest to first-time buyers and often requires CMHC approval and mortgage default insurance (especially if the mortgage value is greater than 80%). A construction loan is typically a short-term higher interest loan that is used to cover the cost of construction. Given the higher risk for the lender as the home is being built and is not a finished product, the construction loan is typically a much higher interest rate than a traditional mortgage. As a salesperson, there are two main circumstances under which you may encounter new construction loans: 1) The builder is financing the construction phase of a property, and the buyer will be arranging their own financing to close the transaction. ©2019 Real Estate Council of Ontario

2) The buyer will be funding the construction phase of a property and then closing the transaction using the funds already advanced during construction.

Secure line of credit

Construction loans will be covered in more detail in a later module. A lending tool often used is a secure line of credit, whereby an arranged amount of standing credit, backed by the security of the equity in a homeowner’s property, is registered and available to be used at any time, providing the borrower does not exceed the limit determined by the lender. Once the loan has been approved by the lender, no additional approvals are required, thereby offering more flexibility than a standard loan or unsecured line of credit. Interest rates on a secured line of credit will be less than an unsecured loan and payments can be interest only or a combination of interest plus principal as determined by the borrower. In addition, there are no restrictions on the intended use of the money borrowed against the secure line of credit.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 24 of 30

Mortgage Markets Mortgage markets consist of two segments: • Primary Market: new loans for property financing, new construction, and rehabilitation of existing structures • Secondary Market: existing mortgage instruments are traded based on future cash flows (for example, the sale of a mortgage portfolio by a primary lender to an investment company or pension fund) The following two sections contain information about the mortgage markets in detail.

Primary market (prime and sub-prime borrowers)

The primary market consists of both prime and sub-prime markets. Prime markets are focused on borrowers who have A or A+ credit (in other words, high credit scores and no credit problems). Further, properties must meet acceptable standards concerning construction, finishes, and location. Sub-prime markets involve lenders who entertain higher risk levels involving borrowers with B and C level credit (ranging from marginal credit scores and delinquency problems to discharged bankruptcy and individuals with no credit ratings). The primary market is most relevant to a borrower as its dynamics largely determine mortgage funding costs and availability. This market relies on the free interplay of borrower and lender in the search for, and provision of, funds for property financing, new construction, and renovations.

Secondary market

The secondary market involves trading of existing mortgages. Primary market lenders sell mortgage portfolios to investment companies or pension funds in this market. Mortgages are pooled and converted into securities that can be purchased in pre-set dollar amounts (for example, $5,000 per unit).

©2019 Real Estate Council of Ontario

Lesson 2 | Page 25 of 30

Interest Rates Interest rates are largely determined by supply and demand forces, but other factors intervene. In the simplest scenario, when the demand for a mortgage loan increases and the supply remains constant, rates will rise. Abundant supply generally lowers rates, assuming all other factors remain constant. However, investors are not restricted to a single market and may be swayed by other investment options including commodities, term deposits, business ventures, government securities, foreign currencies, and bond issues. A slowdown in the mortgage market occurs when other investment options prove more attractive. A corresponding rise in mortgage rates is required to increase market appeal. Many other variables are also at work such as credit score, property type, and the amount of the loan. The government also exerts tremendous influence on mortgage rates. The factors that impact the mortgage interest rates are: • Marketplace demand and supply forces • Mortgage market versus other investment options in a capital market • Risks associated with specific mortgages (property or borrower) • Government monetary policies

©2019 Real Estate Council of Ontario

Lesson 2 | Page 26 of 30

©2019 Real Estate Council of Ontario

©2019 Real Estate Council of Ontario

Calculating Mortgage Payments Most mortgages involve blended payments of principal and interest. The longer the amortization, the lower the payment and the more interest paid, given that all other things are equal. Mortgage term and amortization are rarely identical for residential mortgages. Terms generally range from 1 to 5 years and amortization periods range from 15 to 25 years. To calculate a payment, choose the correct chart (whether the calculation is based on a weekly, bi-weekly, semimonthly, or monthly payment). You will find the interest rate on the left-hand column and the amortization period at the top. Where the two meet is the factor that you will multiply by the mortgage amount. The payment factors are per $1,000 of the loan, therefore divide by 1,000 and then multiply that amount by the payment factor. The next screen contains information on each payment factor chart.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 27 of 30

Calculating Mortgage Payments for Different Options The following four sections contain information about the calculations for some common mortgage payment options.

Weekly mortgage payment In weekly mortgage payment, the mortgagor makes 52 payments per year. Example: A $100,000 mortgage with a 25-year amortization at an interest rate of 6.5% will require a weekly mortgage payment of $154.26 [1.542580 (weekly payment factor) x 100 (loan value in number of thousands) = 154.2580]. Click the thumbnail to access the information in the weekly mortgage payment factor chart.

©2019 Real Estate Council of Ontario

Bi-weekly mortgage payment In bi-weekly mortgage payment, the mortgagor makes a payment every 2 weeks, which results in 26 payments per year. Example: A $100,000 mortgage, with a 25-year amortization, at an interest rate of 6.5% will require a bi-weekly mortgage payment of $308.71 [3.087058 (biweekly payment factor) x 100 (loan value in number of thousands) = 308.7058]. Click the thumbnail to access the information in the biweekly mortgage payment factor chart.

©2019 Real Estate Council of Ontario

Semi-monthly mortgage The payment is structured for the mortgagor to make payments 2 times per month, for instance, on the 1st and 15th of each month. With a semi-monthly mortgage payment, the mortgagor makes 24 payments per year. Example: A $100,000 mortgage, with a 25-year amortization, at an interest rate of 6.5% will require a semi-monthly mortgage payment of $334.47 [3.344656 (semi-monthly payment factor) x 100 (loan value in number of thousands) = 334.4656]. Click the thumbnail to access the information in the semi-monthly mortgage payment factor chart.

©2019 Real Estate Council of Ontario

Monthly mortgage payment The mortgage payment is made on the same day of every month (for example, on the 1st day of the month). With a monthly mortgage payment, the mortgagor makes 12 payments per year. Example: A $100,000 mortgage, with a 25-year amortization, at an interest rate of 6.5% will require a monthly mortgage payment of $669.82 [6.698238 (monthly payment factor) x 100 (loan value in number of thousands) = 669.8238]. Click the thumbnail to access the information in the monthly mortgage payment factor chart.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 28 of 30

A buyer has applied for a mortgage of $200,000 with interest of 5% per annum and a 20-year amortization period. The monthly payment factor is 6.571250.

Given the mortgage details, calculate the buyer's monthly mortgage payment amount (rounded to two decimal points). There are four options. There is only one correct answer. 1 2 3 4

1468.50 1102.30 1676.28 1314.25

Lesson 2 | Page 29 of 30

A buyer has applied for a mortgage of $400,000 with an annual interest rate of 4% and a 25-year amortization period. The semi-monthly payment factor is 2.627931

Given the mortgage details, calculate the amount of the buyer's semi-monthly mortgage payment (rounded to two decimal places). There are four options. There is only one correct answer. 1 2 3 4

1341.10 1201.10 1051.17 1670.20

©2019 Real Estate Council of Ontario

Lesson 2 | Page 30 of 30

Congratulations, you have completed the lesson! Here is a summary of the key topics that were discussed in this lesson: • The basics of mortgages, such as types of mortgages, amortization, term, loan-to-value ratio, fixed and variable rate interests, and mortgagor versus mortgagee • Options for residential mortgage products, legal and non-legal remedies for mortgage default, and the covenants, rights, and privileges under mortgages • How mortgages are funded, sources of mortgage funding for buyers and the services they provide, the factors that impact mortgage interest rates, and how to calculate a mortgage payment under various scenarios Understanding the basics of mortgage and mortgage funding will help you as a salesperson demonstrate reasonable knowledge and competence when working with sellers and buyers. Sections 6 and 8 of the Code require a salesperson to advise a seller or buyer to obtain services from an appropriate expert for precise details when they do not have the knowledge, skill, judgement, or competence to provide the service.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 1 of 17

Lesson 3: Mortgage Approval and Mortgage Specialists

This lesson identifies the concept of loan-to-value ratio, the costs associated with mortgages, mortgage default insurance premiums, and broker, legal, and appraisal fees associated with mortgages. This lesson also describes the process for mortgage qualification, when to advise a buyer to involve a mortgage specialist, and the importance of confirming a buyer has received approval for financing prior to being committed to a purchase.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 2 of 17

This lesson discusses the mortgage default insurance premiums and broker, legal, and appraisal fees associated with mortgages. This lesson also describes the steps in a mortgage qualification process, mortgage pre-approval versus a mortgage commitment, and the importance of confirming that a buyer has received approval for financing prior to a binding agreement to purchase. Upon completion of this lesson, you will be able to: • Identify the costs associated with mortgages • Outline the process for mortgage qualification Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 3 of 17

Costs Associated with Mortgage Costs associated with mortgages could be something a buyer is not fully aware of when arranging for financing of a purchase. This lesson takes a detailed look at some of the costs associated with obtaining a mortgage, such as mortgage default insurance premiums, mortgage insurance providers, and the broker, legal, and appraisal fees associated with mortgages.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 4 of 17

Conventional and High Ratio Mortgages There are two main categories of mortgage loans available: conventional and high ratio. A conventional mortgage is when a borrower has a down payment of at least 20% of the appraised lending value or sale price (whichever is less). Conventional mortgages afford lenders a higher level of protection as the borrower has more invested in the property. Should market conditions change during the term of the mortgage, the lender is not at as much risk for loss should the property be sold as the proceeds are more likely to be sufficient to repay the loan. A high ratio mortgage is when a borrower has a down payment of less than 20%. A high ratio mortgage will require mortgage default insurance. There are fees associated with this type of mortgage that the borrower will pay. The insurance protects the lender when a default has occurred. Institutional lenders, such as banks, trust companies, credit unions, and mortgage loan companies are not permitted to lend mortgage money when the amount is in excess of 80%. The upcoming screens provide additional information on loan-to-value ratios and mortgage default insurance. ©2019 Real Estate Council of Ontario

Lesson 3 | Page 5 of 17

Loan-to-Value Ratio As mentioned previously, the loan-to-value ratio is the percentage of the value of the property that is mortgaged. The loan-to-value ratio for a buyer will vary depending on the lender, the type of property being mortgaged, and the financial capability of the borrower. A high loan-to-value ratio is generally seen as a higher risk as the borrower has less equity invested in the purchase, and—should values fall—the risk of having a property over-financed is increased. Therefore, a lender may require the borrower to purchase mortgage insurance to offset their risk. In some instances, a lender may require mortgage default insurance on mortgages with a loan-to-value less than 80% given risks associated with particular applications or properties that may be a higher risk for the lender. Example: A borrower is seeking financing on a property that is located in a rural area that includes some industrial property uses. When reviewing the mortgage application, the lender calculates the loan-to-value ratio as 70%. However, due to the property’s location and the influence of the industrial property uses, the lender will require the borrower to obtain mortgage default insurance even though the loan-to-value ratio falls within a conventional mortgage.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 6 of 17

Mortgage Default Insurance Providers Mortgage default insurance provides protection for the lender (mortgagee) should the borrower (mortgagor) fail to meet the obligations set out in the mortgage. In other words, it guarantees that the lender will be repaid if the homeowner fails to make the required payments. In return for that guarantee, lenders will provide mortgages on housing purchases with as little as a 5% down payment, compared with 20% normally required for conventional mortgages. When a buyer is required to obtain mortgage insurance for their financing, the lender could choose one of three mortgage insurance providers. Each provider can have unique services and their approval criteria may differ slightly. The following three sections contain information about mortgage insurance providers in Canada.

Canada Mortgage and Housing Corporation (CMHC)

Sagen Canada Guaranty

CMHC is the government mortgage insurance provider. As the housing agency for the Government of Canada, CMHC has a mandate to encourage the construction of new houses, the repair and modernization of existing houses, and the improvement of living conditions and housing throughout Canada. CMHC provides a range of publications and acts as a resource centre for both private and public organizations related to the housing industry. CMHC advises the government on housing matters and designs, and also oversees various federal housing programs. Sagen, formally known as Genworth Financial Canada, is Canada’s largest private mortgage insurance provider. They offer many different mortgage insurance products to lenders and brokers across Canada. Canada Guaranty is a private mortgage insurer, which was created when the existing company acquired AIG United Guaranty Mortgage Insurance Company of Canada. Canada Guaranty provides various products, including mortgage insurance for purchases, new home construction, and secondary homes.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 7 of 17

Calculating Mortgage Default Insurance Premiums A mortgage insurance premium is charged on the amount of the borrowed funds. It is a one-time payment, which can be paid to the insurance company when it is approved and placed, or it can be added to the principal amount of the mortgage, which is then amortized over the life of the mortgage. The premium will change, depending on the loan-to-value ratio for the mortgage. The higher the percentage of the property value that is borrowed, the higher the percentage in insurance premiums that is charged. An understanding of how to calculate mortgage default insurance premiums will allow you, as a salesperson, to provide the required information to a buyer. A buyer may not be aware of the mortgage insurance requirement when first viewing properties to purchase. The premium can be several thousands of dollars, so identifying the buyer’s down payment and then applying this to the purchase price of the property will provide the buyer with advance notice that a mortgage insurance premium will be applicable. A buyer could choose to purchase a less expensive property based on their down payment should they want to avoid paying a mortgage insurance premium.

©2019 Real Estate Council of Ontario

To determine the mortgage insurance amount, first you will need to determine the loan-to-value ratio. This can be done by dividing the loan amount by the value of the property, then multiplying it by 100 to get a percentage of the ratio between the value of the property and the amount of mortgage. The loan-to-value ratio is used to calculate the premium. The given example provides fictitious premiums as these can change. As a salesperson, recommend a buyer contact a lender to obtain current mortgage premium rates. Loan-to-value Ratio Up to and including 65% Up to and including 75%

Premium % based on Loan Amount* 0.60% 1.70%

Up to and including 80% Up to and including 85% Up to and including 90% Up to and including 95% Up to and including 100% Using a non-traditional down payment (borrowed funds)

2.40% 2.80% 3.10% 4.00% 4.50%

The purchase price minus the down payment equals the mortgage amount. The mortgage default insurance premium is calculated by multiplying the mortgage amount times the premium percentage. Example: Purchase Price**

Down Payment 54,000 15,000

Mortgage Amount 245,000 234,000

Loan-to-value (%) 82 94

Premium (%) 2.80 4.00

Premium ($) 6,860.00 9,360.00

299,000 249,000 210,000

45,000

165,000

79

2.40

3,960.00

* Additional premium surcharges may apply (for example, a blended amortization period or the ability to transfer the mortgage loan insurance to a different property). The Ontario Retail Sales Tax applies to the premium; the tax cannot be added to the loan amount. ** Insured loans are subject to maximum house price and minimum down payment requirements. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic. ©2019 Real Estate Council of Ontario

Lesson 3 | Page 8 of 17

Fees Associated with Mortgages There are a number of fees in addition to the default insurance that a buyer might need to pay when arranging a mortgage. These include mortgage broker fees, lawyer fees, and appraisal fees. Mortgage broker fees Mortgage brokers assist a buyer in obtaining financing and are paid a fee for these services. For most residential mortgages, the lender pays the fee; however, a buyer should confirm this before retaining a mortgage broker to assist them. The fee is typically determined according to the mortgage amount. Legal fees Lawyers typically charge a fee for preparing and registering the mortgage. Often, the fee for the transfer of title and registering the mortgage are combined. Appraisal fees Appraisal fees are charged when a lender retains a professional appraiser to estimate the market value of the subject property for lending purposes. The lender will have an approved list of appraisers, so ensure a buyer does not obtain an appraisal without first speaking with their lender to ensure the report will be accepted. Most times, the lender (not the borrower) is the client of the appraiser, which means the borrower may or may not receive a copy of the appraisal report. Often the fee for the appraisal is paid by the lender, but it could be part of the borrower’s costs of arranging a mortgage.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 9 of 17

A buyer is purchasing a property with a purchase price of $450,000. The buyer’s down payment will be $45,000. The lender has explained that because the buyer’s down payment is less than 20% of the purchase price, they will need a high ratio mortgage and a mortgage insurance premium of 3.10% will apply.

Given the purchase price and down payment, calculate the premium for mortgage default insurance (to two decimal places). There are three options. There is only one correct answer. 1 2 3

12555.00 13550.00 13000.00

©2019 Real Estate Council of Ontario

Lesson 3 | Page 10 of 17

Mortgage Specialist There are many mortgage options available to a borrower, so consulting a mortgage specialist before committing to any financing is wise. A mortgage specialist possesses extensive knowledge of the market and can help the borrower gauge the level of mortgage repayments they can afford by evaluating their income, debt repayments, and everyday expenses. They can further guide the borrower through the various stages of the mortgage qualification process.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 11 of 17

Mortgage Qualification Process Steps Mortgage financing methods vary based on circumstance, but certain common patterns emerge in most residential transactions. The maximum loan amount, interest rate, and terms for a new mortgage will be partially dictated by the type, location, and value of the property. The financial circumstances of the buyer must also be assessed. The down payment provides an indication of probable financing requirements, and information as to the buyer’s income, obligations, stability, and future prospects of income stream will assist in determining the payments that the buyer can afford. Most salespersons prefer that the buyer be pre-qualified by a mortgage lender before viewing properties. The steps in a mortgage qualification process are:

©2019 Real Estate Council of Ontario

1. Application: A mortgage application is the central document in the financing process. Most applications are designed to elicit information about the financial ability of the applicant and the property’s value and marketability. The lending institution may charge a processing fee. 2. Appraisal and Credit Check: The lender reviews the application, applies loan qualification ratios and considers the stability and future prospects regarding the income stream, as well as personal and financial information from the applicant. An appraiser or bank representative may inspect the property to ensure that it meets lender criteria and determines lending value. A credit check is usually performed to verify the financial stability of the applicant. The credit report is requested by the lender, and the credit bureau providing such information must comply with provincial legislation concerning the gathering and reporting of this information. 3. Commitment: The mortgage commitment is a letter from the lender agreeing to make the loan subject to satisfactory title and other conditions specified in that commitment. Several instances have occurred where individuals have mistakenly believed that a letter from a lender simply quoting the loan amount they would consider, if a property was purchased, was a commitment. This is not so, as most institutions financing a property would require a formal signed application and other supporting materials. Such a letter is merely a letter of intent and has little, if any, legal stature and should never form the basis for removal of a mortgage condition in an agreement, or be the basis for a buyer not requiring an appropriate condition when an offer is drafted. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 12 of 17

Pre-qualifying Versus Pre-approval Versus Commitment Pre-qualifying for a mortgage is the first step in the process. It can be useful as an estimate of how much a buyer can afford to spend on a house, however, it is not as useful as a pre-approved mortgage. Pre-qualification is based on the borrower providing information to the lender without any of the information having been verified or confirmed. Mortgage pre-approval is more valuable and is a significant milestone in the process of arranging for a mortgage. In order for a lender to issue a pre-approval letter, confirmation of the borrower’s income, down payment, details of assets and liabilities as well as a credit report are required. After the borrower’s finances and information provided have been reviewed, the lender determines the maximum loan amount the borrowers qualifies for and provides the borrower with a pre-approval letter. A pre-approval letter is the lender’s commitment to loan the buyer the money, and often guarantees a certain interest rate for a specific time frame. This amount is usually the absolute maximum loan or mortgage a buyer would qualify for. The pre-approval is not necessarily a guarantee of a specific rate or mortgage from that lender as circumstances may change from the time a buyer has been pre-approved until the time the purchase has been made. Information contained in the pre-approval letter should be fully understood by the buyer. A mortgage commitment letter is a document that a lender prepares after approving a buyer’s mortgage application. It is a pledge that a lender will loan the money to a borrower assuming all final conditions are met. Before the buyer signs a notice of fulfillment that the financing has been approved, the salesperson should confirm with the buyer that a written mortgage commitment has been received from the lender and the buyer understands the written terms of the commitment. ©2019 Real Estate Council of Ontario

Lesson 3 | Page 13 of 17

Gross Debt Service and Total Debt Service A lender determines a borrower's affordability by determining their Gross Debt Service (GDS) and Total Debt Service (TDS) ratios. The GDS ratio is a comprehensive measure of a borrower's monthly housing expenses. The TDS ratio is similar to the GDS ratio; however, it includes all of a borrower's debt and is not just focused on housing. The following three sections contain information about GDS ratio, TDS ratio, and GDS calculations for condominiums. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Gross Debt Service (GDS) ratio

The GDS ratio represents the maximum percentage of a borrower's gross income to be allocated to principal, interest, and property tax payments (PIT). The gross debt service ratio may include heating costs (PITH). A borrower's current monthly mortgage payment is the primary expense. Other expenses may include monthly property tax payments, home insurance payments, and utility bills. The total monthly expenses are divided by total monthly income to calculate the GDS ratio. The GDS ratio typically varies between 27% and 32% for existing lenders in the marketplace, but slightly increased limits may apply under certain lending situations if a borrower has a high credit rating. GDS for a purchase, excluding heating costs, is calculated as follows: GDS formula = (annual mortgage payment + annual property taxes) divided by the gross annual income Example: Buyer Jones' income is $65,000 and yearly principal, interest, and tax payments are $20,960. Therefore, $20,960/$65,000 = .32246 or 32.25%.

GDS ratio – condominium

In condominium purchases, the lender will include a portion of the monthly maintenance fee in the GDS calculation. The lender will normally use 50% of the fee to ensure the borrower has the capability of paying both the loan payment and the condominium fee, but lender policies may vary. ©2019 Real Estate Council of Ontario

GDS for a condominium is calculated as follows: GDS = (annual mortgage payment + annual property taxes + 50% of the annual maintenance fees) divided by the gross annual income Example: Buyer Johnson has a gross income of $58,000, a $50,000 down payment and is considering a $170,000 condominium purchase. Taxes are $4,120 per year and maintenance fees amount to $325 per month ($3,900 per year). Johnson requires a $120,000 conventional mortgage, amortized over 25 years, with a five-year term. Current rates are 7.5% and the monthly payment factor per $1,000 is 7.315549. Monthly Mortgage Payment: ($120,000 ÷ $1,000) x 7.315549 = $877.87 Annual Mortgage Payment: $877.87 x 12 = $10,534.44 Annual mortgage payment, taxes and maintenance fees $10,534.44 + $4,120.00 + ($3,900 x .5) = $16,604.44 Jones’ GDS ratio is calculated as follows: GDS = (Principal and Interest + Taxes + Maintenance (50%)) ÷ Gross Income = $16,604.44 ÷ $58,000 = 28.63% Johnson meets the maximum 30% limit for this particular lender.

Total Debt Service (TDS) ratio

The TDS ratio includes everything in the GDS calculation plus all other debt obligations. In other words, the TDS ratio includes charges for principal, interest, and property taxes, plus other debts, including personal loans (such as auto or furniture loans, and credit card debt) and should be clearly differentiated from the GDS ratio. TDS ratios typically vary between 37% and 40%, but higher limits may apply in certain lender situations based on high consumer credit scores. The TDS ratio has become increasingly important with the rise in consumer borrowing. Lenders are concerned that financial commitments, over and above the mortgage payment, may result in a future default. Therefore, they seek added assurances by considering the applicant's total financial picture. The TDS ratio is calculated by adding all the borrower's monthly debt and dividing it by their monthly income.

©2019 Real Estate Council of Ontario

TDS is calculated as follows: TDS = (annual mortgage payment + annual property taxes + annual total loans) divided by the gross annual income Example: Buyer Johnson’s Income: $50,000 Lender Inc. TDS Ratio: 37% Maximum PIT and Other Debt Payment: (50,000 x .37) = $18,500 Annual Taxes (T) on Property: -1,500 Other Debts (annual payments): -4,500 Remaining PI Payment Available: $12,500 Maximum Monthly PI Payment Available: $1,042 ($12,500 ÷ 12) If Johnson requires a $140,000 mortgage at 6.5% with a 25-year amortization, the payment is 6.698238 x $140(000) = $937.75 Johnson meets Lender Inc.’s TDS requirement.

Lesson 3 | Page 14 of 17

Outline the Process for Mortgage Qualification To provide conscientious and competent service to a buyer, as a salesperson, you should confirm that the buyer has received a mortgage approval from the lender before taking any action related to this. An accepted offer can be conditional upon a buyer obtaining financing within a specified time period. If the financing is not provided within the time period, the offer becomes null and void. Therefore, you will need to be diligent in ensuring the buyer is taking the appropriate steps, in a timely manner, to ensure the financing is being sought. Once financing has been secured, notice will need to be provided to the seller. Ensure the financing is secured by speaking with the lender as once the notice is provided to the seller, the buyer could be obligated to the agreement whether the financing is in place or not.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 15 of 17

A buyer's gross income is $60,000 and the purchase price of the condominium they are considering is $260,000. Suppose the monthly mortgage payment is $916, the property tax is $334 per month, and the monthly maintenance fee is $500. Calculate the buyer's GDS ratio. There are three options. There is only one correct answer. 1 2 3

30 60 80

©2019 Real Estate Council of Ontario

Lesson 3 | Page 16 of 17

The steps in a mortgage qualification process are listed below: 1. 2. 3. 4. 5. 6.

The buyer is pre-qualified by a lender. The buyer completes a mortgage application form. The lender completes a credit check to pre-approve the buyer. The lender completes an appraisal of the property on which the buyer has made an offer. Assuming there are no issues, the lender gives a commitment to the buyer. The salesperson confirms that the buyer has received the financing commitment in writing from the lender before the buyer signs the Notice of Fulfillment that the condition on financing has been fulfilled. 7. The salesperson provides notice to the seller that the buyer has obtained the required financing.

Select the correct sequence of steps. There are two options. There is only one correct answer. 1 2

1, 2, 3, 4, 5, 6, 7 2, 3, 1, 4, 5, 6, 7

©2019 Real Estate Council of Ontario

Lesson 3 | Page 17 of 17

Congratulations, you have completed the lesson! Here is a summary of the key topics that were discussed in this lesson: • Additional mortgage basics, including the difference between a conventional and a high ratio mortgage • Mortgage insurance providers, including CMHC, Sagen, and Canada Guaranty • Costs associated with arranging mortgages, such as broker fees, legal expenses, appraisal fees, and mortgage default insurance premiums • The mortgage qualification process; the difference between being pre-qualified, a mortgage pre-approval, and a mortgage commitment; calculating the GDS and TDS ratios; and the importance of a salesperson confirming that the buyer has received approval for financing prior to being obligated to a purchase Understanding the costs associated with mortgages and the mortgage qualification process will help you, as a salesperson, demonstrate reasonable skill and judgement in assisting your sellers and buyers throughout the transaction. Section 8 of the Code requires a salesperson to advise a seller or a buyer to obtain services from an appropriate expert for precise details.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 1 of 11

Lesson 4: Role of Lawyers and Other Third-Party Service Providers

This lesson identifies a salesperson's obligations when referring a seller or a buyer to a lawyer or other third-party service provider, the circumstances in which they provide referrals, and why it is important to advise sellers and buyers to obtain expert advice from these professionals. It also details how a salesperson may interact with a lawyer retained by a seller or buyer and the types of services that third-party professionals provide during a real estate transaction.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 2 of 11

This lesson identifies the obligations of a salesperson, as per section 8 of the Code, when referring a seller or a buyer to a lawyer or other third-party service providers, the circumstances in which they provide these referrals, and the importance of advising the sellers and buyers to obtain expert advice from these professionals. It also details how a salesperson may interact with a lawyer retained by a seller or a buyer and the types of services that thirdparty professionals provide during a real estate transaction. Upon completion of this lesson, you will be able to: • Describe the obligations of a salesperson when referring a seller or a buyer to a lawyer • Identify other common third-party service providers a seller or a buyer may involve in the buying or selling process Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 3 of 11

Lawyer Involvement, I A lawyer is typically involved with the completion of a real estate transaction on behalf of a seller or buyer. They perform various searches and investigations of the subject property related to things like tax arrears, common expenses, zoning, and work orders, to protect the best interest of their clients. But lawyers are also often involved prior to this process. Legal involvement can occur when a legal opinion and guidance on matters relating to the listing process, the drafting of agreements, and real estate negotiations, particularly those involving complex residential properties, is required by a seller or a buyer. For example, if a seller or a buyer wants a salesperson to review a document before they sign it or they have a legal question surrounding the transaction, as the salesperson is unable to provide that level of service, section 8 of the Code requires that the salesperson must refer the seller or the buyer to the appropriate professional, in these cases, a lawyer. A salesperson must ensure they are not providing advice or input to sellers or buyers on matters legal in nature as it may be relied upon by the sellers or buyers.

©2019 Real Estate Council of Ontario

The circumstances that require the services of a seller’s lawyer are: 1. To prepare Statement of Adjustments 2. To prepare deed to the property 3. To review the Statement of Adjustments again if it is amended and sent back by the buyer’s lawyer The circumstances that require the services of a buyer’s lawyer are: 1. To request and review title search 2. To request other searches, such as tax arrears and work orders 3. To review Statement of Adjustments The circumstances that require the services of both buyer’s and seller’s lawyers are: 1. To review agreement of purchase and sale, and advise on terms included 2. To conduct closing of property 3. To request, arrange, and obtain title insurance You will learn more about these services in-depth in a future module.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 4 of 11

Lawyer Involvement, II A salesperson, following the consent and direction of the seller or buyer, may interact with the party’s lawyer during a transaction to resolve issues that may come up, such as how the offer should be structured or what amendments an offer may require after being accepted by the parties. Once the offer has been accepted and conditions have been satisfied, the brokerage forwards a copy of the agreement of purchase and sale to the respective lawyers. The lawyers then take steps to prepare for the closing. The salesperson remains available to the lawyer to answer any questions and provide services as required to facilitate the closing. You will learn more about closing a transaction later.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 5 of 11

Identify the services that are performed by the buyer’s lawyer only. There are seven options. There are multiple correct answers. 1 2 3 4 5 6 7

Perform a title search Arrange title insurance Prepare the Statement of Adjustments Prepare the deed to the property Review agreements Review Statement of Adjustments Conduct the closing process

©2019 Real Estate Council of Ontario

Lesson 4 | Page 6 of 11

Services from Third-Party Professionals, I There will be various circumstances that require the advice and guidance of third-party professionals – they are an important part of a real estate transaction in ensuring a seller or a buyer is being provided the necessary information to make informed decisions. Therefore, it is important for you, as a salesperson, to understand the role of each third-party professional and be able to advise a seller or buyer when to obtain these services.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 7 of 11

Services from Third-Party Professionals, II Section 8 of the Code requires a salesperson to advise a seller or a buyer to obtain services from an appropriate professional if the salesperson is unable to provide the services with reasonable knowledge, skill, judgement, and competence or is not authorized by law to provide the services. Section 6 of the Code also states that the salesperson may not provide an opinion or advice about the value of real estate unless they have the knowledge, skill, and competence to do so. Thus far we have discussed financing and the use of a mortgage specialist or lender, as well as a lawyer. While a salesperson needs to understand the fundamentals about each of these areas, they are not qualified to act in any capacity that the seller or buyer could rely on their input as advice. The same principle applies to the services offered by many other third-party professionals. For example, a salesperson is showing a property to a prospective buyer and the buyer enquires about the condition of the drainage and plumbing system. In such a case, the salesperson should be able to provide some general advice but should inform the buyer to seek assistance from a property inspector or other qualified professional with the appropriate expertise. Additional situations where the salesperson should refer the seller or the buyer to a third-party professional is when there are questions related to tax matters. Although you are obligated to provide conscientious and competent service as a salesperson, such matters may go beyond your area of knowledge and expertise. Therefore, you should advise the party seek advice from appropriate experts, such as a lawyer or accountant. ©2019 Real Estate Council of Ontario

Lesson 4 | Page 8 of 11

Services from Other Common Third-Party Professionals During the selling and buying process, there are situations in which a seller or a buyer may need the services of a third-party professional. Salespersons are trained in real estate but are not skilled in areas where the seller or buyer could require advice on many different circumstances. Depending on the property type and location, these professionals and the requirements to obtain their services will vary. In addition to the previous professionals identified, examples of third-party professionals include: • Property inspectors: provide a report detailing the condition of the property • Insurance brokers: arrange home insurance for the property • Surveyors: provide a survey of the property, including lot lines, easements, and all improvements to the land • Electricians: inspect, design, install, repair, or evaluate the electrical systems in the house • Plumbers: inspect, install, repair, or evaluate water supply lines and related appliances • Well and septic installers: inspect, repair, and evaluate the well and septic system, and waste disposal system • HVAC specialists: inspect, repair, or evaluate the heating, ventilation, air conditioning, and refrigeration systems that control the temperature and air quality • Building contractors: provide estimates of costs associated with identified problems and/or renovations being contemplated by a buyer

©2019 Real Estate Council of Ontario

Lesson 4 | Page 9 of 11

Which third-party professional would inspect the condition of a home for any potential structural issues or necessary repairs? There are two options. There is only one correct answer. 1 2

Electrician Property inspector

Lesson 4 | Page 10 of 11

Which third-party professional would provide estimates of costs associated with renovations being contemplated? There are two options. There is only one correct answer. 1 2

Building contractor Surveyor

©2019 Real Estate Council of Ontario

Lesson 4 | Page 11 of 11

Congratulations, you have completed the lesson! The summary of the key topics that were discussed in this lesson are: • Your obligations as a salesperson when referring a seller or buyer to a lawyer as per Section 8 of the Code, and the services provided to a seller or a buyer by a lawyer during a real estate transaction • How you, as a salesperson, could interact with a lawyer retained by a seller or a buyer during a real estate transaction • The importance of obtaining services from third-party professionals in a real estate transaction and the circumstances where you, as a salesperson, exercise due diligence by referring other third-party professionals to a seller or a buyer • Other common third-party professionals and the role they would play during the course of a real estate transaction Possessing this knowledge will help you, as a salesperson, demonstrate reasonable knowledge and judgement in providing advice or information during a trade in real estate and abide by the Code.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 1 of 10

Lesson 5: Summary Practice Activities

This lesson provides a series of activities that will test your knowledge on the entire module.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 2 of 10

This lesson contains summary decision points that will test your knowledge regarding the financial aspects of the buying and selling process and the role of third-party professionals. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 3 of 10

Identify which of the given expenses are incurred by both the buyer and seller in a typical real estate transaction. There are nine options. There are multiple correct answers. 1 2 3 4 5 6 7 8 9

Cost of obtaining title insurance Cost related to Land Transfer Tax (LTT) Cost of hiring a home stager Mortgage discharge fee Cost of a home inspection Legal fees Remuneration fee Moving expenses Cost of survey

©2019 Real Estate Council of Ontario

Lesson 5 | Page 4 of 10

A seller or a buyer may often have some questions regarding various aspects of selling or buying a property that may require their salesperson to refer them to an appropriate professional as per the Code.

Identify the scenario in which the salesperson can respond, “Yes, I can do this”. There are three options. There is only one correct answer.

1 2 3

A buyer requests that their salesperson measure the size and boundaries of the lot they are buying, because a survey is not currently available from the seller. A seller has an investment property that they want to sell and knows that they will have to pay a capital gains tax. They ask the salesperson if they can tell them how much this will be. A buyer would like a property inspection of a home that is very old, and asks the salesperson to recommend a few qualified inspectors.

Lesson 5 | Page 5 of 10

Which of the following are mortgagor rights? There are five options. There are multiple correct answers. 1 2 3 4 5

Right to quiet possession Right to redeem the property free of the mortgage Right to discharge the mortgage Right to assign the mortgage Right to be paid

©2019 Real Estate Council of Ontario

Lesson 5 | Page 6 of 10

A buyer has applied for a mortgage of $500,000 with an annual interest rate of 5%, a 25-year amortization period, and a bi-weekly payment arrangement. The bi-weekly payment factor is 2.681357.

Given the mortgage details, calculate the buyer's bi-weekly mortgage payment amount (rounded to two decimal places). Please note: Round up your final answer to two digits after the decimal and do not include dollar signs or commas. There are three options. There is only one correct answer. 1 2 3

1340.68 1140.79 1789.86

Lesson 5 | Page 7 of 10

A buyer has applied for a mortgage of $300,000 with an annual interest rate of 7%, a 15-year amortization period, and a weekly payment arrangement. The weekly payment factor is 2.056801.

Given the mortgage details, calculate the buyer's weekly mortgage payment amount (rounded to two decimal places). Note: Round up your final answer to two decimal places, and do not include dollar signs or commas. There are three options. There is only one correct answer. 1 2 3

617.04 619.04 615.04

©2019 Real Estate Council of Ontario

Lesson 5 | Page 8 of 10

Assuming a property and a borrower present no circumstances that require special considerations by a lender and that the normal lending rules will apply, which of the following loan-to-value ratios would require mortgage default insurance? There are five options. There are multiple correct answers. 1 2 3 4 5

69 per cent 77 per cent 83 per cent 90 per cent 94 per cent

Lesson 5 | Page 9 of 10

A buyer is applying for a mortgage of $300,000 at an annual interest rate of 4% amortized over 25 years. Annual mortgage payment (principle and interest) = $18,936 Annual property taxes = $5,000 Total of annual payments for additional financial obligations = $14,400 Combined family income = $115,000

Based on the given information, determine the buyer's total debt service (TDS) ratio (rounded to two decimal places). There are three options. There is only one correct answer. 1 2 3

43.34 33.34 44.30

©2019 Real Estate Council of Ontario

Lesson 5 | Page 10 of 10

Congratulations, you have completed the lesson!

©2019 Real Estate Council of Ontario

Module Summary | Page 1 of 4

Module Summary

This lesson contains a summary of the entire module and a list of helpful resources available in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 2 of 4

Congratulations, you have completed this module! This lesson will present a summary of Learning Objectives and a list of helpful resources that you can search for in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 3 of 4

An understanding of the concepts covered in this module will help you, as a salesperson, fulfill your obligations under REBBA, and prevent any risk of damage to your reputation and relations with your sellers and buyers. It is important to note that section 8 of the Code requires you, as a salesperson, to advise the seller or buyer to obtain services from appropriate experts if you are unable to provide those services with reasonable knowledge and skill, or are not authorized by law to provide the services. The information you can provide must be restricted to general estimates only, leaving precise details to the appropriate professionals. There are four sections on this page with a summary of the key topics that were discussed in this module.

Seller and buyer expenses

There are several additional expenses that a seller may have to incur during the selling process, which include legal fees, brokerage remuneration, unpaid property taxes, third-party costs, and, if applicable, capital gains tax and HST. Similarly, a buyer may have to incur additional expenses when buying a house, which include lawyer's charges, the land transfer tax, unmetered utility costs, prepaid property taxes, and in some circumstances, brokerage remuneration. Completion of this lesson has enabled you to: • Identify typical expenses incurred by a seller in a real estate transaction • Identify typical expenses incurred by a buyer in a real estate transaction

Mortgage basics

A mortgage is a claim or encumbrance upon the property given by the owner of the property to the lender as security for money borrowed. There are various fundamentals of a mortgage that you, as a salesperson, should be aware of, such as the types of mortgages, amortization, term, loan-to-value ratio, mortgage interest rates, mortgage payment arrangements, legal and non-legal remedies for mortgage default, and covenants, rights, and privileges under mortgages. If a borrower is in default, various legal remedies may be used by the lender (mortgagee). These include foreclosure, judicial sale, quit claim deed, payment

©2019 Real Estate Council of Ontario

Mortgage qualification process

under a personal covenant, possession of the property by the lender, and power of sale. Completion of this lesson has enabled you to: • Describe the essentials of a mortgage with buyers • Identify sources of funding for buyers The two main categories of mortgage loans are high ratio, in which the loan-to-value ratio is more than 80%, and conventional, in which the borrower’s down payment is 20% or more. There are several costs associated with mortgages, such as mortgage default insurance premium, mortgage broker fees, legal fees, and appraisal fees. Mortgage qualification involves several factors, such as down payment, appraisal, employment stability, and credit check. A lender determines a borrower's qualifications by determining their GDS and TDS ratios. Pre-approval is a process that lenders use to qualify borrowers for mortgages. Mortgage commitment is a letter from the lender agreeing to make the loan subject to satisfactory title and other conditions specified in that commitment. This follows the selection of a property and successful negotiation of an agreement of purchase and sale. A buyer may approach a lender and be pre-qualified before viewing properties. Pre-qualified does not include the lender verifying any of the buyer’s information. To provide conscientious and competent service, as a salesperson, you should confirm that a lender has granted mortgage approval prior to taking any additional steps required in the purchasing process. Completion of this lesson has enabled you to: • Identify the costs associated with mortgages • Outline the process for mortgage qualification

©2019 Real Estate Council of Ontario

Role of a lawyer and other third-party professionals

While most legal involvement is focused on the closing process, legal opinions and guidance can be vital in matters relating to the listing process, drafting of agreements, and real estate negotiations, particularly those involving complex residential properties. A lawyer performs various searches and investigations of the subject property related to matters such as tax arrears, condominium maintenance fees, zoning, and work orders to protect the best interest of their clients. A salesperson, with the seller or buyer’s consent, may interact with their lawyer during a transaction to resolve issues that may arise during a real estate transaction. As a salesperson, you are obligated to provide conscientious and competent service (as per section 5 of the Code) to sellers and buyers. This includes knowing when matters may go beyond your area of knowledge and expertise. At this time, you would advise the seller or buyer to involve a third-party professional. Completion of this lesson has enabled you to: • Describe the obligations of a salesperson when referring a seller or buyer to a lawyer • Describe the importance of obtaining services from third-party professionals in a real estate transaction

©2019 Real Estate Council of Ontario

Module Summary | Page 4 of 4

Module Resources There are seven helpful resources related to this module that you can search for in the Knowledge Management System. 1. Role of a Lawyer in a Real Estate Transaction: This table describes some of the services that a lawyer may provide when assisting a seller or a buyer with the sale or purchase of their home. A salesperson can use this job aid to better understand the role of a lawyer throughout the closing of a real estate transaction. 2. Covenants, Rights, and Privileges Under Mortgages: These tables detail the covenants, rights, and privileges that are guaranteed under a mortgage contract. A salesperson can use this job aid when they need easy access to this information so they can communicate it to sellers and buyers as needed. 3. Mortgage Default – Legal Remedies: This job aid describes the potential legal outcomes that arise when a mortgagor defaults on a mortgage payment. A salesperson can use this job aid when selling a property on behalf of a mortgagee or if they are otherwise involved with a property in default. 4. Calculating Mortgage Default Insurance Premiums: This job aid provides detailed information on how to calculate mortgage default insurance premiums. A salesperson can use this job aid to explain the process for calculating mortgage default insurance premiums to a buyer. 5. Mortgage Payment Options: This table describes the mortgage payment options that are available to buyers. A salesperson can use this job aid to better understand the difference between blended and interest-only payments. 6. Mortgage Qualification Process: These steps describe the typical mortgage qualification process. A salesperson must always seek qualified advice from third-party specialists. A salesperson can use this job aid to better understand and explain the mortgage qualification process to buyers. 7. Calculating Gross Debt Service (GDS) and Total Debt Service (TDS) Ratios: This job aid describes how to calculate Gross Debt Service (GDS) and Total Debt Service (TDS) ratios in detail. Lenders determine how much the buyer can afford by reviewing their GDS and TDS ratios. A salesperson can use this job aid to better understand how to calculate a buyer’s GDS and TDS ratios before they apply for a mortgage. While navigating through the online module, click the KMS button for tools and information on this topic.

©2019 Real Estate Council of Ontario

V7

Module 7: Understanding Residential Construction – Mechanical Systems Disclaimer: This is a reference document which contains pages from the Accessible eLearning module. You should complete the eLearning module to proceed to the next step. Please note that the accessible module on the LMS only contains the interactive pages and you need to go through the content of this document thoroughly to attempt the interactive activities in the module. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Salesperson Program ©2019 Real Estate Council of Ontario. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or in any means – by electronic, mechanical, photocopying, recording or otherwise without prior written permission, except for the personal use of the Real Estate Salesperson Program learner.

©2019 Real Estate Council of Ontario

Module 7: WELCOME TO UNDERSTANDING RESIDENTIAL CONSTRUCTION – MECHANICAL SYSTEMS Electrical and Heating Systems To serve sellers and buyers more effectively, it is important to be familiar with the electrical and heating systems of a residential structure. As a salesperson, you don’t need to be able to work on these systems themselves, but you should be able to identify where there are problems and be aware of when a system should be upgraded for insurance and safety reasons. This module will explore: • • • • •

Major components of electrical systems Heating and cooling systems and their key considerations Plumbing systems, including major components involving water distribution and drainage/venting Sources of water supply Sewage systems with emphasis on on-site systems

To check your understanding of this module, you must complete all the activities in the online module. While navigating through the online module, click the Legislation button to view laws and regulations related to this module. While navigating through the online module, click the KMS button to access the Knowledge Management System or visit the Module Resources to find the list of all the KMS assets for this module. The contents of the thumbnail icon and References from the module are added to support your learning throughout this Accessible PDF. ©2019 Real Estate Council of Ontario

Menu: Welcome to Understanding Residential Construction – Mechanical Systems Number of Lessons

7 Lessons

Lesson Number

Lesson Name

Lesson 1 Lesson 3

Electrical Systems Heating and Cooling Systems Plumbing Systems

Lesson 4

Sources of Water Supply for Residential Properties

Lesson 5

Sewage Systems

Lesson 6

Summary Practice Activities Module Summary

Lesson 2

©2019 Real Estate Council of Ontario

Lesson 1 | Page 1 of 14

Lesson 1: Electrical Systems

This lesson contains topics relating to the major components of domestic electrical systems, the types of wiring and outlets used, and the potential problems of each. It also explains the benefits and financial incentives of installing solar panels in residential structures.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 2 of 14

Electrical Systems The electrical system of a property is an important factor to consider when buying or selling a home. As a salesperson, you will have to know enough about electrical systems to help sellers and buyers make key decisions. The electrical system affects many things in a house, from the types of appliances that can be used, to the heating systems it will support, to serious safety concerns. You will need to know about these things to meet sellers’ and buyers’ needs effectively and to give them peace of mind that the house is safe. While the electrical requirements for new properties are set out in the Ontario Electrical Safety Code and the Ontario Building Code, the standards for electrical systems are overseen by the electricity transmission and distribution utility Hydro One. However, there are no retroactive provisions for dated electrical systems. Therefore, it is important to be aware that you may encounter systems that are inadequate and don’t perform safely. As a salesperson, you should be aware of common upgrades required for safety reasons and to meet insurers’ requirements. Upon completion of this lesson, you will be able to identify how an electrical system operates in a residential structure. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. ©2019 Real Estate Council of Ontario

Lesson 1 | Page 3 of 14

The Basics of Electricity In order to understand how electrical systems work, it is useful to understand the basics of electricity. Electricity is the flow of electric current along a conductor. Electrical current is made of free electrons that transfer from one atom to the next. Thus, the more free electrons a material has, the better it conducts electricity. Voltage: This is the potential energy of any electrical system, and it is measured in volts. Most houses are equipped with a 240-volt system that provides 240 or 120 volts. Resistance: This is the tendency of any material (such as copper) to resist the flow of electricity, and it is measured in ohms. Conductive materials are those with low resistance. Current: This is the rate at which electricity is flowing, and it is measured in a unit called ampere, simply known as amp. Watts: The power is measured in watts and is calculated by multiplying the voltage by the current. Remember that electrical systems can be dangerous, and any detailed investigation of the electrical system in a house should only be done by a qualified professional. ©2019 Real Estate Council of Ontario

Lesson 1 | Page 4 of 14

Electrical System Components As a salesperson, you will need to know the basic components of electrical systems so that you can discuss them with clients and know when to involve a professional. The electrical systems of a house can affect the value of a house and have implications for the safety of the occupants as well as getting insurance. Older systems can deteriorate over time or become outdated, so as a salesperson, you need some knowledge of how electrical systems work and how they’ve changed over the years. The following six sections contain information about the major components of electrical systems. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Electrical service entrance cable (overhead or buried) The electrical service entrance cable brings electrical service to the property from the street. A typical house has 240 volts brought in through an overhead cable or buried wires from the street supply. The size of the electrical service is largely determined by the diameter of this cable. Older electrical systems were 60 amp, while modern ones will be 100 or 200 amp. 60amp systems may have problems running modern appliances (such as dryers, microwave ovens, computer systems, and so on) because the amperage required to run the

©2019 Real Estate Council of Ontario

appliances at the same time is more than the electrical system can safely handle. Upgrading the electrical service entrance cable to allow a larger service size is easier if it is an overhead cable. If it is an underground cable, upgrading may be more difficult and costlier because of the excavation involved in accessing the cable.

Electrical main disconnect The electrical main disconnect is the first switch that the electrical service entrance cable connects to. It is used to shut off all power to the structure. Frequently, the electrical main disconnect is incorporated into the distribution panel. There are two types of distribution panels. One contains fuses and the other contains circuit breakers, but they both serve the same purpose (and will be discussed later). The electrical main disconnect contains one circuit breaker or two fuses. If there are serious problems with the electrical system, the fuses will blow, or the circuit breaker will trip. If using fuses, the amperage of each fuse must match the amperage of the electrical system, or there is a risk of overheating. Thus, a 100amp system using fuses would need two 100amp fuses. Similarly, circuit breakers must also match the amperage of the electrical system.

©2019 Real Estate Council of Ontario

Distribution panel The distribution panel distributes electricity through individual circuits to various parts of the house. A circuit is an unbroken loop of conductive material (such as copper wire) that allows electricity to flow through. Each circuit will have one or more outlets (such as wall outlets, light fixtures, and so on) connected to it. The black and red wires that enter the distribution panel are each connected to a live busbar (a currentcarrying metal bar with several connection points), and the white wire is connected to the neutral busbar. Black wires are known as hot wires. Any circuit’s black wire should be considered live at all times. Black wires are never used for a ground or neutral wire and are meant to be used as the power feed for a switch or an outlet. Red electrical wires are the secondary live wires in 220-volt circuits. You can link two red wires together, or you can link a red wire to a black wire. Since red wires conduct current, they are considered hot. The colours white and gray indicate a neutral wire. That means it connects to an electrical panel’s neutral busbar. Most electrical wires are covered in a rubber or plastic coating called insulation that prevents accidental contact with other conductors of electricity, which might result in an unintentional electric current through those other conductors.

©2019 Real Estate Council of Ontario

Each household circuit fuse (or breaker) is directly connected to either the red or black busbar. The distribution panel typically has several 120-volt circuits (10 are required for most homes) and one or more 240-volt circuits for large electric appliances. Many electrical codes now require a panel with room for 24 120-volt circuits.

Wiring Wiring distributes electricity to all the outlets and fixtures in the house. Grounded copper wiring is the current standard. Aluminum was often used for wiring in the 1960s and 1970s, but it can pose a fire risk as its softness can lead to loose connections, which make overheating a possibility. Today, aluminum wiring is either replaced completely or (more likely) augmented with copper pigtails, which involves adding copper wiring to the end of aluminum wiring to create more secure connections. Knob-and-tube wiring is an older method of wiring homes, where the wiring is secured in ceramic knobs along its length and ceramic tubes when it passes through wood-framing, such as joists. It is no longer used today as insurance companies may be wary of insuring homes with this form of wiring and may increase premiums when it is present. ©2019 Real Estate Council of Ontario

Outlet Electrical outlets are where electrical appliances connect to the electrical power supply. The two types of outlets are: Ungrounded outlets: These older types of plugs contain two slots of equal size and are not grounded. Grounded outlets: Grounded means that the plugs have an extra wire to send current to earth (or ground) in the event of a power surge or other fault. Grounded plugs became common after the 1960s.

Ground fault circuit interrupter (GFCI) A ground fault circuit interrupter is a device that shuts off the power to a circuit when a small amount of current (as little as .005 amps) is leaking or flowing out of the circuit. This could cause a harmful electric shock to anyone standing nearby. The ground fault circuit interrupter compares the electricity flowing from both the wires. If the difference is more than .005 amps, the system will be shut off. These devices are normally used anywhere within three feet of water to avoid electrocution. So, they are often used in bathrooms and kitchens, and with exterior outlets. They have a reset and a test button on them.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 5 of 14

Jacinda and Emmanuel Rivera are interested in an old house that they have seen. The house has a 60amp overhead electrical service cable, and the main disconnect contains two 60 amp fuses. The outlets in the basement have two slots, while those in the rest of the house have three. There is also knob-and-tube wiring in the attic. To get insurance for this house, the Riveras would need to upgrade it to modern standards. Riveras should exchange the fuses in the main disconnect for two 100amp fuses to bring the house up to modern standards. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 6 of 14

Jacinda and Emmanuel Rivera are interested in an old house that they have seen. The house has a 60amp overhead electrical service cable, and the main disconnect contains two 60 amp fuses. The outlets in the basement have two slots, while those in the rest of the house have three. There is also knob-and-tube wiring in the attic. To get insurance for this house, the Riveras would need to upgrade it to modern standards. Riveras should exchange the fuses for two 50amp fuses or a circuit breaker to bring the house up to modern standards. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 7 of 14

Jacinda and Emmanuel Rivera are interested in an old house that they have seen. The house has a 60amp overhead electrical service cable, and the main disconnect contains two 60 amp fuses. The outlets in the basement have two slots, while those in the rest of the house have three. There is also knob-and-tube wiring in the attic. To get insurance for this house, the Riveras would need to upgrade it to modern standards. Riveras should upgrade the service cable to 100 amp, and replace ungrounded and knob-andtube circuits to bring the house up to modern standards. There are two options. There is only one correct answer.

True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 8 of 14

Key Considerations of Electrical Systems Beyond being able to identify the basic components of an electrical system, you as a salesperson should be able to identify the types of wiring that a house uses, the use of fuses and circuit breakers, and the different types of outlets that are used today. You should also be able to identify indicators of problems, discuss electrical systems knowledgeably with sellers and buyers, and know when a third-party professional should be called in. The following four sections contain information about some key considerations of electrical systems. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Circuit breakers and fuses Circuit breakers and fuses are safety devices found in the main distribution panel and are designed to prevent an overload of the electrical system. In a typical modern home, most of the circuits are rated at 15 amp using wire that is able to safely supply that level of electricity. If two appliances were plugged into the same circuit (and combined, they drew more than 15 amps), the fuse would blow, or the circuit breaker would trip and cut off the electricity to that circuit. An example of overloading would be in using a toaster which draws nine amps and an iron drawing 12.5 amps on the same circuit. The combined 21.5amp draw would overload the circuit and be a safety risk without the presence of a fuse or circuit breaker. Insurers tend to prefer circuit breakers as systems that use fuses are easier for unqualified homeowners to tamper with. Over the years, homeowners may have used the wrong rating of fuse or placed pennies in the threaded fuse opening, creating an unprotected circuit, which is very dangerous.

©2019 Real Estate Council of Ontario

Aluminum wiring Aluminum wiring can present problems. For example, aluminum is softer than copper and, when being installed, it may be nicked or crushed by the installer. This damaged wire will create local hot spots that can lead to overheating. Another problem is known as creeping, which is when the aluminum wire creeps out from under the terminal screws that hold the wire in place on the electrical outlet. Each time an appliance is turned on, electricity flows through and heats the wire; when the appliance is turned off, the wire cools. When heated, aluminum wire expands more than copper, so the daily use of electricity in a home will result in repeated expansion and contraction of the wire. The creeping of the aluminum wire results in a loose connection and overheating. Aluminum wiring can become oxidized by air or corroded by contact with brass connectors. In either case, the wiring forms a white oxide, which generates heat. The increased heat makes it more likely to cause a fire. Having aluminum wiring in a home can make it more difficult to get insurance. Silver wire visible in the distribution panel can indicate the presence of aluminum wiring. Checking for silver wire should only be undertaken by a qualified professional and never by a salesperson for obvious safety reasons. If wiring is visible in the basement, ©2019 Real Estate Council of Ontario

aluminum wire can also be identified by the words “aluminum” or “alum” printed on the insulation.

Ungrounded outlets Ungrounded outlets do not contain a ground wire and have only two vertical slots of equal size. They are often found in pre-1960s homes. In a grounded outlet, there is a third ground wire. If there is a problem with an outlet or an appliance plugged into the outlet, the electricity will travel safely along the ground wire back to the electrical panel. In an ungrounded outlet, there is no such safety mechanism. Ungrounded outlets can cause several problems, such as: • Electrical fire – Without a ground wire, a problem with an outlet could cause arcing (electricity jumping between a loose wire and a terminal) or sparks, which could result in a fire with nearby combustible material. • Risk of shock – A person operating electronics or appliances plugged into an ungrounded outlet runs the risk of receiving a shock if there is a problem with the outlet. • Damage to appliances – Faulty ungrounded outlets can short out appliances and make them useless.

©2019 Real Estate Council of Ontario

Knob-and-tube-wiring Knob-and-tube wiring has several problems: • It cannot accept three-pronged appliances because it has no ground wire. • It poses a fire risk because it has no ground wire. Therefore, there is no protection when a fault occurs. • As it ages, the insulation becomes brittle and may come off if something is stuck against it. • It poses a fire hazard when bare wire is near combustible material. • There is a very real danger of shock or electrocution to anyone who comes into contact with bare wire. • Given its age, it is possible that it may have been modified by homeowners, potentially leading to problems with amateurish work. It can be difficult to know if a system is using this wiring without looking inside the walls. A good home inspector will look at the unfinished parts of a house, such as the attic or the basement, where any knoband-tube-wiring may be exposed. Some insurance companies require that all visible knob-and-tubewiring be replaced, while others require the entire system be replaced.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 9 of 14

Elizabeth and Scott Smith are interested in buying an older house. They are viewing it with their salesperson, Jason Sewell, to see if there’s anything that doesn’t meet the standards needed for safety and insurance before calling a professional to inspect it. While recognizing that a professional should be consulted regarding any concerns with an electrical system, what should Jason and the Smiths look for when viewing the house? There are five options. There are multiple correct answers. 1 2 3 4 5

Ensure that outlet plates have three holes and are grounded. Ensure that bathroom outlet plates have a test and reset button on them. Ensure the electrical panel contains circuit breakers and not fuses. Check for test and reset buttons for the exterior outlets. Ensure exterior outlets have GFCIs.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 10 of 14

Indicators of Problems with Electrical Systems As a salesperson, you are not expected to be able to diagnose problems with electrical systems themselves, but you should be able to know when there are problems that a third-party professional should look at. Therefore, it is useful to be aware of a few warning signs that an electrical system has problems. Some of these will be things that can be observed in one visit, while others will need to be inspected by a third-party professional. The following six sections contain information about indicators of problems with electrical systems. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Frequently blown fuses or tripped circuit breakers If the fuses or circuit breakers in the distribution panel are frequently blown or tripped, this is an indication that something is wrong in the electrical system. This can indicate: • Overloading – a circuit is trying to draw more current than it can handle. This can happen when appliances with high amperage ratings are being used on the same circuit. • A short circuit – caused by the hot wire and neutral wire in a circuit touching each other. They could be the result of one or both wires coming loose from a terminal. • A ground fault – occurs when the hot wire and ground wire come into contact. This could be the result of one or both wires coming loose from a terminal.

©2019 Real Estate Council of Ontario

Hot or charred electrical outlets If electrical outlets are hot or charred, this is an indication that there is a problem with the wiring in or near the outlet. This could be caused by aluminum wires creeping out from under the terminal screw resulting in arcing.

Flickering/dimming lights Flickering or dimming lights indicate a serious problem with the wiring system, possibly caused by a heavy load on the circuit (such as dining room lights dimming as soon as the microwave is turned on). The wires may be creeping out from under the terminal screws resulting in a loose contact.

©2019 Real Estate Council of Ontario

Electrical shocks when plugging in appliances Shocks from a faulty appliance is one of the five common causes of an electrical shock. Faulty appliances do not always channel electricity as well as they used to. When an appliance has damaged circuitry, frayed wiring, or broken cords, electrical currents become unstable. When you plug one in, the unstable electricity can ruin your appliance, as well as shock you.

Light bulbs burn out quickly There are many possible reasons why a light bulb burns out quickly. The more common could be the power supply voltage may be too high, bulbs may be loose or connected improperly, excessive vibrations may be causing the filament to break to name a view.

©2019 Real Estate Council of Ontario

Too many extension cords in use If there are a number of extension cords used in a house, it is an indication that there are insufficient outlets to meet the homeowner’s needs. Extension cords are designed for temporary use, not as a permanent solution. Using too many affects the circuit load. Installing more outlets can also involve extensive retrofits to the wiring of the home, as all improvements must meet code. Too many appliances plugged into one socket can be dangerous. This is a common problem in older houses.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 11 of 14

Jason has discussed the possibility of listing Jennifer and Patrick Murray’s home. According to them, the electrical system is up-to-date in the house. Jason has met the Murrays and looked at the house. He has noted the given things from his own observations and the conversation with the Murrays: • Jason noticed that the refrigerator in the kitchen is sharing an extension cord with a toaster and waffle maker. • Jason noticed that there is black residue on one of the outlets in the living room. • The seller mentioned that the fuses in the distribution panel sometimes blow when extra appliances are plugged in. While acknowledging to the Murrays that he is not an expert, which of the given actions on the part of Jason would be considered correct? There are three options. There is only one correct answer. 1 2 3

He should advise his sellers to call an electrician to perform a full investigation of the electrical system. He should call an electrician to replace the cover on the outlet in the living room and put higher amperage fuses in the distribution panel. He should plug the refrigerator into a different socket in the kitchen and call an electrician to replace the cover on the living room outlet.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 12 of 14

Solar Panels Solar panels are special panels installed on the roofs of buildings, which absorb sunlight as a source of energy to generate electricity. They are becoming an increasingly popular way of supplementing the electricity supply in modern homes. There are many advantages of running such a system in parallel with a conventional electrical system. The following three sections contain information about solar panels.

Benefits of solar panels Solar panels are an excellent way to supplement a conventional electricity service. Benefits include: • A renewable energy source with minimal environmental impact • Low maintenance costs and lower utility bills • Usability in areas without access to the energy grid

©2019 Real Estate Council of Ontario

Financial incentives for using solar panels There are also financial incentives for using solar panels: • Homeowners can install a net metering system to produce their own clean renewable energy. • During periods when excess energy is produced that isn’t needed by the homeowner (such as summer when there are longer periods of sunlight), the excess energy can be fed back to the consumer electrical grid. Credits will be provided, which can be used to buy electricity when needed (such as on cloudy days or during the winter season with shorter periods of daylight).

Houses that aren’t suited for solar panels Some houses may not suit solar panels, including: • Houses that are surrounded by shade trees that may not receive enough sunlight for effective operation • Houses with inadequate roof space • Houses without enough south or southwest facing roof space • Houses with old roofs in need of continual repair

©2019 Real Estate Council of Ontario

Lesson 1 | Page 13 of 14

Krishna and Uma Bajaj have determined that the electrical system in the house they viewed is functioning normally, so Uma has asked her salesperson, Jason, if it would be a good candidate for solar panels. It is a relatively new house with a roof that faces southwest, and its front and back gardens are full of tall trees. How should Jason respond to Uma? There are three options. There is only one correct answer. 1 2 3

“No, any house that faces southwest would not get enough sunlight to be useful for solar panels.” “Yes, if the roof faces southwest, it should get enough sunlight, but some work would need to be done first. Maintenance should be done on the roof and trees that obstruct it should be trimmed back or removed.” “No, it is better to install solar panels in old houses as their older electrical systems are more in need of supplementation."

©2019 Real Estate Council of Ontario

Lesson 1 | Page 14 of 14

Congratulations, you have completed the lesson! There are five sections on this page with a summary of the key topics that were discussed in this lesson.

Major components of an electrical system

Considerations when a system is using fuses Types of wiring and outlets used in residential properties

Indicators of potential problems with an electrical system

Electrical service enters the building from the street via the electrical service entrance cable into the electrical main disconnect, where it can be shut off. From there it goes to the distribution panel and gets sent through circuits to various outlets, where appliances can be plugged in. The electrical main disconnect is often incorporated into the distribution panel. When an electrical system has fuses in the distribution panel, each of these fuses must have the same rating as the wiring it is protecting.

Most houses use copper wiring, but aluminum wiring can be found in older homes. Aluminum wiring is prone to oxidization and is softer and more brittle than copper. These qualities can result in bad connections and pose a fire risk. Some insurers will not insure homes with aluminum wiring without additional work done to ensure connections are secure. Knob-and-tube wiring was used in homes prior to the 1930s. It is not grounded and can be dangerous. Insurers are reluctant to insure homes with knob-and-tube wiring because of increased fire risk, so it is an area of concern when selling or buying a home. Outlets should be grounded, and bathroom and outdoor circuits should contain ground fault circuit interrupters. There are several things that can indicate problems with an electrical system. A salesperson should know what to look out for and call in a third-party professional to deal with any problems. These include: frequent blown fuses or tripped circuit breakers, hot or charred outlets, burning smells, flickering or dimming lights, electric shocks, and light bulbs burning out too quickly.

©2019 Real Estate Council of Ontario

Benefits and financial incentives of using solar panels

Solar panels can be installed in homes with enough roof space and access to sunshine. With a net metering system, more electricity can be created during the summer months, creating a surplus in the form of credit, which can be used to offset the cost of electricity bills for days with decreased availability of sunlight.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 1 of 35

Lesson 2: Heating and Cooling Systems

This lesson contains topics related to the major types of heating and cooling systems, such as furnaces, air conditioning, and HVAC systems, and their key considerations. It also discusses types of wood-burning heating systems, the requirements of WETT inspections, natural gas and propane fireplaces, and the insurance considerations of each. Finally, it concludes by identifying modern innovations in heating systems.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 2 of 35

Heating and Cooling Systems In this lesson, you will learn to identify heating and cooling systems in residential structures and how they operate. Heating and cooling systems are very important to the proper functioning of a property and can be costly to replace or fix when they are not satisfactory. It is a significant factor in many buyers’ choice of property and, as a salesperson, you should know what warning signs to look for when viewing properties, particularly older ones. You should also know enough about heating and cooling systems to assist your buyers in the decision-making process. Should something be overlooked that results in the buyers incurring additional costs after closing, there is potential for your reputation to be affected. Heating and cooling systems will have a significant impact on the ongoing cost of living in a property as well as the environment. Upon completion of this lesson, you will be able to: • Identify different heating and cooling systems in residential structures • Identify key considerations with secondary sources of heating • Identify heating and cooling innovations in residential structures Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. ©2019 Real Estate Council of Ontario

Lesson 2 | Page 3 of 35

Heating and Cooling Systems As a salesperson, it is important for you to consider the heating and air-conditioning systems of houses as they are a major part of the quality of life that a house offers. You need to know the basic components of heating and airconditioning systems and have a good understanding of their advantages and disadvantages so that you can advise sellers and buyers effectively. In your role as salesperson, you should also have an awareness of alternative sources of heating (such as fireplaces and stoves) and the considerations of each of them. In addition, you should be aware of the various innovations in heating and cooling technologies that have occurred in recent years so that you can provide current and valuable information to sellers and buyers. Ultimately, this will lead to a satisfied client and a potential repeat and referral business.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 4 of 35

Types of Heating Systems The heating system generates heat that can be distributed throughout a structure. While they are often selected based on initial cost, the primary requirements of any heating system are: • • • •

Size: Large enough to provide adequate heat on the coldest day Reliability: Reliable and safe Cost: Economical to install and operate Equal heating distribution: Capable of heating all parts of the home equally

©2019 Real Estate Council of Ontario

Lesson 2 | Page 5 of 35

Capacity and Efficiency of Heating Systems Heating systems are rated for capacity and efficiency. Capacity tells homeowners how much heat a heating system can generate. Different capacities of heating system are needed depending on how large the house is. Efficiency tells us how well the heating system heats the house. Efficiency ratings tell homeowners how efficient heating systems are and help them determine which system they may want to use. The following three sections contain information about capacity, efficiency, and efficiency ratings.

Capacity This is the amount of heat that a heating system can generate. There are two types of capacity: • Input capacity: This tells us how much fuel energy is consumed for every hour of operation. It is measured in British Thermal Units (BTU) per hour. A BTU is the amount of heat required to raise the temperature of one pound of water by one Fahrenheit degree. • Output capacity: The output capacity tells us how much usable heating or cooling the unit provides to a home. Any system will have inefficiencies in it that lead to it turning less energy into heating. For example, many furnaces take quite a lot of energy to get them started without producing any heat. Heat can also escape up the chimney.

©2019 Real Estate Council of Ontario

Efficiency The efficiency of a heating system takes the input capacity and output capacity into account. Given as a percentage, it tells us how efficiently a system actually heats the home. If the input capacity and output capacity of a system were the same, that would make it 100% efficient. Most heating systems are considerably less than 100% efficient as inevitably, energy is lost somewhere.

Efficiency ratings Efficiency ratings tell us how well the energy put into a heating system heats the home. It is based on the Annual Fuel Utilization Rating (AFUE) rating, which measures how much fuel is converted to heat in a heating system. If a heating system has an AFUE rating of 60%, then 40 cents of every dollar spent on heating are being wasted. Efficiency Rating: Low-efficiency

©2019 Real Estate Council of Ontario

Sample AFUE Savings: rating: 60% 40 cents of every dollar spent on heating are wasted.

Mid-efficiency

80%

High-efficiency

95%

20 cents of every dollar spent on heating are wasted. 5 cents of every dollar spent on heating are wasted.

Canada’s Energy Efficiency Regulations mandate that gas furnaces manufactured after December 31, 2009 must have a minimum efficiency rating of 90%. With Building Code requirements, this means that gas furnaces installed in new residential homes in Ontario today must be of high efficiency.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 6 of 35

Sigmar and Anna Larsen are considering selling their current home. Their furnace has been giving them some problems, so they are worried that its lower efficiency might reduce the value of their house. They discuss this with their salesperson, Jason, who suggests they call a technician. The technician determines that the furnace is quite dirty and in need of maintenance. The technician also tells the Larsens that having the furnace serviced would improve its efficiency, but that the furnace is nearing the end of its service life. The Larsens discuss this further with their salesperson. What should Jason suggest the Larsens do? There are four options. There is only one correct answer. 1 2 3 4

Upgrade to a high-efficiency furnace as a new furnace will increase the market value of the house. Get a technician to improve the input capacity of their furnace as this will always improve efficiency. Leave the furnace as it is and lower their asking price slightly. Have the furnace inspected and serviced by a qualified technician to ensure it can be operated safely.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 7 of 35

Types of Heating Systems There are several ways to heat a home. Some rely on heating air, water, or steam and distributing it throughout the house, while others heat different rooms directly. Knowing the differences between heating systems and how these systems impact a home can help you, as a salesperson, serve the needs of sellers and buyers. The following seven sections contain information about the different types of heating systems. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Forced air A forced-air central heating system is one which uses air as its heat transfer medium. It relies on metal ductwork and vents to distribute air, separate from the actual heating and air conditioning systems. The supply duct directs air from the central unit to the rooms that it is designed to heat. The return duct carries air back to a central air handler for reheating. A thermostat is used to control the temperature in a forced air heating system. Advantages: • Can heat the house more quickly than radiant systems • Can use the same ductwork as air conditioning systems Disadvantages: • Less energy-efficient than a steam or hot water system due to heat being lost as it travels through ductwork to different parts of the house ©2019 Real Estate Council of Ontario

• May require more regular maintenance than radiant systems • Bad for people with allergies due to circulation of allergens and dust, which become airborne and are released from the vents

Steam In a steam heating system, a boiler furnace heats water by means of a gas or oil-fired burner and turns it into steam. The steam travels through pipes to cast iron radiators or convectors, which give off heat and warm the room. As the steam cools, it condenses back into water and returns to the boiler by gravity to be heated again. Steam is rarely used in new construction. Advantages: • Quiet and provides consistent heat • Good for people with allergies due to not involving the movement of air Disadvantages: • Less energy-efficient than some systems due to heat being lost as it travels through pipes to different parts of the house • Expensive to install • Components often insulated with asbestos, which have serious health and safety concerns • Air conditioning unable to be added to the system

©2019 Real Estate Council of Ontario

Hot water A hot water system is a system that heats water and distributes it throughout the house by way of piping to cast iron radiators. Even though a boiler may be used to heat the water, it is not actually boiled but heated to approximately 71°C. Common in older houses, hot water systems can use gravity or force to circulate heated water through the system. The system may have one pipe or two. In a one-pipe system, the hot water passes through each radiator, returns to the main, and mixes with the hot water as it goes to the next radiator. The cooler water returning reduces the temperature of the main water. The two-pipe system has a separate pipe for the return of the cooler water from the radiator to the boiler. Advantages: • Quiet and provides even heat • Doesn’t circulate allergens like a forced air system does, which is good for people with allergies and sensitive skin Disadvantages: • More expensive to install than forced air systems • Can become blocked over time with rust and mineral deposits • Components often insulated with asbestos, which have serious health and safety concerns

©2019 Real Estate Council of Ontario

• Less energy-efficient than some other systems due to some heat being lost as heated water travels throughout the house • Air conditioning unable to be added to the system

Electric Two main types of electric heating systems are found in homes, baseboard resistance heater and radiant heating cables or coils that are placed in the ceiling or floor. This type of heating allows for a thermostat to control each room’s temperature individually. Advantages: • Clean and quiet • Does not require a furnace or ductwork • Environmentally Friendly - no carbon dioxide is released into the atmosphere, preserves natural resources and does not generate emissions and eliminates the risk of gas leaks. Disadvantages: • Difficult to access for maintenance when installed beneath the floor • A minimum floor height required for underfloor systems • Can produce a very dry heat with electric baseboard heaters, which can be uncomfortable in winter • Air conditioning unable to be added to the system

©2019 Real Estate Council of Ontario

Radiant Radiant heating systems supply heat directly to the floor, or to panels in the wall or the ceiling of a house. The systems depend on the transfer of heat directly from the hot surface to objects in the room via infrared radiation. Radiant heat warms the house by circulating water through pipes embedded in the floor. Copper pipes were used in the past; however, now, a more common approach is to use a leak-resistant, non-toxic, high-temperature, flexible piping called cross-linked polyethylene (PEX). PEX is a durable tubing that does not become brittle over time and is not affected by aggressive concrete additives or water conditions. Advantages: • Doesn’t circulate allergens and contaminants like forced air systems • Maintains a more constant temperature than forced air systems • Energy-efficient due to heat being created where needed Disadvantages: • Heats the house more slowly than forced air systems • Expensive to install • Limits the location of carpets to keep from blanketing the heat source • Air conditioning unable to be added to the system

©2019 Real Estate Council of Ontario

Ground source heat pumps Aground-source heat pump or geothermal system uses the earth, groundwater, or both as the source of heating the winter and as the sink for heat removed from the home in the summer. Liquid (usually antifreeze) circulates through a loop under the ground. The heat collected from the ground is distributed through the house with an air handling system. Advantages: • Environmentally friendly • Low maintenance once installed • Can save money on heating bills • Quiet Disadvantages: • Expensive to install • Significant disruption during installation due to need for loop pipes to be installed either vertically or horizontally underground

©2019 Real Estate Council of Ontario

Air source heat pumps

An air-source heat pump is a system that transfers heat from outside to inside a building, or vice versa. Air source heat pumps work similarly to ground source heat pumps, except that they extract heat from the air rather than the ground and use it to heat the house. The heat collected from the air is distributed through the house with an air handling system. Their advantages and disadvantages are similar to those of ground source heat pumps. Advantages: • Environment-friendly • Low maintenance once installed • Can save money on heating bills Disadvantages: • Expensive to install • Significant disruption during installation similar to ground source heat pumps

©2019 Real Estate Council of Ontario

Lesson 2 | Page 8 of 35

Harbinder and Aishwarya Balakrishnan are interested in a house that currently has a hot water heating system. There is a gas boiler in the basement, which heats water and sends it to radiators throughout the house. They are about to do a major renovation, and one of the things they want to address is the heating. They ask their salesperson, Jason, to advise them on what system would meet their requirements. Their requirements are: • They would like to save money in the long term, but don’t mind an initial investment. • They are environmentally conscious and concerned about energy efficiency. • Aishwarya has a mild allergy to dust, which can cause breathing difficulties. While reminding them that he is not an expert in heating systems, what suggestion could Jason make to the Balakrishnans? There are three options. There is only one correct answer. 1

Suggest they consider upgrading to a forced air system.

2

Suggest they consider upgrading to a radiant system.

3

Suggest they consider upgrading to a steam-based system.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 9 of 35

Types of Furnaces A furnace is a central heating system in which heat is generated in one location and then distributed through the structure, typically through sheet metal ductwork. With the exception of electric furnaces, all furnaces have three major components: heat exchanger, burner, and blower. The following four sections contain information about the different types of furnaces.

Electric furnace An electric furnace converts electricity to heat and as a result does not need a heat exchanger, burner, or chimney. These components are replaced by electric heating elements sitting directly in the air stream. The blower simply forces air across the heating elements and the warmed air returns to the rooms via ductwork. Advantages: • Lower upfront costs than gas or oil furnace systems • Quiet • Low maintenance Disadvantages: • More expensive to operate than gas or oil furnace systems • Takes longer to heat up the house than gas or oil furnace systems

©2019 Real Estate Council of Ontario

Gas furnace A gas furnace burns natural gas, which heats up a heat exchanger. Cold air passes through the heat exchanger and is blown through the heat exchanger and into the ductwork. Products of combustion are released through the side of the house via an exhaust pipe. There are four levels of efficiency for gas furnaces: conventional, mid-efficiency, high-efficiency, and highefficiency pulse. As of 2010, all gas furnaces must be of high efficiency. In areas where no gas is available, propane is often used. Advantages: • Lower operation costs than electric or oil furnace systems • Heats up faster than electricity • More energy-efficient than electric furnace Disadvantages: • Can be expensive to install • Natural gas network not available in every area • Emits low levels of carbon monoxide, which need to be vented to the external environment

©2019 Real Estate Council of Ontario

Oil furnace Similar to gas furnaces, oil-fired furnaces have a burner and combustion chamber, and emit exhaust through a flue pipe in a chimney. Oil furnaces need on-site storage tanks, either within the structure or adjacent to it. In Ontario: • Tank specifications are regulated. • Acceptable installation locations are regulated. • Maintenance requirements are regulated. • Above-ground tanks must be inspected annually, prior to the first delivery of the heating season. • Above-ground tanks must be replaced every 10 years at a cost of about $3,000. • All storage tanks must be coated with an anticorrosive material whether they are above or below the ground. Conventional oil furnaces have low efficiency ratings of around 55%. However, recent improvements to burner technology have produced mid-efficiency products raising efficiency levels to 80–89%. Given higher efficiency, venting can sometimes be installed through a side wall, rather than a chimney. Canada’s Energy Efficiency Regulations have effectively mandated that oil-fired residential furnaces manufactured after December 31, 1998, must have a minimum efficiency rating of 78%. Advantages: • Last longer than gas furnaces

©2019 Real Estate Council of Ontario

• Easier to service than gas or electric furnaces • Not dependent on pipeline infrastructure Disadvantages: • Large storage tank necessary • Can take up prime space if located in the basement • Can cause environmental problems if buried in the yard • Less energy-efficient than gas furnace • Fuel price higher than gas furnaces • Generates more pollution than gas and requires more cleaning and maintenance • Tank replacement necessary every 10 years at a cost of about $3,000

Gravity furnace A gravity furnace (sometimes called an octopus furnace) is found in older houses and is no longer installed in new builds. They work similarly to a conventional furnace except that there is no fan to pull house air into the furnace, blow it through the burner, and push it out through the air registers. It may be fueled by either gas or oil. Instead, the system works on gravity—on the principle that hot air rises and cool air falls. Warm air rises through the supply ducts and cool air settles back through the return ducts to the furnace. As a result, gravity furnaces are the least efficient form of furnace.

©2019 Real Estate Council of Ontario

Pros: • Requires very little maintenance and can run for a long time Cons: • Very energy inefficient with a rating of 50% or lower • Very costly to run • Very large and take up a lot of space

©2019 Real Estate Council of Ontario

Lesson 2 | Page 10 of 35

Boilers In hot water heating systems, boilers are used to heat water and distribute it throughout the house. They do not actually boil water, but heat it to a maximum of 71°C. Just like furnaces, boilers can be powered by oil, gas, and electricity. With the exception of electric boilers, they have two major components, a heat exchanger and a burner. The heat exchanger contains the burning fuel on one side and the water to be heated on the other. The most common fuels are natural gas and oil. Burners on hot water systems are very similar to those on warm-air furnaces.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 11 of 35

Open and Closed Boilers There are two basic types of boilers, open and closed. The most common today are closed boilers. The following two sections contain information about the difference between open and closed boilers.

Open boilers

Open boiler systems, which are no longer commonly used, use an expansion tank located above the highest radiator in the structure. This tank allows space for water to expand when water is heated and has an overflow pipe. Open systems use gravity rather than a circulating pump to move the water.

Closed boilers

In closed boiler systems, there is water in the boiler, piping, and radiators. The water is pressurized a few pounds higher than what is required to force it up to the highest level within the structure. Closed systems typically have a circulating pump to force the water through the system.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 12 of 35

Lucia and Diego Alvarez are considering to purchase a house with a forced-air electric furnace. They have questions on how the electric furnace may impact the environment, however, the heating cost of an electric vs a gas furnace is their major concern. What should the Alvarezes do if they buy this house? There are four options. There is only one correct answer. 1

Stay with the electrical furnace.

2

Upgrade to an oil furnace.

3

Upgrade to a gas furnace.

4

Consult with a HVAC professional.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 13 of 35

Central Air Conditioning Systems Now that we have looked at heating systems, we will learn about cooling systems. The heating part of an HVAC system, as we have seen, is provided by different types of furnaces or boilers. Heating can also be provided by heat pumps, as we will see when we look at innovations. Central air conditioning systems distribute cooled air throughout a structure. A central air conditioner evaporates a liquid refrigerant to absorb heat from your home. The system then compresses the refrigerant and condenses it from a vapor to a liquid, releasing the heat so that the cooled/liquid refrigerant can be expanded and sent back into the home, where it starts the cycle again. This cooled air is distributed throughout the structure via ductwork. Central air conditioning systems are usually installed at the same time as the house is built because it can be prohibitively expensive to install ductwork afterwards. However, there are some forms of central air conditioning, such as Space PAC, that use smaller pipes to circulate air and so require less modification if installed in an existing house.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 14 of 35

Ductless Air Conditioners Homeowners can also put individual air conditioning units in different rooms, each of which cools the room directly. These units work on the same principles as central air conditioning systems, but do not distribute cooled air through ductwork. Like a central system, they have an outdoor component containing a compressor, fan, and condenser coils, and an indoor component that cools air by blowing it over an evaporator coil. For houses without a forced air system, ductless air conditioners can be an excellent choice. They can also be used to supplement central air conditioning in rooms where it is not effective. Advantages: • Can be placed wherever most needed • More energy-efficient due to cooling the room directly without ductwork (no leaks) • Best option for old houses without a forced air system already, due to being much less expensive than installing ductwork • Low noise levels indoor and outdoor • Can set cooling levels for rooms individually • Can also be used to heat a home with a heat pump installed Disadvantages: • Require putting units on the wall, which some people dislike aesthetically • May be restricted to cooling a confined area and not the entire house

©2019 Real Estate Council of Ontario

Lesson 2 | Page 15 of 35

Hamid and Aisha Basri are interested in buying an older house that currently has a hot water heating system. Hamid has a dust allergy. They are asking their salesperson, Jason, for advice on how they would cool this house if they found that it was too hot in the summer. After advising the Basris to consult an HVAC specialist, Jason outlines four options that would be available to them. Which of the given would be the best option based on the Basris’ requirements? There are four options. There is only one correct answer.

1

Remove the hot water-based heating system, install ductwork, and use it for a forced air heating system and a central air conditioning system.

2

Keep the hot water heating system, but add ductless air conditioning in some rooms to cool them in the summer.

3

Keep the hot water heating system and add a central air conditioning system for cooling.

4

Remove the hot water heating system and replace it with a forced air heating system, adding ductless air conditioning for cooling.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 16 of 35

Problems with Heating and Cooling Systems As with any systems, heating and cooling systems are also susceptible to damage. Be advised, as a salesperson, you need to know what could go wrong with these systems. When dealing with sellers and buyers, you also need to advise that repairs should always be carried out by a professional. The following seven sections contain information on problems with heating/cooling systems. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Clogged filters All heating and cooling systems are dependent on an intake of air to function correctly. Dirty or clogged filters can restrict the flow of air and reduce the effectiveness of a system and, if not cleaned or replaced regularly, can lead to costly repairs. Another problem can be ice developing on the evaporator coil on the air conditioner.

©2019 Real Estate Council of Ontario

Faulty thermostat Thermostats can malfunction, leading to over-heating or under-heating the house. If they are battery powered, a low battery will affect their performance.

Cracked heat exchanger The heat exchanger in a gas furnace is the part that heats the air. It can crack over time for several reasons, either through the inevitable wear and tear of heating up and cooling down thousands of times, or through the furnace being oversized or incorrectly maintained. A cracked heat exchanger can leak carbon monoxide, which can be fatal, and soot, which is injurious to health. It is important to schedule regular maintenance to check for a cracked heat exchanger.

©2019 Real Estate Council of Ontario

Undersized or broken fan in distribution system If a fan is not large or powerful enough to distribute air through a heating/cooling system or is broken in some way, it can lead to poor or inefficient operation.

Leaking refrigerant Leaking refrigerant will cause inefficient cooling, since the refrigerant can no longer absorb as much heat from the outside, causing warmer air to come from the vents. It will also lead to elevated electricity bills due to the need to turn the air conditioning up higher to achieve the same effect.

©2019 Real Estate Council of Ontario

Leaking ductwork

If there are holes in the ductwork or gaps where it connects, this will reduce the efficiency of the system, leading to higher energy bills. All ductwork should be sealed, caulked, and free of holes. Leaking ducts also suck up debris and distribute it throughout the house, creating air quality problems and dust.

Leaks or drafts in the walls, windows, and doors of the house The house itself must be sealed well and free of drafts and leaks for heating and air conditioning to work effectively and efficiently.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 17 of 35

Sam and Sharon Williams are showing their house to their salesperson, Jason, with a view on selling it. The air conditioning and heating in the Williams’ current house is functioning strangely. It is not keeping some rooms as cool as it should, and it seems to be using more energy than it should. They have noticed ice forming on the condenser coils in the condensing unit outside, and the house seems very dusty. They have asked Jason what might be wrong with it. How should Jason respond? There are four options. There is only one correct answer. 1

There may be a cracked heat exchanger in the furnace.

2

The air filters in the furnace may be clogged, and there could be leaks and poor sealing in the ductwork.

3

There could be leaks in the windows, doors, and walls.

4

The thermostat might be functioning incorrectly.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 18 of 35

Secondary Heating Sources In modern houses, secondary sources of heating are often used for aesthetic reasons or to supplement existing heating systems. They can be anything from traditional fireplaces to gas-fired fireplace inserts and wood-burning stoves. As a salesperson, it is useful for you to know about these secondary forms of heating, how energy-efficient they are, and to be able to advise sellers and buyers on which type best suits their needs. You also need to be aware of regulations regarding placement of fireplaces and stoves.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 19 of 35

Gas and Propane Fireplaces A traditional wood-burning fireplace is generally viewed as more recreational than functional in that the warm air that goes up the chimney typically represents more heat loss than the heat gained from the flames. Gas and propane fireplaces consist of incombustible logs covering gas vents, and the fire itself burns behind glass doors. They can provide the same recreational benefits as a wood fireplace but have several advantages over them: • They are more energy-efficient. • They draw air for combustion from outside, so they don’t use the heated air in the room. • They don’t burn wood, so they don’t deplete forests. • They can cost less to run as gas is often a cheaper fuel than wood. • There are no ashes or soot to deal with either in the fireplace or the chimney. • There is no annual chimney cleaning required. • The direct vent will lose less heat than a chimney. Gas fireplaces can be placed in existing fireplaces originally designed for wood burning, or they can be set into an outside wall with a direct vent for expelling the products of combustion outside. It is also best to place a fireplace in a main room (such as the living room or the family room) where more people can benefit from the heat it generates, and the heat can circulate easily throughout the house.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 20 of 35

Venting and Gas/Propane Fireplaces Another thing to consider about gas/propane fireplaces is insurance. While wood-burning fireplaces can increase your home insurance premiums, most gas/propane fireplaces do not pose as much risk to an insurance company. In some cases, replacing a wood-burning fireplace with a gas/propane one can reduce your home insurance premiums. Exterior vents of gas/propane fireplaces must meet minimum clearance requirements from adjacent houses, sidewalks, and roofs. Unvented gas fireplaces are not approved for use in Canada. These are fireplaces that do not vent to the outdoors, but simply release the products of combustion into a home. It’s unlikely that a homeowner could get insurance if there was an unvented gas fireplace in the property.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 21 of 35

John and Sinead Sullivan are interested in a house and are trying to decide whether it is worth installing a gas fireplace in it. They like the idea of a gas fireplace for aesthetic reasons and would use it as a supplemental source of heat to improve efficiency. There is a standard wood-burning fireplace in the home already, which they would not use. The Sullivans ask Jason what he thinks they should do. Based on the Sullivans’ preferences for a fireplace, what would be the best suggestion for Jason to make? There are three options. There is only one correct answer.

1

Suggest that they don’t install a gas fireplace as it would increase their insurance costs.

2

Suggest they install a direct-vented gas fireplace in the old fireplace, block up the existing chimney, and install a vent instead.

3

Suggest they install a gas fireplace in the old fireplace and use the existing chimney for it.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 22 of 35

Types of Fireplaces As we have seen, traditional wood fireplaces are not a particularly energy-efficient way of heating homes. They provide radiant heat into a room, but use the warmed house air for combustion. However, there are various alternative types of fireplaces that can be used to heat homes. They all have their advantages over traditional fireplaces, whether for reasons of space, fuel cost, emissions, or heat loss. The following six sections contain information about different types of wood-burning heating systems. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Traditional wood fireplace Wood-burning fireplaces surrounded by masonry may be aesthetically pleasing with the direct view of flames. However, they are very inefficient due to heat loss and require regular cleaning and maintenance.

©2019 Real Estate Council of Ontario

Zero clearance fireplace Zero clearance fireplaces are pre-manufactured gas fireplaces that can be placed directly within a couple of inches of combustible materials, such as walls, wood, or paneling. They can be used in tight spaces and have no need for hearths. Some are often vented to the outside rather than chimneys and so can be used to add a fireplace to houses without a chimney. Advantages: • Typically, much more energy-efficient than traditional wood fireplaces • Can be placed in tight spaces • Cheaper to install than traditional fireplaces

Wood stove Wood stoves can be used to replace wood-burning fireplaces. They consist of a closed metal firebox with a glass window in the front. Paper or kindling is used to start the fire, then fresh air enters the stove through intake vents to help fuel the fire. Advantages: • Not as susceptible to creosote buildup as wood fireplaces • Don’t pose as much fire risk due to being enclosed

©2019 Real Estate Council of Ontario

• Much more energy-efficient than traditional fireplaces • Produce less harmful emissions than traditional fireplaces

Gas stove Gas stoves can also be used to replace wood-burning fireplaces. They look similar to wood stoves, but are fueled by gas. Advantages: • Don’t pose as much fire risk due to being enclosed • More energy-efficient than traditional fireplaces and wood stoves • Produce less harmful emissions than woodburning fireplaces or stoves

©2019 Real Estate Council of Ontario

Fireplace insert Fireplace inserts are inserted into an existing masonry fireplace, just like a wood stove can be. They are a way to make masonry fireplaces more efficient and can be powered by electricity, gas, propane, wood, or pellets. They consist of a firebox surrounded by a steel shell. Advantages: • More efficient than a traditional fireplace because of the closed design • Reduce harmful emissions

Pellet stove These stoves use electricity to burn specially designed pellets made from compressed sawdust and wood shavings. The pellets are inserted into a hopper that drops them into the burn pot area, producing a constant flame. Their flame is not as large and pleasing to look at as a traditional fire, and they can be costly to install. Advantages: • Pellets can be stored more easily than wood due to being compact • Give off less creosote than traditional fires • Burn hotter and cleaner than wood stoves • Pellets are inexpensive and can be purchased in small quantities

©2019 Real Estate Council of Ontario

Lesson 2 | Page 23 of 35

Components of Fireplaces and Chimneys A sizable ongoing fire can draw 300-400 cubic feet of air out of a structure every minute. There are additional components that can be installed to help reduce heat loss. Provincial building codes set out detailed specifications for fireplace inserts and hearth mounted stoves. The following six sections contain information about the components of fireplaces and chimneys. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Chimney

Chimney cap

Flue

Smoke chamber

Smoke shelf

Chimneys are typically vertical with ventilation channels made of masonry, clay, or metal that isolates hot toxic exhaust gases or smoke produced by a boiler, stove, furnace, or fireplace from human living areas. Chimneys operate based on the principle that hot air is less dense than cold air, and thus rises. When a chimney is filled with hot smoke or other gases, these gases rise up through the chimney. The hot, rising gas creates a pressure difference known as draft which pulls combustion gases out of the building. Masonry chimneys are stone, block, or brick and can sometimes be stuccoed or parged. The chimney cap prevents water from penetrating the top of a masonry chimney. This cap should not be confused with rain caps that sometimes cover the tops of chimney flues to prevent the entry of rain water. A chimney cap is usually constructed of concrete; however, some are made from stone or metal. A good quality cap normally overhangs the sides of the chimney at least one inch to provide some protection for the chimney from rainwater dripping off the cap. A flue is a separate and distinct channel for the discharge of smoke on the inside of the chimney. Each appliance, requiring a flue, must have a separate flue with certain exceptions. For example, a gas furnace and a gas hot water heater on the same level may share one flue. Some flues are unlined; i.e., exposed masonry on the inside of the flue. A smoke chamber is located above the damper and below the flue, typically brick, stone, or concrete block, and is often coated with a tar-like substance for smoothness to allow better smoke movement. This space is used to allow smoke to mix and curl in a circular motion and rise into the flue. The purpose of the smoke chamber is to compress the by-products of combustion into a smaller space (the flue inside the chimney) without causing back draft. A smoke shelf behind the damper provides for deflection of downdrafts and rain or snow. Cool outside air travels down the flue, strikes the smoke shelf, mixes with warm air from inside the room or firebox, and returns up the chimney, taking fireplace smoke with it.

©2019 Real Estate Council of Ontario

Control damper

One of the functions of the damper is to help start a fire in your fireplace. For a fire to ignite, it needs oxygen. Opening the control damper allows air to get into the chimney so that the fire can start. With the damper open, the fire will continue to build, and allow smoke, soot, and other contaminants to vent through the chimney. When closed, it creates a seal for the fireplace that prevents heated air escaping up the chimney.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 24 of 35

Raja and Anjali Chaudhari are interested in a house that uses an old wood-burning fireplace in a back room. The buyers like the idea of having a fireplace in the house, however, they are concerned that the smoke from the wood-burning fireplace might affect Anjali's allergies. They are also concerned about the risk of fire. They do like the idea of a gas fireplace, but would rather not spend too much on initial installation of a gas fireplace and would like it to be fuel efficient. There is limited space in the back room where the fireplace is situated. Based on the Chaudharis’ requirements, what suggestion would provide the most benefit? There are five options. There is only one correct answer. 1 2 3 4 5

Keep the traditional fireplace. Install a wood burning stove. Install a pellet stove. Install a gas fireplace insert. Install a zero-clearance fireplace.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 25 of 35

Requirements of WETT Inspections A Wood Energy Technology Transfer (WETT) inspection includes a thorough inspection of all wood-burning appliances, such as stoves and open fireplaces, by a certified WETT inspector. Wood-burning technologies can pose a threat to the well-being and health of those in the home. A WETT specialty inspection is a requirement when securing insurance. WETT inspections can identify areas that need to be improved to continue using a wood-burning appliance. Some problems will be impossible to fix, such as walls that are too close to the appliance. Other problems are costly, such as making a hearth larger. Sometimes, homeowners may decide to replace wood-burning appliances altogether after a WETT inspection. The following three sections contain information about the areas that WETT inspections cover.

Chimney The WETT inspection will inspect the given components: • Chimney and cap • Chimney liner and flue tiles • Smoke chamber • Proper flue pipe installation and venting • Overall condition of the woodstove, fireplace, and its chimney

©2019 Real Estate Council of Ontario

Fireplace The WETT inspection of a fireplace covers: • Dampers • Firebox and firebricks/linings • Hearth and floor protection

Clearances The WETT inspection of fireplace clearances covers: • Mantle and clearances to combustible walls and ceilings • Heat shield construction for reduced clearances • Clearance to combustible exterior items

©2019 Real Estate Council of Ontario

Lesson 2 | Page 26 of 35

Rosalind and David Gonzales are considering buying a home with an old-fashioned wood-burning fireplace. Their salesperson, Jason, recommends that they get a WETTcertified home inspector to look at the fireplace so they will know if they will need to alter it after they buy the house. They have asked their salesperson what types of things a WETT inspection covers. What should Jason tell the Gonzales family that a WETT inspector will look at? There are four options. There are multiple correct answers. 1 2 3 4

The chimney liner and flue The wood being used in the fireplace or woodstove The hearth and floor protection The clearances between the fireplace and combustible exterior items

©2019 Real Estate Council of Ontario

Lesson 2 | Page 27 of 35

Minimum Clearances for Wood Stoves For homeowners to obtain a home insurance policy, the home will need to pass wood stove inspection, performed by a WETT-certified technician. The WETT technician will check the given: • The stove must meet minimum clearances from the bottom, top, sides, front, and back. If not, it poses a serious fire risk. • The minimum clearance to anything that could burn or overheat must be met. • Minimum clearances of 152 cm from the top to the ceiling and 123 cm from each side must be met. With shielding installed, the side clearance is reduced to 91 cm. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic. ©2019 Real Estate Council of Ontario

Lesson 2 | Page 28 of 35

A buyer has moved into a house with a certified wood-burning stove. A technician is conducting an inspection of the wood-burning stove to determine if it meets WETT requirements. He has determined that it meets all WETT requirements, except that it has 102 cm of clearance on one side. What should the buyer do now? There are three options. There is only one correct answer. 1

Install fire-retardant material on the ceiling.

2

Change the stove for a gas fired model.

3

Install a shield around the wood stove.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 29 of 35

Heating and Cooling In the 21st Century There have been various innovations in heating and cooling systems over the past few decades. These innovations can be convenient, cost-effective, and environmentally friendly. Zoned heating systems allow homeowners to control the temperature in different parts of the house, and motion sensors can turn off the heating in unoccupied rooms. There have also been huge advances in smart home technology, where mobile devices can be used to control the heating and cooling systems of a home remotely.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 30 of 35

Heating and Cooling Innovations A salesperson should be aware of recent innovations in heating and cooling systems so they can discuss them knowledgeably with sellers and buyers. A salesperson should also understand how these innovations might impact purchasing decisions. The following four sections contain information about heating and cooling innovations.

Zoned heating/cooling systems Zoned heating/cooling systems use a centralized furnace controller, motorized dampers, and sensors that communicate with the controller to allow for different temperature settings for different rooms. For example, a homeowner might set their living room to 23°C but keep an unused spare room at 16°C.

©2019 Real Estate Council of Ontario

Motion sensor air conditioning Motion sensors can sense when rooms are unoccupied and turn off the heating and cooling in that room.

Smart control of heating/cooling Smart control of heating and cooling allows homeowners to control their home’s temperature remotely using their mobile device, or locally using their mobile devices or voice-activated devices such as Google Home© or Amazon’s Alexa©. This means a person can control the heating in their house wherever they are in the world. This has many benefits, from saving money on fuel bills to the convenience of arriving to a warm home after a trip.

©2019 Real Estate Council of Ontario

Smart geofencing thermostats Smart technology can be used to control the heating and cooling based on how far occupants are away from the house. For example, it could set to a lower temperature when a homeowner is more than three miles away from the house and be automatically turned up when the homeowner returns within that distance. It does this based on a mobile app and a mobile’s GPS.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 31 of 35

Juan Morales has moved to Canada from a warmer climate and is interested in what new heating innovations might help him deal with this cooler weather. He has a few requirements: • He is a single man who often goes away on business for long periods of time, leaving his house empty. • He will primarily live in the living room, kitchen, and master bedroom of the house, using other rooms only on weekends or for storage. • He is used to living in a hot climate and wants to know if modern innovations could help him adjust to living in Canada. • He asks his salesperson, Jason, for suggestions on what he could do to meet these requirements. Jason should suggest Juan Morales that if he is out of town often, he could install smart control for his house’s heating and use it to keep the house at a lower temperature while he is away, but warm enough to prevent the pipes from freezing. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 32 of 35

Juan Morales has moved to Canada from a warmer climate and is interested in what new heating innovations might help him deal with this cooler weather. He has a few requirements: • He is a single man who often goes away on business for long periods of time, leaving his house empty. • He will primarily live in the living room, kitchen, and master bedroom of the house, using other rooms only on weekends or for storage. • He is used to living in a hot climate and wants to know if modern innovations could help him adjust to living in Canada. • He asks his salesperson, Jason, for suggestions on what he could do to meet these requirements. Jason should suggest Juan Morales not to install ground source heat pumps in a cold climate like Canada because they get their heat from the ground. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 33 of 35

Juan Morales has moved to Canada from a warmer climate and is interested in what new heating innovations might help him deal with this cooler weather. He has a few requirements: • He is a single man who often goes away on business for long periods of time, leaving his house empty. • He will primarily live in the living room, kitchen, and master bedroom of the house, using other rooms only on weekends or for storage. • He is used to living in a hot climate and wants to know if modern innovations could help him adjust to living in Canada. • He asks his salesperson, Jason, for suggestions on what he could do to meet these requirements. Jason should suggest Juan Morales that he could save money by using motion sensors to turn off the heat when he is not in a room. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 34 of 35

Juan Morales has moved to Canada from a warmer climate and is interested in what new heating innovations might help him deal with this cooler weather. He has a few requirements: • He is a single man who often goes away on business for long periods of time, leaving his house empty. • He will primarily live in the living room, kitchen, and master bedroom of the house, using other rooms only on weekends or for storage. • He is used to living in a hot climate and wants to know if modern innovations could help him adjust to living in Canada. • He asks his salesperson, Jason, for suggestions on what he could do to meet these requirements. Jason should suggest Juan Morales that he could use geofencing to lower the temperature when he is away. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 35 of 35

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Types of heating and cooling systems

Houses can be heated using several different methods. Air can be heated in a furnace and sent to different rooms in the house using fans or blowers to send it through ductwork. Alternatively, hot water or steam can be sent through pipes to radiators in the various rooms of the house. In addition, radiant panels in the floor, walls, or ceiling can heat rooms directly. These panels are heated by circulating hot water through copper pipes. Electrical heating coils can also be placed in ceilings or floors to heat rooms directly. Furnaces can be fired by gas, propane, oil, or electricity. Electricity is cheaper to install but costlier in the long run.

Secondary sources of heating

Innovations in heating and cooling

Air conditioning relies on compressing refrigerant to liquid and using the cooling effect of its evaporation to cool air. This cooled air is then blown through the house using fans and ductwork. Wood-burning fireplaces are used for their aesthetic qualities rather than their heating since they often remove more heat from the air than they create. Gas fireplaces are more energy-efficient than wood ones, emit less harmful and dirty waste, and do not need a chimney as they can be vented directly to the outside. When gas fireplaces are vented, there is no need for a chimney, which means less heat is lost. There have been several innovations in heating and cooling systems in recent years. Motion sensor air conditioners can turn off heating/cooling in unused rooms.

©2019 Real Estate Council of Ontario

Geofencing thermostats and other smart innovations allow people to use their mobile device to control the temperature in their home when they are away. Ground source heat pumps use coils buried underground to pick up heat in the winter and expel heat in the summer.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 1 of 34

Lesson 3: Plumbing Systems

This lesson contains topics related to plumbing systems and the major components involved in water distribution and drainage/venting. It reviews water efficiency issues in relation to water heaters and fuel sources as well as points to recognize with regards to renting a water heater. Finally, it concludes by identifying the key considerations of plumbing and water distribution systems.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 2 of 34

Plumbing Systems Plumbing systems are an important part of the proper functioning of a property and will affect its market value when selling and buying. As a salesperson, you should be able to assist sellers or buyers in making good decisions about plumbing systems and be able to identify when situations need attention from a qualified professional. In this lesson, you will learn about water distribution, drainage, and venting. You will then look at the different types of piping used for these functions. You will then move on to look at issues that affect water efficiency in residential structures and things to consider when renting or buying a hot water heater. Finally, the lesson will look at potential problems with plumbing that you, as a salesperson, should recognize– from issues with piping to indicators of problems in a plumbing system. Upon completion of this lesson, you will be able to: • Identify plumbing systems in residential structures • Identify issues that affect water efficiency in residential structures • Identify key considerations for plumbing and water distribution systems in residential structures Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. ©2019 Real Estate Council of Ontario

Lesson 3 | Page 3 of 34

Functions of Plumbing In most cases, houses get their water from the municipal water supply via a service pipe that connects to the municipal water main. Plumbing systems in residential properties are designed for two basic functions: • The supply of drinking, washing, and cooking water to appropriate areas of a structure • The disposal of water and waste from that structure From the municipal water supply, water passes through a street shut-off valve on the municipal side of the lot line and a main shut-off valve inside the building. The main shut-off valve should be accessible and easy to operate and can be used to prevent flooding. The following three sections contain information about how the two basic functions of plumbing systems work.

Water supply Once inside the house, cold water travels in pipes to fixtures, such as taps and toilets, and to a water heater. The heated water is then piped to hot water taps in kitchens and bathrooms, and to a washing machine and dishwasher if present in the property.

©2019 Real Estate Council of Ontario

Water disposal: drainage (waste) Drainage is when pipes bring waste material from water fixtures to sewers or a septic tank. This involves bringing sewage from toilets or used water from showers and sinks.

Water disposal: venting For waste and water disposal to work, there must also be a venting system. Venting consists of a series of pipes leading from waste pipes to the outdoors, usually through the roof. Venting allows: • Air in front of the waste to be pushed out of the way so that the waste can move through the pipes • Air to be re-introduced to the piping after the water has passed so that there are no vacuums in the piping • Sewer gases to escape outside via a venting stack so they do not remain in the system Venting can use similar or different pipes as those used for water distribution. Corrosion and contaminants (such as lead) are less of a concern for pipes not designed for water.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 4 of 34

Service Pipes Water mains are the underground pipes that deliver a steady supply of fresh, clean drinking water from the municipal supply to the lot lines of properties. They are typically four inches to 12 inches in diameter. Service pipes are connected to the water main at the lot line and carry the water into and through the building. These pipes are smaller—between 1/2 and 3/4 inches in diameter. Older service pipes may be only 3/8 inch in diameter, which can cause low water pressure.

©2019 Real Estate Council of Ontario

Service Pipe Materials Lead

Lead was used for service pipes until the 1950s. It should be replaced as it can contaminate the water supply.

Galvanized steel

Galvanized steel was used for service pipes until the 1950s and can still be found in many older homes.

Copper

Copper has been used for service pipes since the 1950s. It lasts a long time but can need replacing in harsh water or soil conditions.

Plastic piping

Plastic piping has become more common in recent years and is a less expensive option than copper.

The service pipe is the responsibility of the homeowner, but it is usually buried, and so it is difficult to diagnose problems when they occur.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 5 of 34

Problems with Service Pipes, I There are various problems that can occur in service pipes, and they can all affect the quality of the water supply. The following five sections contain information about problems that can occur in service pipes. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Lead service pipes Lead municipal pipes have largely been replaced over the years. However, the service pipe is the homeowner’s responsibility, so sometimes lead service pipes can still be found in homes. Lead pipes can contaminate water in ways that are hazardous to health. They are usually replaced with more modern forms of piping.

©2019 Real Estate Council of Ontario

Galvanized steel service pipes Galvanized piping was commonly installed in homes built before 1960. Galvanized steel pipes are made of steel and coated with zinc to prevent rusting. The zinc on the piping can contain lead and other impurities, which can be periodically released into the water. The corrosion inside the pipe can also pick up lead deposits from older lead water mains and release them into the water. Over time, galvanized steel pipes rust on the inside due to the presence of water. When that happens, the diameter is reduced resulting in low water pressure and brownish coloured water when a tap is first turned on. Rust at the joints where two pipes meet can result in leaks. Insurance companies are reluctant to insure homes with galvanized steel plumbing and will likely charge an increased premium.

©2019 Real Estate Council of Ontario

Kitec service pipes Kitec plumbing consists of flexible aluminum pipe between an inner and outer layer of plastic pipe with brass fittings. Once thought to be a cheaper and easier to install alternative to copper piping, Kitec has several problems. Its most common problems include: • Its custom brass fittings have a high zinc content that can cause corrosion. This can restrict water pressure or cause fittings to fail, leading to flooding and water damage. • The pipes can leak or even burst if the hot water system is run at too high a temperature or too high a pressure level. Kitec plumbing is often bright orange (hot water) and bright blue (cold water). It was also sold in red, blue, gray, and black. It is sold under these brand names: Kitec, PlumbBetter, IPEX AQUA, WarmRite, Kitec XPA, AmbioComfort, XPA, KERR Controls, or Plomberie Améliorée. Insurers can refuse to insure homes with Kitec plumbing in them or charge a higher rate. A class action lawsuit was filed in Canada and the U.S regarding Kitec plumbing. Houses that have had problems caused by it can claim compensation until 2020, after which the money will be distributed among homeowners with Kitec that has not failed.

©2019 Real Estate Council of Ontario

Leaks Leaks in service pipes can go undetected because the pipe is buried and difficult to see. The most obvious signs are water accumulation in the basement or a wet spot on the lawn. Leaks should be addressed by a professional.

Obstructed or partially closed shut-off valve If the main shut-off valve is partially closed or obstructed in some way, this will cause low pressure in the whole water system. This can also occur in the street shut-off valve.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 6 of 34

Problems with Service Pipes, II There are various problems that can occur in service pipes, and they can all affect the quality of the water supply. The following four sections contain information about some more problems that can occur in service pipes. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Too small Older service pipes may have too small of a diameter to provide enough pressure and volume for modern needs. They should be replaced with larger modern pipes.

Shared service pipes Sometimes in older semi-detached houses, a single service pipe splits under the front lawn to serve both houses. This provides poor water pressure for both houses and can be rectified by replacing them with a separate service pipe for each house.

©2019 Real Estate Council of Ontario

Pressure reducing valve Normal water pressure in modern municipal water systems should be approximately 50 psi. However, sometimes municipal water pressure can be as high as 80 psi. When this happens, a pressure regulator should be provided to reduce pressure to normal levels to avoid damage to appliance pipe hoses and plumbing joints.

Freezing If a service pipe is too close to the surface of the ground outside the building, it can freeze during cold weather. These pipes should either be heated or be buried below the frost line to avoid this problem.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 7 of 34

Noor and Jitender Bandari want to make sure that the plumbing system in their current house is functioning correctly before they sell. They have noticed over the years that the water pressure is a little low and are wondering what they should do to get it up to normal operating levels. The water pressure in the detached 70-year-old house has been uniformly low in all the water fixtures in the house. The pressure in the water main in their neighbourhood is normal, and there is no pressure reducing valve installed in their home. Which of these things could be causing the water problems? There are four options. There are multiple correct answers.

1

The water service pipe might be 3/4 inch in diameter.

2

The water service pipe could be corroded inside.

3

The main shut-off valve could be only half open or clogged.

4

The service pipe could be shared with one of the neighbours.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 8 of 34

Waste Systems Plumbing waste systems deal with two types of water: • Black water is from toilets and contains human waste. • Gray water is waste water from washing dishes, showers, laundry, and so on, and does not contain human waste. Most houses expel waste into the municipal sewer system via a sewer pipe. The sewage is sent to a treatment facility where it is cleaned. In older neighbourhoods, storm water from each rainfall and sewage can go through the same sewer to the treatment plant. In newer neighbourhoods, a sanitary sewer carries house waste; there is a separate storm sewer for the run off from rain and snow. Since the storm water does not need to be treated, this reduces the load on the treatment plant.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 9 of 34

Problems with Waste Piping There are various problems that can occur in the waste piping of a house. The following three sections contain information about these problems with waste piping of a house.

Backup When storm sewers and sanitary sewers are combined, a backup in the system may cause flooding that contains storm water and raw sewage, which is a serious health concern. When storm and sanitary sewers are separate, flooding is less likely if a storm sewer gets backed up. Often sewer check valves are installed on the street side of the sewer pipe to stop any backups from overflowing into the house.

©2019 Real Estate Council of Ontario

Sewer line from house to street These lines are often made of clay in older homes and are vulnerable to collapse and obstruction by tree roots and soil, which can cause flooding or a sewer backup in the basement. This can lead to severe damage and serious health issues.

Overloaded drain Municipalities sometimes place a limit to how many fixtures can discharge into any drain pipe. This may lead to difficulty when applying for permission to expand the plumbing system or build an addition to the house.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 10 of 34

Common Types of Piping Water is distributed through and expelled from a house using different types of piping. Various materials are used for different functions, and the materials used have changed over the years. All the different materials, such as galvanized steel, copper, PVC, CPVC, and PEX have their advantages and disadvantages. A salesperson should be aware of the uses of each type of piping for drainage and venting, and the advantages and disadvantages of each so that they can discuss them with sellers and buyers. The upcoming screens will cover this information. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 11 of 34

Galvanized Steel Piping Galvanized steel piping was originally made as a replacement for lead piping. It is made by dipping steel pipe in a protective zinc coating to prevent corrosion. However, today we know that the coating degrades over time and releases zinc and other metals (including lead) into the water. It was used almost exclusively for water distribution until approximately 1950. Water distribution It is usually best to replace galvanized steel pipes in older houses when they are used for water distribution. Since the corrosion occurs inside the pipe, it is difficult to determine when they are corroded. A telltale sign that the pipe has rusted is reduced water pressure as the pipe closes in on itself. Also, when a tap is first turned on, the water will be brownish in colour from the rust in the pipes. Galvanized steel pipes are prone to leaking at the joints where two pipes meet, because of the buildup of rust. Drainage and venting Today, because of rusting and contamination problems, galvanized steel piping is only used for the purposes of venting – letting air and gases escape from the plumbing system. Hot and cold water Galvanized steel pipes can be used for both hot and cold water, though hot water increases their rate of corrosion.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 12 of 34

Copper Piping Copper piping has been in use residentially for water distribution since approximately 1900. Following the mid1950s, copper became the predominately used material, but it is gradually being replaced with plastic piping, such as PEX, where it is allowed by the building code. It is very resistant to corrosion and has a long lifespan, however, it is expensive. Water distribution Copper is still most commonly used for water distribution. It does not degrade with long exposure to water and is safe for use with potable (drinkable) water. It is also used in shorter lengths to connect PEX piping to boilers as PEX cannot do so directly. Drainage and venting Copper piping is becoming rarer for drainage and venting since the 1970s as PVC is less expensive. PVC will be discussed later in this lesson. Hot and cold water Copper can tolerate high temperatures, and as a result, it is useful for distributing hot water.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 13 of 34

PEX Piping PEX is a form of cross-linked polyethylene piping that has many advantages. It is cheaper than copper and won’t corrode even in areas with acidic water. It is also quicker to install than copper. It is flexible and can be bent around obstacles. Modern houses are increasingly using PEX piping in preference to copper. It is typically connected using stab-in or compression fittings, which require a special tool. Since glue is not required to install it, PEX can be useful in areas with low ventilation. However, as stated when discussing Kitec plumbing, not all types of PEX piping are a desirable plumbing material, as some types are no longer in use. Many homeowners are now removing it from their homes because some insurers will no longer provide coverage if a home has a specific type of PEX piping. The presence of PEX piping is considered a material fact and must be disclosed to buyers. Water distribution PEX is becoming more common for water distribution, for both its corrosion-resistant properties and its flexibility. Its flexibility makes it a great option for retrofitting older homes. Hot water uses PEX can tolerate high temperatures and so is excellent for hot water distribution, but it cannot connect directly to a boiler; it needs at least 18 inches or 47cms of copper pipe in between. ©2019 Real Estate Council of Ontario

Lesson 3 | Page 14 of 34

PVC Piping PVC, or polyvinyl chloride, pipes are used in a variety of municipal and industrial applications. They are notably lightweight, low-cost, and generally low-maintenance. Water distribution In the 1970s, plastic supply piping was approved and is now reasonably prevalent in new home construction. PVC is affordable and does not corrode over time. They can degrade when exposed to UV light, so are best used for indoor applications. They are great for most warm and cold-water applications, although they can be noisy when water is passing through them. Hot water uses PVC pipes cannot be used for hot water as they will warp. Drainage and venting PVC piping is the most commonly used material for waste plumbing and venting.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 15 of 34

CPVC Piping CPVC pipe is made from PVC that has chlorine added to it during manufacturing. It has all the same benefits as PVC but with added durability. It is less noisy when water is going through it due to its smooth interior, more flexible than metal tubing, and fire-resistant. However, it is more expensive than PVC. Water distribution CPVC can be used for all water distribution in all the same ways as PVC. Hot water uses CPVC can handle temperatures up to 93°C and so can be used for hot water applications where PVC cannot. Drainage and venting CPVC piping may be used for waste plumbing, however, the less expensive ABS piping is more common.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 16 of 34

Noor and Jitender Bandari have asked a home inspector to look at a house that they are interested in to see if there are any issues that they might need to address if they buy it. The home inspector notices these things about the piping in the house: • There is galvanized steel piping going up to the roof vent. • Water going through the PVC pipes in one room sounds very loud and is distracting. • There is galvanized steel piping being used to distribute water into the kitchen. • Some of the copper piping in the attic looks old and corroded. Bandaris should replace the galvanized steel piping going to the roof vent with copper piping if they buy the house. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 17 of 34

Noor and Jitender Bandari have asked a home inspector to look at a house that they are interested in to see if there are any issues that they might need to address if they buy it. The home inspector notices these things about the piping in the house: • There is galvanized steel piping going up to the roof vent. • Water going through the PVC pipes in one room sounds very loud and is distracting. • There is galvanized steel piping being used to distribute water into the kitchen. • Some of the copper piping in the attic looks old and corroded. Bandaris should replace the galvanized steel piping going to the kitchen with copper or PEX piping if they buy the house. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 18 of 34

Noor and Jitender Bandari have asked a home inspector to look at a house that they are interested in to see if there are any issues that they might need to address if they buy it. The home inspector notices these things about the piping in the house: • There is galvanized steel piping going up to the roof vent. • Water going through the PVC pipes in one room sounds very loud and is distracting. • There is galvanized steel piping being used to distribute water into the kitchen. • Some of the copper piping in the attic looks old and corroded. Bandaris should replace the copper piping in the attic with PEX piping if they buy the house. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 19 of 34

Noor and Jitender Bandari have asked a home inspector to look at a house that they are interested in to see if there are any issues that they might need to address if they buy it. The home inspector notices these things about the piping in the house: • There is galvanized steel piping going up to the roof vent. • Water going through the PVC pipes in one room sounds very loud and is distracting. • There is galvanized steel piping being used to distribute water into the kitchen. • Some of the copper piping in the attic looks old and corroded. Bandaris should immediately replace the PVC pipes in the living room wall with CPVC pipes. There are two options. There is only one correct answer.

True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 20 of 34

Noor and Jitender Bandari have asked a home inspector to look at a house that they are interested in to see if there are any issues that they might need to address if they buy it. The home inspector notices these things about the piping in the house: • There is galvanized steel piping going up to the roof vent. • Water going through the PVC pipes in one room sounds very loud and is distracting. • There is galvanized steel piping being used to distribute water into the kitchen. • Some of the copper piping in the attic looks old and corroded. Bandaris should replace all the water supply piping in the house with PEX piping if they buy the house. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 21 of 34

Water Efficiency Water efficiency is the minimization of the amount of water used to accomplish a function, task, or result. In other words, when one uses a dishwasher or flushes a toilet, efficient usage means using the least amount of water possible to complete the job. Efficient usage can be achieved through better design and regular maintenance of water systems and appliances. Anything from a leaky tap to old appliances to corroded plumbing systems can reduce water efficiency. In general, the water efficiency of appliances, plumbing, and fixtures has improved over the years, so newer models cater to more efficient systems. Homeowners can also help improve water efficiency through actions like taking shorter showers and running the dishwasher only when it’s full.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 22 of 34

Common Water Efficiency Problems As a salesperson, you should have some understanding of the issues surrounding water efficiency as anything that leads to more water being used than is necessary is a potential red flag that should be discussed with sellers or buyers. As noted earlier, water efficiency is the minimization of the amount of water used to accomplish a function, task, or result. The following four sections contain information about common water efficiency problems.

Reduce buildup/corrosion Corrosion of pipes and fittings can lead to reduced water pressure and quality. When the tap is first turned on, brown water may need to be flushed from the system before usable water can be obtained, resulting in inefficient use of water.

Fix leaks Leaky pipes and fixtures can lead to a significant amount of water loss. Dripping faucets and leaking plumbing joints can waste large amounts of water over time. Leaks should be attended to as soon as they appear.

©2019 Real Estate Council of Ontario

Install efficient appliances When replacing older water appliances, such as dishwashers and washing machines, it is an opportunity to replace them with more efficient models that use less water per wash cycle. Look for appliances with the Energy Star symbol on them; this symbol indicates the most energy-efficient products in the marketplace.

Install low-flow fixtures Modern faucets, showerheads, and toilets use about 40 per cent to 50 per cent less water than those made prior to 1995. They do so by restricting the water flow to a maximum amount, making a compelling argument for updating fixtures in older houses to more modern versions.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 23 of 34

Water Efficiency Options As well as understanding water efficiency, as a salesperson, you should be aware of and be able to identify innovations in this area as it may influence a seller’s or buyer’s decision-making about a property. The following four sections contain information about the water efficiency options. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Install dual-flush toilets Dual-flush toilets have two buttons to flush different amounts of water. This is an improvement on older toilets that may use several gallons/litres for each flush regardless of how much is needed.

©2019 Real Estate Council of Ontario

Install greywater systems Greywater is the relatively clean wastewater from baths, sinks, washing machines, and other kitchen appliances. Most houses simply expel it once it is used. Installing a greywater system enables homes to use this water for tasks that don’t require perfectly clean water. With a greywater system, up to 60% of household water can be reused for tasks, such as watering the lawn or flushing toilets. The best time to install greywater systems and rainwater storage tanks is during the planning of a house as they can be difficult and very expensive to install later.

Install pressure control valves Often, municipal authorities boost the pressure of their water systems to ensure that it can adequately supply places like high-rise buildings and elevated areas. High water pressure can lead to wasted water because more water passes through a high-pressure system. Installing a pressure control valve allows occupants to reduce the pressure of the water as it enters their house so that it meets their needs without wasting water.

©2019 Real Estate Council of Ontario

Install cisterns Many people install cisterns, which are large plastic or metal tanks that collect rainwater for use in outdoor tasks such as watering the garden, washing the car, and so on. They can increase water efficiency and lead to reduced water bills.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 24 of 34

A buyer has asked their salesperson, Jason, for advice about how they can reduce their water bill when they move into their new house. The house they are interested in has all original water fixtures and was built in 1985. It is in a neighbourhood with a modern municipal water system, where water pressure is at 50 psi. They do not mind spending some money on upgrades, but would rather avoid serious expenditures. They have asked their salesperson how they can improve water efficiency. How should Jason advise the buyer? There are four options. There is only one correct option. 1 2 3 4

Install a pressure control valve. Upgrade all the water fixtures, faucets, and showerheads. Install a greywater system. Install a single-flush toilet.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 25 of 34

Water Heaters To heat water, most plumbing systems will have a hot water heater. The hot water heater is typically a tank or reservoir used for heating water. Conventional water heater function Cold water is pumped into the heater and heated water is discharged from the opposite end. The water temperature in the tank typically remains at 60°C. When hot water is removed from the tank, cold water is introduced, triggering the thermostat. If enough hot water is removed from the tank, it will cool down and take time to be re-heated. Therefore, the larger the holding tank, the greater the supply of hot water available. Recovery rate A water heater’s recovery rate is the amount of hot water the water heater is capable of providing in a given period of time. This rate depends on the size of the burner or element in the heater and on which fuel it uses. Oil provides the fastest recovery rate, followed by gas, and then electricity.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 26 of 34

Water Heater Efficiency The energy efficiency of water heaters depends on the recovery rate. The faster the recovery rate, the more water can be drawn off without depleting the hot water supply. Water heaters are usually insulated on the inside to prevent heat loss as much as possible. A homeowner may also choose to wrap the water heater with an insulating blanket as well as wrap the hot water pipes with an insulating material for greater efficiency.

©2019 Real Estate Council of Ontario

Problems and concerns • Water heaters are dependent on burners or elements, which can burn out over time, leading to loss of efficiency or malfunction. • Modern high-efficiency gas or propane-fired water heaters are usually vented through the wall using specialized piping. Electric water heaters do not require venting. • Water heaters can also leak and severely damage property. • Over time, sludge can accumulate in the bottom of the tank. This limits water pressure in the system and can lead to low volumes of hot water. Five to ten litres should be drained out of the system monthly to prevent this. • In areas with hard water, lime can build up inside the tank and lead to a need for early replacement. Homes in areas with hard water often install water softener devices to reduce the level of minerals in the water. There are many such products available at costs between $1,500 and $3,000.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 27 of 34

Tankless Water Heaters Conventional water heaters must use energy to keep the tank of water hot for when it is needed. Tankless water heaters are powerful gas or propane-powered heaters, which heat water as it is needed. They have a burner, heat exchanger, and venting system but no storage capacity. When a hot water faucet or fixture is turned on, the heater detects the flow and ignites the burners. Advantages: • They cost less to run as they only heat water when needed. • There is no storage tank, so they can be wall-mounted and need less room. • They don’t run out of hot water. • They have a longer lifespan. Disadvantages: • There is a slight delay when turning on a hot tap. • They have a limited flow of hot water. • They need a minimum flow to engage the burners. • They can take six to 12 years of use to cover the extra costs. • Gas-fired tankless burners require larger gas lines and venting to function properly, and they can become clogged with lime scale more easily in hard water areas. ©2019 Real Estate Council of Ontario

Lesson 3 | Page 28 of 34

A buyer is conscious of energy efficiency and would like to save money. The buyer is trying to decide whether to replace the conventional water heater with a tankless system. However, the buyer needs to take these things into account: • The house is small with limited space available. • The buyer is planning to live in the house at least until the kids have left home, possibly longer. What should the buyer do? There are three options. There is only one correct answer. 1

Install a tankless water heater.

2

Stay with the conventional water heater.

3

Keep the conventional water heater, and supplement it with a tankless one.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 29 of 34

Renting a Water Heater Installing a new water heater can be quite expensive. As a result, some homeowners feel that renting a water heater is more cost-effective. In general, renting a water heater can save money for homeowners whose families are growing and who may look to move out and into a bigger property in the near future. A salesperson should be able to advise sellers and buyers about the implications of renting water heaters when buying and selling houses. Salespersons should advise homeowners that when renting a water heater, homeowners should take time to compare rental plans from different companies and read the contracts to understand the terms and conditions. If buying a water heater, homeowners should look for a water heater that delivers long-term savings in ownership costs and energy bills. They should then shop around for the best price on a new, energy-efficient water heater. The EnerGuide label on the appliance is useful to compare efficiency in heaters.

Lesson 3 | Page 30 of 34

Renting a Water Heater Advantages of renting

Disadvantages of renting

Buying a water heater can cost up to $1,000, plus installation charges. Renting costs about $30 a month.

Buying a newer more energy-efficient heater may be more energy-efficient and cheaper in the long run.

The renter doesn’t have to pay for repairs and ongoing maintenance.

Since older water heaters are less efficient, their operating costs may become high. If customers are planning to live in a house for many years, buying can be more cost-effective.

On some contracts, the renter can shift to rent-to-own when it becomes financially viable for them.

Depending on the contract, returning a rented water heater and terminating the contract can be difficult and costly.

While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic. ©2019 Real Estate Council of Ontario

Lesson 3 | Page 31 of 34

A buyer with three children is thinking about moving out of their current starter home into a home where they plan to live for a very long time. This home has a rental water heater, and there are two years left on the water heater contract. They have read carefully through the terms of the contract and noted these things: • Free repairs/replacement are included in the rental contract. • The water heater costs $25 a month to rent. • There is a $40 contract cancellation fee. • There is a rent-to-buy option once the contract is complete, which costs $800. They have decided to buy the house and assume the water heater rental contract, but are wondering what they will do when the contract is finished. What should the salesperson advise the buyer to do? There are three options. There is only one correct answer. 1

Replace the heater with an energy-efficient modern heater.

2

Continue with and renew the rental contract.

3

Take advantage of the rent-to-buy option.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 32 of 34

Indicators of Plumbing Problems As a salesperson, you are not expected to identify and fix plumbing problems, but you should know some indicators of problems so that you can advise your seller or buyer when a professional is needed to deal with them. Depending on their skill level, some homeowners will fix these problems themselves, while others will call a professional. The following seven sections contain information about the the indicators that there is a problem with the plumbing in a house. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Dripping faucets Dripping faucets waste water, which is bad for the environment and leads to higher water bills. A leaky faucet that drips at a rate of one drip per second will waste up to 20 litres a day.

©2019 Real Estate Council of Ontario

Leaky pipes Pipes commonly begin to leak near the joints, so a salesperson should look for wet spots on the ground or ceiling. Water damage can cause rot, mould, and mildew and be very costly to repair for homeowners.

Running toilets Like dripping faucets, toilets that are continually taking in and expelling water can waste large amounts of water invisibly. This increases water bills.

©2019 Real Estate Council of Ontario

Low water pressure

If taps produce a weak flow of water, this could indicate a problem with low water pressure. Low water pressure can indicate that there are leaks, blockages, or corrosion in the system. It can also indicate that the pipes in the system are too small. Sometimes low water pressure could be caused by a problem with the municipal water supply.

Slow drainage

Slow drainage and blocked drains can cause flooding and property damage. Slow drainage can be the result of pipes on the property that have become blocked with food or waste matter. However, it is possible that pipes in the municipal system outside the property are the problem. In this case, the proper authorities will need to deal with the problem.

©2019 Real Estate Council of Ontario

Excessive water bills

Excessive water bills are a good indication that something is wrong in the system somewhere, whether from leaks in the system, pipes, or problems with fixtures, such as the toilet flapper not sealing.

Unpleasant odours If there are offensive smells coming from drains and other plumbing fixtures, it could indicate a blocked sewer vent stack. Sewer gases can be dangerous and unhealthy, and problems should be dealt with immediately by a professional.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 33 of 34

Noor and Jitender Bandari are looking at an older house and are very interested in it. But when viewing the house, there were two things that concerned them: • There is a wet spot on the ceiling in a downstairs bedroom. • Some of the taps don’t produce much water when turned on full. Which of these plumbing problems might the house have? There are five options. There are multiple correct answers. 1 2 3 4 5

There may be leaks in the pipes on the second floor. There may be problems with the water pressure in the area as a whole. The drains may need to be unblocked. There may be PVC pipes used in the system. There may be corrosion in some pipes.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 34 of 34

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Plumbing systems

Plumbing systems in residential properties are designed for two basic functions: • Supplying water for drinking, washing, and cooking • Disposing of greywater and waste Disposing of greywater and waste involves drainage (which is the expelling of waste water from the system) and venting (which is the way of expelling air and other gases from the plumbing system). Different types of piping are used and have been used in the past for different functions. In modern homes, copper is most common for distribution while PVC is most common for drainage and venting. Galvanized steel was used for distribution in the past, but is now only used for venting.

Water efficiency

Water efficiency is the minimization of the amount of water used to accomplish a function, task, or result. Anything from a leaky tap to old appliances to corroded plumbing systems can reduce water efficiency. Water inefficiency is bad for the environment and costs money. Older systems/appliances should often be upgraded to improve water efficiency.

©2019 Real Estate Council of Ontario

Key considerations for plumbing and water distribution

A salesperson should be aware of common indicators of issues with plumbing systems. Kitec was a form of plumbing used from 1995 to 2007 that was supposed to be easier to install and a cheaper alternative to copper. However, this product can fail and lead to flooding and loss of water pressure. Galvanized steel piping was designed as an alternative to lead piping but has been found to corrode over time and collect lead deposits from older water mains, leading to problems with water quality. Lead piping can still be found in older homes and can become corroded and contaminate water.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 1 of 38

Lesson 4: Sources of Water Supply for Residential Properties

This lesson contains topics related to sources of water supply for residential properties including well systems, municipal services, lakes, rivers, and shared wells. It also reviews how water quality is determined in residential wells. Finally, it discusses how to determine the location and type of a well to install, its components, water treatment systems, and how unused wells are decommissioned.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 2 of 38

Sources of Water Supply for Residential Properties Some homes are connected to a municipal water main, while others may use water wells for their water supply. This can be for a variety of reasons, such as homes not having access to municipal water lines or because occupants wish to avoid the cost of water bills. However, in most locations, homeowners are required to connect to the municipal water supply if it is available. As a salesperson, you should be aware of the various concerns around wells, particularly those that affect the listing and buying of properties. You will need to know about how water quality is maintained in wells, how records pertaining to a well are kept, and how shared well agreements work between homeowners, as any of these may affect insurance, mortgages, and ownership transfer of properties. Upon completion of this lesson, the learner will be able to: • Identify sources of water supply used for residential properties • Identify the process for maintaining water quality in residential wells • Identify key considerations with well water systems Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 3 of 38

Water Well Legislation All types of wells (drilled, bored, dug, and point) are subject to legislative control. Water quality and quantity in wells are covered by the Ontario Water Resources Act and the Safe Drinking Water Act, which are administered by the Ministry of the Environment, Conservation and Parks. As a salesperson, you should be aware of potential issues with wells, which will affect the listing and selling of property so that you can advise a seller or a buyer accordingly. This applies to both the installation and the maintenance of wells. The following three sections contain information about water well legislation.

Installation of wells Well installation is regulated under the Ontario Water Resources Act. Any contractors or technicians that work on wells must be licensed by the Ministry of the Environment, Conservation and Parks. They must also meet certain minimum construction requirements. In order to become a licensed contractor, well constructors must pass an examination that tests their knowledge of applicable legislation, the structure and operation of wells, and the installation and operation of pumps. If they pass the examination and demonstrate appropriate work experience, they get a Class 4 well technician license. There are three other levels of licensing: • Class 1: Drilling • Class 2: Digging and boring • Class 3: Special Only Class 4 technicians can be involved in installing pumps.

©2019 Real Estate Council of Ontario

Maintenance of wells The well owners are responsible for maintaining the quality of their wells and its water over time. For routine testing of bacteria (E. coli and coliform), the local public health authority will do the testing free of charge. If the presence of other contaminants like heavy metals, is suspected, the tests should be done by the Ministry of the Environment, Conservation and Parks lab in Toronto. Wells are normally inspected for water flow and potability when buying and selling properties as it is very important that there is a viable source of water. Mortgagees will demand a water test before advancing funds for closing. It is rare that well testing is done after a sale is completed.

©2019 Real Estate Council of Ontario

Decommissioning wells If the well is no longer used as a well—or is temporarily not being used and is being maintained for future use—the owner is responsible for decommissioning it. A well that is not properly decommissioned can: • Pose safety problems for adults, animals, and children • Contaminate groundwater • Affect the water quality of neighbouring wells Once a well is abandoned, a well record must be sent to the Ministry of the Environment, Conservation and Parks.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 4 of 38

A buyer is interested in a house that sources its water from a drilled well in the backyard and is considering making an offer. What should the buyer’s salesperson advise them to do? There are three options. There is only one correct answer.

1

Get a Ministry of the Environment, Conservation and Parks-certified inspector to inspect the well once the sale has completed.

2

Ensure that the offer is conditional on an inspection of the well by a Ministry of the Environment, Conservation and Parks-certified contractor.

3

Get a testing kit and inspect the well once the sale has completed.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 5 of 38

Creating Water Wells There are various ways of constructing wells. The water in wells can easily be contaminated by the surrounding earth. Thus, how the well is constructed will influence its water quality. A salesperson should be aware of the basic types of wells that are constructed for residential use. When buying or selling properties with wells, a salesperson should get a professional to ensure that the well is capable of providing good quality water. Failure to do this can result in a buyer being left without a viable source of water. The following four sections contain information about different types of well systems. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Dug wells Dug wells are made by digging down to the water table with a hand shovel or a backhoe until the water enters faster than it can be bailed out. They are usually no more than 10 feet deep and are normally lined with cement and capped in concrete to reduce potential contamination by surface water draining into the well. They are found in older properties and are rarely constructed in new homes.

©2019 Real Estate Council of Ontario

Drilled wells Drilled wells are made using cable tools or rotary drilling machines. As drilling can disturb loose material, they need a casing and screen to ensure that they do not collapse or collect sediment. The depth of drilled wells will depend on the location of the underground water source. A typical well for residential use will be anywhere from 100 to 500 feet deep but could be as much as 1,000 or more. They are usually sealed with grouting material made of cement or clay, which prevents well water from getting contaminated by surface water draining downward.

Bored wells A bored well is a kind of well that is created using a largediameter bore or drill. Bored wells can be deeper than dug wells and can get water from less permeable materials, such as clay, fine sand, or silt. They can have a large diameter and thus be exposed to a larger area of the soil that contains the groundwater. However, they tend to be shallow, making them subject to running dry when water drops below the water table – that is the level below which the ground is saturated with water. Bored wells also do not have continuous casing or grouting, which means they can be contaminated by surface water.

©2019 Real Estate Council of Ontario

Point (driven) wells

Point wells are the simplest type of well. A small sharpened pipe is driven into shallow water-bearing sand or gravel. Driven wells are economical and easy to construct. However, they can only use shallow water sources and so are susceptible to contamination from surface sources, such as fertilizers used on nearby soil. If driven by hand, they can only be around 30 feet deep, but machine-driven wells can be up to 50 feet deep.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 6 of 38

A buyer is looking at a rural house that sources its water from a dug well in the backyard. The current owner has told them that the well goes dry in the summer, and they often bring in water from other sources to meet their needs. The buyer is wondering what they should do to ensure their water needs are met if they buy the house. What should the salesperson do if the buyer decides they are interested in this house? There are four options. There is only one correct answer.

1

Make the offer conditional on a licensed contractor determining that there is a good location on the property to create a drilled well with a good flow rate at a reasonable price. This contractor should also decommission the dug well on behalf of the homeowner.

2

Make the offer conditional on the owners decommissioning the old dug well themselves and creating a new well elsewhere on the property.

3

Budget for augmenting the water supply in the summer months from outside sources.

4

Make an offer on the property, but budget for a contractor to check that there is a suitable source of water on the property to augment the dug well.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 7 of 38

Shared Wells Wells can be shared among multiple houses with the well located on one property and the water pumped to each house. When shared wells are used, there are some considerations to ensure that they are used fairly and maintained properly: • There should be a formal well-sharing agreement between the users of the well, which may be registered on title. • Normally the well is located on one property with a submersible pump. One of the properties (usually the one where the well is located) is billed for the electricity to run the pump. • Neighbours who share access to the well are typically expected to equally share the costs of maintenance, repairs, and a contribution to the electricity costs. • Once the water reaches each property, owners are often responsible for their own individual water treatment and pressure systems for each property.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 8 of 38

A buyer is interested in a house that has a well on its property. The well is shared with two other neighbours. They have never encountered a house with a shared well before and have asked their salesperson to advise them. What should the salesperson do? There are three options. There is only one correct answer.

1

Get the buyer to agree to a new shared well agreement with the neighbours before making an offer on the house.

2

Make an offer on the house and arrange to have a lawyer confirm that the shared well agreement is fair and legal once the sale has completed.

3

Advise the buyer to make their offer conditional on a lawyer confirming the shared well agreement is fair and legal.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 9 of 38

Lake and River Water Another way of providing water to a home is to pump river or lake water through an above-ground or below-ground pipe from the water to the building. This is often done in rural cottages and is less common in permanent residences. There are several things to consider when using lakes or rivers as a source of water: • Lake water can easily become contaminated. To avoid this, water supply pipes should extend as far out into the lake as possible to avoid brackish shoreline water, which has more salt than fresh water. • Lake or river water may look and taste clean but still contain microorganisms that make people sick. This can be treated in several ways, from boiling it to treating it with reverse osmosis, ultraviolet light, chlorine dioxide, and chlorine tablets. • Year-round homes with pipes that are close to the surface will require a heated water line to prevent freezing in the winter months. When selling or buying a house that uses lake or river water, as a salesperson, you should advise your seller or buyer to have it tested to ensure that the water treatment system that the house uses is adequate for the contamination present in the water.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 10 of 38

A buyer is interested in a house that uses a lake as its water source. The house is currently used as a holiday home during the summer months, and the lake water is used for washing and cleaning with drinking water brought in from elsewhere. The buyers do not want to have to bring in drinking water from elsewhere and have asked their salesperson for advice. How should the salesperson advise the buyer? There are four options. There is only one correct answer. 1

Get a water treatment system installed so that the lake water can be used for drinking.

2

Use the lake water for bathing and continue to bring in treated water.

3

Contact a neighbour to see if the buyer can share the well on their property.

4

Get a licensed contractor to extend the pipeline further into the lake.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 11 of 38

Constructing Wells If well water is to be used, it can be easier to find a location for the well before the house is built as this will affect the positioning of the well and the house itself. In Ontario, a permit from the Ministry of the Environment, Conservation and Parks is necessary prior to drilling a well. Drilling a well Drilling a well is an exploration of the quantity and quality of water available. It is common to drill holes that turn out to be dry or low-yield. Low yield can be caused by a low water table, which can be seasonal but might be natural. Low yield can also be caused by interference from other wells and geological conditions. If the well is constructed before the house, it is less costly to repair as only the well will need to be modified if there are problems.

©2019 Real Estate Council of Ontario

The location of the well can be determined by the material beneath the ground (rock, clay, or sand). A contractor will usually be aware of the local conditions, but input from neighbours can sometimes be useful. Wells should usually be drilled away from steep slopes and poorly drained areas to avoid contaminated runoff entering the well. Minimum distances Regulations mandate that wells keep minimum distances from some other features on the property to avoid contamination. A salesperson does not need to know all of the minimum distances. They should, however, be aware that wells should be a certain distance from existing buildings, public roads, septic tanks, and leaching beds where liquids are absorbed into the soil, which form part of the septic system to distribute waste water into the ground. For example: • Salt used on roads can seep into wells if they are too close. • Septic effluent can enter wells. • Streams can contaminate wells when they flood. A salesperson should advise their seller or buyer to be aware that minimum distances can be an issue and to contact a licensed well contractor to formally determine if a potential problem exists.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 12 of 38

Choosing Well Types Sometimes, the type of ground will affect the type of well that is constructed. For example, it can be difficult to create dug wells in parts of the province that have rocky terrain. Other times the depth of the water table will determine what type is used as some wells can go deeper than others. Well type:

Used in ground type: Considerations:

Dug wells

Sandy and gravelly areas

Drilled wells

Rock and hard soil areas

Bored wells

Gravelly, sandy, or silty areas

Point (driven) wells Sandy and gravelly areas

Dug wells are shallow and are typically found in areas with a high water table. They can easily run dry due to their shallow depth. Dug wells are about 10 feet deep and are lined with cement with a concrete cap to prevent surface contamination. Drilled wells can go deeper than the other forms of well but are more expensive to construct. Their small diameter means they can’t store much water. Bored wells can be made deeper than dug wells and can hold more water because of their large diameter, so are useful in low-yield areas. They are more expensive than point or dug wells. Point wells are shallow and very simple and inexpensive to install. They are either driven or jetted (inserted using high-pressure water) into the ground. Well points are usually only installed where the aquifer has a shallow water table and contains few or no stones. ©2019 Real Estate Council of Ontario

Lesson 4 | Page 13 of 38

Different well types are used for different situations depending on the type of soil, the depth of the water table, and expenses available. Which of the given statements about different types of wells are correct? There are four options. There are multiple correct answers. 1

Dug wells can be used in sandy or gravelly areas where the water table is near to the surface.

2

Bored wells are not suitable for use in areas with low yield and can be dug in hard soil or rock.

3

Drilled wells are suitable for use in areas with hard soil or rock where the water table is far beneath the surface. They are expensive to install and require special machinery.

4

Point (driven) wells are not suitable for sandy or gravelly areas where the water table is very near the surface. They are moderately expensive to install.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 14 of 38

Components of Well Systems As a salesperson, you should know about the basic components of well systems so you can engage knowledgeably with potential sellers and buyers. But any issues with wells should always be dealt with by a licensed professional. The following five sections contain information about the components of a well system. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Well caps Casing

The casing of the well is topped by a well cap. It should fit tight to the casing to keep out debris, surface water, insects, and so on. A well casing is a pipe, tubing, or other material installed in a well that provides support for the wall of the well so that loose rock fragments or unconsolidated sand and gravel through which the well has penetrated do not collapse into the well ©2019 Real Estate Council of Ontario

shaft. The casing also protects the electrical wires, pull cable, and water tubing/ piping that is connected to the submersible pump. Well casings can be made of PVC (or other plastics), carbon steel, and stainless steel. Sometimes, fibreglass or concrete is also used. The type of casing used will depend on the type of soil the well is constructed in. For example, steel casings are often used in rocky areas.

Pumps

PVC is light and doesn’t corrode. Though it is easy to install, it is not as strong or heat resistant as steel. Steel costs more than PVC and can corrode and build upscale. There are two types of pumps used in wells: • Jet pumps are installed above ground and are used for shallow wells. They pull water up using suction. • Submersible pumps are installed underwater down inside wells. They can be used for shallow or deep wells. They push water up from below.

Well screens

Well screens filter out sediment from the water as it enters the well. They are installed at the bottom of the casing. There are three basic types of well screens: • Pipes with holes in them are screens that are not designed to filter sand and gravel as the holes are too large to filter them out. They take in less water due to less open area. • Continuous slot screens made of rods wrapped in plastic or wire are well screens that allow for maximum water intake due to their large open area. These are the most widely used. • Slotted pipe screens with slots cut in a steel or plastic casing are screens that take in less water due to less open area. They are often used in clay-rich areas.

Pitless adapter

Pitless adapters connect the well casing with the water line that discharges the water from the well into the house. They are designed to be sealed against contamination and are installed beneath the frost line where they divert the water to prevent it from freezing.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 15 of 38

It is important for a salesperson to know what the basic components of well systems do when dealing with properties that use well water so that they can advise sellers and buyers effectively. The basic components of any well system are all designed to perform certain functions. Jet pumps push water up from the inside of wells to the water line. There are two options. There is only one correct answer. True

False

Lesson 4 | Page 16 of 38

It is important for a salesperson to know what the basic components of well systems do when dealing with properties that use well water so that they can advise sellers and buyers effectively. The basic components of any well system are all designed to perform certain functions. Pitless adapters connect the well with the water line to the house. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 17 of 38

It is important for a salesperson to know what the basic components of well systems do when dealing with properties that use well water so that they can advise sellers and buyers effectively. The basic components of any well system are all designed to perform certain functions. Steel well casings are used in sandy or silty areas. There are two options. There is only one correct answer. True

False

Lesson 4 | Page 18 of 38

It is important for a salesperson to know what the basic components of well systems do when dealing with properties that use well water so that they can advise sellers and buyers effectively. The basic components of any well system are all designed to perform certain functions. Well caps are designed to prevent foreign materials from entering the well. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 19 of 38

It is important for a salesperson to know what the basic components of well systems do when dealing with properties that use well water so that they can advise sellers and buyers effectively. The basic components of any well system are all designed to perform certain functions. Well casings are designed to filter sediment from the water as it enters the well. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 20 of 38

Inspecting, Maintaining, and Monitoring Wells As previously noted, wells must be installed by a contractor who has been licensed by the Ministry of the Environment, Conservation and Parks. The following three sections contain information about inspecting, maintaining, and monitoring wells.

Inspecting new wells New wells should be tested with a bailer or pump for one hour—measuring the rate at which water can be withdrawn from the well and how quickly the water in the well can recover after it has been withdrawn. This is known as the recovery rate. Well tests should also test the quality of the water in the well, and whether it is potable (safe to drink). This will depend on whether it is chemically or bacteriologically contaminated.

©2019 Real Estate Council of Ontario

Water well records A water well record is used to record the recovery rate of the well and other important information about it. Contractors must provide the well owner with a copy of the water well record. This record, including additional information about well location and construction, is filed with the Ministry of the Environment, Conservation and Parks. Every well constructed in Ontario should have a water well record, which is a document that records how the well was constructed, its location, the results of any pumping test performed, and general information on the water quality and the groundwater. Constructing a well When hiring a contractor to construct a well on a property, the contractor must provide the well owner with a copy of the well record within 14 days of the structural stage being completed. The contractor must also forward a well record to the government within 30 days after the well’s structural stage has been completed. Decommissioning a well Well records are used to learn about the groundwater and geology of an area to assist with locating new wells and finding existing ones. They also provide

©2019 Real Estate Council of Ontario

construction information about existing wells. When a well is no longer viable, the well owner must hire a contractor to properly decommission it. The contractor must then submit a well record to the government. Accessing a well record Well records in Ontario are administered by the Ministry of the Environment, Conservation and Parks. They can be accessed through Service Ontario’s website at: https://www.ontario.ca/environment-andenergy/map-well-records

Monitoring and maintaining wells The well owner is responsible for monitoring and maintaining the well once it has been constructed. They must also ensure that the well and its aquifer do not become contaminated.  The well owner is responsible for maintaining the well and keeping it clear of foreign materials.  The well owner should not reduce the height of the well casing to less than 40 cm above the ground.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 21 of 38

Maintaining Wells Wells must be maintained after they are constructed if they are to continue to provide good quality water. There are a few habits that homeowners should practice in order to maintain wells on their property. This is useful information for you, as a salesperson, to provide, especially for buyers who haven’t owned a well in the past or previously had a well serviced.

Prevent contamination Control surface drainage Ensure well cap and seal are firm Check vent pipes and connections Check accessibility and visibility of well casing Be responsible Call in experts

Homeowners should never do anything near a well that could contaminate it, such as storing garbage, gasoline, salt, or pesticides. Wells should be in an area where nothing can drain into them; they should be away from any surface drainage, and the area around the well cap should be raised to allow water to run off. The well pit should be free of groundwater seepage and surface water. The well cap and seal should be firm and watertight with no cracks or damage. Any openings to the well should be properly sealed. Well vent pipes should be screened to prevent matter from entering them. Any connections to the well involving water lines, electrical lines, and pumps should be well sealed. The well casing should be easy to find if repair work is required. It should be at least 40 cm above the ground surface so that it can be seen and accessed.

Well owners are required to maintain all wells on their properties. If it is not being used, it should be properly decommissioned. If a homeowner is unsure about any of these things, they should seek expert advice and not try to fix problems themselves.

While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic. ©2019 Real Estate Council of Ontario

Lesson 4 | Page 22 of 38

A buyer is interested in a house in a rural area that sources its water from a drilled well on the property. The well is old and has had problems with water quality and flow rate at times in the past. The buyer does not want to miss out on buying this house. Their only concern is regarding the well. They ask their salesperson to advise them on the best way to go about this. How should the salesperson advise the buyer? There are three options. There is only one correct answer. 1

Make an offer on the house and subtract the amount required to test the well from the total.

2

Make an offer on the house, but make it conditional on the buyer getting the well tested by a licensed contractor.

3

Convince the seller to get the well tested before making an offer.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 23 of 38

Well Maintenance Agreements When there is a shared well on a property, there will usually be a shared well agreement between all the people who share it. This well agreement sets out who is responsible for maintaining the well, paying for the electricity that powers the pump, and so on. Usually, the well owner is responsible for maintaining the well and ensuring that it is free of contaminants and surface water. As a salesperson, you should understand the importance of shared well agreements when buying or selling properties and the implications and necessary information that well owners and users will need. Well owners Under the Ontario Water Resources Act, the well owner is responsible for: • Maintaining the well by preventing surface water and other contaminants from entering it • Ensuring that the well casing is more than 40cm above the ground surface

©2019 Real Estate Council of Ontario

Well users Homeowners who use the well normally share the costs of maintenance and repairs and contribute equally to the electricity costs. Once the water is in their property, well users are responsible for treating the water and maintaining the water pressure. Reasons for well agreements • Well agreements ensure that neighbouring properties have access to wells that are not on their property. • They can provide a formal agreement of costs for well users if one user regularly uses a larger share of water than others. • Some lenders will require a formal well agreement when financing a home with a shared well.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 24 of 38

A buyer is interested in a rural house that sources its water from a well on a neighbour’s property. There is a shared well agreement in existence between the two properties. The buyer is wondering what they will need to do if they want to buy the house. They have asked their salesperson to advise them. How should the salesperson advise the buyer? There are three options. There is only one correct answer.

1 2 3

Meet with the well owner and ensure that the terms of the shared well agreement are agreeable to both of you before making an offer on the house. Make your offer conditional upon a lawyer reviewing and confirming that the well agreement is fair and legally valid and obtain a copy of the well record. Inform the well owner that any current shared well agreement is now void and hire a lawyer to write a new one.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 25 of 38

A buyer is interested in a house that is connected to a municipal water supply. Their salesperson noticed a pipe in the ground in the backyard with a cap on it that has been welded shut. When the salesperson asked the homeowner about this pipe, they told him that they used to get their water from a well but no longer do. How should the salesperson advise the buyer? There are three options. There is only one correct answer.

1 2 3

“You should make your offer conditional on the owner providing the paperwork showing that the well was properly decommissioned or get a licensed contractor to ensure this.” “You should make your offer conditional on the owner making a declaration, in the presence of a lawyer, that the cap is properly sealed.” “You should make an offer on the house and make sure to get the well inspected by a licensed contractor once you have moved in.”

©2019 Real Estate Council of Ontario

Lesson 4 | Page 26 of 38

Decommissioning Wells When a well is no longer a viable source of water, it should be decommissioned by a licensed contractor and the well record updated. If a well is not properly decommissioned, it can pose legal issues for the owner. This could be because a person becomes injured or because groundwater gets contaminated due to the well not being properly sealed. As a salesperson, you should be aware of the status of any wells when buying or selling property and make offers conditional on wells being properly decommissioned when necessary. Old wells can be a significant source of problems after sale if they are not properly decommissioned. Updating well records The process of decommissioning a well involves updating the well record, which will allow people to know the location of the decommissioned well in the future. Old wells can easily be forgotten if not properly decommissioned and cause problems with construction projects and farming. Buying and selling houses with decommissioned wells When buying or selling houses with decommissioned wells on them, the well record is necessary to prove that the well was decommissioned by a licensed contractor. If there is any doubt about whether a well was properly decommissioned, a licensed contractor should be called in to investigate and properly decommission it if necessary. As with any important aspect of a property, any issues or queries about decommissioned wells on a property should be resolved before a sale takes place as issues can be costly to resolve after a house is bought. ©2019 Real Estate Council of Ontario

Lesson 4 | Page 27 of 38

Water Treatment Water from wells often needs to be treated to remove impurities, particularly if it is to be used for drinking. There are several different water treatment systems that can be used, depending on the type of contaminants present in the water. Some are designed to neutralize bacteria in the water while others remove heavy minerals from the water. It is important to test water regularly to be sure that the right water treatment system is being used. As a salesperson, you should have some knowledge about water treatment systems as many buyers will not have owned one before and a source of potable water is necessary when applying for a mortgage. The following seven sections contain information about water treatment systems. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Water softening In areas with hard water, there can be significant amount of minerals such as magnesium, calcium, and iron in the water. These heavy minerals can leave deposits on appliances and fixtures and make the water taste bad. Water softeners are devices attached to the water supply in a home that remove these minerals from the water. They are commonly used in many parts of Ontario where the water contains a high level of minerals, and they extend the lifespan of the plumbing system.

©2019 Real Estate Council of Ontario

Reverse osmosis Reverse osmosis systems use tightly woven membranes to remove solids from the water by passing the intake water through the porous membrane under slight pressure. They can be installed to treat all the water for the home or mounted directly to faucets to treat water on demand.

Granulated activated carbon filtration Granulated activated carbon filtration uses carbon to effectively remove odours, bad tastes, and discolouration caused by lead, chlorine, arsenic, and other dangerous chemicals in the local water supply. Whole-home carbon systems can easily be installed for immediate results.

©2019 Real Estate Council of Ontario

Ultraviolet systems Ultraviolet systems are one of the most common ways to treat water. They work by using ultraviolet light to neutralize any bacteria present in the water.

Iron deionizer When water has a high iron content, it can lead to orange/red staining of fixtures and appliances. This problem can be dealt with using an iron deionizer, which removes iron from the water.

©2019 Real Estate Council of Ontario

Chlorine injector units Chlorine injectors can be used to kill many bacteria in water and remove odours. They do not kill all bacteria or viruses, but when combined with filtration, they are an effective way to make water safe for drinking.

Desalinators Desalinators remove salt from the water supply as freshwater can become contaminated with salt from various sources.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 28 of 38

A seller’s house sources its water from a drilled well. When their salesperson was viewing the house, they noticed that the water is slightly discoloured and that the sinks have a slightly orange residue on them. The seller has expressed an interest in addressing any issues with their house before they sell it. What should their salesperson advise them to do about their water problems? There are four options. There is only one correct answer. 1 2 3 4

“Install an ultraviolet water treatment system.” “Install an iron deionizer.” “Install a water softening system.” “Install a desalinator.”

©2019 Real Estate Council of Ontario

Lesson 4 | Page 29 of 38

Water Quality As a salesperson, you should be aware of issues surrounding water quality in wells when buying and selling property. All properties should have a source of potable water, which is required when applying for a mortgage. Regular testing is needed as the quality of water in wells can change over time. Regular testing of wells Wells should be tested regularly as the quality of their water can change over time. They are tested when they are first constructed and then once or twice per year after that, unless something happens that might affect the water quality. Well water tests usually involve taking three separate samples one to three weeks apart. For rural cottages, two or three samples are usually taken per season, with the first taken at the start of the season when the cottage is opened. Of course, wells should also be tested when buying and selling houses as knowing the ©2019 Real Estate Council of Ontario

current quality of the water supply is a very important part of these processes. Failure to adequately test water has resulted in many legal problems in the past. The intended use of water should also be considered when testing it, whether it is used for gardening and washing, or for drinking water. Chemical versus bacteriological testing Wells can be tested for chemicals and bacteria: • Chemical analysis tests for the presence of chemical contaminants, such as metals, fluoride, hardness, and pesticides. • Bacteriological analysis tests for the presence of harmful bacteria. Remember that water that tests positively for one contaminant type could also be contaminated with the other. Public Health units test for coliform and fecal coliform bacteria only and not for the presence of metals. Testing for metals is done by the Ministry of the Environment, Conservation and Parks or can be done by private companies.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 30 of 38

Chemical Analysis As a salesperson, you do not need to have expert knowledge of chemical analysis testing, but it is useful to know what types of things it tests for. Chemical analysis of well water tests for these things:

Metals

Metals such as arsenic, cadmium, mercury, or lead can be naturally present in the water or can leach into the water from old piping. They are hazardous to health.

Fluoride

Well water can contain fluoride, which can damage tooth enamel in children if the concentration is too high.

Hardness

Hard water contains heavy minerals, which can leave deposits on appliances, and water lines, which can cause them to deteriorate more quickly than usual.

Red or black staining

Red or black staining on fixtures can mean that there is too much iron or manganese in the water.

Organic contaminants/pesticides

There are many organic contaminants that can exist in drinking water. If a well is too close to agricultural land, it can become contaminated by these compounds.

While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 31 of 38

Bacteriological Testing As a salesperson, you should have an understanding of the different types of bacteria that bacteriological tests look for as they have implications for health and mortgages are conditional on such testing. Coliform bacteria versus fecal coliform bacteria Bacteriological tests look for coliform bacteria and fecal coliform bacteria in drinking water as they are good indicators of contamination.

©2019 Real Estate Council of Ontario

Coliform bacteria

Fecal coliform bacteria

Coliform bacteria are a general category of bacteria that are present in the digestive tracts of animals and in plant and soil material.

Fecal coliform bacteria are a sub-category of coliform bacteria, which are found specifically in the digestive tracts of warm-blooded animals.

Coliform bacteria indicate that water is polluted and that other harmful bacteria is also present.

Fecal coliform bacteria are a better indicator of contamination than coliform, and it immediately renders water unsafe. It breaks down quickly in the environment. Therefore, any presence indicates relatively recent sewage contamination.

Interpreting well tests Bacterial tests do not indicate anything about the chemical composition of the water. Water could be completely free of bacteria but could still be contaminated with lead, for example. Any bad results on a water test should be taken very seriously, and professional advice should be sought.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 32 of 38

Well Water Supply Tests Wells are also tested to ensure that they can provide a consistent, sufficient supply of water for a home. As a salesperson, you should be aware of what well water supply tests look for as a consistent water supply is required when applying for a mortgage. Capacity This is the amount of water that the well can contain. A standard drilled well that is about 15 cm in diameter can store about 10 litres per foot. A well technician can figure out the capacity of the well if they know its depth, water level, and pump capacity.

©2019 Real Estate Council of Ontario

Flow rate When evaluating a well’s water supply, the first test done is typically a flow rate test. The flow rate measures the rate, in litres per minute, that water can be extracted from or pumped out of a well. The average household needs 350 to 450 litres per person per day and a flow rate of about 25 to 55 litres per minute. Recovery rate This is the rate at which water runs into the well from the rock fissures and openings while water is being pumped out of the well. In other words, it is the rate at which water can be pumped out of a well without it running dry. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 33 of 38

A buyer with three children in their teens has made an offer on a property in a rural area. Currently, the property has a sole occupant and sources its water from a well that was drilled when the property was built. The buyers have made their offer conditional on the well being tested by a qualified contractor. Upon testing the well, the contractor found that the well water had: • No fecal coliform bacteria present • A flow rate of 15 litres per minute What should the salesperson suggest the buyer do to ensure the house has a viable water source before removing the condition in his offer? There are four options. There is only one correct answer. 1

Do nothing, as the well meets the buyer’s requirements as is.

2

Get a licensed contractor to install a reverse osmosis system to make the water drinkable.

3

Get a licensed contractor to install an ultraviolet water treatment system.

4

Request the seller fix the well to establish an acceptable flow rate.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 34 of 38

Protecting Groundwater Groundwater is contained beneath the surface in rocks and soil. It is found in underground aquifers, which are geological formations that hold or accumulate it. Groundwater is usually of better quality and less contaminated by bacteria than surface water and requires little to no treatment as a result. For public health reasons, it is important to protect groundwater from contamination because it is often distributed without treatment. As a salesperson, you should be aware of the importance of protecting groundwater from contamination as it has implications for the water source of whole areas with consequent environmental and legal issues. Well owners are required to protect their well water—and the groundwater—from contamination. This includes preventing surface water (such as rainfall runoff) or other foreign materials from entering the well. Well owners should: ©2019 Real Estate Council of Ontario

• Test well water regularly and check its colour, taste, and odour • Secure the well cap in place to prevent surface water and foreign materials (such as insects and mice) from entering the well • Check their well regularly for signs of rust and wear, cracks, holes, or gaps in the well’s structure • Keep pooled water, vehicles, pet waste, salt, and fertilizer away from the well • Make sure the ground around their well slopes away from it • Ensure the well is accessible for repairs, that the casing extends at least 40cm above the ground, and is equipped with a lockable cap • Check for and identify abnormal sounds, which could indicate wear on the well’s pump, waterlines, or electrical cables • Check the pump’s efficiency as a pump that is always running or losing pressure may indicate a crack or hole in the waterlines • Ensure any septic tank system operates efficiently and is pumped out regularly • Ensure that any pesticides used meet Ministry of the Environment, Conservation and Parks regulations While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 35 of 38

A seller is considering selling their home and is currently dealing with an insect infestation on their lawn. They have called in a professional to deal with the infestation problem. They have asked their salesperson what they should do to ensure that the infestation does not contaminate their well. To help the seller avoid contamination of their well, the salesperson should advise the seller to ensure that any pesticides used meet Ministry of the Environment, Conservation and Parks regulations and are kept away from the well. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 36 of 38

A seller is considering selling their home and is currently dealing with an insect infestation on their lawn. They have called in a professional to deal with the infestation problem. They have asked their salesperson what they should do to ensure that the infestation does not contaminate their well. To help the seller avoid contamination of their well, the salesperson should advise the seller to ensure that the well cap is more than 30 cm from the surface. There are two options. There is only one correct answer. True

False

Lesson 4 | Page 37 of 38

A seller is considering selling their home and is currently dealing with an insect infestation on their lawn. They have called in a professional to deal with the infestation problem. They have asked their salesperson what they should do to ensure that the infestation does not contaminate their well. To help the seller avoid contamination, the salesperson should advise the seller to make sure that the ground slopes up from the well. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 38 of 38

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Sources of water supply

There are several different types of wells that are used in residential properties: dug wells, drilled wells, bored wells, and point (driven) wells. Some homes source their water from nearby lakes and rivers. This water is more susceptible to contamination than well water and needs treatment to be drinkable. It is more common to use such a water supply in seasonal homes than permanent residences. Wells can be shared between multiple properties. Usually in such cases, there is a well owner who maintains the well and a shared well agreement between the owner and all the users. Well maintenance agreements are important when a well is shared to ensure that all parties meet their obligations to each other.

Maintaining water quality

Well records are important sources of information about the installation of existing wells. Wells must be installed, maintained, and inspected by contractors who are licensed by the Ministry of Environment, Conservation and Parks. Wells must be tested to monitor and maintain water quality, ideally at least annually.

©2019 Real Estate Council of Ontario

As wells get their water from groundwater, well owners must ensure that groundwater does not get contaminated.

Well water systems and key considerations

It is important to use testing to monitor the water quality, flow rate, and recovery rate of wells. When siting a well, it must be properly located to get the best source of water and to remain within certain minimum distances from lot lines and from potential sources of contamination. There are several ways that water from any source can be treated to remove contaminants, including water softening, reverse osmosis, granulated activated carbon filtration, and ultraviolet. When wells are decommissioned, they must be properly sealed, and their location must be recorded to avoid danger in the future.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 1 of 29

Lesson 5: Sewage Systems

This lesson contains topics related to on-site and municipal sewage systems. It presents the difference between combined and separate sewer systems. It also discusses issues with septic tanks, how best to maintain private sewage systems, and how such systems are inspected. Finally, it covers the application process for private septic systems, the minimum distances, and other requirements under the Ontario Building Code.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 2 of 29

Sewage Systems This lesson will introduce you to the sewage systems of residential properties. All houses use some type of sewage system, whether municipal or on-site. In order to advise a seller or a buyer effectively, you, as a salesperson, should be aware of the differences between types of sewage systems found in residential properties and how sewage issues can affect real-estate transactions. Sewage systems are an important part of buying and selling houses. Upon completion of this lesson, you will be able to: • Identify municipal and on-site sewage systems • Identify key considerations for a private septic system • Identify potential problems associated with septic tanks Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 3 of 29

Municipal Sewer Types As a salesperson, you should be aware of the implications of combined and separate sewer systems when buying and selling houses. You should be able to advise a seller or a buyer that some systems are more likely to backup and that backup valves can be important to install to protect against flooding. A home inspector is required to know for sure what type of sewer a house is connected to. However, a salesperson can make an educated guess based on the age of the neighbourhood and their own experience. Combined versus separate Most houses in built-up areas expel their waste into a municipal sewer system. The waste travels through the sewer to a treatment facility. There are two basic types of sewers: combined and separate. Combined sewers

Separate sewers

They are used in older neighbourhoods; storm and sanitary sewers are combined into one.

They are used in modern areas; sanitary sewers carry household waste, while storm sewers handle rain and snow melt. A surge of storm water can cause water and raw sewage When storm sewers get backed up, the basement is less to back up through basement floor drains into the likely to get flooded. house. Insurance premiums are higher due to the risk of backup/flooding.

Insurance premiums are lower due to less risk of backup/flooding. For separate sewers, floor drains should connect to the sanitary sewer, while downspouts and eaves troughs go to the storm sewer.

©2019 Real Estate Council of Ontario

Backup valves Where backing up is a common problem, homeowners often install one-way valves in their floor drain. These valves let water flow into the drain but prevent it from coming back up. However, sewage can still back up into the house through basement plumbing fixtures if the pressure is very high. Installation considerations Where the street sewers are not deep enough, the main drain pipe from a house must leave the house above the basement floor. This means that plumbing fixtures cannot be put in the basement without the waste being pumped up to the main drain level.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 4 of 29

A buyer has found a house in an older neighbourhood that they are interested in. The house uses a combined sewer system and the seller says that the municipality is planning to upgrade it within two years. There is a backup valve installed in the system. If the buyer states that he wants to make an offer on the property, what should the salesperson advise the buyer to do? There are three options. There is only one correct answer.

1

“Don’t make an offer on the house as it will be very tough to get insurance on a house with a combined sewer.”

2

“Make an offer on the house, but find out in advance what the insurance premium will be on it and the cost of upgrading the system.”

3

“Make an offer on the house conditional on the sewage system being upgraded by the municipality.”

©2019 Real Estate Council of Ontario

Lesson 5 | Page 5 of 29

Sewage System Classes When properties are not connected to a municipal sewage system, private onsite sewage systems are used. Private onsite sewage systems are classified by the Ministry of the Environment, Conservation and Parks according to type. There are five classes of on-site sewage systems. As a salesperson, you should be aware of the classes of sewage system as this will have implications when buying and selling property. The following five sections contain information about five different classes of sewage system.

Class 1 Class 1 constitutes waterless toilets, including pits, privy vaults (vaults from which waste is removed periodically), portable toilets, chemical, and composting toilets.

©2019 Real Estate Council of Ontario

Class 2 Class 2 constitutes grey water systems. These are soak or leaching pits that are used for non-human waste water. These have a maximum sewage flow set by the Ontario Building Code.

Class 3 Class 3 is similar to a Class 2 system but designed for human waste and is also known as a cesspool. These are often dumping stations for recreational vehicles.

©2019 Real Estate Council of Ontario

Class 4 Class 4 constitutes a septic tank and leaching bed system. This is the most common class of on-site system used. It uses a tank to break down solid waste and distribute it into the soil using a leaching bed.

Class 5 Class 5 constitutes a system that uses a holding tank for retaining sewage, which is collected and taken away for treatment.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 6 of 29

Septic Systems Of the different classes of septic system, Class 4 are the most commonly used. Salespersons should have a more detailed understanding of them than the other classes. Class 4 septic systems use a septic tank and leaching bed to deal with the waste from a house. They work like this: 1. Household waste water leaves the home via an underground pipe that leads to a buried septic tank. 2. The septic tank is a large tank that contains bacteria to break down solid waste into liquid. In the septic tank, the heavy solids sink to the bottom as sludge, and lighter materials such as oil and grease float to the top as scum. The scum and sludge are removed when the tank is pumped. It is recommended that tanks be pumped out every three to five years. 3. The liquid in the septic tank is connected to a leaching bed via a pipe. The liquid waste moves down the pipe into the leaching bed, while baffles and screens prevent the scum from entering it. 4. The leaching bed is a network of buried perforated pipes that disperse the effluent, allowing it to seep in to the ground where bacteria and other organisms break it down even further.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 7 of 29

Leaching Beds As a salesperson, you should be aware of leaching beds, as they take up a large area of any property and can have implications for modifying and adding to properties. In order for a leaching bed to function properly, the soil needs to be permeable enough for the liquid to flow into it. The soil filters the liquid of pathogenic bacteria and viruses as it passes through it. Some soils are more suitable for leaching beds than others—rock is not permeable enough, whereas coarse sand and gravel may not filter the liquid very well. A percolation test is a test to establish the water absorption rate of soil and is used to determine if soil is suitable for a leaching bed. There are different types of leaching beds depending on soil conditions: • Conventional: Where land is well-drained and stone filled dug trenches can be installed below ground level, a conventional bed is created. • Rocky terrain: In rocky areas, such as Northern Ontario, where there is a lack of soil depth for a standard leaching bed, a raised absorption bed is often created. Special sand and soil filtering materials are brought to the site and a raised bed is created above the ground. • Limited space: Where space is limited, the bed area is excavated, and a filter bed is created using special filtering sand, which enables the pipes to be placed closer together. This allows for the leaching bed to use a smaller area of the property. ©2019 Real Estate Council of Ontario

Lesson 5 | Page 8 of 29

Septic Systems and the Ontario Building Code The Ontario Building Code sets out a number of requirements for septic systems in residential properties. These regulations are to ensure that the septic system is adequate and does not contaminate any water sources in the area. As a salesperson, you should be aware of the requirements so that you can assist sellers and buyers in the decision-making process. System design is dictated by the total daily sanitary sewage flow as set out in the Ontario Building Code. The following six sections contain information about septic systems and the Ontario Building Code. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Capacity of the septic system A septic system needs to have the capacity to deal with the amount of waste that a house generates, or it can become overloaded. Under the Ontario Building Code, the size of a septic system is determined by the total number of water fixtures in a house, the total living area, and the number of bedrooms. Often when extra rooms, fixtures, or area are added to a house, the capacity of the septic system will need to be upgraded to deal with the extra load.

©2019 Real Estate Council of Ontario

Location of the septic system Components of septic systems, such as septic tanks and leaching beds, are subject to minimum setback requirements set out in the Ontario Building Code and the local zoning bylaws. In other words, these are the minimum distances from lot lines, the house, trees, the well, shorelines, and neighbouring wells. When extra rooms, fixtures, or square footage are added to the house, the size of the septic system will need to be upgraded as well, and the zoning setbacks will have to be considered when this is done.

Site evaluation Under the Ontario Building Code, a site evaluation must be conducted for new and replacement sewage systems.

©2019 Real Estate Council of Ontario

Leaching beds location/size Under the Ontario Building Code, the location of leaching beds is dictated by the time it takes for the effluent to percolate (be absorbed) into the soil. This is measured by either a percolation test or by soil classification according to accepted standards. For percolation tests, a minimum of three possible locations on the site are tested. The area with the fastest percolation time is used. The larger the leaching bed, the greater capacity it has to process effluent. Thus, if extra rooms or fixtures are added to a property, the size of the leaching bed may need to be increased to account for the extra load on the septic system.

Leaching beds minimum clearance There are also minimum clearances for leaching beds. They must be five metres from any structure, 30 metres from a well with no watertight casing, and 15 metres from wells with casings, lakes, ponds, reservoirs, rivers, and springs. If extra rooms or fixtures are added to a property, these minimum clearances may be affected. For raised absorption beds, there are larger minimum clearances, which are based on the height of the absorption bed. ©2019 Real Estate Council of Ontario

Tank design Under the Ontario Building Code, prefabricated septic tanks and sewage holding tanks must meet certain specifications. They must have a capacity of at least 3,600 litres. They must have at least two chambers in them, and twothirds of the volume must be in the first compartment. If tanks are not large enough, they can become flooded with water and dilute or destroy the bacteria in them, making them less effective.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 9 of 29

A former buyer is considering making an addition to their home. It’s a rural property with a large house serviced by an on-site sewage system. They are planning on adding a family room, a fifth bedroom, and a third bathroom. They have asked their salesperson for advice on the effect of the addition on the current sewage system. How should the salesperson advise the buyer? There are three options. There is only one correct answer.

1 2 3

“When planning the new additions, get a site evaluation done to check that there is a room within the building envelope to expand the size of the leaching bed.” “Plan the construction of the additions first, and then call in a specialist to plan the expansion of the septic system.” “The same septic tank should be able to handle the extra load as well. You do not need to change anything.”

©2019 Real Estate Council of Ontario

Lesson 5 | Page 10 of 29

Drawings and Septic Systems When applying for a permit to install or upgrade a septic sewage system, the Ontario Building Code requires several technical drawings and plans to be submitted. As a salesperson, you should understand that drawings are necessary. They enable you to advise sellers and buyers effectively, before and after a sale is completed. Site plan The Ontario Building Code requires the given drawings of the site plan when applying for a permit: • The proposed location and dimensions of the septic system • The location of buildings on the property, whether existing or proposed • Roads, driveways, and rights of way • Zoning bylaw setbacks to lot lines • An illustration of drainage patterns • Cross sections showing the materials that make up the septic system • Locations of the septic tank and leaching bed • Details of the leaching bed, including size, elevation, soil type, and number of pipes

©2019 Real Estate Council of Ontario

Lesson 5 | Page 11 of 29

Septic System Permit Application In order to apply for a permit to build a septic system, certain information needs to be included. As a salesperson, you should be aware of the information required as it can have implications when selling or buying property. For example, septic systems can affect where additional structures or additions to the house can be located. Leaching bed To apply for a permit, the given details are needed about the leaching bed: • Its location • The number of fingers that it has • The diameter of the pipes (weeping tile) used in it • The overall area of the leaching bed in square metres • Its location in relation to zoning setbacks Septic tank To apply for a permit, the given details are needed about the septic tank: • The size of the septic tank • Its location on the lot The sketch will show where the leaching bed and the septic tank are located on the lot.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 12 of 29

Buyers are interested in a rural home and they are very fond of the location. They are thinking that as their family grows, they may want to expand their house in the future. They have asked their salesperson what information they would need to provide if they plan to apply for a permit to upgrade their septic tank. The information about the number of bedrooms in the house is needed for the permit application. There are two options. There is only one correct answer. True

False

Lesson 5 | Page 13 of 29

Buyers are interested in a rural home and they are very fond of the location. They are thinking that as their family grows, they may want to expand their house in the future. They have asked their salesperson what information they would need to provide if they plan to apply for a permit to upgrade their septic tank. The information about the capacity of the septic tank is needed for the permit application. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 5 | Page 14 of 29

Buyers are interested in a rural home and they are very fond of the location. They are thinking that as their family grows, they may want to expand their house in the future. They have asked their salesperson what information they would need to provide if they plan to apply for a permit to upgrade their septic tank. The information about the number of holes in the leaching tile is needed for the permit application. There are two options. There is only one correct answer. True

False

Lesson 5 | Page 15 of 29

Buyers are interested in a rural home and they are very fond of the location. They are thinking that as their family grows, they may want to expand their house in the future. They have asked their salesperson what information they would need to provide if they plan to apply for a permit to upgrade their septic tank. The information about the area of the leaching bed is needed for the permit application. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 5 | Page 16 of 29

Minimum Distances for Septic Tanks Septic tanks are filled with bacteria and contaminants that can cause illness and so must be kept away from any water that can become contaminated. Under the Ontario Building Code, there are certain minimum distances for septic tanks. As a salesperson, you should be aware of some of these as they can affect buying, selling, and renovating properties. • Septic tanks should be at least 1.5 metres from any structure, three metres from a property line, and 15 metres from a well, lake, pond, reservoir, river, spring, or stream. • Septic tanks must not be placed in locations where flooding can occur, unless they are watertight, anchored, and protected from storm water.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 17 of 29

Septic System Issues Most problems with septic systems are caused by misuse, usually because homeowners do not understand how they work. Every septic system is designed for the conditions of the house it serves. The type of septic system required will depend on the soil condition and the number of toilets, tubs, showers, and sinks that drain into it. As a salesperson, you should be aware of these issues so that you can involve a professional when these issues affect the buying or selling of a property.

Root damage Blocked leaching pipes

Malfunctioning valves in septic tank Buildup of solids in septic tank Construction over leaching bed Vehicle damage

Roots of trees can grow into and around septic tanks and leaching beds, causing damage and leaks. The pipes in the leaching bed are designed to distribute effluent throughout the soil. If the holes in the pipes get blocked in any way, the system cannot function correctly. Pipes can become blocked by algae growth or by unprocessed solids making it into the distribution from the septic tank. This can happen because the septic tank is overloaded or has not been pumped to remove sludge. This sewage can percolate to the surface posing health risks and bad odours. There are backup valves at the entry and exit of the septic tank. These can malfunction and cause effluent to leak back into the house. Solids will build up at the bottom of a septic tank over time. If the septic tank is not pumped out often enough, this sludge will reduce the efficiency of the septic tank. Leaching beds need to be aerated in order to function correctly, and the pipes in them are fragile, so there should never be any construction over a leaching bed, such as a swimming pool, tennis court, or outbuildings. The distribution system of a leaching bed depends on a fragile PVC pipes buried underground. Driving or parking a car or other vehicle over a leaching bed can break the pipes and lead to a malfunctioning distribution system.

©2019 Real Estate Council of Ontario

Too many plumbing fixtures

Septic systems are designed to handle a certain load—adding extra plumbing fixtures or extra occupants to a house can lead to the system becoming overloaded. This can sometimes result in pipes in the leaching bed getting blocked and sewage rising to the surface.

While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 18 of 29

Septic System Best Practices Many problems associated with septic tanks are caused by the actions of homeowners. There are a few behaviours that homeowners should avoid to ensure their septic system functions effectively for a long time. As a salesperson, it is useful for you to have some knowledge of septic systems as you may encounter sellers and buyers who are unfamiliar with septic tanks. The following four sections contain information about best practices associated with septic systems. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Using excess water Septic tanks are designed to hold a certain amount of water. If you use excess water, the septic tank can become filled up before the material in it has been broken down. This will send the solid matter out of the septic tank into the distribution tubes in the leaching bed. The distribution tubes are designed to deal with fluids, and these solids can block them. For this reason, it is good practice to minimize the amount of water that you use at any one time, by spreading out clothes washing over a few days, taking shorter showers, and using low-flow appliances.

©2019 Real Estate Council of Ontario

Flushing non-biodegradable items Septic tanks rely on being able to break down solids using bacteria. If non-biodegradable products make their way into the tank, they can become stuck. This can raise the water level in the tank and result in solids entering the distribution system, blocking the pipes. To avoid this, homeowners should be careful to only flush bio-degradable waste such as bodily waste and toilet paper into the system. Kitchen wastes such as oil and grease should not be sent down the sink. All other non-biodegradable waste should not be flushed into the septic system.

Using too much detergent or bleach Detergents contain phosphates that can behave like fertilizers. This can encourage algae to grow in distribution pipes, which can block them. Homeowners who rely on septic tanks should use less detergent when doing laundry, or switch to liquid or gel soap in washing machines and dishwashers. These soaps don't have phosphates in them. Putting too much bleach into a septic system will kill the bacteria required to break down solids.

©2019 Real Estate Council of Ontario

Flushing harsh chemicals into the system

Solvents, brake fluid, motor oil, gasoline, paint thinner, prescription drugs, and pesticides will kill the bacteria that make your septic tank work. They also get distributed into the surrounding soil by the distribution system. These chemicals can pollute the soil and prevent plant growth. Do not dispose of these types of chemicals in your septic system. Flushing these types of chemicals is also prohibited by the Environmental Protection Act as they are considered toxic waste.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 19 of 29

Maintaining Septic Tanks Septic tanks need to be maintained. As a salesperson, you should be able to advise buyers on the basics as some will be unfamiliar with septic systems. Dos Inspect septic tanks every three to five years.

Retain a map of the location of the system and any maintenance records. Periodically check the system looking for sewer gases and raw sewage. Conserve water. Use low flush toilets, water saving showerheads, and faucets. Only use dishwashers and washing machines when they are full. Bring hazardous wastes to approved disposal centres.

Plant grass on the drain field. Divert roof, patio, and driveway runoff away from the drain field. Keep sump pumps, hillside runoff, and foundation drains away from the system.

Don’ts Don’t put non-biodegradable items (such as cigarettes, diapers, hair, grease, litter, and coffee grounds) down sinks or toilets. Don’t use too much bleach or solvents. Don’t pour toxic chemicals down drains as they can get into the groundwater and poison the environment. Don’t discharge water softening devices into the system.

Don’t park or drive vehicles on the drain field. Buildings, patios, or pools can also compact the soil, crush pipes, and reduce the oxygen supply to the drain field. Don’t plant trees or shrubs on the drain field. Don’t pack snow over the drain field as it will act as an insulator.

While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 20 of 29

A buyer has recently purchased a rural property that uses a septic system and has never lived in a house that uses one before. They have asked their salesperson to advise them on living in a house with this type of system. The salesperson should tell the buyer to not to grow grass on their leaching bed. There are two options. There is only one correct answer. True

False

Lesson 5 | Page 21 of 29

A buyer has recently purchased a rural property that uses a septic system and has never lived in a house that uses one before. They have asked their salesperson to advise them on living in a house with this type of system. The salesperson should tell the buyer to never park any vehicles or construct any structures on a leaching bed. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 5 | Page 22 of 29

A buyer has recently purchased a rural property that uses a septic system and has never lived in a house that uses one before. They have asked their salesperson to advise them on living in a house with this type of system. The salesperson should tell the buyer that septic tanks should be pumped every three to five years. There are two options. There is only one correct answer. True

False

Lesson 5 | Page 23 of 29

A buyer has recently purchased a rural property that uses a septic system and has never lived in a house that uses one before. They have asked their salesperson to advise them on living in a house with this type of system. The salesperson should tell the buyer to avoid pouring harmful chemicals down drains. There are two options. There is only one correct answer.

True

False

©2019 Real Estate Council of Ontario

Lesson 5 | Page 24 of 29

A buyer has recently purchased a rural property that uses a septic system and has never lived in a house that uses one before. They have asked their salesperson to advise them on living in a house with this type of system. The salesperson should tell the buyer that leaching beds should be located in shady areas away from sunlight. There are two options. There is only one correct answer.

True

False

Lesson 5 | Page 25 of 29

A buyer has recently purchased a rural property that uses a septic system and has never lived in a house that uses one before. They have asked their salesperson to advise them on living in a house with this type of system. The salesperson should tell the buyer not to flush non-biodegradable items or chemicals (such as pesticides) into your septic system. There are two options. There is only one correct answer.

True

False

©2019 Real Estate Council of Ontario

Lesson 5 | Page 26 of 29

A buyer has recently purchased a rural property that uses a septic system and has never lived in a house that uses one before. They have asked their salesperson to advise them on living in a house with this type of system. The salesperson should tell the buyer not to plant trees or shrubs on or near your septic tank or leaching bed. There are two options. There is only one correct answer.

True

False

©2019 Real Estate Council of Ontario

Lesson 5 | Page 27 of 29

Septic Tank Inspections When buying or selling any property with a septic system, the septic tank and leaching tile bed should be inspected by a qualified contractor. The septic tank is an important part of the property and can cause damage to health and the environment if it does not function correctly. Malfunctioning septic tanks can result in costly upgrades and increase insurance premiums. The moderate expense of a septic tank inspection can lead to significant savings later on. As a salesperson, you may suggest to buyers that they get a septic tank inspected by a professional when making an offer. Whenever possible, you should recommend three contractors and allow the buyer to choose among them. During a septic tank inspection, inspectors will look at the given scenarios: • Roof drains, storm, surface, or foundation water should never run near a septic tank and/or leaching bed area. Surface waters must drain away from the area of the leaching bed. • They will check the depth of sludge in the bottom, which should not exceed one third of the depth of the tank. If it is more than that, it is time for the tank to be pumped. • They will check the capacity of the tank and ensure it is adequate for the house, especially if extra square footage has been added. • They will check that the backup valves at the entry and exit of the septic tank are functioning correctly. • They will give their opinion as to the general condition of the septic tank and assess its remaining life. • They will perform a visual inspection of the leaching bed to ensure no liquid wastes are coming to the surface and that there is no harmful vegetation near it. • They will check the minimum distances of the tank from wells, streams, lakes, structures, and property lines.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 28 of 29

A buyer is interested in a house that uses a septic system. Their salesperson has recommended that they make their offer conditional on a septic inspection and has recommended three companies in the area. The buyer has chosen one to perform the inspection. The inspection reveals that: • The sludge at the bottom of the tank takes up about 40% of the depth of the tank. • The septic tank is two metres from the house. • The septic tank has roughly five years of remaining life. Which would be the best thing to do in this situation? There are four options. There is only one correct answer. 1 2 3 4

Pump out the septic tank and move it five metres further from the house. Replace the septic tank entirely and move it 10 metres further from the house. Pump out the septic tank. Do nothing because the septic tank would pass the inspection as is.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 29 of 29

Congratulations, you have completed the lesson! There are seven sections on this page with a summary of the key topics that were discussed in this lesson.

Sewer types

Combined versus separate Most houses expel waste into a municipal sewer system where waste travels through the sewer to a treatment facility. Older neighbourhoods often use combined storm and sanitary sewers, while newer areas use separate storm and sanitary sewers. Basements are less likely to get flooded with separate sewers. With combination sewers, a surge of storm water can cause water and raw sewage to back up into the house. Backwater valves These valves let water flow into the drain but prevent it from backing up. However, sewage can still back up into the house through basement plumbing fixtures if the pressure is very high. Installation considerations For separate sewers, floor drains connect to the sanitary sewer. In some municipalities, downspouts are connected to the drain tile around the perimeter of the foundation and then discharge into a storm sewer. Other municipalities don’t allow this and require that downspouts discharge water at ground level that is sloped toward a swale (gully) between properties. The grading of the property is designed so that water in the swale is directed toward storm sewers on the street.

©2019 Real Estate Council of Ontario

Sewage system classes Septic system requirements

There are five classes of on-site sewage system. Class 4 septic systems consist of a septic tank and leaching bed system and are the most common class of on-site system used. They have a life expectancy of about 30 years and can cost $15,000 to $20,000 to upgrade. Class 4 septic systems use a septic tank that contains bacteria to break down solid waste into liquid. The liquid is then sent via gravity to an underground network of pipes called a leaching bed.

Permits and plans

In order to ensure health and safety for residents, the Ontario Building Code has set down requirements that must be followed, regarding: • Maximum daily flow • Location of septic system • Site evaluation • Location of leaching beds • Tank design When applying for a permit to install or upgrade a septic sewage system, the Ontario Building Code requires several technical drawings, permits, and plans to be submitted, including: • Site plan • Sections and details • Leaching bed information • Septic tank information • Minimum distances for septic tanks

Septic system issues

The sketch will show where the leaching bed and the septic tank are located on the lot. The municipality will calculate the capacity that the septic system needs to have, based on the number of bedrooms, number of fixtures, and living area of the house. Most problems with septic systems are caused by misuse, usually because homeowners do not understand how they work. Here are the most common septic tank issues: • Root damage • Blocked leaching pipes

©2019 Real Estate Council of Ontario

Septic system best practices

Maintaining septic tanks

• Malfunctioning valves in septic tank • Buildup of solids in septic tank • Construction over leaching bed • Vehicle damage • Too many plumbing fixtures There are a few actions that homeowners should avoid to ensure that their septic system functions effectively for a long time: • Using excess water • Flushing non-biodegradable items • Using too much detergent or bleach • Flushing harsh chemicals into the system There are some actions that homeowners should take to ensure that their septic system is being maintained properly: • Septic tanks should be pumped once every three to five years. • Surface waters must drain away from the area of the leaching bed. • The system should be inspected by a licensed contractor every year or when selling a house. • The leaching bed should be covered in grass, be well ventilated, and have adequate sunlight. • Any problems should be reported to public health authorities. • Fire pits should never be put on the leaching bed area. • All household waste piping should connect to the septic tank. • Water softeners and hot tubs should not be connected to a sewage system.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 1 of 22

Lesson 6: Summary Practice Activities

This lesson provides a series of activities that will test your knowledge on the entire module.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 2 of 22

Summary Practice Activities This lesson provides summary practice activities. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 3 of 22

The electrical system of a house is an important factor to consider when buying or selling a home. A salesperson will need to know enough about electrical systems to be able to identify when there are problems but should always involve a third-party professional when making key decisions or upgrades. The electrical system can affect many things about a house, from the types of appliances that can be used in it, to the heating systems it will support, to serious safety concerns. A salesperson will need to know about these things to meet a buyer’s needs effectively and to keep them safe. Aluminum wiring is used to replace copper wiring as copper wiring can pose a fire risk. There are two options. There is only one correct answer.

True

False

©2019 Real Estate Council of Ontario

Lesson 6 | Page 4 of 22

The electrical system of a house is an important factor to consider when buying or selling a home. A salesperson will need to know enough about electrical systems to be able to identify when there are problems but should always involve a third-party professional when making key decisions or upgrades. The electrical system can affect many things about a house, from the types of appliances that can be used in it, to the heating systems it will support, to serious safety concerns. A salesperson will need to know about these things to meet a buyer’s needs effectively and to keep them safe. Knob-and-tube wiring is an older type of wiring and is normally replaced when found. There are two options. There is only one correct answer.

True

False

©2019 Real Estate Council of Ontario

Lesson 6 | Page 5 of 22

The electrical system of a house is an important factor to consider when buying or selling a home. A salesperson will need to know enough about electrical systems to be able to identify when there are problems but should always involve a third-party professional when making key decisions or upgrades. The electrical system can affect many things about a house, from the types of appliances that can be used in it, to the heating systems it will support, to serious safety concerns. A salesperson will need to know about these things to meet a buyer’s needs effectively and to keep them safe. Ground fault circuit interrupters are used in most outlets in order to provide the maximum level of safety in a home. There are two options. There is only one correct answer.

True

False

©2019 Real Estate Council of Ontario

Lesson 6 | Page 6 of 22

The electrical system of a house is an important factor to consider when buying or selling a home. A salesperson will need to know enough about electrical systems to be able to identify when there are problems but should always involve a third-party professional when making key decisions or upgrades. The electrical system can affect many things about a house, from the types of appliances that can be used in it, to the heating systems it will support, to serious safety concerns. A salesperson will need to know about these things to meet a buyer’s needs effectively and to keep them safe. Modern houses use a 60amp service size. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 6 | Page 7 of 22

The electrical system of a house is an important factor to consider when buying or selling a home. A salesperson will need to know enough about electrical systems to be able to identify when there are problems but should always involve a third-party professional when making key decisions or upgrades. The electrical system can affect many things about a house, from the types of appliances that can be used in it, to the heating systems it will support, to serious safety concerns. A salesperson will need to know about these things to meet a buyer’s needs effectively and to keep them safe. Frequent tripped circuit breakers could indicate overloading, short circuits, or ground faults in the system. There are two options. There is only one correct answer.

True

False

©2019 Real Estate Council of Ontario

Lesson 6 | Page 8 of 22

The electrical system of a house is an important factor to consider when buying or selling a home. A salesperson will need to know enough about electrical systems to be able to identify when there are problems but should always involve a third-party professional when making key decisions or upgrades. The electrical system can affect many things about a house, from the types of appliances that can be used in it, to the heating systems it will support, to serious safety concerns. A salesperson will need to know about these things to meet a buyer’s needs effectively and to keep them safe. Solar panels are commonly used to replace municipal electricity supplies. There are two options. There is only one correct answer.

True

False

©2019 Real Estate Council of Ontario

Lesson 6 | Page 9 of 22

Heating and cooling systems are an important component of a house and can be costly to repair or replace. The age and condition of a furnace and an air conditioner is a significant factor that buyers take into consideration when purchasing a property. Although a salesperson would not be considered an expert in these systems, it is important for the salesperson to be aware of potential issues when showing properties. Ductless air conditioners are more expensive to install than central air conditioning units. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 6 | Page 10 of 22

Heating and cooling systems are an important component of a house and can be costly to repair or replace. The age and condition of a furnace and an air conditioner is a significant factor that buyers take into consideration when purchasing a property. Although a salesperson would not be considered an expert in these systems, it is important for the salesperson to be aware of potential issues when showing properties. Cracked heat exchangers in a gas furnace can be injurious to health. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 6 | Page 11 of 22

Heating and cooling systems are an important component of a house and can be costly to repair or replace. The age and condition of a furnace and an air conditioner is a significant factor that buyers take into consideration when purchasing a property. Although a salesperson would not be considered an expert in these systems, it is important for the salesperson to be aware of potential issues when showing properties. Radiant heating systems maintain a more constant temperature than other forms of heating and are energy-efficient. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 6 | Page 12 of 22

Heating and cooling systems are an important component of a house and can be costly to repair or replace. The age and condition of a furnace and an air conditioner is a significant factor that buyers take into consideration when purchasing a property. Although a salesperson would not be considered an expert in these systems, it is important for the salesperson to be aware of potential issues when showing properties. Fireplace inserts are more energy-efficient than traditional fireplaces. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 6 | Page 13 of 22

Heating and cooling systems are an important component of a house and can be costly to repair or replace. The age and condition of a furnace and an air conditioner is a significant factor that buyers take into consideration when purchasing a property. Although a salesperson would not be considered an expert in these systems, it is important for the salesperson to be aware of potential issues when showing properties. Geofencing thermostats allow homeowners to control the temperature depending on their distance from the house. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 6 | Page 14 of 22

Heating and cooling systems are an important component of a house and can be costly to repair or replace. The age and condition of a furnace and an air conditioner is a significant factor that buyers take into consideration when purchasing a property. Although a salesperson would not be considered an expert in these systems, it is important for the salesperson to be aware of potential issues when showing properties. Open boilers are the most common type of boilers. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 6 | Page 15 of 22

Plumbing systems are an important consideration when buying and selling properties. Plumbing in residential properties is designed for the purpose of supply, drainage, and venting. Different types of piping are used for different functions, and the piping used has changed over the years. A salesperson should be able to assist buyers in making good decisions about plumbing systems and be able to identify when situations need attention from a qualified professional. Which of the given statements about the plumbing systems are correct? There are five options. There are multiple correct answers. 1 2 3 4 5

Lead pipes cannot contaminate water. Kitec has been found to be problematic over the years and are often replaced when found in houses. Supply pipes, used to distribute the water brought into the house by service pipes, can have several problems including being too large. Homeowners can practice actions, such as installing low-flow fixtures, to ensure that they maximize water efficiency. It can be useful if salesperson can identify some common indicators of problems in plumbing systems, such as low water pressure.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 16 of 22

Many properties, particularly rural ones, rely on wells for their water supply. This can be for a variety of reasons, such as homes not having access to municipal water lines or because occupants wish to avoid the cost of water bills. However, in most locations, homeowners are required to connect to the municipal water supply, if it is available. A salesperson should be aware of the various issues surrounding wells when buying or selling property, as a viable water supply is an important part of any property. When making an offer on a house with a shared well, a salesperson should check the shared well agreement with a lawyer once a sale has been completed. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 6 | Page 17 of 22

Many properties, particularly rural ones, rely on wells for their water supply. This can be for a variety of reasons, such as homes not having access to municipal water lines or because occupants wish to avoid the cost of water bills. However, in most locations, homeowners are required to connect to the municipal water supply, if it is available. A salesperson should be aware of the various issues surrounding wells when buying or selling property, as a viable water supply is an important part of any property. When wells no longer produce a viable source of water, they should be decommissioned by a licensed contractor. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 6 | Page 18 of 22

Many properties, particularly rural ones, rely on wells for their water supply. This can be for a variety of reasons, such as homes not having access to municipal water lines or because occupants wish to avoid the cost of water bills. However, in most locations, homeowners are required to connect to the municipal water supply, if it is available. A salesperson should be aware of the various issues surrounding wells when buying or selling property, as a viable water supply is an important part of any property. All wells in Ontario should have a well record. There are two options. There is only one correct answer. True

False

Lesson 6 | Page 19 of 22

Many properties, particularly rural ones, rely on wells for their water supply. This can be for a variety of reasons, such as homes not having access to municipal water lines or because occupants wish to avoid the cost of water bills. However, in most locations, homeowners are required to connect to the municipal water supply, if it is available. A salesperson should be aware of the various issues surrounding wells when buying or selling property, as a viable water supply is an important part of any property. Well water is tested only for bacteria and viruses. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 6 | Page 20 of 22

Many properties, particularly rural ones, rely on wells for their water supply. This can be for a variety of reasons, such as homes not having access to municipal water lines or because occupants wish to avoid the cost of water bills. However, in most locations, homeowners are required to connect to the municipal water supply, if it is available. A salesperson should be aware of the various issues surrounding wells when buying or selling property, as a viable water supply is an important part of any property. Wells should be protected from flood water entering them in order to avoid groundwater contamination. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 6 | Page 21 of 22

All houses use some type of sewage system whether municipal or on-site. Most houses connect to municipal sewage systems of some sort, though some use on-site septic systems. In order to advise their seller or buyer effectively, a salesperson should be aware of the differences between types of municipal sewage systems and the key considerations of on-site septic systems. Which of the given statements about the sewage system are correct? There are five options. There are multiple correct answers. 1 2 3 4 5

Newer areas tend to use separate systems. Septic systems consist of a septic tank and a pit toilet, where effluent is treated by distributing it through the soil. The size of the septic system is primarily determined by the number of occupants in a house. Homeowners should never park on a leaching bed. Septic tanks should be pumped by a licensed contractor every three to five years or when buying or selling a property.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 22 of 22

Congratulations, you have completed the lesson!

©2019 Real Estate Council of Ontario

Module Summary | Page 1 of 4

Module Summary

This lesson contains a summary of the entire module and a list of helpful resources available in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 2 of 4

Congratulations, you have completed this module! This lesson will present a summary of Learning Objectives and a list of helpful resources that you can search for in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 3 of 4

There are five sections on this page with a summary of the key topics that were discussed in this module.

Identify major components of an electrical system

As a salesperson, you will need to understand the electrical systems in the properties you deal with so that you know when to advise that a seller or a buyer call in a third-party professional to deal with problems. The electrical systems of houses have serious implications for insurance, financing, and the physical safety of homeowners. Houses with older electrical systems can experience problems before and after a sale, and handling these issues incorrectly can negatively affect your reputation as a salesperson. You should also be aware of innovations in this area so that you can respond to seller or buyer queries effectively and recommend third-party professionals to serve your seller’s and buyer’s needs. Completion of this lesson has enabled you to: • Identify the major components of an electrical system in a residential structure • Know the implications of systems using fuses or breakers • Know the types of wiring used and their considerations (copper, aluminum, knob-and-tube) • Distinguish between different types of outlets and their considerations: grounded, non-grounded, and GFCI • Know some indicators of potential problems with an electrical system • Be aware of the benefits and savings associated with solar panels

Identify major types of heating/cooling systems and key considerations of each, including new

Heating and cooling systems are an important part of the quality of life that any house offers. As a salesperson, you should be aware of the different types of heating systems used in homes and be able to advise a seller or a buyer on their advantages and disadvantages.

©2019 Real Estate Council of Ontario

heating/cooling innovations

You should also understand the functions of air conditioning systems, both central and ductless, and be aware of common problems in heating and cooling systems. As a salesperson, you will not need to understand these at a deep level, as you will involve a third-party professional to deal with any problems. But you will need to know when heating or cooling systems have problems that might affect buying, selling, or insuring of houses. As a salesperson, you should be aware of the various types of fireplaces and their energy efficiency and cost considerations. You should also know about WETT inspections so that you can advise a seller or a buyer when they need them. Finally, as a salesperson, you should have some knowledge of innovations in heating and cooling systems so that you can point the seller or the buyer in the direction of third-party suppliers.

Identify plumbing systems, including major components involving water distribution and drainage/venting

Completion of this lesson has enabled you to: • Know the differences between different types of heating systems and their advantages and disadvantages • Know the differences between different types of furnaces and their advantages and disadvantages • Understand how air conditioning systems work • Know about some common problems with heating and cooling systems • Know about different types of fireplaces, from wood-burning to gas and propane • Know some of the requirements of WETT inspections • Be aware of modern innovations in heating and cooling systems As a salesperson, you should understand the basic functions of plumbing systems and their implications for the selling and buying of houses. You should have some ability to discern when older or problematic piping might need to be replaced. As a salesperson, you should be able to advise a seller or a buyer on maximizing their water efficiency and understand some common problems that arise in this area. You will need to be able to discuss renting versus buying water heaters with buyers.

©2019 Real Estate Council of Ontario

Identify installation, maintenance, and supply/measurement considerations in relation to water wells, including well water analysis

Completion of this lesson has enabled you to: • Understand the basic function of plumbing systems: drainage and venting • Know the different types of piping used in plumbing systems and their different advantages and disadvantages • Understand water efficiency and common problems associated with it • Understand conventional and tankless water heaters • Understand considerations around renting versus buying water heaters Wells are not commonly found in urban areas but are very common in rural areas of Ontario. As a viable water supply is a very significant aspect of living in a home, it is very important that, as a salesperson, you understand the different implications that wells have when buying and selling properties. You should know the different types of wells, their components, and various issues around water quality so that you can advise your seller or buyer effectively. When wells are shared between different properties, it is particularly important that, as a salesperson, you understand the implications of shared well agreements for your buyer and advise them to seek third-party expertise. Old unused wells can cause injury and contaminate the water supply. As a salesperson, you should understand the need to have them properly decommissioned. If you are aware of an abandoned well on a property, you must inform the buyer or else may suffer legal consequences after the sale has completed. Completion of this lesson has enabled you to: • Understand the types of water well systems used and their components • Know considerations around shared wells and the agreements associated with them • Understand the importance of water well records • Understand that wells should be installed, maintained, and inspected by a licensed contractor • Understand the importance of testing well water quality regularly

©2019 Real Estate Council of Ontario

Discuss sewage systems with particular emphasis to on-site systems

• Be aware of the importance of protecting groundwater from contamination • Have an overview of different water treatment systems • Understand the requirements when decommissioning wells Sewage systems are an important part of any property, and they can have significant effects on health and the environment. As a salesperson, you should understand the basic types of sewage systems and their implications so that you can advise a seller or a buyer effectively. Because on-site septic systems are unique to the properties they serve, they require you to understand them in more depth than municipal systems. They take up space in a property and have implications when a property is being upgraded, bought, or sold. Malfunctioning septic systems can make a property uninhabitable, and it is important to check that any septic systems are inspected before properties are bought or sold. Completion of this lesson has enabled you to: • Understand the difference between combined and separate sewers • Know the five different classes of on-site sewage system • Understand class 4 septic systems involving septic tanks and leaching beds • Understand common problems and best practices associated with septic systems • Know the drawings and information needed to apply for a permit to upgrade a septic system • Understand Ontario Building Code requirements for septic systems

©2019 Real Estate Council of Ontario

Module Summary | Page 4 of 4

Module Resources There are 24 helpful resources related to this module that you can search for in the Knowledge Management System. 1) Electrical Systems Fact Sheet: This fact sheet shows the basic components of an electrical system and their functions. This job aid can assist a salesperson by acting as a refresher on the basics of electrical systems, which can be useful when conversing with sellers and buyers. 2) Electrical Systems Key Considerations: This reference guide shows some key considerations surrounding electrical systems. A salesperson can refer to this to identify when an electrical system has issues that need to be addressed. 3) Indicators of Electrical Complications: This table describes common issues with electrical systems. A salesperson can use this job aid to identify common electrical concerns so that they know when to a professional. 4) Heating Systems: This table lists the types of heating systems used in residential properties. A salesperson can refer to this table when discussing furnaces with sellers and buyers. 5) Identifying Heating and Cooling System Issues: This checklist identifies potential issues with heating and cooling systems. A salesperson can use this job aid to provide insight when preparing to list a home with sellers, or examining potential properties with buyers. Disclaimer: The information is provided is a high-level overview only. A salesperson must always exercise caution and advise that sellers and buyers seek advice from a qualified third-party professional. 6) Types of Elements of Wood-Burning Heating Systems: This table shows the types of wood-burning heating systems used in residential properties. A salesperson can use this job aid when determining the type of woodburning heating system used in a property. 7) Elements of Fireplaces and Chimneys: This image shows elements of a fireplace and chimney. A salesperson can refer to it when discussing fireplaces and chimneys with sellers and buyers. 8) Requirements of Wood Energy Technology Transfer (WETT) Inspections: This job aid outlines the elements of a wood-burning appliance checked by a Wood Energy Technology Transfer (WETT) technician when performing

©2019 Real Estate Council of Ontario

an inspection. WETT inspections can identify areas that need to be improved to allow continued use of a woodburning appliance. A salesperson can refer to this job aid when discussing WETT inspections with sellers and buyers. 9) Concerns with Service Pipes in Plumbing Systems: This table outlines challenges with service pipes in plumbing systems where municipal water is provided. This job aid can help a salesperson to better understand the reasons behind plumbing concerns. 10) Types of Piping in Plumbing Systems: This table outlines the types of piping used in plumbing systems to help a salesperson to identify them. This job aid can also help a salesperson to identify challenging types of piping so they can call a professional to investigate and explain them to their sellers and buyers. 11) Water Efficiency Options: This job aid outlines options for improving water efficiency. Water efficiency in the home means using less water to provide the same level of service or to get the same result. A salesperson can use this job aid to discuss water efficiency with a seller or buyer. 12) Renting, Buying, and Tankless Water Heater Options: This table outlines the advantages and disadvantages of renting versus buying a water heater or going tankless. A salesperson can refer to it when advising buyers. They should advise their clients to talk to an experienced plumber to assess water usage. This may help them decide whether a tankless water heater or a more traditional water heater is best for them. 13) Indicators of Challenges with Plumbing: This table contains a list of indicators of potential plumbing problems. A salesperson can use it to identify concerns so that they can call a professional to investigate problems further. 14) Types of Wells: This job aid includes images to show the differences between dug, driven, drilled, and bored wells. A salesperson can use this job aid when working with a client who is selling or buying a property that utilizes a well as a source of water. 15) Components of Well Systems: The image and table below describe the components of a well system. A salesperson can refer to this guide when assisting clients who are selling and buying properties that use wells as a water source. 16) Maintaining a Well: This checklist provides guidelines on methods for well maintenance. A salesperson can use this job aid to advise buyers who are not familiar with maintaining a well. 17) Water Treatment Systems: This table shows the differences between various types of water treatment systems. A salesperson can use this information when advising sellers and buyers on water treatment options.

©2019 Real Estate Council of Ontario

18) Chemical Analysis of Water: This table describes the different types of chemical analysis tests for water and why they are important. A salesperson does not need to have expert knowledge of chemical analysis testing, but it is useful to know what types of things an analysis tests for. This table can help a salesperson communicate general information about chemical analysis tests to clients. 19) Flow Rate and Recovery Rate of Wells: This table describes properties of wells, including information about capacity, flow rate, and recovery rate. Confirmation of a consistent water supply through water supply tests is required by lenders when a buyer is applying for a mortgage. A salesperson can use this table to be aware of what well water supply tests look for. 20) Contamination of Groundwater: This checklist provides maintenance measures that can be taken to help prevent groundwater from becoming contaminated. A salesperson can refer to this job aid in order to communicate leading practices for preventing groundwater contamination to a seller or buyer. Disclaimer: The information provided is a high-level overview only. A salesperson must always exercise caution and advise that sellers and buyers seek advice from a qualified third-party professional. 21) Septic Systems and the Ontario Building Code: This job aid includes images and outlines the requirements for septic systems under the Ontario Building Code. A salesperson can use this job aid when explaining septic systems and the requirements under the Building Code to sellers or buyers. 22) Common Septic System Challenges: This table outlines common septic system challenges. A salesperson can refer to it when discussing septic systems with sellers and buyers. 23) Leading Practices for Septic Systems: This job aid outlines leading practices for maintaining septic systems. A salesperson can use this job aid when advising a buyer about septic systems. 24) Maintaining Septic Tanks: This table provides some suggestions of the DOs and DON’Ts of maintaining a septic tank. The salesperson can refer to it when advising buyers on properties with septic tanks. While going through the online module, Click the KMS button for tools or information on this module.

©2019 Real Estate Council of Ontario

Module 8: Understanding Residential Construction – Internal and External Finishes Disclaimer: This is a reference document which contains pages from the Accessible eLearning module. You should complete the eLearning module to proceed to the next step. Please note that the accessible module on the LMS only contains the interactive pages and you need to go through the content of this document thoroughly to attempt the interactive activities in the module. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Salesperson Program ©2019 Real Estate Council of Ontario. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or in any means – by electronic, mechanical, photocopying, recording or otherwise without prior written permission, except for the personal use of the Real Estate Salesperson Program learner.

©2019 Real Estate Council of Ontario

V7

Module 8: Understanding Residential Construction – Internal and External Finishes You are not expected to be an expert in the different considerations that sellers and buyers may encounter. However, you should be able to identify the different types of interior and exterior finishes, their functions, potential problems, features or improvements to enhance appeal, and trends and innovations. Most importantly, you should know which circumstances would require you to refer sellers and buyers to other professionals for advice that exceeds your expertise. Knowing this information will help you represent your sellers and buyers effectively and offer added value to your professional relationships, which could earn you a reputation as a knowledgeable salesperson. This module will explore:  Common types of exterior walls and finishes  Heat gain/loss, R-values, insulation, and energy efficiency considerations  Functions of interior walls and common finishes  Features, finishes, structures, and how they can enhance the visual and aesthetic appeal of properties  Special considerations for conversions, retrofits, and renovations  Construction trends and innovations To check your understanding of this module, you must complete all the activities in the online module.

©2019 Real Estate Council of Ontario

While navigating through the online module, click the Legislation button to view laws and regulations related to this module. While navigating through the online module, click the KMS button to access the Knowledge Management System or visit the Module Resources to find the list of all the KMS assets for this module. The contents of the thumbnail icon and References from the module are added to support your learning throughout this Accessible PDF.

©2019 Real Estate Council of Ontario

Menu: Understanding Residential Construction – Internal and External Finishes

Number of Lessons

Lesson Number Lesson 1 Lesson 2 Lesson 3 Lesson 4 Lesson 5 Lesson 6 Lesson 7 Lesson 8 Lesson 9

10 Lessons

Lesson Name Exterior Wall Finishes Energy Efficiency Considerations Interior Walls Enhancing Property Appeal Conversions, Retrofits, and Renovations I Conversions, Retrofits, and Renovations II Construction Trends and Innovations I Construction Trends and Innovations II Summary Practice Activities Module Summary

Lesson 1 | Page 1 of 11

Lesson 1: Exterior Wall Finishes

This lesson presents information about common types of exterior walls, finishes for residential buildings, the different materials used, and potential problems. Also discussed are structural and non-structural issues, and ways to identify problems with exterior walls.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 2 of 11

Exterior wall finishes protect the framework of residential buildings and exteriors from damage. Many different wall finishes are used in residential construction, such as brick veneer, brick masonry, and metal, wood, or vinyl siding. The types of wall finishes found in a building tend to be associated with the building’s age, as construction techniques evolve over time. When showing a property to a buyer, as a salesperson, you should be able to describe to them the type of exterior wall finish used on the house. You should also be able to identify issues with exterior walls, differences between cosmetic and structural defects, and signs of problems with exterior walls. Upon completion of this lesson, you will be able to:  Identify exterior wall finishes used in residential construction.  Identify issues that can affect exterior walls. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 3 of 11

Materials Used for Exterior Wall Finishes Different types of materials are used for exterior wall finishes in residential construction. The type of materials used may depend on when the house was built, the climate where the house is located, environmental and maintenance issues, and innovations and new technology in construction. The following seven sections contain information about the different types of materials used for exterior wall finishes in residential construction. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Brick veneer wall A brick veneer wall is composed of a single external layer of brick (known in construction as a wythe) and an inner frame most often made of wood. The inner frame is the load-bearing component, not the brick. Popular with home buyers, brick veneer has been the most common exterior wall finish used in Ontario by builders for single-family homes since the early 1970s. The external brick veneer is attached to the frame with “brick ties” to prevent the veneer from falling away from the house. An air space between the brick veneer and stud wall enables air circulation to prevent moisture build-up. ©2019 Real Estate Council of Ontario

Brick masonry wall A brick masonry wall is solid and has two layers (or wythes) of bricks attached together by another layer of bricks called a header course. The header course prevents the inner and outer wythes from separating. This often is referred to as double brick, because there are two layers of brick. When masonry walls are being built, bricks are generally laid lengthwise, but the header course is laid at a 90-degree angle with the short end facing outward to join the two layers of wall together. Unlike brick veneer finishes, which do not have header courses, brick masonry walls are load-bearing. Following changes to the National and Ontario Building Codes in the early 1970s requiring insulation in exterior walls, builders generally no longer use brick masonry walls on single-family homes since brick is not a good insulator and double brick makes the walls particularly thick. In a brick veneer or brick masonry wall, bricks can be made from cement or clay. Cement bricks consist of cement, water, and an aggregate, typically sand. Clay bricks are made with clay soil, water, and sand. Like stone, cement and clay bricks are popular construction materials because they are strong, hard-wearing, low maintenance, and inexpensive. The cost and colour range of cement bricks make them more popular than clay bricks, which are more time-consuming to produce, and have limited earth tones. ©2019 Real Estate Council of Ontario

Vinyl siding Made from polyvinyl chloride, vinyl sidings are fastened to the frame on top of building paper and over flashings on exterior walls and are butted against the exterior trim. There is usually a six-inch minimum clearance at the bottom of the siding above the finished grade level. Vinyl siding is affordable, durable, and low maintenance.

Metal siding Metal siding can be made of steel or aluminum and is installed vertically or horizontally, fastened to the frame. Aluminum is more commonly used, typically for soffits and fascias located just under the roof. Vinyl and metal siding finishes are popular because they are affordable, durable, and low maintenance.

©2019 Real Estate Council of Ontario

Wood siding Wood siding is commonly used in residential construction due to its aesthetic appeal and range of styles, textures, and finishes. It is generally installed horizontally, fastened to the frame in overlapping joints, and is moderate to expensive, depending on the type of wood used.

Stone Stone bricks and blocks are carved from granite, sandstone, limestone, or marble and are popular materials in construction because of their strength, durability, and weather resistance. Stone is lowmaintenance and versatile in terms of the shapes and sizes that can be formed from it. Synthetic stones are also used in construction. They are glued to exterior wall finishes and closely resemble natural stone finishes. Like brick veneer, the inner frame is the loadbearing component, not the stone.

©2019 Real Estate Council of Ontario

Stucco Stucco is a fine, durable plaster used for covering exterior walls. It consists of cement, lime, aggregate, and water. It is applied wet to the exterior wall, then hardens naturally. It offers the advantages of being cost effective, good for insulation, and energy efficient.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 4 of 11

A salesperson is showing properties to a buyer in an area that has a variety of home styles and is pointing out the different types of exterior wall finishes to the buyer. The buyer is an amateur handyman and makes a number of statements about the wall finishes. Which of the following statements made by the buyer regarding exterior wall finishes is correct? There are three options. There is only one correct answer. 1 2 3

Brick veneer walls are constructed of two layers of bricks which are attached together by brick ties and support the weight of the roof. Vinyl, metal, and wood siding are all examples of load bearing exterior wall finishes. They are attached to wall studs and carry the weight of the roof down to the foundation. A brick masonry wall is load bearing and composed of two layers of bricks held together by another layer of bricks called a header course.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 5 of 11

Brick Veneer and Brick Masonry While brick veneer and brick masonry are popular exterior wall finishes in Ontario, many people are not aware of the differences between them. The main distinction is that, with solid masonry, the brick is holding up the house. With brick veneer, the house is holding up the brick. A rainscreen principle is used in the construction of brick veneer finishes to disperse rain and prevent moisture and water from getting trapped in the space between the structural inner wall and the outer brick veneer section. This involves bricklayers applying just a small amount of mortar between two bricks in the first course every three to four bricks apart, leaving spaces called weep holes that are visible in the exterior finish. The underlying principle acknowledges that a wind-driven rain will pass through the brick wall. A one-inch air space is left behind the brick between the inner face of the brick and the sheathing on the wood studs. Water that has passed through the wall drips down the inner face of the brick or the outer surface of the sheathing paper and exists through the weep holes.

©2019 Real Estate Council of Ontario

Solid brick masonry can be identified through visual clues. A house with a brick masonry finish can be easily recognized by its pattern of header courses, which are required to hold the two wythes together. Although the same size as a normal brick, from the outside, the header courses appear to be shorter than regular bricks due to being installed at a 90-degree angle. The end of the brick is exposed to the exterior, not the side of the brick, which is visible in the other courses. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 6 of 11

A salesperson arranges a viewing of an old brick masonry house. After discussing the features of the house, the salesperson shows the buyers a different house in the neighbourhood that might also suit their needs. The salesperson mentions that, unlike the first property, the second house has a brick veneer finish. The buyers ask the salesperson how they can tell the two exteriors apart. Identify the statements that describe a brick masonry exterior finish. There are three options. There are multiple correct answers. 1 2 3

There are weep holes in the exterior of one of the houses. The bricks used in the construction seem quite thick and sturdy. The brick pattern in one house seems more decorative than the other, with shorter bricks being used.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 7 of 11

Potential Problems With Exterior Wall Finishes Exterior wall finishes protect homes from the weather, support the structure of the house, and add aesthetic appeal. While it is reasonable for homeowners to expect most exterior wall finishes to be strong and durable and to last for many years, potential problems can occur for different reasons. The following six sections contain information about the potential problems with exterior wall finishes.

Potential problems with brick veneer wall Weep holes created to allow water and moisture to escape may mistakenly be filled in by home owners who do not understand what their purpose is and may consider the weep holes to be defects in the brick work. Filling in the weep holes could then cause any water that penetrates the porous material to become trapped, possibly leading to mould. Over time, mortar may need to be repaired.

©2019 Real Estate Council of Ontario

Potential problems with brick masonry wall Although strong and durable, brick masonry walls may suffer from cracks caused by the wall expanding due to excessive heat or contracting due to extreme cold. Over time, mortar may need to be repaired. However, most structure-related issues with brick masonry occur over openings if proper support has not been installed under roof eaves or in areas where the structure is overloaded. Cracks can be caused by failure of the window arches or lintels around the openings. With wood lintels, cracks may appear as wood sags or decays. With steel or iron lintels, cracks may be caused if they progressively rust or deflect. To clarify, a lintel is a beam placed across openings like doors, windows, etc. in buildings to support the load from the structure above.

©2019 Real Estate Council of Ontario

Potential problems with vinyl, metal, and wood siding A salesperson should be aware of problems associated with various types of external siding. With wood siding, rot and water penetration occur most commonly at joints in the siding. Many wood systems require the installation of trim over the joints. Wood-soil contact should be avoided as it promotes rot and provides an ideal environment for wood-boring insects, such as termites. Metal and vinyl sidings have gained the widest popularity in residential construction owing primarily to the low maintenance factor. Metal siding should be ventilated to allow air and moisture pressures to equalize on either side of the metal. Vinyl sidings are similar to metal in that the majority of problems are associated with installation, as opposed to the material itself. A lack of proper securing and improper detail work at edges and corners are the most common deficiencies. Some vinyl sidings discolour with age. Most come in a limited colour selection. Vinyl siding can become brittle and crack during cold weather.

©2019 Real Estate Council of Ontario

Potential problems with stone Stone may be difficult to work with, has limited natural colour choices, could be porous, and may require resealing and grouting. Some types of stone, such as marble, may be more expensive than others, and some stone constructions often appear austere.

©2019 Real Estate Council of Ontario

Potential problems with cement and clay bricks Cement and clay bricks are porous and will absorb rain water. Though bricks will usually dry out, water may become trapped and penetrate the bricks. This may lead to mortar deterioration and spalling, where pieces of the brick may break off.

Potential problems with stucco Stucco is a thin layer of plaster applied over exterior walls. It can shrink and crack easily, particularly in locations where there is a freeze-thaw cycle. Stucco is better applied over masonry walls than over wood frames because humidity and changing weather temperatures can cause wood frames to expand and contract at a different rate than stucco, leading to cracks, bulges, or loose stucco. Cracks can lead to water penetration, which can cause damage to the structure of the wall behind if not detected in time. To prevent these problems, innovations in materials and installation techniques are helping stucco better withstand the Canadian climate.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 8 of 11

A salesperson is showing an old house to a buyer that he is interested in buying. At the house, the buyer notices a crack over the door and asks the salesperson about it. Since the buyer will probably have to carry out renovation work on the house given its age, he would like to know about any potential problems with exterior wall finishes in advance. The salesperson says that there can sometimes be a few common issues that could be problematic. If that were the case, he would refer the buyer to a third-party expert such as a home inspector. What are the potential problems in exterior wall finishes that might lead the salesperson to recommend a home inspector to the buyer? There are four options. There are multiple correct answers. 1 2 3 4

Wood siding in contact with the ground. The bricks on the exterior wall finish were painted by the previous owner. There are cracks in the stucco. The paint on the wood siding is peeling.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 9 of 11

Structural and Non-Structural Issues Problems with exterior walls may be structural or non-structural (cosmetic). Non-structural issues generally have no effect on the structural integrity of a building. Nevertheless, to avoid some issues that may develop into structural problems, the sensible approach is to always have non-structural issues investigated. The following six sections contain information about non-structural issues with exterior walls and comparisons of them with structural issues. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Lean/bow A wall’s outer wythes may lean or bow outwards, if the inner and outer wythes were not tied together properly during construction. Leaning and bowing may also be caused by foundation movement, or thin walls with weak load-bearing capability. In most cases, leans or bows are cosmetic in nature and could be caused by warping; unless severe, this would not compromise the house. Leans and bows would still need to be investigated, however, to exclude any potentially bigger problems that could eventually lead to structural damage. If not inspected further, and structural damage occurs, the wall could collapse, or rafters and joints on the wall might slip as the wall falls away from the structure. ©2019 Real Estate Council of Ontario

Rafter spreading Spreading roof rafters may cause the top of walls to tilt outwards. While considered cosmetic, leaving this unchecked could make the structure unstable.

©2019 Real Estate Council of Ontario

Out of plumb A wall may be built out of plumb, meaning it is not exactly vertical. This effect is considered a cosmetic issue unless the incline becomes more severe due to a failure of a different component in the building. A wall may be pushed out of plumb due to impact damage (for example, if hit by a vehicle) that harms the integrity of the wall. Out-of-plumb walls should always be investigated to rule out causes that might lead to, or be a sign of, a more serious structural issue.

Wavy Over time, mortar may need to be repaired. Waviness can occur if construction was completed too quickly, not giving the mortar used in the bricklaying enough time to set and strengthen, a common problem with old lime. If ties or headers were used every five to seven courses, a full mortar bed would have been used on these courses only, and waviness may occur. If insufficient mortar was used, it would only cover the front edge of the brick, causing the back to come together and a bulge to form at the front. Bulges in ©2019 Real Estate Council of Ontario

wavy walls could compromise the structural integrity of the wall.

Cracks/deterioration Many cracks result from stress in the concrete caused by shrinkage, where concrete loses moisture and contracts as it cures and sets. As it shrinks, the concrete becomes more rigid and resists further shrinkage, eventually causing the stress that results in small cracks. These are usually hairline cracks, meaning they are very thin. Cracks may also be caused by settlement, foundation movement, or contraction and expansion in seasonal weather. Hairline or vertical cracks are generally not a cause for concern, but horizontal cracks could indicate a structural problem with the foundation. A wall’s structure could become unstable if masonry units or the mortar between them deteriorate. The mortar used should be as strong as, but not stronger than, the brick. If left untreated, horizontal cracks could cause other problems, such as water penetration or insect infestation, and could become a major structural problem. All cracks should therefore be inspected by a home inspector or structural engineer to determine if they are leaking or could contribute to structural failure.

©2019 Real Estate Council of Ontario

Discolouration Stone may discolour over time due to weather exposure. Although possibly unsightly, discolouration would have no impact on the structural stability of a house.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 10 of 11

A salesperson has just added another house to the list of houses to show and goes to view it before showing it to potential buyers. While walking around the house, the salesperson notices some unusual issues on the exterior walls that could be structural or non-structural in nature and could require further investigation. Which of the given structural issues could be potentially serious and would require further investigation? There are three options. There is only one correct answer. 1 2 3

Hairline crack Discoloured stone Vertical crack over a large window

©2019 Real Estate Council of Ontario

Lesson 1 | Page 11 of 11

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were discussed in this lesson.

Materials used for exterior wall finishes Difference between brick veneer and brick masonry

Potential problems with exterior wall finishes Issues with exterior walls

Several types of materials can be used for exterior wall finishes. These materials include brick veneer walls, brick masonry walls, vinyl, metal and wood siding, stone, cement and clay bricks, and stucco. There are two types of brick houses: brick veneer and brick masonry. The main difference is that the bricks in solid masonry construction hold up the house, whereas the house, or the frame of the house, is holding up the brick in brick veneer buildings. Other differences include thicker walls, doorjambs, and windowsills in masonry houses due to two wythes (layers) of brick being laid, compared to one wythe in brick veneer houses. Brick masonry houses typically have a distinctive pattern of header courses and masonry arches not seen in brick veneer houses. Another visible distinction is weep holes in brick veneer houses that are not present in brick masonry structures. While most exterior wall finishes are good at protecting the outside of a house, potential problems may occur. Issues may include moisture damage, cracks, punctured or warped siding, rotting wood, or insect infestation.

Problems that occur in exterior wall finishes may include:  Lean and bow in walls  Rafter spreading  Out-of-plumb walls  Wavy walls

©2019 Real Estate Council of Ontario

 Cracks  Stone discolouration Many of these issues may be cosmetic rather than structural. Cracks are the main indicator of problems in exterior walls and may be caused by shrinkage, temperature changes, foundation movement, and settlement. Some cracks may be hairline and not indicate major concerns, however, all cracks in exterior walls should be investigated to determine or prevent any potentially serious structural issues.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 1 of 19

Lesson 2: Energy Efficiency Considerations

This lesson describes energy efficiency considerations in residential structures, encompassing heat gain/loss, RValues, and insulation. The lesson also describes the factors influencing energy efficiency, the scope of related audits, and ways to increase energy efficiency in homes.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 2 of 19

Energy Efficiency in Homes Energy efficiency is a key consideration in residential construction, and most buyers recognize its value. Using energy efficiently can make a home more comfortable to live in, reduce energy costs, and protect the environment by lowering or eliminating carbon dioxide emissions caused by burning fossil fuels, such as oil, coal, and natural gas. An energy-efficient home generally controls temperatures, humidity, and air quality by using energy efficiently to heat, ventilate, and light the building. Energy efficiency is a major consideration in new and resale properties. Therefore, it will be important for you, as a salesperson to know about the different energy efficiency standards and rating systems used in homes. You can help home owners understand the energy efficiency of their resale home or new home and how it can provide comfortable living conditions, reduce energy costs, and help the environment. Doing so may influence their decision to buy a property or make their resale home more attractive to potential buyers. Upon completion of this lesson, you will be able to:  Identify the characteristics of different types of insulation in residential structures.  Identify key considerations for insulation found in residential structures.  Identify the importance of energy efficiency. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. ©2019 Real Estate Council of Ontario

Lesson 2 | Page 3 of 19

Insulation in Residential Structures Insulating a home properly reduces heating and cooling costs, which improves a home’s energy efficiency. There are a variety of insulation materials to choose from when insulating a home. The choice will depend on which area of the house is being insulated. Each type of insulation has advantages and disadvantages and offers varying environmental benefits that may affect the energy rating of a house. How house structures control heat loss is as important as how they are heated. When discussing thermal insulation, a salesperson should refer to the R-value, which is the resistance value or measure of resistance to heat flowing through a given thickness of material. The higher the R-value, the greater resistance to heat transfer and the better the thermal insulating properties of an object. The minimum requirements allowed for new structures based on R-values are defined in the Ontario Building Code; it determines the minimum thermal resistance of insulation for installation in building elements exposed to exterior or unheated spaces like ceilings below attics, foundation walls, and floors.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 4 of 19

Different R-Values for Different Areas I R-values indicate how well a type of insulation prevents heat transfer. Typically, the thickness and the density of the material determine the R-value. The higher the R-value, the better the material will insulate. The number is presented per inch, so an R-value of 3.1 at 12 inches would provide an overall value of R38. Different areas of a house require different R-values. For example, an attic requires a greater R-value because heat rises and typically escapes through the roof. The recommended R-value to insulate most attics is R38. But this level could be as high as R60, depending on a region’s climate or weather carbon emission targets set by the Ontario government must be met. In contrast, basement walls would have the lowest R-value in the house because a basement is surrounded by soil, which acts as natural insulator. Insulation values are continually being reviewed and may be updated regularly in the Ontario Building Code, but a typical R-value for “below grade” areas (that is, parts of a house that are below ground level, like basements) could be R8. The main floor areas encompassing floors, crawl spaces, walls, and ceilings between the below grade and attic areas of a house could have R-values ranging from R12 to R26. The following five sections contain information about insulation types and their R-values. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Glass fibre insulation Glass fibre insulation, often also called fibre glass insulation, consists of very fine flexible glass fibres of different thicknesses and comes in the form of batts (sheets of matted fibres), rolls, or loose fill (that is, insulation is broken down into granules, shreds, or modules, which can be blown into tight spaces and cavities). Glass fibre is one of the most common insulation materials and can be easily recognized by its pink colour. This insulation is used for insulating floors, flat ceilings, unfinished walls, cavity walls, and in spaces with few obstructions from pipes and wiring. The recommended R-value is 2.9 – 4.2 per inch and can be installed in a high R-value area (such as an attic) or a low R-value area (such as a basement). It is important that the proper amount (that is, thickness) of insulation is installed. Glass fibre insulation is relatively inexpensive and easy for contractors to install between studs, joists, and beams. However, it can leave gaps where air can circulate, and this may lead to condensation.

©2019 Real Estate Council of Ontario

Mineral wool/rock wool Mineral wool/rock wool insulation is made from fibrous materials that are formed by melting rock or rock materials (such as slag and ceramics) and spinning them into fibres so that they resemble the texture of wool. Like glass fibre, mineral wool also comes in batts, rolls, or loose-fill forms. Its recommended R-value of 3.0 – 3.2 per inch offers better thermal insulation than most other types of insulation. This insulation is extremely fire-resistant, and its properties make it a high-performing, longlasting insulator, suitable for use in sidewalls, attics, crawl spaces, and floors. However, it is expensive, which may cause some homeowners to use a cheaper type of insulation.

©2019 Real Estate Council of Ontario

Cellulose fibre Cellulose insulation is made from 85 per cent recycled material, generally paper, and is treated with chemicals to make it fire- and insect-resistant. This insulation can be used in new builds where it can be sprayed or in existing homes where it is loose-filled into wall cavities. It is a good method for adding insulation to irregularly shaped areas and around obstructions. In existing structures, it is installed by removing a strip of exterior siding, drilling a row of three-inch holes, and inserting a special filler tube into the top of the wall cavity and blowing the insulation into the building cavity. Its recommended R-value is 3.4 – 3.6 per inch. Since cellulose has a higher R-value and denser properties than glass fibre, it is a popular choice in attics as an effective thermal insulation.

©2019 Real Estate Council of Ontario

Spray foam Spray foam consists of polyurethane, which is produced as two types of insulation: open cell and closed cell. Open-cell spray foam has a lower insulation density and is more porous than closed-cell spray foam, therefore it has a lower R-value. Its recommended R-value is 3.5 – 3.7 per inch. When sprayed, this insulation has a sponge-like texture. Closed-cell spray foam, in contrast, has a higher insulation density, is more rigid than open-cell spray foam, and is moisture-proof. Since closed-cell spray foam is denser and has a higher recommended Rvalue of 5.5 – 6.8 per inch, its resistance to heat flow makes it the more effective insulation type. Its rigidity also means that it can offer greater structural strength than open-cell spray foam (that is, there may be less wall movement caused by wind, vibration, or activity by home dwellers). Due to the different qualities of both types of insulation, open-cell spray foam is less expensive than closed-cell spray foam and is typically installed on the interior of homes. Closed-cell spray foam is commonly used on exterior walls, or in areas requiring greater insulation and moisture prevention. Typically, spray foam is mixed on site and installed using a sprayer. The spray foam may be used around windows and doors at the time of installation to seal ©2019 Real Estate Council of Ontario

the space between the frames and the house. The decision on which of these types of insulation to use in a home will depend on climate, budget, and insulation requirements.

Foam board Foam board insulation can provide good heat resistance in a home and is produced in varying levels of thickness, based on whether the insulation is polystyrene, polyurethane, or polyisocyanurate. The recommended R-value for polystyrene foam board is 3.6 – 5.0 per inch and 7.0 – 8.0 per inch for polyurethane or polyisocyanurate foam. This type of insulation is typically produced in the form of rigid panels. Foam boards can offer a high insulation value for relatively little thickness and can be installed between exterior finishes (such as bricks or siding) and exterior wall studs, in floors, and in ceilings.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 5 of 19

A couple have been renting in the area for a while and are now ready to buy a property. They have just started to look at some houses to try to find out what they might like best. Their salesperson is showing them an old house, which they like, but it will need some renovation to bring it up to modern standards. The salesperson shows them around the house, bringing them from room to room as well as to the basement. They see that the basement has not been finished. The salesperson explains that it would need to be insulated first. The buyers do not know much about insulation and ask the salesperson if there is a particular type of insulation they should use. The salesperson provides them with three names of professionals who could provide them with more detail. They contact one of the professionals. The professional advises them to speak to a specialist to discuss their insulation needs. A contractor or home inspector could advise them about the different R-values and best choice of insulation based on the area of the house to be insulated. Also, the professional gives them some general information regarding insulation and tells them that insulation is typically rated based on an R-value, which refers to its resistance to heat flow. The higher the R-value, the better the insulation. What other general information should the professional give the buyers regarding insulation materials? There are two options. There is only one correct answer. 1 2

Glass fibre is probably the most commonly used because it’s inexpensive and easy to install. It’s got a distinctive pink colour, too, unlike other insulations. Cellulose fibre is probably the most commonly used because it’s inexpensive and easy to install. It’s got a distinctive pink colour, too, unlike other insulations.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 6 of 19

A couple have been renting in the area for a while and are now ready to buy a property. They have just started to look at some houses to try to find out what they might like best. Their salesperson is showing them an old house, which they like, but it will need some renovation to bring it up to modern standards. The salesperson shows them around the house, bringing them from room to room as well as to the basement. They see that the basement has not been finished. The salesperson explains that it would need to be insulated first. The buyers do not know much about insulation and ask the salesperson if there is a particular type of insulation they should use. The salesperson provides them with three names of professionals who could provide them with more detail. They contact one of the professionals. The professional advises them to speak to a specialist to discuss their insulation needs. A contractor or home inspector could advise them about the different R-values and best choice of insulation based on the area of the house to be insulated. Also, the professional gives them some general information regarding insulation and tells them that insulation is typically rated based on an R-value, which refers to its resistance to heat flow. The higher the R-value, the better the insulation. What other general information should the professional give the buyers regarding insulation materials? There are two options. There is only one correct answer.

1

2

Another popular insulation that’s easy to apply is foam board. This insulation comes in two slightly different forms: one is more rigid and has a higher R-value than the other, so they’re typically used for different areas, on interior or exterior walls. Another popular insulation that’s easy to apply is spray foam. This insulation comes in two slightly different forms: one is more rigid and has a higher R-value than the other, so they’re typically used for different areas, on interior or exterior walls.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 7 of 19

A couple have been renting in the area for a while and are now ready to buy a property. They have just started to look at some houses to try to find out what they might like best. Their salesperson is showing them an old house, which they like, but it will need some renovation to bring it up to modern standards. The salesperson shows them around the house, bringing them from room to room as well as to the basement. They see that the basement has not been finished. The salesperson explains that it would need to be insulated first. The buyers do not know much about insulation and ask the salesperson if there is a particular type of insulation they should use. The salesperson provides them with three names of professionals who could provide them with more detail. They contact one of the professionals. The professional advises them to speak to a specialist to discuss their insulation needs. A contractor or home inspector could advise them about the different R-values and best choice of insulation based on the area of the house to be insulated. Also, the professional gives them some general information regarding insulation and tells them that insulation is typically rated based on an R-value, which refers to its resistance to heat flow. The higher the R-value, the better the insulation. What other general information should the professional give the buyers regarding insulation materials? There are two options. There is only one correct answer. 1 2

In contrast to spray foam insulation, there’s also foam board, which comes in the form of panels of three different thicknesses. That insulation is usually fitted in walls and exterior finishes. In contrast to spray foam insulation, there’s also mineral wool/rock wool, which comes in the form of panels of three different thicknesses. That insulation is usually fitted in walls and exterior finishes.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 8 of 19

A couple have been renting in the area for a while and are now ready to buy a property. They have just started to look at some houses to try to find out what they might like best. Their salesperson is showing them an old house, which they like, but it will need some renovation to bring it up to modern standards. The salesperson shows them around the house, bringing them from room to room as well as to the basement. They see that the basement has not been finished. The salesperson explains that it would need to be insulated first. The buyers do not know much about insulation and ask the salesperson if there is a particular type of insulation they should use. The salesperson provides them with three names of professionals who could provide them with more detail. They contact one of the professionals. The professional advises them to speak to a specialist to discuss their insulation needs. A contractor or home inspector could advise them about the different R-values and best choice of insulation based on the area of the house to be insulated. Also, the professional gives them some general information regarding insulation and tells them that insulation is typically rated based on an R-value, which refers to its resistance to heat flow. The higher the R-value, the better the insulation. What other general information should the professional give the buyers regarding insulation materials? There are two options. There is only one correct answer. 1 2

An insulation type that seems to be used most often in attics because of its high R-value is glass fibre. An insulation type that seems to be used most often in attics because of its high R-value is cellulose fibre.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 9 of 19

A couple have been renting in the area for a while and are now ready to buy a property. They have just started to look at some houses to try to find out what they might like best. Their salesperson is showing them an old house, which they like, but it will need some renovation to bring it up to modern standards. The salesperson shows them around the house, bringing them from room to room as well as to the basement. They see that the basement has not been finished. The salesperson explains that it would need to be insulated first. The buyers do not know much about insulation and ask the salesperson if there is a particular type of insulation they should use. The salesperson provides them with three names of professionals who could provide them with more detail. They contact one of the professionals. The professional advises them to speak to a specialist to discuss their insulation needs. A contractor or home inspector could advise them about the different R-values and best choice of insulation based on the area of the house to be insulated. Also, the professional gives them some general information regarding insulation and tells them that insulation is typically rated based on an R-value, which refers to its resistance to heat flow. The higher the R-value, the better the insulation. What other general information should the professional give the buyers regarding insulation materials? There are two options. There is only one correct answer. 1 2

I believe that mineral wool/rock wool is another good insulation with a high R-value, but it is expensive, so may not be an option for every homeowner. I believe that spray foam is another good insulation with a high R-value, but it is expensive, so may not be an option for every homeowner.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 10 of 19

Required Disclosures Good insulation makes a home more energy-efficient by keeping it well-ventilated, cool in summer, and warm in winter. It is also cost-effective as it reduces homeowners’ energy bills. However, some types of insulation may have harmful health implications. Where potentially harmful insulation has already been installed in a home, it should be left undisturbed and contained, or handled by professionals only. Three types of insulation that have serious health implications are: Urea Formaldehyde Foam Insulation (UFFI), vermiculite, and asbestos. Sellers are obligated to disclose any known latent defects to a prospective buyer. Given the potential health risks, the presence of UFFI, vermiculite, and/or asbestos in a home is considered a latent defect and if the seller knows it is present, it must be disclosed. The following three sections contain information about these three controversial types of insulation.

©2019 Real Estate Council of Ontario

Urea Formaldehyde Foam Insulation (UFFI) Urea Formaldehyde Foam Insulation (UFFI) is formed by mixing a urea formaldehyde-based resin and water. It resembles the look and consistency of shaving cream, which, when mixed and installed in wall cavities or spaces, hardens as it cures (dries). Widely used in the 1970s, UFFI became unpopular after being associated with certain health problems, such as headaches, nose bleeds, fatigue, and skin and eye irritations, which were blamed on the formaldehyde gas released by the resin used to produce UFFI on site. Although no evidence connected it to impaired health, UFFI became a controversial issue due to its negative health implications, associated litigation cases, and decreases in value of UFFI houses. In December 1980, UFFI was therefore banned in Canada. Today, Canada is still the only jurisdiction in the world where it is illegal to use UFFI. However, since there are still many homes in Ontario with this insulation, mandatory seller disclosure about UFFI is included in many agreements of purchase and sale in Ontario. This is known as the UFFI warranty, which was introduced to address any concerns that home buyers have about the presence of UFFI.

©2019 Real Estate Council of Ontario

Asbestos Asbestos is a fibrous silicate mineral that was often used in construction due to its heat-resistance and insulation properties. It can be difficult to identify asbestos visually because it is typically mixed with other materials to form insulation boards, cement sheets, ceiling tiles, and other construction resources. Asbestos was also used in insulation for hot water systems, radiators, boilers, and distribution pipes. A house built before the 1950s is likely to have asbestos insulation in its walls or attic. If disturbed, asbestos insulation can release fibres into the air which, if inhaled, can cause serious or fatal diseases like asbestosis, and lung cancer. These diseases can often take 20 years or more to develop. It is therefore critical that homeowners never disturb this material. A specialist laboratory can test the material to determine whether a house has asbestos insulation. If confirmed, and the insulation must be removed, this should be done by certified specialists to ensure the area is adequately protected during removal, and the material is disposed of safely in accordance with the Occupational Health and Safety Act. Proper remediation concerning asbestos requires specialists to wear protective respiratory equipment and clothing. If asbestos is not removed, it should be contained and not disturbed. Newer homes built in Canada do not ©2019 Real Estate Council of Ontario

have asbestos insulation, and in 2018, the Government of Canada introduced new regulations to ban asbestos, and materials containing asbestos for use in residential construction.

Vermiculite Vermiculite is a flat, shiny material ranging in colour from silver-gold to grey-brown that expands when heated. For use as insulation, vermiculite goes through a process called “exfoliation”, in which the material is heated to 1,000 degrees Celsius to produce lightweight pellets with an accordion-like texture. These loose-fill pellets are then poured into spaces and cavities in attics, and walls to provide thermal insulation. Vermiculite has not been used in Ontario since the mid 1980s but may still exist in houses built before that time. Although not known to be a health risk, some vermiculite insulation may contain asbestos fibres that could be harmful if inhaled. To prevent the fibres from becoming airborne, homeowners who have vermiculite insulation in their houses should not disturb the material. Once vermiculite insulation is enclosed within a wall, it does not pose a health risk. Only contractors who are trained and certified to handle vermiculite and other hazardous materials should remove vermiculite.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 11 of 19

A salesperson is representing a seller whose property is an old house. Walking around the house for the first time, the salesperson notices a series of small holes in the exterior wall and wrapped pipes for hot water radiators in the basement. Given the age of the house, these details cause the salesperson to question which materials were used to insulate the house. The salesperson asks the seller about this but does not know because a previous owner insulated the house. The seller cannot imagine that there is anything wrong with the insulation because it has never caused any issues. What actions should the salesperson take? There are three options. There are multiple correct answers. 1 2 3

Advise the seller to contact a professional to determine whether the insulation used is safe. Research old listing information or past sale details for the house to discover any material latent defects. Proceed with the next step in the sale without further investigation since the owner has provided an explanation.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 12 of 19

Factors Influencing Energy Efficiency The building code for a region sets the specific requirements for constructing homes in that region. The Ontario Building Code is a mandatory set of regulations under the Building Code Act, and applies to the construction of homes and buildings in Ontario. The Code defines the technical and administrative requirements and minimum standards for the construction industry in Ontario. In addition to specific regional codes, a voluntary energy efficiency program called R-2000 was launched in Canada in the 1980s to encourage energy-efficient and environmentally responsible home construction. The R-2000 program, managed by the Office of Energy Efficiency (Natural Resources Canada), includes technical performance standards that exceed the energy efficiency requirements already contained in existing building codes. An R-2000 house is certified based on continually updated technical requirements encompassing ventilation, minimum air leakage, and the type of insulation material used. Builders are trained and certified to meet R-2000

©2019 Real Estate Council of Ontario

design and construction standards, and receive ongoing training as new technologies and products become available. Although the program is voluntary and homes do not have to comply with R-2000, a salesperson should be familiar with the program to enable them to explain why an R-2000 home may be more expensive than a non-R-2000 home. Since buyers may have to pay two to six per cent more for an R-2000 home, it is important for a salesperson to let buyers know that they can nevertheless realize substantial energy savings over time. Informing buyers correctly about the benefits of energy efficiency, differences in the price of similar houses, and long-term cost savings will help them to develop trust in the salesperson and could result in repeat and referral business for the salesperson. Although R-2000 is a valuable and successful energy efficiency program, today it is largely complemented by two more modern energy efficiency programs that are more compatible with contemporary construction requirements and technologies: EnerGuide and ENERGY STAR®. Both of these programs serve as add-ons to R-2000 and go beyond what is required by the Building Code. An energy-efficient home may have better resale potential because of its comfort and money- and energy-saving capabilities. Homes built using these standards also help builders, businesses, and homeowners to protect the environment by reducing the use of fossil fuels like coal, oil, and gas, and therefore lowering greenhouse gas emissions that contribute to climate change.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 13 of 19

Importance of Energy Efficiency Homeowners look for energy savings through well-built houses. Many of the factors that influence energy efficiency in homes are associated with heat loss and heat gain. Heat loss happens when heat is transferred from inside the building to the outside, often due to inefficient doors and windows. Heat gain, in contrast, occurs when heat from outside flows into a building. Heat loss and heat gain are typically measured in kilowatts (kW) and occur through the processes of convection, conduction, and radiation. Used effectively together, these processes can increase energy efficiency and reduce energy consumption. A salesperson should be able to communicate to buyers the energy-efficiency implications of old windows and doors in a house. Informing buyers correctly about heat loss or gain based on windows, doors, and walls, will enable them to consider any additional costs they may face due to higher heating and cooling bills or further expenses of updating a property with energy-efficiency issues. Similarly, informing buyers about work already performed in a house to upgrade its energy efficiency can help them to realize lower heating and cooling costs and remove the need to consider energy-efficiency improvements when buying a property. Knowing these details will allow buyers to make an informed decision about purchasing or upgrading a home. Sharing such information makes a salesperson better at the job and could lead to repeat business and referrals. The following three sections contain information about the different processes that influence energy efficiency.

©2019 Real Estate Council of Ontario

Conduction Conduction is a process in which a substance is (for example, heat) transferred through a solid material. Thermal conduction in a home is the transfer of heat from a warmer object toward a colder object through the fibre of the building. The heat in homes is typically transferred through solid objects like basements, walls, and ceiling components. Conduction is often accelerated through thermal bridges that exist in most structures. Although walls may be fully insulated, hot or cold energy can travel through highly conductive window frames or structural components. Thermal bridging occurs when a more conductive (or poorly insulating) material allows an easy pathway for heat or cold flow across a thermal barrier. The effects of thermal bridging may include increased heat loss, occupant discomfort, etc. An important part of energy-efficient design involves eliminating or reducing thermal bridges. Conduction can also be minimized by using non-conductive insulation materials in a home’s exterior structures.

©2019 Real Estate Council of Ontario

Convection Convection involves the transfer of heat in a gas or liquid due to changes in density (for example, heat is transferred by the upward flow of hot air or downward flow of cold air, thereby producing a convection loop). In real estate, convection is typically controlled by minimizing the leakage and flow of air between a structure’s interior and exterior surfaces. A major source of heat loss in most structures is caused by leakage around doorways and windows. An air leakage test is usually completed as part of an energy audit. The most effective ways to reduce convection (such as drafts and cold floors) is by using mass insulation products, appropriate sealing techniques, and energyefficient building components (such as windows).

©2019 Real Estate Council of Ontario

Radiation Radiation involves the transfer of energy as particles or waves from one source through a medium or space and the subsequent absorption of this energy by another source (such as a roof, walls, or windows). Radiant heat travels at the speed of light and its intensity depends on the transmission angle and absorption quality of the receiving source material. The best example of radiant heat is the heat produced by sunlight entering a room on a cold winter’s day. Although the outside temperature may be -10°C, the room can be passively heated to 20°C or higher. Radiated heat, which can either be absorbed or reflected, is an important factor in residential construction when installing insulation and windows.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 14 of 19

A salesperson is showing a house to a couple who are buyers. The buyers love the house but while in the living room, they notice some frost on the windows. They understand that the house is old and are concerned about how much it could cost to heat. They mention to the salesperson that they’re concerned about what is needed to make the house more energy efficient. What should the salesperson suggest to the buyers about making the house more energy efficient? There are three options. There is only one correct answer. 1 2 3

The doors and windows may need to be upgraded, but they should consider contacting an energy efficiency expert for professional advice. The thermostats can be easily adjusted to regulate the heat in each room to prevent frost on the windows. Replacing the furnace filter monthly would make the house energy efficient.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 15 of 19

Energy Efficiency Audits Since a major source of heat loss is caused by drafts through doorways and windows, energy efficiency audits are commonly performed in structures to identify energy loss sources. A typical audit involves a full inspection of the property by a professional to do the following:  Identify air leaks and their source  Check the general condition of insulation within walls and ceilings  Confirm humidity levels and any signs of moisture that can cause mould  Check windows and other openings  Assess the contribution to heating/cooling loss  Check furnace and duct distribution systems and water heater systems Audit results typically offer recommendations about ways to increase energy performance, emphasizing windows, doors, and mechanical systems. Passive technologies may also be highlighted, including sun control devices, highefficiency appliances, and natural sunlight diffusion techniques for daytime energy conservation. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 16 of 19

A couple, who are buyers, are viewing a house with a salesperson. Since it is an old house, they are concerned about its energy efficiency. The salesperson suggests that if they decide to buy the house, it might be wise to get an energy audit done then. They are unsure about what that would involve and ask the salesperson about the scope of the audit and how it would help. What should the salesperson explain the buyers about energy audit? There are five options. There are multiple correct answers. 1 2 3 4 5

An energy audit checks the distance to electromagnetic fields surrounding power lines. An energy audit checks heating and ventilation systems. An energy audit checks fireplaces. An energy audit checks the water supply line from the water main to determine the type of piping used and diameter of the pipe. An energy audit checks windows and doors.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 17 of 19

Retrofitting Homes to Increase Energy Efficiency Homeowners or potential buyers may decide to improve the energy efficiency of an older or less energy-efficient house through retrofitting, which involves updating the house using newer energy-saving features and technology. In construction, using methods that encourage energy efficiency, practical use of resources, durable products, and good environmental principles and policies is referred to as green building. The energy savings and environmental benefits to be gained from green building are increasingly making energy efficiency improvements more appealing to buyers. This demand in turn makes a strong defence for promoting green construction practices in the residential building sector. Smart building technologies can help homeowners save energy by monitoring and regulating heating, air conditioning, lighting, security, and appliances. Buildings can be retrofitted with automated systems that reduce energy costs and negative environmental impacts.

©2019 Real Estate Council of Ontario

When retrofitting a house, several techniques involving the structural and mechanical integrity of the building can be used, including: • Window shading and glazing • Smart-window technologies, such as windows that transition from clear to dark glass with a change in temperature • Increased thermal resistance for all insulation • High-efficiency furnaces • Integrated furnace/hot water heating systems that combine the household heating requirement with hot water needs, saving money on total system installation • Stationary fuel cell use • Heat recovery ventilator, which reduces high humidity, pollutants and odours by replacing stale air with fresh warm air • Energy-efficient lighting (such as compact fluorescent, LED, and electronic ballasts) • Zoned heating/cooling systems and improved ductwork distribution, which allow the homeowner to control the temperature of each room or zone individually, thereby maximizing comfort and minimizing energy costs • Programmable thermostats and smart technologies that adjust the temperature according to a series of programmed settings that take effect at different times of the day While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 18 of 19

A salesperson is showing an older home to buyers. They love the house, but since it has never been renovated or upgraded and is not very energy efficient, they are worried about the potential energy efficiency costs they could face. They are also concerned about the environmental impact of having an energy-inefficient home, and would like to do everything possible within their budget to increase its energy efficiency should they choose to buy the house. They ask their salesperson what they can do to the home to make it more energy efficient. The salesperson has clients who just went through this process with an old home they bought, so he tells the couple what his previous buyers did and also suggests they talk to a third-party expert. What actions would increase the energy efficiency of the house? There are five options. There are multiple correct answers. 1 2 3 4 5

Run a ceiling fan to cool a room Install a high-efficiency furnace Install a programmable thermostat Close vents to reduce heating bills Use CFL bulbs

©2019 Real Estate Council of Ontario

Lesson 2 | Page 19 of 19

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Characteristics of different types of insulation in residential structures

Key considerations for insulation found in residential structures

There are several types of insulation used in residential structures including:  Glass fibre  Mineral wool/rock wool  Cellulose fibre  Vermiculite  Spray foam  Foam board These insulation types may come in foam, wool, batt, slag, pellet, roll, and loosefill forms, which determines how they are filled into spaces and cavities. Different areas in a house require different thermal resistance values of insulation, known as R-values. The higher an R-value, the greater resistance to heat transfer and better insulating properties. Attics typically need the highest R-values of insulation, while basements require the lowest R-value. Some properties may contain certain types of insulation that could cause health problems. The main types of potentially harmful insulation include Urea Formaldehyde Foam Insulation (UFFI), vermiculite, and asbestos. They have been banned in Canada, but older houses may still contain these types of insulation. It is considered too dangerous to remove hazardous insulation; in such cases, the insulation should be left undisturbed. If insulation must be stripped from a house, its removal and handling must be done by trained and licensed specialists. Home sellers are also required by law to disclose any material latent defects, including unsafe insulation, potential buyers. Salespersons have an obligation to identify such defects and to bring them to

©2019 Real Estate Council of Ontario

the attention of the seller. Salespersons must help sellers understand their legal obligations and when necessary to recommend that sellers seek legal advice.

Importance of energy efficiency

Heat loss and heat gain are key factors affecting energy efficiency in residential structures. The Ontario Building Code sets the guidelines for energy efficiency in the construction industry and is complemented by the R-2000 energy efficiency system. However, the more modern EnerGuide and ENERGY STAR® rating systems are now generally used to audit the energy efficiency of a house. Homeowners can improve the energy performance of their homes by retrofitting the property. By using green building practices and automated systems, homeowners can reduce energy costs and contribute to positive environmental benefits.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 1 of 8

Lesson 3: Interior Walls

This lesson explains the functions of interior walls, including common finishes, and key considerations. It also highlights the differences between load-bearing and non-load-bearing walls, and between drywall and plaster.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 2 of 8

In this lesson, you will learn more about the functions of interior walls, the differences between load-bearing and non-load-bearing walls, and two of the most common finishes—plaster and drywall—and how each of them is applied. Interior walls define living areas within a house, forming the partitions that create space and divide rooms. Different finishes are typically used on interior walls to make them more visually appealing and to hide various building components, such as wiring, plumbing, heating, pipes, and insulation. Some walls, known as load-bearing walls, also provide structural reinforcement for the house. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 3 of 8

Function of Interior Walls Interior walls act as dividers in a house, separating one space from another to form individual rooms, and some walls actually are load-bearing, meaning that they support the weight of an upper floor. The finishes of interior walls are effectively a decorative “skin” that make the wall more visually appealing and functional to hide building components (like plumbing and electrical wiring). Types of interior finishes may include paint, wallpaper, wainscoting or panelling, exposed brick, and stucco/textured finishes. Another aesthetic function of interior walls can be to display art, photographs, and other accessories.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 4 of 8

Load-Bearing and Non-Load-Bearing Walls There are typically two types of interior walls: load-bearing and non-load-bearing. This distinction is important, particularly if buyers want to change the interior layout of their homes, because removing or altering the wrong wall could have serious structural consequences. The following two sections contain information about load-bearing and non-load-bearing walls. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Load-bearing walls While most interior walls divide up space within the property, load-bearing walls are critically important because they also provide structural support for the house. In other words, they bear the weight of the structure. Removing or cutting into load-bearing walls may often be necessary if a buyer wishes to create a bigger, more open space within their home. However, if a loadbearing wall is removed, it must be replaced by another load-bearing feature, like a beam or support. Cutting into a load-bearing wall might also require replacement support, depending on the nature of the cut. ©2019 Real Estate Council of Ontario

A professional, such as a structural engineer, should be consulted about any changes to a load-bearing wall. The work should then be done by specialized contractors. Removing a load-bearing wall improperly can result in significant structural damage, making the home unsafe and, potentially, substantial repair costs. Even modifying or cutting into a load-bearing wall without the benefit of expert advice can have similarly dire consequences.

Non-load-bearing walls Unlike load-bearing walls, non-load-bearing walls do not offer any structural support to a house. They only bear their own weight. The main purpose of these walls is to divide up rooms, which is why they are also known as partition walls. Removing, demolishing, or cutting into a non-load-bearing wall will have no effect on the structural stability of a house.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 5 of 8

A salesperson is showing a couple a house they are interested in buying. They are concerned about the size of the kitchen because they feel it is too small for their family. If they were to buy the house, they would prefer to take out the wall between the kitchen and dining room and put an island in the middle of the room as part of a bigger open kitchen space. They ask the salesperson about the possibility of making those changes in the room. Which of the following responses from the salesperson are appropriate? There are four options. There are multiple correct answers. 1 2 3 4

The salesperson cannot determine whether the dividing wall is load-bearing, and suggests to the buyers that they seek further advice from a third-party expert about their options. The salesperson tells the couple that, even if the wall is load bearing, it could probably be removed, but it will need to be replaced with another load-bearing support such as a beam. They are advised to speak to a third-party expert for professional guidance. The salesperson has been selling this style of house for years and has seen similar homes with the wall removed. Therefore, the salesperson believes that the buyer could go ahead and remove the wall. The salesperson suggests that even if the wall in question is non-load-bearing, it may be concealing electrical wiring, plumbing, and heating components. The salesperson advises the couple to speak to a third-party expert for professional advice.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 6 of 8

Distinction Between Drywall and Plaster Interior walls, which you have learned can be load-bearing or non load-bearing, are usually covered by plaster or drywall. Both are made from the same material: gypsum. Plaster walls are typically found in older houses dating from pre-World War 2, but since the mid-1940s, drywall has dominated the residential marketplace. The main difference between the two types of wall finishes is that drywall is pre-manufactured, whereas plaster is typically mixed and applied to wooden or metal laths or plasterboard, and installed on the walls on site. The plaster is mixed by skilled and experienced plasterers to make sure it has the right consistency, with aggregate or fibres sometimes added to the gypsum to stabilize and strengthen it. Three coats of plaster are usually applied by trowel, each coat requires time to dry before the next coat can be applied. A plaster wall is typically thicker than one made with drywall, offering the advantage of greater air and sound barriers. Air barriers control the airflow between indoor and outdoor spaces; sound barriers can absorb or block ©2019 Real Estate Council of Ontario

unwanted noise from outside a room. Since plaster is applied wet, it is preferred for shaping curved or uneven areas. Plaster walls generally feel colder to touch due to the fact that there is usually no insulation behind a wet plaster finished wall. Plastering on site is labour-intensive and time-consuming. Although plaster is durable, it may still crack due to settlement or inadequate installation, requiring maintenance or structural renovation. Cracks in plaster walls are more difficult to repair, and it may be harder to update wiring with plaster walls. In contrast, drywall is pre-manufactured, less labour-intensive and time-consuming to install, and can be cut to the size and shape of a wall and installed horizontally or vertically on the frame using glue, nails, or screws. Though drywall is very hard and dry, it can be prone to surface blemishes, such as cracks and bulging, but these flaws can be easily repaired. The more detail a salesperson can offer buyers when showing a house, the more professional and knowledgeable the salesperson appears to the buyers, which could result in repeated and referral business. Being knowledgeable about plaster and drywall also enables a salesperson to make the right recommendations to a buyer to improve their home.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 7 of 8

A salesperson is with buyers, viewing an old house. One of the bedrooms upstairs is quite large and the buyers think it could be big enough to build a walk-in closet on an exterior wall by removing some of the plaster material and installing a new wall and other interior walls to create the closet. They notice that the walls seem different from the walls in their modern home. The salesperson explains that the older house they are currently viewing has plaster walls, whereas the walls in their house are likely to be drywall based on its age. They ask the salesperson which type of wall would be a better choice for them if they were to buy the house, and have a walk-in closet built into the bedroom. The salesperson goes on to explain that both options have advantages and disadvantages, but that drywall is more commonly used in new construction. What reasons can the salesperson give for drywall being more commonly used than plaster? There are three options. There are multiple correct answers. 1 2 3

Drywall is a less expensive wall finish to install and maintain. Plaster is time- and labour-intensive, requiring specialized knowledge and skills to prepare and install. Plaster provides less insulation from sound and is ineffective for controlling airflow between the interior and exterior of a house.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 8 of 8

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Functions of interior walls in residential structures Difference between load-bearing and nonload-bearing walls

Finishes used for interior walls in residential structures

Interior walls act as dividers in a house, separating one space from another to form individual rooms. Some interior walls may hide different building components, such as wiring and plumbing, and can be used to display artwork, photos, and accessories. They also serve as a backdrop to TVs and other furniture. Interior walls may either be load-bearing or non-load-bearing. Understanding the difference between the two is useful for a salesperson so that they can properly inform buyers who may be planning to contact third-party professionals about potential renovation work. Since load-bearing walls support the structure of a house, removing or altering one, even if by mistake, could have catastrophic consequences. The change could negatively affect the structural stability of the home, resulting in substantial repair costs and possibly personal injury. Removing a non-load-bearing wall would not cause such problems since these walls do not provide any structural support. A salesperson should always recommend that buyers turn to third-party professionals for advice when considering any changes to walls. Interior walls can consist of plaster or drywall. Both are made from gypsum, with aggregate and fibres occasionally added to strengthen and stabilize the material. Plaster is more time-consuming, labour-intensive, and costly to install than drywall because it requires specialized skills for its preparation and application. Given its limited use, it can be difficult to find someone with expertise in its installation and maintenance. Drywall, however, comes ready-made and can be cut to fit the shape of any wall. It is faster and cheaper to install than a plaster wall and has therefore become more popular to use in residential construction, although it does not have the same

©2019 Real Estate Council of Ontario

sound and air barrier benefits offered by plaster walls. The better informed a salesperson is about the interior of the houses, the more benefit they can offer sellers and buyers, which could lead to increased business through referrals and a good reputation as a salesperson.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 1 of 22

Lesson 4: Enhancing Property Appeal

This lesson describes exterior and interior features, and additional improvements to enhance visual appeal. The lesson also presents information about technological features for enhancing appeal, marketability, and home automation.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 2 of 22

Creating a Good First Impression First impressions can last a long time. This is particularly true in real estate, where the aesthetic and visual appeal of a property can determine whether a house sells quickly and for the best price, or languishes indefinitely on the market. Enhancing a property’s external appeal can create a “wow” factor, which will attract more interest and buyers for the property. As a salesperson, you should know about the different features and finishes in a home to ensure that you can identify and describe these features correctly in marketing the property on the local listing service, in feature sheets, and in materials used to advertise the houses you are responsible for selling. This knowledge will be equally important for you when working with sellers and buyers as it enables them to verbally communicate the features of a home. It will also enable you to comply with your obligation to look after the best interest of the sellers and buyers and to prevent errors and misrepresentation when representing a property for sale.

©2019 Real Estate Council of Ontario

Helping homeowners realize the full potential of their house by enhancing its interior and exterior appeal can help them to make their property more visually appealing while they are living in it, as well as to enhance its value when they decide to sell. The right changes will help sell the property quickly for the best possible price. The ability to advise homeowners correctly about the features and finishes that can attract buyers to choose their house over others in the neighbourhood could be a deciding factor in closing a deal. Upon completion of this lesson, you will be able to:  Identify exterior finishes and distinctive features that enhance the appeal of a residential property.  Identify internal finishes and distinctive features that enhance the appeal of a residential structure.  Identify technological innovations available for residential structures. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 3 of 22

Curb Appeal Many homeowners may believe that the interior appeal of their homes is the most important factor, but perhaps equally important is the exterior of the property. Before an appointment to view a house they are interested in, potential buyers may often drive by the house. The outside of the house is the first thing that they will see. Its exterior and how it is finished and maintained could influence their opinion before they even step onto the property. If the potential buyers do not like what they see, they are less likely to buy it and may even refuse to view the house and cancel the appointment. As a salesperson, you will not be expected to be an expert but you should know and be able to explain the different types of exterior features, finishes, structures, and possible improvements that enhance the visual and aesthetic appeal of a home. You should also know about particular trends in a neighbourhood but realize that, although homeowners can choose from many options, they may not be able to afford or wish to undertake costly improvements.

©2019 Real Estate Council of Ontario

Understanding how homeowners can make their home stand out among others on the market will enable you to give advice that could result in greater interest in buyer viewings and a quick sale at the right price. The sellers will be happy to have had a successful sale, and the buyers will be happy to have found a suitable house. Having satisfied sellers and buyers could enhance your reputation as a knowledgeable, well-informed professional.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 4 of 22

Ways to Enhance Appeal Many features and finishes can be used in the design of a house to make it visually and aesthetically appealing. Homeowners may also add exterior structures or make additional exterior modifications to improve the look and appeal of their home. Homeowners do not need to invest in expensive technologies to be able to sell their property. Maintaining gardens, giving doors and windows a fresh coat of paint, and making sure that features like doorbells or lights work as they immediately improve the exterior of a house with minimal time and expense. If the exterior of a home is not maintained, it may be an indication that the rest of the home has not been maintained. The following six sections contain information about exterior finishes, features, and improvements that can enhance the visual and aesthetic appeal of a property. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Landscaping Landscaped, clean, or tidy well-maintained gardens and lawns are visually more appealing than neglected ones and can create instant curb appeal.

©2019 Real Estate Council of Ontario

Paths and driveways Well maintained paths and driveways that are free from damage can immediately improve the exterior look of a house.

Façade A beautiful, well-designed façade or exterior can be achieved by balancing the shape and symmetry of different features, such as doors and windows, roofs, and garage areas. Exterior wall finishes that suit the style of the house and its surroundings can also enhance a property’s visual and aesthetic appeal. Shutters, soffits, fascias, gutters, and downspouts can also contribute to enhancing appeal.

©2019 Real Estate Council of Ontario

Colours The right colour or well-matched colour combinations on exterior walls, finishes, and trims, and on doors and windows can give the exterior of a house a clean, fresh look. Lighter colours can make a house appear bigger than it is, and bolder colours can make features such as doors and windows stand out. For aesthetic purposes, ideally only two or three shades (complementary or contrasting) should be used on exteriors.

©2019 Real Estate Council of Ontario

Exterior structures Some of the many different types of exterior structures that homeowners may add to an existing structure to make their property more visually and aesthetically appealing include:  Decking  Patios  Gazebos  Fencing  Sheds  Pool houses  Detached garages  Outdoor firepits  Outdoor kitchens  Outdoor pizza ovens  Barbeque areas  Swimming pools  Hot tubs  Porch seating

©2019 Real Estate Council of Ontario

Lighting While important for security and safety, exterior lights can also enhance a house’s night-time appeal by highlighting its architecture, design, and landscaped gardens. Strategically placed exterior lights can be used to brighten dark areas of a house and make a house look cozy, warm, and inviting.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 5 of 22

Transformation from Conventional to Exceptional – Ceilings Many homes contain standard ceilings, but different internal features can transform a conventional space into an exceptional room. One of the ways this can be achieved is through ceiling modifications. To better understand the product (that is, the house) they are selling, a salesperson should know about the different ceiling modifications that can make a room more visually and aesthetically appealing. As a salesperson, you should also know about the interior features and finishes in a home to ensure that you can correctly list the details on the local listing service and in any advertisements and feature sheets. Being unaware of or unable to identify the different internal finishes and distinctive features that enhance the appeal of a house could lead you to misrepresent the property by missing opportunities to highlight features or to present false impressions of features. While missed opportunities may not be in the buyer’s or seller’s best interest, misrepresentation could violate Section 38 of the Code of Ethics “Error, misrepresentation, fraud, etc.”, which specifies that a salesperson should use their best efforts to prevent error, misrepresentation, fraud, or any unethical practice relating to their real estate work. Failure to represent a property accurately would also not serve the best interests of sellers or buyers, and could lead them to lose trust in a salesperson’s knowledge and abilities, loss of reputation and business for the salesperson, and possible repercussions by the Real Estate Council of Ontario (RECO). The following three sections contain information about the different ceiling finishes that can enhance the visual and aesthetic appeal of a house. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Exposed beams and vaulted ceiling Exposed beams Some homeowners may prefer to leave ceiling beams exposed to create a rustic feel in the home. Exposed beams can create depth and contrast to the ceiling and make a room appear more open and spacious. Vaulted ceiling A vaulted ceiling usually slopes to the shape of the roof. Like exposed beams, vaulted ceilings can create more light and space in a room, making it look bigger than it is. Vaulted ceilings are also known as cathedral ceilings since this is a common ceiling type in churches and cathedrals.

©2019 Real Estate Council of Ontario

Tray ceiling and coffered ceiling Tray ceiling This ceiling type is built upwards with a cut-out design, giving the ceiling a tray-like appearance. Tray ceilings are popular in kitchens and dining rooms. Lights are typically installed in the middle of a tray ceiling, and homeowners may paint the inner or outer part of the tray a different colour to make it stand out from the rest of the ceiling. Coffered ceiling A coffered ceiling has a repeating pattern of sunken squares or rectangular panels. The main lights are typically suspended from the most central panel, with recessed lighting used in other panels. This ceiling type is often found in luxury or high-end homes and can add unique character to a room.

©2019 Real Estate Council of Ontario

Domed ceiling A domed ceiling is commonly seen in large or grand homes, typically in formal rooms or entrances. The circular shape looks like the hollow upper half of a sphere, resembling the dome of a church, and is framed into the attic space. Sometimes, the dome may have a skylight or stained glass to allow natural light to enter the space and make the ceiling appear bigger.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 6 of 22

Transformation from Conventional to Exceptional – Wall Finishes Another way to transform a conventional space into an exceptional room is through wall finishes. A salesperson should know about the variety of wall modifications that can make a room more appealing. A salesperson should also know industry terms and be able to identify the internal finishes and distinctive features in a home to help them inform potential buyers properly about particular design characteristics that might make the property more attractive to buyers. The following four sections contain information on the different internal wall modifications that can enhance the visual and aesthetic appeal of a house.

Wainscoting Wainscoting is a form of wall paneling that is typically installed on the lower half of walls to add style and contrast to a room that might not otherwise be possible with bare walls. Wood was originally the main material used, but today wainscoting is available in plastic, plywood, or medium-density fibreboard (MDF). Less commonly, wainscoting may also be available in stone, tile, and acrylic. Homeowners can choose from many different styles, colours, and patterns of wainscoting to create a striking and stylish look in a room.

©2019 Real Estate Council of Ontario

Crown moulding

Crown moulding is an ornamentally shaped feature used to cap walls and give a stylish finish to walls and ceilings. It is typically applied along the areas where a wall meets a ceiling. Crown moulding is available in different shapes, sizes, and colours, but can also be painted to suit a homeowner’s preferred colour scheme. The materials used for crown moulding include wood, plaster, medium-density fibreboard (MDF), rubber-like flex moulding, polyurethane, PVC, and polystyrene.

©2019 Real Estate Council of Ontario

“Unfinished” wall style, exposed interior brickwork

A room can be designed to have one or more feature walls to make an impact and liven up the room. A feature wall can be achieved using a different paint colour to the one used on other walls in the room, by applying wallpaper on one wall, or by using stone, reclaimed wood, or tile. Some homeowners may prefer to leave one wall in a room “unfinished” to create an industrial look, or leave the original interior brick walls exposed to create contrast with the rest of the room or a warm, rustic atmosphere. Walls with exposed brick are seen in semi-detached or attached housing as it is an internal wall that is affected.

©2019 Real Estate Council of Ontario

Glass walls

Some more contemporary homes may have clear glass feature walls to create the effect of bringing the outside into the home and increasing the feeling of light and spaciousness.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 7 of 22

A salesperson is making notes about the features of the home that will be described on the local listing service and in the feature sheets. The salesperson walks through the house with the seller, noting and taking photographs of the different features of the property. The salesperson then returns to the office to prepare the listing. The first step is to identify the ceiling and wall features from the photos. He looks at the photo of a ceiling, which looks like the ceiling of a church or mosque. Does the image represent a domed ceiling? There are two options. There is only one correct answer. 1 2

Yes No

©2019 Real Estate Council of Ontario

Lesson 4 | Page 8 of 22

A salesperson is making notes about the features of the home that will be described on the local listing service and in the feature sheets. The salesperson walks through the house with the seller, noting and taking photographs of the different features of the property. The salesperson then returns to the office to prepare the listing. The first step is to identify the ceiling and wall features from the photos. He looks at the photo of a ceiling that has sunken panels that are rectangular in shape. What does the image represent? There are two options. There is only one correct answer. 1 2

Coffered ceiling Exposed beams

©2019 Real Estate Council of Ontario

Lesson 4 | Page 9 of 22

A salesperson is making notes about the features of the home that will be described on the local listing service and in the feature sheets. The salesperson walks through the house with the seller, noting and taking photographs of the different features of the property. The salesperson then returns to the office to prepare the listing. The first step is to identify the ceiling and wall features from the photos. He looks at the photo of a panelling installed on the lower half of a wall and giving an elegant finish to the room. What does the image represent? There are two options. There is only one correct answer. 1 2

Crown moulding Wainscoting

©2019 Real Estate Council of Ontario

Lesson 4 | Page 10 of 22

Flooring and Finishes Flooring in residential structures has a practical function: it provides strength and stability for the weight of walls, furniture, fixtures, fittings, and home dwellers. But flooring usually requires finishes to enhance its visual and aesthetic appeal. Flooring is one of the first elements in a house that a person has physical contact with, and the type of floor finishes used will depend on the intended use of the room. Bathrooms typically have waterproof tiled floor finishes, while bedrooms may have carpets for warmth and comfort underfoot. The materials used should ideally be durable and appropriate to withstand significant wear and tear. The following seven sections contain information on the different types of flooring and floor finishes that can enhance the visual and aesthetic appeal of a house.

Hardwood, bamboo Hardwood flooring Hardwood flooring is a popular choice in dining rooms, living rooms, bedrooms, and hallways due to its beauty and durability. Some of the many materials available include walnut, beech, oak, pine, pecan, cherry, birch, and maple. Hardwood can vary in price, depending on the type or rareness of the wood (for example, walnut will generally be more expensive than oak). Bamboo flooring Bamboo flooring is a popular choice due to its style and durability. The material is considered a greener

©2019 Real Estate Council of Ontario

option than hardwood and is available in a range of colours from light brown to tan. Bamboo flooring is generally less expensive than most hardwood flooring.

Polished concrete, slate Polished concrete flooring Concrete is a durable material, but in its raw dry form, it can be quite unattractive. However, a technological process involving mechanically polishing or grinding concrete can make this type of flooring striking and appealing in a home. Slate flooring Slate is a grey, green, or blue-purple metamorphic rock that can be split into smooth flat plates. Slate flooring is durable and stylish but can be expensive and cold underfoot. Slate flooring would typically be used in kitchens and hallways.

©2019 Real Estate Council of Ontario

Ceramic and vinyl tiles Ceramic Tiles Ceramic tiles are the ideal option for areas that require waterproofing and are therefore typically used as flooring in kitchens, bathrooms, and showers. Prices can range from modest to expensive. Popular finishes include gloss, matte, glazed, embossed, and anti-slip textures. Ceramic tiles are durable, but those with a high gloss finish may scratch over time, and low-quality tiles may be prone to chipping. Vinyl Tiles Vinyl tiles have become popular in recent years because of the selection of styles and ease of installation and maintenance.

©2019 Real Estate Council of Ontario

Laminate Laminate is made from recycled hardwood and is a popular choice of flooring due to its low cost, durability, range of colours, and ease of installation. Laminate flooring is strong, easy to maintain, and a good option for “high traffic” areas in homes. Laminate flooring is strong, easy to maintain, and a good option for “high traffic” areas in homes. Laminate is a much better choice against scratches and dents, however, cannot be refinished in the same manner as hardwood. It is not typically considered a luxurious material, and is not waterproof, although some laminate types may be pre-treated during the manufacturing process to make them suitable for high-moisture rooms.

©2019 Real Estate Council of Ontario

Marble Marble is a natural stone resource and one of the most durable and versatile materials to use as flooring. It is waterproof, easy to clean and maintain, and can come in different styles, colours, and designs. Marble floor tiles are especially prone to breaking during installation and are typically used in hallways and entrances. Marble is typically more expensive than other flooring materials, which may make it unaffordable for many homeowners.

©2019 Real Estate Council of Ontario

Cork Cork is first harvested from the bark of cork oak trees when they reach between 15 and 20 years of age, and then every nine or 10 years after the initial harvest. This process does not harm the trees, which can live for decades. Cork is a sustainable material, making it a popular flooring choice for environment-friendly designers and homeowners. Cork flooring is also popular due to its durability, warmth, and comfort. The material is unique for its soft “bounce-back” underfoot. Although cork flooring can be costly compared to other flooring materials, it is becoming more popular to use in eco-friendly residential construction.

©2019 Real Estate Council of Ontario

Carpet Carpet is a thick fabric typically made from wool or nylon that is used to cover floors and stairs in a home. The material can come in a range of modest to expensive prices, colours, designs, and thickness, and is a popular choice due to its versatility, warmth, and comfort underfoot, especially in bedrooms. Carpet fabric may stain easily and is not typically waterproof, therefore, it is not generally suited to high-moisture rooms like bathrooms or “high traffic” areas like kitchens and hallways. Carpeting is not as popular as it once was due to the maintenance involved and allergy concerns, and due to the popularity of hardwood flooring.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 11 of 22

Modifications for Maximum Appeal – Kitchens and Bathrooms In real estate, it is commonly said that kitchens and bathrooms sell a house because they are the two rooms in a home that can immediately impress or disappoint buyers, depending on their design, functionality, fixtures, and fittings. Bathrooms are designed to be functional and to meet the hygiene needs of a home’s occupants. Kitchens are the area where food is prepared, cooked, and often eaten, and may typically be considered the heart of the home. Bathrooms and kitchens in most modern homes are built with functionality, convenience, and style in mind. In older homes, however, bathrooms and kitchens may need to be modified or upgraded to make them more practical and suitable for use, more stylish, and to provide better storage.

©2019 Real Estate Council of Ontario

Modifications may also include more energy-efficient and environmental-friendly options such as water-saving faucets, water-conserving showers, or low-flow toilets. As a salesperson, you will need to know about different bathroom, kitchen, and storage modification options to be able to explain to buyers the different finishes and features that may suit their buyer’s needs. Being able to describe modifications accurately also serves the interest of sellers, in showcasing the best features in their home for sale. By knowing about different bathroom, kitchen, and storage modifications, you can also help buyers to visualize the potential changes they could make within their budget to modernize a bathroom or kitchen into a more functional and appealing space with plenty of storage. Sharing this information could help sellers and buyers to increase their trust in your knowledge and abilities, and lead to sales, referrals, and new business for you.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 12 of 22

A salesperson is showing a 70-year-old house to buyers who are interested in purchasing the house as a renovation and resale project. The buyers have a strict budget for the renovations but would like to achieve an expensive-looking finish for the living and dining rooms. When in the living room, they talk to the salesperson about their plans and ask him what their best options would be for the flooring for these two rooms. What should the salesperson suggest? There are five options. There is only one correct answer. 1 2 3 4 5

Laminate Marble Tiles Hardwood Bamboo

©2019 Real Estate Council of Ontario

Lesson 4 | Page 13 of 22

Bathroom Modifications The following six sections contain information about different bathroom modifications that can enhance the appeal of a home.

Toilets

© 2021 Real Estate Council of Ontario

Showers and wet rooms

© 2021 Real Estate Council of Ontario

Bathtubs

© 2021 Real Estate Council of Ontario

Bathroom sinks

© 2021 Real Estate Council of Ontario

Heated floors and heated towel bars

© 2021 Real Estate Council of Ontario

Bathroom storage options

© 2021 Real Estate Council of Ontario

Lesson 4 | Page 14 of 22

A salesperson is showing an old country home to buyers. They like the country house but the kitchen is lacking some of the conveniences and visual appeal found in modern homes. They tell the salesperson that they could renovate the kitchen to make it more convenient and contemporary and are wondering if the salesperson has any suggestions on how to modernize an old kitchen. Identify the relevant suggestion that the salesperson should make. There are two options. There is only one correct answer. 1 2

The dishwasher could be integrated to ensure that the dishwasher blends in seamlessly with the cabinets. The dishwasher could be freestanding to ensure that the dishwasher blends in seamlessly with the cabinets.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 15 of 22

A salesperson is showing an old country home to buyers. They like the country house but the kitchen is lacking some of the conveniences and visual appeal found in modern homes. They tell the salesperson that they could renovate the kitchen to make it more convenient and contemporary and are wondering if the salesperson has any suggestions on how to modernize an old kitchen. Identify the relevant suggestion that the salesperson should make. There are two options. There is only one correct answer. 1 2

Granite tiles could be used to give a luxurious high-gloss look. Granite countertop could be used to give a luxurious high-gloss look.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 16 of 22

A salesperson is showing an old country home to buyers. They like the country house but the kitchen is lacking some of the conveniences and visual appeal found in modern homes. They tell the salesperson that they could renovate the kitchen to make it more convenient and contemporary and are wondering if the salesperson has any suggestions on how to modernize an old kitchen. Identify the relevant suggestion that the salesperson should make. There are two options. There is only one correct answer. 1 2

A large island could be added in the center of the kitchen to provide extra worktop and dining space. A large table could be added in the center of the kitchen to provide extra worktop and dining space.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 17 of 22

A salesperson is showing an old country home to buyers. They like the country house but the kitchen is lacking some of the conveniences and visual appeal found in modern homes. They tell the salesperson that they could renovate the kitchen to make it more convenient and contemporary and are wondering if the salesperson has any suggestions on how to modernize an old kitchen. Identify the relevant suggestion that the salesperson should make. There are two options. There is only one correct answer. 1 2

A gas boiler could be used for additional appeal. A gas range could be used for additional appeal.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 18 of 22

A salesperson is showing an old country home to buyers. They like the country house but the kitchen is lacking some of the conveniences and visual appeal found in modern homes. They tell the salesperson that they could renovate the kitchen to make it more convenient and contemporary and are wondering if the salesperson has any suggestions on how to modernize an old kitchen. Identify the relevant suggestion that the salesperson should make. There are two options. There is only one correct answer. 1 2

A farmhouse sink could be used for additional appeal. A farmhouse shelving could be used for additional appeal.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 19 of 22

Storage Modifications The following six sections contain information about different internal storage modifications that can enhance the visual and aesthetic appeal of a home.

Mudrooms There is just a background image on the screen and no OST.

©2019 Real Estate Council of Ontario

Staircase storage There is just a background image on the screen and no OST.

Shelving There is just a background image on the screen and no OST.

©2019 Real Estate Council of Ontario

Lazy Susans There is just a background image on the screen and no OST.

Additional storage space There is just a background image on the screen and no OST.

©2019 Real Estate Council of Ontario

Closet organizers There is just a background image on the screen and no OST.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 20 of 22

Technological Innovations to Benefit Everyone Many technological innovations for automating homes have been developed in recent years to offer greater comfort and convenience, energy efficiency, and security for homeowners. Automated homes are also known as “smart homes” and typically involve the installation of a central system that can control different features in a home, such as lighting, temperatures, sound, and appliances by remote or voice command, through a PC or laptop, or apps on a smart phone. Smart homes can also help homeowners to reduce their energy bills, be more environmental-friendly, and offer peace of mind about their home security with features such as alarms, CCTV, and monitoring with automatic police and fire dispatch. For occupants who are elderly, infirm, or have access needs, smart home technology can represent a good option for assisted living in the home. While most houses are not built to be smart homes, and some technologies may require greater investment of time and money based on installation and technology requirements, homeowners can retrofit their property to include automated features that suit their preferences and budgets. As a salesperson, you will not be expected to be an expert in smart technology but should generally know about different technological features for home automation that can enhance the appeal and marketability of a home. To facilitate a house sale, you should also be able to explain to buyers (though not be expected to demonstrate) any technological features in the house. If you do not know this (or other general home automation information), you ©2019 Real Estate Council of Ontario

could misrepresent a house’s technological features and possibly lose a sale. This could result in the seller being dissatisfied with your efforts and deciding to work with a different salesperson.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 21 of 22

A salesperson was showing a house to a buyer/client. The buyer, who expressed interest in submitting an offer, asked the salesperson what security options are available as they were recently a victim of a burglary in their current home that does not have any security features. The buyer's other concern is the ease of accessibility for an aging parent who will be living with them. What should the salesperson suggest? There are five options. There are multiple correct answers. 1 2 3 4 5

Surround sound system Concealed TV Voice- or remote-controlled fixtures Automated lighting fixtures/technology Security system

©2019 Real Estate Council of Ontario

Lesson 4 | Page 22 of 22

Congratulations, you have completed the lesson! There are six sections on this page with a summary of the key topics that were discussed in this lesson.

First impressions – Outer appeal

The aesthetic and visual appeal of a property can assist in the sale of a house and help get the best price for the seller. Outer Appeal

First impressions – Interior appeal

The outside of a house is the first thing that a potential buyer sees. The exterior of a home can influence a buyer’s decision on whether to view a house. Certain features may increase the “curb appeal” of a home, such as:  Landscaping  Paths and driveways  Lighting  Exterior structures/features The aesthetic and visual appeal of the interior of a property plays a large role in buyer interest and the sale price of the house. Interior Appeal

Bathrooms

There are many features that can add to the interior appeal of a home, such as:  Ceilings: Vaulted, tray, domed, and so on  Walls: Wainscoting, crown moulding, glass walls, and so on  Floors: Hardwood, tile, carpeting, and so on In real estate, it is commonly said that kitchens and bathrooms sell a house because they are the two rooms in a home that can immediately impress or disappoint buyers. Bathrooms are designed to be functional and to meet the hygiene needs of a home’s occupants. Some key bathroom features could include:  Toilets

©2019 Real Estate Council of Ontario

Kitchens

Internal storage

Technology upgrades

 Showers and wet rooms  Heated floors and heated towel bars Kitchens are where families come together to prepare and enjoy food, and may typically be considered the heart of the home. Some of the most appealing kitchen features can include:  Countertops  Kitchen sinks and faucets  Kitchen islands The storage capacity of a home can affect how appealing is it to some buyers. Homes can be built with or upgraded to include features that can increase the saleability of a home, such as:  Mudrooms  Staircase storage  Shelving Many technological innovations for automating homes have been developed in recent years to offer greater comfort and convenience, energy efficiency, and security for homeowners. These include:  Thermostats  Security  Household appliances

©2019 Real Estate Council of Ontario

Lesson 5 | Page 1 of 25

Lesson 5: Conversions, Retrofits, and Renovations I

This lesson deals with the key considerations regarding building permits for conversions, retrofits, and renovations, and the role of building inspectors. Other information includes converting structures from non-residential to residential use, how the age of a structure can impact compliance with the Ontario Building Code, the re-purposing of construction materials, and insurance, and financing considerations.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 2 of 25

Converting, Retrofitting, and Renovating Properties Many buyers may decide to convert a commercial building into residential use, retrofit a basement area into a nanny suite, or renovate a kitchen when they buy a property. However, they may be unaware of their obligations to meet specific legal requirements for these alterations. As a salesperson, you will need to know enough about building permits to provide effective advice to buyers who are considering a construction project or alterations, such as when a permit will be required and who they need to contact to apply for a permit. You will also need to understand the role of a building inspector and key considerations for converting a structure for residential use to help buyers understand the potential risks of conducting work without a permit. Upon completion of this lesson, you will be able to:  Identify key considerations regarding building permits.  Identify the role of a building inspector.  Identify key factors when converting a structure to a residential use. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 3 of 25

Building Permits A building permit is required when buyers or homeowners want to build, demolish, renovate, or convert a building. The Ontario Building Code stipulates the necessary considerations and requirements for a building permit based on its standards for designing and building structures that fulfill health, safety, fire protection, accessibility, and resource conservation objectives. Enforcement of the Code provisions involves each municipal council in Ontario appointing a chief building official and the required number of building inspectors. Occasionally, however, two or more municipalities may agree to a joint enforcement arrangement. The chief building official issues building permits for any planned building or demolition work unless the plans do not comply with the Building Code Act, the Ontario Building Code, or other laws, such as a builder for the proposed work not being registered under the Ontario New Home Warranties Plan Act.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 4 of 25

A buyer has chosen an old house to buy as a family home. The buyer would like to remove the wall between the gallery, kitchen and the dining room to create more floor space. They also plan to complete some alterations on the property including changing the cupboards, replacing bathroom fixtures, and upgrading the plumbing and wiring. The buyer is unsure about which situations require a permit and asks the salesperson about what should be done. What should the salesperson suggest? There are three options. There is only one correct answer. 1 2 3

The buyer should contact their local municipality for any type of alterations The buyer can go ahead and do the work—any changes will be on the interior of the house, and not visible externally For this level of work, no permit is required

©2019 Real Estate Council of Ontario

Lesson 5 | Page 5 of 25

Steps for Obtaining a Building Permit Building permits are required for the construction, renovation, demolition, and for certain changes in use of buildings. The Ontario Building Code's enforcement is generally carried out by the local municipal building department who issues the necessary building permits. An exception would be for the installation, alteration, extension or repair of on-site sewage system, which is conducted by the Board of Health and Conservation Authorities. Consulting with the local municipal building department is recommended prior to applying for a building permit. They will outline what information, drawings and plans are required to be included with the application and whether any other permits or approvals are necessary. The property owner is the one responsible for complying with all permit requirements for the project, however, written permission can be provided to the contractor or anyone of the owner's choosing to obtain necessary permits and arrange for inspections on the owner's behalf. The following four sections contain information about the steps required to obtain a building permit. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Step 1: Application

Application for a building permit can be obtained from either the local municipality or the Ministry of Municipal Affairs and Housing’s website. Building permit applications including the required fees are submitted to the local municipal building department along with detailed drawings, property survey or site plan, and other documents as requested by the municipality.

©2019 Real Estate Council of Ontario

Step 2: Review

The local municipal building department reviews all documentations to ensure that the planned construction meets with applicable building codes, local zoning bylaws for the area where the construction will take place, and other relevant regulations (such as special requirements for properties located in or near areas of a community prone to floods). Drawings must conform to zoning bylaws and comply with mechanical (such as HVAC and plumbing) and architectural/structural Building Code requirements. The Building Code requires that a municipality reviews a complete permit application within a certain timeframe where the application meets the criteria set out in the Code. For example, the timeframe on a permit application for a house is 10 days. Within this timeframe, a municipality must either issue the permit or refuse it with full reasons for denial.

Step 3: Permit

In order to be issued a permit, the proposed construction must comply with the Building Code and with the applicable laws set out in the Building Code. If a zoning change or a minor variance from the zoning bylaw (municipal zoning is considered applicable law) or if the proposed construction does not comply with the Building Code, a permit will not be issued until the zoning change or minor variance has been obtained or the proposed construction complies with the Building Code. The permit must be visibly displayed on the site and copies of the plans must also be kept on the site. The municipality must be informed of any changes to the proposed construction and must provide their approval.

Step 4: Inspections

The Building Code sets out the stages of construction when different types of buildings must undergo a mandatory inspection. It is the responsibility of the permit holder to contact the municipality for an inspection when the project is at the stage of construction as set out in the Building Code. The municipal building official is required to carry out the inspection within two business days of being notified before work proceeds beyond the stage set out in the permit. During the inspection, an inspector will inspect the work to determine if it is carried out in accordance with the Building Code, your permit, and the approved plans.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 6 of 25

Avoiding Misunderstandings and Serious Consequences A salesperson should be aware that many sellers and buyers may not understand their legal obligation to inquire about and apply for building permits for any planned conversions, retrofitting, or renovations of their property. Sellers and buyers may also not realize that they, not the building contractor, are liable for any fines or penalties for any violations of a permit or work performed without a permit. A salesperson should therefore be familiar with building permit requirements to provide insight about possible mistakes, misinformation, and consequences, and to avoid confusion for sellers and buyers. The following two sections contain information about the common misconceptions about building permits and the consequences of not obtaining a building permit.

Misconceptions Many homeowners may expect that major renovations to a home need a building permit, but may not realize that smaller jobs (such as completing basements, upgrading plumbing, or building a fence or deck) could also require a permit. Alternatively, some homeowners may wrongly assume that obtaining a permit may be troublesome, bureaucratic, and expensive, while this may not be the case. Since some changes to a home may not require extending beyond existing walls or may involve structures that already exist, many homeowners also often mistakenly believe that they will not need a permit for these changes to their home. Many homeowners, buyers, and sellers in Ontario may not be aware that they should contact their local ©2019 Real Estate Council of Ontario

municipality to find out whether they need a building permit for any construction work they are planning. As you already learned in the Introducing Other Relevant Legislation and Regulations module, if required, the homeowner will have to complete and submit an application to the municipality for approval. Homeowners must ensure that all work performed on the property must not exceed the limitations of the work specified and approved in the building permit.

Consequences Permits work together with inspections. If a permit was approved, but the issuing municipality later discovers through an inspection that the permit application was deliberately or unintentionally misleading, they could invalidate the permit and issue a “stop work” order while they carry out their investigations. A stop work order would delay building work, potentially at considerable cost. There may be additional consequences:  Applicants who provide false information, intentionally or not, could face significant fines or, in extreme cases, imprisonment.  The municipality could also issue an order for all construction work already completed to be undone if they conclude that the work was not performed correctly or safely.

©2019 Real Estate Council of Ontario

 Homeowners could also face having to do more work and spend more money than planned and budgeted for originally.  Construction work performed without a permit could also negatively affect mortgage or financing applications or insurance claims.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 7 of 25

A salesperson has buyers who want to buy a house that will require some renovations. The buyers, who enjoy DIY projects, believe they can do much of the work themselves, saving money on labour and building permits. However, the salesperson advises that they could face problems by carrying out construction work on the property without a building permit. Which of the following could lead to potential consequences if a building permit is not obtained? There are four options. There are multiple correct answers. 1 2 3 4

Convert the attic into a bedroom Change light fixtures Install a kitchenette in the basement Change the faucets in the bathroom

©2019 Real Estate Council of Ontario

Lesson 5 | Page 8 of 25

Role and Responsibility of a Building Inspector A building inspector is a municipal employee responsible for ensuring compliance with building permits within Ontario in accordance with the Ontario Building Code. The province of Ontario is divided into counties that are divided (for administrative purposes) into several distinct areas called townships. These townships may have different structures and, in some cases, may be unincorporated, meaning they have no municipal government in place and therefore no building inspectors. In those cases, applications for permits are handled at the regional or provincial level. Knowing this information will help a salesperson to advise sellers and buyers about the proper action to take and appropriate authorities to contact about construction work planned or already completed on a property. The following two sections contain information about the role of a building inspector and locations in Ontario that are unincorporated townships without a municipal office or building inspector. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Building inspector’s role As a municipal employee, a building inspector can enter any property or land subject to a building permit at any reasonable time to inspect the building. If a violation is found, the inspector is authorized to issue an order for corrective action to be taken immediately or within a specified period of time. If work is not completed according to the order, the inspector may issue a “stop work” order. An inspector can also enter a property or land at any reasonable time without a warrant to inspect for unsafe conditions. An order can then be issued for remedial steps to be taken within a specified time period. The order may require immediate repairs in the case of an emergency. Building permits specify the project location, scope of work, conditions imposed for the work, and the building inspections required, depending on the project size. A building inspector will typically perform inspections at different intervals as the construction work progresses.

©2019 Real Estate Council of Ontario

Unincorporated townships in Ontario Unincorporated townships in Ontario are only located in the Northern Ontario region. Rather than a municipal government, the lowest level of government within these unincorporated townships could be provincial or regional. Since unincorporated townships have no municipal authority, building permits cannot be issued in these locations. However, some unincorporated townships may be subject to zoning orders or bylaws, and local service boards may assume roles usually undertaken by municipal authorities. Property owners in unincorporated townships considering construction work on their properties would need to contact the Municipal Services Office of the Ministry of Municipal Affairs and Housing for information about their plans. The Ministry of Natural Resources and Forestry may also need to be consulted about permits, as would the Ministry of Transportation if development is proposed on or near a highway. Septic system approvals would also be required from the local health unit or conservation authority. After review and approval, the Ministry will issue "Letters of Conformity" or "Zoning Conformity Permits" before the development or construction work starts.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 9 of 25

A couple have just bought a house that will need some renovation. Based on the extent of the work they are planning, their salesperson explains that they will first need to obtain a building permit. The renovation work will also need to be assessed at different intervals by a building inspector. The buyers are curious about the process and ask their salesperson about the building inspector’s involvement. What does the role of the building inspector involve? There are six options. There are multiple correct answers. 1 2 3 4 5 6

Identify significant building defects or problems that may exist Inspecting the home when a buyer has made a conditional offer on a property Inspecting all work in progress at different intervals of construction for compliance with the Ontario Building Code Obtaining a “Letter of Conformity” from the Ministry of Municipal Affairs and Housing Advising the municipality that the construction work complies with the Ontario Building Code so that an Occupancy Permit can be issued Enforcing compliance with the Ontario Building Code

©2019 Real Estate Council of Ontario

Lesson 5 | Page 10 of 25

Converting a Structure to Residential Use Some buyers dream of owning a uniquely distinctive home; others may wish to invest in an unconventional property for resale purposes. One way to achieve these objectives is by buying a commercial or non-residential property and converting it to residential use. While this option may be a preferred choice, potential buyers and investors considering converting a non-residential structure into a home will face a range of challenges, such as obtaining planning and design permission, the amount of work required, insurance considerations, and time and money needed to realize their vision. It is important for a salesperson to know about the factors involved in converting a commercial property into residential use. Knowing these details can help a salesperson inform buyers about the different considerations associated with property conversions. Giving buyers the correct information before they purchase or directing them to the proper authorities and professionals can help buyers to make better informed decisions. Even if buyers decide not to buy, they will trust that the salesperson is acting in their best interests, which could lead to new business or referrals for the salesperson.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 11 of 25

Factors to Consider When Converting a Structure to Residential Use Converting a structure from non-residential to residential use can be an exciting and creative endeavour, but there are many factors a potential buyer should consider before choosing to buy a commercial or non-residential property to convert into a home. The following five sections contain information about how the key considerations for converting non-residential structures for residential use. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Choosing the right property Many non-residential properties can be successfully converted into homes, but buyers will need to consider the practicalities of living in a structure originally intended for commercial or non-residential use and the potential challenges they may face. Commercial or non-residential properties could include disused warehouses, factories, mills, railway stations, churches, chapels, and schools, each presenting their own planning and architectural challenges, and unique property locations.

©2019 Real Estate Council of Ontario

Obtaining approval for rezoning and construction plans When a commercial building is converted to residential use, a zoning change will usually have to be obtained. Buyers will need to submit an application for the zoning change and submit their construction plans for approval before they can start any conversion work. Some approvals may take longer than others, particularly if the application involves approval from different third parties.

Determining whether to buy in a conservation area Buildings located in conservation areas could have alteration restrictions in place, which could seriously disrupt, reduce, or prevent any conversion plans.

©2019 Real Estate Council of Ontario

Converting a building with heritage designations Some buildings (such as disused schools, churches, mills, or railway stations) may be listed on a Municipal Heritage Register as non-designated property, meaning they have historical or cultural significance, but not yet designated. If a local authority has designated a building as a heritage property under the Ontario Heritage Act, the property becomes legally protected from demolition or major alterations. Authorities generally do not approve changes to the exterior of old buildings if the changes would affect the reason for the designation. If there are any protections in place, the changes may require additional approval, make it difficult to get planning permission, or drastically reduce any proposed design or architectural changes.

©2019 Real Estate Council of Ontario

Budgeting considerations Converting commercial and non-residential properties to residential use can be expensive, depending on the type of building to be converted and the scope of the construction work involved. The expense involved may sway a potential buyer’s decision on whether to buy a property for conversion.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 12 of 25

Repurposing Original Construction Materials Conversions can be expensive and may often cost more than originally estimated. To keep costs within budget and to help retain the original appeal of the building, buyers should try to reuse any original construction materials, wherever possible. Not only could repurposing materials reduce expenses, it is also often a mandatory stipulation for heritage properties in particular, to help retain the character and charm of the original building. Some original materials that could potentially be repurposed, refurbished, or reclaimed during conversions include:  Beams and columns  Staircases  Doors  Door bells and knockers  Cast iron radiators  Floorboards

©2019 Real Estate Council of Ontario

        

Brickwork, masonry, and sculpted stone Carved wood Fittings and fixtures (such as lighting, pew seats, and cabinets) Crown moulding Baseboards Trim Wainscoting Stained glass Door handles

It is important for a salesperson to recognize the potential cost savings of repurposing original construction materials during a building conversion. Sharing this information with potential buyers could help them to assess the feasibility of a construction project from a cost-saving perspective.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 13 of 25

Fire Code and Electrical Safety Requirements Converting a structure for residential use requires meeting specific fire code regulations in accordance with the Ontario Building Code and electrical safety protocols regulated by the Electrical Safety Authority (ESA). A salesperson should know about fire code requirements and the role of the ESA in conversions, retrofits, and renovations to provide insight to buyers about the scope of work that may be required to modify a converted structure. Knowing this information can also help a salesperson to refer buyers to the correct professional authority for advice on ensuring that any planned or ongoing projects comply with current electrical and fire code regulations.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 14 of 25

Fire Code Requirements The National Fire Code of Canada (NFC) establishes levels of fire safety for both new and existing buildings related to both occupants and emergency responders. Each province has a fire code that establishes specific requirements within provincial jurisdictions. Fire codes are continually updated, particularly in the areas of fire prevention, fire protection, and public safety. The Ontario Fire Code is a provincial regulation that sets out compliance criteria for the safety of occupants in existing buildings. The Fire Protection and Prevention Act, in addition to providing the enabling legislation for the Ontario Fire Code, sets out responsibilities for fire protection services, the duties and powers of the fire marshal and those appointed by the fire marshal, and other provisions. You will be aware of this code when looking at a residential property that has more than one unit. Fire marshals are often required when a structure is converted and results in basement apartments that need inspection. Additionally, when looking for financing to purchase a property, lenders often require a fire marshal inspection if there is more than one unit.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 15 of 25

Accessory Apartments An accessory apartment is a self-contained unit within a house, making it a house with two residential units. Legislation commonly refers to such properties as two-unit houses, although various terminologies are used in the marketplace. In order to convert or retrofit the basement of a house into a secondary suite, the owner must follow certain requirements. The retrofit provisions of the Ontario Fire Code concerning two-unit residential properties (Section 9.8) address various considerations regarding occupant safety. These considerations include fire separation and containment provisions for each dwelling unit, escape (egress) from each dwelling unit, fire alarm and detection, suppression, and electrical safety. Owners are provided various options to comply with the regulations. Approval requires two separate inspections: an electrical inspection and an inspection by the local fire department. The electrical inspection is in accordance with the Electrical Safety Code enacted under the Power Corporation Act. Homeowners may face significant fines for failing to comply with the fire safety standards. Each municipal fire department is bound by legislation to ensure specific code compliance. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic. ©2019 Real Estate Council of Ontario

Lesson 5 | Page 16 of 25

Ensuring Legal Compliance A salesperson should exercise caution in all matters concerning accessory apartments. The key issue typically centres on whether an existing unit meets all current legal requirements. Several questions that can come into play when determining whether an existing accessory apartment can be legally used include:  When was the unit constructed?  When was it occupied?  Was a building permit issued at the time of construction?  Did the unit meet fire code provisions at time of construction/occupancy?  Did the unit meet zoning requirements at time of construction/occupancy?  Did the unit meet electrical requirements at time of construction/occupancy?  Were all necessary inspections completed to ensure compliance?

©2019 Real Estate Council of Ontario

Salespersons and sellers must consult with the local municipality regarding all existing accessory apartments. Requirements concerning accessory apartments can vary by municipality. Also, salespersons need to be aware of current zoning, building code, and fire code specifics impacting the construction of accessory apartments, when involved with such matters. When considering the purchase of a home with an accessory apartment or if they are thinking about constructing an accessory apartment within a residential structure, buyers should be strongly encouraged to include a condition in an agreement of purchase and sale to provide sufficient time to consult with appropriate experts. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 17 of 25

Electrical Safety Authority Role in Conversions, Retrofits, and Renovations As you learned earlier, the Electrical Safety Authority (ESA) is responsible for enforcing the Ontario Electrical Safety Code by ensuring that property owners meet all requirements for Notifications of work, inspections, and for obtaining certificates of acceptance. The ESA provides important information about electrical safety for property conversions, retrofits, and renovations. Key requirements include: • Investigating before purchase to determine whether the property has any open Notifications of Work; if so, the new buyer will be legally responsible for complying with the notifications and any subsequent work required by the ESA. • Hiring a licensed electrical contractor to inspect the electrical work previously done on the property to determine the history and condition of the electrical system, and whether the work was conducted in accordance with ESA requirements. ©2019 Real Estate Council of Ontario

• Ensuring the necessary Notification’s of Work have been submitted before any electrical work starts. • Only hiring licensed electrical contractors for all installation, repair, and system upgrades in accordance with the Ontario Electrical Safety Code. • Requesting an ESA inspection after work has been performed on the electrical system and obtaining a Certificate of Acceptance to confirm that the work complies with the Ontario Electrical Safety Code.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 18 of 25

Factors Impacting Conversions Whether they dream of transforming a commercial building into a stunning home or renovating it as a profitable resell opportunity, potential buyers may have many brilliant ideas for converting a non-residential structure to residential use. Their plans could easily be negatively impacted if they do not comply with local zoning bylaws and the Ontario Building Code. As a salesperson, knowing about how zoning bylaws may impact a conversion project will help you refer potential buyers to the correct municipal authorities for advice on their options. By consulting with the proper authorities, potential buyers could avoid making incorrect assumptions about their plans, even if the outcome means that they do not buy the intended property. Sharing correct referral information will help potential buyers to avoid the costly mistake of buying a property that they cannot renovate as wished or the error of not complying with the Ontario Building Code for renovation work on an old structure. Buyers will trust that you, as their salesperson, is acting for their benefit from the outset, which could enhance your reputation, and lead to future referrals and new business.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 19 of 25

Impact of Zoning Bylaws on a Conversion Project Zoning bylaws are enacted by municipalities setting out permitted uses, building structure standards (such as minimum setbacks and coverage), and other necessary regulations (such as signage, noise, and parking). Zones are further broken into classifications (such as residential) and sub-classifications (such as single-family), each with its own detailed standards. Flexibility is permitted within the bylaws. Owners may seek minor variances when the property does not specifically meet requirements. When an owner undertakes a project (such as an addition to their house), they will have to comply with the current bylaws or apply to the local committee of adjustment for a minor variance. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 20 of 25

Impact of a Structure’s Age on Compliance with the Ontario Building Code Any conversion, retrofit, or renovation work on existing properties must comply with the Ontario Building Code. Permits must be obtained, and subsequent inspections by a building inspector will be required to ensure all work completed complies with this Code. An older structure usually costs more to renovate and upgrade to the standards of the Ontario Building Code due to the volume of upgrading work required. For example, once work begins on a project to renovate the basement of an older home, the contractor finds that there is water damage to the foundation. This discovery leads to additional work that was unplanned, and the remedial work must also be done according to Code requirements.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 21 of 25

A buyer is viewing a house that has a large basement that could be converted into an accessory apartment to generate extra income. After discussing this option with the salesperson, the salesperson explains that there are several considerations to be made when converting an unused space into an accessory apartment. The buyer asks the salesperson about what is involved. What considerations should the salesperson communicate to the buyer about building an accessory apartment? There are four options. There are multiple correct answers. 1 2 3 4

Construction must meet fire code and electrical safety requirements Conversion work must comply with local zoning bylaws Age of structure may impact compliance with the Ontario Building Code Accessory apartment must be registered with the Landlord and Tenant Board

©2019 Real Estate Council of Ontario

Lesson 5 | Page 22 of 25

Insurance and Financing Considerations Buying a house is probably the biggest investment most people will make in their lives. For buyers who decide to invest in a non-residential property to convert into residential use, the costs of insuring and financing the property could be even greater than for a conventional house. Since conversions of commercial, listed, or heritage properties may require different types of insurance, specialized construction work, and additional permits and inspections, you, as a salesperson, will need to be familiar with the different insurance and financing issues that potential buyers could face. Knowing the different considerations involved can enable you to refer buyers to the correct third-party professionals for accurate advice and assistance. Buyers will appreciate knowing in advance the extent of any financial and insurance challenges. Being referred to the proper professionals and receiving valuable advice from the experts could increase the buyers’ trust in your ability to represent them honestly and effectively. ©2019 Real Estate Council of Ontario

Lesson 5 | Page 23 of 25

Insurance Considerations Insurance has become an important consideration in the real estate transaction. Insurers may refuse to insure certain types of property, require substantially larger premiums or deductibles to take on certain risks, and/or demand that certain outdated or defective materials or equipment be replaced prior to providing the coverage. Insurance company policies will vary, but the age of a structure may pose problems when applying for insurance coverage. If the structure is more than 25 years old, the insurer will want more details on the roof, heating, plumbing, and electrical systems. Special considerations come into play with listed buildings and heritage homes, not only from an age perspective, but also from the fact that damage replacement must either replicate or be of like quality. In some instances, insurers may require a separate endorsement on the policy to cover this portion of the risk. For structures converted for residential use, insurance companies will want to ensure that any work done complies with the Ontario Building Code, Ontario Fire Code, and Ontario Electrical Safety Code. Insurers also reserve the right to have their own assessors inspect a property. A salesperson must be aware of important factors influencing insurers’ decisions. Lending institutions will not advance funds at closing without proof of insurance to protect the lender’s interests. ©2019 Real Estate Council of Ontario

Lesson 5 | Page 24 of 25

Financing Considerations Costs play a key role in any decisions to adapt a non-residential structure for residential use. Buyers may have a particular budget in mind and may not realize that their conversion or renovation plans could cost more than they were expecting. A salesperson should be aware of the possible cost implications of converting a structure and be able to identify potential issues for buyers who may underestimate additional costs outside of the sale price for a property. Knowing this information enables a salesperson to help buyers realize in advance the possible spending they may face, and to consider other alternatives that may suit their needs in the same way, but at less expense or without the need for extensive conversions.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 25 of 25

Congratulations, you have completed the lesson! There are seven sections on this page with a summary of the key topics that were discussed in this lesson.

Conversions, retrofits, and renovations

Misconceptions and consequences

Converting, retrofitting, and renovating a property involves meeting specific legal requirements. Before any work can be done, a property owner must enquire about where a building permit is needed. Building permits in Ontario outline the location, extent of work, conditions imposed for any construction work, and building inspections required. The required steps for applying for a permit involve: 1. Applying for the permit 2. Review of the application by the municipal building department 3. Granting of permit by the municipal building department 4. Inspection by building inspector Potential or current property owners may mistakenly believe that certain types of construction work will not require building permits or need to satisfy legal requirements. Others may wrongly believe that obtaining a permit could be costly and difficult. By contacting their local municipality to find out about requirements for any planned construction work, they can avoid any serious consequences, such as: • No required building permit for construction work • “Stop work” order imposed by building inspector • Order to demolish/re-do construction work • Additional unplanned costs • Mortgage application and financing problems • Insurance claim issues • Fines • Imprisonment ©2019 Real Estate Council of Ontario

Building inspector

Converting structures for residential use

A building inspector is a municipal employee who ensures that any conversions comply fully with the Ontario Building Code. When a building permit has been issued to a property owner, the building inspector will perform periodic inspections to confirm that all work meets legal requirements. If violations occur, the building inspector can halt construction until issues are resolved or order any illegally performed work to be demolished and/or rebuilt. Unincorporated townships in Northern Ontario have no municipal authority and therefore no building inspectors. Depending on the scope of their plans, property owners will need to contact one or more offices for information about building permits, legal requirements, and subsequent “Letters of Conformity” or “Zoning Conformity Permits” if all requirements are met. These offices are:  Municipal Services Office of the Ministry of Municipal Affairs and Housing  Ministry of Natural Resources and Forestry  Ministry of Transportation Some of the many factors involved in converting structures for residential use include:  Choosing the right property  Undertaking a property survey  Obtaining a building permit  Buying in a conservation area  Converting a listed/heritage building  Budgeting appropriately To save costs and to comply with stipulations for listed or heritage buildings, homeowners can repurpose original construction materials, such as:  Beams, columns, and staircases  Fittings and fixtures, doors, bells, and knockers  Brickwork and masonry

©2019 Real Estate Council of Ontario

Fire Code and Electrical Safety Authority (ESA) Factors impacting conversions

Insurance and finance

Conversions of structures for residential use must follow specific fire code regulations in accordance with the Ontario Building Code and electrical safety protocols imposed by the Electrical Safety Authority (ESA). These regulations also apply to self-contained units known as accessory apartments (for example, a basement apartment) within a house. Plans to convert a structure for residential use may be negatively impacted by local zoning bylaws. Potential buyers or property owners should consult with the proper authorities to avoid any costly mistakes that can occur when buying property that may contravene the local zoning bylaws. The age of a structure may also affect residential conversion plans. All older properties must comply with the Ontario Building Code and will often cost more to renovate and upgrade to modern standards due to the extent of renovation required or the legal obligation to retain existing features for historical or design purposes. Conversions of commercial, listed, or heritage buildings may require different types of insurance, specialized construction work, and additional permits and inspections. Insurance companies may refuse to insure a converted property or charge property owners high premiums. Since conversions may exceed planned budgets, potential buyers need to consider the financial implications of converting a structure for residential use. Discovering in advance what they might need to spend could influence a buyer’s decision about whether to buy a property for conversion or choose a more affordable alternative.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 1 of 7

Lesson 6: Conversions, Retrofits, and Renovations II

This lesson describes how heritage properties can be converted, retrofitted, renovated including related restrictions, and renovations costs. The lesson also explains due diligence for conversions, retrofits, renovations, and highlights leading practices in explaining the role and authorities of a building inspector, permit compliance, inspections, and disclosing findings to buyers.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 2 of 7

Representing Sellers and Buyers Effectively for Conversions, Retrofits, and Renovations Some sellers and buyers may wish to change the structure, layout, and purpose of a property; others may be interested in buying a building that has already been converted, retrofitted, or renovated. But sellers and buyers may often be unaware of the factors and considerations involved. As a salesperson, you can represent sellers and buyers effectively by exercising due diligence to identify any issues that sellers and buyers should know about conversions, retrofits, and renovations. Knowing about the restrictions, limitations, and additional costs associated with this type of work, particularly with heritage property renovations, will enable you to provide accurate information about the obstacles sellers and buyers may face, the steps they may need to take, and their possible options. Upon completion of this lesson, you will be able to:  Identify factors and considerations associated with heritage properties.  Identify the due diligence of a salesperson regarding conversions, retrofits, and renovations. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 3 of 7

Restrictions, Limitations, and Additional Costs Associated with Heritage Buildings The idea of owning and renovating a property may appeal to many sellers and buyers, but if the property they buy is designated as a heritage building, they could face additional restrictions, limitations, and costs compared to renovating a conventional property. Heritage buildings are properties that are considered worthy of preservation for historic, cultural, or architectural reasons. In Ontario, they are protected by the provincial government’s Ontario Heritage Act, enacted in 1974 to protect and promote the region’s heritage. The Ontario Heritage Trust is actively involved in protecting and promoting Ontario’s heritage in accordance with that Act, which restricts and limits internal and external changes to any structures with the heritage designation. The following two sections contain information about the restrictions, limitations, and increased costs associated with renovating and demolishing heritage properties. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Restrictions and limitations The heritage designation can impact intended uses for a property and affect the owner’s ability to make both internal and external changes or renovations to heritage structures. Sellers contemplating listing and selling heritage buildings, whether individually designated or situated within a heritage conservation district, may face lengthy discussions with municipal authorities. Depending on the age and type of building, a heritage designation may specify the property’s:  Architectural features  Historical importance  Cultural significance A heritage designation will list the architectural features that are to be protected (such as doors, windows, trims, stonework, staircases, radiators, and so on). Owners are required to adhere to strict guidelines if their renovation plans involve protected features. They may also face restrictions on the types of materials they can use during renovation work. For demolition work on a heritage property, the owner will need to apply for and obtain a building permit from their local municipal office in advance of any work.

©2019 Real Estate Council of Ontario

Increased costs

Owners or potential buyers of heritage properties may have unrealistic expectations of the costs involved in renovating the property since this type of work may present challenges and hazards not typically faced when renovating non-heritage buildings. Some of the challenges leading to increased costs may include:  Paying higher labour costs based on the scope of work needed, which may require additional construction workers or specialist crafts people  Replacing or repairing rare or unique period features with features of similar quality  Removing or containing any hazardous materials (Depending on its age, a heritage building could contain asbestos-laden materials, such as plaster or ceiling and wall insulation, or lead-based paint on staircase handrails or furniture. During a renovation, these materials would need to be removed or encapsulated by experts, incurring additional specialist fees.)  Paying higher or additional insurance premiums due to insurers’ perception of heritage properties being bad risks representing high claims for damage or repairs

©2019 Real Estate Council of Ontario

Lesson 6 | Page 4 of 7

A salesperson is representing buyers who are thinking of buying a church that is designated as a heritage property. They intend to convert the property for residential use and are not too concerned about their plans since they previously renovated a townhouse built in the late 1990s, so they feel they know what to expect. The salesperson points out, however, that additional considerations involving costs, approvals, and time must be made for renovating heritage properties compared to conventional properties. What potential considerations should the salesperson make the buyers aware of concerning their renovation plans? There are four options. There are multiple correct answers. 1 2 3 4

Repairing or replacing protected features Restoring stained-glass windows Paying higher property taxes Paying higher insurance premiums

©2019 Real Estate Council of Ontario

Lesson 6 | Page 5 of 7

Exercising Due Diligence Regarding Conversions, Retrofits, and Renovations A salesperson must always endeavour to exercise due diligence in all aspects of their profession. This is particularly important when dealing with properties that have been or may be converted, retrofitted, and renovated. If a buyer is interested in a property that has undergone a renovation or retrofit, a buyer’s salesperson will need to confirm that it was done with the appropriate approvals in order to protect buyer from possible problems if the buyer decides to buy the property. If the renovation was not done properly, this information must be disclosed to the buyer. Due diligence will require a salesperson to:  Determine whether required building permits were obtained.  Ensure that properties converted from non-residential to residential use received the required approvals and building permits.  Confirm that electrical permits were obtained and the work was conducted by licensed electrical contractors.  Establish that required inspections were completed by building inspectors and electrical inspectors.  Ensure that any work done without a permit, where one was necessary, is disclosed. ©2019 Real Estate Council of Ontario

 Explain to sellers and buyers the role and authorities of building inspectors, the importance of permit compliance, and the various inspection stages during construction before a final inspection takes place. A salesperson cannot compel a property owner to comply with licensing or permit obligations. However, it is best practice for a salesperson to inform potential sellers and buyers about the potential risks to themselves and the property if it does not adhere to the legal requirements in place at the time of the renovation. Exercising due diligence by disclosing any deficiencies to a potential buyer enables a salesperson to represent the best interests of sellers and buyers and develop a trusted and respected reputation.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 6 of 7

Buyers are viewing a house with their salesperson who explains that the house was converted from an old schoolhouse by the seller. The couple say they are very happy with the renovations; in fact, the changes make the house perfect for them. The salesperson is glad they like the changes but due diligence would need to be carried out to ensure that the renovations were approved and inspected. What due diligence should the salesperson exercise to determine that all renovations were completed with the required permits and inspections? There are five options. There are multiple correct answers. 1 2 3 4 5

Ask the buyers to obtain copies of the building permit and certificate of final inspection from the salesperson representing the seller. Obtain copies of the building permit and certificate of final inspection. Ask for a verbal confirmation from the listing salesperson representing the seller that the proper approvals and permits were obtained. Put a representation/warranty clause in the agreement of purchase and sale that the seller obtained permits and certificates of final inspection. Proceed with the next steps in closing the deal because proper approval and permits must have been obtained since the renovation work has already been completed.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 7 of 7

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Restrictions and limitations Increased costs

Due diligence

Heritage buildings are protected by the Ontario Heritage Act based on their historic, cultural, or architectural importance. The Act imposes strict restrictions and limitations on renovations, replacement, or demolition of any protected features such as doors, windows, stonework, staircases, and so on. Renovation costs for heritage properties are generally more expensive than for conventional properties. Property owners may have to pay more for skilled contractors, replacement or repair of protected features, experts to remove hazardous materials, and required insurance coverage. A salesperson should always exercise due diligence when representing sellers and buyers. Steps to take when representing properties that involve conversions, retrofits, and renovations include ensuring that:  Required building and electrical permits were obtained.  Electrical work was done by qualified electricians.  Inspections were completed by building and electrical inspectors.  Findings about existing/non-existing permits and inspections and latent defects are disclosed.  Buyers understand the role and responsibilities of a building inspector during and on completion of renovations.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 1 of 15

Lesson 7: Construction Trends and Innovations I

This lesson describes residential construction trends, their significance, and how they affect cost, and quality. Also explained are the different options for building residential homes, detailing the characteristics of manufactured, pre-fabricated, and modular homes, and how pre-fabricated and modular homes can be added to an existing structure. Features that have universal appeal and promote accessibility are also discussed.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 2 of 15

The construction industry is continually growing and evolving to meet market demands and remain competitive. By following trends and innovations, the industry can provide many different options for residential living, giving buyers and homeowners a range of choices to suit their needs. Having an understanding of residential construction trends and innovations in both materials and building techniques enables you, as a salesperson, to identify different trends in residential construction that could improve a homeowner’s quality of living, reduce costs, and increase the property value of a structure. Acting for a seller, you can highlight these innovations on the listing to promote the value of the property. For a buyer, you can point out these trends to help them understand the value of the property’s features. Upon completion of this lesson, you will be able to:  Identify trends and innovations for residential construction.  Identify options for constructing residential homes.  Identify features that have universal appeal and promote accessibility. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. ©2019 Real Estate Council of Ontario

Lesson 7 | Page 3 of 15

Examples of Trends and Innovations in Residential Construction By knowing about and identifying trends, innovations, and methods used in residential construction, a salesperson can outline the benefits to buyers to help them understand the cost of a purchase. Sellers who have updated their home using innovative materials and techniques would expect this work to be reflected in the price of the home. A salesperson can make recommendations about these properties and provide an overview of why the methods used contribute to the value of a property. One of the ways the industry continues to innovate is by continually improving the materials used in construction to enhance durability, energy efficiency, and cost effectiveness. The following three sections contain information about the three key trends and innovations in residential construction.

©2019 Real Estate Council of Ontario

Insulated concrete forms (ICF)

Foundations have traditionally been constructed of poured concrete or concrete blocks. A recently developed method uses polystyrene building components, which provide a stronger, more energyefficient basement wall system. These systems, typically referred to as insulated concrete forms (ICFs), provide a permanent interlocking interior/exterior form into which the concrete is poured. Such systems can extend beyond basements to replace all exterior walls currently using traditional wood framing systems. Proponents of ICF point to ease of use, added insulation value, improved damp-proofing, and fire hazard reduction (as compared to traditional framing). Opponents focus on high labour costs associated with the assembly of numerous interlocking forms and shipping/storage expense (as compared to traditional form boards, which are reused).

©2019 Real Estate Council of Ontario

Exterior insulation and finishing systems (EIFS)

Creative exterior insulation and finishing systems (EIFS) have found their way into both residential and commercial marketplaces. EIFS provides an attractive, continuous exterior surface (except doors and windows) consisting of several component layers. The outermost layer is a sprayed-on acrylic/stone finish. The finish is applied over mesh and insulation attached to the building structure. This method has proven effective in expelling moisture, limiting air leakage, and providing an effective building envelope. EIFS can minimize heat and cool air loss found in traditional structures due to thermal bridges created by studs and other wall components that permit conduction from inside to outside and vice versa.

©2019 Real Estate Council of Ontario

Compressed wood fibre

Compressed wood fibre combined with weatherresistant adhesives is gaining popularity. The material may be used for trim in housing in components such as baseboards, crown mouldings, and cabinetry. Compressed wood fibre is less expensive than solid wood, making it a popular building material.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 4 of 15

A salesperson is talking to potential buyers. In their new house, the buyers would like a framing system that is energy efficient and damp-proof. They ask their salesperson about any new innovations in residential construction that could meet their requirements. What new residential construction trend should the salesperson recommend that might suit their needs? There are three options. There is only one correct answer. 1 2 3

Exterior Insulation and Finishing Systems (EIFS) Compressed wood fibre Insulated Concrete Forms (ICF)

©2019 Real Estate Council of Ontario

Lesson 7 | Page 5 of 15

Factory-Built Homes An example of new construction techniques is factory-built homes (FBH), including modular and manufactured homes. They are a small but growing component of the overall Canadian housing marketplace. Off-site assembly of factory-built homes is gaining increased acceptance but still represents fewer than one in 10 houses built in Canada with the balance constructed using the traditional on-site, stick-by-stick method. A notable market niche for these homes has been—and continues to be—land lease communities, but in recent years growth is attributed to modular homes in new house subdivisions. Overcoming the negative image of factory-built homes held by many consumers has been a challenge. Many Ontario residents still associate prefabricated construction with 10- or 12-foot wide mobile homes transported to their destination behind trucks with oversize load signs, flags, and escort cars. However, today’s factory-built homes have come a long way from those early beginnings. Factories now produce everything from two-storey homes on near-site subdivision locations to large, custom-designed homes manufactured partially on the factory floor and then erected in modular fashion on a permanent foundation. Knowing about the different options for constructing residential homes will enable you, as a salesperson, to educate buyers about the benefits of factory-built homes in terms of cost, quality, and speed of development. ©2019 Real Estate Council of Ontario

Lesson 7 | Page 6 of 15

Modular and Manufactured Homes Terminology regarding factory-built homes differs somewhat in the marketplace. Factory-built refers to homes built at an alternate site and delivered to the final building location, as distinct from on-site building. Factory-built homes can be divided into two broad categories: modular and manufactured. Manufactured homes include mobile homes as well as other related housing options. Also, the term prefabricated is used to generally describe off-site construction. Understanding the differences between modular, manufactured, and on-site traditionally built homes enables a salesperson to provide buyers with the full scope of options available to them. The following two sections contain information about modular and manufactured homes. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Modular homes A modular home is built in sections at a factory, transported on truck beds, and assembled at their destination. Local building inspectors make certain that the structure meets requirements and that all finished work is done properly. Modular homes typically have truss (pre-assembled) floors designed to go on a basement or foundation. The most recent innovation involves near-site factories that assemble virtually the entire structure and then transport the house on a special truck bed the short distance to the subdivision.

©2019 Real Estate Council of Ontario

Manufactured homes

The term manufactured home traditionally referred to mobile homes and trailers built on chassis (including wheels), transported to the site using those wheels, and often placed on concrete blocking piers or cement pylons. However, the range of options has expanded over the years. Now, the category of manufactured homes includes separate units that are transported as with modular homes, but on truck beds rather than their own wheels. Manufactured homes, including mobile homes, are built to a different standard than modular homes. However, manufactured homes can be upgraded to modular standards. Manufactured homes are usually less expensive than modular homes.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 7 of 15

A buyer is speaking to a salesperson regarding a secondary home he would like to have built for his family. Ideally, the property should be located near the buyer’s primary residence which is a farm, and is looking for a vacant lot on which to build the house. They do not have a big budget and would like to get the house built quickly, before winter arrives. The salesperson is asked about what options are available. What should the salesperson recommend? There are three options. There is only one correct answer. 1 2 3

Search for homes for sale in the area that meet his criteria Build a new house on site Construct a prefabricated home

©2019 Real Estate Council of Ontario

Lesson 7 | Page 8 of 15

Additions to Existing Structure Factory-built units are commonly used to develop the entire structure of a home, but they can also serve as additions to an existing property to create extra rooms and living space. Additions can be built to different design and style specifications and are typically attached to the side of a home or on top to add an extra storey. Some benefits of using factory-built units as additions include:  Homeowners can increase the size of their home quickly and affordably.  All components are built in a climate-controlled factory, so their construction is not subject to delays caused by bad weather.  Construction time is significantly faster than traditional on-site construction.  There is minimum disruption for the homeowner since the units are built in a factory and transported to the home site. Knowing about the ways modular units can be used as additions enables a salesperson to provide recommendations for renovations and property additions outside the scope of typical construction processes. Understanding the uses of modular units also supports a salesperson in presenting themselves as a knowledgeable source on the topic of property modifications.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 9 of 15

A buyer is viewing a bungalow with a salesperson. The buyer really likes the house, it is in the preferred neighbourhood and has a big garden, but the buyer feels that more living space is needed. The buyer is thinking about possibly adding onto the existing house but, given her extensive travel for work, she would not be home very often to deal with a building contractor. The idea of being disturbed by construction work when she is at home does not appeal to her. The buyer’s preference would be to have any work done very quickly and with minimal disruption and personal involvement. The buyer asks the salesperson what options are available for building an addition to the existing structure. Keeping in mind the buyer’s preferences, what might be the best option? There are four options. There is only one correct answer. 1 2 3 4

The buyer should contact a building contractor that the salesperson knows who works quickly and efficiently The buyer should contact prefabricated construction companies to discuss options The buyer should take the time to work with an on-site construction company despite how long that might take The buyer should choose on-site construction since it will result in a better-quality addition

©2019 Real Estate Council of Ontario

Lesson 7 | Page 10 of 15

Flex-Housing Flex-housing is a new approach to building developed in response to changing requirements of Canadian families. The term “flex-housing”—introduced and promoted by Canada Mortgage and Housing Corporation—emphasizes versatility in residential construction to meet everyone’s needs, from young singles to aging parents. The key concept is to build structures that readily adapt to changing generational needs without costly renovations. Flexhousing does not refer to any particular architectural design but rather a compilation of individual features (such as levered door handles rather than knobs for older people or wider hallways and doorways for occupants with special needs) that can be installed easily and cost-effectively during initial construction. An access need could result from mobility, vision, hearing, or cognitive disabilities and may be permanent or temporary. But, as is often misunderstood, access needs are not limited to people with disabilities. People with access needs could also be senior citizens or parents with young children.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 11 of 15

Adaptability, Convertibility, Flexibility Flex-housing is all about adaptability, convertibility, and flexibility. Think of the cost savings if new homes had one no-step entrance, all doors were at least 32-inches or 34-inches wide, and all hallways were at least 36-inches wide. These enhancements not only benefit seniors but also young families with baby carriages, families moving furniture to accommodate changing needs, and persons with special access needs. The central idea underlying flex-housing is to ensure that residential structures do not become functionally obsolete, necessitating costly updates. In the long run, proper construction methods and housing features will make such properties more desirable to consumers and a better investment. Flex-housing can be integrated into conventional building, whether through new housing construction or renovations. Being aware of features that have universal appeal and promote accessibility enables a salesperson to competently explain to buyers the benefits of purchasing a house containing accessible or barrier-free features, and how these features can enhance the lives of occupants with access needs, or through various stages of their lives as their needs change. If done properly, such features can also add value to a property. ©2019 Real Estate Council of Ontario

Lesson 7 | Page 12 of 15

Universal Appeal and Accessibility Universal design in construction involves designing buildings and structures to make them accessible for everyone, regardless of their age or abilities. A key principle of universal design is to provide barrier-free access for people with physical or other disabilities to enable them to use products, services, and facilities safely and conveniently. The Ontario Building Code includes requirements for providing barrier-free features in public buildings to make them more accessible for everyone. These features can also be used in residential homes to meet occupants’ needs. Building or upgrading a home to make it accessible and barrier-free can be expensive. To help with these costs, a number of private and government programs in Ontario provide varied levels and types of funding subject to homeowners meeting the different fund providers’ criteria. Understanding the importance of universal appeal and accessibility enables a salesperson to advise buyers about their options to make their home more accessible, or to help them find properties that match their access needs. Being aware of the different features and options can also help a salesperson to advise buyers accurately about the long-term benefits of an accessible and barrier-free home over a lifetime.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 13 of 15

Exterior and Interior Features with Universal Appeal Many options exist during construction or renovations to make the inside and outside of a home more accessible and barrier-free. The following seven sections contain information about the different exterior and interior features with universal appeal.

Wider door widths There are just two background images on the screen and no OST.

©2019 Real Estate Council of Ontario

Lever door handles, lower light switches There are just two background images on the screen and no OST.

No-step entries, ramps, tactile walking surface indicators There is just a collage of 3 background images on the screen and no OST.

©2019 Real Estate Council of Ontario

Elevators There is just a background image on the screen and no OST.

Larger, accessible bathrooms There is just a background image on the screen and no OST.

©2019 Real Estate Council of Ontario

Adjustable hanging arrangements

There is just a background image on the screen and no OST.

Wider hallways There are just two background images on the screen and no OST.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 14 of 15

A couple is in a salesperson’s office discussing their plans to buy a new house. They are looking for a big family home that they plan to live in for many years. They have a small child but plan to expand their family over time. One set of grandparents will also move into their home in a couple of years when they retire, so the household will be multigenerational. With these plans in mind, they intend to renovate the house they buy to accommodate the needs of their future multi-generational household. They would like to do this work once only, before they move in. The salesperson explains that he has helped a few families find their forever homes and one of the factors that most of the families had to consider was accessibility. What recommendations could the salesperson make to help the buyers meet their needs for their forever, multi-generational family home? There are five options. There are multiple correct answers. 1 2 3 4 5

Install wider doors Install an elevator Install large bathtubs Install no-step entries Install lever door handles

©2019 Real Estate Council of Ontario

Lesson 7 | Page 15 of 15

Congratulations, you have completed the lesson! There are five sections on this page with a summary of the key topics that were discussed in this lesson.

Construction trends and innovations

Factory-built homes

Construction trends and innovations offer buyers and homeowners many options for improving their quality of living, reducing costs, and increasing property values. Some popular trends and innovations include:  Insulated concrete forms (ICF)  Exterior insulation and finishing systems (EIFS)  Compressed wood fibre Factory-built homes are becoming a popular alternative to traditionally built homes in Ontario. There are two categories of factory-built homes: modular and manufactured. Components for these homes are built in a factory and transported to the site. Modular homes are installed permanently on a basement or foundation.

Factory-built additions to existing structures Universal appeal and accessibility

Manufactured homes, in contrast, are typically mobile homes on wheels, though some modern models may not have wheels. Like modular homes, they are transported to the site and installed on blocks that are not a fixed foundation, enabling a homeowner to move the home to a different location, if required. Factory-built units are also a good option for adding onto an existing structure to increase the home’s living space. They offer buyers and homeowners faster construction times, less expensive costs, and less disruption than traditionally built additions. Construction design is evolving to be universally appealing and offer more adaptability and flexibility for homeowners. In Canada, the concept of flex-housing is an approach to build structures that can be readily adapted to homeowners’ changing generational and accessibility needs, making it possible for homeowners

©2019 Real Estate Council of Ontario

Barrier-free property additions and modifications

to remain in their homes through various stages of life (from starting a family to retirement). A key principle of accessible construction design involves providing barrier-free access for people with access needs. The Ontario Building Code includes requirements for interior and barrier-free features for public buildings to make them more accessible for all users, regardless of their abilities. These features can also be used in residential homes, and include:  Wider door widths and hallways  Lever door handles, lower light switches  No-step entries, ramps, tactile walking surface indicators  Elevators  Accessible bathrooms

©2019 Real Estate Council of Ontario

Lesson 8 | Page 1 of 15

Lesson 8: Construction Trends and Innovations II

This lesson details safety systems required for and found in residential structures. Also discussed are the causes of poor indoor air quality, types of air pollutants, ways to improve indoor air quality, and green building, and air quality.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 2 of 15

Safety Requirements and Considerations The health and safety of workers is a key priority in the construction industry and governed by strict legislation. Equally, the health and safety of those who will live in a property after it is built is also a major consideration and subject to legal requirements. As a salesperson, you should be aware of the different safety systems for homes to be able to explain their importance to buyers. Knowing about residential safety systems also enables you to inform sellers and buyers about their obligation to adhere to legal requirements. You should also know about certain types of air pollutants to be able to inform buyers about how to prevent or improve poor indoor air quality. Upon completion of this lesson, you will be able to:  Identify the safety systems found in residential structures.  Identify indoor air quality considerations. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 3 of 15

Safety Systems for Residential Structures As you learned earlier, residential structures in Ontario must be built to meet minimum safety requirements in accordance with the Ontario Building Code, Fire Code, and Electrical Safety Code. The associated rules and regulations stipulate that homes must be fitted with the necessary fire and safety systems to protect the welfare of occupants. The following three sections contain information about safety requirements and systems found in residential structures. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Smoke alarms A combined smoke detector equipped with an audible device and strobe light to sound or indicate an alarm when smoke is detected in the room or suite where it has been installed. Effective March 1, 2006, an amendment to the Ontario Fire Code was enacted that requires homes to have working smoke alarms on every storey and outside all sleeping areas. This requirement is in addition to the existing requirement that smoke alarms must be installed outside all sleeping areas. The amendment applies to all singlefamily, semi-detached, and town homes, whether owner-occupied or rented. Both homeowners and landlords who do not meet smoke alarm requirements ©2019 Real Estate Council of Ontario

are subject to fines. Penalties to landlords can be up to $50,000.

Carbon monoxide alarms

Carbon monoxide (CO) is a colourless, odourless, and tasteless gas that can cause flu-like symptoms and, in higher concentrations, even death. It occurs when fuels such as propane, natural gas, heating oil, or wood have insufficient air to burn off completely. Effective October 15, 2014, an amendment to the Ontario Fire Code (which only applies to existing structures) was enacted that requires that a CO alarm be installed adjacent to each sleeping area of a single-family dwelling that contains a fuel-burning appliance, fireplace, or an attached storage garage. Alarms can be permanently wired, battery operated, or plugged in.

©2019 Real Estate Council of Ontario

Radon detectors

Radon is an invisible, odourless, tasteless gas produced by the decay of uranium that occurs naturally in the earth’s crust. The gas itself is not dangerous but becomes hazardous when it breaks down into smaller components that cling to dust and soil particles. These radioactive particles also attach themselves to lung tissue when the radon gas is inhaled. Outdoors, radon is diluted; however, indoor levels of concentration can reach hazardous levels. In some regions of Ontario, radon is not a significant issue, but for regions where there may be problems, radon detectors can be installed in the home. Unlike smoke and CO alarms, radon detectors are not a legal requirement.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 4 of 15

A salesperson is showing a house to buyers. As they’re walking around the house, the salesperson notices that there is only one carbon monoxide alarm and one smoke alarm in the entire house, located on the ground floor. The salesperson discusses the safety requirements of a house with the buyers. What should the salesperson tell the buyers about safety requirements and systems in homes? There are three options. There is only one correct answer.

1

Working smoke alarms must be installed on every storey of a house.

2

Radon detectors, whether in portable or electrical outlet varieties, must be installed in every home.

3

CO alarms are not required to be installed adjacent to each sleeping area that contains a fuel-burning appliance.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 5 of 15

Poor Indoor Air Quality and Pollutants Buyers increasingly focus on environmental issues. Those concerns impact how houses are built and what materials are used for the structure, as well as for internal and external finishes. The issue of environmental safety and indoor air quality are particularly important from a real estate perspective given concerns regarding sick building syndrome (SBS) and the effects of some products on occupants (such as allergic reactions, illness, nausea, and so on). The following two sections contain information about different causes of poor indoor air quality and types of air pollutants. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Volatile organic compounds (VOC) Volatile organic compounds are produced from building materials like adhesives, resins, caulking, fillers, and finishes, which give off gas emissions that can impact indoor air quality. VOCs can be toxic (that is, cause harmful health effects to occupants of buildings, particularly those individuals who are hypersensitive to various chemicals and gases). The term volatile refers to the tendency of a substance to evaporate. VOCs can be found in carpeting, paints, stains, varnishes, and cleaning supplies. Often such gases are most noticeable at point of installation but then begin to dissipate. However, that process can last for an extended period of time. Given that Canadians are purported to spend up to 90 per cent of their time in buildings, the effects on health standards can be significant. Individuals exposed to such gases may have an immediate reaction, but research also indicates that people can fall victim to sensitization. In other words, an individual may—over a period of time—develop a serious allergic reaction to a chemical that initially only caused minor discomfort. Organizations such as the Canada Mortgage and Housing Corporation and green building advocates have developed material guides to assist consumers in selecting non-VOC or VOC-reduced products. While total avoidance of VOC products may not be feasible, significant limitation of such compounds, the selection of lowest-possible VOC emission rates, and the introduction of a proper filtration/ventilation system strategy are key steps to minimize possible problems. ©2019 Real Estate Council of Ontario

Sick building syndrome (SBS)

Sick building syndrome generally involves circumstances under which building occupants experience healthrelated problems apparently arising from time spent in a structure. The term syndrome refers to symptoms that, in combination, characterize a certain type of illness. Conditions associated with SBS can be temporary, such as fumes entering a structure, or long-term, such as when air pollutants, mould, spores, or other particulate affecting indoor air quality are present. Poor indoor air quality can arise from various circumstances ranging from building design/construction to specific activities being carried out (such as manufacturing processes). SBS symptoms can be diverse but typically centre on dizziness, nausea, lack of concentration, allergic reactions, throat irritations, headaches, and asthma. Typical causes of SBS include inadequate building ventilation, lack of proper air filtration to limit external entry of contaminants, inappropriate measures to control moisture (which can give rise to bacteria and moulds), and building products that emit VOCs.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 6 of 15

Improving Indoor Air Quality Since many indoor air pollutants are odourless, homeowners may mistakenly believe that the air in their homes is clean. But they may still be affected by health issues caused by poor air quality. Some of the ways that indoor air quality can be improved include:  Installing ventilators that filter incoming air, or opening windows and doors to increase air ventilation  Using dehumidifiers to reduce indoor humidity  Using air purifiers and filters to reduce or prevent bacteria and air impurities  Cleaning floors to wash or vacuum dust or allergens  Placing floor, shoe and boot mats outside access doors to prevent dirt and pollutants from entering a home  Hiring specialists to check the air quality and recommend improvements, if required Knowing about the ways indoor air quality can be improved can help a salesperson share this important information with sellers and buyers. The more knowledgeable a salesperson is and the more positive information they can share, the better a salesperson will be at their job. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 7 of 15

A salesperson is showing buyers an old house they wish to buy. The couple would like to upgrade the property and plan to live there during the renovations. They recently found out about VOCs, which worries them because one of their children has asthma. The salesperson mentions that he previously had a similar situation with another buyer with asthma and allergy issues. The salesperson says he can suggest some options to the buyers that seemed to work well for the other buyer. What suggestions could the salesperson make to ensure that the family stays healthy during and after the renovations? There are four options. There are multiple correct answers. 1 2 3 4

Get the indoor air quality monitored. Use heavy drapes to prevent contaminants from entering through the windows. Select products with fewer gas emissions. Ensure all rooms are properly ventilated.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 8 of 15

Green Building and Air Quality As you learned earlier, “green building” refers to house construction techniques that promote energy efficiencies, prudent use of resources, durability in component products, and sound environmental concepts and strategies. Green building is a broad initiative rather than precisely identified by specialty fields, specific products, and exact guidelines. At present, no standardized set of green building products or universally held standards exists. Green building advocates originally focused on resource conservation methods, but expanded their perspective into related areas such as non-toxic building products, solvent-free finishes and adhesives, and improved indoor air quality. Considerable progress has been made in green building by lowering VOC omissions or, in some instances, creating zero-VOC products. For example:

©2019 Real Estate Council of Ontario

 Medium density fibreboard (MDF) containing urea-formaldehyde or phenol-formaldehyde has traditionally been the mainstay of house construction. In recent years, both formaldehyde-free and low-emission MDF have become available.  Adhesives used in flooring and related applications have also been targeted given their off-gas potential, particularly owing to the use of plastic resins. The use of water-based adhesives or plant resins has dramatically reduced the incidence of toxicity resulting from VOC emissions.  Various zero or low-emission VOC painting and finishing products are now available on the market and considerable advances are being made in others (such as cabinets, countertops, caulking, fillers, plumbing products, and housing envelope barriers).

©2019 Real Estate Council of Ontario

Lesson 8 | Page 9 of 15

A buyer is at a salesperson’s office discussing plans to buy a vacant lot to build a house. The buyer is particularly concerned about pollutants being released into the atmosphere and in the home during construction. The buyer has heard about green building but is unsure about what it involves and asks the salesperson for advice. The salesperson explains that while not an expert, she has recently developed a keen interest in green building and has some knowledge and experience with the topic. She also recommends the buyer to talk to a green building contractor for special advice. She also recommends the buyer to talk to a green building contractor for special advice. What green products on the market contain fewer toxins? There are two options. There is only one correct answer. 1 2

Newer Older

©2019 Real Estate Council of Ontario

Lesson 8 | Page 10 of 15

A buyer is at a salesperson’s office discussing plans to buy a vacant lot to build a house. The buyer is particularly concerned about pollutants being released into the atmosphere and in the home during construction. The buyer has heard about green building but is unsure about what it involves and asks the salesperson for advice. The salesperson explains that while not an expert, she has recently developed a keen interest in green building and has some knowledge and experience with the topic. She also recommends the buyer to talk to a green building contractor for special advice. What causes poor indoor air quality? There are two options. There is only one correct answer. 1 2

Gas emission Gas absorption

©2019 Real Estate Council of Ontario

Lesson 8 | Page 11 of 15

A buyer is at a salesperson’s office discussing plans to buy a vacant lot to build a house. The buyer is particularly concerned about pollutants being released into the atmosphere and in the home during construction. The buyer has heard about green building but is unsure about what it involves and asks the salesperson for advice. The salesperson explains that while not an expert, she has recently developed a keen interest in green building and has some knowledge and experience with the topic. She also recommends the buyer to talk to a green building contractor for special advice. Green building products emit what kind of gases? There are two options. There is only one correct answer. 1 2

Harmless Toxic

©2019 Real Estate Council of Ontario

Lesson 8 | Page 12 of 15

A buyer is at a salesperson’s office discussing plans to buy a vacant lot to build a house. The buyer is particularly concerned about pollutants being released into the atmosphere and in the home during construction. The buyer has heard about green building but is unsure about what it involves and asks the salesperson for advice. The salesperson explains that while not an expert, she has recently developed a keen interest in green building and has some knowledge and experience with the topic. She also recommends the buyer to talk to a green building contractor for special advice. What characteristic of many paints, adhesives, and finishing products makes them more appealing to homeowners? There are two options. There is only one correct answer. 1 2

Cheap Solvent-free

©2019 Real Estate Council of Ontario

Lesson 8 | Page 13 of 15

A buyer is at a salesperson’s office discussing plans to buy a vacant lot to build a house. The buyer is particularly concerned about pollutants being released into the atmosphere and in the home during construction. The buyer has heard about green building but is unsure about what it involves and asks the salesperson for advice. The salesperson explains that while not an expert, she has recently developed a keen interest in green building and has some knowledge and experience with the topic. She also recommends the buyer to talk to a green building contractor for special advice. What kind of organic compounds are green builders increasingly using? There are two options. There is only one correct answer. 1 2

Stable Volatile

©2019 Real Estate Council of Ontario

Lesson 8 | Page 14 of 15

A buyer is at a salesperson’s office discussing plans to buy a vacant lot to build a house. The buyer is particularly concerned about pollutants being released into the atmosphere and in the home during construction. The buyer has heard about green building but is unsure about what it involves and asks the salesperson for advice. The salesperson explains that while not an expert, she has recently developed a keen interest in green building and has some knowledge and experience with the topic. She also recommends the buyer to talk to a green building contractor for special advice. The buyer could decide to use formaldehyde-free and low-emission equivalents instead of which traditional material? There are two options. There is only one correct answer. 1 2

Compressed fibreboard Compressed plywood

©2019 Real Estate Council of Ontario

Lesson 8 | Page 15 of 15

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were discussed in this lesson.

Safety systems

Causes of poor indoor air quality and pollutants

Ways to improve indoor air quality

Homes in Ontario must be built according to minimum safety requirements stipulated by the Ontario Building Code, Fire Code, and Electrical Safety Code. Homeowners are legally required to have smoke and carbon monoxide (CO) alarms installed in their homes. In some regions of Ontario with high radon levels, homeowners may choose to install radon detectors, although this is not a legal requirement. Building materials like adhesives, resins, fillers, and finishes can emit volatile organic compounds (VOCs) that negatively impact indoor air quality. Poor indoor air quality can contribute to sick building syndrome (SBS), which causes flu-like symptoms due to lack of proper ventilation and air filtration, and contaminants in the air. To reduce the adverse effect on indoor air quality, efforts are continually being made to develop low- and zero-emission products for the construction industry and consumers. Many indoor air pollutants are odourless, possibly making homeowners incorrectly believe that their indoor air is clean when in fact it could be poor and affecting their health. Ways to improve indoor air quality include:  Installing ventilators and opening windows and doors for air ventilation  Using dehumidifiers to reduce humidity levels  Using air purifiers and filters to reduce or prevent bacteria and air impurities  Cleaning floors to avoid dust or allergens  Putting floor, shoe or boot mats outside access doors to keep dirt and pollutants out of the home

©2019 Real Estate Council of Ontario

Green building and air quality

 Hiring specialists to monitor the air quality Green building involves the use of environmentally-friendly methods, strategies, and products in residential and commercial construction. Since air quality is a key consideration in green building, significant efforts are continually being made to create materials and products with low- or zero-VOC emissions.

©2019 Real Estate Council of Ontario

Lesson 9 | Page 1 of 15

Lesson 9: Summary Practice Activities

This lesson provides a series of activities that will test your knowledge of the entire module.

©2019 Real Estate Council of Ontario

Lesson 9 | Page 2 of 15

This lesson provides summary practice activities about the Understanding Residential Construction – Internal and External Finishes module. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 9 | Page 3 of 15

Exterior wall finishes are available in a range of materials that can offer structural support, protect a house from the elements, and provide aesthetic appeal, but are sometimes susceptible to structural and non-structural problems. Interior walls serve a different purpose to exterior walls, and are typically built using drywall or plaster, although some interior walls also offer critical structural support. While a salesperson is not expected to be an expert, they should be aware of the different structural and nonstructural problems that could occur with exterior and interior walls. They should also know the difference in functions of load-bearing walls from non-load-bearing walls and identify the characteristics of drywall and plaster. Visible horizontal cracks in the exterior wall finish is considered as which type of issue? There are two options. There is only one correct answer. 1 2

Structural issue Non-structural issue

©2019 Real Estate Council of Ontario

Lesson 9 | Page 4 of 15

Exterior wall finishes are available in a range of materials that can offer structural support, protect a house from the elements, and provide aesthetic appeal, but are sometimes susceptible to structural and non-structural problems. Interior walls serve a different purpose to exterior walls, and are typically built using drywall or plaster, although some interior walls also offer critical structural support. While a salesperson is not expected to be an expert, they should be aware of the different structural and nonstructural problems that could occur with exterior and interior walls. They should also know the difference in functions of load-bearing walls from non-load-bearing walls and identify the characteristics of drywall and plaster. Discolouration of the exterior brickwork due to weather exposure is considered as which type of issue? There are two options. There is only one correct answer. 1 2

Structural issue Non-structural issue

©2019 Real Estate Council of Ontario

Lesson 9 | Page 5 of 15

Exterior wall finishes are available in a range of materials that can offer structural support, protect a house from the elements, and provide aesthetic appeal, but are sometimes susceptible to structural and non-structural problems. Interior walls serve a different purpose to exterior walls, and are typically built using drywall or plaster, although some interior walls also offer critical structural support. While a salesperson is not expected to be an expert, they should be aware of the different structural and nonstructural problems that could occur with exterior and interior walls. They should also know the difference in functions of load-bearing walls from non-load-bearing walls and identify the characteristics of drywall and plaster. Removing or cutting into what kind of walls without professional advice could seriously compromise the structural integrity of a house? There are two options. There is only one correct answer. 1 2

Load-bearing walls Non-load-bearing walls

©2019 Real Estate Council of Ontario

Lesson 9 | Page 6 of 15

Exterior wall finishes are available in a range of materials that can offer structural support, protect a house from the elements, and provide aesthetic appeal, but are sometimes susceptible to structural and non-structural problems. Interior walls serve a different purpose to exterior walls, and are typically built using drywall or plaster, although some interior walls also offer critical structural support. While a salesperson is not expected to be an expert, they should be aware of the different structural and nonstructural problems that could occur with exterior and interior walls. They should also know the difference in functions of load-bearing walls from non-load-bearing walls and identify the characteristics of drywall and plaster. Which material is inexpensive, ready-made, and can be cut to size and installed quickly, making it a popular choice in residential construction? There are two options. There is only one correct answer. 1 2

Drywall Plaster

©2019 Real Estate Council of Ontario

Lesson 9 | Page 7 of 15

A properly insulated home can offer better energy efficiency, lower energy bills, and improved environmental protection through reduced gas emissions, and greater comfort for occupants. Potentially dangerous insulation materials have been banned in Canada due to health concerns, but may still exist in older homes. These include Urea Formaldehyde Foam Insulation (UFFI), vermiculite, and asbestos. A salesperson is not expected to be an expert, but must be aware of the different types of insulation to be able to advise buyers to seek third-party advice about potentially harmful insulation and ensure that any information about material latent defects or unsafe insulation is disclosed by the seller and shared with the buyer. Which of these statements about harmful insulation are true? There are four options. There are multiple correct answers.

1 2 3 4

No conclusive evidence points to UFFI being harmful to health, but a legal ban on its use was nevertheless introduced in 1980 due to controversy surrounding its negative health implications, associated litigation cases, and adverse effect on property values. Vermiculite is a pellet-like insulation that may contain asbestos fibres that could become airborne and be inhaled if the insulation is disturbed. Asbestos was popularly used as an insulator until the early 1980s, but was banned due to its contributory link to potentially fatal diseases. In some cases potentially hazardous insulation should be removed.

©2019 Real Estate Council of Ontario

Lesson 9 | Page 8 of 15

Modifying ceilings and internal walls can enable homeowners to transform rooms in their homes from a common look to something more contemporary. For ceilings, they can choose from exposed beams or vaulted, tray, coffered, or domed options. For walls, they can opt for wainscoting, crown moulding, exposed brick, or glass. Though not expected to be an expert, a salesperson should know about different types of ceiling and internal wall modifications to be able to inform potential buyers and sellers about any specific design characteristics in a home. This knowledge enables a salesperson to avoid misrepresenting the features in a home and violating Section 38 of the Code of Ethics. Which option could a salesperson use to support a buyer’s decision if they are considering making cosmetic changes to their ceilings and internal walls? There are three options. There is only one correct answer. 1 2 3

To make a room more structurally safe To make a room more visually and aesthetically appealing To make a room more energy efficient

©2019 Real Estate Council of Ontario

Lesson 9 | Page 9 of 15

Building permits are usually required for construction work. This involves property owners applying for a permit at their local municipal office. Applications are reviewed and approved if the plans meet prescribed building codes, local zoning bylaws, and other regulations. A building inspector will then monitor the work periodically to ensure full compliance with the permit. Some projects requiring a building permit may entail converting a structure from non-residential to residential use. However, one must also consider that certain projects involve stricter planning and design conditions and have additional insurance and financial considerations. While not expected to be an expert, a salesperson should know about the potential need for various building permits, the general process, and the different requirements for building permits. They should also know about the role of a building inspector and considerations for converting structures from non-residential to residential use. This will enable them to advise buyers and sellers correctly about the proper authorities to contact for further professional advice. Which of these statements about building permits, the permit process, and the involvement of building inspectors are true? There are three options. There are multiple correct answers. 1 2 3

An application for a building permit must include detailed plans, sketches, and related documents about the intended construction work. A building inspector is an independent assessor for hire who inspects work completed at different stages of construction projects. Permission must be sought in advance to alter any identified heritage elements of a designated property.

©2019 Real Estate Council of Ontario

Lesson 9 | Page 10 of 15

The Ontario Heritage Act protects heritage buildings by restricting internal and external changes to any structures with that designation. Understanding the requirements and potential costs involved with renovating heritage properties enables a salesperson to inform buyers correctly about the possible challenges ahead or help them to find comparable properties with fewer restrictions and costs. Which features of a property does a heritage designation typically protects? There are two options. There is only one correct answer. 1 2

Architectural Aesthetic

©2019 Real Estate Council of Ontario

Lesson 9 | Page 11 of 15

The Ontario Heritage Act protects heritage buildings by restricting internal and external changes to any structures with that designation. Understanding the requirements and potential costs involved with renovating heritage properties enables a salesperson to inform buyers correctly about the possible challenges ahead or help them to find comparable properties with fewer restrictions and costs. Before starting any work on a heritage property, what permit must be obtained from the local municipal office? There are two options. There is only one correct answer. 1 2

Renovation Building

©2019 Real Estate Council of Ontario

Lesson 9 | Page 12 of 15

The Ontario Heritage Act protects heritage buildings by restricting internal and external changes to any structures with that designation. Understanding the requirements and potential costs involved with renovating heritage properties enables a salesperson to inform buyers correctly about the possible challenges ahead or help them to find comparable properties with fewer restrictions and costs. What kind of expectations do many owners or potential buyers have about renovating a heritage building? There are two options. There is only one correct answer. 1 2

Realistic Unrealistic

©2019 Real Estate Council of Ontario

Lesson 9 | Page 13 of 15

The Ontario Heritage Act protects heritage buildings by restricting internal and external changes to any structures with that designation. Understanding the requirements and potential costs involved with renovating heritage properties enables a salesperson to inform buyers correctly about the possible challenges ahead or help them to find comparable properties with fewer restrictions and costs. Which type of building costs more to renovate? There are two options. There is only one correct answer. 1 2

Non-heritage Heritage

©2019 Real Estate Council of Ontario

Lesson 9 | Page 14 of 15

Universal design in construction makes buildings accessible and barrier-free for people with access needs. Accessibility in a home can be achieved by adding or modifying structures. A salesperson is not expected to be an expert, but should understand the importance of universal appeal and accessibility to enable people of all ages and with different access needs to live comfortably in their homes. Which of these statements about universal appeal and accessibility are true? There are three options. There are multiple correct answers. 1 2 3

The Ontario Building Code supports the concept of universal design to promote accessibility. Homeowners can apply to their local municipality for full reimbursement of costs incurred in making their homes accessible and barrier-free. Features can be added or modified inside and outside the home to make it more accessible and barrierfree.

©2019 Real Estate Council of Ontario

Lesson 9 | Page 15 of 15

Congratulations, you have completed the lesson!

©2019 Real Estate Council of Ontario

Module Summary | Page 1 of 4

Module Summary

This lesson contains a summary of the entire module and a list of helpful resources available in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 2 of 4

Congratulations, you have completed this module! This lesson will present a summary of Learning Objectives and a list of helpful resources that you can search for in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 3 of 4

There are eight sections on this page with a summary of the key topics that were discussed in this module.

Exterior Wall Finishes

Materials such as brick veneer, brick masonry, vinyl, metal and wood siding, stone, cement and clay bricks, and stucco can be used for exterior wall finishes. Brick veneer and brick masonry are both popular but very different finishes with many people often mistakenly assuming they are the same. Each exterior wall finish has its advantages, but may present potential structural and non-structural problems. A salesperson is not expected to be an expert, but they should know about types of exterior wall finishes, the differences between brick veneer and brick masonry, and potential problems that could affect the structure of a house. This knowledge enables a salesperson to give buyers correct information about the exterior of a house or to refer them to a third-party professional for further advice.

Energy Efficiency Considerations

Completion of this lesson has enabled you to:  Identify exterior wall finishes used in residential construction  Identify issues that can affect exterior walls Energy efficiency is a major consideration in residential construction since it can control the amount of energy used in a house, thereby delivering comfortable living conditions, lower energy costs, and better environmental safety through lower carbon dioxide emissions. Insulation is available in many different forms and has different R-values based on its resistance to heat transfer, which determines where it is used in a home. While insulation can improve energy efficiency, insulation containing UFFI, vermiculite, or asbestos is considered hazardous and has been banned in Canada. Though not expected to be an expert, a salesperson should know about the different energy efficiency standards and rating systems to help homeowners

©2019 Real Estate Council of Ontario

understand the energy efficiency of their resale or new home. Knowing about different types of insulation, including those that could be harmful to health and should only be handled by certified professionals, enables a salesperson to refer sellers and buyers to third-party insulation experts and to disclose material facts in accordance with the Code of Ethics; to advise sellers about latent defects and their legal obligations to disclose material latent defects; and to refer them to seek legal advice about their legal rights and obligations.

Interior Walls

Completion of this lesson has enabled you to:  Identify the characteristics of different types of insulation in residential structures  Identify key considerations for insulation found in residential structures  Identify the importance of energy efficiency Interior walls separate one space from another to form rooms and conceal different building components. They are also used to display artwork, photos, TVs, and other furniture and accessories. Interior walls may be load-bearing or non-load-bearing. Load-bearing walls support the structure of a home. Removing or changing a load-bearing wall without expert involvement could significantly damage the structural stability of a house. Understanding the difference between load-bearing and non-load-bearing walls enables a salesperson to inform buyers about the significance of these walls and to refer them to third-party professionals about planned renovation work. While not an expert, a salesperson should also know that interior walls can consist of plaster or drywall. The latter is a popular choice since it is premanufactured, cheaper, less labour-intensive, and less time-consuming to install than plaster. However, plaster is thicker and offers a better barrier to air and sound. This knowledge enables a salesperson to inform buyers about the different options available to them. Completion of this lesson has enabled you to:  Identify interior wall functions and finishes in residential structures

©2019 Real Estate Council of Ontario

Enhancing Property Appeal

The aesthetic and visual appeal of the inside and outside of a property can play a key role in buyer interest. Well-designed façades, landscaping, paths, driveways, lighting, and other structures and features can enhance the exterior of a home. Enhancement options for the interior can include flooring and floor finishes, and modifications to ceilings, walls, bathrooms, kitchens, and internal storage. Technological innovations for automating homes also offer increased comfort and convenience, energy efficiency, and security for homeowners. Knowing about features, finishes, and technologies for enhancing property appeal enables a salesperson to be more effective in their role, and offers added value to sellers and buyers.

Conversions, Retrofits, and Renovations I

Completion of this lesson has enabled you to:  Identify exterior finishes and distinctive features that enhance the appeal of a residential property  Identify internal finishes and distinctive features that enhance the appeal of a residential structure  Identify technological innovations available for residential structures Most conversions, retrofits, and renovations require property owners to obtain building permits. Through periodic inspections, a municipal building inspector will ensure that all construction work complies with the issued building permit. If violations occur, the building inspector can halt all work until issues are resolved and can issue fines. Unincorporated townships in Ontario have no municipal government and, therefore, no building inspectors, requiring property owners to contact different ministries for building permit information. Conversions, retrofits, and renovations also require compliance with fire and electrical safety regulations and local zoning bylaws.

©2019 Real Estate Council of Ontario

A salesperson should not give advice beyond their level of expertise but should know about building permits, the role of a building inspector, and key considerations for converting a non-residential structure for residential use. This knowledge enables a salesperson to help buyers identify and correct any misconceptions about building permits and refer them to the appropriate thirdparty experts for further professional advice.

Conversions, Retrofits, and Renovations II

Completion of this lesson has enabled you to:  Identify key considerations regarding building permits  Identify the role of a building inspector  Identify key factors when converting a structure to a residential use For changes to listed or heritage properties, building permit requirements are stricter to ensure that features of architectural, historical, or cultural importance are protected. This type of work often also involves additional financial and insurance considerations. Although not expected to be an expert, a salesperson should exercise due diligence to ensure that property owners and potential buyers know that building and electrical permits may be required, all electrical work is completed by qualified contractors, and latent defects are disclosed.

Construction Trends and Innovations I

Completion of this lesson has enabled you to:  Identify factors and considerations associated with heritage properties  Identify the due diligence of a salesperson regarding conversions, retrofits, and renovations Trends and innovations in construction offer homeowners a range of choices to improve their living environment. Many buyers may choose prefabricated modular or manufactured homes and additions as faster, less expensive options with less disruption than traditionally built homes and additions. Universal appeal is an important factor in construction design, offering buyers and homeowners options to make their homes more accessible and barrier-free for everyone with access needs.

©2019 Real Estate Council of Ontario

While not expected to be an expert, a salesperson should understand residential construction trends and innovations to be able to identify different options that could improve the occupants’ quality of living, reduce costs, and increase a property’s value. Knowing about accessibility and barrier-free options also enables a salesperson to help buyers and owners envisage ways to modify their homes to suit their access needs through different stages of life. Completion of this lesson has enabled you to:  Identify trends and innovations for residential construction  Identify options for constructing residential homes  Identify features that have universal appeal and promote accessibility

Construction Trends and Innovations II

Residential construction in Ontario is subject to strict adherence to the Ontario Building Code, Fire Code, and Electrical Safety Code, with owners legally obliged to install smoke and carbon monoxide alarms in their properties. Although not legally required, property owners can also install radon detectors, ventilators, dehumidifiers, and air purifiers to detect and remove potentially harmful odourless gases. These gases are often caused by volatile organic compounds (VOCs) that can lead to sick building syndrome (SBS), illness, and poor indoor air quality. Green building involving the development of construction materials and products with low- or zero-VOC emissions is another popular initiative for improving indoor air quality. A salesperson is not expected to be an expert, but they should know about different safety systems for homes to be able to explain their importance to buyers and inform buyers about adherence to legal obligations. A salesperson should also be aware of types of pollutants to share information with buyers about how to prevent or improve poor indoor air quality.

©2019 Real Estate Council of Ontario

Completion of this lesson has enabled you to:  Identify the safety systems found in residential structures  Identify indoor air quality considerations

©2019 Real Estate Council of Ontario

Module Summary | Page 4 of 4

Module Resources There are 20 helpful resources related to this module that you can search for in the Knowledge Management System. 1. Exterior Wall Finishes: This job aid identifies the different exterior wall finishes used in residential construction, along with their advantages and disadvantages. It includes images and brief descriptions of exterior wall finishes. A salesperson can use this job aid while preparing the property listing and displaying the property to a potential buyer. 2. Brick Veneer and Brick Masonry Finishes: This job aid identifies the differences between brick veneer and brick masonry exterior finishes. A salesperson can use this job aid to identify which type of finish has been used. 3. Challenges Related to Exterior Walls: This table outlines issues that can affect exterior walls. A salesperson can use this job aid to help identify exterior wall issues that should be investigated further by a qualified third-party professional. 4. Types of Insulation: This job aid describes different types of insulation in residential construction and includes images and brief descriptions of them. The job aid can assist a salesperson to advise sellers and buyers if a third-party professional is necessary. 5. Energy Efficiency Audit: These steps summarize the process of an energy efficiency audit. A salesperson can use this job aid to understand the energy efficiency audit process and the steps a seller or a buyer can take to improve a home’s energy efficiency. Disclaimer: The actual assessment must be completed by a third-party professional. 6. Increasing Energy Efficiency: This job aid provides a summary of the different ways a structure can be retrofitted to increase energy efficiency. A salesperson can use this job aid to discuss energy efficiency features and options with sellers and buyers.

©2019 Real Estate Council of Ontario

7. Load-Bearing and Non-Load-Bearing Walls: This job aid helps a salesperson to understand and identify the difference between load-bearing and non-load-bearing walls. A salesperson can use this job aid to provide informed advice to sellers and buyers about load-bearing and non-load-bearing walls. Disclaimer: A third-party professional should always be consulted when contemplating renovations that involve walls. 8. Exterior Finishes and Distinctive Features: This table provides a summary of the different types of exterior finishes and distinctive features that can enhance the appeal of a residential property. A salesperson can use this job aid when preparing a listing or showing a house to a potential buyer. 9. Ceiling Modifications: This job aid identifies the different types of ceiling modifications that can enhance the visual and aesthetic appeal of a residential structure. It includes images and brief descriptions of ceiling modifications. A salesperson can use this job aid to identify the various types of ceilings in any advertising. 10. Steps to Obtain a Building Permit: These steps describe the actions required to obtain a building permit. A salesperson can use this job aid when actively involved in securing building permits for clients, to provide an overview of the process in the event their clients have any questions. 11. Role and Responsibilities of a Building Inspector: This table lists the municipal building inspector’s role and responsibilities. A salesperson can use this job aid to answer questions a seller or a buyer might have regarding building inspectors. 12. Steps to Converting Non-Residential Structures for Residential Use: These steps provide key considerations required to select a suitable property for conversion from non-residential to residential use. A salesperson can use this job aid to guide them in maintaining due diligence when dealing with such a property. 13. Creating Accessory Apartments: These steps list the requirements to be met to create an accessory apartment in an existing structure. A salesperson can use this job aid when discussing these steps with a client who wishes to create a self-contained unit within a house, making it a house with two residential units. 14. Legal Compliance of Accessory Apartments: This job aid lists some of the legal compliance implications that a salesperson should keep in mind when working with accessory apartments. A salesperson can use this job aid when assisting a seller to list, or a buyer to purchase, a property with an accessory apartment. 15. Impact of Zoning Bylaws on Converting a Structure: This job aid describes the impact of zoning bylaws. This job aid can help a salesperson when a seller or a buyer wishes to convert, retrofit, or renovate a property from its original purpose or wants to make minor variances to an existing residential property.

©2019 Real Estate Council of Ontario

16. Renovating Heritage Properties: These lists will assist a salesperson when a heritage property is being considered for sale or purchase and requires renovation. The job aid summarize the restrictions, limitations, and increased costs of renovating heritage properties. A salesperson can use this job aid when a heritage property is being considered for sale or purchase. 17. Modular and Manufactured Homes: This table identifies the differences between modular and manufactured homes and includes brief descriptions of these types of homes. A salesperson can use this job aid to identify the types of homes when listing a property for a seller or displaying a property to a buyer. 18. Safety Systems: This table describes the safety systems found in residential structures. A salesperson can use this job aid to identify the existing safety systems when listing a property for a seller or showing a property to a potential buyer. 19. Poor Indoor Air Quality and Types of Air Pollutants: This job aid describes the causes of poor indoor air quality and types of air pollutants. A salesperson can use this job aid to understand the various causes of poor indoor air quality so that they can communicate essential information to a seller or buyer. 20. Improving Indoor Air Quality: This table provides a summary of ways to improve indoor air quality. A salesperson can use this job aid to discuss air quality information with sellers and buyers. While navigating through the online module, click the KMS button for tools and information on this topic.

©2019 Real Estate Council of Ontario

Module 9: Preparing to Market a Residential Real Property Disclaimer: This is a reference document which contains pages from the Accessible eLearning module. You should complete the eLearning module to proceed to the next step. Please note that the accessible module on the LMS only contains the interactive pages and you need to go through the content of this document thoroughly to attempt the interactive activities in the module. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Salesperson Program ©2019 Real Estate Council of Ontario. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or in any means – by electronic, mechanical, photocopying, recording or otherwise without prior written permission, except for the personal use of the Real Estate Salesperson Program learner.

©2019 Real Estate Council of Ontario

V7

Module 9: Preparing to Market a Residential Real Property One of the most important activities you will do as a salesperson, once you have obtained a listing, is to discuss obligations – yours and the seller’s – to help ensure the transaction is successful and you are protecting and promoting the seller’s best interests. This module also provides the opportunity to review a series of images depicting what you should look for when conducting a visual inspection of a property. To check your understanding of this module, you must complete all the activities in the online module. While navigating through the online module, click the Legislation button to view laws and regulations related to this module. While navigating through the online module, click the KMS button to access the Knowledge Management System or visit the Module Resources to find the list of all the KMS assets for this module. The contents of the thumbnail icon and References from the module are added to support your learning throughout this Accessible PDF.

©2019 Real Estate Council of Ontario

Menu: Preparing to Market a Residential Real Property Number of Lessons

Lesson Number Lesson 1 Lesson 2 Lesson 3 Lesson 4 Lesson 5 Lesson 6

7 Lessons

Lesson Name Prepare to Meet with Potential Sellers Conduct a Visual Inspection Gather Key Information Calculate Areas and Related Linear Measurements Recommend Improvements Before Listing Summary Practice Activities Module Summary

©2019 Real Estate Council of Ontario

Lesson 1 | Page 1 of 13

Lesson 1: Prepare to Meet with Potential Sellers

This lesson presents the reasons why a seller would contact you and your brokerage to list their property. This lesson also details what you should do to demonstrate that you and your brokerage are the right choice to sell the property. These tasks include conducting research and preparing a listing package containing information about you and your brokerage, a description of services you will be providing, and appropriate forms.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 2 of 13

As a salesperson, you will be responsible for cultivating the relationship between a potential seller and your brokerage. Typically, a seller will only hire a salesperson when they feel confident that the salesperson and brokerage are able to provide the services that meet their needs, such as obtaining a good offer and selling the property in a timely manner. One way to cultivate this relationship is to be prepared. This lesson will guide you on how you would prepare to meet with potential sellers. Upon completion of this lesson, you will be able to: • Research important information about the property • Prepare a pre-listing presentation • Gather all required paperwork and tools Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 3 of 13

Reasons for Contacting You/Your Brokerage Many homeowners realize that selling a property is complicated and seek professional and knowledgeable services from a brokerage. A homeowner will contact a particular salesperson and/or brokerage to list their property for sale for a variety of reasons. As a salesperson, you would need to discover why that homeowner contacted you and/or your brokerage. The homeowner, or potential seller, may have contacted you and/or your brokerage because: • They may have previously worked with you and/or your brokerage • They received a referral from a previous client pleased with the service provided by you and/or brokerage • They received/viewed advertising or other marketing activities by you and/or your brokerage • You/your brokerage may have recently sold a property in their neighbourhood Discovering why a seller contacted you will help you understand the effectiveness of your marketing or how strong your reputation is in the community.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 4 of 13

Research Information About the Property Once you have established the reason the potential seller contacted you and/or your brokerage to list their property, you will need to research the property and the surrounding area so you can make an informed presentation that will gain the seller’s trust. The following five sections contain information on what you should do to prepare to meet with a potential seller.

Review property documents Demonstrate to the seller that you have researched the property thoroughly and will be able to market the property successfully. The seller should feel confident that they have selected the right brokerage and the right salesperson to list their property. As you learned earlier, an excellent resource for conducting property research is GeoWarehouse®, a web-based property information source that provides detailed property reports. Use GeoWarehouse® reports to verify the following: • Property lot measurements • Registered owner(s) of the property • Last sale date of the property, with the sale price • Assessed value of the property • Legal description of the property • Description of the property (for, “single-family detached home”) • Total square footage of the property ©2019 Real Estate Council of Ontario

If available and whenever possible, rely on original source documents, such as surveys, permits, financial statements, and tax statements. Make certain that your information is current and complete. If GeoWarehouse® cannot provide reports to verify and/or confirm the given information, you may need to conduct an online search of the land registry records.

Review previous listing and sale information on the property to be sold Review the listing history of the property to determine the following: • When did the seller buy the property? • How much did the seller pay for the property? • Are there any past disclosures about the property? This information may be found in the archives of the local listing service.

©2019 Real Estate Council of Ontario

Be aware of any past misuse Past misuse of a structure or property may also affect marketing and sale. When you are researching the current condition of a seller’s property, you should also research past use—or misuse—of the property. This type of knowledge ensures the listing is current and accurate and may offset any future legal issues. Check with the local police department and do an internet search using the property address to uncover any possible stigma associated with the property, such as a previously illegal grow operation or a murder or suicide on the property. As of October 17, 2018, it is now legal to grow up to four marijuana plants in a residence.

©2019 Real Estate Council of Ontario

Determine external influences An external influence refers to any situation or condition surrounding the property that may affect the value and marketability of the property. Knowing about external influences that may affect the marketing and sale of the property is another way you can gain the seller’s confidence and trust. For example, is the neighbourhood improving or declining, or is it an area subject to noise, pollution, or traffic from local industry. Consider other issues that may affect the property and surrounding trade area, such as termites, flooding, illegal use of lawn contaminants, and large amounts of salt being applied to paved surfaces, which can break down paved surfaces or contaminate landscaping. Speaking to the broker of record or other salespersons is helpful if you are unfamiliar with the trade area. If the property is near or bordering a stream or lake, consult the appropriate conservation authority and local watershed management agencies that deliver services and programs to protect and manage impact on water and other natural resources. The local, provincial, national, and even the global economy can impact the sale of a property. For example, interest rate changes, which influence mortgage rates, can have a significant impact on real estate prices. Local employment rates, foreign buyers, construction, and government regulations can also influence the economy and the real estate market, resulting in longer or shorter marketing times for a property in a specific neighbourhood.

©2019 Real Estate Council of Ontario

Know the surrounding neighbourhood Research the surrounding neighbourhood through GeoWarehouse®, or Google Maps, a web-based mapping service. Knowing the surrounding neighbourhood well also means being informed about area schools and access to public transit, recreation, and health care facilities.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 5 of 13

Before meeting with sellers at their home to discuss the sale of their property, a salesperson is preparing for the meeting by gathering and reviewing information about the property and the surrounding area. Which actions should the salesperson take to ensure a complete understanding of the seller’s property and the surrounding area? There are four options. There are multiple correct answers. 1 2 3 4

Review property tax statements from the last two years Conduct an online search using the property’s address to determine past misuse Use GeoWarehouse® to research the neighbourhood Talk to local residents about the impact of construction of a new nearby mall

©2019 Real Estate Council of Ontario

Lesson 1 | Page 6 of 13

Benefits of a Pre-listing Presentation In an increasingly competitive market, making a good first impression is essential, which means being prepared to meet a potential seller. One way to prepare to meet with a potential seller is to create a pre-listing presentation. As a salesperson, you will create this pre-presentation after a potential seller has contacted you/your brokerage and before you meet with them in person. A professional and thorough pre-listing presentation will demonstrate to the seller that you have the knowledge, expertise, and confidence to sell their property. It will also instill confidence in the seller that they will be making the right choice if they sign with your brokerage.

©2019 Real Estate Council of Ontario

However, before you make an appointment with a seller, ask them if they are working with another salesperson or brokerage. If they are party to a representation agreement with another brokerage, you should end any further communication with them. If not, you can ask them why they are selling their property. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 7 of 13

Components of a Pre-listing Presentation A pre-listing presentation is an information package you will provide to a potential seller after your initial contact and before the listing. The information may be in a binder or presentation manual, or on a tablet or laptop. The components of a pre-listing presentation include: • Information about the history and success of the brokerage • Information about yourself • Applicable forms, such as a representation agreement, data sheet, and property disclosure forms • Past and current client testimonials, either written or links to video testimonials (only if the client has provided written consent) • Supporting documentation; for example, other listings, market trend information, and related analysis, to assist in the discussion • Overall strategy for establishing a listing price and marketing their property • Information about current market conditions; for example, whether it is a seller’s market, buyer’s market, or balanced market While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 8 of 13

Benefits of Working with a Salesperson/Brokerage A homeowner does not need to use a salesperson or a brokerage to sell their property. As a salesperson, you will need to illustrate the benefits of working with a professional salesperson. The following is what you may want to say in your presentation: • You are an expert in your field, having completed an extensive course of study. • You have the knowledge, skills, and experience to market their property. • You will complete all paperwork and ensure it is accurate. • You will negotiate on their behalf and assist with activities until the transaction closes. • As a member of a regulated profession, you must comply with all regulatory obligations, such as a Code of Ethics. • Your property is more secure and your privacy is protected. Interested buyers would need to contact a salesperson to view the property. ©2019 Real Estate Council of Ontario

• Through the Real Estate Council of Ontario (RECO), you have insurance that will protect their deposits against loss, bankruptcy, and fraud. You will also need to illustrate the benefits of working with your brokerage, such as: • Marketing/advertising programs that may include print/broadcast media, social media, and a corporate website • Salesperson’s activities that are overseen by the broker of record and other management personnel • Administrative services to ensure all regulatory and contractual obligations are met Listening to Seller Needs To strengthen the rapport and ensure the homeowner chooses you and your brokerage to list their property, you should: • Listen to what the homeowner is saying (and what is not being said) • Ask the homeowner why they are selling their property and how quickly they want to sell • Be prepared to answer all questions • Explain the marketing strategy for the property • Explain the process for determining a competitive listing price Knowing the homeowner’s level of motivation for selling will help you set a realistic listing price for the property. For example, a motivated seller will have a greater understanding of the importance of a realistic price. An unmotivated seller may insist on listing their property higher than what the current market indicates.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 9 of 13

The sellers originally intended to work with another salesperson that had been referred to them. When they discovered the salesperson was no longer employed at XYZ Realty, they agreed to have another salesperson make a pre-listing presentation. Before meeting with the sellers, the salesperson prepared a pre-listing information package to present to them. What information should the salesperson prepare for his pre-listing presentation? There are four options. There are multiple correct answers. 1 2 3 4

Attractive listing price Client testimonials about the brokerage A print advertisement that says the salesperson sells more homes than any other salesperson Information about market activities

©2019 Real Estate Council of Ontario

Lesson 1 | Page 10 of 13

When making the pre-listing presentation to a seller, you will need to explain the types of services your brokerage offers. As you learned earlier, you must explain the difference between client and customer, and how the services and level of obligation will differ depending on whether the seller is a client or a customer. Typically, if the seller agrees to list the property with your brokerage, they will become clients. If a salesperson has a particular buyer who is interested in their property, the brokerage may offer seller customer service. You will need to explain and then document the relationship being created between the seller and the brokerage (for example, client or customer) and then ask the seller to sign the agreement. For the purposes of this lesson, the seller decides to become a client. Once you have signed the seller as a client, your next step will be to gather the information about the property so you can list it accurately and without misrepresentation.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 11 of 13

Completing the Listing Agreement After you have gathered the information about the property, you will need to complete the listing agreement and data sheet accurately. You will also need to prepare a package that contains all documents. Finally, you will need to confirm that the information about the property, specifically interior and exterior measurements, is accurate. The following two sections contain information on how to complete a listing agreement accurately.

Steps required for the listing agreement and data sheet To ensure you gather the required paper work to complete the listing agreement and data sheet correctly, first, you will need to confirm the details needed from the paperwork and clarify, if necessary, with the seller: • What is the date of the most recent survey? • Is the tax bill for the current year or a prior year? • Is the document provided to you an interim tax notice or a final tax notice? • Are there any known tax increases or local improvements pending? • Prepare a package for the seller with necessary documentation, including a listing agreement and data sheet completed from your notes and the source documents. • Carefully examine the completed data sheet, checking for transpositions, missing descriptive words, etc. ©2019 Real Estate Council of Ontario

• Ask the seller to provide details of their occupation and a form of photo identification such as a driver’s license or passport, as required by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, 2000. • Complete the FINTRAC form, kept on file for five years. FINTRAC is a federal government agency that assists in the detection, prevention, and deterrence of money laundering, and financing of terrorist activities. FINTRAC may review the information provided on the form. Then you will need to review original source documents whenever possible, including a GeoWarehouse® report for lot size description (front/ depth) and lot irregularities, surveys, permits (such as parking permits), property tax statements, and contracts for rental equipment (such as furnace, hot water tank or alarm system). When reading any source documents, ensure the information used is accurate; for example, there are no transpositions or missing descriptive words. In situations where information is not available, you may need to consult with a land registry office or other municipal office to confirm information about the property.

©2019 Real Estate Council of Ontario

Tools required for the listing agreement To ensure the information you collect is accurate, you will need to take your own measurements. You should have tools such as: • Measuring tool; for example, laser measuring device, digital measuring wheel, tape measure • Flashlight • Camera • Note pad You will learn about what to measure and what not to measure later in this module.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 12 of 13

A salesperson is meeting with the sellers at their home. The salesperson asks the sellers to provide him with documents about the property that can be used for the listing. The sellers give the salesperson a notice of assessment, the property tax statement, a utility bill, the deed, and an old survey. The salesperson reviews these documents and then asks the sellers if he can look around the property. Because the salesperson knows he would need to conduct a visual inspection, he has a measuring tape and a note pad with him. What else should the salesperson do at this time to ensure the information about the property is current? There are four options. There are multiple correct answers. 1 2 3 4

Review the description of the property lot size Request information about the sellers’ credit history for FINTRAC Review information relating to rental equipment Tour the interior and exterior of the property and with the tools he has, make visual estimates of measurements

©2019 Real Estate Council of Ontario

Lesson 1 | Page 13 of 13

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Research important information about the property

Prepare a pre-listing presentation

Researching important information about the property starts with why the potential seller contacted the salesperson/brokerage. The initial contact may be a result of a referral, the salesperson’s marketing, or previous experience with the salesperson or brokerage. A salesperson conducts property research to prepare the pre-listing presentation by: • Reviewing previous listing and sales information of the property • Reviewing property documents (preferably originals) • Investigating past use and misuse of a structure or property • Examining external influences and market trends that may affect marketability • Familiarizing themselves with the neighbourhood and surrounding area A pre-listing presentation prepares a salesperson to meet a potential seller and demonstrates their ability to answer the seller’s questions and market the property. The purpose is to sign the potential seller as a client. Components of a pre-listing presentation include: • Information about the salesperson and the brokerage • Applicable forms, such as a representation agreement, data sheet, and property disclosure forms • Testimonials from past clients (with the clients’ written consent) • Supporting documentation; for example, other listings, market trend information, and related analysis, to assist in the discussion • A strategy for establishing a listing price and a proposed marketing plan for the property • Information about current market conditions; for example, whether it is a seller’s market, buyer’s market, or balanced market ©2019 Real Estate Council of Ontario

Gather required paperwork and tools

The steps to completing a listing agreement and data sheet accurately include: • Consulting original source documents about the property • Accurately recording lot size descriptions • Contacting a land registry office • Seeking appropriate professional assistance, as required • Asking the seller to provide a photo identification and details of their occupation (as required by FINTRAC) • Having the tools on hand to complete the listing data sheet, such as a measuring device, camera, flashlight, and note pad

©2019 Real Estate Council of Ontario

Lesson 2 | Page 1 of 32

Lesson 2: Conduct a Visual Inspection

This lesson explains the obligations of a seller to disclose known latent defects, the leading practices for conducting a visual inspection that include identifying the types of defects that may affect the sale of the property, and situations that require consultation with a third-party professional.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 2 of 32

Before signing a potential seller as a client and listing their property, you will need to conduct a visual inspection of the interior and exterior of the property. This means looking at the property carefully and noting any issues that may affect value, desirability, and marketability. You will then need to discuss these issues with the seller. You will learn leading practices for conducting a visual inspection, which will help you discover obvious defects and ensure the information about the condition of the property is current. This lesson defines two types of defects, patent and latent. The most extreme of latent defects are defects that render the home unsafe or uninhabitable. The lesson further explains a seller’s obligation to disclose these types of known latent defects. Upon completion of this lesson, you will be able to: • Explain the obligations of the seller to disclose known latent defects • Identify leading practices for a salesperson when conducting a visual inspection • Describe the types of defects a salesperson should identify when doing a visual inspection • Identify when to consult a third-party professional Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 3 of 32

As a salesperson, you will be required to perform due diligence and ask the seller questions about the condition of the property to determine whether the property has any defects. You will need to explain to the seller what would be considered a latent defect and the obligation to disclose certain types of defects known to the seller to all potential buyers.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 4 of 32

Patent Defect, Latent Defect, and Material Latent Defect As you learned earlier, a patent defect is a defect that is readily observable by the untrained eye. Since these are visible, seller obligation is not required. Examples of patent defects include: • A broken handrail • Cracks in the concrete basement floor • A broken step leading up to the front porch • Hardwood floors that are buckling • A crack in the granite counter top in the kitchen • Dampness on the interior foundation wall • Holes in the drywall • Deteriorating mortar in the brickwork

©2019 Real Estate Council of Ontario

A latent defect is not readily observable by the untrained eye during the reasonable inspection of a property. This includes any hidden flaw, weakness, or imperfection that a salesperson or buyer would not be able to see when viewing the property. Examples of latent defects include: • A large crack in the foundation wall behind the drywall in the recreation room • A detached garage encroaching on an adjacent property • Infestation of carpenter ants in the attic • A property with urea formaldehyde foam insulation (UFFI) The most severe type of latent defect is commonly referred to as a material latent defect. This defect poses a serious risk that can render the home unsafe, unhealthy, or otherwise uninhabitable to live in. Examples of material latent defects include: • A property where extensive basement flooding occurs during the spring thaw but cannot be detected in the winter • A property where a load-bearing wall has been removed during renovations and does not comply with the Building Code A seller must disclose all known latent defects to potential buyers. As a salesperson representing a seller, your obligation will be to advise the seller that all known latent defects must be disclosed. You must document this discussion and disclose this information to other brokerages and potential buyers on behalf of the seller.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 5 of 32

Seller Disclosure Obligations A seller is obligated to disclose known latent defects to all potential buyers. A buyer may not have entered into the contract had they been aware of the defect. In fact, the non-disclosure of known serious latent defects may invalidate the contract. As a salesperson, to avoid future legal issues and protect both the seller and the brokerage, you would: • Ask the seller questions about the condition of the property • Use a seller property information statement to help identify known latent defects and obtain the seller’s permission to make this statement available to all interested parties • Ensure the seller understands the importance of making accurate statements about the condition of the property, particularly relating to material latent defects • Remind the seller of their legal obligation to disclose known latent defects to all potential buyers

©2019 Real Estate Council of Ontario

• As you learned earlier, advise the seller that non-disclosure of a serious latent defect may invalidate the agreement of purchase and sale or lead to legal consequences Timing of the disclosure can be critical. If a latent defect is known to a seller, it must be disclosed to all interested parties as soon as possible. You could note the defect when listing the property or communicate the defect to the buyer’s salesperson when an appointment request is made to show the property. You would advise the seller that any offer should include a clause containing the buyer’s acknowledgement of the defect. Alternatively, the buyer’s salesperson could insert a condition in the agreement of purchase and sale that addresses the latent defect. For example, that the offer is conditional upon the inspection of the property by a third-party professional, such as a home inspector, electrician, or contractor as determined by the nature of the defect. You will learn about conditions later.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 6 of 32

A seller tells the salesperson of a known problem that affects water quality. The property, located in a rural area, has a well with unsafe drinking water. Insisting that the problem is seasonal because of spring water runoff, the seller does not want anyone else to know about this. What should the salesperson do next? There are four options. There is only one correct answer. 1 2 3 4

Advise the seller the problem is only seasonal and need not be addressed immediately Advise the seller the unsafe well will be discussed when the buyer makes the offer Advise the seller to fix the well before the property is listed Advise the seller that this information must be disclosed

©2019 Real Estate Council of Ontario

Lesson 2 | Page 7 of 32

Preparation of Questions to Ask the Seller You will need to prepare and ask the seller questions about the property before you conduct a visual inspection of the property to ensure you list it accurately and without misrepresentation. You should ask questions about the interior and exterior of the property and about any known latent defects. As you learned earlier, any known latent defects must be disclosed by the seller. You will then need to compare the responses the seller gives to what you discover when you conduct your visual inspection. If there is a discrepancy, you will need to address this issue with the seller. How to address this issue is explained later in this lesson. In the next screen, you will review examples of questions to ask the seller. A seller is not legally bound to complete a property disclosure form. If they do, the answers must be truthful and potential buyers and their salespersons must be told that the form exists and be given a copy, unless instructed otherwise by the seller. ©2019 Real Estate Council of Ontario

Lesson 2 | Page 8 of 32

Questions to Ask Sellers These questions have been adapted from OREA Form 220: Seller Property Information Statement. Whether you use a form or not, these are questions that need to be answered to prepare the listing data sheet accurately and to market the property. The following three sections contain information on examples of questions you would need to ask the seller.

General information questions • How long have you occupied the property? • Who else is on title or has a spousal interest in the property? • How old is the house approximately? • Is there a survey? When was it completed? • Are there any rights-of-way, easements, or encroachments? • Have there been any disputes with neighbours about rights-of-way, easements, encroachments, or other boundary-related issues? • Is the property connected to both municipal water and/or sewage services? • Is there an existing well or septic system? What documentation do you have about the existing well or septic system? • What heat sources do you use?

©2019 Real Estate Council of Ontario

• Is the property subject to any special designation; for example, a heritage designation? • Do you know of any issue about the property not complying with the zoning regulation? • Did you ever receive any notice, claim, work order, or deficiency notice about the property from a government body? • Are the appliances free of defects and in good working order? If not, describe the issue.

Environmental questions • Do you know of any environmental problems or soil contamination? • Is there an underground fuel tank on the property? If so, what type of fuel tank? • Is the property located on a flood plain and subject to flooding? • Are you aware of any existing or proposed waste dumps, disposal sites, or landfills in the surrounding area? • Are you aware of soil problems, such as excessive erosion, settling, slippage, or sliding? • Do you know if the property has been used to manufacture illegal substances?

©2019 Real Estate Council of Ontario

Structural questions • Did you make any alterations or additions to the property? • (If yes) When was the work done? Was a building permit issued? • Did you make any other changes that are not readily observable? • Are there any problems with heating, ventilation, and air conditioning? • Are there any problems with the plumbing? • Do any of the plumbing pipes contain lead, galvanized metal, or cast iron? • Do you have Kitec plumbing (the pipes are orange and blue plastic)? • Are there any problems with excessive moisture or mould? • Are there any problems with the roof? Does the roof leak?

©2019 Real Estate Council of Ontario

Lesson 2 | Page 9 of 32

As a salesperson, you will need to conduct a thorough visual inspection of the interior and exterior of a property. You should look everywhere – from the attic to the basement, from the front porch to the back porch, from the front yard to the backyard, and from the roof to the exterior walls. If the property has a garage, a shed, or a crawl space, inspect these as well. Complete and current information is necessary to market the property accurately and without misrepresentation. What you discover may be considered a material fact, as you learned earlier, and material facts must be disclosed to your seller. You should also identify potential issues that should be addressed before the property is listed, and issues that may require the services of a third-party professional.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 10 of 32

Importance of Conducting a Thorough Visual Inspection A visual inspection conducted by a salesperson is not the same as one conducted by a home inspector. A home inspector has the training to be able to identify potential issues not readily observable. As a salesperson, the focus of a visual inspection will be to: • Gather complete and current information about the property so it can be listed accurately and without misrepresentation • Determine material facts so these can be communicated to the seller • Identify and note potential issues that will need to be addressed before the property is listed • Identify and note potential issues that may require the services of a third-party professional, such as an electrician A consequence of not conducting a thorough visual inspection is losing the seller’s confidence if the buyer and/or the buyer’s salesperson discover an issue that neither you nor the seller knew about. In addition, you and the seller may be held accountable if the buyer discovers an issue that was not disclosed that should have been. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic. ©2019 Real Estate Council of Ontario

Lesson 2 | Page 11 of 32

Interior Property Conditions When inspecting the interior of the property, you will need to look everywhere, from the basement to the attic. You will also need to look at the heating and air conditioning system, and the plumbing in the kitchen and bathrooms. The following six sections contain information on what to look for when conducting an interior visual inspection. Some of these items are necessary to complete the listing data sheet, while others may need to be repaired prior to putting the house on the market. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Attic and basement What to look for: • Finished or unfinished • Cracks • Moisture • Mould • Peeling paint • Water stains

©2019 Real Estate Council of Ontario

Floors and staircases What to look for: Floors: • Type of floors (hardwood, laminate, broadloom, ceramic) • Condition of the floors (slanted, warped) Staircase: • Safety rail • Slanted or loose stairs • A large number of stairs that would be a problem for a person with limited mobility

Foundation What to look for: • Cracks • Efflorescence (indicates previous presence of moisture)

©2019 Real Estate Council of Ontario

Heating, ventilation, air conditioning (HVAC) What to look for: • Type of heating source – electric, gas, ground source, oil, propane, solar, or wood • Type of air conditioning – packaged or central air

Plumbing and wiring What to look for: Plumbing: • Kitec plastic plumbing • Pipes – lead, galvanized metal, cast iron • Insulated pipes (possible asbestos insulation) • Leaks • Out-of-date systems Wiring: • Knob-and-tube wiring • Aluminum wiring • Out-of-date systems • Inadequate amperage

©2019 Real Estate Council of Ontario

Walls and ceiling What to look for: • Cracks • Moisture • Water stains • Mould

©2019 Real Estate Council of Ontario

Lesson 2 | Page 12 of 32

Exterior Property Conditions When conducting a visual inspection of the exterior of the property, you will need to inspect not only the outside of the main building, but also the lawn, patios and other outdoor areas, and any secondary buildings, such as sheds or garages. The following four sections contain information on what to look for when conducting an exterior visual inspection. Some of these items are necessary to complete the listing data sheet, while others may need to be repaired prior to putting the house on the market. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Exterior areas – porch, walls, doors, and windows What to look for: • Exterior wall – cracks, water stains • Doors – type, peeling paint, how easily it opens and closes • Windows – type, age, closure • General wear and tear

©2019 Real Estate Council of Ontario

Front yard and backyard What to look for: • Grass/lawn – whether grass is overgrown, presence of weeds • Unusual depressions in the lot grading • Potted plants/garden – whether it appears vibrant, well-kept • Condition of any fencing • Pipes sticking out of the ground – could be an indication of a buried oil tank

Roof What to look for: • Type of roof covering • Age of the shingles • Missing shingles

©2019 Real Estate Council of Ontario

Secondary structures What to look for (if there are structures on the property other than the main dwelling): • Detached garage – general wear and tear (for example, peeling paint), or does its roof encroach on another property • Shed – does it encroach upon another property

©2019 Real Estate Council of Ontario

Lesson 2 | Page 13 of 32

Strategies for Discussion Once you have conducted the visual inspection of the seller’s property, you will need to discuss the results with the seller. This discussion can be tricky if you discover something that contradicts what the seller has told you. Consider the following strategies to help you navigate through a potentially sensitive situation: • Explain to the seller that their perception of the issue may differ from your perception; a potential buyer may have another perception; for example, peeling paint in the upper level may indicate a leaky roof • Ask for documentation from other third-party professionals to identify the current status of the repair, such as the recent paid invoice for new shingles • Recommend that the seller repair minor items before putting the property on the market, and how they may affect the sale of the property if left in poor condition

©2019 Real Estate Council of Ontario

• Recommend that the seller contact a third-party professional to provide a quote to repair the problem (if the lack of disclosure was due to the seller’s fear that repair would be costly) Remember, what the seller may have told you could have been because they did not know. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 14 of 32

Document Property Areas Not Accessible to Inspect Some areas of the property may not be accessible for inspection. For example, the property may have a central air conditioning system or swimming pool that cannot be inspected at the time of the listing because it is winter.

©2019 Real Estate Council of Ontario

Leading practices to document any area of a property that may not be accessible during the visual inspection are as follows: • Note which area of the property could not be accessed during the visual inspection • Ask the seller questions about this area and note what the seller says and keep the notes in the seller’s file • Communicate this information to the buyer’s salesperson, as the buyer may include a condition in the agreement of purchase and sale about having a satisfactory inspection of that item: o Note this information on the listing (in the private salesperson remarks section) o When a buyer’s salesperson makes an appointment to show the property, remind them to review the private salesperson remarks on the listing to ensure they are aware of any issues that may exist You will learn about conditions in another module. Example: A seller and buyer are negotiating an offer on the seller’s home. The property has a swimming pool that cannot be inspected because it is winter. From the perspective of the seller, the seller’s salesperson can include an assurance from their client in the agreement of purchase and sale that the swimming pool and its equipment were winterized by a pool maintenance company the previous year. The salesperson representing the buyer could insert representation and warranty clauses in the offer to address various issues regarding the condition of the pool. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 15 of 32

Identification, Discussion, and Disclosure of Property Defects Earlier in the lesson you learned about how a salesperson can familiarize themselves with the property by asking effective questions and conducting a thorough visual inspection. A crucial aspect of a salesperson’s due diligence is their obligation to identify and discuss any property defects with the seller to ensure the required disclosures are

©2019 Real Estate Council of Ontario

made. You have already learned what to look for to discover potential defects. Now let’s focus on how to explore defects with a seller. Ask the seller specifically about defects. For example: • Are you aware of any defect on your property? If the seller answers yes, ask the following: o What type of defect is it? o Have you fixed the defect? o (If yes) Do you have a warranty/receipt to indicate when and how the defect was fixed? Tell the seller the following: • They have a legal obligation to disclose known latent defects • Failure to disclose known latent defects could invalidate an agreement they enter into with a buyer • Withholding information about known latent defects can lead to litigation; for example, the buyer sues the seller for not disclosing a rodent infestation in the attic An accurate and complete listing supported by validating documents is the best defence against future legal problems. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 16 of 32

A newly registered salesperson is about to conduct their first visual inspection. The salesperson knows this is an important step because she will need the information to market the property accurately and without any misrepresentation. The broker of record tells the salesperson that the brokerage has a list of questions she can use but tells her to prepare her own list of questions first. Which of the following questions should the salesperson ask the seller? There are four options. There are multiple correct answers. 1 2 3 4

How long have you owned the property? What is the source of your water supply? At what price do you want to list the property? Does the creek at the back of the property usually overflow in the spring?

Lesson 2 | Page 17 of 32

A newly registered salesperson is about to conduct their first visual inspection. The salesperson knows this is an important step because she will need the information to market the property accurately and without any misrepresentation. The broker of record tells the salesperson that the brokerage has a list of questions she can use but tells her to prepare her own list of questions first. Which of the following questions should the salesperson ask the seller? There are three options. There are multiple correct answers. 1 2 3

Have you ever filed for bankruptcy? Do you know what type of plumbing pipes you have? Did you make any renovations? ©2019 Real Estate Council of Ontario

Lesson 2 | Page 18 of 32

As a salesperson, when you are conducting a visual inspection of a property, you will only be able to identify certain types of defects, those that are readily observable by the untrained eye. As you learned earlier, these types of defects are called patent defects. Most likely, you will not be able to identify any type of latent defects, which are not readily observable by the trained eye. These types of defects, if not known, will only be able to be identified by an appropriate third-party professional. You will need to advise the seller of their obligation to disclose known latent defects. Your obligation will be to document and provide the appropriate disclosures to other brokerages and buyers on behalf of the seller. If your seller is unsure as to what needs to be disclosed, they should be directed to obtain professional legal advice.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 19 of 32

Identification and Disclosure of Defects After you complete your visual inspection of the seller’s property, you will need to advise your seller to disclose all known latent defects to potential buyers. As the law is technical and always changing, if your seller is unsure or uncomfortable with what information must be disclosed, you would advise the seller to speak to their lawyer for professional advice. ©2019 Real Estate Council of Ontario

You may use a disclosure statement to document the defects or keep your own notes. If there is a disclosure statement, the salesperson should ensure the information is accurate and provide a copy to all parties in the transaction. If there is no disclosure document, then you should provide instructions to the co-operating brokerage to call the listing brokerage prior to showing and/or drafting an offer so the information can be disclosed at that point. You can provide the instructions in the listing data sheet that is uploaded to the local real estate board for the co-operating brokerage to view. Alternatively, you can upload to the local real estate board a schedule containing the disclosure, which can be viewed and/or downloaded by other brokerages. Example: During the pre-listing inspection, the salesperson notes that there is hardwood flooring throughout the home. However, in the living room, the hardwood is covered by a large area rug. The seller tells the salesperson that the hardwood in the living room was severely damaged by a plumbing leak several months ago. Instead of repairing the damage, the seller covered it over with this area rug. The salesperson advises the seller that this would be considered a latent defect and to be safe, should be disclosed to potential buyers. The salesperson discusses with the seller how this disclosure will be documented. For example, an acknowledgement clause would be included in the agreement of purchase and sale.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 20 of 32

Impact of Visual Defects on the Sale Visual defects may affect the value and sale of a property. As you learned earlier in this module, you would need to look everywhere when conducting a visual inspection. Following is a list of defects you should look for that may affect the value and sale of a property: • Crack in the foundation – could lead to water penetration or infestation of insects and vermin ©2019 Real Estate Council of Ontario

Slanted floor or staircase – the warped materials causing the issue will need to be replaced Evidence of mould – indication of a high moisture areas with poor ventilation Water stains on the ceiling – usually indicates there are leakage issues with the roof or plumbing Shingles missing from the roof – possible indication the roof will need to be replaced Pipe sticking out of the ground outside the house – possible indication of a buried oil tank More than one well on the property – possible indication that the previous owners may have had water shortages or other problems with their existing well • Old plumbing pipes with wrapped insulation – possible indication of asbestos insulation • • • • • •

Visual defects are obvious to anyone viewing the property; however, the cost to repair them may be costly and could involve consultation with an appropriate third-party professional, such as a contractor or plumber. Not fixing these types of defects before a property is listed may affect the sale. Prospective buyers may not want to assume the costs of fixing the defects, or may assume that the home has not been well maintained. They may wonder what else could be wrong with the property. On the other hand, a prospective buyer may decide that the property is listed at a price within their budget and fixing the defects would not be a financial burden. Or, a prospective buyer may decide to make a lower offer to offset the cost of repairing the defects. Example: A salesperson conducting a visual inspection of the seller’s property notices a long hairline crack that runs along the top of the bedroom wall where it joins the ceiling. Concerned that the crack may be an overall structural problem, the salesperson should advise the sellers to obtain a home inspection or have the crack assessed by an expert in that field. If the crack is due to an overall structural problem, this information would need to be disclosed when listing the property, thereby making the property less appealing to many potential buyers. If a buyer is interested in purchasing the property, they are likely to include a clause making the offer conditional upon being satisfied with a home inspection report or the issue being repaired/remediated.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 21 of 32

It is early spring, and some snow is still on the ground. The snow melts a few days before the scheduled home inspection of the property, heated by natural gas. The buyer’s salesperson had recommended a home inspection before proceeding with the purchase. The melting snow reveals pipes sticking out of the ground in the backyard. The inspector discovers a buried oil tank on the property at the back of the house. What type of defect did the home inspector discover? There are three options. There are multiple correct answers. 1 2 3

Patent defect Material latent defect Latent defect

Lesson 2 | Page 22 of 32

A salesperson is explaining the different types of defects to the seller. The seller tells the salesperson they installed a new balcony on the second floor of the house the previous summer. The salesperson confirms with the seller that they obtained the permits to build the balcony. The salesperson notices gaps at multiple points along the railing. The seller explains that the railing was damaged by falling tree branches during a storm. What type of defect did the salesperson notice? There are three options. There is only one correct answer. 1 2 3

Latent defect Material latent defect Patent defect ©2019 Real Estate Council of Ontario

Lesson 2 | Page 23 of 32

Put the Seller’s Needs First As a salesperson, you will be obligated under the Code of Ethics to provide conscientious and competent service to clients and customers, and demonstrate reasonable knowledge, skill, judgement and competence in providing those services. Meeting this obligation will require that you recognize situations where you are not an expert, and do not have the knowledge or experience to provide the seller with the services they need that will promote and protect their best interests. In these types of situations, you are obligated under the Code to advise the seller to obtain the services

©2019 Real Estate Council of Ontario

from another professional. As you conduct the visual inspection of the seller’s property, you will need to note which potential issues can be easily addressed by the seller and which potential issues will require the services of an appropriate third-party professional. Examples of issues that may require the services of a third-party professional include: • Electrical, such as faulty wiring or work that does not meet the building and/or fire codes • Environmental, such as mould, lead, or hazardous waste disposal • Structural, such as concerns about the roof, basement, or foundation Your next steps would be to: • Advise the seller to hire the professional to fix whatever major issue you detected before you list the property • Provide the seller with the names of three professionals, at minimum, to avoid an actual or perceived conflict of interest • If the seller is not willing to undertake the necessary repairs, advise the seller to price the property accordingly and pass on the repair estimates to an informed buyer

©2019 Real Estate Council of Ontario

Lesson 2 | Page 24 of 32

Consultation with a Third-Party Professional A salesperson is not expected to be an expert in home repairs or construction, but they are obligated under the Code of Ethics to recommend that a seller consult a third-party professional as required. As a salesperson, if advising the seller to consult with a third-party professional, provide the seller with the names of three individuals to avoid any appearance of a conflict of interest. ©2019 Real Estate Council of Ontario

Example: A salesperson is representing a seller who wants to sell their home on Maple Street. The seller tells the salesperson that their home was built in the early 1950s and had made several renovations since they bought it. One major renovation was lowering the basement floor to accommodate a rec room. During the visual inspection, the salesperson notices that the carpeting in one corner of the basement is damp, evidence of possible water seepage. The seller tells the salesperson that a home inspection was conducted two years prior and the inspector said the water seepage was structural. The seller adds that they hired a contractor to correct the problem, caused by the lowered basement floor. The salesperson advises the seller that it would be in their best interest to hire a basement and water proofing specialist to determine if the repairs were done properly or if additional repairs are needed, as the problem may have returned since the initial repairs were done.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 25 of 32

A salesperson has just completed a visual inspection of the seller’s property. The salesperson notices several issues that need to be addressed. The basement when being used as a storage area requires the services of a third-party professional as it will be considered a major repair. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 2 | Page 26 of 32

A salesperson has just completed a visual inspection of the seller’s property. The salesperson notices several issues that need to be addressed. The walls are stained and discoloured and one of the bedrooms smells of mildew. This requires the services of a third-party professional as it will be considered a major repair. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 27 of 32

A salesperson has just completed a visual inspection of the seller’s property. The salesperson notices several issues that need to be addressed. The foundation has a large crack that requires the services of a third-party professional as it would be considered a major repair. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 2 | Page 28 of 32

A salesperson has just completed a visual inspection of the seller’s property. The salesperson notices several issues that need to be addressed. The shower head leaking requires the services of a third-party professional as it will be considered a major repair. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 29 of 32

A salesperson has conducted a visual inspection of the seller’s property. The salesperson recognizes that the property needs minor and major repairs before it can be listed. While conducting a visual inspection, the salesperson notices pipes sticking out of the ground in the backyard, which leads to the discovery of a buried fuel oil tank. In this case, the salesperson should refer a TSSA technician to the seller to address the defect. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 2 | Page 30 of 32

A salesperson has conducted a visual inspection of the seller’s property. The salesperson recognizes that the property needs minor and major repairs before it can be listed. While conducting a visual inspection, the salesperson notices an unusual number of roof vents, evidence of tampering with the electric meter, and brownish stains on the underside of some beams and arches. In this case, the salesperson should refer a surveyor to the seller to address the defect. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 31 of 32

A salesperson has conducted a visual inspection of the seller’s property. The salesperson recognizes that the property needs minor and major repairs before it can be listed. After being questioned by the salesperson, the seller admits the house has vermiculite insulation. In this case, the salesperson should refer asbestos testing service to the seller to address the defect. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 32 of 32

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were discussed in this lesson.

Seller’s obligations for disclosure

A salesperson should make a reasonable effort to discover latent defects and know how to discuss disclosure requirements with the seller. A buyer who discovers an undisclosed latent defect (that was known by the seller and salesperson) after the transaction closes may file a complaint or a lawsuit, both of which may damage the reputation of the brokerage and the salesperson. The salesperson should conduct a thorough visual inspection of the interior and Leading practices for exterior of a property and recognize specific property conditions that may affect conducting a visual the listing and sale. A salesperson should also know how to document defects inspection properly and understand their obligations to obtain information about the property from the seller. Types of defects to identify While completing a visual inspection of a property, a salesperson should be able to distinguish between a patent defect, a latent defect, and a material latent defect, and understand their obligation to disclose known latent defects to the potential buyer and their salesperson on behalf of the seller. Patent defect – A defect that is readily observable by the untrained eye. Latent defect – A defect that is not readily observable by the untrained eye during the reasonable inspection of a property. This includes any hidden flaw, weakness, or imperfection that a salesperson or buyer would not be able to see when viewing the property. The most severe type of latent defect is a material latent defect. Material latent defect – The most severe type of latent defect is a material latent defect. This defect poses a serious risk that can render the home unsafe, unhealthy, or otherwise uninhabitable to live in. ©2019 Real Estate Council of Ontario

Third-party professionals

The salesperson must understand their obligations to provide conscientious and competent services, and when it is appropriate to contact a third-party professional to address defects on the structure or surrounding property since it is beyond the expertise of the salesperson to make such recommendations. (Code, Sec. 4, 5, and 8). Examples of repairs that require the services of a third-party professional include: • Electrical issues, such as faulty wiring or work does not meet the building and/or fire codes • Environmental issues, such as mould, lead, or hazardous waste disposal • Structural issues, such as concerns about the roof, basement, or foundation

©2019 Real Estate Council of Ontario

Lesson 3 | Page 1 of 23

Lesson 3: Gather Key Information

This lesson identifies the information required to list a residential property, explains the importance of verifying this information, and highlights characteristics of the neighbourhood and surrounding properties that may have an impact on property value and marketability.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 2 of 23

As a salesperson, you will need to gather key information about the property to list it accurately. You will need to obtain this information and verify its accuracy to complete the data sheet. Gathering key information about the property will help you sell it as quickly as possible and for a price acceptable to the seller. You will also need to consider the location of the property. Identical homes in two different locations can have significantly different market values. Location and neighbourhood characteristics will affect saleability. Upon completion of this lesson, you will be able to: • Identify information required to list a residential property and the importance of verifying the information • Identify the characteristics of a neighbourhood that may impact the appeal of a residential property Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 3 of 23

Key Property Information When listing a property, you will need to gather and verify information about the property. Let’s start that discussion with information that can cause confusion for both sellers and buyers: chattels and fixtures. A chattel is personal property that is tangible and moveable, such as furniture. A fixture is a permanent improvement to the house and becomes part of the property, such as a chandelier. Because the chandelier is attached, it is considered a fixture and a potential buyer would assume it will stay with the house and be included in the purchase price. If the chandelier is to be excluded, this information would be stated on the listing and noted in the agreement of purchase and sale. The same principle applies to chattels. Appliances such as a fridge or a stove are considered chattels because the seller can take them when they sell the property. A seller may choose to leave the appliances with the property, and these are included in the purchase price. This information, too, must be clearly noted on the data sheet and the agreement of purchase and sale. The purpose of having a discussion with the seller of what is and is not included with the sale of the property is to avoid any misunderstandings or assumptions. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 4 of 23

Key Property Information In addition to discussing chattels and fixtures, you will need to ask the seller for specific information about the property; namely, information relating to registration and land-use restrictions. The following five sections contain information that you will need from the seller to list their property. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Ownership and title Confirm the following with the seller and gather documentation where applicable to support: • Who is registered on the title. • If anyone has a spousal interest in the property. This means the spouse is not on title but has an interest in the property. • If the property is subject to a first right of refusal. The right of first refusal means there is a thirdparty interest or claim on a property, such as a mortgage. • Mortgages, lines of credit, or other debt obligations registered against title.

©2019 Real Estate Council of Ontario

Land use restrictions Confirm the following with the seller and gather documentation where applicable to support: • Encroachments, easements, or rights of way indicated on the survey • Disputes with neighbours about the given issues or other boundary-related disputes • Special designations, such as a heritage property

Zoning Confirm the following with the seller and consider follow up with the municipality: • Zoning bylaws and restrictions • Compliance with the zoning • Municipal plans for re-zoning the property or neighbouring properties, if any

©2019 Real Estate Council of Ontario

Property taxes and notice of assessment Confirm the following with the seller: • Current property tax bill based on assessment provided by the Municipal Property Assessment Corporation (MPAC). MPAC is a not-for-profit corporation that assesses property values used as a basis for calculating property taxes. • Acknowledgement that the property taxes have been paid. • Special assessments (if the seller is unclear, the salesperson should check with the local municipal office).

Other costs associated with ownership Confirm the following with the seller and obtain copies of: • Utility bills • Other costs/bills for the past 12 months

©2019 Real Estate Council of Ontario

Lesson 3 | Page 5 of 23

Key Property Information and Methods for Verification You will need information about the property’s physical aspects, such as lot size and the size of rooms. When you have this information, you will need to verify it to ensure it is accurate before listing the property. You will be held accountable if you: • Fail to discover and disclose material facts at the earliest possible opportunity • List the property and the information is inaccurate The following three sections contain information on what you should do to verify the information relating to the property’s physical aspects. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Lot size To verify the accuracy of the lot size: • Review and retain a copy of the survey from the seller and keep it on file for reference. • Review and compare source documents, such as the tax bill and notice of assessment from MPAC, which contain the lot frontage and depth. • Include the frontage and depth for rectangular lots, full dimensions for irregular lots, and dimensions and/or exact acreage for larger tracts.

©2019 Real Estate Council of Ontario

Total living area Although no standardized method of measurement for total living area exists, the total living area still needs to be verified. To verify the accuracy of the total living area: • If your brokerage is a member of organized real estate, check with the local real estate board for measuring guidelines; for example, a range of square feet/square metres. • Purchase a report from GeoWarehouse®. • Obtain the builder’s floor plans from the seller, if it is newer construction. You will learn more about how to measure a residential real property later in this module.

Room sizes To verify the accuracy of room sizes: • Document any irregularly shaped rooms, including how that room was measured (for example, “from the widest point”). If measurements are taken from the widest point, note this information in the remarks section of the data sheet. • Measure rooms yourself; you should not rely solely on previous listing information, which should be used only as a source of comparison.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 6 of 23

Key Property Information and Methods for Verification: Physical Aspects You will also need information relating to the heating, ventilation, and air conditioning systems; the well and septic system; wiring; and plumbing. The following six sections contain information on what you should do to verify the information relating to the property’s physical aspects. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Heating, ventilation, and air conditioning (HVAC) To verify the accuracy of the information about the HVAC system, review source documents (e.g., utility bills, statements, receipts, reports, etc.) to: • Determine the age of the HVAC system, and whether the components are owned, leased, or rent-to-own. • Determine whether the heating fuel source is gas, electric, wood, or propane. • Determine the age of the hot water tank and a water softener, and whether they are rented, leased, or owned.

©2019 Real Estate Council of Ontario

Well/septic system To verify the accuracy of the information about well and/or septic system: • Ask the seller if the property is connected to municipal water/sewer services; if the seller does not know, contact the local municipality. • Obtain available documentation regarding any existing well or septic system. • Ask the seller if they ever had their municipal water tested; if yes, ask why and request a copy of the test report, if available. • Ask if the seller is a party to a community, or shared, well (if yes, review the agreement and obtain a copy for your files) and whether the well is dug or drilled. • Ask if there is a cistern (a tank for storing water). • Ask whether the water is pumped from a lake or river (if there is no municipal water supply or existing well). • Ask when the septic tank was last pumped and any services/repairs that may have been completed; ask for a copy of these reports. Wells/septic systems were discussed in previous modules.

©2019 Real Estate Council of Ontario

Wiring To verify the accuracy of the information about wiring: • Determine the type of electrical system in a newer house—60-amp, 100-amp, or 200-amp service. In older homes the panel may have been upgraded to accommodate 100 amps, but the actual wiring is only 60 amps. If in doubt, rely on an electrician to make the determination. • Verify and note if there are any sub-panels in the house, the garage, and other buildings on the property. • Ask the seller if they know whether the wiring is copper or aluminum and if there is any knoband-tube wiring. • If the wiring is visible in an unfinished part of the basement, words stamped on the insulation, such as Alcan, alum, or aluminum, will indicate aluminum wiring. Some aluminum wiring found on a property does not necessarily mean all the wiring is aluminum. Do not take the cover off an electrical panel or junction box to inspect the wiring, which can be dangerous. A professional electrician should verify this information. • Consult with a third-party professional, as necessary, to verify the information or if you do not have the knowledge, experience, or skills to provide a qualified opinion or advice.

©2019 Real Estate Council of Ontario

Plumbing To verify the accuracy of the information about plumbing: • Visually inspect the plumbing to determine whether it is copper, PVC, Kitec, lead, or galvanized. • If Kitec exists, recommend that an inspection and written report be completed by a licensed plumber regarding the current condition of the plumbing.

Rental contracts Rental contracts may exist on items such as the alarm/security system, thermostat, hot water tank, water softener, water filtration system, and furnace. If any item is rented, confirm the following with the seller, by asking to see the contract: • Can a potential buyer assume the rental contract? • Is the item a conditional sales contract disguised as rent-to-own? Ensure all rental appliances, contracts and terms are noted in the listing agreement and the agreement of purchase and sale.

©2019 Real Estate Council of Ontario

Rent-to-own If any item is included in a rent-to-own program: • Advise the seller that the outstanding balance of the contract may have to be discharged on or before the completion date of sale and cannot be assumed by the new owner. • Advise the seller to contact the service provider to verify any costs associated with a transfer of the contract to a new owner or if the contract can be cancelled, if necessary. • At the offer stage, provide a copy of the original contract to the potential buyer for their review.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 7 of 23

Importance of Verifying Listing Information As a salesperson, you will have a regulatory obligation to verify that the information about the seller’s property is current, accurate, and complete. According to the Code of Ethics, a salesperson must take reasonable steps to determine material facts about the property. If you cannot resolve unknown issues about the property and questions persist, you should consider not accepting the listing. You may inadvertently misrepresent the property to prospective buyers, thereby creating liability for the owners, the brokerage, and yourself. A thorough and accurate accumulation of information with verified sources is the best protection for the client and for the salesperson. To recap, the methods to verify information include: • Talk to the seller and ask specific questions • Consult original source documents whenever possible ©2019 Real Estate Council of Ontario

• Prepare a list of action items that includes the following (this is not an exhaustive list): o Review support documents, such as receipts, warranties, and permits o Confirm the property’s legal description with source documents o Obtain land records from a land registry office or online service o Confirm the age of reports, supporting documents, and property tax statements o Obtain and review a copy of the survey and note the date of completion o Determine whether the tax bill is an interim tax notice or a final tax notice o Confirm that the date on the tax bill is for the current year o Review the deed/transfer of land document and legal description and check that they align with the information provided by the seller o Check land registry records online to confirm property information o Pay close attention to accuracy when describing lot size and lot irregularities o Note significant problem areas that may warrant further analysis o Consult with third-party professionals, as needed o Determine what improvements were made during the current ownership period While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 8 of 23

A salesperson is about to list a property on the local listing service. To ensure the property is listed accurately, the salesperson asks the sellers specific questions and verifies the information by consulting source documents and municipal records. The salesperson checks dates to make sure that the information is not outdated. From the following, what information is the salesperson required to collect and verify? There are five options. There are multiple correct answers. 1 2 3 4 5

Property's physical characteristics Previous owner’s tax notices and property tax statements Title to the property Information about missing shingles on the neighbouring property’s roof and its poorly maintained front yard Heating and air conditioning system (HVAC) of the property to be listed

©2019 Real Estate Council of Ontario

Lesson 3 | Page 9 of 23

A particular neighbourhood can have a significant impact on the value and marketability of a property. As a salesperson, you will need to be aware of factors outside the property itself that can influence its value. You will need to conduct research to identify aspects of the neighbourhood that may attract potential buyers and features of the surrounding properties that may be problematic, so you can anticipate how to address these problems proactively. Consider how these features and characteristics may affect marketability and value, and how they can help you estimate at an appropriate listing price. In terms of objective value, you will need to know the four principles that explain how the condition and appeal of the neighbourhood and surrounding properties can impact the marketability and value of a property—conformity, progression, regression, and external factors. Further, overall economic conditions within the immediate area, the region, or the country can impact the value of real estate.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 10 of 23

Value Concepts In addition to gathering information about a seller’s property, you will need to be aware of other factors, other than the property itself, that may influence the property’s value. These factors include the environment or the neighbourhood in which the property is located. You will need to identify aspects of the neighbourhood that may attract potential buyers or that may be a detriment to marketing the seller’s property. These considerations will factor into your discussions with the seller when estimating the value of the property to arrive at an appropriate listing price and will influence your marketing strategies.

©2019 Real Estate Council of Ontario

When conducting your research, focus on identifying what amenities and municipal services are in close proximity to the seller’s property, how they are likely to be perceived by potential buyers, and what impact they may have on property values. Look for any features of the neighbourhood that may be problematic for potential buyers so you can anticipate how to address these problems proactively. Also look at the surrounding properties and consider how their features and characteristics may affect the marketability and value of the property. Let’s start with exploring how a neighbourhood’s features can impact property value. Example: A salesperson is representing a seller who is about to retire and wants to sell her 1,200-square-foot, three-bedroom bungalow with an oversized swimming pool in the backyard. The seller, a former athlete, believes the pool adds value to the property in terms of personal health and fitness, and wants a higher price for the property than the one recommended by her salesperson. From the perspective of an average buyer, the size of the pool may add little or no particular value and may discourage them from making an offer.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 11 of 23

Impact of the Neighbourhood and Surrounding Properties on Value In terms of objective value, four principles explain how the condition and appeal of the neighbourhood and surrounding properties can impact the marketability and value of a property. The following four sections contain information on the four principles of value.

Conformity To maintain maximum value, land is used to reasonably conform with the existing standards in the area. The word ‘reasonably’ refers to the degree of conformity. Too much conformity where all the houses look exactly the same can have a negative impact on value. For example, in a residential area, a variety of building styles of the same quality is more visually appealing than a row of identical houses.

©2019 Real Estate Council of Ontario

Progression In a neighbourhood where properties are not similar, the presence of a superior property will have a positive impact on the value of an inferior property (i.e., a superior property will increase the value of an inferior property).

Regression In a neighbourhood where properties are not similar, the presence of an inferior property will have a negative impact on the value of a superior property (i.e., the inferior property will decrease the value of the superior property).

©2019 Real Estate Council of Ontario

External factors External factors refer to a variety of situations or circumstances that can affect the value of a property. For example, the value may increase or decrease depending on the property’s proximity to services, amenities, environmental conditions, etc. You will learn about specific external factors later in this module.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 12 of 23

External Factors: Neighbourhood and Area Characteristics To market a property effectively, you will need to conduct the necessary research to determine market value and, with the seller, arrive at a listing price that is appropriate for the market. Value is affected by what is located on the property and what is adjacent to the property. Anything beyond the control of the property owner can impact value, whether it is the type of property next door or the services available in a specific neighbourhood. The following seven sections contain information on external factors that may affect the value or appeal of a property.

Area schools A property located close to a school can be both positive or negative, depending on the buyer. A family with younger children would consider a nearby school to be positive. An individual or a couple without children may view the location of a school as unwelcome noise or traffic. The quality or reputation of the school can also be a factor.

©2019 Real Estate Council of Ontario

Public transit Access to public transit can be positive or negative, depending on the buyer. A buyer who uses public transit regularly will consider such access as positive because of convenience. A buyer who does not use public transit may consider a well-travelled bus route as unwelcome noise or traffic.

Municipal water and sewers versus private systems If a property has well water, the seller is responsible for maintaining safe drinking water. Water coming from the city is treated before it reaches the property. If the property is not serviced by municipal sanitary sewers, the seller will require a private sewage system. Some buyers may prefer not to maintain a private well and septic system.

©2019 Real Estate Council of Ontario

Proximity to environmental hazards and stigmatized land uses How land is used may create stigmas in the minds of buyers. For example, land use that may create stigma includes: • Toxic waste sites • Landfills • Petrochemical refineries • Nuclear power plants • Certain manufacturing facilities • Animal feeding operations • Airports • Prisons • Cemeteries Other environmental factors that may be seen as stigmas include hydro transmission towers, phone/radio/television towers, railway lines and wind turbines.

©2019 Real Estate Council of Ontario

Amenities Proximity to local stores, shopping centres, recreation facilities, and restaurants can be viewed as both positive and negative. They are positive for individuals who enjoy having access to these types of amenities. They are negative for individuals who do not like traffic or noise. The smells from restaurants, fast-food drivethroughs, and their garbage bins can cause annoyance. Light encroachment from nearby plazas and fast food restaurants could also cause annoyance.

Municipal plans Municipal plans for the neighbourhood and surrounding areas, such as highway construction or rezoning, may have an impact on property value. For example, a potential buyer who wants to purchase a property and build an addition to the house may decide not to purchase the property when they discover that it is too close to the rear lot line and violates the existing zoning bylaw.

©2019 Real Estate Council of Ontario

Economic/market conditions Overall economic conditions within the immediate area, the region, or the country will affect the value of a property. In a seller’s market, the number of buyers who want to purchase a property exceeds the supply, resulting in: • Properties that sell quickly • Rising prices due to competition from multiple offers • Buyers having to make hurried decisions • Buyers having offers with conditions rejected by sellers because of multiple offers • Buyers making firm offers without the protection of typical conditions; for example, home inspection and financing In a buyer’s market, the number of properties listed exceeds demand, resulting in: • More inventory is available • Lower prices due to the increased number of available competing listings • Fewer buyers are actively searching for properties • Properties being on the market for longer periods • Buyers taking a longer time to purchase a property • Buyers viewing more properties • Sellers willing to accept offers with more conditions; for example, conditional upon the sale of a buyer’s property

©2019 Real Estate Council of Ontario

Lesson 3 | Page 13 of 23

A salesperson is representing a buyer whose company just transferred him to another city. Being new to the city, the buyer, an avid jogger and environmentalist who drives a hybrid car, is looking for an affordable property in a vibrant neighbourhood. The company’s satellite office is located about 35 kilometres from the city core. The salesperson has begun searching for properties that meet the buyer’s needs. The salesperson would consider a property with easy access to a highway as ideal for this buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 14 of 23

A salesperson is representing a buyer whose company just transferred him to another city. Being new to the city, the buyer, an avid jogger and environmentalist who drives a hybrid car, is looking for an affordable property in a vibrant neighbourhood. The company’s satellite office is located about 35 kilometres from the city core. The salesperson has begun searching for properties that meet the buyer’s needs. The salesperson would consider a property near a park that the municipality is proposing to transform into a landfill as ideal for this buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False ©2019 Real Estate Council of Ontario

Lesson 3 | Page 15 of 23

A salesperson is representing a buyer whose company just transferred him to another city. Being new to the city, the buyer, an avid jogger and environmentalist who drives a hybrid car, is looking for an affordable property in a vibrant neighbourhood. The company’s satellite office is located about 35 kilometres from the city core. The salesperson has begun searching for properties that meet the buyer’s needs. The salesperson would consider a property within walking distance of several restaurants as ideal for this buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 16 of 23

A salesperson is representing a buyer whose company just transferred him to another city. Being new to the city, the buyer, an avid jogger and environmentalist who drives a hybrid car, is looking for an affordable property in a vibrant neighbourhood. The company’s satellite office is located about 35 kilometres from the city core. The salesperson has begun searching for properties that meet the buyer’s needs. The salesperson would consider a property in a municipality offering tax incentives for green vehicles and energy-saving home improvements as ideal for this buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False ©2019 Real Estate Council of Ontario

Lesson 3 | Page 17 of 23

A salesperson is representing a buyer whose company just transferred him to another city. Being new to the city, the buyer, an avid jogger and environmentalist who drives a hybrid car, is looking for an affordable property in a vibrant neighbourhood. The company’s satellite office is located about 35 kilometres from the city core. The salesperson has begun searching for properties that meet the buyer’s needs. The salesperson would consider a property within two kilometres of a telecommunications tower as ideal for this buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 18 of 23

A salesperson is representing a couple looking for their first home. The buyers informed the salesperson that they plan to have children in the near future and the wife's mother, who enjoys taking long walks with her dog, will be living with them. The salesperson has begun searching for properties that meet the couple's needs. The salesperson would consider a property whose backyard slopes down into a ravine as ideal for this buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 19 of 23

A salesperson is representing a couple looking for their first home. The buyers informed the salesperson that they plan to have children in the near future and the wife's mother, who enjoys taking long walks with her dog, will be living with them. The salesperson has begun searching for properties that meet the couple's needs. The salesperson would consider a property adjacent to a highway as ideal for this buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 20 of 23

A salesperson is representing a couple looking for their first home. The buyers informed the salesperson that they plan to have children in the near future and the wife's mother, who enjoys taking long walks with her dog, will be living with them. The salesperson has begun searching for properties that meet the couple's needs. The salesperson would consider a property near an elementary school as ideal for this buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 21 of 23

A salesperson is representing a couple looking for their first home. The buyers informed the salesperson that they plan to have children in the near future and the wife's mother, who enjoys taking long walks with her dog, will be living with them. The salesperson has begun searching for properties that meet the couple's needs. The salesperson would consider a property next to a park as ideal for this buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 22 of 23

A salesperson is representing a couple looking for their first home. The buyers informed the salesperson that they plan to have children in the near future and the wife's mother, who enjoys taking long walks with her dog, will be living with them. The salesperson has begun searching for properties that meet the couple's needs. The salesperson would consider a property near an airport as ideal for this buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 23 of 23

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were discussed in this lesson.

Information required to list a residential property and the importance of verifying the information

When preparing to list a residential property, a salesperson should collect and review key information about the property and ask the seller to provide original documents they received when they first purchased the property. Key information includes: • Who is registered on title, and anyone with a spousal interest in the property or first right of refusal • Mortgages, lines of credit, or other debt obligations registered against title • Land use restrictions (such as encroachments, easements, and rights of way) • Neighbour disputes • Property taxes and notice of assessment • Zoning The salesperson can verify the accuracy of information relating to the property’s physical attributes, such as lot size, area of the home, and room sizes by: • Reviewing source documents • Purchasing a report from GeoWarehouse® (through the brokerage) • Obtaining floor plans from the builder, if available • Taking their own measurements of the house and any outbuildings and comparing these to measurements in the source document and other reports The salesperson can verify the accuracy of the information by asking the seller and obtaining source documents, if available, about the age and condition of the: • HVAC system • Well/septic system • Electrical system • Plumbing system • Roof shingles ©2019 Real Estate Council of Ontario

Characteristics of a neighbourhood that may impact the appeal of a residential property

Neighbourhood characteristics can have both a positive and negative effect on the appeal, value, and marketability of a property. Whether a characteristic is positive or negative will depend on the buyer. Examples of characteristics that affect value and appeal include proximity to: • Area schools • Public transit • Environmental hazards and/or stigmatized land uses, such as waste sites, nuclear power plants, prisons, cell phone towers, and television transmission towers • Amenities, such as restaurants, shopping centres, and recreational facilities

©2019 Real Estate Council of Ontario

Lesson 4 | Page 1 of 25

Lesson 4: Calculate Areas and Related Linear Measurements

This lesson describes guidelines for calculating the area of a residential structure, identifies the areas of a residential property that should and should not be measured, reviews math skills required to describe residential measurements, and identifies leading practices regarding area and linear measurements. This lesson also provides the learner with the opportunity to calculate area and linear measurement using Appraisal Institute of Canada (AIC) guidelines.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 2 of 25

As a salesperson, you will need to know how to calculate the total living area (also referred to as square footage) of a residential property. Total living area may be calculated using both exterior and interior measurements. Knowing how to calculate interior and exterior measurements of a residential property will help you estimate a price for the property and meet your obligation to provide competent and conscientious services to the seller. It will also ensure the information about the property you list on the local listing service is accurate and complete. This lesson presents the guidelines of the Appraisal Institute of Canada (AIC) for measuring a residential property. No universal measuring standards for residential properties exist. AIC standards are being used in this lesson because these guidelines are widely used across Canada. Upon completion of this lesson, you will be able to: • Describe guidelines that can be used when calculating the area of a residential structure • Identify leading practices of a salesperson regarding area and linear measurements • Review basic math skills used when describing residential measurements • Identify what measurements should be taken when listing a residential property • Calculate areas and linear measurements using industry guidelines Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 3 of 25

Appraisal Institute of Canada (AIC) The AIC is a national society of professional real estate appraisers dedicated to serving the public interest by advancing high standards for members of the appraisal profession by granting professional designations. AIC publishes the Building Measurement Guideline, a handbook of residential and commercial guidelines. In this lesson, the focus will be on how to calculate the total living area in different residential structures. These guidelines are not only used by appraisers. As a salesperson, you will need to have a good understanding of these guidelines and know how to calculate total living area of a variety of residential housing styles. You will need this information when you list the property. You will also need to know the measurement practice of the jurisdiction in which the property you are selling is located. This information can be obtained through your brokerage.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 4 of 25

Guidelines for Calculating Areas and Linear Measurements According to the AIC guideline, you would calculate the total living area above grade that provides heated yearround use. How livable area is calculated should be defined and applied consistently. The following five sections contain information on how to measure the livable area of five common types of residential structures using the AIC guideline.

One-storey To measure a one-storey residential structure: • Multiply the exterior length times the width of the base of the dwelling • Multiply the exterior length times the width of projections and cantilevered areas A cantilever is an overhang where one floor extends beyond and over a foundation wall. Above-grade (ground) area is considered the livable floor area. Basement area (below-grade), whether developed or undeveloped, is not considered livable floor area and is not considered in the calculation.

©2019 Real Estate Council of Ontario

One and one-half-storey without dormers To measure a one-and-one-half-storey residential structure without dormers: • Ground level is calculated the same way as a onestorey dwelling • Note that for upper- or second-level measurement, livable floor area is the interior length times the width to knee wall (angle where the wall meets the ceiling) • Note that an additional 15 to 20 centimetres (approximately 6 to 8 inches per side) may be included to account for the exterior walls A dormer is an opening in a sloping roof, the framing of which projects out to form a vertical wall suitable for windows or other opening.

©2019 Real Estate Council of Ontario

Basic two-storey To measure a basic two-storey residential structure, multiply exterior length times width, then multiply the result by two

Two-storey with built-in garage To measure a two-storey residential structure with built-in garage: • Multiply the exterior length times width, excluding garage • For the second level, multiply the exterior length times width

©2019 Real Estate Council of Ontario

Split-levels To measure a split-level residential structure (generally the most difficult structure to measure, according to AIC): • Multiply the exterior length times width of the livable area that is above the sill plate (the bottom horizontal part of a wall) • Note that basement and crawlspace areas are not considered to be livable floor area • Note that living space beside the garage that does not have a crawl space area or a basement beneath is considered livable floor area because it is above-grade

©2019 Real Estate Council of Ontario

Lesson 4 | Page 5 of 25

Total Living Area Not Included in Overall Area Calculation To calculate total living area of a residential structure, you would only calculate the livable floor area that provides heated, year-round use and above grade, which means “above the ground.” For example, “two bedrooms above grade” means two bedrooms that are not in a basement (not located below grade level). You would not include

©2019 Real Estate Council of Ontario

areas such as three-season sunrooms, walk-up attics, porches, verandas, garages/heated garages. These areas would be itemized separately, but still described in the listing. Below-grade means any portion of the house that is “below the ground,” or space on any level that generally has earth adjacent to any exterior wall. Basements, for example, are considered below-grade, even if they are heated and livable, because they are below the ground. A room must be completely above-grade to be included in the measurement of the total living area. If earth is adjacent to a portion of a given wall, the entire level is generally considered below-grade. Occasionally, exceptions may apply, especially with dwellings built into slopes or hills. To determine if an area of the house is included in the livable floor area calculation, you would need to determine the following: • Finished with walls, floors and ceilings of materials accepted for interior construction • Heated by a conventional heating system or systems, which are permanently installed in the dwelling • Directly accessible from the other living areas through a door or a heated hallway or stairway

©2019 Real Estate Council of Ontario

Lesson 4 | Page 6 of 25

A salesperson calculates the total living area of the seller’s house using AIC guidelines. Measurements are needed to list the property. Three-season sun room should be included when calculating the total living area of a residential structure using AIC guidelines. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 4 | Page 7 of 25

A salesperson calculates the total living area of the seller’s house using AIC guidelines. Measurements are needed to list the property. Garage should be included when calculating the total living area of a residential structure using AIC guidelines. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 8 of 25

A salesperson calculates the total living area of the seller’s house using AIC guidelines. Measurements are needed to list the property. Heated basement should not be included when calculating the total living area of a residential structure using AIC guidelines. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 4 | Page 9 of 25

A salesperson calculates the total living area of the seller’s house using AIC guidelines. Measurements are needed to list the property. Second-floor hallway should be included when calculating the total living area of a residential structure using AIC guidelines. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 10 of 25

Standard Measuring Tools A leading practice for a salesperson is to know what resources are available to them regarding calculating the total area of a house. Consider the measuring devices and how they can be used in different situations. As a salesperson, you have the option of using a variety of devices to measure the interior rooms of a property. Each device will have its respective uses, benefits, and drawbacks. The following three sections contain information on the different types of measuring devices and their benefits and drawbacks.

Laser measuring device Benefits: • Accurate within three millimetres • Measures a range up to 325 metres and more • Lightweight and compact • Has an extended battery life • Efficient; it is precise and does not need two people to operate it • Certain versions have cameras, capabilities for area and volume calculations, and metric and imperial conversions Drawbacks: • Most models are only suitable for interior measurements and not ideal for exterior measurements

©2019 Real Estate Council of Ontario

• Errors can occur due to user misuse and not following proper guidelines; accuracy and care are required • Brightness levels can vary, sometimes affecting daytime visibility • Shorter range compared to other measuring tools • Rough or angled surfaces can provide challenges for obtaining a correct reading • Transparent materials, such as windows, can provide challenges for obtaining a correct reading

Digital measuring wheel Benefits: • Effective for calculating exterior measurements • Current models are lightweight • Current models provide accurate readings • Suitable for large areas or linear measurements because of greater range Drawbacks: • Not useful for measuring uneven surfaces, which can prevent the wheel from running in a consistent, straight line

©2019 Real Estate Council of Ontario

Tape measure Benefits: • Available in a variety of lengths and materials suitable for most applications • 30-foot retractable tape measures can help for hard-to-reach interior spaces • 50- to 100-foot retractable tape measures indicate linear footage in tenths of a foot Drawbacks: • Inaccurate measurements can result from running the tape around obstacles, such as trees, landscaping, chimneys, and downspouts • Possibility of misreading the measurement due to human error

©2019 Real Estate Council of Ontario

Lesson 4 | Page 11 of 25

Use of Source Documents Next, consider the source documents. As a salesperson, you will want to review documents such as building plans, surveys, and real property reports available through GeoWarehouse® and the Municipal Property Assessment Corporation (MPAC). Inaccurate information is always a possibility, regardless of the source. You should also take your own measurements of the building(s) and compare them to the source documents. If the totals match, then you can feel confident about the results. If the totals do not match, take a second – or third – measurement. If you are confident your measurement is accurate, then use yours for the listing. If you recall, the salesperson has an obligation to ensure all measurements are accurate before listing the property.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 12 of 25

Measurement Requirements based on Local Practices and Policies In addition to acquiring the proper measuring devices and source documents, you will also need to consider the policies and practices of the area. The AIC guidelines to calculate the total living area are widely used across Canada. However, as a salesperson, you should also consider the practices and policies of your brokerage and the area in which the property is located. For example, depending on the location, differences may exist regarding what is included in area calculations. These differences typically affect below grade rooms and other unique features.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 13 of 25

A salesperson tells the sellers that their enclosed front porch should not be included in the total living area when calculated according to the AIC Building Measurement Guideline. The sellers accept the explanation and agree with the calculation of approximately 1,500 square feet. However, when the salesperson consults a property assessment from MPAC, there seems to be a discrepancy on an exterior measurement between his measurement and the assessment. What should the salesperson’s next steps be now that the discrepancy has been identified? There are three options. There is only one correct answer. 1 2 3

Use the information from the MPAC report Re-measure and compare measurements to source documents Use the information from the original building plan

©2019 Real Estate Council of Ontario

Lesson 4 | Page 14 of 25

Basic Math Calculations As a salesperson, you will mostly use three measurements to determine the total floor area of all above-grade floors – feet/metres, square feet/square metres, acres/hectares. You will also need to know how to convert metric to imperial measurements and imperial to metric measurements. The listing agreement includes lot size dimensions, room size dimensions, and total living area. The agreement of purchase and sale includes lot size dimensions only. The following three sections contain information on these three measurements and how to convert them.

Metres/Feet Metres and feet are commonly used to measure rooms and lots. One metre equals 3.281 feet. To convert metres to feet, multiply the metre measurement by 3.281. Note: The examples shown are rounded to two decimal places. 5 m x 3.281 = 16.41 ft 5.5 m x 3.281 = 18.05 ft To convert feet to metres, multiply the feet measurement by 0.3048. 20.65 ft x 0.3048= 6.29 m 30.60 ft x 0.3048 = 9.33 m

©2019 Real Estate Council of Ontario

Square metres/Square feet Square metres and square feet are commonly used to measure the area of a house or condominium. One square metre equals 10.7639 square feet. To convert square metres to square feet, multiply the square metre measurement by 10.7639. Note: The examples shown are rounded to two decimal places. 70 sq. m x 10.7639 = 753.47 sq. ft 85.5 sq. m x 10.7639 = 920.31 sq. ft To convert square feet to square metres, multiply the square feet by 0.0929. 700 sq. ft x 0.0929 = 65.03 sq. m 950 sq. ft x 0.0929 = 88.255 sq. m

©2019 Real Estate Council of Ontario

Hectares/Acres Hectares and acres are commonly used to measure the total and workable farm area and rural/recreational vacant land and building lots. One hectare equals 2.471 acres. To convert hectares to acres, multiply the hectare by 2.471. Note: The examples shown are rounded to two decimal places. 8 ha x 2.471 = 19.77 ac 8.5 ha x 2.471 = 21 ac To convert acres to hectares, multiply the acre by 0.4047. 20 ac x 0.4047 = 8.09 ha 40 ac x 0.4047 = 16.19 ha

©2019 Real Estate Council of Ontario

Lesson 4 | Page 15 of 25

Describing Room Measurements The area of a room is determined by multiplying the length times the width of each rectangular livable floor area. Area measurement may involve a single rectangular shape or a combination forming an irregular pattern. For irregular rectangular shapes, you will need to calculate the total area as if a rectangle and subtract the non-livable floor area. The following five sections contain information on measuring rectangular and non-rectangular shapes.

Rectangular Metric Measure Area #1 as if a regular rectangle Area #1: 12.19m x 10.06m = 122.63 sq. m Area #2: 3.05m x 2.13m = 6.50 sq. m Area #3: 7.62m x 2.44m = 18.59 sq. m Total Area: A1 − (A2 + A3) 122.63 − (6.50 + 18.59) = 97.54 sq. m Imperial Measure Area #1 as if a regular rectangle Area #1: (15’ + 25’) x 33’ = 1,320 sq. ft Area #2: 10’ x 7’ = 70 sq. ft Area #3: 25’ x 8’ = 200 sq. ft Total Area: A1 − (A2 + A3) 1,320 − (70 + 200) = 1,050 sq. ft Note: The minor variance in total area between metric and imperial is due to rounding.

© 2019 Real Estate Council of Ontario

Non-rectangular: Right angle triangle One of the angles is 90 degrees. Where the two perpendicular lines meet, one is considered the base and the other the height. Total Area: ½ x (Base x Height) ½ x 50 ft x 110 ft = 2,750 sq. ft Or Total Area: (50 ft X 110 ft) / 2 = 2,750 sq. ft

Irregular Draw an imaginary line to create two areas. Calculate Area #1 as a triangle (½ x (base x height)) and Area #2 as a rectangle. Area #1: ½ x (40 ft x 100 ft) = 2,000 sq. ft Or Area #1: (40 ft X 100 ft) / 2 = 2,000 sq. ft Area #2: 60 ft x 100 ft = 6,000 sq. ft Total Area: Area #1 + Area #2 2,000 + 6,000 = 8,000 sq. ft

© 2019 Real Estate Council of Ontario

Parallelogram Four-sided figure with parallel opposite sides Total Area: Length x Perpendicular Height 50 ft x 40 ft = 2,000 sq. ft

Trapezoid Four-sided flat shape with one pair of opposite parallel sides Total Area: Sum of Parallel Sides x (½ x Perpendicular Height) (45 ft + 65 ft) x (½ x 24 ft) = 1,320 sq. ft Or Total Area: (45 ft + 65 ft) X (24 ft / 2) = 1,320 sq. ft

© 2019 Real Estate Council of Ontario

Lesson 4 | Page 16 of 25

A salesperson is re-measuring a room in the seller’s home after discovering a discrepancy between the original measurements and a source document. The salesperson had originally measured the room at 21 square metres, and now needs to convert that value from metric to imperial.

What is the measurement of the room in square feet? NOTE: Round-off the final answer to two decimal places. There are three options. There is only one correct answer. 1 2 3

226.04 224.87 226.89

Lesson 4 | Page 17 of 25

The salesperson re-measures another area in the seller’s home after discovering a discrepancy between the original measurements and a source document. One of the initial calculations said 1,500 square feet; he now needs to convert this value to metric.

What should the salesperson’s new measurement be in square metres? NOTE: Round up the final answer to two decimal places. There are three options. There is only one correct answer. 1 2 3

139.35 138.56 136.67

©2019 Real Estate Council of Ontario

Lesson 4 | Page 18 of 25

Exterior Measurements The total living area of a house may be based on exterior measurements. To measure the exterior, you would do the following: • Make a sketch of the house before you start measuring • Start at one corner of the house and measure each exterior wall • Round off the measurement to the nearest centimetre or inch • As you measure each wall, record the measurement on the sketch • Measure other areas not considered “livable” according to the AIC guidelines and record these measurements separately

©2019 Real Estate Council of Ontario

If you recall, livable floor area means an area that is: • Finished with walls, floors, and ceilings of materials accepted for interior construction • Heated by a conventional heating system or systems, which are permanently installed in the dwelling • Directly accessible from the other living areas through a door or a heated hallway or stairway If you are unable to measure one of the exterior surfaces, you should measure the interior perimeter wall and add an allowance for each exterior wall using the thickness of the windows to determine the thickness of the exterior wall. You would also inspect the house to identify spaces that should be included in the living area: • Consider offsets, such as portions of a wall that jut out • Adjust the measurements for an overlap of the exterior walls or overhangs in the upper levels of the dwelling

©2019 Real Estate Council of Ontario

Lesson 4 | Page 19 of 25

Exterior Measurements Now that you have learned how to take exterior measurements, you will learn about the structures you will need to measure and include in the listing. The following three sections contain information on the exterior structures you will need to measure.

Significant structures Significant structures are above-grade portions of the main dwelling on the property, including the house itself, garage (attached or detached), covered porches, and patios

©2019 Real Estate Council of Ontario

Accessory buildings Accessory buildings are outdoor structures on the property such as a pool house, sauna, or shed

Other exterior improvements Other exterior improvements that should be measured include renovations or additions to the structure that are above grade, weatherproofed, suitable for yearround use, and have the necessary permits. For example, an enclosed patio with a fire pit.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 20 of 25

Interior Measurements Total living area in a residence may be based on interior measurements. To calculate the total living area of a residential structure, you would calculate: • Areas that are above grade (above the ground) • Areas that are heated year-round • Habitable rooms that are directly accessible from another living area, whether through a doorway, heated hallway, or stairway (for example, kitchen, living room/den, bedrooms, bathrooms, hallways) Rooms located in a finished basement would not be included in the livable floor area measurement because they are below grade. These rooms would still be measured for marketing and listing purposes. Additional finished rooms below grade add value to the property. Examples of areas that should not be measured include an unfinished basement or attic. If an attic is finished, it would be measured and noted on the listing as a finished walk-up attic.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 21 of 25

A salesperson is explaining to the sellers that he used a laser measuring device to measure the rooms in their house. The totals are calculated and the sellers are told their home is 1,500 square feet. The sellers believe it’s 1,600 square feet. What areas of the total living area of a residential property does the salesperson need to inform the sellers are excluded in the calculation? There are four options. There is only one correct answer. 1 2 3 4

A room on the main floor that was converted into a secondary office space with filing cabinets storing work-related documents An enclosed, covered, heated porch with a fireplace that the sellers added, which is suitable for yearround use and for which the sellers have a permit An unattached, heated shop in the backyard First-floor hallway and bathroom

©2019 Real Estate Council of Ontario

Lesson 4 | Page 22 of 25

Calculation of Areas and Linear Measurements As you learned earlier in this module, as a salesperson, you will need to know how to calculate the total floor area of all above-grade floors. To do this, you will need to know some basic math. We have provided some additional information and examples of how to calculate above-grade floors in different types of residential properties. The following five sections contain information on how to measure five types of residential structures using the AIC guideline.

One-storey The floor area of a one-storey home is measured by multiplying the exterior length times width of the base of the dwelling, and exterior length times width of projections and cantilevered areas. The area above grade (noted as Area A and Area B in the diagram) is considered livable floor area. Do not include below grade areas, such as a basement, as livable floor area. Note: The examples shown are rounded to two decimal places. METRIC Area A: 2.74 m x 5.33 m = 14.60 m2 Area B: 8.43 m x 10.66 m = 89.86 m2

©2019 Real Estate Council of Ontario

Total floor area is 14.60 + 89.86 = 104.46 m2 IMPERIAL Area A: 8.99 ft x 17.49 ft = 157.24 ft2 Area B: 27.66 ft x 34.97 ft = 967.27 ft2 Total floor area is 157.24 + 967.27 = 1,124.51 ft2

One-and-one-half storey with dormers The floor area of the first storey in this example (Area A) is calculated as exterior length times width of base of dwelling, and exterior length times width of projections and cantilevered areas. For the measurement of the second storey (Area B), consider liveable floor area as interior length times width to knee wall (angle where wall meets ceiling), plus length times width of dormers (Areas C and D). An additional 15 to 20 centimeters (approximately 6 to 8 inches) may be included to account for the exterior wall. Note: The examples shown are rounded to two decimal places. METRIC

©2019 Real Estate Council of Ontario

Area A: 10.12 m x 9.58 m = 96.95 m2 Area B: 10.12 m x 5.28 m = 53.43 m2 Area C & D: 2 x (2.83 m x 2.15 m) = 12.17 m2 Total floor area is 96.95 + 53.42 + 12.17 = 162.55 m2 IMPERIAL Area A: 33.20 ft x 31.43 ft = 1,043.48 ft2 Area B: 33.20 ft x 17.32 ft = 575.02 ft2 Area C & D: 2 x (9.28 ft x 7.05 ft) = 130.84 ft2 Total floor area is 1,043.38 + 575.02 + 130.84 = 1,749.34 ft2

Basic two-storey

©2019 Real Estate Council of Ontario

To determine the floor area for a basic two-storey in which the layout is the same for the first and second storeys (both represented by Areas A and B respectively), multiply the exterior length times width, then multiply the result by two. Note: The examples shown are rounded to two decimal places. METRIC Area A: 7.75 m x 7.05 m = 54.64 m2 Area B: 2.08 m x 4.46 m = 9.28 m2 Total floor area is (54.64 m2 + 9.28 m2) x 2 = 127.84 m2 IMPERIAL Area A: 25.43 ft x 23.13 ft = 588.20 ft2 Area B: 6.82 ft x 14.63 ft = 99.78 ft2 Total floor area is (588.20 ft2 + 99.78 ft2) x 2 = 1,375.96 ft2

©2019 Real Estate Council of Ontario

Two-storey with built-in garage To determine the floor area for a two-storey with a built-in garage, add the exterior length times width of the first storey (Area A) excluding the garage, and the exterior length times width of the second storey (Areas B and C). Note: The examples shown are rounded to two decimal places. METRIC Area A: 8.13 m x 7.61 m = 61.87 m2 Area B: 8.13 m x 7.61 m = 61.87 m2 Area C: 3.45 m x 3.95 m = 13.63 m2 Total floor area is 61.87 m2 + (61.87 m2 + 13.63 m2) = 137.37 m2 IMPERIAL Area A: 26.67 ft x 24.97 ft2 = 665.95 ft2 Area B: 26.67 ft x 24.97 ft2= 665.95 ft2 Area C: 11.32 ft x 12.96 ft = 146.71 ft2 Total floor area is 665.95 ft2 + (665.95 ft2 + 146.71 ft2) = 1,478.61 ft2

©2019 Real Estate Council of Ontario

Lesson 4 | Page 23 of 25

The seller consults the sketches the salesperson has left and re-measures the exterior width and length of the base of the property, which is called area “A”, and measures a small projection of the front of the house, which is called area “B,” and gets: Area A: 13.40 m by 8.66 m Area B: 6.13 m by 5.0 m What is the overall area calculation of the first storey in square feet? Calculate the overall living area, and then use a calculator or an online conversion tool to convert from square metres to square feet. NOTE: Do not round-off till you get the final number. There are three options. There is only one correct answer. 1 2 3

1579 ft2 1576.67 ft2 1579.56 ft2

©2019 Real Estate Council of Ontario

Lesson 4 | Page 24 of 25

A salesperson is working with a family selling their two-storey home with a basement and attached garage. The house has a simple rectangular floor plan, and the basement and second floor each have the same area as the first-floor living area a portion of which is devoted to the garage. After measuring and re-measuring using a 50-foot tape measure the salesperson confirms the following dimensions: Basement, first floor (including garage), and second floor: 40.85 ft long by 21.18 ft wide each Garage: 10.06 ft long by 21.18 ft wide As part of their measurements, the salesperson also must convert the results to metric.

What is the total liveable floor area for this property in square metres? Use a calculator or an online conversion tool to convert from square feet to square metres. NOTE: Round-off each answer during calculation to two decimal places. There are three options. There is only one correct answer. 1 2 3

140. 96 m2 142.76 m2 141.07 m2

©2019 Real Estate Council of Ontario

Lesson 4 | Page 25 of 25

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were discussed in this lesson.

Guidelines that can be used when calculating the area of a residential structure Leading practices of a salesperson regarding area and linear measurements

Measurements to take when listing a residential property

Calculation of areas and linear measurements using industry guidelines

Although no measuring standards for residential structures exist, this lesson uses the guideline from the Appraisal Institute of Canada, the Building Measurement Guideline. Widely used across Canada, this handbook provides recommendations for how to calculate the total livable area for various residential and commercial structures. Three standard measuring devices are available for a salesperson’s use– a laser measuring device, a digital wheel, and a standard tape measure. Each device has its benefits and drawbacks. A salesperson can verify property information, including dwelling/house size, through a variety of resources, such as internet searches, GeoWarehouse®, and MPAC. The salesperson should also conduct their own primary research, such as taking the measurements of the dwelling/house themselves. AIC distinguishes between above grade and below grade living areas. When calculating total living area of a residential property, only above grade areas (above the ground) should be included. Rooms and spaces located below grade (below the ground) should not be included in the total living area for the purpose of listing. They can still be measured for marketing purposes provided a distinction is made between above and below grade measurements. Industry guidelines discussed in this lesson are from the AIC.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 1 of 14

Lesson 5: Recommend Improvements Before Listing

This lesson discusses the benefits of preparing a property for sale, including advising the seller on changes required before bringing the property to market and interior/exterior home staging techniques.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 2 of 14

A homeowner will tend not to look at their home with a critical eye. Many homeowners believe their home is liveable so why spend money on renovations and improvements when they intend to sell the property. One technique designed to increase a property’s appeal is home staging, the process of making a home attractive to potential buyers. A visually appealing property – interior and exterior – will attract more potential buyers. Because a salesperson’s duty is to promote and protect the best interest of the client, they should advise the seller why renovations and improvements are important and recommend which ones to make that will yield a good return on investment. Upon completion of this lesson, you will be able to: • Identify the benefits of preparing a property for sale • Identify how home staging could assist in the marketing of a property Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 3 of 14

Certain renovations have proven to be a greater return on investment than others. As a salesperson, you will need to advise a seller about what types of improvements may increase the appeal of the property to potential buyers and those that will not. Information to determine which type of improvements would be beneficial is available. For example, the Appraisal Institute of Canada has conducted research on what type of return on investment a seller can expect from various home improvement projects, such as painting; replacing windows, doors, and fixtures; and renovating the kitchen, bathroom, and/or basement. In some situations, you and the seller would need to discuss if certain improvements or renovations should be done before the property is listed. The objective is to make the home stand out from other listings, increase the property’s appeal to potential buyers, and reduce the likelihood that the property will be overlooked.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 4 of 14

Benefits of Making Home Improvements As a salesperson, you should be able to advise a seller about which areas of their house would be beneficial to improve and which areas would not increase the appeal of the property to potential buyers. Certain renovations have proven to be a greater return on investment and may help to sell the property more quickly. In certain cases, you and the seller will have to determine if certain improvements or renovations should be done before the property is listed or if they are nice to have. For example, if a living room has new carpeting that is in good condition, even if there is hardwood beneath it, it may be worth keeping. Although hardwood is generally the more popular option, it is not always necessary to remove carpeting before listing the property. Note that there is hardwood flooring underneath the carpeting in the remarks section of the data sheet. Regardless of which renovations are undertaken, the objective is to make the home stand out from other listings and reduce the likelihood that it will be overlooked when a salesperson is searching for a property for a buyer they are representing.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 5 of 14

Renovations and Improvements The Appraisal Institute of Canada has researched what type of return on investment a seller can expect from various home improvement projects. The following six sections contain information on examples of improvements that may bring a higher rate of return.

Windows and doors Windows and doors have an undeniable aesthetic value and they offer a high return on investment because they improve functionality, energy efficiency, and security. Features such as a steel frame and a solid core will increase a door’s security rating. A bow or bay window lets in more light than a double-hung or casement window, makes a great focal point within the room, and provides dimension to the exterior. The fit of a window or door is important for effective operation and energy efficiency; professional installation is recommended.

©2019 Real Estate Council of Ontario

Painting Interior and exterior painting can increase the aesthetic appeal of a property and is a relatively lowcost way to deliver a higher return on investment. Fresh paint on exterior entries, such as the front or back doors and garage, are areas that make a lasting impression on a potential buyer. Fresh paint can cover grease stains, minor ceiling cracks, residue from smoking, and general wear and tear. Repairing and painting baseboards can also enhance the overall look of a room. The seller should also consider painting surfaces that have outdated or loud colours.

Fixtures Kitchens and bathrooms often look tired and dated, largely due to old-fashioned fixtures. Replacing or updating cabinet hardware, light fixtures, faucets, and countertops could result in an immediate increase in a property’s value. These relatively small but effective upgrades can revitalize an entire home. Modern fixtures, such as spot lights, are attractive features for open-concept style homes. ©2019 Real Estate Council of Ontario

Bathroom Bathrooms are one of the most important rooms in a home in terms of valuation. Making repairs or small renovations to the bathroom, such as painting or updating fixtures and lighting, can increase the home’s appeal. A detail such as installing a glass door in a shower can also make a bathroom feel more spacious.

Kitchen Kitchens are often said to be the single most important room in a home relating to valuation, and can significantly increase the home’s appeal. If the seller cannot afford to modernize the kitchen, they can make less expensive improvements. For example, changing the cabinet hardware or installing new faucets. Modern cabinetry, lighting, and new appliances will increase the value of the home. To save on cost without compromising construction and desirability, the seller can look at options such as replacing or painting the cabinet doors.

©2019 Real Estate Council of Ontario

Basement An unfinished basement can translate to a large amount of inefficient use of space. Finishing a basement can be a cost-effective way to increase the usable space of a home and may be appealing to potential buyers. For example, an otherwise dark and dreary space can be transformed into a recreation room or kids’ play area, storage space, or a guest room.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 6 of 14

A salesperson and sellers are working together to determine what improvements and/or renovations may need to be done before their property is listed for sale. The salesperson made recommendations, and the sellers need to decide on how to proceed. Everyone has agreed that some painting is required but the sellers have a limited budget. They will need to decide which improvements will be necessary and which will not. The salesperson noticed that the carpet in the basement is worn and stained and even professional cleaning would not suffice. The salesperson knows that new carpet for a basement can be lower grade, which will keep costs down. He also noticed that the paint in the bathroom was peeling, the faucet in the kitchen was beginning to rust, and the kitchen drawers and cabinets were out-of-date.

What advice should the salesperson give the sellers on which renovations to make? There are three options. There is only one correct answer. 1 2 3

Recommend that the sellers paint the bathroom, replace the kitchen faucet, upgrade the kitchen cabinetry, and replace the basement carpet Recommend that the sellers renovate their entire basement Recommend that the sellers replace the basement carpet and paint

©2019 Real Estate Council of Ontario

Lesson 5 | Page 7 of 14

A seller may not be willing to make any renovations or improvements to their property, but they can always make the property more appealing—in the form of home staging. The seller may research methods and strategies and do the home staging themselves, use a professional home stager to enhance the visual appeal of their home, or obtain guidance from a professional trained in staging concepts. Home staging can be done to a property’s interior and exterior. Let’s start with interior home staging techniques. As a salesperson, you may provide these tips to the seller who wants to do the home staging themselves.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 8 of 14

Home Staging Techniques The main focus of home staging is to make a home more attractive to potential buyers. The goal is to sell a home quickly and get the best possible offer by attracting the highest number of potential buyers. A seller may research methods and strategies and do the home staging themselves, use a professional home stager to enhance the visual appeal of their home, or obtain guidance from a professional trained in staging concepts. Regardless of the method, the key objective is to make the home stand out against the competition by highlighting key features and benefits, and conveying a positive visual impression to potential buyers. Staging is about creating an effective living space that is appealing to potential buyers with a range of tastes. It is not about decorating, as this is a personalized activity. In fact, staging seeks to depersonalize the property, removing clutter, cleaning, organizing rooms, maximizing features, and minimizing flaws.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 9 of 14

Interior Staging Techniques I A seller may use some home staging that may achieve the desired result of making the home more appealing. As a salesperson, you could provide the seller with tips about interior staging techniques that will increase the appeal of their property. The following six sections contain information on internal home staging tips a seller can easily follow.

Bright and airy is better than dark and dismal Buyers want to see bright and inviting rooms. Windows should be clean and drapes open to let in maximum light. Paint should be fresh and the colour should be neutral. They are buying impressions as much as reality.

©2019 Real Estate Council of Ontario

Clean is the only option A good rule to follow is that if it can be seen, it has to be cleaned. Some items, such as carpet cleaning, may require hiring a professional service.

Get rid of clutter Get rid of clutter, regardless of whether it is in the living room, bedroom, closets, or basement. Rent a storage unit to store items you want to keep.

©2019 Real Estate Council of Ontario

If it’s broken, fix it Even the smallest things can translate into “they don’t take care of their home.” A burned-out light bulb and a broken screen may convey to potential buyers that the property was not maintained well.

If it’s had better days, replace it The worn carpet may have sentimental value but it will not help the seller’s staging efforts. Replace worn items, provided the seller can afford it.

©2019 Real Estate Council of Ontario

It’s about the buyer, not the seller Depersonalizing the home can make a big difference. Allow the buyer to view the property on their own terms, not yours. It’s difficult to visualize living in a home that’s crammed with the seller’s personal mementos. Pack away the photos and memorabilia.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 10 of 14

Interior Staging Techniques II The following five sections contain information on additional internal home staging tips a seller can easily follow.

Clear the traffic areas Homes with ample space in which to move around are more appealing. If there is too much furniture, it can be rearranged to improve flow, disposed of, or stored.

©2019 Real Estate Council of Ontario

Floors are important too Floors should be spotless. Always highlight flooring features such as creative mosaics and hardwood flooring. Make them a focal point to catch the buyer’s attention.

Don’t ignore empty areas Do not forget the basement when staging. Get rid of all clutter and increase the amount of lighting. Let the buyers see the potential for this large, often underutilized asset.

©2019 Real Estate Council of Ontario

Smells don’t sell well Eliminate odours of all kinds; they will not be appreciated by any buyer viewing the property. Make certain that all household garbage is removed from the kitchen and other containers. Pets and nurseries can also be a challenge. Use room deodorizers, open windows for ventilation, and run exhaust fans before showings.

Get the garage in shape Cluttered garages are not appealing to potential buyers. Take the time to clean it out, clean it up, organize the tools and paint the floor (if necessary). The garage can become a focal feature of a wellstaged home with a little effort.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 11 of 14

Exterior Staging Techniques Staging tends to emphasize improving the look and feel of internal rooms, but complete staging also involves the exterior appearance, including landscaping. Curb appeal should not be underestimated. Often, homes are half sold before the buyer even reaches the frontdoor. A well-manicured lawn, appealing entrance, and a freshly sealed asphalt driveway leave a lasting impression. The following six sections contain information on external home staging tips you can provide to seller when you become a salesperson.

More than a mowed lawn Make certain that planting beds are neat, all edges carefully trimmed, and re-mulch to give a lasting impression.

©2019 Real Estate Council of Ontario

Flowers, flowers, flowers Ensure that there are plenty of well-tended flowers.

Painting can be a real plus If the home exterior is dull, colours are not wellmatched or the old paint job is fading, consider repainting the exterior trim, the front door, and the garage door. A freshly painted exterior would most likely increase the home’s curb appeal.

©2019 Real Estate Council of Ontario

Clean, clean, clean Pressure wash all exterior surfaces, including driveways and walkways, clean all windows and screens, and take extra time with the entrance way and front door.

Improve your green perspective In some instances, home stagers may involve tree professionals (arborists), but you can make real gains by clearing out overgrowth and raising the tree canopy (removing lower limbs) to make the home more visible.

©2019 Real Estate Council of Ontario

New and improved patio Cut back overgrown plants, reset uneven pavers, replace outdated lighting fixtures, conceal wires to 12volt landscaping lighting systems, remove clutter (e.g., old flower pots and planters) and freshen up the decor as budget permits. Anything that ought to be thrown away, should be.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 12 of 14

A salesperson and sellers are discussing interior home staging techniques that will increase the appeal of the sellers’ home and attract more buyers. The salesperson understands the sellers are on a budget. The sellers would like to do some home staging but are concerned about the cost. What recommendation should the salesperson make to the sellers? There are three options. There is only one correct answer. 1 2 3

Recommend that the sellers hire a professional home stager Recommend that the sellers remove family photographs and other personal items from the home Recommend that the sellers renovate the bathroom to a more appealing modern design

Lesson 5 | Page 13 of 14

A salesperson and sellers are discussing exterior home staging techniques that will increase the appeal of the sellers’ home and attract more buyers. The salesperson understands the sellers are on a budget. The sellers would like to do some home staging but are concerned about the cost. The salesperson explains that exterior home staging is equally important because the exterior of the property is the first thing a potential client sees. What recommendation should the salesperson make to the sellers? There are three options. There is only one correct answer. 1 2 3

Recommend that the sellers hire a professional landscaper for their front yard Recommend that the sellers repaint the exterior of the house Recommend that the sellers wash the windows and the front porch

©2019 Real Estate Council of Ontario

Lesson 5 | Page 14 of 14

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were discussed in this lesson.

Preparing a property for sale

Home staging techniques that can assist in the marketing of a property

Recommendations for improvements and renovations for a property need to be discussed with the seller before bringing the property to market. A salesperson needs to explain to the seller how improvements and renovations, even minor ones, will increase the appeal of the property and attract more buyers. The salesperson should focus on renovations and improvements that bring a higher return on investment, such as: • Window and door replacements • Interior and exterior painting • Necessary repairs and upgrades in kitchens, bathrooms, and basements The main focus of home staging is to make a home more attractive to potential buyers so it sells quickly and the seller receives a good offer. A salesperson should recommend to the seller home staging techniques designed to increase the appeal of both the interior and exterior of the home. Interior staging techniques include: • De-cluttering the home and making necessary repairs • Cleaning thoroughly • Painting if necessary • De-personalizing the home by removing any personal items and memorabilia Exterior staging techniques include: • Thoroughly cleaning the exterior of the home and windows • Ensuring the lawn, yard, and gardens are all manicured and well-tended • Pressure washing exterior surfaces such as the driveway and decks • Replacing outdated lighting fixtures • Re-painting areas such as doors, exterior trim, and garage doors, as necessary ©2019 Real Estate Council of Ontario

Lesson 6 | Page 1 of 17

Lesson 6: Summary Practice Activities

This lesson provides a series of activities that will test your knowledge on the entire module.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 2 of 17

This lesson reviews the content from the module. You will answer a series of knowledge-check questions. This will help you to review what you have learned about preparing to market a residential property and complete some additional practice before finishing the module.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 3 of 17

XYZ Realty Ltd., Brokerage, was referred to a couple interested in selling their property. The salesperson the sellers wanted to hire no longer works at the brokerage. Another salesperson was on duty when the sellers called the brokerage. The sellers decide to meet with this salesperson at their home to determine if they will want to work with him. While preparing to meet with the sellers, it will be appropriate for the salesperson to collect documents required for the listing agreement. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 6 | Page 4 of 17

XYZ Realty Ltd., Brokerage, was referred to a couple interested in selling their property. The salesperson the sellers wanted to hire no longer works at the brokerage. Another salesperson was on duty when the sellers called the brokerage. The sellers decide to meet with this salesperson at their home to determine if they will want to work with him. While preparing to meet with the sellers, it will be appropriate for the salesperson to examine market trends and the surrounding neighbourhood. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 6 | Page 5 of 17

XYZ Realty Ltd., Brokerage, was referred to a couple interested in selling their property. The salesperson the sellers wanted to hire no longer works at the brokerage. Another salesperson was on duty when the sellers called the brokerage. The sellers decide to meet with this salesperson at their home to determine if they will want to work with him. While preparing to meet with the sellers, it will be appropriate for the salesperson to suggest contacting third-party professionals to address any necessary major repairs. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 6 | Page 6 of 17

XYZ Realty Ltd., Brokerage, was referred to a couple interested in selling their property. The salesperson the sellers wanted to hire no longer works at the brokerage. Another salesperson was on duty when the sellers called the brokerage. The sellers decide to meet with this salesperson at their home to determine if they will want to work with him. While preparing to meet with the sellers, it will not be appropriate for the salesperson to review previous listing and sale information about the property. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 6 | Page 7 of 17

A salesperson representing a seller is obligated to determine known material facts of the seller's property and to ensure the information in the listing data form is accurate. The salesperson should prepare a list of general and specific questions to ask the seller. Specific questions would include those relating to the structure of the property, any improvements the seller has done, and if there are any environmental issues or concerns surrounding the property. What type of questions could the salesperson prepare to ask the sellers during their meeting? WHILE NAVIGATING THROUGH THE ONLINE MODULE, CLICK THE EXPERT RESPONSE BUTTON TO VIEW THEIR ANSWER.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 8 of 17

A seller signs a representation agreement with a brokerage. Before listing the property, the salesperson conducts a visual inspection of the property’s interior and exterior. The salesperson identifies several defects. The salesperson and the seller are obligated to disclose a buried oil tank to a potential buyer and their salesperson. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 6 | Page 9 of 17

A seller signs a representation agreement with a brokerage. Before listing the property, the salesperson conducts a visual inspection of the property’s interior and exterior. The salesperson identifies several defects. The salesperson and the seller are obligated to disclose a broken window in the basement to a potential buyer and their salesperson. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 6 | Page 10 of 17

A seller signs a representation agreement with a brokerage. Before listing the property, the salesperson conducts a visual inspection of the property’s interior and exterior. The salesperson identifies several defects. The salesperson and the seller are not obligated to disclose an uneven surface on the wall near the HVAC system to a potential buyer and their salesperson. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 6 | Page 11 of 17

A seller signs a representation agreement with a brokerage. Before listing the property, the salesperson conducts a visual inspection of the property’s interior and exterior. The salesperson identifies several defects. The salesperson and the seller are obligated to disclose an outdated electrical system to a potential buyer and their salesperson. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 6 | Page 12 of 17

Before the salesperson can list the sellers’ property, he needs to calculate the interior and exterior measurements of the property; he wants to verify the property dimensions against source materials he has collected. This will also help him estimate a value for the property, meet his obligation to provide competent and conscientious services to the sellers, and ensure the information he lists on the local listing service is accurate and complete. The sellers’ home is a two-storey with a built-in garage and the salesperson needs to calculate the total living area. The salesperson’s measurements are: 1st Floor: 7.65 m x 10.75 m 2nd Floor: 7.65 m x 15.25 m Garage: 6.25 m x 6.33 m What is the overall area calculation in square feet? Calculate the total living area, and then use a calculator or an online conversion tool to convert from square metres to square feet. NOTE: Round-off each answer during calculation to two decimal places. There are three options. There is only one correct answer. 1 2 3

1715.12 ft2 2240.16 ft2 2148.15 ft2

©2019 Real Estate Council of Ontario

Lesson 6 | Page 13 of 17

The salesperson wants to prepare the sellers’ property for showing. After conducting a visual inspection, it is recommended that the sellers make improvements intended to increase the visual appeal of the property to the largest number of potential buyers. The sellers tell the salesperson that they have a limited budget and are not willing to undertake high-cost improvements. The salesperson should recommend the sellers to install granite countertops. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 6 | Page 14 of 17

The salesperson wants to prepare the sellers’ property for showing. After conducting a visual inspection, it is recommended that the sellers make improvements intended to increase the visual appeal of the property to the largest number of potential buyers. The sellers tell the salesperson that they have a limited budget and are not willing to undertake high-cost improvements. The salesperson should recommend the sellers not to necessarily paint interior and exterior. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 6 | Page 15 of 17

The salesperson wants to prepare the sellers’ property for showing. After conducting a visual inspection, it is recommended that the sellers make improvements intended to increase the visual appeal of the property to the largest number of potential buyers. The sellers tell the salesperson that they have a limited budget and are not willing to undertake high-cost improvements. The salesperson should recommend the sellers to replace kitchen faucets and hardware. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 6 | Page 16 of 17

The salesperson wants to prepare the sellers’ property for showing. After conducting a visual inspection, it is recommended that the sellers make improvements intended to increase the visual appeal of the property to the largest number of potential buyers. The sellers tell the salesperson that they have a limited budget and are not willing to undertake high-cost improvements. The salesperson should recommend the sellers not to purchase all new appliances for the kitchen. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 6 | Page 17 of 17

Congratulations, you have completed the lesson!

©2019 Real Estate Council of Ontario

Module Summary | Page 1 of 4

Module Summary

This lesson provides a summary of concepts from the entire module.

©2019 Real Estate Council of Ontario

Module Summary | Page 2 of 4

Congratulations, you have completed this module! The next two pages in this lesson will present a summary of Learning Objectives and a list of helpful resources that you can search for in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 3 of 4

There are five sections on this page with a summary of the key topics that were discussed in this module.

Prepare to meet with potential sellers

Sellers and buyers consider many factors before choosing a brokerage and a salesperson to represent them. As a salesperson, you will need to make a good first impression, which you can do by being well-informed about the property, the neighbourhood, and the surrounding area. To create an appropriate marketing strategy, review property documents, such as previous listing and sale information, and identify any past misuse of the structure or property. The benefits of a pre-listing presentation include: • Providing the potential seller with information about you and the brokerage, such as achievements and success stories and the types of services you provide • Demonstrating your real estate knowledge and skill by proposing a marketing plan for the property and providing other statistical reports based on research Establish rapport with the potential seller by being prepared. The potential seller must trust that you and your brokerage will be able to meet their needs. Before listing the property, review original source documents, and prepare a package for the seller with necessary documentation, including a listing agreement and datasheet. To ensure the information you collect about the property is current, take your own measurements. Make sure you have the tools to do so. You should have a measuring tool (for example, laser measuring device, digital measuring wheel, tape measure) a flashlight, camera, and note pad. Completion of this lesson has enabled you to: • Research important information about the property • Prepare a pre-listing presentation • Gather all required paperwork and tools

©2019 Real Estate Council of Ontario

Conduct a visual inspection

As a salesperson, you will need to know and understand: • How to document defects properly • Your obligation to obtain information about the property from the seller • Your obligation to advise the seller that they must disclose known latent defects including the most serious defects • Your obligation to document and disclose, on behalf of the seller, any known latent defects to a potential buyer through their salesperson. You are also obligated to counsel your seller to obtain qualified legal advice on what they are required to disclose, when warranted • The importance of conducting a thorough visual inspection of the interior and exterior of a property and recognizing defects and property conditions that may affect the listing and sale Before conducting the visual inspection, prepare specific questions for the seller, document the seller’s answers, and ask the seller to provide all documents related to repairs and warranties. Be aware of situations that may require the assistance of a third-party professional, including: • Electrical issues, such as faulty wiring or work does not meet the building and/or fire codes • Environmental issues, such as mould, lead, or hazardous waste disposal • Structural issues, such as concerns about the roof, basement, or foundation When you conduct a visual inspection of a property, ensure the seller has a clear understanding of patent defects and latent defects. Completion of this lesson has enabled you to: • Explain the requirements regarding the seller’s obligations for disclosure • Identify leading practices for a salesperson when conducting a visual inspection • Describe the types of defects a salesperson should identify when doing an inspection • Identify when to consult a third-party professional

©2019 Real Estate Council of Ontario

Gather key information

Collect and review key information about the property and ask the seller to provide original documents they received when they first purchased the property. Key information includes: • Names of all people on title or who have an interest in the property • Mortgages, lines of credit, or other debt obligations registered against title • Land use restrictions such as encroachments, easements, and rights of way • Property taxes and notice of assessment • Zoning issues Verify the accuracy of information relating to the property’s physical attributes, such as lot size, living area, and room sizes. Verify information by: • Reviewing source documents • Purchasing a report from GeoWarehouse® • Obtaining floor plans from the builder, if applicable • Taking your own measurements of the building(s) and comparing these to measurements in the source document and other reports • Asking the seller about the age of the HVAC system, wells/septic system, wiring, and plumbing Examine neighbourhood characteristics that can have both a positive or negative effect on the appeal, value, and marketability of the property. Examples of characteristics that affect value and appeal include: • Reputation and location of area schools • Public transit • Environmental hazards and/or stigmatized land uses, such as waste sites, nuclear power plants, prisons • Cell phone towers and television transmission towers • Amenities, such as restaurants, recreation facilities, and shopping centres Completion of this lesson has enabled you to: • Identify information required to list a residential property and the importance of verifying the information

©2019 Real Estate Council of Ontario

Calculate areas and related linear measurements

• Identify the characteristics of a neighbourhood that may impact the appeal of a residential property Although no universal measuring standards of residential buildings exist in Canada, the Appraisal Institute of Canada (AIC) Building Measurement Guideline is widely used across the country and provides recommendations for how to calculate the total living area for a number of residential and commercial structures. Know what resources are available to you regarding calculating the total area of a house. Verify property information, such as dwelling/house size, through source documents, and a variety of other resources; for example, internet search, GeoWarehouse®, and MPAC. Consider local practices and policies for measurements. For example, depending on the location, differences may exist regarding what is included in area calculations. You will use three types of measurements: feet/metres, square feet/square metres, and acres/hectares. Know how to convert metric to imperial measurements and imperial to metric measurements. The area of a room is determined by multiplying the length times the width of each rectangular livable floor area. Area measurement may involve a single rectangular shape or a combination forming an irregular pattern. For irregular rectangular shapes, calculate the total area as if a rectangle and subtract the non-livable floor area. The total living area of a house may be based on exterior measurements. You will: • Take exterior measurements on significant structures • Take exterior measurements on accessory buildings • Take measurements of other exterior improvements

©2019 Real Estate Council of Ontario

If you are unable to measure one of the exterior surfaces, measure the interior perimeter wall and add an allowance for each exterior wall using the thickness of the windows to determine the thickness of the exterior wall. Inspect the house to identify spaces that should be included in the total living area. When calculating total living area of a residential structure, the livable area includes only areas that are above grade and heated year-round; for example, habitable rooms that are directly accessible from another living area, whether through a doorway, heated hallway, or stairway. Rooms located in a finished basement would not be included in the livable floor area measurement. However, these rooms would still be measured for marketing and listing purposes. Additional finished rooms below grade add value to the property. AIC distinguishes between above grade and below grade areas. When calculating total living space of a residential property, only above grade areas (above the ground) should be used. Rooms and spaces located below grade (below the ground) should not be included in the total living space when listing the property. They can still be measured for marketing purposes.

Recommend improvements before listing

Completion of this lesson has enabled you to: • Describe guidelines that can be used when calculating the area of a residential structure • Identify leading practices of a salesperson regarding area and linear measurements • Review basic math skills used when describing residential measurements • Identify what measurements should be taken when listing a residential property • Calculate areas and linear measurements using industry guidelines You will need to make recommendations to the seller for improvements and renovations that could or should be made to a property before bringing it to market, and home staging techniques that will increase the property’s appeal and marketability. Convey to the seller the importance of making the property more

©2019 Real Estate Council of Ontario

attractive to potential buyers and, at the same time, be sensitive to the seller’s needs and circumstances. Renovations and improvements that will bring higher return on investment include: • Window and door replacements • Interior and exterior painting • Necessary repairs and upgrades in kitchens, bathrooms, and basements Explain how staging will increase the property’s appeal and attract more buyers. Interior staging techniques include: • De-cluttering • Making repairs • Cleaning thoroughly • Painting • De-personalizing Exterior staging techniques include: • Cleaning the exterior of the home and windows • Ensuring the lawn, yard, and gardens are well-maintained • Pressure washing exterior surfaces such as the driveway and decks • Replacing outdated lighting fixtures • Re-painting areas such as doors, exterior trim, and garage doors as necessary Completion of this lesson has enabled you to: • Identify the benefits of preparing a property for sale • Identify how home staging could assist in the marketing of a property

©2019 Real Estate Council of Ontario

Module Summary | Page 4 of 4

Module Resources There are three helpful resources related to this module that you can search for in the Knowledge Management System. 1. Pre-Listing presentation: This list contains recommended documents and information that can form part of a salesperson’s pre-listing presentation. When presenting marketing materials to consumers, a salesperson must comply with the advertising provisions of the Real Estate and Business Brokers Act and the Code of Ethics (Code, Sec. 36, and Act, Sec. 27). A listing salesperson can use this job aid to build a seller’s confidence in their abilities and experience. 2. Interior and Exterior Visual Inspection: This job aid provides information about what a salesperson should look for and where a salesperson should look when conducting a visual inspection of a property’s interior and exterior. This non-exhaustive list includes types of conditions that may have any impact on the listing and sale of the property. A salesperson can use this job aid to help ensure they have conducted a thorough visual inspection of all areas of the property. Disclaimer: A salesperson must refer a seller to a third-party professional, as necessary, when the salesperson is not able to provide such services with reasonable knowledge and skills. 3. Listing a Residential Property: This job aid outlines information relating to ownership and title, land-use restrictions, and physical property aspects. A salesperson can use this job aid when gathering and verifying key information about a residential property prior to listing. While navigating through the online module, click the KMS button for tools and information on this topic.

©2019 Real Estate Council of Ontario

V7

Module 10: How Property Conditions Impact Disclosure Requirements Disclaimer: This is a reference document which contains pages from the Accessible eLearning module. You should complete the eLearning module to proceed to the next step. Please note that the accessible module on the LMS only contains the interactive pages and you need to go through the content of this document thoroughly to attempt the interactive activities in the module. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Salesperson Program ©2019 Real Estate Council of Ontario. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or in any means – by electronic, mechanical, photocopying, recording or otherwise without prior written permission, except for the personal use of the Real Estate Salesperson Program learner.

©2019 Real Estate Council of Ontario

Module 10: How Property Conditions Impact Disclosure Requirements As you learned in an earlier module, as a salesperson, you will need to gather information about a property and conduct a thorough visual inspection before the property is listed. This module provides an in-depth review of potentially detrimental property conditions and the obligations for disclosure—yours and the seller’s. You will learn about the authorities that oversee environmental issues in Ontario, how to identify any potentially detrimental conditions, and your obligation to discuss these conditions with the seller. You will also learn about factors that can cause a property to become stigmatized, how to discuss stigma with a seller or a buyer, and possible disclosure obligations. Finally, you will learn about leading practices in relation to property conditions and minimizing risk concerning environmental issues. To check your understanding of this module, you must complete all the activities in the online module. While navigating through the online module, click the Legislation button to view laws and regulations related to this module. While navigating through the online module, click the KMS button to access the Knowledge Management System or visit the Module Resources to find the list of all the KMS assets for this module. The contents of the thumbnail icon and References from the module are added to support your learning throughout this Accessible PDF.

©2019 Real Estate Council of Ontario

Menu: How Property Conditions Impact Disclosure Requirements Number of Lessons

Lesson Number

4 Lessons

Lesson 1

Lesson Name Salesperson’s Obligations Regarding Property Conditions and Disclosure

Lesson 2

Salesperson’s Leading Practices Regarding Property Conditions

Lesson 3

Summary Practice Activities Module Summary

©2019 Real Estate Council of Ontario

Lesson 1 | Page 1 of 28

Lesson 1: Salesperson’s Obligations Regarding Property Conditions and Disclosure This lesson introduces the authorities that oversee environmental issues in Ontario. It explains how to identify any current or previous use of the property that may be considered detrimental and affect the property’s marketability, and provides examples of typical issues that may cause such conditions. The lesson also describes a salesperson’s obligations to acquire information from a seller and discuss their concerns with the seller, including any environmental issues.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 2 of 28

Salesperson’s Obligations Regarding Property Conditions and Disclosure The focus of this lesson is to provide you with a general understanding of environmental issues and potentially detrimental property conditions that may affect the listing, marketing, and sale of a residential property. As a salesperson, you will need to know about the ministries and regulatory authorities that oversee environmental issues in Ontario, how to identify potentially detrimental conditions, and how to discuss these conditions with the seller. Upon completion of this lesson, you will be able to: • Identify the environmental regulatory authorities that oversee environmental issues in Ontario • Identify any potentially detrimental conditions • Describe the salesperson’s obligations to discuss environmental concerns with a seller Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 3 of 28

Common Types of Environmental Issues As a salesperson, you may be involved in the marketing and sale of properties that have been or continue to be affected by environmental issues. Common types of environmental issues you may encounter include potential soil contamination associated with septic systems, wells, or buried oil tanks. You may also encounter situations where a property owner is restricted in what they can do with their property due to environmental regulations. In Ontario, several regulatory authorities oversee environmental issues. You will need to be aware of these authorities and the basic requirements under the applicable legislation, so you can advise the seller you are representing about environmental issues, direct them to the appropriate authorities for more information, and identify issues that need to be brought to their attention and/or disclosed to potential buyers. The regulatory authorities that oversee risks associated with contamination include the Building and Development Branch of the Ministry of Municipal Affairs and Housing, which administers the Ontario Building Code, and the Technical Standards and Safety Authority, which regulates standards regarding buried oil tanks. The regulatory authorities that protect the environment include the Ministry of the Environment, Conservation and Parks, and the Ministry of Natural Resources and Forestry.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 4 of 28

The Ontario Building Code Administered by the Building and Development Branch of the Ministry of Municipal Affairs and Housing, the Ontario Building Code is a regulation under the Building Code Act, 1992. The Building Code sets out qualifications for sewage system inspectors and for those in the construction, installation, repair, servicing, and cleaning or emptying of sewage systems. The Ministry of Municipal Affairs and Housing reviews and amends the Building Code approximately every five years. Amendments reflect changes in technology and emerging public safety issues. Building Code Act, 1992, and Septic Systems As a general guideline, municipalities are responsible for issuing permits, collecting fees, conducting inspections, and storing various documents about septic tank installations. Municipalities must follow detailed requirements as set out in Part 8 of the Building Code concerning design standards and system requirements. However, not all municipalities perform directly all functions regarding on-site sewage systems because the Building Code provides that a municipality may enter into an agreement with other municipalities, the county, or the region to enforce Part 8 of the Building Code. If there is no agreement, a municipality may delegate the authority to a health unit or conservation authority that has jurisdiction in that particular municipality.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 5 of 28

Septic Systems and Salesperson Obligations As a salesperson representing a seller whose property has a septic system, you will need to gather information about the system and advise the seller that the system will likely need to be inspected before the property is listed. If an inspection uncovers issues with the septic system, you may need to recommend that the seller remedy the issue or explain the possible impact on the selling price and to take the issues into consideration when establishing a listing price. If you are representing a buyer interested in purchasing a property with a septic system, you would need to explain to the buyer the need to include a condition in the agreement of purchase and sale that provides for an inspection of the septic system. This allows the buyer sufficient time to have the septic system inspected by a licensed septic system inspector.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 6 of 28

Technical Standards and Safety Authority (TSSA) The Technical Standards and Safety Authority (TSSA) administers and enforces the Technical Standards and Safety Act, 2001, and its regulations on behalf of the provincial government. Administration of the safety standards includes engineering design reviews, licensing and registration, training and certification, and public education. An underground fuel oil tank is a buried or partially buried container, in direct contact with earth or backfill that contains fuel oil used in appliances or property systems such as furnaces or boilers. TSSA regulates the installation, testing, maintenance, repair, removal, upgrading, replacement, inspection, and use of appliances and equipment that use fuel oil. TSSA also regulates above-ground fuel tanks, installed at or above grade level. When the environment is affected by an incident such as a leaking storage tank, TSSA is responsible for ensuring the incident is investigated according to the regulations and managed properly. In cases where ground water or soils are affected, TSSA is responsible for administering the Environment Management Protocol and ensuring that areas affected by spills or leakage will be returned to the established standards.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 7 of 28

TSSA and Fuel Tanks The main concern with all fuel tanks is the risk of contamination of the environment. The existence of an aboveground or underground fuel tank on a property is a material fact that must be disclosed by the seller to the salesperson. An underground fuel oil tank could also be a latent defect and, if known, must be disclosed by the seller. A potential buyer will need to know about the existence of the tank and whether it is secure. The seller would need to provide any potential buyer with information about the tank, such as age and maintenance history. However, the standards for maintaining underground fuel oil tanks is greater than an above ground tank. TSSA requires the given of a homeowner: • Existing underground fuel oil tanks must be registered with TSSA; the homeowner must submit the Underground Fuel Oil Application Form to TSSA. ©2019 Real Estate Council of Ontario

• Existing underground fuel oil tanks must be upgraded with specific leak and spill prevention equipment; upgrading will depend on the tank’s age. • Existing underground fuel oil tanks that are not upgraded according to TSSA standards must be removed by a TSSA-registered contractor. • Unused underground fuel oil tanks must be removed by a TSSA-registered contractor. • Unused underground fuel oil tanks may remain abandoned in the ground only if approved by a TSSA variance. (The homeowner submits an application for a variance to TSSA. TSSA reviews the application and provides a written response within approximately 21 business days.) Any contamination must be cleaned by a TSSA-registered contractor; this includes remediation of the contamination site.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 8 of 28

TSSA and Salesperson Responsibilities As a salesperson, if you are representing a seller whose property has a known underground fuel oil tank, you will need to do the given: • Confirm with the seller that the tank is registered with TSSA and ask for a copy of the registration and maintenance records. • If the tank has been taken out of service or unused, confirm with the seller that they have received permission from the TSSA that the tank may be abandoned in the ground. • If TSSA did not issue a variance to allow the underground tank to be abandoned in the ground, advise the seller to arrange for the immediate removal of the tank by a TSSA-registered contractor before the property is listed. • Advise the seller that the existence of an underground fuel oil tank must be disclosed to all potential buyers. A seller may decide that the removal of the abandoned underground fuel oil tank is too costly and ask you to list the property anyway. If such a situation arises, you will need to advise the seller that: • Few buyers, if any, would be willing to purchase a property with an abandoned underground fuel oil tank because of liability and the cost of removal and remediation. • An interested buyer would offer a lower price to cover the cost of removal and remediation. • An interested buyer may make the offer conditional on the seller removing the underground fuel oil tank before closing.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 9 of 28

Ministry of the Environment, Conservation and Parks The Ministry of the Environment, Conservation and Parks administers and enforces the Environmental Protection Act, 1990. It promotes healthier communities and economic prosperity by protecting Ontario’s air, land, and water. Specifically, the Ministry investigates matters concerning pollution, waste management, waste disposal, and litter management and disposal. The Ministry is empowered to issue various licenses, permits, and certificates of approval concerning a range of activities that have an impact on the environment. For example: • Permits relating to private water wells • Approvals concerning herbicide use by cottage owners to control aquatic plant life • Remediation of contaminated lands • Land development and associated sewage works • Haulage of septic waste • Air quality, including the control of emissions

©2019 Real Estate Council of Ontario

Lesson 1 | Page 10 of 28

Environmental Protection Act, 1990 The Environmental Protection Act, 1990, is the primary environmental legislation impacting the ownership and use of real property in Ontario. Since 1971, the Act has gradually expanded both in terms of jurisdictional authority and the degree of control/enforcement over environmental issues. The Act provides for various types of orders that can be invoked by either the minister or the director of the Ministry. The given five orders will affect real estate transactions: 1. Remedial order: The Ministry can require a party (including a corporation) to remedy a situation in which a discharge is involved 2. Preventative order: The Ministry can require a party (including a corporation) to take preventative measures; for example, equipment, personnel, and monitoring apparatus 3. Waste removal order: The Ministry can require a party (including a corporation) to remove hazardous waste from a site

©2019 Real Estate Council of Ontario

4. Control order: The Ministry can require a party (including a corporation) to control or eliminate the source of pollution 5. Stop order: The Ministry can require a party (including a corporation) to stop the discharge of a contaminant that is an immediate threat to human health or life The range of parties (individuals or corporations) subject to orders can vary considerably. If an administrative order is not followed, the Ministry can undertake the work and charge the costs back to the individual or corporation who received the order. Example: While conducting a visual inspection of a potential seller’s property, the salesperson observes that the seller is storing pesticides in the garage and notices stains on the garage’s concrete floor. The salesperson asks the seller what caused the stains, to which the seller replies they do not know. The salesperson recommends further investigation by a third-party professional. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 11 of 28

Ministry of Natural Resources and Forestry The Ministry of Natural Resources and Forestry is responsible for protecting and sustainably managing the province’s diverse natural resources to support Ontario’s environmental sustainability, economic prosperity, and quality of life. The Ministry is involved in various aspects of environmental controls within the province. As a salesperson, you will need to understand the role of the Ministry because you may be trading a property that falls under the jurisdiction of the Ministry. For example, the property is located on a lakefront or abuts Crown land. The following three sections contain information about the responsibilities of the Ministry and the regulated areas under the Ministry’s jurisdiction. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Main responsibilities of the Ministry of Natural Resources and Forestry The Ministry of Natural Resources and Forestry: • Manages Ontario’s fish and wildlife resources • Leads the management of Ontario’s Crown lands, water, oil, gas, salt, and aggregate resources (including making Crown land available for renewable energy projects) • Ensures the sustainable management of Ontario Crown forests

©2019 Real Estate Council of Ontario

Other responsibilities of the Ministry of Natural Resources and Forestry Other responsibilities of the Ministry of Natural Resources and Forestry include: • Protection of fish habitat, including control of pollutant discharges into watercourses and stream alterations that could adversely affect the fish habitat (Fisheries Act, 1985). This responsibility is performed on behalf of the federal government’s Department of Fisheries and Oceans. • Approvals required for diverting, holding back, or other activities affecting water flow and levels for other users (Lakes and Rivers Improvement Act, 1990.) • Permits required for work or other activity on shore lands adjacent to navigable waters. The bed of these waterways (that is, below the highwater mark) is public land (Public Lands Act, 1990.)

©2019 Real Estate Council of Ontario

Wetlands Wetlands are areas covered either seasonally or permanently by shallow water or where the water table is at or near the surface. The five major types of wetlands are swamps, bogs, fens, marshes, and open water less than two metres in depth. The goal of Ministry of Natural Resources and Forestry is to protect and conserve wetland areas wherever possible. As a salesperson, you will need to be aware of any wetlands on or immediately adjacent to properties being marketed as this may affect the properties perceived value.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 12 of 28

A salesperson is representing a seller who wants to sell his rural property next to the lake. The property has a septic system, an addition to the main home, and a small dock on the lake. The salesperson explains to the seller what types of third-party inspections a buyer may want to request as a condition to any offer. What should the salesperson advise the seller about third-party inspections? There are four options. There are multiple correct answers. 1

A buyer will specify that a third-party inspection of the property’s foundation is legally required.

2

A buyer and their salesperson will want to see any documents related to the recently built addition and will ask if it was built in accordance with the Ontario Building Code. They will ask to see reports from any inspections that have been completed.

3

An employee from the Ministry of Natural Resources and Forestry will perform a soil test for contaminants and take a water sample to look for effluents before the sale.

4

A buyer’s salesperson will ask that the septic system be checked by a third-party inspector as part of the agreement of purchase and sale.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 13 of 28

Material Facts About the Property As a salesperson, you will need to gather key information about a property so you can list it accurately and without misrepresentation. What information you will need and how to verify its accuracy was discussed in an earlier module. If you represent a seller, an important part of the information-gathering process will be to research and discover any material facts about the property, including any potentially detrimental property condition that may reduce a property’s market value or its marketability. Examples of detrimental conditions include cannabis (often also called marijuana) grow operations, hoarding, and deferred maintenance that may contribute to the development of a latent defect. As you learned earlier, any property condition may be considered a material fact if the condition could affect a reasonable person’s decision to sell or buy the property, influence the selling price, or influence the conditions attached to the agreement of purchase and sale. If any detrimental property condition is a latent defect that is known to the seller, then the seller will be required to make the disclosure. Based on the seller’s instructions, you should expect to be asked to make the disclosure of known latent defects to potential buyers and other brokerages on behalf of the seller. If you are providing services to a customer, you will be required to disclose what you know or ought to know about material facts to your customer.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 14 of 28

Current or Previous Use of the Property: Grow House The Cannabis Act, 2018, legalized recreational cannabis in October 2018. The Act permits an individual to grow up to four plants per residence. A cannabis grow operation (also known as a grow op or marijuana grow op) produces cannabis on a large scale and poses health risks to occupants. For example, a grow op requires significant amounts of water and humidity to bring the plants to harvest. A grow op in a house without adequate ventilation means condensation will produce dampness, which leads to mould. As a salesperson, you may not be able to spot a grow op after it has been dismantled and renovated. A home inspection by a qualified home inspector is the best way to determine if a house is a former grow op. While getting a home inspection is always a good idea, there are potential signs to look for when you conduct a visual inspection that the house may have been used as a grow op. These signs are: • • • • • • • • • •

Mould in corners where the walls and ceilings meet Unusual number of roof vents or signs of roof vents Fresh paint on window frames to cover damage caused by high levels of humidity Painted concrete floors in the basement with circular marks where pots once stood Evidence of tampering with the electric meter (damaged or broken seals) or the ground around it Unusual or modified wiring in the interior or on the exterior of the house Brownish stains on the underside of beams or arches that bleed down a wall Concrete masonry patches or alterations on the inside of the garage Patterns of screw holes on the walls Fireplace alterations

©2019 Real Estate Council of Ontario

Lesson 1 | Page 15 of 28

Current or Previous Use of a Property: Other Examples A property’s previous and current use may contribute to potentially detrimental conditions. In the previous screen, you learned about grow houses and grow operations. Given are other examples of current or previous use of a property that may contribute to a detrimental condition. • Hoarding is a disorder whereby individuals acquire and have trouble discarding items that have little or no value, such as newspapers/magazines, old clothing, food, bags, books, mail, paperwork, and auto parts. Hoarding makes essential maintenance and upkeep difficult. The lack of maintenance can lead to build-ups of grease, dust, dampness, or mould. It can also lead to an infestation of mice, termites, bats, woodworms, or carpenter ants. • Illicit narcotic production lab (not cannabis or marijuana) of drugs (such as synthetic drugs). Such labs use extremely hazardous chemicals that can lead to respiratory complications and other health issues and are

©2019 Real Estate Council of Ontario

highly flammable. In addition to risks associated with air quality and fire, such labs may attract unwanted visitors connected to the previous illicit drug operation. • A garage used as an automotive repair shop. Various lubricants, solvents, and engine oil are stored in the garage. A spill can create environmental issues with the property. • Property renovations (such as new wiring or plumbing) without the proper building permits. Renovations must comply with the Ontario Building Code and the Ontario Fire Code. These detrimental conditions may, in turn, contribute to the development of a latent defect or a material latent defect. As you learned earlier, a latent defect is not readily observable by the untrained eye during the reasonable inspection of a property. The most severe type of latent defect is a material latent defect, which poses a serious risk and can render the home unsafe, unhealthy, or uninhabitable. Certain latent defects may only be identified and remediated by a qualified third-party professional. As a salesperson, if you are involved in the sale of properties whose current or previous use may contribute to any latent defect caused by the detrimental condition, you should advise the seller to consult with an appropriate thirdparty professional to identify and remediate the property before it is listed. In the case of renovations, you will need to confirm with the seller that they obtained the necessary permits. If the seller is unable or unwilling to remedy a known latent defect, you must advise the seller that the defect has to be disclosed to other brokerages and buyers. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 16 of 28

Potentially Detrimental Conditions As a salesperson, when you are conducting a visual inspection of a property or discussing property conditions with the seller, you will need to be able to identify potentially detrimental conditions that will affect the property’s marketability. Two potentially detrimental conditions you will need to understand are deferred or lack of routine maintenance and issues typically associated with older properties, such as aluminum wiring, knob and tube wiring, lack of insulation, and galvanized piping/plumbing. The following five sections contain information about potentially detrimental conditions.

Deferred maintenance Deferred maintenance, or lack of routine maintenance, may lead to detrimental property conditions such as rotten walkways, wooden structures in need of repair, leaky roofs, insufficient insulation, the growth of mould, or infestation. Potential problems of a property’s interior and exterior were discussed in other modules. As a salesperson conducting a visual inspection, you may be able to identify some conditions caused by deferred maintenance. Other conditions may only be identified by a qualified, third-party professional, such as a home inspector.

©2019 Real Estate Council of Ontario

For example, a home inspection can reveal hidden issues or defects, such as a slow water leak causing dampness or mould, or rodents that have eaten through insulation or the plastic covering on wiring. If discovered, these types of defects would be considered latent, and the recommendation to the seller would be to fix the defect before the property is listed or explain their obligation to disclose such latent defects to buyers.

Aluminum wiring Homes in Ontario built in the mid 1960s to late 1970s may have aluminum wiring. The Ontario Electrical Safety Code (the Code) permits the installation of aluminum wiring as long as appropriate aluminum to copper wire connectors are used in accordance with the Code and the manufacturer’s instructions. As you learned earlier, a salesperson may be able to identify aluminum wiring if the plastic casing around the wiring says “Aluminum” or “Alum.” Other signs of the existence of aluminum wiring include hot or charred outlets or silver-coloured wiring coming out from under terminal screws. As a salesperson representing a seller, if you suspect the wiring is aluminum, you should ask the seller. You may also want to advise the seller to consult with an electrician.

©2019 Real Estate Council of Ontario

If you are representing a buyer, recommend that the buyer consult with an electrician to inspect the wiring. The electrician may recommend replacing the aluminum wiring with copper or aluminum-to-wire connectors. The Electrical Safety Authority would then issue a certificate that the work complies with the Electrical Safety Code.

Knob and tube wiring Most Ontario homes built in the early 1900s up to the late 1940s had knob and tube wiring, a system where the wires run through porcelain cylinders that look like tubes. Ceramic or porcelain knobs hold the cylinders in place. Knob and tube wiring can pose a few dangers and is a fire risk because it is not grounded, cannot carry a heavy electrical load or be used in outdoor locations, and its rubber insulation breaks down over time. In the late 1940s, this system was abandoned when a newer system that included a ground wire was introduced. The existence of knob and tube wiring on a property is a material fact. Many insurance companies will refuse to insure a property with knob and tube wiring. Instead, they will give a new owner a 60- or 90-day period during which the new owner must replace the knob and tube wiring.

©2019 Real Estate Council of Ontario

To determine if a house has knob and tube wiring, and you are representing a seller, you could: • Ask the seller • Inspect the basement during the visual inspection of the property; (knob and tube wiring is occasionally visible in those areas of the property) • Inspect the attic if it is easily accessible (please note that not all salespersons will inspect the attic) If a house has knob and tube wiring, you should advise the seller to hire an electrician to inspect it for signs of deterioration or damage. If there are signs of deterioration or damage, you could recommend that the seller replace the wiring before the property is listed. If you are representing a buyer, you should recommend that the buyer obtain a professional home inspection.

©2019 Real Estate Council of Ontario

Poor insulation A typical insulated wall consists of framing, batt insulation, a vapour barrier, and a finished interior wall consisting of drywall, plaster or panelling. Insulating limits the movement of air through techniques, including air barriers, vapour barriers, caulking, weather stripping, or various types of batt or similar insulation. As you learned earlier, insulation is rated based on its R-value, the capacity of an insulating material to resist heat flow. Different types of insulation have different R-values. The higher the R-value, the greater the insulating power, leading to a more energy-efficient house. A poorly insulated home leads to higher energy bills; heating and cooling costs increase because the home is not warm enough in the winter or cool enough in the summer. Signs of a poorly insulated home include high energy bills, fluctuating room temperatures, and chilly drafts. Questions to ask a seller: • Do you know your attic’s R-value? • Have you upgraded the insulation since moving into the house? • Does your house have cold floors and walls in the winter? • Are the heating bills high? • Is there mould growth in the summer?

©2019 Real Estate Council of Ontario

Galvanized piping/plumbing Widely used in Canada until the 1950s, galvanized pipes are steel pipes that have been dipped in a protective zinc coating to prevent corrosion and rust. Over time, these types of pipes begin to rust or corrode from the inside out, which results in: • Reduced water pressure • Restricted water flow • Increased risk of leaks or ruptures occurring in the pipes • Potential for flood damage • Corrosion to steel when it is connected directly to copper or brass A salesperson would be able to spot galvanized pipes because the coating metals usually have a chalky look and feel. Galvanized pipes that run from a municipal service pipe to a property’s taps have been banned in Ontario. However, they are permitted to run from a property’s drains to external drains. Galvanized or lead pipes may still exist in the form of service pipes to a property and are slowly being upgraded in all municipalities across Ontario.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 17 of 28

Detrimental Conditions Related to the Environment You will also need to be able to identify environmental concerns such as underground fuel oil tanks, mould, lead, asbestos, Urea Formaldehyde Foam Insulation (UFFI), and radon. As you learned earlier, underground fuel oil tanks were discussed in the Technical Standards and Safety Authority section of this lesson. The following five sections contain information about the impact of these environmental conditions on a property.

Mould Mould is the growth of minute fungi, traditionally associated with decaying vegetable or animal matter. It can take hold when a home does not have adequate ventilation and condensation builds up inside. Hairline cracks or a leaky roof can cause mould and, in some instances, it will thrive behind walls and under floorboards. A significant health and environmental problem, mould has been linked to various health problems, including sinus infections, asthma, and certain respiratory infections. If mould is not dealt with quickly, it can cause significant structural problems, such as rotting wood and damaged ceilings. In extreme situations, mould has led to collapsing ceilings and floorboards. ©2019 Real Estate Council of Ontario

Homeowners, or others responsible for building management, should watch for discolouration in building finishes and inspect areas in which dampness might collect, such as basement storage areas and kitchen cupboards. Air conditioning units and furnaces (including ducts) should be cleaned regularly and any stagnant water (for example, in drainage pans) should be eliminated.

Lead-based products Lead is a major health risk and is listed as a designated hazardous substance under Ontario’s Occupational Health and Safety Act. Lead-based products were common before 1950 and up until the 1980s. The greycoloured metal was used to join pipes together. In older neighbourhoods, municipal pipes that bring water to the home could include lead as well. As a salesperson representing a seller, you should: • Be aware of possible lead contamination in structures built before 1970, with the highest risk in pre-1950s structures. • Ask the seller if their home contains lead paint. • If the seller does not know, advise the seller to send paint chip samples to a laboratory for analysis.

©2019 Real Estate Council of Ontario

• If the lead paint is not chipped or within the reach of children, advise the seller to seek expert advice. • If the lead paint should be removed, advise the seller to consult with a qualified, third-party professional; Health Canada can also advise on how to remove lead paint.

Asbestos A popular building material until the 1980s, asbestos was commonly used because of its insulating, strengthening, and fire- and heat-resistant properties. The product is still most frequently encountered in roofing materials, wall and pipe coverings, vermiculite insulation, floor tiles, appliances, ceilings, patching compounds, textured paints, and door gaskets of stoves, furnaces, and ovens. Occupational health and safety legislation at the federal and provincial levels have declared asbestos a carcinogenic health hazard; it poses a health risk when microscopic fibres are released into the air. However, Ontario does not have a law that prohibits selling homes with asbestos. The presence of asbestos may be both a patent defect and a latent defect. It is also a material fact that must be disclosed by the salesperson to the seller because

©2019 Real Estate Council of Ontario

some buyers may not knowingly purchase a house containing asbestos and some mortgage companies will not provide financing unless the asbestos is removed. Asbestos is a patent defect if its presence is readily observable by the untrained eye, such as: • Pipes wrapped in a foil-like, paper-like, or canvastype material. • Flooring or tiles installed between 1920 and 1960 will most likely contain asbestos. • Flooring or tiles installed between 1960 and 1980 could contain asbestos. • Floor tiles with a marble-like or embossed appearance and are sized 6” x 6”, 9” x 9”, or 12” x 12”. Asbestos is a latent defect if its presence is not readily observable by the untrained eye during a reasonable inspection of the property. Many homeowners may not be aware of asbestos in their home because a laboratory analysis is usually required to determine if there is asbestos and the level of asbestos. Asbestos testing and the removal of asbestos-containing material is a specialized area of environmental management and should be conducted by a qualified environmental professional. If asbestos was removed from the home, the homeowner should have a removal certificate. Asbestos is a material latent defect, the most severe type of latent defect, if it is friable, which means it has become crumbled, pulverized, or reduced to powder.

©2019 Real Estate Council of Ontario

Friable asbestos is dangerous because it can release fibres into the air that can remain airborne for a long time. If inhaled, these fibres can permanently lodge themselves in the lungs and other bodily tissues, causing chronic health conditions that include cancer. If known, the seller must disclose the presence of asbestos to all potential buyers.

Urea Formaldehyde Foam Insulation (UFFI) UFFI is a colourless, chemical compound that was used to insulate properties between 1975 and 1979; approximately 100,000 homes in Canada were insulated with UFFI. The product was banned in 1980 due to health concerns. At the time of installation, UFFI had the appearance and consistency of shaving cream. While normally identified as a white or cream-coloured substance, at least one product contained blue dye. UFFI was injected into a property’s walls and in other areas formaldehyde gas was released. The gas can irritate the eyes, nose, and throat and heighten problems for asthma and allergy sufferers. There is essentially no risk of developing cancer based on average levels of formaldehyde found in Canadian homes. The amount of formaldehyde released from off-gassing decreases over time.

©2019 Real Estate Council of Ontario

As a salesperson, you will need to note that a property has UFFI in the listing and agreement of purchase and sale.

Radon Radon is an invisible, odourless, and tasteless radioactive gas that occurs naturally in the earth’s crust. If allowed to reach hazardous levels indoors, radon particles can attach themselves to lung tissue when inhaled. Radon levels are often higher in basements or crawl spaces, or in winter when windows and doors tend to be closed for a long time. Outdoors, radon is diluted to the point of being harmless. Radon can enter a home through any opening in which the property contacts the soil. This includes cracks in basements, foundation walls, floor drains, and service pipes. The only way to determine the radon level in a home is through testing. Radon is not normally on a home inspection checklist. The homeowner has two options to test for radon: • Hire a radon measurement professional • Buy a radon test kit

©2019 Real Estate Council of Ontario

If testing shows that the radon level is above Canadian guidelines in the home, the homeowner can potentially reduce the level by: • Increasing mechanical ventilation to allow for more frequent air exchange • Sealing cracks and openings in foundation walls and floors, and around pipes and drains • Increasing ventilation in the basement by installing a small pump to draw the radon from below the concrete slab to the outside before radon can enter

©2019 Real Estate Council of Ontario

Lesson 1 | Page 18 of 28

A salesperson has done a visual inspection of a seller’s property and has looked at the basement, which is still partly unfinished, as well as all the rooms on the second storey. The salesperson notices some blue wiring in the unfinished part of the basement. What does the blue wiring indicate? There are three options. There is only one correct answer. 1 2 3

Aluminum wiring Copper wiring Internet cables

Lesson 1 | Page 19 of 28

A salesperson has done a visual inspection of a seller’s property and has looked at the basement, which is still partly unfinished, as well as all the rooms on the second storey. The salesperson notices pipes wrapped in a material. What could it potentially be? There are three options. There is only one correct answer. 1 2 3

Asbestos Styrofoam Insulation

©2019 Real Estate Council of Ontario

Lesson 1 | Page 20 of 28

A salesperson has done a visual inspection of a seller’s property and has looked at the basement, which is still partly unfinished, as well as all the rooms on the second storey. Given that the basement is unfinished, what should the salesperson ask the sellers to test the basement for? There are three options. There is only one correct answer. 1 2 3

Methane Radon Nitrous oxide

Lesson 1 | Page 21 of 28

A salesperson has done a visual inspection of a seller’s property and has looked at the basement, which is still partly unfinished, as well as all the rooms on the second storey. The salesperson notices a patch upstairs in the bathroom during the inspection and recommends it to be removed. What does the patch indicate? There are three options. There is only one correct answer. 1 2 3

Mould Dampness Inexpensive paint primer

©2019 Real Estate Council of Ontario

Lesson 1 | Page 22 of 28

A salesperson has done a visual inspection of a seller’s property and has looked at the basement, which is still partly unfinished, as well as all the rooms on the second storey. The salesperson sees small ceramic tubes and hooks in the attic. What does that indicate? There are three options. There is only one correct answer. 1 2 3

Copper wiring Aluminium wiring Knob and tube wiring

©2019 Real Estate Council of Ontario

Lesson 1 | Page 23 of 28

Potential Hazard or Environmental Issue Surrounding the Property As a salesperson, one of your main responsibilities will be to comply with all regulations that impact real estate trading, in particular, the Code of Ethics, under the Real Estate and Business Brokers Act. Complying with the regulations means putting the needs of your sellers and buyers first, ahead of your own. The next step after gathering information about the property is the discussion you will need to have with the seller about any potential hazard or environmental issue you have uncovered regarding their property. As you learned earlier, your obligation when working with a seller client will differ from your obligation when working with a seller customer. For a seller client, you will need to take reasonable steps to research and discover any material facts about the property, including any potential hazard or environmental issue. You will then need to discuss these facts with the client. Depending on what you discover, you should advise the seller client to consult with a third-party professional. If the seller is a customer, you will not be required to conduct any research. You will only disclose information about the property that you know or ought to know.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 24 of 28

Salesperson Obligations to be Aware of and Disclose Environmental Issues Environmental issues and other potential hazards will affect a real estate transaction. They may make the property less appealing and more difficult to sell, or delay the closing of a transaction if not discovered prior to an offer being made. As a salesperson, to ensure the transaction is successful, you must be aware of these issues and provide the seller client with the appropriate guidance and advice. As you learned earlier, you will owe fewer responsibilities to customers. The following four sections contain information about the salesperson’s regulatory obligations to discuss environmental concerns with a seller. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Best interests (Code, Section 4)

You must always protect and promote the best interests of your client. Example: A salesperson is conducting a thorough visual inspection of the seller’s basement. The salesperson notices some pipes wrapped in a foil-like material. The salesperson asks the seller if it is asbestos. The seller says that a friend had advised it was not. The salesperson explains that if it is asbestos, it would need to be disclosed to potential buyers, which may make the property less appealing. The salesperson also explains that if the asbestos is friable, it may need to be removed before the property is listed because friable asbestos is dangerous. The salesperson recommends that the seller obtain the services of a third-party professional specializing in asbestos remediation to determine if the wrapping insulation is asbestos.

©2019 Real Estate Council of Ontario

Conscientious and competent service, etc. (Code, Section 5)

You must provide your seller clients and customers with conscientious and competent service throughout the course of the transaction. To do so, you must have the requisite knowledge, skill, judgement, and competence. Example:

Material facts (Code, Section 21)

A salesperson is representing a seller whose property is located in a small village within a township not serviced by municipal sewage. A potential buyer would like to submit an offer and wants to ensure the septic system meets all requirements and is in good working order. The seller’s salesperson provides the buyer’s salesperson with documents stating that the septic system was inspected by a third-party professional within the last month. The buyer’s salesperson shares this information with the buyer and also recommends including a condition in the agreement of purchase and sale that the purchase of the property is conditional upon the inspection of the septic system by a septic professional at the buyer’s expense. If you are representing a client, you must take reasonable steps to research and discover information about the property and discuss anything you discover with them, including the obligation for disclosure. If you are providing services to a customer, you must disclose what you know or ought to know about the property to the customer. If you are providing services to a seller customer, you will still be required to disclose material facts to the customer relating to the sale of the property that you know or ought to know. Example: A salesperson is meeting with their seller client and they are in the attic. The salesperson notices wiring through ceramic tubes attached to a ceiling joist. The salesperson knows this is knob and tube wiring. The salesperson asks if there is knob and tube wiring in other parts of the house.

©2019 Real Estate Council of Ontario

Services from others (Code, Section 8)

The salesperson explains to the seller the issues associated with this type of wiring and the difficulty for a buyer, as a new owner, to obtain insurance for the property. The salesperson also explains that any potential buyer would want to obtain a home inspection and make the offer conditional upon obtaining insurance and financing, if applicable. If you are representing a seller client or customer, you will need to advise them to consult with a third-party professional, depending on what is discovered, if you are unable to provide the services with reasonable knowledge, skill, and judgement. For a customer, you would only advise them to consult with a third-party professional. For a seller client, a leading practice would be to provide them with the names of three professionals they can contact and might assist them to contact the one they want to use and to meet with the client and the professional. Example: A salesperson has just listed the property of their seller client and is inspecting the exterior of the house and the backyard. While viewing the property, the salesperson notices an area in the backyard where the grass has died, and the ground is stained with a dark material that has an unpleasant odour. The salesperson asks the seller about the stain. The seller says they do not know what it is but thinks there could be an unused, underground fuel oil tank in the yard. The salesperson suspects that the underground tank may be leaking and recommends that the seller contact a thirdparty professional, such as an environmental site assessor or home inspector, to investigate because the salesperson does not have the knowledge, skill, or experience to assess the situation. Upon the completion of an investigation by a third-party professional, the salesperson will use this technical information to share with buyers and their salespersons in any pre-sale communication, thereby avoiding any misrepresentation of the property.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 25 of 28

Environmental Site Assessment Environmental issues, such as land contamination and hazardous waste, are a growing concern. Many people associate these types of issues with commercial properties but these issues also occur in residential properties; for example, leaking fuel tanks, malfunctioning septic systems, or polluted wells. As a salesperson, you will need to discuss environmental concerns with the seller. This discussion would be part of your regulatory obligation to discover and disclose material facts about the property to the seller. You may recommend that the seller obtain an environmental site assessment, especially if the property’s present or past uses may be cause for concern. Performed by a third-party professional, an environmental site assessment is a systematic and comprehensive process involving the identification, analysis, and evaluation of an environmental issue. If you are representing a buyer, you would recommend an environmental site assessment as part of your due diligence. As you learned earlier, an environmental site assessment will help the buyer understand if any environmental concerns are associated with the site, the scope of these concerns, and the steps needed to remedy the situation. An environmental site assessment that indicates further investigation and possible remediation may affect the transaction. For example, some buyers may decide not to proceed with the purchase if the property requires remediation. Other buyers may use the assessment findings during their negotiations to either reduce their offer price or include a condition in the agreement that the seller will remediate the site. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic. ©2019 Real Estate Council of Ontario

Lesson 1 | Page 26 of 28

Overview of the Three Phases of an Environmental Site Assessment As you learned earlier, environmental site assessments, performed by environmental site assessors, are broadly grouped under three levels of analysis, or phases. The depth of analysis increases from Phase 1 to Phase 2. Phase 3 involves actual remediation. The following three sections contain information about the three phases of an environmental site assessment. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Phase 1

Phase 2

The purpose of a Phase 1 environmental site assessment is to determine if the property has some form of contamination. In a Phase 1 environmental site assessment, the assessor: • Visits the property to obtain visual evidence of actual or potential contamination • Reviews background documents, such as historical aerial photographs and title searches • Reviews requests for information from the Ministry of the Environment. Conservation and Parks and the relevant municipality • Reports the findings and conclusions A Phase 2 environmental site assessment is triggered by a Phase 1 assessment whereby the assessor discovered the possibility of a contamination. The purpose of a Phase 2 environmental site assessment is to determine the scope of the environmental problem and make recommendations for remedial action. In a Phase 2 environmental site assessment, the assessor: • Collects samples of soil and groundwater by onsite drilling; these samples undergo laboratory testing and analysis to determine the existence and extent of the contamination • Confirms if an environmental problem exists ©2019 Real Estate Council of Ontario

Phase 3

• Quantifies the extent of the contamination • Reports the findings and conclusions, which includes a recommended remediation plan to resolve the issue A Phase 3 environmental site assessment is triggered by a Phase 2 assessment. The purpose of a Phase 3 environmental site assessment is to detail the remedial steps and costs associated with circumstances identified in Phase 2, and to remediate the site by removing the contamination. In a Phase 3 environmental site assessment, the assessor: • Identifies the best available alternatives, costs, strategies, and plan of action for environmental risk management and remediation • Identifies steps required to perform site remediation and follow-up monitoring for residual contamination • Reports the findings and conclusions, including a confirmation that the remediation was successful and met the required guidelines If the site was not remediated, the report may also include a site-specific risk assessment that defines the level of contamination.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 27 of 28

After the salesperson has outlined the environmental concerns with the seller’s property, they are concerned about the salability of their property and ask the salesperson to review the process involved in an environmental site assessment. Identify the statement that is true regarding the phases of an environmental site assessment. There are three options. There is only one correct answer. 1

Phase 1 is a visual inspection combined with a review of all documents and relevant environmental records

2

Phase 2 is made up of steps to clean up any contamination

3

During phase 3, soil testing will be carried out by a third-party environmental site specialist

©2019 Real Estate Council of Ontario

Lesson 1 | Page 28 of 28

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Environmental regulatory authorities

This lesson detailed the regulatory authorities and legislation regarding property conditions and disclosure. The Ontario Building Code regulates the issue of building permits. Among other things, it sets out qualifications for sewage system inspectors, and for people engaged in the on-site construction, installation, repair, servicing, and cleaning or emptying of sewage systems. The Technical Standards and Safety Authority administers safety standards in a number of areas, including engineering design reviews, inspections, investigations, licensing and registration, training and certification, and public education. TSSA is responsible for ensuring that incidents where the environment is affected are investigated and managed properly. In cases where ground water or soils are affected, TSSA is responsible for administering the Environment Management Protocol and ensuring that areas affected by spills or leakage will be returned to Ontario’s standards.

Potentially detrimental conditions

The Ministry of the Environment, Conservation and Parks (MECP) enforces Ontario’s Environmental Protection Act and is empowered to investigate pollution, waste management, waste disposal, and litter management/disposal. The ministry exercises a wide range of powers, including search and seizure provisions to ensure adherence to environmental regulations. Identifying detrimental conditions is a key part of a salesperson’s work. They can only see visible conditions and cannot identify hidden conditions such as mould in difficult-to-access locations, a leaking underground pipe, or rotten wood.

©2019 Real Estate Council of Ontario

For this reason, a salesperson representing a seller may recommend the seller obtain a professional home inspection. A salesperson representing a buyer should always make this recommendation. Key causes of detrimental hazards are deferred maintenance, the age of a property, and environmental issues.

Salesperson’s obligation to discuss environmental concerns with a potential seller

New properties may have detrimental conditions, such as radon or mould. Older properties may be prone to mould, UFFI, lead in pipes or service pipes, or asbestos. Some of these detrimental conditions pose environmental concerns and an environmental assessment should be recommended by a salesperson, if they believe it is necessary. Most detrimental conditions qualify as material facts and, if known, should be disclosed to a potential buyer. When a person qualifies as a salesperson, they commit to following the Code of Ethics. One part of the Code details a salesperson’s obligations to discuss any environmental concerns with a seller. This is important because not doing so may have ramifications on health, structural integrity, and the natural environment. Learning how to identify environmental concerns is the first step, and then a salesperson must know how to recognize when an environmental assessment is required. Each stage of the process must be transparent and discussed openly with a seller client. This way, a client understands the issues, process, and potential costs involved. Their best interests have been protected by the salesperson.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 1 of 16

Lesson 2: Salesperson’s Leading Practices Regarding Property Conditions This lesson identifies factors that may be viewed as stigma and explains a salesperson’s role when listing a stigmatized property. It details the obligation a salesperson has to discover and discuss material facts about a property with seller clients, and the types of information that must be provided to a potential buyer. Finally, it explains how to minimize risk regarding environmental concerns about a property.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 2 of 16

Salesperson’s Leading Practices Regarding Property Conditions Purchasing a property where someone has died is not necessarily an issue for many buyers. For others, it can be upsetting, even if the death was natural, to the point of not proceeding with a purchase. This type of situation is known as a stigma, and a stigma attached to a property may affect the number of people interested in the property and in turn, its value. Death on a property is one example that may cause a property to become stigmatized. Other examples include a murder or suicide that occurred on the property or a property that was used in the ongoing commission of a crime. This lesson explains how to address stigmas and a salesperson’s obligation for disclosure regarding stigma and other property conditions. Upon completion of this lesson, you will be able to: • Identify disclosure obligations regarding a stigmatized property • Identify leading practices of a salesperson regarding property conditions Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 3 of 16

Stigmas Related to the Property As you learned earlier, when you are representing a seller, your first course of action will be to research the property and collect information so you can list it accurately and without misrepresentation. Discovering if a property has been stigmatized can be tricky because what is considered a stigma would depend on the individual. You will need to first explain to the seller what a stigma is and provide examples, and then ask the seller specific questions that will help you determine if a stigma might exist. You should also conduct your own research because the seller may not know the property’s full history. If you are representing a buyer, you would also need to discuss stigma with them.

You will need to know about the factors that can cause a property to become stigmatized because stigmas may lower the value of a property and make it more difficult to sell.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 4 of 16

Definition of Stigma In real estate, a stigma is a non-physical, intangible attribute of a property that may trigger an emotional or psychological response from a potential buyer. An event or circumstance may have occurred in or near the property that does not affect the property’s appearance or function but may be considered emotionally disquieting for some buyers. Unlike a patent or latent defect, which may exist at a property, there is nothing physically observable or measurable associated with a stigma. A stigma can be real or perceived and is subjective. Some buyers may be more concerned than others about a fact about a property that could be perceived as a stigma. Factors That Can Cause a Property to be Stigmatized REBBA does not provide a definition for stigma. However, examples of factors that may cause a property to be stigmatized include: • Property used for committing an ongoing crime (for example, a clandestine drug lab) • Property used as a former cannabis (marijuana) grow operation (grow op) and remediated according to the local health or building authority • Property previously owned by a known criminal • Property where a murder or suicide has occurred • Property rumoured to be haunted

©2019 Real Estate Council of Ontario

Lesson 2 | Page 5 of 16

Questions to Ask Sellers and Buyers The relevance and impact of a potential stigma or other non-physical occurrence or circumstance will be determined by a buyer’s perceptions, age, personal values, and other individual concerns. A leading practice for a salesperson regarding stigma is early and clear communication with both a seller and a buyer. Early and clear communication starts with asking specific questions about stigma of the seller and buyer. The following two sections contain questions a salesperson should ask a seller and buyer regarding stigma.

Questions to ask a seller

Ask a seller specific questions to determine if the property has possible stigma, such as: • Have there been any deaths on the property, either natural or unnatural? • Has the property ever been used for committing an ongoing crime (for example, a former grow op)? • Has the property ever been owned by a known criminal? • Has the property ever been rumoured to be haunted?

©2019 Real Estate Council of Ontario

Questions to ask a buyer

The seller may not know the full history about the property, so you should also conduct your own online research. Ask a buyer specific questions to determine if an event or circumstance that happened on a property would be considered a stigma and would affect their decision to purchase the property, such as: • Would you still be interested in a property if you learned someone died on the premises? • Would it matter if the death was from natural causes or accidental, versus death by a violent act or suicide? • Would it matter if it was a crib death of an infant? • Would you be as concerned by a death that occurred 20 years ago as you would with a recent death? • Would you still be interested in a property if it was the scene of a crime or was previously owned by a known criminal? • Would you still be interested in a property if it were rumoured to be haunted? • Is there anything that would make you change your mind about the property if you found out about it?

©2019 Real Estate Council of Ontario

Lesson 2 | Page 6 of 16

Disclosure Obligations Regarding a Stigmatized Property There is no legislation or case law in Ontario that suggests a seller, or their salesperson, is required to disclose the existence of stigma to buyers. A seller is not legally obligated to disclose the existence of stigma. A salesperson is also not obligated to disclose the existence of a stigma in a single representation scenario when representing a seller who has given the salesperson instruction not to disclose the stigma. As a salesperson, if you believe that a stigma may be an issue for some buyers and may affect the transaction, you must be prepared to have an in-depth discussion with your seller client. Given are some suggestions of what you can communicate to the seller: • Explain that although there is no legal requirement or case law for the disclosure of stigma to a buyer, the law is evolving. A buyer may initiate a lawsuit if they discover a stigma that was known and not disclosed by the seller.

©2019 Real Estate Council of Ontario

• Explain that if the neighbours know about the stigma, buyers might find out if they or their salesperson ask around the neighbourhood about the property and expect they will find out from the neighbours when they move in. If that is the case, it may be worth avoiding the risk of lawsuits by disclosing it up front. • Recommend that they seek legal advice regarding their rights and obligations related to the issue and get written instructions from the lawyer regarding the disclosure of the stigma to buyers. • Explain that if a buyer’s salesperson specifically asks about a stigma, you will need them to decide whether they want you to answer truthfully (since lying is effectively misrepresentation and a violation of the Code) or decline to answer and suggest to the buyer that they conduct their own research. Even if you are not comfortable with the seller’s disclosure preferences, you will need to respect and follow their direction. Should you find that you cannot abide by the seller’s instructions, you will have to consider whether to discontinue working with them. Under no circumstances should you disclose a stigma without the seller’s knowledge. Please note, brokerages may have their own policy on how their salespersons should discuss and disclose a potential stigma. You will need to consult with your respective brokerage when you become a salesperson.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 7 of 16

Salesperson Disclosure Obligation Under Multiple Representation The obligation to disclose stigma in a multiple representation scenario is more complicated. Before a seller is asked to consent to the brokerage being in multiple representation, as a salesperson, you will need to explain that any information known about the stigma will have to be shared with the buyer. This is part of the brokerage’s duties to the buyer. If the seller objects to this, advise the seller that they do not have to consent to multiple representation. If consent is not given, inform the buyer and the brokerage will have to release one of the clients to seek alternate representation from another brokerage. Please note, brokerages may have their own policy on how their salespersons should discuss and disclose a potential stigma. You will need to consult with your respective brokerage when you become a salesperson. ©2019 Real Estate Council of Ontario

Lesson 2 | Page 8 of 16

Stigma and Potential Buyers As you learned earlier, stigma is subjective. What may be considered an issue for one buyer may not be important to another buyer. As a salesperson representing a buyer, you will need to have an in-depth conversation with the buyer to identify relevant stigmatizing issues. You will also need to conduct additional research if the buyer indicates sensitivity to one or more such issues. To protect the buyer further, you can include a representation or warranty in the offer regarding the status of the property. For example, “The seller represents and warrants that to the best of their knowledge and belief, the property has not been the site of a murder.” The ultimate form of buyer protection lies in the doctrine of caveat emptor (or let the buyer beware). The buyer is responsible for satisfying for themselves that the property they are purchasing is suitable for their purposes and your role as their salesperson is to help them to do that to the best of your abilities. Please note, brokerages may have their own policy on how their salespersons should discuss and disclose a potential stigma. You will need to consult with your respective brokerage when you become a salesperson.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 9 of 16

Discover and Disclose all Material Facts Property conditions, regardless of their cause or whether they are real or perceived, may impact real estate transactions. As a salesperson, you have an obligation under REBBA to discover and disclose all material facts about the property to your client. As you learned earlier, a material fact is any fact that would affect a reasonable person’s decision to acquire or dispose of an interest in real estate. You also have other regulatory obligations, which have been explained in detail in earlier modules. But you can do more and go beyond the minimum standards established by law by engaging in leading practice activities. A leading practice is any action you take while trading in real estate that produces superior results than the minimum standards set by legislation.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 10 of 16

Property Conditions and Material Facts A salesperson representing a client must take reasonable steps to discover the material facts and disclose them to the seller client at the earliest possible opportunity. For a seller customer, the salesperson is only required to disclose material facts that are known or ought to be known by the salesperson, such as the presence of an underground fuel oil tank, Kitec plumbing, or knob and tube wiring. These detrimental conditions, as you learned earlier in this module, may also be viewed as latent defects. Leading practices to comply with the obligation to discover and disclose material facts about the property to a seller client include: • Conducting a thorough visual inspection • Being aware of and identifying any defect or deficiency • Asking the seller specific questions to determine if there are any issues with the property (such as any factor that may contribute to a detrimental condition or stigma) • Advising the seller about material facts

©2019 Real Estate Council of Ontario

• Advising the seller of their obligation to disclose a property condition that may be considered a latent defect that is known by the seller • Conducting an internet search of the property and checking previous listings • Asking the seller to provide documentation of any repairs or improvements made to the property Example: While conducting a visual inspection for a seller client, a salesperson notices mould in the basement. The salesperson explains to the seller why the existence of mould may be a material fact for buyers, the possible cost for remediation and that buyers may not be willing to assume the cost. The salesperson recommends that the seller arrange for the removal of the mould by a mould remediation company. If the seller is unwilling or unable to correct the issue, the salesperson might offer to discuss this material fact with the buyer’s salesperson, as it likely will become a point of negotiation. Depending on the circumstances, the buyer may offer a lower price because they would have to absorb the cost of the remediation.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 11 of 16

Salesperson Leading Practices Regarding Property Conditions As a salesperson, you will need to comply with the regulatory obligations when trading properties with potentially detrimental conditions or stigma. There are also several leading practices for discussing and disclosing detrimental property conditions and stigma that extend beyond the minimum compliance requirements. The following six sections contain information about the leading practices regarding property conditions.

Accurate and current property description and not falsifying information

Leading Practice: • Advise the seller that only accurate, current, and up-to-date information about the property must be included in the listing document • Ensure only accurate and up-to-date information is included in the listing document These leading practices ensure salesperson compliance with Section 34 of the Act. Example: While conducting a visual inspection of the seller’s property prior to listing, the salesperson notices a fill pipe sticking out of the ground in the backyard. When the salesperson asks about the status of the underground fuel oil tank, the seller says it was inspected by a TSSA technician, who indicated the tank did not meet current standards and must be upgraded according to TSSA specifications. Worried that this information may deter any potential buyers, the seller asks the salesperson to note in the listing that the underground fuel oil tank was TSSA approved until the seller has a chance to figure out what to do. The salesperson tells the seller that this is a false and inaccurate statement and cannot be included in the listing. The salesperson recommends that seller have the

©2019 Real Estate Council of Ontario

Fairness and honesty when dealing with others

underground fuel oil tank upgraded or removed by a TSSA technician prior to listing the property. Leading Practices: • Answer questions honestly about the condition of the property from other salespersons and potential buyers • Disclose the presence of detrimental conditions that may be viewed as known latent defects in keeping with the lawful instructions of the seller These leading practices ensure salesperson compliance with Section 3 of the Code of Ethics. Example: While holding an open house for the seller, the listing salesperson overhears a salesperson from a co-operating brokerage speaking to their buyer while they are viewing the property. The salesperson tells the buyer that because the house is over 60 years old, the original wiring must be replaced. The salesperson also tells the buyer that they saw copper wiring in some unfinished areas of the basement, and that there is a possibility of aluminum wiring in some unfinished areas of the basement. When the co-operating salesperson approaches the listing salesperson regarding another inquiry about the property, the salesperson also tells them that although most of wiring was replaced 10 years ago, some of the original aluminum wiring still remains in a certain area of the house, something he had discussed disclosing with the seller.

Consultation with a third-party professional

Leading Practices: • Advise a client to consult with a third-party professional after identifying or suspecting the existence of a condition that is beyond the salesperson’s knowledge or skill • Provide the seller client with the names of three third-party professionals These leading practices ensure salesperson compliance with Section 8(1) of the Code of Ethics. Example: ©2019 Real Estate Council of Ontario

While conducting a visual inspection for a seller client, a salesperson notices missing roof shingles and some of the exposed roof sheathing seems to be deteriorating. The salesperson advises that the roof be repaired before listing to increase the property’s appeal. The salesperson recommends that the seller contact a roofer to obtain a quote for repairs and provides the seller with the name of three roofers.

Steps taken by a salesperson to address issues relating to property conditions

If the salesperson were providing services to a seller customer, the salesperson could simply recommend that the seller consult with a third-party professional about the condition of the roof. Leading Practices: • Provide details to the seller regarding the steps the salesperson takes to identify and determine any action required regarding the condition of the property • Advise the seller about the steps taken regarding the seller’s obligation to disclose known latent defects to other brokerages and buyers and agree with the seller what the salesperson may disclose on the seller’s behalf These leading practices ensure salesperson compliance with Section 23 of the Code of Ethics.

Accurate advertising and other promotional materials

Example: While conducting research regarding the condition of the property to be listed, the salesperson asks the seller if there are any issues that would not be able to be determined by a visual inspection of the property. The seller tells the salesperson that when the basement was originally finished, vermiculite insulation was installed behind the drywall and that it may contain asbestos. The salesperson advises the seller of their obligation to disclose the condition to other brokerages and buyers because asbestos would be considered a latent defect that the seller would be obligated to disclose. The salesperson details the steps they will take to disclose and document the information before any showings take place or offers are drafted, and how the issue will be addressed in an offer from a buyer. Leading Practices: • Verify that the information to be included in any advertising and other promotional material is accurate and up-to-date

©2019 Real Estate Council of Ontario

• Include only accurate and up-to-date information about the property in advertising and other promotional materials These leading practices ensure salesperson compliance with Section 37 of the Act.

Conscientious and competent service to promote a client’s best interest

Example: To gain more exposure for a new listing, the salesperson decides to feature the property on their website. Unhappy with the current photograph of the exterior of the property, the salesperson asks the seller if they have any attractive photos of the house and, if yes, to email them to the salesperson. Eager to help promote the property, the seller emails a photograph taken 15 years ago when the house was new. Currently, the house shows obvious signs of wear and tear and deterioration is some areas. The salesperson explains to the seller that the photos are not an accurate reflection of the home and arranges to have photos taken by an experienced photographer. Leading Practices: • Promote and protect the best interests of the seller client by discussing property conditions, including stigma, and making recommendations • Provide only services to the seller client and customer that are within the salesperson’s scope; for example, recommending a home inspection, if required, from a professional home inspector • Include conditions in the agreement of purchase and sale • Ensure the seller understands their obligations regarding disclosure of known latent defects to avoid misrepresentation These leading practices ensure salesperson compliance with Sections 4, 5, and 38 of the Code of Ethics. Example: A salesperson lists a property for sale on behalf of a seller client. The seller tells the salesperson that they had installed a new furnace and air conditioning unit and new windows in certain parts of the house.

©2019 Real Estate Council of Ontario

The seller wants the salesperson to mention in all marketing material that the house has a new furnace, air conditioning, and windows. The salesperson asks when the furnace, air conditioning unit, and windows were replaced and asks to see a copy of the receipts. The seller provides a copy of the receipts to the salesperson. The salesperson notes the age of the furnace and air conditioner and the age and location of the windows that were replaced. Based on the details that were verified, the salesperson ensures that all marketing material and the listing contain complete and accurate information about these installations.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 12 of 16

Leading Practices to Minimizing a Salesperson's Risk Concerning Disclosure of Environmental Issues So far you have learned about a salesperson’s obligations regarding the discovery, discussion, and disclosure of different types of property conditions under REBBA. You learned that some of these property conditions are the result of environmental issues. Given are some examples. • Environmental issues that may affect residential properties include waste management, underground fuel tanks, mould, lead, asbestos, and radon gas • Environmental issues that may affect renovated properties include flooding, standing water on a property, compliance with appropriate laws and regulations, hazardous substances, and prior use as waste disposal • Environmental issues regarding previous use of the property include propane/gas tank leak, underground oil tank, and disposal of hazardous waste on the property (for example, motor oil) Leading practices that will guide you on how to minimize risks associated with environmental issues include: 1. Being well informed and updated on environmental matters affecting the local market 2. Ensuring honesty and fairness in negotiations 3. Drafting accurate agreements and contracts 4. Seeking expert advice when necessary While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic. ©2019 Real Estate Council of Ontario

Lesson 2 | Page 13 of 16

Leading Practices to Minimizing a Salesperson's Risk Concerning Disclosure of Environmental Issues II As a salesperson, you will need to discuss environmental issues with the seller. This will prepare them for any remedial or repair work required to resolve the issue before the property is listed or answer questions from a potential buyer. If the issues are serious, your discussion will prepare them for the possibility of an environmental site assessment. As part of your discussion: • Document any information provided by the seller • Advise the seller to obtain services from a third-party professional (Code, Sec. 8) • Ensure all marketing accurately reflects the property • Discuss obligations for disclosure by the brokerage to a buyer • Detail the brokerage’s policies regarding non-required disclosures being provided by the seller • Document steps you have taken in the course of representing the seller (Code, Sec. 23)

©2019 Real Estate Council of Ontario

Lesson 2 | Page 14 of 16

A salesperson is representing a seller who is selling her parents’ home for them because they have moved into a care facility. The expected sale will likely take place while the economy continues to improve. The property has been well-maintained and has a new furnace. There are a few minor issues, including a couple of shingles missing from the roof and asbestos-wrapped pipes in the basement. As always, the salesperson will need to be thorough in his approach and clear with his questions and statements about pricing the property, documents required, expectations, and disclosure information. However, the salesperson’s listing documents contain some errors. What should the salesperson communicate to the seller? There are three options. There is only one correct answer. 1 2 3

List the property at a higher price than proposed earlier and slightly higher than similar homes in the neighbourhood. Recommend replacing the roof shingles and that the office’s handyman can do the work for a low cost. Inform the seller that all related documents and receipts must be factual.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 15 of 16

Minimizing Risk of Environmental Issues Scenario: A salesperson is going to conduct a visual inspection of a 45-year-old lakefront property. She needs to gather information for the listing. While speaking on the phone with the seller earlier in the day, the salesperson learns that the property is heated by oil and that some pipes are insulated with asbestos wrap. A salesperson should take the following steps to minimize the risk of environmental issues, both in general and in light of the information the seller shared: 1. Be well informed and updated on environmental matters affecting the local market area: Older neighbourhoods may have lead pipes leading into properties. The salesperson should follow the local news to see if any construction projects have been announced in the seller’s neighbourhood. She should also ask the seller whether the service pipes have been upgraded and if he is aware of any potential environmental issues in the neighbourhood. There may be many oil tanks in the neighbourhood and there may have been issues with others. Generally, to remain updated and informed, the salesperson should read her professional association news and bulletins, listen carefully when she is working with home inspectors, and follow the news. 2. Ensure honesty and fairness in negotiations: The salesperson will enquire in detail about a property’s condition, and any local business or industrial activities that could potentially be classed as environmental issues. For example, she will ask about their plans to build windmills along the waterfront or if the property sits on a former industrial site. Because the salesperson is diligent, she goes above and beyond what is expected of her and will check with the local municipality about the neighbourhood to ask about any issues. After discussions with the seller, she will disclose any findings or issues on the listing and to potential buyers. 3. Draft accurate agreements and contracts: In a situation such as this, where seller has been transparent and agreed that the salesperson disclose environmental issues, it is important that the salesperson include a clause noting that a buyer is aware of the specific issues at the time of purchase. 4. Seek expert advice when necessary: Given the age of the property, the salesperson is performing due diligence and protecting the seller’s best interests by recommending a full property inspection. Regarding issues in the house, the seller may say that the old fuel storage tank is not leaking. If the salesperson notices any stains or unusual smells, she will recommend a third-party inspection by a TSSA-certified technician. She should also recommend that the asbestos wrapping on the pipes be inspected. ©2019 Real Estate Council of Ontario

Lesson 2 | Page 16 of 16

Congratulations, you have completed the lesson! There are five sections on this page with a summary of the key topics that were discussed in this lesson.

Stigmatized property

Seller’s obligation for disclosure

Salespersons and disclosure

For real estate purposes, a stigma is a non-physical, intangible attribute of a property that may trigger an emotional or psychological response from a potential buyer. It may reduce the number of buyers interested in the property and the sale price. Examples of stigma include murder, suicide, death, an illegal drug operation, or an alleged ghost. Intangible issues such as stigmas are difficult to quantify. There are a number of elements to consider surrounding a seller’s disclosure obligations. There are latent defects, patent defects, and stigmas. For Latent defects that affect a home’s safety or habitability, the seller should seek legal advice around their disclosure obligations. For patent defects and stigma, there is no legal requirement or case law in Ontario for the seller to disclose the existence of a patent defect or stigma to a buyer. However, the law is always evolving. Sellers and their salespersons must be aware of and wary of false representation. An interested buyer’s questions should be answered honestly, considering what is already known by neighbours and what may be publicly available. A salesperson is responsible for acquiring information from a seller and for communicating fully with the buyer’s salesperson. They must represent their clients to the best of their abilities and put clients’ interests first. A salesperson will conduct a visual inspection of a property and ask questions about any visible signs of disrepair or potential problems. If a problem looks serious, such as dampness in a basement, rusty nails, or damp stains on a ceiling, a salesperson may recommend a pre-listing inspection to get an accurate assessment of the property so they can more fully discover and disclose material facts to the seller. An inspection may identify potential issues regarding the condition of the property and ©2019 Real Estate Council of Ontario

will help the salesperson estimate a realistic listing price and selling price for the property.

Fairness and honesty

Discussion with a seller

A salesperson will ask the seller for source documents and research the property by an internet search using the address of the property and checking the previous local listing service of the subject property. This search may provide additional information about the property. The salesperson may discover a material fact about the property and will be prepared to discuss it with a seller, along with the best approach to disclosing them to buyers. Treating clients and other professionals with fairness and honesty is a key element of succeeding in real estate. By doing so, you will be successful and establish a good reputation, as well as adhering to the REBBA Code of Ethics. A listing salesperson will answer questions from other salespersons and keep them informed about property conditions and any work carried out during negotiations. After the discussion, the salesperson should document information a seller client provides, advise the seller to seek third-party assistance when necessary, ensure marketing material accurately reflects the property, discuss disclosure obligations with the client, and identify multiple representation situations, if any exist. They must also document their own steps and communicate regularly with the seller.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 1 of 6

Lesson 3: Summary Practice Activities

This lesson provides a series of activities that will test your knowledge on the entire module.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 2 of 6

Summary Practice Activities This lesson reviews the content from the module. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 3 of 6

A salesperson is meeting with a seller who owns a waterfront property. The property has a large dock, boat storage building, and an outside underground fuel storage tank. The waterway is classed as a navigable waterway, and the area next to the property is a large undeveloped area. Given all these circumstances, the salesperson decides to review the regulatory authorities with the seller. Identify which statement is true regarding regulatory authorities that oversee environmental issues in Ontario. There are three options. There is only one correct answer. 1 2 3

Technical Standards and Safety Authority includes administration of engineering design reviews, inspections, investigations, and licensing and registration. Ministry of the Environment, Conservation and Parks protects all areas of natural and scientific interest on public and private lands. Ministry of Natural Resources and Forestry pursues polluters by powers vested in the Environmental Protection Act.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 4 of 6

A salesperson is meeting with a potential seller to gather details about their property and do a visual inspection. The salesperson learns that about five years ago there was a death on the property and, a decade ago, the house was a cannabis grow op. The salesperson also detects a small patch of mould in the attic. The seller mentioned that the previous owner of the property decorated his lawn with ornaments and once had an argument with some children, who broke one of his ornaments. Which issues should the salesperson consider a potential stigma? There are four options. There are multiple correct answers. 1 2 3 4

The previous owner’s disagreement with some local children who broke a lawn ornament is a wellknown story in the neighbourhood The property was a cannabis grow op 10 years ago, but property has been fully remediated The death of a relative on the property five years ago The patch of mould in the attic

©2019 Real Estate Council of Ontario

Lesson 3 | Page 5 of 6

A salesperson must comply with the Code of Ethics and should apply leading practices in every interaction and transaction. Compliance with the Code means protecting and promoting the best interests of sellers and buyers and acting with fairness and honesty. Identify which of the given statements are true pertaining to a salesperson’s obligations with the leading practices regarding disclosure. There are four options. There are multiple correct answers. 1 2 3 4

A salesperson will physically inspect a property and ask questions about the condition of the property, particularly questions about visible signs of wear and tear. A listing salesperson will answer questions from other salespeople/brokers and keep them informed with appointment requests and appointment confirmations. A salesperson has knowledge about real estate but may not be a specialist in any aspect of home deficiencies or repairs. When necessary, a salesperson should recommend that the seller contact a tradesperson or a contractor to provide an assessment of a situation and a quote for any kind of work. A salesperson produces a feature sheet for a potential new listing. The feature sheet should only include the photos and address of the property.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 6 of 6

Congratulations, you have completed the lesson!

©2019 Real Estate Council of Ontario

Module Summary | Page 1 of 4

Module Summary

This lesson provides a summary of the concepts in the module.

©2019 Real Estate Council of Ontario

Module Summary | Page 2 of 4

Congratulations, you have completed this module! This lesson will present a summary of Learning Objectives and a list of helpful resources that you can search for in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 3 of 4

There are three sections on this page with a summary of the key topics that were discussed in this module.

Environmental authorities and legislation

As a salesperson, you will need have a general understanding of the authorities and regulations that regulate environmental issues, such as: • Ontario Building Code and the Building Code Act, 1992 • Technical Standards and Safety Authority (TSSA) • Ministry of the Environment, Conservation and Parks and the Environmental Protection Act • Ministry of Natural Resources and Forestry The Building Code Act, 1992, regulates the construction, renovation, and change of use of a building. You will not be involved with the building, installation, extension, or alteration of buildings. However, you will be indirectly affected by the Ontario Building Code in situations involving new construction and renovations. You will need to have a general understanding of septic system provisions in the Building Code. If you are representing a buyer interested in purchasing a property that contains a septic system, you would need to insert a condition in the agreement of purchase and sale to provide enough time for the buyer to have the septic system assessed. TSSA administers and enforces the Technical Standards and Safety Act. You will need to be familiar with TSSA regulations; in particular, TSSA requirements for underground fuel oil tanks. The Environmental Protection Act is the primary environmental legislation impacting the ownership and use of real property in Ontario. Since 1971, this Act has gradually expanded both in terms of jurisdictional authority and the degree of control/enforcement over environmental issues. The Ministry of Natural Resources and Forestry is responsible for protecting and managing Ontario’s diverse natural resources. You will need to have a general

©2019 Real Estate Council of Ontario

understanding the Ministry’s mandate because you may trade properties located on a lakefront or abut Crown land.

Salesperson’s obligations regarding property conditions and disclosure

Completion of this module has enabled you to: • Identify the environmental regulatory authorities that oversee environmental issues in Ontario Current or previous use of a property can contribute to a detrimental condition. Previous uses resulting in a detrimental condition may include: • Grow op • A business that uses chemicals, which may still be present in the carpets • A hoarder, whose hoarding makes it difficult to maintain and clean the house • Manufacture and sale of illegal drugs Detrimental conditions may contribute to the development of a latent defect. If known by the seller, the seller must disclose these latent defects to potential buyers and other brokerages. Detrimental conditions may also be material facts. If you represent a seller client, you will need to research and discuss material facts with the seller. Your obligation to a seller customer will be to disclose information about the property based on what you know or ought to know about the property, by doing your own inspection of the property. Some older properties in Ontario receive their water from a municipal service pipe made of lead. Older properties can also have aluminium wiring, poor insulation, or galvanized plumbing. Environmental concerns must be examined and addressed before a buyer submits an agreement of purchase and sale. Key concerns of a buyer will include the age of the plumbing and wiring, UFFI (removed or existing), presence of asbestos, mould, or a disused underground storage tank. Best practices are in place to minimize risks related to environmental issues, such as:

©2019 Real Estate Council of Ontario

• Being well-informed and updated on environmental matters affecting the local market • Ensuring honesty and fairness in negotiations • Drafting accurate agreements and contracts by: o Asking the seller questions to gather comprehensive information o Documenting the seller’s responses • Seeking expert advice when necessary An environmental site assessment involves identifying, analyzing, and evaluating an environmental issue. You will need to have a general understanding of the three phases of an environmental site assessment.

Salesperson’s leading practices regarding property conditions

Completion of this module has enabled you to: • Identify any potentially detrimental conditions • Describe the salesperson’s obligation to discuss environmental concerns with a seller A stigma is a matter of perception. A stigma to one buyer will not be an issue for another buyer. If you are representing either a seller or buyer, you will need to ask specific questions about and discuss stigmas. Factors that can cause a property to become stigmatized include: • A death, murder, or suicide • Grow op • Illegal drug manufacturing operation • Former crime scene • A property reputed to be haunted Your obligation to disclose a stigma will differ under single and multiple representation. In single representation, you and the seller are not required to disclose a stigma. In a multiple representation scenario, before a seller is asked to consent to the brokerage being in multiple representation, you will need to explain that any information known about the stigma will have to be shared with the buyer as part of

©2019 Real Estate Council of Ontario

the brokerage’s duties to the buyer. If the seller objects, advise the seller that they do not have to consent to multiple representation. If consent is not given, inform the buyer of this fact and the brokerage will have to release one of the clients from their representation agreement and advise them to seek alternate representation from another brokerage. Many brokerages have established policies on disclosure, including stigmas, that state that the seller must sign a form indicating that they agree any issue or stigma will be disclosed. In this way, the brokerage is protecting and promoting the client’s best interest and protecting itself from future legal issues. Lawyers may become involved in disclosure issues under certain circumstances, such as: • Advising a client to seek legal counsel if a situation or issue could potentially have legal ramifications in the future • Advising a seller client to seek legal counsel to obtain independent advice regarding the legal ramifications of not disclosing a potential stigma or a known latent defect that may be considered a material fact to a buyer As a salesperson, when selling a property with a detrimental defect, you will need to comply with the Act and the Code of Ethics. • Discovering and disclosing all material facts about a property to a seller (Code, Sec. 21) • Not falsifying information (Act, Sec. 34) • Treating everyone with fairness and honesty (Code, Sec. 3) • Recommending that clients and customers obtain the services of other thirdparty professionals (Code, Sec. 8) • Informing a client of steps taken in the course of representation (Code, Sec. 23) • Complying with all advertising guidelines (Act, Sec. 37) • Compliance with obligations relating to best interests, per Code, Sec. 4; conscientious and competent service, per Code, Sec. 5; prevent error, misrepresentation and fraud, per Code, Sec. 38

©2019 Real Estate Council of Ontario

• Promoting and protecting the best interest of clients (Code, Sec. 4) • Providing conscientious and competent service to clients and customers (Code, Sec. 5) • Preventing errors, misrepresentation, fraud, or any unethical practice (Code, Sec. 38) To minimize risks concerning environmental issues, you will need to: • Be well-informed and updated on environmental matters affecting the local market • Ensuring honesty and fairness • Complete an agreement of purchase and sale accurately • Seek expert advice from a third-party professional, as necessary Completion of this module has enabled you to: • Identify disclosure obligations regarding a stigmatized property • Identify leading practices of a salesperson regarding property conditions

©2019 Real Estate Council of Ontario

Module Summary | Page 4 of 4

Module Resources There are five helpful resources related to this module that you can search for in the Knowledge Management System. 1. Orders Under the Environment Protection Act (EPA): This table describes the five types of orders the Ministry of the Environment, Conservation and Parks can issue under the Environmental Protection Act, 1990, that may impact real estate transactions. A salesperson can use this job aid when providing a seller or a buyer with an overview of environmental issues that may affect a property, such as underground fuel tanks, lead paint, chemicals stored in a shed or garage, or the storage of old tires, which can disintegrate and lead to toxins entering the ground and the orders that the Ministry may issue in response. Disclaimer: A salesperson is not a specialist in environmental issues unless they have qualification in this area and can only provide a seller or a buyer with a general overview of environmental issues that may affect a property. A salesperson should refer the seller or the buyer to an appropriate third-party professional or government agency for specific information and definitive advice on environmental issues. 2. Ministry of Natural Resources and Forestry: This job aid explains the role of the Ministry of Natural Resources and Forestry in managing Ontario’s natural resources, including environmental controls. A salesperson can use this job aid to gain a better understanding of the role of the Ministry because they may be trading a property that falls under the Ministry’s jurisdiction. Disclaimer: A salesperson is not a specialist in environmental issues unless they have qualification in this area and can only provide a seller or a buyer with a general overview of environmental issues that may affect a property. A salesperson should refer the seller or the buyer to an appropriate third-party professional or government agency for specific information and definitive advice on environmental issues. 3. Detrimental Property Conditions: This job aid explains property uses that could be considered potentially detrimental and may affect the property’s marketability and sale. It also reviews the Code of Ethics in relation ©2019 Real Estate Council of Ontario

to detrimental property conditions and provides examples. A salesperson can use this job aid when discussing property conditions with a seller or a buyer. 4. Three Phases of Environmental Site Assessments: This table explains the three phases of an environmental site assessment. A salesperson can use this job aid when working with a seller or a buyer who requires an environmental site assessment as part of an agreement of purchase and sale. 5. Leading Practices Regarding Property Conditions: These tables provide examples of leading practices regarding discussion and disclosure of property conditions. A salesperson can use this job aid to describe physical aspects of a property when listing it for sale. While navigating through the online module, click the KMS button for tools and information on this topic.

©2019 Real Estate Council of Ontario

Module 11: Property Value and Listing Price Considerations

V7

Disclaimer: This is a reference document which contains pages from the Accessible eLearning module. You should complete the eLearning module to proceed to the next step. Please note that the accessible module on the LMS only contains the interactive pages and you need to go through the content of this document thoroughly to attempt the interactive activities in the module. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Salesperson Program ©2019 Real Estate Council of Ontario. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or in any means – by electronic, mechanical, photocopying, recording or otherwise without prior written permission, except for the personal use of the Real Estate Salesperson Program learner.

©2019 Real Estate Council of Ontario

Module 11: Property Value and Listing Price Considerations In this module, you will learn about specific situations that require a salesperson representing a seller or buyer to consult with a professionally designated appraiser. You will also learn how to prepare a CMA on a residential property. A CMA helps a salesperson compile information on properties in a specific area that reflects current market prices in relation to the subject property. This data will provide the salesperson with the information needed to estimate the appropriate range for the listing price of the property. Finally, you will learn about the factors that impact the value of a residential property and the methods used to derive the appropriate value range. To check your understanding of this module, you must complete all the activities in the online module. While navigating through the online module, click the Legislation button to view laws and regulations related to this module. While navigating through the online module, click the KMS button to access the Knowledge Management System or visit the Module Resources to find the list of all the KMS assets for this module. The contents of the thumbnail icon and References from the module are added to support your learning throughout this Accessible PDF.

©2019 Real Estate Council of Ontario

Menu: Property Value and Listing Price Considerations Number of Lessons

Lesson Number Lesson 1 Lesson 2 Lesson 3

4 Lessons

Lesson Name Opinion on Property Value vs. Opinion on the Listing Price Estimate the Value of a Residential Property Summary Practice Activities Module Summary

©2019 Real Estate Council of Ontario

Lesson 1 | Page 1 of 23

Lesson 1: Opinion on Property Value vs. Opinion on the Listing Price

This lesson describes typical situations where a salesperson representing a seller or buyer is required to advise them to consult with a designated appraiser, the benefits of having a professional appraisal done, and the sections of the Code of Ethics that are fulfilled by doing so. The lesson also describes how a comparative market analysis (CMA) is performed, the sources of data to use, and strategies for presenting it to a seller.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 2 of 23

Property value and listing price do not mean the same thing. As a salesperson, you will need to know the difference between these two concepts because you will be estimating the value of a property and recommending a listing price for a property you will be selling on behalf of the homeowner. To estimate value and help you establish a listing price, agreed to by the seller, you will need to perform a comparative market analysis (CMA). The value you estimate after performing a CMA is only an opinion based on best estimates. In some situations, you will need to advise the seller to consult with an appraiser. This module will help you understand when a professionally designated appraiser is required to estimate the value of a property and how to prepare a CMA. Upon completion of this lesson, you will be able to: • Identify situations that warrant a professional appraisal be completed for a property • Describe how a CMA is used by a salesperson • Identify sources of data to use when completing a CMA • Identify strategies for presenting a CMA to a seller Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 3 of 23

Situations that Require a Professional Appraiser An appraisal is the act or process of estimating value and providing an opinion concerning that value. The opinion can be verbal or written. An appraiser is a professional who estimates value and has the necessary qualifications, ability, and experience to execute or direct the appraisal of real property. Two organizations that designate appraisers in Canada are the Appraisal Institute of Canada (AIC) and the Canadian National Association of Real Estate Appraisers (CNAREA). As you learned earlier, AIC is a national society of professional real estate appraisers dedicated to serving the public interest by advancing high standards for members of the appraisal professional by granting professional designations. AIC offers two designations for appraisers:

©2019 Real Estate Council of Ontario

• Canadian Residential Appraiser (CRATM): These appraisers are qualified to undertake any valuation and consulting assignment on dwellings containing not more than four self-contained family housing units or on residential dwelling sites. • Accredited Appraiser Canadian Institute (AACITM): These appraisers are qualified to undertake any valuation and consulting assignment on residential, commercial, industrial, institutional, agricultural, land, and special use property types. CNAREA is a national, not-for-profit, independent association that certifies and regulates real property appraisers in Canada. CNAREA offers three designations: • Designated Appraiser Residential (DAR™): These appraisers are qualified to perform appraisal and consultation assignments of residential property types consisting of not more than four housing units and non-complex commercial properties with a residential component. • Designated Appraiser Commercial (DAC™): These appraisers are qualified to provide valuations on all real property types, including residential properties. • Certified Appraisal Reviewer™: These appraisers are DAR™ or DAC™ designated members who have achieved a higher level of training and certification in appraisal review. They are qualified to author either field or technical appraisal review reports on all types of appraisal reports. A designated appraiser is engaged when a property owner (or a buyer) needs an expert, unbiased opinion on the value of real estate to make a well-informed decision about real estate. Designated appraisers are involved in: • Renovating or building • Buying or selling property • Financing or refinancing property • Making real estate investment decisions • Reviewing property tax assessments • Assessing capital gains • Making a claim for insurance purposes • Determining or facing expropriation compensation • Valuing property for matrimonial purposes, arbitration, or other litigious matters • Business mergers, acquisitions, or dissolutions involving real estate • Reporting on property values to meet International Financial Reporting Standards (IFRS) • Completing reserve fund studies or depreciation reports for condominium/strata property • Valuing machinery and equipment • Completing mass appraisals ©2019 Real Estate Council of Ontario

Example: A salesperson is representing a seller whose property is unique. The salesperson is having difficulty finding comparable properties in the area that are similar to the subject property. The salesperson suggests that the seller obtain an appraisal from a designated residential appraiser to ensure a proper value is placed on the property. As you learned earlier, by recommending the seller consult with a qualified third-party professional, the salesperson is complying with the Code of Ethics.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 4 of 23

Types of Appraisal Reports and Benefits of an Appraisal Appraisals are typically provided in one of two formats: the form report or the narrative report. A form report is a short form and is usually used for financial institutions, relocation companies, and government agencies. A narrative report is more detailed and could be several pages long. As a salesperson, you will not prepare either format of an appraisal. However, you will need to have a general understanding of each type of report. The following three sections contain information about each type of appraisal report and the benefits of having a professional appraisal. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Form report

©2019 Real Estate Council of Ontario

Appraisers use the form report to provide appraisal reports to financial institutions, relocation companies, and government agencies. This type of report consists mainly of preprinted information that must be checked off where relevant. Space is also available for additional comments and supporting details. This report allows for a brief, systematic presentation and provides the appraiser’s clients with an easy-tofollow and consistent approach. Appraisers can use either complete appraisals or limited-use appraisals, along with three acceptable forms: self-contained, summary, and restricted reports. Complete appraisals are more credible; they provide all necessary information, including all three approaches to value. Limited-use appraisals are meant for specific situations; for example, internal valuations or reports to lenders, or when a value must be reported quickly. Most often, these reports exclude one or more approaches to value.

©2019 Real Estate Council of Ontario

©2019 Real Estate Council of Ontario

©2019 Real Estate Council of Ontario

©2019 Real Estate Council of Ontario

©2019 Real Estate Council of Ontario

©2019 Real Estate Council of Ontario

Narrative report A narrative report takes a logical, systematic, and detailed approach by presenting in writing the theory, facts, analysis, application of methodology, and conclusions. Time-consuming to prepare, this type of report must be written in sufficient detail and in such a way that a reader will understand the appraiser’s reasoning and justifications for the conclusions and estimates reached. It can vary in size based on the type of property and purpose of the appraisal. Appraisers use a narrative report to estimate the market value of various types of structures; for example, apartment buildings, commercial buildings, and agricultural land for the purpose of financing, transfer of ownership, capital gains, etc. Appraisers also use it to value single-family homes, duplexes, triplexes, and fourplexes for court/legal proceedings. A narrative report has the given sections: • Appraisal summary: Important facts and conclusions • Letter of transmittal: Summary letter to the client • Title page • Table of contents

©2019 Real Estate Council of Ontario

• Taxes and assessment: Specific information regarding taxes on the property, taxation trends, and impact on value • Area and neighbourhood analysis: Description of external factors impacting value • Site and improvement analysis: Exterior and interior description of the property • Approaches to value: Application of the market data, cost and income approaches to value • Reconciliation: Explains how the value estimate was determined • Limiting conditions: Information to client concerning assumptions and conditions underlying the report • Exhibits: Documentary evidence including such things as maps, diagrams of the property, and floor plans

©2019 Real Estate Council of Ontario

Benefits of an appraisal Some of the benefits of having a professional appraisal include: • Obtaining third-party, independent advice • Getting advice from professionals who regularly analyze the data generated by real estate professionals • Having a trained, experienced person give a homeowner their unbiased opinion on the estimated value of a property

©2019 Real Estate Council of Ontario

Lesson 1 | Page 5 of 23

A salesperson will interact with many sellers and buyers in the course of their activities. In some situations, referral to a third party professional would be the correct course of action. In which of the following situations should the salesperson refer the seller or buyer to a designated appraiser? There are four options. There are multiple correct answers.

1 2 3 4

A potential seller has recently inherited a residential property and wishes to know how much it’s worth for tax purposes. A seller would like to refinance his home prior to listing. A salesperson is listing a seller’s property located in an area where there is no comparable data for that type of property. A seller owns a condominium unit in an area that predominantly has high-rise condominiums. The market in the location is quite active with sales every other week.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 6 of 23

The Need and Benefit of an AIC-certified Appraiser – Example Seller Thomas has engaged the services of XYZ Realty Ltd. to sell his residential property. After the initial discussions are over, the seller tells the salesperson that he and his wife are currently in the process of filing for a divorce. In this case, the salesperson should advise the seller in the given way: “Thomas, I’m sorry to hear about your divorce. While I can provide you with a recommended listing price for your property, your wife might disagree with my recommendation. In my opinion, both you and your spouse should have the property independently appraised by more than one certified residential appraiser (CRA). CRAs are professionally qualified to provide estimated opinions of value on residential properties in cases like yours. CRAs regularly obtain sales data from the local listing service as well as from GeoWarehouse® and can provide an expert opinion on the estimated value of your property.”

©2019 Real Estate Council of Ontario

Lesson 1 | Page 7 of 23

Acting Within the Scope As a salesperson, you will need sufficient experience and education about real estate valuation to advise sellers and buyers about the value of a property being listed or purchased. According to the Code of Ethics, a salesperson is obliged to demonstrate reasonable knowledge, skill, judgement, and competence in providing opinions, advice, or information to any person in respect of a trade in real estate. Example: A seller wants to sell his property but is not sure what the listing price should be. He asks the salesperson for an opinion of value for the property. The salesperson does a market analysis to provide the seller with information that will help him determine the approximate amount the seller could receive for his property in the current market. When the salesperson begins her research, she finds little market information about the seller’s unique property. The salesperson determines that completing the research for this particular property is beyond her knowledge, skill, judgement, and competence and suggests the seller employ a qualified appraiser to provide the value of the property. As you learned earlier, by recommending the seller obtain the services of another professional, the salesperson would be complying with the Code of Ethics.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 8 of 23

Advising Clients to Consult a Third-Party Provider As a salesperson, you will not be able to provide appraisal services to a seller unless you are authorized to do so by law and have the necessary qualifications. In addition, with certain types of properties (for example, a multi-unit residential building), you may discover you do not have the knowledge or experience to complete a CMA, which you will learn more about later in this module. In such situations, you will need to advise the seller to obtain the services of another qualified professional. If you receive a request from a seller asking for a signed, written appraisal report on the value of their property, ask the seller why they need it. Before you complete any type of appraisal, written or verbal, ask yourself two questions: A. Do I have the appropriate education and/or the experience to provide an opinion of value or advice about the value of the subject property for the purpose requested? B. Do I have errors and omissions insurance that will cover the type of appraisal being requested? ©2019 Real Estate Council of Ontario

You should tell the seller that you do not have the education/experience or the insurance coverage to complete the opinion of value requested. The solution may be to refer them to a CRA or AACI. Example: A salesperson has been listing and selling residential real estate in City A for several years. A friend has asked the salesperson to value and complete an appraisal report on a commercial building in Town B for capital gains purposes. The salesperson turns down the request because: • They have never valued a commercial building • They are not familiar with Town B • They have never prepared a formal appraisal report for capital gains tax purposes • They are not designated or permitted to prepare an appraisal on any property • Their errors and omissions insurance does not cover this type of appraisal assignment The salesperson refers their friend to an AACI™-designated appraisal practising in Town B.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 9 of 23

Using a CMA to Arrive at an Appropriate Listing Price The CMA is not a formal appraisal but an opinion of value of a property. The CMA is a valuable tool for a salesperson. As a salesperson, if you are representing a seller, you would prepare a CMA to help the seller compare their property with others in the marketplace to establish a listing price. For example, you would use a CMA to evaluate an offer made on the property you are selling to determine if the offer price is within a reasonable amount of what the CMA indicates. Since not all properties sell at the listing price, you would use a CMA to advise the seller if the offer is comparable to other recently sold properties so the seller can make an informed decision of how to proceed with the offer. If you are representing a buyer, you would use a CMA to help the buyer determine a price to offer for the property. The CMA form includes homes currently for sale, have recently sold, or did not sell in a defined time period. This information provides the seller with an indication of what buyers are prepared to pay in current market conditions.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 10 of 23

Contents of a CMA Completing a CMA form is straightforward. The form has space for a description of comparable properties for sale now, comparable properties sold within the past 12 months, and comparable properties that expired during that same period. Typically, CMA forms are provided through the local listing service or can be purchased through an independent third party. The following four sections contain information about the key sections of a CMA. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Comparables for sale now

The competitive position of the seller’s house is extremely important. The selection of properties should be made with careful consideration to overall comparability with the subject property. Under Features/Comments, highlight significant differences and/or similarities. The comparables currently available for sale help the salesperson place the seller’s property competitively in the price range of the current market. The seller then decides on the listing price. Properties should be listed in order of highest comparability to the seller’s property based on type, location, and features.

From Form 260 – Residential Market Comparison Guide ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Comparables sold in the past 12 months

This category represents what the buyers paid for similar properties in the past 12 months. The more recent the comparables, the more relevant the information, assuming that most properties selected are as comparable as possible with the seller’s property. Market conditions change, so current or recent comparable properties sold will better reflect the value of the seller’s property. The order should start with the most comparable and proceed sequentially.

From Form 260 – Residential Market Comparison Guide ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Comparables expired in the past 12 months

This category outlines properties that did not sell. While the precise reasons for a property expiring without selling will vary, this information provides valuable insight concerning the top of the market pricing for a particular type of property. If a property similar to the seller’s did not sell, then this would be a good indicator of what price range the market will not accept in a similar market. As a salesperson, you should provide as much detail as possible.

From Form 260 – Residential Market Comparison Guide ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Recommendations and net proceeds

The CMA form provides space for recommendations on listing price range, probable selling price range, and expenses leading to an estimate of net proceeds. Completion of any/all of these, including the salesperson’s signature, is optional. Often, a salesperson completes information on comparables only and then uses this form as a guide for general discussions with the seller. If the net proceeds portion is completed, a salesperson must ensure that details regarding the mortgage balance and selling costs are accurate. As a salesperson, you will physically view the subject property, then research the local listing service for comparable properties. The local listing service is a means for the salesperson to be better prepared to discuss current market trends (what buyers are willing to pay for similar properties) and objectively evaluate the strengths and weaknesses of the potential seller’s property (for example, location and special features that would be appealing to buyers). Based on the previously mentioned, you would make a recommendation to the potential seller of the

©2019 Real Estate Council of Ontario

From Form 260 – Residential Market Comparison Guide ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

maximum listing price, a probable selling price, and an estimate of selling costs. As you learned earlier, the seller decides on the listing price. You will need the knowledge, skill, judgement, and competence to prepare the CMA and establish a listing price that can directly impact the final selling price of a property.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 11 of 23

Sources of Data for a CMA A salesperson needs to know how and where to search for comparable properties for a CMA before they can list a property. Sources of data include: • Local listing service – Accessed through a salesperson’s membership in the service provider. • Municipality – Information, such as lot size and dimensions, builder’s floor plan, living space, etc. • GeoWarehouse® – Accessed through the salesperson’s local listing service. GeoWarehouse® is a web-based centralized property information source that provides mapping and research tools, and professional reports.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 12 of 23

Research and Personal Inspection of Comparable Properties To be able to provide an accurate CMA for the property being listed, as a salesperson, you will need to search for properties comparable to the subject property. You will have to corroborate the information for the CMA by conducting a personal inspection of the comparable property whenever possible. The following three sections contain information about the key considerations while researching for a CMA.

Accurate information As a salesperson, you will need to ask the seller to produce documents concerning the property, such as a survey or renovations completed, and then verify all information for accuracy. Inaccurate or incomplete information can have consequences, such as providing an unsubstantiated value for the property.

©2019 Real Estate Council of Ontario

Price You will need to ensure you have all the information you need to establish a viable price. The seller should understand that they will only get the price a willing and informed buyer will pay. Listing prices that are much higher than market norms may scare away potential buyers. Generally, the greater the difference between market value and listing price, the less chance of a sale within a reasonable period of time.

Knowledge of the comparable property You will not always have the ability or availability to physically inspect comparable properties. You may be able to physically inspect a currently listed comparable by making an appointment with the listing brokerage. However, it will not be possible for you to physically inspect sold properties and expired listings (properties that did not sell). This is why it is extremely important for you, as a listing salesperson, to provide as much information as possible when completing the listing data input form.

©2019 Real Estate Council of Ontario

When reviewing the sold and expired listings, you will need to take into consideration the: • Lot sizes • Location (backing onto green space versus other properties) • Date of the sale or expiry of the listing • Number of bedrooms and bathrooms • Number of garages, if any, and • Major upgrades (roof, furnace, windows)

©2019 Real Estate Council of Ontario

Lesson 1 | Page 13 of 23

Considerations when Analyzing Data for a CMA Once you have gathered the data, you will need to analyze it so you can make recommendations to the seller. The following two sections contain information about how to analyze the data gathered for a CMA.

Analyzing the data Once you have gathered the data on comparable properties, you will need to analyze the data based on the given considerations: • Date of the sale: You will need to adjust the price from the date it sold to reflect the price it would sell in the current market. This will require making a time adjustment. If a comparable property has been sold recently, no time adjustment is made. If a comparable property was sold six months ago, and prices of housing have increased since then by x per cent, then an x per cent adjustment will be made. • Location of the sale: If the location of the comparable is in the general location of the subject property, no adjustment is made. If the location of the comparable is inferior to the location of the subject property, a positive adjustment is made. If the location of the

©2019 Real Estate Council of Ontario

comparable is superior to the location of the subject property, a negative adjustment is made. • Marketing time: The length of time a comparable spends on the market affects the value. The longer a property stays on the market, the less it will generally sell for. • Lot size: Lot size adjustments depend on the going rate of the cost per front foot from comparable sales. • Square footage: A salesperson estimates the value per square foot by taking the sale price and dividing it by the square footage of the property. This provides the salesperson with the sale price per square foot.

Arriving at recommendations for the seller The adjustment process may vary greatly among cities and towns throughout Ontario. Adjustments are made to the comparable sale and not to the subject property. The objective is to bring the comparable in line with the subject property. You will need to consider two factors to arrive at recommendations for the seller: • Current market conditions: In a seller’s market, the potential sale price will be higher due to the lack of properties for buyers to choose from. In a buyer’s market, the potential sale price will be ©2019 Real Estate Council of Ontario

lower due to an abundance of properties for buyers to choose from. • Motivation of the seller: If a seller is extremely motivated to sell because of personal circumstances, the seller may be willing to list the property for considerably less than comparable property sale prices. If the seller has time, the listing price may be higher; the seller may believe a higher list price will bring them more money on a sale if they wait long enough.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 14 of 23

A broker is reviewing a CMA prepared by a newly registered salesperson before it is presented to the seller. The subject property is in a neighbourhood that has been moderately active in the marketplace, with some unique features that include: 1) A single garage that has a private driveway –most other houses in the neighbourhood have a shared single driveway 2) A finished basement – not many houses in the neighbourhood have a finished basement 3) Three bedrooms – most houses in the neighbourhood have four bedrooms 4) Three and a half bathrooms – most houses in the neighbourhood have four bathrooms 5) A children’s swing set in the backyard – no other house has a swing set Which of the following data should the salesperson include in the CMA? There are six options. There are multiple correct answers. 1 2 3 4 5 6

Comparable properties from the past two years Expired comparables for the past 12 months Adjustment for the single garage with private driveway Adjustment for the children’s swing set in the backyard Adjustment for the finished basement Adjustment for the fewer bedrooms and bathrooms

©2019 Real Estate Council of Ontario

Lesson 1 | Page 15 of 23

A salesperson is going to perform a CMA for a seller’s residential property. The subject property is located in what is considered an inferior neighbourhood on a wide, four-lane road. It is the largest house in the neighbourhood, with four bedrooms. It also has an unfinished basement and shares a driveway with the neighbouring property. What source of data could the salesperson use to find the sale price for properties in the neighbourhood? There are two options. There is only one correct answer. 1 2

Local listing service GeoWarehouse®

©2019 Real Estate Council of Ontario

Lesson 1 | Page 16 of 23

A salesperson is going to perform a CMA for a seller’s residential property. The subject property is located in what is considered an inferior neighbourhood on a wide, four-lane road. It is the largest house in the neighbourhood, with four bedrooms. It also has an unfinished basement and shares a driveway with the neighbouring property. What source of data could the salesperson use to find the lot size, dimensions, and floor plans of the comparable properties? There are two options. There is only one correct answer. 1 2

Municipality Physical inspection

©2019 Real Estate Council of Ontario

Lesson 1 | Page 17 of 23

Feature #1: Subject property is located in an inferior neighbourhood on a wide, four-lane road. Comparable properties: Two are located in the immediate vicinity of the subject property (within two blocks), while the third is in a superior location. They were all sold within the past three weeks, and prices have neither risen nor fallen in this period. Feature #2: Subject property is the largest house in the neighbourhood, with four bedrooms. Comparable properties: The two properties in the neighbourhood have two bedrooms, while the one in the superior neighbourhood has four bedrooms. Feature #3: Subject property has an unfinished basement. Comparable properties: One of the neighbouring properties and the one in the superior neighbourhood have finished basements, while the other property in the neighbourhood has an unfinished basement. Feature #4: The subject property’s driveway is shared with the neighbouring property. Comparable properties: The two in the neighbourhood have shared driveways, while the one in the superior neighbourhood has a private driveway.

A salesperson has gathered data on comparable properties that have recently sold so he can analyze in detail the factors to be considered in helping the seller to establish the listing price of the subject property. His findings against each of the features of the subject property are provided in the document “Features of Comparable Properties and the Subject Property,” which has been presented in the on-screen text. Which of the given factors should the salesperson consider when estimating the listing price of the subject property? There are three options. There are multiple correct answers.

©2019 Real Estate Council of Ontario

1 2 3

Location of the sales Lot size and square footage Interior design and layout of the house

©2019 Real Estate Council of Ontario

Lesson 1 | Page 18 of 23

Feature #1: Subject property is located in an inferior neighbourhood on a wide, four-lane road. Comparable properties: Two are located in the immediate vicinity of the subject property (within two blocks), while the third is in a superior location. They were all sold within the past three weeks, and prices have neither risen nor fallen in this period. Feature #2: Subject property is the largest house in the neighbourhood, with four bedrooms. Comparable properties: The two properties in the neighbourhood have two bedrooms, while the one in the superior neighbourhood has four bedrooms. Feature #3: Subject property has an unfinished basement. Comparable properties: One of the neighbouring properties and the one in the superior neighbourhood have finished basements, while the other property in the neighbourhood has an unfinished basement. Feature #4: The subject property’s driveway is shared with the neighbouring property. Comparable properties: The two in the neighbourhood have shared driveways, while the one in the superior neighbourhood has a private driveway.

A salesperson has gathered data on comparable properties that have recently sold so he can analyze in detail the factors to be considered in helping the seller to establish the listing price of the subject property. His findings against each of the features of the subject property are provided in the document “Features of Comparable Properties and the Subject Property,” which has been presented in the on-screen text. Which of the given factors should the salesperson consider when estimating the listing price of the subject property? There are four options. There are multiple correct answers.

©2019 Real Estate Council of Ontario

1 2 3 4

Presence/absence of a finished basement Market conditions and motivation of the seller Sale date for comparables Shared and private driveways

©2019 Real Estate Council of Ontario

Lesson 1 | Page 19 of 23

Feature #1: Subject property is located in an inferior neighbourhood on a wide, four-lane road. Comparable properties: Two are located in the immediate vicinity of the subject property (within two blocks), while the third is in a superior location. They were all sold within the past three weeks, and prices have neither risen nor fallen in this period. Feature #2: Subject property is the largest house in the neighbourhood, with four bedrooms. Comparable properties: The two properties in the neighbourhood have two bedrooms, while the one in the superior neighbourhood has four bedrooms. Feature #3: Subject property has an unfinished basement. Comparable properties: One of the neighbouring properties and the one in the superior neighbourhood have finished basements, while the other property in the neighbourhood has an unfinished basement. Feature #4: The subject property’s driveway is shared with the neighbouring property. Comparable properties: The two in the neighbourhood have shared driveways, while the one in the superior neighbourhood has a private driveway.

A salesperson has identified some factors to be taken into consideration when completing a CMA in order to estimate the potential market value of a property. The salesperson also received an email from the seller advising that the house needs to be sold as soon as possible. Refer to the salesperson’s findings in the document “Features of Comparable Properties and the Subject Property”, which has been presented in the on-screen text. Which of the following statements summarizes the salesperson's analysis of comparable property sales that may impact the estimated value of the subject property? There are four options. There is only one correct answer.

©2019 Real Estate Council of Ontario

1 2 3 4

The estimated value of the subject property is greater than the comparable that recently sold in the same neighbourhood because it is larger and has 4 bedrooms. The estimated value of the subject property will be more than the sale price of the comparable that is located in a more superior location. The estimated value of the subject property will be the same as the sale price of the comparable that recently sold in the same neighbourhood. Current market conditions may not be favourable in realizing the subject property’s full market value.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 20 of 23

Strategies for Presenting a CMA For a salesperson, completing a CMA properly and accurately is the first step to providing conscientious and competent service. After preparing the CMA, you will need to present the information to the seller. The seller may not agree with the estimated price range because they will likely have an emotional opinion about their home. You need to be aware of and sensitive to the seller’s emotions. The best way to do this is to present the CMA and the accompanying data in an unbiased manner. You will need to have copies of all the listings and sales used as source documents for the comparable properties. This data should also include information on current market conditions, such as days on market, list-to-sale ratio, previous sale prices, and current trends. The following seven sections contain information about the best practices you should follow when presenting a CMA to a seller. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Comparables You will need to provide detailed information concerning the comparables data they have. In particular, you should share information on the top two or three in each category: comparables for sale now, comparables sold in the past 12 months, and comparables expired in the past 12 months. These comparables will be the most similar to the seller’s property.

Current trends You will need to be prepared to discuss major market trends occurring within the immediate neighbourhood and surrounding area.

©2019 Real Estate Council of Ontario

Past trends You will need to be prepared with historical information concerning the average length of time properties are on the market until sold, turnover of property in the immediate area, listing to sale price ratios, and other relevant indicators.

Strengths/weaknesses You will need to evaluate objectively the strengths and weaknesses of the seller’s home in relation to comparables using factors such as location, extras or upgrades, physical improvements, special neighbourhood amenities, site features (such as landscaping or green space), and functional room layout.

©2019 Real Estate Council of Ontario

Avoid overpricing You will need to discuss problems of overpricing a property: • Difficulty in getting other salespersons excited about the property • Possibility of the property remaining unsold and becoming market stale • Risk of appearing in the wrong price category and restricting the number of qualified buyers who might otherwise consider the property (for example, buyers in the $350,000 to $400,000 range not looking above the $400,000 price level) • Risk of becoming a comparison house that may be actively shown but only to sell other wellpriced properties

©2019 Real Estate Council of Ontario

Recommendations A CMA form provides space for recommendations concerning maximum list price, probable selling price, and estimate of selling costs. Completion of any/all of these, including the salesperson’s signature, is optional. Often, a salesperson completes information on comparables only and then uses this form as a guide for general discussions with the seller.

Privacy To address the issue of privacy, the seller should be advised that the information on the form is not to be shared with anyone else without the prior written consent of the salesperson supplying the information.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 21 of 23

Two sisters have decided to sell their elderly parent’s property on Privet Street since they each have their own residential properties and do not have the time to visit and maintain it. The house has three bedrooms and three bathrooms as well as a double garage with a private double driveway. The sisters are convinced that the value of the property should be in the range of $300,000.

©2019 Real Estate Council of Ontario

The salesperson finds that most similar properties in the neighbourhood have sold for approximately $240,000, and that prices in the neighbourhood have been stable for the last 10 months. He drafts a CMA with data on comparable properties. How should the salesperson present the CMA to the sisters? There are four options. There are multiple correct answers.

1 2 3 4

Explain how comparable data for past sales shows that the requested listing price is too high for the subject property Use expired listing data to demonstrate how comparable properties that had higher listing prices have not been sold Use data on currently listed properties to support a lesser price estimate Email a scanned copy of the CMA to the sisters and ask them to call him for any clarifications

©2019 Real Estate Council of Ontario

Lesson 1 | Page 22 of 23

After the salesperson presents the CMA data to the sisters, they are still not convinced about reducing the listing price of $300,000 for their parent’s house. If the sisters insist on listing the house at $300,000, what could result from overpricing the property? There are four options. There are multiple correct answers. 1 2 3 4

Qualified buyers may not consider the property because it is beyond their price range If the price is eventually reduced, bargain hunters may be attracted thinking the seller is under pressure and might settle for a lower price than listed If the property does not sell, the advertising expenses paid by the brokerage may be wasted Even though the property would remain unsold for an extended period of time, the for sale sign would provide advertising for the brokerage

©2019 Real Estate Council of Ontario

Lesson 1 | Page 23 of 23

Congratulations, you have completed the lesson! There are seven sections on this page with a summary of the key topics that were discussed in this lesson.

When to involve an appraiser

Most often, a salesperson will need to recommend that a seller consult an appraiser for cases that involve: • Divorce/separation/marital dispute • Estate sale • Relocation • Financing and refinancing • Tax purposes • A unique property with few comparables In the previously noted situations, a designated appraiser is engaged when a property owner (or a buyer) needs an expert, unbiased opinion on the value of real estate to make a well-informed decision about real estate.

Types of appraisers

Advising a seller to consult an appraiser helps a salesperson be compliant with Sections 6 and 8 of the Code of Ethics. AIC has two designations for appraisers: • Canadian Residential Appraiser (CRA™) – Qualified to undertake any valuation and consulting assignment on dwellings containing not more than four self-contained family housing units or on residential properties • Accredited Appraiser Canadian Institute (AACI™) – Qualified to undertake any valuation and consulting assignment on residential, commercial, industrial, institutional, agricultural, land, and special use property types CNAREA has three designations for appraisers:

©2019 Real Estate Council of Ontario

• Designated Appraiser Residential (DAR™): These appraisers are qualified to perform appraisal and consultation assignments of residential property types consisting of not more than four housing units and non-complex commercial properties with a residential component • Designated Appraiser Commercial (DAC™) – Qualified to provide valuations on all real property types, including residential properties • Certified Appraisal Reviewer™ – Qualified to author either field or technical appraisal review reports on all types of appraisal reports Types of appraisal The two types of appraisal reports are: • Form report – Comprised of preprinted information that must be checked off where reports relevant, with space provided for additional comments and supporting details • Narrative report – A logical, systematic, and detailed approach that presents in writing the theory, facts, analysis, application of methodology, and conclusions The CMA form includes homes that are currently for sale, have sold (the more recent, the The CMA report better), and expired. This information provides the seller with an indication of what buyers are prepared to pay in current market conditions.

Sources of data for a CMA report

The CMA is a valuable tool for a salesperson when informing a seller about market conditions and obtaining saleable listings. A salesperson can also do a CMA for a buyer they are representing to assist in an offer price on a property. The sections of a CMA report include: • Comparables for sale now • Comparables sold in the past 12 months • Comparables expired in the past 12 months • Recommendations and net proceeds Sources of data for a CMA report include: • GeoWarehouse® – A web-based, centralized property information source that provides mapping and research tools and professional reports • Local listing service – Past sales, expired listings, and properties currently listed for sale • Information is available through the salesperson’s brokerage, such as listings sold exclusively with their brokerage

©2019 Real Estate Council of Ontario

A salesperson analyzes comparable properties on the basis of the: Analyzing • Date of the sale – The more recent the sale, the less adjustments may be required comparables data

• Location of the sale – The closer the sale is to the subject property, the less adjustments are required • Marketing time – The less time there is for marketing, the more the adjusted sale price may be negatively impacted • Square footage – The positive or negative difference in square footage impacts the adjusted sale price • Number of bedrooms, bathrooms, and garages – The presence or absence of any of these affects the adjusted sale price • Lot size – The lot size of the subject property is compared to comparable properties by the front foot measurement. With standard residential properties in a suburban setting the depth is not taken into consideration when analyzing comparable data.

Presenting the CMA to a seller

A salesperson should be sensitive to the seller’s emotional ties to the property when presenting the CMA. The report should have as much data as possible on comparables, current trends, past trends, and features for each of the properties in question, including site visit data (if any). While creating and presenting the CMA, a salesperson should avoid overpricing the property. This could lead to: • Buyers not seriously considering the subject property • A staleness due to the property remaining on the market for a long time, which may lead buyers to think there is something else wrong with it • Losses to the broker due to marketing costs • Loss of reputation of the brokerage, broker, or salesperson • Hesitation by the salesperson to list the property at all

©2019 Real Estate Council of Ontario

Lesson 2 | Page 1 of 30

Lesson 2: Estimate the Value of a Residential Property

This lesson explains the nuances of estimating the value of a residential property, such as the factors that impact value, appropriate methods to calculate value, and the adjustments that need to be made to arrive at the best estimates.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 2 of 30

When creating a comparative market analysis (CMA) report for a seller’s residential property, as a salesperson, you will need to consider several factors before setting a value range for the property. The seller may also have an emotional attachment to the property, which makes it important to ensure the data of the value range is logical, detailed, and unbiased. This lesson will explain some more factors that affect the listing price of a house. You will also learn about the value approach used and how to apply adjustments. Upon completion of this lesson, you will be able to: • Identify factors that may impact the value of a residential property • Describe the value approach used when valuing a residential property • Describe how adjustments are applied in the direct comparison approach Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 3 of 30

Highest and Best Use What a property is worth—its value—can be either objective or subjective. Value is objective when it is tied to the cost of reproducing the property or replacing the property with one of equal usefulness; the latter is referred to as highest and best use. The highest and best use is the use that, at the time of the valuation, is most likely to produce the greatest net return in money or amenities to the land over a given period of time. Net return for a single-family dwelling may take the form of amenities, such as pride of ownership, comfort, and convenience. In cases where a site has existing improvements, the present use may fail to meet this definition. The highest and best use may be different from the existing use. The present use will continue unless and until the land value in its highest and best use meets or exceeds the total value of the property in its existing use.

©2019 Real Estate Council of Ontario

The estimate of value is related to what a typical buyer with a reasonable knowledge of the market and property would use or do with the property. As a salesperson, when you look at a site (the land) improved with buildings, you will need to ask several questions to decide whether the current use is the highest and best use, such as: 1. Do the improvements conform to the zoning, or are they legal non-conforming? 2. Do the improvements conform to the other homes in the area? 3. Do the improvements add value to the land; that is, would a typical purchaser pay for the buildings over and above what they would pay for the land? If the answer to all three types of questions is yes, then the current use is most likely the highest and best use of the land. If the answer to one or all the questions is no, then you may need to consider that the value of the site should be based on a different highest and best use. Examples of change in use and current use are provided on the next screen.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 4 of 30

Highest and Best Use – Examples Example 1: Change in Use The subject property is a 45-year-old 1,500-square-foot bungalow on a lot that is 300 feet by 400 feet. The zoning is commercial. This property is located on a street completely developed with 40- to 60-storey office buildings. The economy is booming. The typical buyer of the subject would likely develop it as a high-rise office building; the property should be valued as a high-rise office building (the highest and best use) and not as a residential bungalow. Example 2: Current Use The subject property is a 45-year-old residential detached two-storey building located on a main road. The zoning is commercial/retail with little pedestrian traffic. All other properties located on this main road are similar detached homes that have remained residential despite the commercial/retail that has been in place for 10 years. The typical buyer of the subject would continue to use it as a residence. The highest and best use remains residential despite the zoning and main road location.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 5 of 30

Layout and Condition of the Structure and the Land Another factor that may affect the value of a residential property is the layout and condition of the structure and land. This can be either due to the condition of the house or the improvements made to the surrounding land. The following four sections contain information about how the layout and condition of the structure and land affect property value.

Analysis of structure: Overview

Analysis of structure: Example

Accurate information on the condition and functionality of the main residence building is essential for a proper valuation when using either the direct comparison approach or the cost approach. You will learn more about this later in this module. As a salesperson, you may notice something in or about the house that is unusual for the area. You should investigate further to find out whether it will have an impact on value. Only the marketplace can confirm whether value has been affected and this requires a study of the sales and listings in the area. If you see or suspect a problem with the structure, you should seek out additional information or advise the seller to consult with another qualified professional, such as a home inspector. The seller has recently renovated the subject property, not realizing that a corporate transfer was in the future. The subject property was originally a 1,100-square-foot bungalow with a garage. Most of the properties in the area are roughly the same size and general range of value. The seller just completed a sizable addition, costing approximately $55,000, on the rear of the house. The addition added a main-level family room, laundry room, and a three-piece bath. The salesperson demonstrated with a comparative market analysis that most homes in the immediate area sell for between $160,000 and $175,000. However, two properties in the neighbourhood had also undergone significant additions and both recently sold for less than $200,000.

©2019 Real Estate Council of Ontario

Analysis of site: Overview

The salesperson, while sympathetic to the seller’s significant cash expenditure, estimated that the property would probably realize approximately $200,000. Had the home been left in its original condition, the market value would have been around $170,000. Effectively, the seller’s investment of $55,000 has a market value of approximately $30,000. A site is a piece of land ready to be built on. It is land that is zoned, graded, drained, has road access, and any necessary services. Site and lot are often used interchangeably. Improvements to the site: Generally considered to be only landscaping, improvements to the site for this module include fences, detached garages, and sheds. Improvements on the site: Improvements on the site refers to the house, any other structure, or landscaping that is on the lot. As a salesperson, when you conduct a visual inspection of a residential property, you will need to look for any difference that can have a positive or negative impact on value. For example, a pie-shaped property where the others are rectangular may command a lesser price.

Analysis of site: Example

While you may believe a difference to have a positive or negative impact, you will need to analyze market data for validation. You will need to collect sufficient data so you can calculate the appropriate listing value range for the property. A salesperson is valuing the subject property (Property A) that shares the use of a 12-footwide mutual drive with Property B. The owner of Property B often leaves their car in the mutual driveway and has refused to resurface his portion of the driveway. The salesperson’s investigation into the neighbourhood reveals the sale four months ago of Properties C and D for $180,000 and $185,000, respectively. These two properties are identical to each other in all respects except that Property C has a 13-foot-wide mutual driveway and Property D has a 13-foot-wide private driveway. Having a mutual driveway has not been a great experience for the owner of Property A, and this type of experience is not uncommon. As such, this less attractive type of driveway is going to have a negative impact when compared to a private driveway. This conclusion is supported by the fact that Property C sold for $5,000 less than the identical Property D because Property C has a mutual driveway and Property D has a private driveway.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 6 of 30

Conformity to the Neighbourhood You will need to also evaluate a residential property on the basis of how it conforms to the other properties in the neighbourhood, which can be determined through the principle of progression and the principle of regression. If you recall, these principles were introduced in a previous module. They are explained in more detail. The following three sections contain information about how conformity affects property value.

Conformity

Progression

To maintain maximum value, land is used to reasonably conform with the existing standards in the neighbourhood. Too much conformity, where all houses look exactly the same, can have a negative impact on value. For example, in a neighbourhood, a variety of building styles of the same quality is more visually appealing than a row of identical houses. In a neighbourhood where properties are not similar in size or style, the presence of a superior property will have a positive impact on the value of an inferior property. Example: A salesperson is representing a buyer who is looking for a three-bedroom house with a single-car garage. The salesperson has located three properties that are comparable in terms of size, condition, and overall appearance: • Property 1: 48 West Street, listed for $368,500 • Property 2: 255 East Street, listed for $372,000 • Property 3: 124 North Street, listed for $415,000 Properties 1 and 2 are located in single-family residential areas where the majority of homes are priced between $355,000 and $375,000. Property 3 is the smallest house on

©2019 Real Estate Council of Ontario

Regression

North Street. Houses adjacent to the property and in the immediate area sell between $410,000 and $450,000. The buyer is interested in Property 3 but does not want to pay the higher price. The salesperson explains to the buyer that, given that property’s proximity to higher-priced houses, the principle of progression applies. The larger, higher-priced property will have a positive impact on the value of the smaller property. In a neighbourhood where properties are not similar in size or style, the presence of an inferior property will have a negative impact on the value of a superior property. Example: A salesperson is representing a seller who wants to sell their home; an attractive, renovated bungalow adjacent to older properties in original condition. The house is the best property in that particular neighbourhood. When the salesperson lists the property, many buyers are impressed but no offer is made. The salesperson provided three comparable sales that were almost identical to the seller’s property in terms of size, condition, and overall appearance but located in better neighbourhoods: • Property 1: 398 West Street, listed for $314,500 • Property 2: 337 East Street, listed for $305,000 • Property 3: 141 North Street, listed for $315,000 Despite the salesperson’s recommendation to market the property at $295,900, the seller could see no appreciable differences except for the neighbourhood, and the salesperson listed the property at $319,900. After two months with no offers, the seller and the salesperson agreed to adjust the price to $299,900 and the property sold for $289,500. The salesperson explained to the seller that the value of their property was directly impacted by lower priced properties in the immediate area.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 7 of 30

Neighbouring Properties and General Location The value of a property is affected by the factors and forces at work in the neighbourhood in which the property is located. As a salesperson, you will need to know what is happening in the neighbourhood and how the factors and forces affect the value of the properties. Factors and forces can have a positive, negative, or neutral impact on property values. Several tools can confirm the impact of a factor or force and its dollar value. These tools require information obtained, primarily from listings currently listed for sale listings that have sold and listings that did not sell. This information is readily available through the local real estate boards as well as Geowarehouse (MPAC) websites. Example 1: The price range of properties in the neighbourhood ranges from $450,000 to $750,000. On the subject street, the prices range from $650,000 to $750,000. On another street in the area, Street B, the prices range from $500,000 to

©2019 Real Estate Council of Ontario

$600,000. The subject street is a more prestigious street than Street B; there may be bigger homes, newer homes, or it is a more attractive location given that it located close to a park. This information is important to know when analyzing the need for adjustments to a comparable on Street B. Example 2: A salesperson is valuing a home in an area where a lot of renovation and new construction is starting to take place. The salesperson observes that many of the lower-income families living as tenants are moving out of the neighbourhood as the homes are being sold and are being replaced with higher-income families moving in to occupy the homes they have just bought. In addition, homes are beginning to be sold faster and at a higher price than in what used to be comparable neighbourhoods. All of this should suggest to you that the neighbourhood is in an improving trend.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 8 of 30

Lot Size and House Size Site dimensions refers to the frontage, depth, and width of a parcel of land; that is, the lot. Site dimensions and the resulting shape and area create the ultimate desirability, utility, and value of any site. • Frontage is that side of a site that abuts a public street or highway. • Depth is the distance(s) between the front and rear lot lines. • Width is the distance between the side lines of a lot. The shape of a site is determined by its frontage, depth, and width. Area is the size of the site measured in square metres, square feet, hectares, acres, etc. As a salesperson, you will need to determine if the site dimensions of the subject property are standard for the area. If they are not, how will this impact the subject property’s value? The measurement of the size/area of the subject property and comparable buildings should be calculated from the dimensions of the exterior, and for only those areas that are completely finished and are 100 per cent above ground level. Living areas above ground that are not finished should still be measured but need to be separated out from the final measurement of the house size. You will need to measure the ground floor from the exterior and then multiply by the number of levels above ground. Example: The seller currently has a vacant residential lot measuring 50 feet by 160 feet in an area zoned for single- and multiple- family residential. As a lot for a single-detached home, the property is estimated to be worth about $90,000. Under current zoning bylaws, multiple units are not considered by the municipal council, unless the total ground area exceeds 10,000 square feet. Recently, an adjacent vacant piece of property came on the market at $95,000. This property is also limited under the current bylaw to single-family usage, owing to its 51-foot by 160-foot size. A buyer is considering the purchase of the adjacent lot; that acquisition could potentially increase the value of the combined properties beyond the sum of the two values ($90,000 + $95,000) if rezoning is granted and a building permit issued for a multi-unit structure. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic. ©2019 Real Estate Council of Ontario

Lesson 2 | Page 9 of 30

A salesperson is representing a seller whose residential property has the following features: • The seller had installed a jetted tub in the master bedroom ensuite bathroom. • The subject property has a lot frontage of 40 feet, compared to an average lot frontage of 50 feet for other houses that sold in the neighbourhood. • The subject property has three bedrooms as compared to the comparable properties, which only have two bedrooms. • The subject property backs onto a parking lot, while the other sold properties in the neighbourhood do not. The seller wants to list the residential property for a considerably higher value than the neighbouring houses that have sold. The salesperson now needs to help the seller understand the actual impact that each of these factors has on the value of the property. Which of the given factors will have a negative impact on the property’s value? There are four options. There are multiple correct answers. 1 2 3 4

Three bedrooms Lot frontage Adjacent parking lot Jetted tub

©2019 Real Estate Council of Ontario

Lesson 2 | Page 10 of 30

A salesperson is conducting a visual inspection of the subject property. The seller asks for their opinion on how various features of the subject property would affect its sale price. The subject property includes: • Extensive landscaping on the front yard completed recently by the seller; most other houses in the neighbourhood do not have landscaped front yards • A gabled roof, like all other properties in the neighbourhood • A double-car garage; most properties in the neighbourhood have single-car garages • A finished basement; most houses in the neighbourhood either have unfinished basements or none at all Indicate the features of the subject property that will have the greatest impact on its value? There are four options. There are multiple correct answers. 1 2 3 4

Landscaping on front lawn Double car garage Gabled roof A finished basement

©2019 Real Estate Council of Ontario

Lesson 2 | Page 11 of 30

A salesperson is trying to calculate the recommended listing price of a residential property with a pie-shaped lot. The salesperson would like to know what impact the shape of the lot would have on the value of the subject property. How would the salesperson be able to determine the dollar impact? There are three options. There is only one correct answer.

1 2 3

Looking at the marketing time needed to sell properties with a pie-shaped lot as compared to the marketing time of similar properties with standard shaped lots. Looking at the listing prices of properties with a pie-shaped lot as compared to the listing prices of similar properties with standard shaped lots. Looking at the selling prices of properties with a pie-shaped lot as compared to the selling prices of similar properties with standard shaped lots.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 12 of 30

An appraiser uses three different approaches to determine the value of a property. They are the cost approach, the income approach, and the direct comparison approach. As a salesperson, you will be required to prepare a CMA for a seller or buyer and not complete an appraisal. You will need to understand the three approaches used by appraisers to determine the value of a property as many of the basic concepts apply to the preparation of a CMA.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 13 of 30

Cost Approach The cost approach is primarily focused on objective value, which means that the cost to create is the main criterion in estimating value. The cost approach is guided by the principle of substitution—a wise buyer will pay no more for a property than the cost of producing or creating an equally desirable property providing no delay occurs in making the substitution. The advantages of the cost approach are: 1. People understand it 2. Often the only method to use in the appraisal of special-purpose properties 3. Relatively easy to make a cost calculation The disadvantages of the cost approach are: 1. Difficult to estimate depreciation, particularly in older buildings 2. While the cost of construction appears relatively easy to estimate, no exact cost figure can be given as several methods yield varying costs 3. Construction costs are constantly changing

©2019 Real Estate Council of Ontario

The Cost Approach and Condominiums The cost approach cannot be applied for valuing a condominium. The buyer of a unit in a condominium building/complex takes ownership of the fee simple (freehold) of that unit itself. At the same time, the buyer also becomes a tenant in common with all the other owners of units in the condominium with respect to the common elements; for example, hallways, gardens, underground garage, and recreational facilities. The cost approach cannot be used because the cost of the unit from the entire property would need to be extracted. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 14 of 30

Income Approach The income approach is based on the theory that the value of an investment property is the present worth of the future benefits or income the property is capable of producing. This approach involves capitalizing the net income of the property by an appropriate rate into an indication of value. The income approach is based on the assumption that the value of income-producing properties is related, in one degree or another, to their income-producing potential. Therefore, the higher the potential income, the higher the price the property will command in the market. The income approach is used to estimate the value of an income-producing property only. It would not be used to estimate the value of a residential real property or condominium unit. The advantage of the income approach is that it is applicable in estimating the value of investment properties by means of cash flow analysis. The disadvantages of the income approach are: 1. Difficulty in selecting an appropriate capitalization for direct capitalization (or a discount rate in the case of yield capitalization) 2. Estimating income and operating expenses can sometimes prove difficult, and a slight error in either estimate is magnified on capitalization 3. Of limited use in the appraisal of owner-occupied and/or special-purpose properties ©2019 Real Estate Council of Ontario

Lesson 2 | Page 15 of 30

Direct Comparison Approach The direct comparison approach is based on the proposition that an informed buyer will pay no more for a residential property than the cost of acquiring an existing property with the same utility. In the direct comparison approach, the subject property is compared to other, recently sold similar properties, and adjustments are made for the differences between the properties. In certain limited ways, the direct comparison approach is used in the process of preparing a CMA. As a salesperson, you would use this limited type of direct comparison approach in an active market that provides sufficient quantities of reliable data that can be verified from authoritative sources. The elements you will use for comparison include visible differences that affect value, such as structural variations, location, and time adjustments.

©2019 Real Estate Council of Ontario

The advantages of the direct comparison approach are: 1. Consumers generally understand and use it 2. Avoids various problems associated with estimating and forecasting; for example, building costs, depreciation, revenues, expenses, and cash flows 3. Generally accepted by courts and the general public The disadvantages of the direct comparison approach are: 1. Sometimes difficult to obtain good comparable sales 2. Making adjustments for differences in properties requires careful judgement and experience; In some instances, such adjustments are often difficult to support and explain satisfactorily 3. Difficult to obtain relevant information relating to each sale, particularly with reference to seller or buyer motivation 4. Data are historical in nature

©2019 Real Estate Council of Ontario

Lesson 2 | Page 16 of 30

A salesperson has been quite busy these past few weeks meeting with many sellers and buyers. Today being a slow day at work, he is working out viable approaches for estimating value. In which of the following scenarios, should the salesperson use the direct comparison approach to determine the value of the subject property? There are four options. There are multiple correct answers. 1 2 3 4

The buyer is interested in purchasing a couple of condos as an investment. The seller is insistent on a listing price that is considerably higher than that of other properties in the neighbourhood. The subject property has been designed by a renowned architect and is quite unique in design and architecture. Not many houses in the seller’s immediate neighbourhood come on the market very often.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 17 of 30

A large residential property in the suburbs has five bedrooms, one kitchen, five bathrooms, dining room, basement gymnasium, a swimming pool, and a triple-car garage. However, the owner has recently been unable to look after this beautiful property and, sadly, has decided to sell it. The owner has approached a salesperson to discuss listing the property for sale. He has quoted an enormous figure as his asking price. The salesperson is very interested in working with the seller on the listing and sale of his property but feels that the asking price is too high. Which approach to value should the salesperson consider to determine a realistic listing price for the property? There are three options. There is only one correct answer. 1 2 3

Create a report for the seller based on the cost approach. Use the income approach, and advise the seller of the viability of using the property for revenue generation. Provide the seller with a comparative market analysis that discusses the sales, current listings, and properties that didn’t sell.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 18 of 30

The Direct Comparison Approach The direct comparison follows certain logical steps to arrive at a value estimate. Suitable comparable sales must first be located and selected. When selecting a comparable property, comparability to the subject is the single most important factor. A good comparable property should have the given four primary qualities: • Sold at or near the date of the valuation • An “arm’s length” transaction; that is one in which the seller and buyer of each comparable property acted independently and do not have any relationship to each other • Physically similar to the subject property • Within the local market area

©2019 Real Estate Council of Ontario

Steps in the Direct Comparison Approach The direct comparison approach involves four basic steps leading to a final estimate of value: 1. 2. 3. 4.

Select the comparables Make the adjustments – plus or minus dollar value adjustments are made to comparables Establish the adjusted sale price – original sale price plus or minus total dollar value adjustments Complete the reconciliation – value estimate based on adjusted sale prices

While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 19 of 30

Steps in the Direct Comparison Approach As you just learned, the direct comparison approach involves four basic steps leading to a final estimate of value: (1) select the comparables; (2) make the adjustments; (3) establish the adjusted sale price; and (4) complete the reconciliation. The following four sections contain information about each step in the direct comparison approach. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Step 1: Select the comparables

Step 2: Make the adjustments

The first step in the direct comparison approach is to select comparable properties. The comparables need to be as similar to the subject and as current in time sold as possible. You will need to select comparable properties on the basis of certain factors: 1. Time and market conditions – The comparable property should be close to the effective date of the valuation. The effective date is the date in which the value estimate applies. The older the sale, the less reliable the result. Historical sales may have occurred under differing market conditions, and the salesperson would need to make adjustments. 2. Market value – The sale must be at arm’s length, reflecting the definition of market value. For example, the sale must involve an informed seller and buyer, prudent behaviour, no undue pressure, and reasonable time. A sale not at arm’s length can result in flawed adjusted sale prices and an inaccurate final estimate of value. 3. Similarity – A good comparable should be physically similar to the subject property so that minimum adjustments are required. 4. Proximity – A good comparable would be a property located either on the same street or close proximity to the subject property: e.g., same general neighbourhood. Comparable sale prices are adjusted based on differences between the comparable property and the subject property. The objective is to remove the effect of the differences, so the two properties can be compared directly based on a common set of characteristics.

©2019 Real Estate Council of Ontario

A dollar adjustment is made to the comparable to make it as similar to the subject as possible. Adjustments can be made in four areas: 1. Time – Comparable sales are historical facts, which means they were sold in the past. A time adjustment will need to be made to the sale price of the comparable to coincide with the valuation date of the subject property. The adjustment should reflect changes in market conditions. Typically, increases and decreases are expressed in percentage terms and then translated into dollar amounts. 2. Location – Location adjustments relate to general location (for example, a particular locale or neighbourhood) and specific attributes (for example, adjacent to parkland). Location adjustments could have a positive or negative effect. 3. Lot size – A salesperson will calculate lot size adjustments based on a per front foot/ metre (for example, residential and waterfront recreational) and, assuming that the lots have equal utility, with little regard to minor differences in depth. Depending on circumstances, a summary adjustment, such as adjustment per lot, is more appropriate if per lot values are used in a particular marketplace. 4. Physical characteristics – A salesperson will note selected physical characteristics of the comparable properties, such as total square footage and differences in room sizes. This facilitates improved accuracy in breaking down individual components and achieving more precise adjustments.

Step 3: Establish the adjusted sale price

Adjustments are made based on value, not cost. For example, a fireplace may cost $9,000 to build, but its adjustment value may only be $6,000. Any unusual circumstances surrounding adjustments should be noted in writing. All adjustments are totaled, then subtracted or added to a time-adjusted sale price to arrive at an adjusted sale price for each comparable used in the analysis. Adjustments are rounded to the nearest dollar. Note: When using a form report, any unusual circumstances surrounding adjustments should be highlighted by way of written comment.

©2019 Real Estate Council of Ontario

Step 4: Complete the reconciliation

A reconciliation is a logical reasoning process to arrive at a final estimate of value. When all adjustments have been made, each comparable will provide a different adjusted sale price. The appraiser will analyze the results and then estimate a final value for the subject property. Typically, three adjusted sale prices for the most comparable properties are included in a form report. Factors to consider during the reconciliation process include: 1. The most recent sale is normally the best indicator of value, assuming that minimal adjustments have been made. 2. The sale requiring the least number of adjustments is the most comparable to the subject property and should be given appropriate weighting. 3. The range of adjusted sale prices is a good measure of comparability between the subject property and the comparables. As a general rule, the most weight is given to the best evidence and the least weight to the poorest.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 20 of 30

Steps in the Direct Comparison Approach—Step 2: Make the Adjustments As you learned, comparable sale prices are adjusted based on differences between the comparable property and the subject property. Adjustments are made in four areas—time, location, lot size, and physical characteristics. The following four sections contain examples in which each of the four adjustments are made. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Time adjustment

A property sold three months ago, and sale prices have been increasing by 1% per month. A time adjustment would be made to the comparable property to reflect the price it would sell if it sold in the current market.

Location adjustment

The comparable property is located next to green space; the subject is not. A dollar adjustment would be made to the comparable sale to reflect the difference.

Lot size adjustment

The comparable property has a smaller lot size than the subject property. A dollar adjustment would be made to the comparable to reflect the difference.

Physical characteristics adjustment

The subject property has a finished basement; the comparable property does not. A dollar adjustment would be made to the comparable to reflect the difference.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 21 of 23

How Adjustments are Applied in the Direct Comparison Approach Adjustments are made to a comparable to bring them to a level of similarity with the subject property. When using the direct comparison approach, three rules are applied: plus adjustment to comparable, minus adjustment to comparable, and no adjustment to comparable. Dollar adjustments are only made for the differences between the subject and the comparable. The direct comparison approach is the most widely used method for valuing a residential real property. The following five sections contain information about these three rules.

Plus adjustment to comparable If the feature in the comparable is poorer than the subject property, a plus adjustment is made. Example 1: The subject property has a garage; the comparable does not. Value of a double garage is $32,000. A plus adjustment of $32,000 is made to the comparable (to make it similar to subject property). Example 2: The subject property has a double garage (value: $32,000); the comparable property has a single garage (value: $18,000). A plus adjustment of $14,000 is made to the comparable (to make it similar to the subject property).

©2019 Real Estate Council of Ontario

Minus adjustment to comparable

If the feature in the comparable property is better than the subject property, a minus adjustment is made. Example 1: The subject property does not have a fireplace; comparable does. The value of the fireplace is $9,000. A minus adjustment of $9,000 is made to the comparable (to make it similar to the subject property). Example 2: The subject property has a small family room; the comparable has a large family room. The difference in value is $10,000. A minus adjustment of $10,000 is made to the comparable (to make it similar to the subject property).

©2019 Real Estate Council of Ontario

No adjustment If the feature in the comparable property is the same as or similar to the subject property, no adjustment is made. Example: The subject property has 60’ x 100’ lot backing onto green space; the comparable has the same size lot backing onto comparable green space. No adjustment is made.

Examples: Time adjustment Plus adjustment to the comparable: The comparable property sold six months ago for $275,000; prices increased by 3% during that period. • A plus adjustment to the comparable is: $275,000 x 0.03 = $8,250 • The adjusted sale price is: $275,000 + $8,250 = $283,250 Minus adjustment to the comparable: The comparable property sold six months ago for $250,000; prices decreased by 2% during that period. • A minus adjustment to comparable is: $250,000 x 0.02 = $5,000 • The adjusted sale price is: $250,000 – $5,000 = $245,000

©2019 Real Estate Council of Ontario

No adjustment: The comparable property sold two weeks ago for $220,000; prices showed no appreciable increase or decrease in that period. No adjustment is made. Note: A leading practice is not to make adjustments for comparables that were sold less than a month ago.

Examples: Building size adjustments Plus adjustment to comparable: The subject property has a building size of 1,600 square feet; the comparable property has a building size of 1500 square feet and sold for $280,000. Market research suggests that present construction costs are $200 per square foot. • A plus adjustment to the comparable is: (1,600 – 1,500) x $200 = $20,000 • The adjusted value of the comparable is: $280,000 + $20,000 = $300,000 Minus adjustment to comparable: The subject property has a building size of 2,150 square feet; the comparable property has a building size of 2,375 square feet and sold for $420,000. Market research suggests that present construction costs are $200 per square foot. • A minus adjustment to comparable is: (2,375 – 2,150) x $200 = $45,000 • The adjusted value of the comparable is: $420,000 – $45,000 = $375,000

©2019 Real Estate Council of Ontario

Lesson 2 | Page 22 of 30

Making Adjustments The presence or absence of certain factors, such as location, physical characteristics, and lot size, will make a difference to the price paid for a property. In the direct comparison approach, adjustments made for physical characteristics are based on value, not cost. The following seven sections contain information about factors that will affect the price paid for a property.

Location – Plus adjustment to comparable The subject property is in Orchard Lagoon (Phase 2). The comparable sold for $235,000 (time adjusted) in Orchard Lagoon (Phase 1). • Phase 2 is judged superior by 3% • A plus adjustment to the comparable is: $235,000 x 0.03 = $7,050

©2019 Real Estate Council of Ontario

Location – Minus adjustment to comparable The subject property is in Orchard Lagoon (Phase 2). The comparable sold for $242,000 (time adjusted) in Orchard Lagoon (Phase 2) but backing onto parkland. • The comparable location is judged 5% superior • A minus adjustment to the comparable is: $242,000 x 0.05 = $12,100

©2019 Real Estate Council of Ontario

Location – No adjustment to comparable Both the subject property and the comparable are located in Orchard Lagoon (Phase 2) and are similar. • No adjustment is made

©2019 Real Estate Council of Ontario

Lot size – Plus adjustment to comparable The subject property has a 60-foot frontage. The comparable property sold for $369,000 (time adjusted) with a 55-foot frontage. Market research suggests $3,500 per foot adjustment. It should be noted that the depth of the lot is not typically taken into consideration. • A plus adjustment to the comparable is: (60 – 55) x $3,500 = $17,500 • The adjusted value to the comparable is: $369,000 + $17,500 = $386,500

©2019 Real Estate Council of Ontario

Lot size – Minus adjustment to comparable The subject property has a 55-foot frontage; the comparable property sold for $229,000 (time adjusted) with a 60-foot frontage. Market research suggests $2,000 per foot adjustment. • A minus adjustment to the comparable is: (60 55) x $2,000 = $10,000 • The adjusted value to the comparable is: $229,000 – $10,000 = $219,000

©2019 Real Estate Council of Ontario

Physical characteristic – Plus adjustment to comparable The comparable property sold six months previously for $175,000 (price adjusted for time) and did not have a fireplace. The subject property has a fireplace with a value (not cost) of $7,500. • A plus adjustment to the comparable is: $7,500 • The adjusted value of the comparable is: $175,000 + $7,500 = $182,500

©2019 Real Estate Council of Ontario

Physical characteristic – Minus adjustment to comparable The comparable property, sold six months previously for $250,000 (price adjusted for time), had a large deck. The value (not cost) of the deck is $11,500. The subject property does not have a deck. • A minus adjustment to the comparable is: $11,500 • The adjusted value of the comparable is: $250,000 – $11,500 = $238,500

©2019 Real Estate Council of Ontario

Lesson 2 | Page 23 of 30

Reconciliation and Final Estimate As you learned earlier, reconciliation is a reasoning process used to narrow down the value range to a final estimate of value. When all the adjustments are made, each comparable sale will provide a different adjusted sale price (original sale price plus or minus total adjustments). If three comparable properties are used, the adjustment process will result in three different figures. An appraiser will need to examine all information to arrive at the reconciliation. A properly completed reconciliation will include the final estimate and written justification. No two appraisers will approach the reconciliation in precisely the same manner. The overall objective is to give the most weight to the best evidence, least weight to the poorest evidence, and look for any overall trends that indicate the value of the subject property. To prepare a reconciliation, you should:

©2019 Real Estate Council of Ontario

• • • • •

Check all calculations Review the comparability of each sale Give less weight to sales requiring extreme adjustments Give more weight to sales with the highest degree of comparability Make a final value estimate

Typically, three adjusted sale prices for the most comparable properties are included in a form report. Factors to consider during the reconciliation process include: • The most recent sale is normally the best indicator of value, assuming that minimal adjustments have been made. • The sale requiring the least number of adjustments is the most comparable to the subject property and should be given appropriate weighting. • The range of adjusted sale prices is a good measure of comparability between the subject property and the comparables. As a general rule, the most weight is given to the best evidence and the least weight to the poorest.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 24 of 30

Value Range Versus Single Value Point A valuation is an opinion based on the data analyzed by the appraiser who will provide a value range instead of a single value point. A value range is advantageous in the given circumstances: • When there have been few recent sales • When there are few comparable properties to the subject property • When the property is unique and these unique aspects may add value, depending on the buyer; for example, a “green” property designed by a renowned architect • When there are changing market conditions and anticipated days on the market to sell • When the value with and without renovations is being done

©2019 Real Estate Council of Ontario

Lesson 2 | Page 25 of 30

Consider the Given Scenario Subject Property: The seller’s property at 235 Sundown Street is a four-year-old brick veneer bungalow located on a 55-foot x 120-foot lot in a residential subdivision. It has been verified that: • the building size is 1,205 square feet • the living room fireplace adds $2,000 to value • the property has been reasonably well maintained • the property has three bedrooms, a finished recreation room, one 4-piece bathroom (typically, a toilet, sink, bathtub, and shower), and no garage Market facts An analysis of sales in the area indicates that a 2-piece washroom (typically, a toilet and sink) adds $1,500 to value, recreation rooms add $5,000 and sale prices have risen, gradually and evenly, by 5% over the last six months. Lots in

©2019 Real Estate Council of Ontario

the area sell for $1,975 per front foot and present construction costs for this dwelling type are $92.75 per square foot. Research on the local listing service revealed three comparable sales as follows: Comparable #1 Sold 6 months ago for $208,500, building size 1,140 square feet, style, location, age and general condition similar to subject property but lacking a finished recreation room. The home, 2 blocks from the subject property, has a fireplace in the living room, lot size is 50 feet x 120 feet, one 4-piece and one 2piece washroom and a single-car garage. This type of garage adds $4,000 to value. Comparable #2 Sold one week ago for $222,000, lot size 60 feet x 115 feet, similar in all respects to subject property except having no fireplace or recreation room. The property, located three blocks away, has central air conditioning, which adds a value of $2,000. Building size is 1,260 square feet. Comparable #3 Sold two weeks ago for $223,800. No time adjustment is required. The location, four blocks away, is on a ravine lot judged to be $7,000 superior to the subject property, and the lot size is 55 feet x 125 feet. The home contains one 4-piece and one 2-piece washroom. The home does not have a fireplace, a recreation room, or a garage, but boasts a walkout from the master bedroom which you estimate adds $1,500 to value. Same as subject property in all other respects. Use this scenario information to answer the questions on the given tabs. You can refer to the scenario information by clicking the Back button to return to this page, or by opening the “Comparables Scenario” document from the Reference menu on the question tabs.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 26 of 30

Subject Property: The seller’s property at 235 Sundown Street is a four-year-old brick veneer bungalow located on a 55 foot x 120 foot lot in a residential subdivision. It has been verified that: • the building size is 1,205 square feet • the living room fireplace adds $2,000 to value • the property has been reasonably well maintained • the property has three bedrooms, a finished recreation room, one 4-piece bathroom (typically, a toilet, sink, bathtub, and shower), and no garage Market Facts An analysis of sales in the area indicates that a 2-piece washroom (typically, a toilet and sink) adds $1,500 to value, recreation rooms add $5,000 and sale prices have risen, gradually and evenly, by 5% over the last six months. Lots in the area sell for $1,975 per front foot and present construction costs for this dwelling type are $92.75 per square foot. Research on the local listing service revealed three comparable sales as follows: Comparable #1

Comparable #2

Comparable #3

old 6 months ago for $208,500, building size 1,140 square feet, style, location, age and general condition similar to subject property but lacking a finished recreation room. The home, 2 blocks from the subject property, has a fireplace in the living room, lot size is 50 feet x 120 feet, one 4-piece and one 2-piece washroom and single-car garage. This type of garage adds $4,000 to value. Sold one week ago for $222,000, lot size 60 feet x 115 feet, similar in all respects to subject property except having no fireplace or recreation room. The property, located three blocks away, has central air conditioning, which adds a value of $2,000. Building size is 1,260 square feet. Sold two weeks ago for $223,800. No time adjustment is required. The location, four blocks away, is on a ravine lot judged to be $7,000 superior to the subject property, lot size is 55 feet x 125 feet. The home contains one 4-piece and one 2piece washroom. The home has neither a recreation room nor garage, but boasts a walkout from the master bedroom, which you estimate adds $1,500 to value. Same as subject property in all other respects. ©2019 Real Estate Council of Ontario

Let’s look at the scenario again and consider the data you have for the subject property and Comparable #1: Subject Property: The seller’s property at 235 Sundown Street is a four-year-old brick veneer bungalow located on a 55-feet x 120-feet lot in a residential subdivision. You have verified that: • Building size is 1,205 square feet • Living room fireplace adds $2,000 to value • Property has been reasonably well maintained • Property has three bedrooms, a finished recreation room, one 4-piece bathroom, and no garage Market facts An analysis of sales in the area indicates that a 2-piece washroom adds $1,500 to value, recreation rooms adds $5,000 and sale prices have risen, gradually and evenly, by 5% over the last six months. Lots in the area sell for $1,975 per front foot and present construction costs for this dwelling type are $92.75 per square foot. Comparable #1: Sold 6 months ago for $208,500, building size 1,140 square feet, style, location, age, and general condition similar to subject property but lacking a finished recreation room. The home, two blocks from the subject property, has a fireplace in the living room, lot size is 50 feet x 120 feet, one 4-piece and one 2-piece washroom and single-car garage. This type of garage adds $4,000 to value. Which of the given adjustments would a salesperson need to make to comparable #1 to arrive at an adjusted sale price?

©2019 Real Estate Council of Ontario

There are four options. There are multiple correct answers. Reference: Municipal Property Assessment Corporation: Living Area 1 2 3 4

Location adjustments Lot size adjustments Time adjustments Square footage adjustments

©2019 Real Estate Council of Ontario

Lesson 2 | Page 27 of 30

Subject Property: The seller’s property at 235 Sundown Street is a four-year-old brick veneer bungalow located on a 55 foot x 120 foot lot in a residential subdivision. It has been verified that: • the building size is 1,205 square feet

©2019 Real Estate Council of Ontario

• the living room fireplace adds $2,000 to value • the property has been reasonably well maintained • the property has three bedrooms, a finished recreation room, one 4-piece bathroom (typically, a toilet, sink, bathtub, and shower), and no garage Market Facts An analysis of sales in the area indicates that a 2-piece washroom (typically, a toilet and sink) adds $1,500 to value, recreation rooms add $5,000 and sale prices have risen, gradually and evenly, by 5% over the last six months. Lots in the area sell for $1,975 per front foot and present construction costs for this dwelling type are $92.75 per square foot. Research on the local listing service revealed three comparable sales as follows: Comparable #1

Comparable #2

Comparable #3

old 6 months ago for $208,500, building size 1,140 square feet, style, location, age and general condition similar to subject property but lacking a finished recreation room. The home, 2 blocks from the subject property, has a fireplace in the living room, lot size is 50 feet x 120 feet, one 4-piece and one 2-piece washroom and single-car garage. This type of garage adds $4,000 to value. Sold one week ago for $222,000, lot size 60 feet x 115 feet, similar in all respects to subject property except having no fireplace or recreation room. The property, located three blocks away, has central air conditioning, which adds a value of $2,000. Building size is 1,260 square feet. Sold two weeks ago for $223,800. No time adjustment is required. The location, four blocks away, is on a ravine lot judged to be $7,000 superior to the subject property, lot size is 55 feet x 125 feet. The home contains one 4-piece and one 2piece washroom. The home has neither a recreation room nor garage, but boasts a walkout from the master bedroom, which you estimate adds $1,500 to value. Same as subject property in all other respects.

Here’s the scenario again:

©2019 Real Estate Council of Ontario

Subject Property: The seller’s property at 235 Sundown Street is a four-year-old brick veneer bungalow located on a 55-feet x 120-feet lot in a residential subdivision. You have verified that: • the building size is 1,205 square feet • the living room fireplace adds $2,000 to value • the property has been reasonably well maintained • has three bedrooms, a finished recreation room, one 4-piece bathroom, and no garage Market facts An analysis of sales in the area indicates that a 2-piece washroom adds $1,500 to value, recreation rooms add $5,000 and sale prices have risen, gradually and evenly, by 5% over the last six months. Lots in the area sell for $1,975 per front foot and present construction costs for this dwelling type are $92.75 per square foot. Comparable #1: Sold 6 months ago for $208,500, building size 1,140 square feet, style, location, age and general condition similar to subject property but lacking a finished recreation room. The home, two blocks from the subject property, has a fireplace in the living room, lot size is 50 feet x 120 feet, one 4-piece and one 2-piece washroom and a single-car garage. This type of garage adds $4,000 to value. Make a value estimate for the subject property based on adjustments on comparable #1. NOTE: Round up the final answer to the nearest dollar. There are four options. There is only one correct answer. 1 2 3

$234,329 $234,400 $240,329

©2019 Real Estate Council of Ontario

4

$240,400

©2019 Real Estate Council of Ontario

Lesson 2 | Page 28 of 30

Subject Property: The seller’s property at 235 Sundown Street is a four-year-old brick veneer bungalow located on a 55 foot x 120 foot lot in a residential subdivision. It has been verified that: • the building size is 1,205 square feet • the living room fireplace adds $2,000 to value • the property has been reasonably well maintained • the property has three bedrooms, a finished recreation room, one 4-piece bathroom (typically, a toilet, sink, bathtub, and shower), and no garage Market Facts An analysis of sales in the area indicates that a 2-piece washroom (typically, a toilet and sink) adds $1,500 to value, recreation rooms add $5,000 and sale prices have risen, gradually and evenly, by 5% over the last six months. Lots in the area sell for $1,975 per front foot and present construction costs for this dwelling type are $92.75 per square foot. Research on the local listing service revealed three comparable sales as follows: Comparable #1

Comparable #2

Comparable #3

old 6 months ago for $208,500, building size 1,140 square feet, style, location, age and general condition similar to subject property but lacking a finished recreation room. The home, 2 blocks from the subject property, has a fireplace in the living room, lot size is 50 feet x 120 feet, one 4-piece and one 2-piece washroom and single-car garage. This type of garage adds $4,000 to value. Sold one week ago for $222,000, lot size 60 feet x 115 feet, similar in all respects to subject property except having no fireplace or recreation room. The property, located three blocks away, has central air conditioning, which adds a value of $2,000. Building size is 1,260 square feet. Sold two weeks ago for $223,800. No time adjustment is required. The location, four blocks away, is on a ravine lot judged to be $7,000 superior to the subject property, lot size is 55 feet x 125 feet. The home contains one 4-piece and one 2piece washroom. The home has neither a recreation room nor garage, but boasts a walkout from the master bedroom, which you estimate adds $1,500 to value. Same as subject property in all other respects. ©2019 Real Estate Council of Ontario

Now let’s consider another comparable for the same subject property. Subject Property: The seller’s property at 235 Sundown Street is a four-year-old brick veneer bungalow located on a 55-feet x 120-feet lot in a residential subdivision. You have verified that: • the building size is 1,205 square feet • the living room fireplace adds $2,000 to value • the property has been reasonably well maintained • the property has three bedrooms, a finished recreation room, one 4-piece bathroom, and no garage Market facts An analysis of sales in the area indicates that a 2-piece washroom adds $1,500 to value, recreation rooms add $5,000, and sale prices have risen, gradually and evenly, by 5% over the last six months. Lots in the area sell for $1,975 per front foot, and present construction costs for this dwelling type are $92.75 per square foot. Comparable #3: Sold two weeks ago for $223,800. The location, four blocks away, is on a ravine lot judged to be $7,000 superior to the subject property, lot size is 55 feet x 125 feet. The home contains one 4-piece and one 2-piece washroom. The home has neither a recreation room nor garage, but boasts a walkout from the master bedroom which you estimate adds $1,500 to value. Same as subject property in all other respects. If you added Sale #3 as your second comparable, which of the given factors would require an adjustment? There are four options. There is only one correct answer.

©2019 Real Estate Council of Ontario

1 2 3 4

Lot size Square footage Location Time

©2019 Real Estate Council of Ontario

Lesson 2 | Page 29 of 30

Subject Property: The seller’s property at 235 Sundown Street is a four-year-old brick veneer bungalow located on a 55 foot x 120 foot lot in a residential subdivision. It has been verified that: • the building size is 1,205 square feet • the living room fireplace adds $2,000 to value • the property has been reasonably well maintained • the property has three bedrooms, a finished recreation room, one 4-piece bathroom (typically, a toilet, sink, bathtub, and shower), and no garage Market Facts An analysis of sales in the area indicates that a 2-piece washroom (typically, a toilet and sink) adds $1,500 to value, recreation rooms add $5,000 and sale prices have risen, gradually and evenly, by 5% over the last six months. Lots in the area sell for $1,975 per front foot and present construction costs for this dwelling type are $92.75 per square foot. Research on the local listing service revealed three comparable sales as follows: Comparable #1

Comparable #2

Comparable #3

old 6 months ago for $208,500, building size 1,140 square feet, style, location, age and general condition similar to subject property but lacking a finished recreation room. The home, 2 blocks from the subject property, has a fireplace in the living room, lot size is 50 feet x 120 feet, one 4-piece and one 2-piece washroom and single-car garage. This type of garage adds $4,000 to value. Sold one week ago for $222,000, lot size 60 feet x 115 feet, similar in all respects to subject property except having no fireplace or recreation room. The property, located three blocks away, has central air conditioning, which adds a value of $2,000. Building size is 1,260 square feet. Sold two weeks ago for $223,800. No time adjustment is required. The location, four blocks away, is on a ravine lot judged to be $7,000 superior to the subject property, lot size is 55 feet x 125 feet. The home contains one 4-piece and one 2piece washroom. The home has neither a recreation room nor garage, but boasts a walkout from the master bedroom, which you estimate adds $1,500 to value. Same as subject property in all other respects. ©2019 Real Estate Council of Ontario

Now, calculate the adjusted value for comparable. Subject Property: The seller’s property at 235 Sundown Street is a four-year-old brick veneer bungalow located on a 55-foot x 120-foot lot in a residential subdivision. You have verified that: • The building size is 1,205 square feet. • The living room fireplace adds $2,000 to value. • The property has been reasonably well maintained. • The property has three bedrooms, a finished recreation room, one 4-piece bathroom, and no garage. Market facts An analysis of sales in the area indicates that a 2-piece washroom adds $1,500 to value, recreation rooms add $5,000 and sale prices have risen, gradually and evenly, by 5% over the last six months. Lots in the area sell for $1,975 per front foot, and present construction costs for this dwelling type are $92.75 per square foot. Comparable #3: Sold two weeks ago for $223,800. No time adjustment is required. The location, four blocks away, is on a ravine lot judged to be $7,000 superior to the subject property, lot size is 55 feet x 125 feet. The home contains one 4-piece and one 2-piece wash room. The home does not have a fireplace, a recreation room, or a garage, but boasts a walkout from the master bedroom which you estimate adds $1,500 to value. Same as subject property in all other respects. Make a value estimate for the subject property based on adjustments on comparable #3. There are four options. There are multiple correct answers.

©2019 Real Estate Council of Ontario

1 2 3 4

$218,800 $230,800 $242,800 $220,800

©2019 Real Estate Council of Ontario

Lesson 2 | Page 30 of 30

Congratulations, you have completed the lesson! There are six sections on this page with a summary of the key topics that were discussed in this lesson.

Factors impacting the value of a residential property

Various factors may impact the value of a residential property, such as the given: • Highest and best use – At the time of the valuation, highest and best use is most likely to produce the greatest net return in money or amenities to the land over a given period of time • Layout and condition of the structure and land – Analysis of the structure, which includes accurate information on the condition and functionality of the main residence building, and analysis of the site, which includes accurate information on the piece of land that is ready to be built on • Conformity to the neighbourhood – This principle is further divided into (1) the principle of progression, which states that between dissimilar properties, the value of the poorer property will be affected positively by the presence of the property of higher value, and (2) the principle of regression, which states that the value of the better property will be affected adversely by the presence of the property of lesser value • Neighbouring properties and general location – The value of a property is affected by the factors and forces at work in the neighbourhood in which the property is located. These factors and forces can have a positive, negative, or neutral impact of property values. Several tools can confirm the impact of a factor or force and its dollar value • Lot size and house size – “Site dimensions” refers to the frontage, depth, and width of a parcel of land; that is, the lot. Site dimensions and the resulting shape and area create the ultimate desirability, utility, and value of any site

©2019 Real Estate Council of Ontario

Direct comparison In this approach, the subject property is compared to other, recently sold similar properties and adjustments are made for the differences between the properties. approach The direct comparison approach involves four basic steps leading to a final estimate of value: 1. Select comparables – Determined based on time, location, size, and other physical characteristics 2. Make adjustments – Plus or minus value adjustments made to comparables 3. Establish adjusted sale price – Original sale price plus or minus total adjustments 4. Complete reconciliation – Value estimate based on adjusted sale prices

Advantages of the direct comparison approach: • Consumers generally understand and use it • Avoids various problems associated with estimating and forecasting; for example, building costs, depreciation, revenues, expenses, and cash flows • Generally accepted by courts and the general public

Cost approach

Disadvantages of the direct comparison approach: • Sometimes difficult to obtain good comparable sales • Making adjustments for differences in properties requires careful judgement and experience. In some instances, such adjustments are often difficult to support and explain satisfactorily. • Difficult to obtain relevant information relating to each sale, particularly with reference to seller or buyer motivation • Data are historical in nature The cost approach is one of three approaches to value used in the marketplace. This approach is primarily focused on objective value, which states that the cost to create is the main criterion in estimating value. The cost approach is guided by the principle of substitution—a prudent buyer will pay no more for a property than the cost of producing or creating an equally desirable property, providing no delay occurs in making the substitution. Advantages of the cost approach: • People understand it • Often the only method to use in the appraisal of special-purpose properties

©2019 Real Estate Council of Ontario

• Relatively easy to make a cost calculation

The income approach

Disadvantages of the cost approach: • Difficult to estimate depreciation, particularly in older buildings • While the cost of construction appears relatively easy to estimate, no exact cost figure can be given as several methods yield varying costs • Construction costs are constantly changing The income approach is based on the theory that the value of an investment property is the present worth of the future benefits or income that the property is capable of producing. This approach involves capitalizing the net income of the property, by an appropriate rate, into an indication of value. The income approach is based on the assumption that the value of income-producing properties is related, in one degree or another, to their incomeproducing potential. The income approach is used to estimate the value of an income-producing property only. It would not be used to estimate the value of a residential real property or condominium unit. Advantage of the income approach: • Employs cash flow analysis to estimate value of investment properties

Factors to consider for comparables (direct comparison)

Disadvantages of the income approach: • Difficulty in selecting an appropriate capitalization for direct capitalization • Estimating income and operating expenses may prove difficult, and slight errors in either is magnified on capitalization • Of limited use in the appraisal of owner- occupied and/or special-purpose properties When selecting comparables for the subject property, the given factors should be considered: • Time and market conditions – Sale should be recent, and factor in any market fluctuations since then • Market value – Sale must involve an informed seller and buyer, prudent behaviour, no undue pressure, and reasonable time • Similarity – Comparable should be as similar as possible to the subject property • Proximity – Comparable should be located nearby

©2019 Real Estate Council of Ontario

Applying adjustments to comparables (direct comparison)

When using the direct comparison approach, the given adjustment rules need to be applied: • Plus adjustment to comparable – If the feature in the comparable is poorer than the subject property, a plus adjustment is made • Minus adjustment to comparable – If the feature in the comparable property is better than the subject property, a minus adjustment is made • No adjustment – If the feature in the comparable property is the same as or similar to the subject property, no adjustment is made

©2019 Real Estate Council of Ontario

Lesson 3 | Page 1 of 6

Lesson 3: Summary Practice Activities

This lesson provides a series of activities that will test your knowledge on the entire module.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 2 of 6

In this lesson, you will review content from this module. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 3 of 6

A salesperson is representing a new seller, a celebrity newscaster who wants to sell one of her vacation homes designed by a famous architect. She also wants to purchase a much larger residential property in the neighbourhood designed by the same architect because it is a better investment. The subject property is one of the smallest properties in an upscale neighbourhood overlooking a popular lake. It is the newest building designed by the architect in the neighbourhood, and only the second one to go up for resale in five years. The property is equipped with a heated indoor swimming pool, a state-of-the-art gymnasium, a multi-car garage, and a landscaped front lawn. It is also renowned for having the lowest carbon footprint in the neighbourhood. Identify how Jason should advise this client, considering the uniqueness of the subject property and her desire to purchase another property for investment purposes. Reference: Ontario Building Code

The salesperson should say: From our conversations, I gather your key objective in selling this property is to buy another that will prove to be a better investment. Since yours is only the second property in the neighbourhood to be put up for resale in the past five years, it will take some research to determine a suitable listing price. However, I’m afraid I’m not qualified to provide an opinion on buying or selling residential properties for investment purposes. I would recommend that you engage the services of an AIC-certified appraiser for this purpose, even before we put up this property for sale. Appraisers regularly analyze sales data generated by realestate professionals and can provide an expert, unbiased opinion on the estimated value of your property, as well as the property you are considering buying. An appraiser is also qualified to determine whether this would be a good investment for you or whether there are alternatives. This will, in my opinion, help you come to a decision that will meet your requirements. buying. An appraiser is also qualified to determine whether this would be a ©2019 Real Estate Council of Ontario

Lesson 3 | Page 4 of 6

A salesperson is completing a CMA for a seller client’s residential property. Based on sales in the same neighbourhood, some of the key features of the subject property include: 1. A swimming pool; most of the neighbourhood properties do not have a swimming pool 2. An unfinished basement; most of the neighbourhood properties have a finished basement 3. Three bedrooms; most of the neighbourhood properties have two bedrooms 4. Three bathrooms; most of the neighbourhood properties have two bathrooms Which of these features should the salesperson consider when looking for comparable properties? There are four options. There are multiple correct answers. 1 2 3 4

Swimming pool Unfinished basement Three bedrooms Three bathrooms

©2019 Real Estate Council of Ontario

Lesson 3 | Page 5 of 6

A salesperson needs help to calculate the adjusted sale price for a comparable property as it relates to the recommended listing price of the subject property. The details are as follows: Subject Property: The subject property is a 15-year-old, detached, two-storey dwelling. The living area is 1,840 square feet, with three bedrooms and three bathrooms, and the lot measures 45 feet x 115 feet. This property has a double private driveway and a double garage. One of the comparables that the salesperson located is an 11-year-old detached, twostorey dwelling. The living area is 2,050 square feet, with three bedrooms and three bathrooms, and the lot measures 50 feet x 120 feet. This property has a single private driveway and a single garage. It sold four months ago for $380,000 and is located on the same street as the subject. Market research suggests that the value of a double garage is $28,000, while that of a single garage is $16,000. Present construction costs are $105 per square foot. Lots in the area are selling for $3,800 per front foot. Prices have also increased by 3% over the past four months. Make a value estimate for the subject property based on the adjusted sale price of this comparable. There are four options. There is only one correct answer. 1 2 3 4

$364,700 $362,350 $370,800 $370,450

©2019 Real Estate Council of Ontario

Lesson 3 | Page 6 of 6

Congratulations, you have completed the lesson!

©2019 Real Estate Council of Ontario

Module Summary | Page 1 of 4

Module Summary

This lesson contains a summary of the entire module and a list of helpful resources available in the Knowledge Management System (KMS).

©2019 Real Estate Council of Ontario

Module Summary | Page 2 of 4

Congratulations, you have completed this module! This lesson will present a summary of Learning Objectives and a list of helpful resources that you can search for in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 3 of 4

There are two sections on this page with a summary of the key topics that were discussed in this module.

Opinion on property value versus opinion on the listing price

When you are a salesperson, you will need to recommend that a seller consult an appraiser for cases that involve: • Marital disputes (divorce, separation) • Estate sale • Relocation • Financing and refinancing In the previously noted situations, an Appraisal Institute of Canada (AIC)-designated appraiser is engaged when a seller (or a buyer) needs an expert, unbiased opinion on the value of real estate. By advising a seller to consult with an appraiser, you will be complying with Sections 6 and 8 of the Code of Ethics: AIC designations for appraisers include: • Canadian Residential Appraiser (CRATM) –Qualified to undertake any valuation and consulting assignment on dwellings containing not more than four selfcontained family housing units or on residential dwelling sites • Accredited Appraiser Canadian Institute (AACITM) – Qualified to undertake any valuation and consulting assignment on residential, commercial, industrial, institutional, agricultural, land, and special use property types CNAREA has three designations for appraisers: • Designated Appraiser Residential (DAR™) – Qualified to perform any appraisal and consultation of residential property types consisting of not more than four housing units and non-complex commercial properties with a residential component • Designated Appraiser Commercial (DAC™) – Qualified to provide valuations on all real property types, including residential properties

©2019 Real Estate Council of Ontario

• Certified Appraisal Reviewer™ -- Qualified to author either field or technical appraisal review reports on all types of appraisal reports The two types of appraisal reports include: • Form report – A brief, systematic presentation that provides seller and buyer clients with an easy-to-follow and consistent approach • Narrative report – A report written in sufficient detail and in such a way that a reader will understand the appraiser’s reasoning and justifications for the conclusions and estimates reached The comparative market analysis (CMA) report includes properties that are currently for sale, have sold (the more recent the sale the better), and have expired (listings that did not sell). The sections of a CMA report include: • Comparables for sale now • Comparables sold in the past 12 months • Comparables expired in the past 12 months • Recommendations and net proceeds Sources of data for a CMA report include: • GeoWarehouse® • Local listing service As a salesperson, you will analyze comparable properties on the basis of the: • Date of the sale • Location of the sale • Marketing time • Square footage Some other feature you will need to consider for a CMA include: • Number of bedrooms and bathrooms • Number of garages and driveways (for example, single, double, triple) and whether they are shared or private • Any major upgrades or repairs required on the property You will need to be sensitive to the seller’s emotional ties to the property when presenting the CMA. The report should have as much data as possible on ©2019 Real Estate Council of Ontario

comparables, current trends, past trends, and features for each property in question, including site visit data.

Estimate the value of a residential property

Completion of this lesson has enabled you to: • Identify situations that warrant a professional appraisal be completed for a property • Describe how a CMA is used by a salesperson • Identify sources of data to use when completing a CMA • Identify strategies for presenting a CMA to a seller Factors that impact the value of a residential property include the given: • Highest and best use – An improvement that adds value for a buyer will have a positive impact on the estimated sale price. If an improvement does not add value, there will be no impact on the estimated sale price. • Site analysis – Improvements to and on the site that add value for a buyer (for example, fences, detached garages, sheds, finished basement) will have a positive impact on the estimated sale price. A non-standard site (for example, pie-shaped instead of rectangular) will have a negative impact on the estimated sale price. • Building analysis – A subject property that is in excellent condition, has unique features, or has been renovated upgraded (for example, an additional bedroom, new plumbing system) will have a positive impact on the estimated sale price. A subject property in poor condition or in need of major or minor upgrades (such as a leaking bathroom floor or faulty electrical system) will have a negative impact on the estimated sale price. • Conformity to the neighbourhood – The presence of a superior property will have a positive impact on an inferior property. The presence of an inferior property will have a negative impact on a superior property. • Neighbourhood analysis – The neighbourhood in which a property is located affects the value of the property. • Lot size and house size – Differences in the lot size, shape size, and house style affects the value of the property. One of three approaches are used to estimate the range for a residential property – the direct comparison approach, the cost approach, or the income approach. ©2019 Real Estate Council of Ontario

While the direct comparison approach is preferable, the cost approach should be used in certain situations; for example, when the property involves relatively new improvements that represent the highest and best use of the land, or when the site possesses unique or specialized improvements for which there are no comparable properties on the market. The income approach is not used for residential singlefamily properties. The approaches to estimating value are: • Cost approach – This approach is guided by the principle of substitution; a prudent buyer will pay no more for a property than the cost of producing or creating an equally desirable property, providing no delay occurs in making the substitution • Income approach – This approach is used to estimate the value of an incomeproducing property; it would not be used to estimate the value of a residential real property • Direct comparison approach – This approach is used to compare the subject property to other recently sold similar properties, and adjustments are made for the differences between the properties Adjustments can be made in four areas: • Time • Location • Lot size • Physical characteristics All adjustments are added together to arrive at an adjusted sale price for each comparable used in the analysis. This approach is used in an active market where there are a greater number of recent sales. Completion of this lesson has enabled you to: • Identify factors that may impact the value of a residential property • Describe the approach to value when valuing a residential property • Describe how adjustments are applied in the direct comparison approach

©2019 Real Estate Council of Ontario

Module Summary | Page 4 of 4

Module Resources There are six helpful resources related to this module that you can search for in the Knowledge Management System. 1. Property Appraisal Reports: This job aid provides samples of a standard form report and narrative report for appraisals. Each report is used for different aspects of a property appraisal. This job aid outlines the features and uses of each report. A salesperson can use this job aid to gain a better understanding of the role of appraisers and the types of reports an appraiser completes. Disclaimer: A salesperson who is not an accredited appraiser is not qualified to conduct appraisals and, therefore, the services of a qualified appraisal professional will be required. 2. The Comparative Market Analysis (CMA): This job aid explains the difference between a comparative market analysis (CMA) and an appraisal, provides instructions on how to prepare a CMA, including which sources of data to use, and includes an example of a completed CMA. A salesperson can use this job aid to gain a better understanding of how to prepare a comparative market analysis for a seller or buyer. 3. Strategies for Presenting a Comparative Market Analysis (CMA) to a Seller: This table provides strategies on how a salesperson can present the findings of a comparative market analysis (CMA) to a seller in a neutral and unbiased manner. Selling a home is emotional and a seller may be reluctant to accept a salesperson’s recommendations regarding the listing price. A salesperson can use this job aid when discussing a CMA with a seller. 4. Measuring Site Dimensions: This job aid includes a series of diagrams and explanations that outline how to measure and describe site dimensions. The job aid features both imperial and metric measurements, rectangular and non-rectangular lots, and steps on how to measure building volume. If a salesperson is making a representation as to site dimensions, the information and the method used to obtain the values must be accurate and verifiable. A salesperson working with a buyer should independently verify the representations made regarding lot size and dimensions. A salesperson can use this job aid to gain a better understanding of how site dimensions are measured.

©2019 Real Estate Council of Ontario

5. Three Approaches to Valuing a Residential Real Property: This job aid discusses the three approaches to valuing a residential real property — cost approach, income approach, and direct comparison approach. The job aid describes each approach, and includes a table of advantages and disadvantages for each. A salesperson can use this job aid to determine which approach to use when valuing a residential real property. 6. Direct Comparison Approach: This job aid details the procedure used to arrive at an estimate of value for a residential real property using the direct comparison approach. The job aid explains how to use adjustments to account for key differences between comparables and the subject property. This includes adjustments for time, location, lot size, and physical characteristics. A salesperson can use this job aid to gain a deeper understanding of the direct comparison approach. Disclaimer: A value for adjustments used in the course of trading in real estate is subjective and will vary according to the area in which a salesperson and brokerage are located. While navigating through the online module, click the KMS button for tools and information on this topic.

©2019 Real Estate Council of Ontario

V7

Module 12: Listing and Marketing Properties Disclaimer: This is a reference document which contains pages from the Accessible eLearning module. You should complete the eLearning module to proceed to the next step. Please note that the accessible module on the LMS only contains the interactive pages and you need to go through the content of this document thoroughly to attempt the interactive activities in the module. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Salesperson Program ©2019 Real Estate Council of Ontario. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or in any means – by electronic, mechanical, photocopying, recording or otherwise without prior written permission, except for the personal use of the Real Estate Salesperson Program learner.

©2019 Real Estate Council of Ontario

Module 12: Listing and Marketing Properties In this module, you will examine the typical actions that you, as a salesperson, will perform in the listing and marketing of a residential real property. Activities centre around explaining listing documents, obtaining and verifying the information required to list and market a property, and developing and implementing a marketing plan, which may include holding open houses. You will have a responsibility to perform all functions of the listing process in a professional manner and in accordance with REBBA, local listing service rules/bylaws (when applicable), and any municipal regulations. This module discusses the types of documents needed when listing a property for sale. This module also details what is required to maintain compliance with advertising requirements. To check your understanding of this module, you must complete all the activities in the online module. While navigating through the online module, click the Legislation button to view laws and regulations related to this module. While navigating through the online module, click the KMS button to access the Knowledge Management System or visit the Module Resources to find the list of all the KMS assets for this module. The contents of the thumbnail icon and References from the module are added to support your learning throughout this Accessible PDF. ©2019 Real Estate Council of Ontario

Menu: Listing and Marketing Properties Number of Lessons Lesson Number Lesson 1 Lesson 2 Lesson 3 Lesson 4 Lesson 5 Lesson 6 Lesson 7

8 Lessons Lesson Name Preparing to List a Residential Property Listing a Residential Property The Salesperson’s Obligations in the Listing Process Complying with Advertising Requirements under REBBA Open House Considerations and Marketing Materials Open House Interactions and Leading Practices Summary Practice Activities Module Summary

©2019 Real Estate Council of Ontario

Lesson 1 | Page 1 of 19

Lesson 1: Preparing to List a Residential Property

This lesson describes the documents that you, as a salesperson, would use to accurately and effectively list a residential property for sale. The use of checklists, disclosure documents, data sheets, and other tools during the listing process are identified to assist you in gathering the required information and ensuring it is verified. The lesson also details the brokerage’s requirements for document retention and the salesperson’s role in complying with these requirements.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 2 of 19

In this lesson, you will learn which documents are needed to list a residential property for sale and the requirements for document retention. This information is essential to the listing and marketing process from a regulatory standpoint. As a salesperson, you must accurately complete the appropriate documents when listing and marketing a property for sale. Upon completion of this lesson, you will be able to: • Describe the types of information required to list a residential property for sale • Identify how to gather the information required to list a residential property for sale • Identify requirements for document retention by a brokerage Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 3 of 19

Definition and Types of Estate Salesperson Kevin Spencer has just received a call from Bryan and Lynn Johnson, the owners of a residential property. A few days prior, Kevin had spoken with the Johnsons about listing their property for sale. After interviewing several different salespersons, they decided to choose Kevin to be their listing salesperson. They would like him to come to their home tomorrow night at 7:30 p.m. so that he can complete the listing agreement. Kevin needs to prepare for the listing appointment before he meets the Johnsons tomorrow.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 4 of 19

Documents Needed to List a Residential Property for Sale As a salesperson, you will need a variety of documents and tools to list a seller’s property for sale. Each document has a specific purpose. One of these documents is a data sheet. The data sheet is a form that you will fill out and have your seller sign. It accompanies the listing authority. The data sheet has both mandatory and optional fields that capture the relevant information needed about the property that you will be listing. The information from the data sheet is then used to create the listing. This data sheet can also be used as a checklist. The following screen will cover the importance of a data sheet and the information or fields included. Data sheets are completed to ensure that what is detailed in the listing is accurate. As you learned earlier, material facts should also be noted on the data sheet that is uploaded to create the listing. Information in the data sheet will vary depending on the board and type of property being listed. Additional information and documents that can be used to help list a property for sale include but are not limited to the following: • Warranty information for anything that has a transferable warranty • Municipal Property Assessment Corporation (MPAC) assessment • Verification of home owner’s insurance

©2019 Real Estate Council of Ontario

• Statements and contracts for any rental equipment items • Supportive documents for any home improvements (for example, receipt for a new roof, Building Permit, if seller claimed that the new deck is done with permit) • Copy of municipal tax bill • Copy of a survey that the seller may have in their possession • Copy of a lease if the property is leased • Deed to help verify ownership This information is necessary for entering all relevant details for residential 0listings and is essential in the listing and marketing of residential properties. The Property Checklist A leading practice when listing a residential property for sale is to create a checklist. Many salespersons create their own checklist or often a brokerage will have one that they share with their salespersons. A checklist will help ensure that you are gathering all the necessary information about a property and can therefore list and market the property more effectively. Some items that could be included in a property checklist are: • Verification of property ownership • Any major capital improvements to the property, the date they were completed, and supporting documents • List of chattels included and fixtures excluded (document rental items and term details) • Major repairs on septic and well systems • Utility costs for the year • Survey—if available • Easements or encroachments For a new salesperson, this checklist is an effective way to reduce the risk of missing something while obtaining the listing. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 5 of 19

The Data Sheet One required document to list a residential property for sale is a data sheet. This document is typically used in all listings to collect detailed information about the property, which is then uploaded to the local listing service database. There is no standard data sheet used as different areas within the province may require specific information unique to that location. However, there are common components of all data sheets. Each of the links given below corresponds to information that would be included on a data sheet. The following six sections contain information on each item.

Data sheet information As a salesperson, you will have to obtain and verify as much information as possible before meeting with a seller. Once you have inspected the property and discussed your findings, you can then complete the data sheet. It is a best practice to ask the sellers to provide documents to support any information on their property, as you and the brokerage are ultimately responsible for verifying the accuracy of the information.

©2019 Real Estate Council of Ontario

Legal description and confirmation of owners As a salesperson, you will have to confirm the legal description of the property with source documents, such as a deed or survey. You will also be required to indicate if there are major easements affecting the property, because the existence of an easement must be disclosed as it could affect the use of the property. You can obtain information related to easements in the deed and/or the survey. Typical minor residential easements would include a municipal easement for utilities, such as water or sewers, or other utility easements, such as telephone and hydro. Major easements would include a mutual driveway or right of way. For confirmation of ownership, you can get verification by consulting the property deed or GeoWarehouse® report. You will learn more about GeoWarehouse® later in this lesson.

©2019 Real Estate Council of Ontario

Lot size As a salesperson, you will need to confirm the size of a property lot by using a source document such as a survey, property tax bill (not all municipalities), or GeoWarehouse® report. Accurate and complete lot size details are required for listing. As misrepresenting this to a buyer could result in legal action. Typically, the first dimension identified is the lot frontage. As you learned earlier, the lot frontage is the portion of the property that borders a public street or highway. Note however, that in the case of a waterfront property, frontage commonly refers to the side that borders the body of water. Providing as much information regarding the lot size will assist in the marketing of the property. The following guidelines will help in ensuring full and accurate details: • Frontage and depth for rectangular lots, (for example, 50 feet x 110 feet). • Full dimensions for irregular lots. For example, 33.25 feet x 145 feet on east side, 128 feet on west side, 53 feet across rear, or 33.25 feet x 145 feet x 128 feet x 53 feet. In this case, 33.25 feet is the south boundary frontage (front facing north). 128 feet is the west boundary, 145 feet is the north boundary, and 53 feet is the east boundary.

©2019 Real Estate Council of Ontario

• Dimensions and/or exact acreage for larger tracts. For example, 915 feet x 1,547 feet, being approximately 32.5 acres.

Age of principal structure(s) Knowing the age of principal structures is useful for buyer inquiries. Buyers would want to know the age of a structure as it can impact obtaining insurance and can indicate what materials may have been used during construction. The actual age could be available from the seller, original owner, builder, or sometimes through the municipality’s records, such as a building permit and/or a GeoWarehouse® report. If unknown or an approximate age is indicated, as a salesperson, you will have to clearly identify this in the listing or any marketing.

©2019 Real Estate Council of Ontario

Living area of principal structure(s) In all instances, as a salesperson, you will want to check with your brokerage to ensure that they are using the relevant guidelines for their trading area as no standardized method is universally accepted regarding measuring the living area of a property. Living area measurements are usually the overall square footage of the home. This does not include an attached garage or the basement area—whether the basement is finished or not. Data sheets may request square footage based on exterior measurements as this is the method used by an appraiser. You will have to take your own measurements or use verified source documents such as a floor plan or GeoWarehouse® reports. There are also a number of companies that offer measuring services to salespersons where they take measurements of the property and provide a PDF floorplan that includes individual room measurements and overall square footage. Including the square footage for a listing is not always mandatory, and in some areas, just a range in area is provided. Accuracy in all measurements is important, and when relying on a source, the source should be identified. It is important to note that it is not mandatory in all areas to list the source when the square footage is a requirement on a data sheet. ©2019 Real Estate Council of Ontario

Room sizes Various tools can be used to obtain room measurements, including a tape measure or an electronic laser. Depending on the room size or configuration, there could be difficulty in obtaining an accurate measurement no matter what tool is used. In cases where a room is an irregular shape, identify any parameters under which the room was measured. For example, state that the room measurements were taken from the widest point. When collecting any information for the data sheet, it is important that you avoid relying on information in the previous listing as there could be errors which you, as the salesperson, would now be responsible for.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 6 of 19

Additional Information on the Data Sheet Additional items included on a data sheet relate to the legal and mechanical components of the property. The following seven sections contain information that would be included on a data sheet.

Assessment/taxes As a salesperson, you will have to verify the seller’s most recent assessment and property tax notices. Brokerages could have an electronic link to tax information, otherwise you could obtain the information directly from the seller while ensuring to check source documents for verification. When indicating the property taxes, ensure the full year’s taxes are shown—and not the interim taxes—and the year the taxes are applicable. If the property taxes change from the time of taking the listing to point of sale, the information should be updated on the listing. Be aware that some properties, such as a new condominium, will only have interim property tax figures available so it is important to specify this for greater clarity. In addition to the annual property taxes, a local improvement charge could impact the full amount of ©2019 Real Estate Council of Ontario

the taxes owed. Information on the additional levy is required, such as the reason for the local improvement tax and associated time period. Typical special tax assessment is for the addition of sidewalks, curbs, or other municipal services, such as water and sewers.

Zoning As a salesperson, you may have to confirm current zoning by contacting the zoning department of the local municipality. You can also review a municipality’s website or request a consultation with them. You should be aware that there may be site-specific variances. For example, in a municipality, “R1” could represent a single-family residential dwelling. “R” means residential and the number represents density. This changes per municipality. To get this information, you will need to call the municipality and give them the address.

©2019 Real Estate Council of Ontario

Wiring As a salesperson, you will have to seek professional guidance from a certified electrician or home inspector, as needed. Current rating (for example, 60, 100, or 200 amp) is usually printed on the electrical panel, but confusion can arise, such as about the capacity of the electrical breaker in the home. Some salespersons assume the amperage number is the overall capacity of the electrical system, but this is not necessarily the case. The determination of the system capacity is beyond the expertise of a salesperson and is not generally a mandatory field on a residential data sheet.

©2019 Real Estate Council of Ontario

Plumbing As a salesperson, you will have to be able to distinguish if the plumbing is copper, PVC, Kitec, or sometimes galvanized in older properties. You will need to know the type of plumbing system because it is thought that some types are problematic, such as, galvanized or Kitec.

©2019 Real Estate Council of Ontario

Heating, ventilation, and air conditioning (HVAC) As a salesperson, you will have to specify the type of heating and cooling system, and fuel source the property contains. Knowledge of these systems is important as some systems are more efficient or more expensive to operate, and this could impact the saleability of the property or the price a buyer is willing to pay. As you learned earlier, there are various types of heating and air-conditioning units that can be found in a residential property. Information about the age and condition of the heating and air conditioning units is important to a buyer, as systems older than 15 years are more likely to become increasingly unreliable and may need to be replaced.

©2019 Real Estate Council of Ontario

Chattels/fixtures As a salesperson, you will have to clearly identify chattels included and fixtures excluded. Chattels are moveable possessions and personal property that can be removed without causing any harm to the property. On the other hand, fixtures are permanently attached to a property. To avoid potential confusion and problems, you will want to advise your sellers to remove and/or replace any items they wish to take with them prior to showings. This will ensure that potential buyers do not think that the fixture is included with the purchase of the home. The seller may choose to leave the items to be excluded up for showing purposes. However, these items should be noted on the data sheet. A few examples of fixtures a seller might not want to include could be a dining room chandelier, an antique mirror, or the Tiffany wall lights.

©2019 Real Estate Council of Ontario

Rental equipment Rental equipment may go beyond just a hot water tank. Other items may now be on a rental contract or on a conditional sales agreement, which is also known as a rent-to-own contract. These items include furnaces, water softeners, satellite dishes, and security systems. You will need to confirm which of the following is accurate: • Possession of the item is through a rental agreement that can be assumed by the buyer. Such items are not owned by the homeowner and the buyer is obligated to continue with the rental arrangement for the item to remain. • Possession of the item is through a conditional sales agreement. There are various types of agreements, so confirming the terms of the agreement is necessary. The terms could include: o an open agreement which allows the item to be paid off at any time without penalty o the requirement that the item be paid in full by the seller when the property is sold, which may include a penalty for early payment o a transferrable agreement, which allows for assumption of the payment by the buyer when the property is sold ©2019 Real Estate Council of Ontario

Under a conditional sales contract, instalment payments are made toward the purchase price of the item. Ownership of the item is not transferred until it has been fully paid for. These instalment payments can last for up to 10 or 15 years, so confirming any obligations by the seller or buyer should be completed when listing the property for sale.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 7 of 19

Remuneration/Fee Structures As a salesperson, before you work with a seller, you will have to clearly communicate the following: • The date on which the written agreement begins and ends • The services you will provide • The amount of remuneration payable to a co-operating brokerage (if applicable) Communicating clearly and getting everything in writing will help avoid future problems. Among the information that you will communicate with a seller is the fee structure. The fee structure is usually a percentage of the listing sale price and sets out what portion would be shared with any potential co-operating brokerage, if applicable.

©2019 Real Estate Council of Ontario

Below are allowable fee structures under the Real Estate and Business Brokers Act (REBBA) that you and a seller can agree upon. Flat Fee, A Percentage of the Sale Price, or Percentage Plus a Flat Fee As you learned earlier, remuneration must be an agreed upon amount, a percentage of a sale price/rental price, or a combination of both. A la Carte/Fee-based Listings Another fee structure could be an a la carte or fee-based listing. This structure means there are flat rates for various services, which you will need to complete to list the property. For example, you could require the seller pay a fee to list the property and then additional, separate fees to complete various services that the seller can select. This is often called a “limited service listing”, since the brokerage is not offering the full range of services that are typically associated with a listing, such as advertising or hosting open houses. When discussing remuneration with a seller (or a buyer), you cannot indicate or imply that the rates or amounts are fixed or approved by any administrative authority, government authority, or real estate board/association. You should also ensure the seller (or the buyer) understands that the rate of remuneration is negotiable with the brokerage. Special Remuneration Agreements There can also be special arrangements regarding remuneration. One example is identified as a collateral agreement. This is a second rate of commission identified in the listing agreement, which would take effect under certain circumstances. The collateral agreement provides for a reduction in the remuneration paid if there is no cooperating brokerage involved in the transaction and the listing brokerage sells the property to a buyer. Another situation where a special arrangement can occur is if the seller was selling their home privately and had an interested potential buyer. The seller then decides to list the property and signs a representation agreement with a brokerage. The seller can request to have the potential buyer excluded from the agreement. If agreed to, the listing salesperson can place a time-frame (for example, one week) for the potential buyer to return and purchase the property privately from the seller; thereby no remuneration would be payable to the listing brokerage. The name of the potential buyer would be noted on a schedule attached to the listing agreement. ©2019 Real Estate Council of Ontario

If agreed to, the listing salesperson can place a time-frame (for example, one week) for the potential buyer to return and purchase the property privately from the seller; thereby no commission would be payable to the listing brokerage. The name of the potential buyer would be noted on a schedule attached to the listing agreement.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 8 of 19

Seller Directions for Marketing the Property and Disclosure Statements When listing a property for sale, the seller may have requirements related to the marketing, showing, and offer process. These requirements should be in writing, as they are related to agreements with a seller and seller disclosure statements that, as a salesperson, you will need for all residential listings. The following six sections contain information on each document or tool relating to agreements with a seller regarding showings, marketing, and obtaining offers, as well as seller disclosure statements.

Agreements with a seller As a salesperson, you will have to document any directions from a seller regarding the marketing of the property or the obtaining of offers. These agreements identify specific terms or activities the seller requires from you and the brokerage. The agreements can include restrictions or requirements on many topics. The next three items are examples of agreements that the seller can include.

©2019 Real Estate Council of Ontario

Showings As a salesperson, you will have to discuss property showings with your seller as they may have preferences regarding what time potential buyers can view the property. This could be related to the sellers having small children or being shift workers. Additionally, you could make suggestions to the seller in terms of how they should prepare the home before the property is shown to a prospective buyer. Sometimes, as a listing salesperson, the seller may request to have you present during all showings. A reason for this could be that there is a security system on the property that only you have permission to access, or the owners are uncomfortable having another salesperson in their home that they do not know. This is not uncommon with very expensive properties. As a buyer’s salesperson, you will want to leave a business card at each showing. This is a courtesy to the seller and confirms that the showing took place. As a buyer’s salesperson, you will have the responsibility to ensure that the property is secure when leaving. This would entail checking all doors and windows in addition to ensuring the key is secured in the lockbox (if one exists). If a salesperson and their buyer are going to be late for the showing appointment, the salesperson should inform the listing salesperson, who in turn should inform the seller. ©2019 Real Estate Council of Ontario

Lockboxes The use of a lockbox is a convenience. However, sellers are not required to provide lockbox access to keys for their properties. As a salesperson, you will be required to explain the purpose and risks of the lockbox to the seller. If the seller agrees to the use of a lockbox, you should document the seller’s authorization in a written direction to the listing brokerage. The agreement needs to be in writing and signed by the seller. A copy must be given to the seller before the lockbox is installed.

©2019 Real Estate Council of Ontario

Marketing, obtaining, and scheduling offer presentations The seller may have instructions for how you, as their salesperson, can market the property. Listing agreements may state that the brokerage has exclusive authority to make marketing decisions. However, you should still outline the marketing plan and ask the seller to acknowledge and agree to the plan before marketing the property.

©2019 Real Estate Council of Ontario

Offer presentation As a salesperson, you will have to discuss with your seller their preference regarding whether they would like to be contacted in person, over the phone, by email, or by text to find out about showings or any offers received. Once this is discussed and agreed upon, you must clearly document the information and act accordingly. To comply with the Code of Ethics, you will have to convey an offer to your clients and customers as soon as possible, unless you receive written direction to do otherwise. Your client may want to delay their consideration of offers to a specific time and date, typically as part of a marketing strategy that aims to generate multiple offers. The following steps will have to be followed to ensure your obligations to convey offers in accordance to the Code of Ethics are met: • Step 1: Explain the pros and cons of delaying offers to your client • Step 2: Explain to your client that a delayed offer presentation might lead to pre-emptive offers • Step 3: Find out how your client wants to handle pre-emptive offers • Step 4: Document your client’s instructions

©2019 Real Estate Council of Ontario

Details of these steps and more information on what your requirements will be when conveying an offer to your clients and customers, can be found on RECO’s Registrar’s Bulletin titled, “Written Direction for Multiple Offers”.

Seller property information and disclosure statements It is important for the seller to disclose certain information about their property. As a salesperson, you will be required to document these disclosures and ensure they are made to any potential buyer. Disclosures made by a seller should be in a written document, and the seller should understand whether it is intended to be provided to any potential buyers. When a seller has provided this written disclosure that is to be provided, your obligations under the Code are to let any buyer who expresses an interest in the property know of its existence, and upon request, make the statement available to the buyer at the earliest opportunity. A disclosure can be made using any type of form or checklist. A brokerage may provide a standardized form for use, such as a Seller Property Information Statement (SPIS) or a checklist. These would typically contain information related to defects, renovations, and other important property information based on what the seller knows.

©2019 Real Estate Council of Ontario

It is important to note that the Code does not oblige a seller to complete a disclosure statement. However, as you learned earlier, it is important for you to ensure that the seller understands their legal obligation to disclose any known latent defects. As a salesperson, obtaining information related to the property, confirming this information is complete and accurate, and providing the necessary disclosures to a buyer will fulfill your obligations.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 9 of 18

Gathering Property Information and Verifying Ownership of a Residential Property There are many documents and tools needed to list a residential property. In addition to these documents and tools are tasks that you, as a salesperson, will need to complete in order to gather property information and to verify ownership of the residential property. The following five sections contain information on each task. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Verification of ownership As a salesperson, you will be able to search title or use a deed to verify the registered name(s) on title, in addition to referencing the property through municipal tax statements. You can also use GeoWarehouse® as a source to assist with verification. More information on GeoWarehouse® will be explained in the coming screens.

©2019 Real Estate Council of Ontario

Gathering property information from the internet The internet is an important research tool for collecting property information. An online search of an address may provide you, as a salesperson, with information about the property that could reveal if a murder took place in the home or if the property had been previously used as a grow house.

©2019 Real Estate Council of Ontario

Gathering property information from the municipality

The municipality is an important resource for collecting property tax information. The applicable municipality is the city or town where the seller’s property is located. As a salesperson, you should connect with Municipal Property Assessment Corporation (MPAC) to determine the assessed value of the property and the property’s current taxes.

©2019 Real Estate Council of Ontario

Gathering property information from GeoWarehouse® The Land Titles Registry is accessed through GeoWarehouse®, which has extensive information on residential properties, such as municipal websites for taxation and zoning. It provides access to information from MPAC. A GeoWarehouse® search will assist in determining and verifying the most recently registered information, for example, the registered names of the owners, legal description, property boundaries, and dimensions. GeoWarehouse® can also provide aerial photos and street views, along with other valuable information. Additionally, GeoWarehouse® is a source of information to find out if a property has been sold or closed, and its sale price.

©2019 Real Estate Council of Ontario

Gathering property information from previous listings Previous listings are another resource for property information. However, as a salesperson, you should use a previous listing cautiously. There could be changes to the property since that listing, or the previous owner or brokerage may have mistakenly provided information that was not accurate. A previous listing should only be used as a reference guide; it can also alert you to something that may need further inquiry. Any information used from a previous listing must be verified.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 10 of 18

A salesperson is gathering the applicable listing documents for his meeting with his sellers tomorrow. In the process, he is ensuring that he knows which listing resources will provide what information. The salesperson also wants to be prepared for any unusual requests the sellers may have. For this reason, he will make sure all possible documentation needed is brought to the appointment.

Which resource should Kevin use to obtain information about showings, marketing, remuneration arrangements, and offer directions? There are two options. There is only one correct answer. 1 2

Agreements with the seller Data sheet

©2019 Real Estate Council of Ontario

Lesson 1 | Page 11 of 19

A salesperson is gathering the applicable listing documents for his meeting with his sellers tomorrow. In the process, he is ensuring that he knows which listing resources will provide what information. The salesperson also wants to be prepared for any unusual requests the sellers may have. For this reason, he will make sure all possible documentation needed is brought to the appointment. Which resource should Kevin use to obtain a document that summarizes the factual information about the property? There are two options. There is only one correct answer. 1

Agreements with the seller

2

Data sheet

©2019 Real Estate Council of Ontario

Lesson 1 | Page 12 of 19

A salesperson is gathering the applicable listing documents for his meeting with his sellers tomorrow. In the process, he is ensuring that he knows which listing resources will provide what information. The salesperson also wants to be prepared for any unusual requests the sellers may have. For this reason, he will make sure all possible documentation needed is brought to the appointment. Which resource should Kevin use to obtain a document that could be provided to a buyer regarding information and disclosures about the property? There are two options. There is only one correct answer. 1 2

Seller Property Information Statement (SPIS) GeoWarehouse® report

©2019 Real Estate Council of Ontario

Lesson 1 | Page 13 of 19

A salesperson is gathering the applicable listing documents for his meeting with his sellers tomorrow. In the process, he is ensuring that he knows which listing resources will provide what information. The salesperson also wants to be prepared for any unusual requests the sellers may have. For this reason, he will make sure all possible documentation needed is brought to the appointment. Which resource should Kevin use to obtain ownership information from a database in advance of the listing? There are two options. There is only one correct answer. 1 2

Seller Property Information Statement (SPIS) GeoWarehouse® report

©2019 Real Estate Council of Ontario

Lesson 1 | Page 14 of 19

A required document that a salesperson will need to fill out is a data sheet. This document will help detail information about the property, which will be helpful when marketing the property. Information from the data sheet will also be used to create the local listing. Which of the following information will the salesperson fill out in the data sheet? There are four options. There are multiple correct answers. 1 2 3 4

Details of the owner’s mortgage The seller’s reason for moving Lot size Room sizes

©2019 Real Estate Council of Ontario

Lesson 1 | Page 15 of 19

Requirements for Document Retention by a Brokerage Next, you will learn about the requirements for document retention by a brokerage. When meeting with a seller who wants to list their property, as a salesperson, you will outline the service options available to them. Should they want to be your client, you will document the relationship in writing and sign it, as required by the Code. Once signed, the Code also requires a copy to be given immediately to each seller. A copy of the data sheet will also be provided to each seller(s). As you learned earlier, ensuring that a copy of the representation agreement is given to all sellers is important because it documents the terms agreed upon between the seller and the brokerage.

©2019 Real Estate Council of Ontario

You will also need to know what your brokerage’s requirements are for document retention to ensure your activities do not place the brokerage in a position of non-compliance. Proper recordkeeping is important, and documents related to any aspect of a trade can be retained in a shadow file. A shadow file is your copy of all documents used for a trade. All original documents related to trading are to be retained at the brokerage. (A detailed list of each document is listed on the following screen.) When retaining a shadow file, it is your responsibility to ensure that the information is retained in compliance with the Personal Information Protection and Electronic Documents Act (PIPEDA) under the Privacy Act. This would include ensuring confidential information—whether retained electronically or on paper—is safeguarded from unauthorized access or viewing. Although the brokerage is responsible for all document retention, you will need to be aware of the documents required and ensure their activities permit the brokerage to comply with requirements under REBBA as well as various other legislative requirements. The following screens will detail more information on these requirements as specified by the Code of Ethics.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 16 of 19

Documents Required by the Brokerage As a salesperson, you will have to provide your brokerage with original copies of all documents used when performing any activity related to trading. These documents may include the following: • The seller representation agreement: This is the formal contract between the seller and the brokerage that you will represent. • The data sheet: This is used to compile information gathered about a property for the creation of the local listing. • All seller instructions on showing the property, presentation of offers, and so on. • Permission for use of the lockbox (the key holder for access to the property): This is to ensure the seller’s consent to enter the property is documented. This also ensures the seller’s consent to have a lockbox on the property. • Remuneration -related documents, such as a collateral agreement. ©2019 Real Estate Council of Ontario

• Remuneration -related documents ensure that all parties understand and agree to the remuneration structure for the transaction. For example, in a collateral agreement, the listing salesperson might offer a discount on the remuneration if they represent both the seller and the buyer in the transaction. The existence of a collateral agreement must be disclosed to all parties submitting an offer on a property as soon as possible. The local listing service is the most common way to disclose this existence. • FINTRAC identification and any document required relating to a deposit: This is to ensure that any suspicious transactions are prevented or brought to the attention of the brokerage. • Explanation of the types of relationship disclosure form: This is to ensure consumers understand the types of relationships available to them. • Copies of source documents where information was verified: This is to provide evidence as to where information was gathered for the listing. In the event of a dispute, these documents will be referenced. • Survey: This will provide the brokerage with a record of the measurements of the property and any improvements. • Copies of repair warranties, invoices, and so on: These documents are important as they provide evidence to any repairs or warranties to the property. You will need to ensure you have created and submitted all required documents to the brokerage. Ontario Regulation requires the brokerage to retain all documents required for the business of trading in real estate for at least six years. Additionally, a brokerage registered in Ontario must maintain an address in Ontario for service. The brokerage’s business records must be maintained in the Ontario office registered under REBBA. The trade-related documents must be kept in a location specified by the Registrar. If you are going to be conducting business at a branch office, the brokerage is required to transfer the original documents to the location that the Registrar specifies at the earliest opportunity. If the Registrar has not specified a location, then the original documents are to be transferred to the brokerage’s main office.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 17 of 19

When working with a seller, it is important to ensure a copy of the listing documents— including the seller representation agreement and other relevant documents—have been provided to the seller. A salesperson must also ensure good recordkeeping compliance to safeguard unauthorized access to the seller’s listing documents and their personal information. Which of the following actions should a salesperson take to assist the brokerage in their obligations regarding document retention? There are four options. There is only one correct answer.

1 2 3 4

Provide the brokerage with all documentation pertaining to the trade as soon as possible after the documentation has been obtained. Provide the brokerage with a photocopy of all the documentation and place the originals in the shadow file. Provide the brokerage with the seller representation agreement and, upon acceptance of an offer, transfer all other listing documents to the brokerage, such as the data sheet and FINTRAC identification. Provide the brokerage with a summary document identifying the documents obtained by the salesperson, who will keep the original documents in a shadow file until an offer is accepted.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 18 of 19

A salesperson is employed at a branch office of a brokerage and retains a shadow file for all listings and buyers they work with. A new salesperson has now joined the branch office and has some questions about how the documents should be handled and retained. What advice should be given to the new salesperson to assist them in handling documents? There are four options. There are multiple correct answers.

1 2 3 4

Keep the original documents at the branch office as a shadow file and forward them to the main office for retention six years after the transaction has closed. Retain a shadow file at the home of the salesperson in an unlocked filing cabinet to ensure easy access to the information when required. Keep an electronic copy of the documents on a password protected device, such as a laptop, to ensure easy access to the information when required. Transfer the original documents to the location that the Registrar specifies.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 19 of 19

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Information required to list

How to gather property information

To list a property, as a salesperson, you will need the following information: • Property checklist information: This will help you to identify material facts and help ensure that all necessary information is gathered. It is an effective way to reduce the risk of missing something while obtaining the listing. Information that can be found in a property checklist includes: verification of ownership, age of appliances, and annual taxes, among others. • Data sheet information: This is a data collection form that is used to document information about a property and to create the listing. • Documented agreements with a seller: These agreements identify specific terms or activities the seller is requiring of the brokerage and salesperson. Agreements can detail showing times, lockbox permission, and marketing specifics. • Remuneration agreements: You will have to communicate the remuneration fee structure with a seller. • Seller disclosure statements or SPIS: You are required to document any disclosures about a property and ensure any potential buyer is made aware. A seller is not obligated to complete an SPIS. As a salesperson, you will have the option to use the following tools to gather listing information: • A deed, to help verify ownership • The municipality, to collect property tax information • GeoWarehouse®, to gather various information on a property

©2019 Real Estate Council of Ontario

Brokerage document retention

• MPAC, to help assess the value of a property • Surveys, to define the exact boundaries of the property and show any improvements or easements on the property • The internet, for any newsworthy information on a property • Review previous listing, as a guideline only As a salesperson, you will need to know the following about a representation agreement and document retention: • Providing the seller with a copy of the representation agreement immediately upon signing (as outlined in REBBA and the Code of Ethics). This is important because it ensures that the terms agreed upon by the seller and brokerage is understood by both parties. • Your brokerage’s requirements for document retention to ensure that you do not place the brokerage in a position of non-compliance. • Retaining any documents related to any aspect of a trade in a shadow file. • Retaining all original documents related to trading at your brokerage. The brokerage will maintain original business records for the purpose of trading in real estate in its head office in Ontario or as otherwise specified by the Registrar for a minimum of six years.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 1 of 18

Lesson 2: Listing a Residential Property

This lesson details the characteristics of properly listing and marketing a property. As a salesperson, you will need an understanding of these qualities to ensure you create a saleable listing. This lesson identifies the importance of listing a property correctly from the start, factors that contribute to a property’s marketability, consequences of an overpriced listing, and how to market a listing to other brokerages and the public.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 2 of 18

This lesson explains how to properly list and market a property, including how to market a listing to other salespersons and the public. A saleable listing is related to the pricing, accuracy, and marketing time of the property. An overpriced listing can impact the seller, the brokerage, and you, as a salesperson, so it is important to know how to ensure a listing contains the qualities associated with a desirable listing. Upon completion of this lesson, you will be able to: • Describe the characteristics of a saleable listing • Identify how a listing is promoted to other salespersons and the public Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 3 of 18

As a salesperson, it is important to know how to market a property correctly. When you first list a property, there may be buyers waiting specifically for this type of property to become available. You will need to make the right market impression as soon as the “for sale” sign goes up. Determining the right price is important because most buyers today will research properties before they ever contact a salesperson. Buyers are very informed and will know the listing price of properties similar to your client’s property. If the listing price of the property you are trying to sell is too high, it might get ignored by those buyers. The wrong price can create many problems later on, including the likelihood of a buyer placing an offer. A comparative market analysis (CMA) can be used to help you arrive at an appropriate listing price. The CMA will show the listing price and sale price of other comparable properties. It will also show you the ones that did not sell. This information is very important. The next few screens will discuss how to determine an appropriate listing price for your seller’s property and the consequences of listing a property too high from the start.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 4 of 18

The Importance of Understanding the Housing Market Most sellers, when considering selling their property, will complete their own market research. They may have been told how much a neighbour’s home sold for in previous months or years, but the neighbour may have inflated that price. A seller may only know what properties have been listed for and assume the selling price was close to that. Ultimately, whatever information a seller has gathered needs to be confirmed by you, as their salesperson, as they may be expecting the same sale price, or more, for their own property. To arrive at an appropriate listing price for a seller’s property, it is required that you are able to discuss how market conditions change and are fully informed of any sales or listings used in a comparative market analysis (CMA). Example:

©2019 Real Estate Council of Ontario

A property on the seller’s street is similar in size and condition as theirs. It was listed at $540,000 and sold 10 months ago for $550,000. Those sellers received $10,000 more than the listing price, but your research shows there were very few listings on the market at the time. The property sold during a very active market. Earlier this year, market conditions changed as interest rates rose, and borrower criteria for mortgage approvals were tightened. This resulted in fewer buyers in the market. Another property on the same street was listed at $600,000. After being on the market for an extended time, it eventually sold for $499,000. In this situation, the seller will need to know why the second property sold for much lower than the listing price. Based on the change in market conditions, the reason appears to be that the second property was overpriced. This caused the marketing time to be extended as well as a possibly lower than market value selling price. After explaining these factors to the seller, an appropriate listing price should be set based on the market conditions today.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 5 of 18

Characteristics of a Saleable Listing As a salesperson, you will need to know what factors can contribute to making a listing saleable and appealing to buyers. It is important to have a property in the best selling position when first listed for sale, as this is often a very active period for the listing. Making a good first impression and capitalizing on the active market can result in a sale within a reasonable amount of time and on terms satisfactory to the seller. The following five sections contain information on features of a saleable listing and the consequences of an overpriced listing. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Importance of the right listing price Listing a property correctly from the start is important. The seller’s ultimate goal is typically to sell the home in the shortest period of time for the highest price possible. A listing price should be within a reasonable range of the estimated value of the property.

©2019 Real Estate Council of Ontario

Arriving at the right listing price The listing price is one of the most important sales tools when listing a property. An attractive listing price begins with a properly prepared comparative market analysis (CMA). As you learned earlier, a CMA consists of recently sold properties that are similar to the seller’s property in terms of square footage, location, number of bedrooms, and so on, as well as active listings and properties that have not sold. Although the listing price is ultimately the seller’s choice, as a salesperson, your ability to advise on an appropriate listing price can directly impact the final selling price of a property.

©2019 Real Estate Council of Ontario

Factors affecting the right listing price Both market value and listing price are interwoven. A competent salesperson should be able to discuss both. Based on the estimated market value of the property, the listing price is selected. The CMA will informally analyze other property listings. Factors that may affect what a property sells for include: • Location (the neighbourhood, access to grocery stores, malls, public transit, schools, and so on) • Property (square footage, floor plan, major renovations, updates, and general condition of the home) • Updated features (new kitchen cabinets/counters, renovated bathrooms, new windows, and so on) • Competition This is the balance between the number of properties available and the number of buyers. Specifically, it will look at similar properties for sale and their listing prices. It is important to know that not all improvements will result in enough of an increase in value to justify these being done simply for the sale of the property. Some improvements are done to help reduce the time required to achieve a sale, which, for some sellers, is very important. Depending on the nature of the ©2019 Real Estate Council of Ontario

improvement, some may provide a greater return to the seller on sale than others. When advising a seller on changes prior to listing a property, this should be a key aspect of that advice. For example, kitchen and bathroom renovations may add about 50 to 75 percent of their cost to the value of the home (based on an Appraisal Institute of Canada survey); a finished basement may only contribute 50 percent of its cost to the overall value. Painting is one of the highest returns for a seller who wishes to see an immediate payback on their investment. As a salesperson, if you are not certain of the contributory value of a renovation, you should consult a certified residential appraiser, or review websites that can provide expert information.

©2019 Real Estate Council of Ontario

Salesperson skills The professional skills that you, as a salesperson, possess can also impact the saleability of a listing. These include: • Promotional strategy (an effective marketing plan, advertisements, showings, open houses). • Typical marketing time: Depending on the property type and market conditions, the typical marketing time can vary. • Appropriate marketing time: Based on an analysis of the market conditions, you should ensure the property has an appropriate listing period. • Accurate information: Incomplete or inaccurate information can not only prevent a sale from occurring but can have consequences if sold under misrepresented information. • Knowledge of the property: Having a familiarity with the property when discussing or showing it will result in a relaxed and confident atmosphere with a buyer. • Rapport with the seller: You will want the seller to have confidence in your ability to represent them. Demonstrating knowledge, ability, resourcefulness, and positive attitude is important.

©2019 Real Estate Council of Ontario

• Intangible factors: Knowing more than just what can be seen is important when marketing the property. It will be useful to have a general understanding of why the seller originally purchased, the neighbours and neighbourhood, and who the target buyer is for the property.

©2019 Real Estate Council of Ontario

Consequences of an overpriced listing To ensure the seller is making an informed decision when selecting the listing price for their property, a detailed discussion on the consequences of an overpriced listing should be held. Problems with overpricing a property include: • The property may not be shown by other salespersons. • The property may become a “comparison house” that may be shown only to provide evidence on the saleability of another listing. • Missing the target market as buyers who might otherwise seriously consider the property may be looking in a different price range. • The property won’t sell because the price is too high. When an offer is received, the price could be considerably lower than the listing price, and even lower than the estimated market value of the property. • Ultimately, the seller may need to reduce the listing price lower than what an appropriate listing price would have been to generate any offers. • An extended marketing time, which gives potential buyers the impression that there

©2019 Real Estate Council of Ontario

is something wrong with the property; a perceived stigma could become attached to the property as a rationalization of why it has not sold. • The seller may become unhappy—both with the salesperson and the brokerage— reducing the likelihood of any referrals.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 6 of 18

A salesperson is meeting with a potential seller who has done some online research. The seller shows the salesperson several listings that have sold within the past six months, but is unaware of their selling prices. The seller wants the property listed slightly higher than these other properties. The salesperson is aware of the selling prices for these and wants to ensure they select an appropriate listing price to achieve a sale within a reasonable time. The salesperson is considering how he could please the seller and—based on his research—stay within the estimated market value of the property, which is considerably lower than what the seller thinks. The salesperson is aware other salespersons could be interviewed and would very much like to be selected to list the property for sale. How should the salesperson respond to the seller’s information? There are four options. There are multiple correct answers.

1 2 3 4

Show the seller the sale prices of the other properties. Agree with his choice of listing price, and—after 30 days—ask for a price reduction. Show the seller the sale prices of the other properties. Agree with his listing price, but ensure the listing is for more than six months. Market conditions could change, which would justify the overpricing today. Show the seller the sale prices of the other properties. Explain how his property compares as well as the importance of the listing price falling within a narrow range of the estimated market value of the property. Show the seller the sale prices of the other properties. Explain how the eventual selling price of his property could be lower than expected if it is not priced correctly from the start.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 7 of 18

A salesperson is talking to a potential seller about why he should list with the salesperson’s brokerage. The seller wants to know why his house has a better chance of selling if he lists with the salesperson’s brokerage. What are some skills that the salesperson should highlight that will help sell the seller’s property? There are four options. There are multiple correct answers. 1 2 3 4

Knowledge of the property Promotional strategy and marketing plan Extensive experience in real estate sales—although he is not overly familiar with the seller’s neighbourhood Analytical skills that enable him to assess the current market conditions

©2019 Real Estate Council of Ontario

Lesson 2 | Page 8 of 18

A salesperson used a comparative market analysis to arrive at a potential listing price. The seller is pleased with the research the salesperson has done to prepare for the meeting and is interested in more details about some of the information used in the CMA. He asks if the salesperson can further explain how his property compares to the sales and what can be done to improve the marketability of his property. How could the salesperson explain which factors may improve the saleability of his property and help with an appropriate listing price? There are four options. There are multiple correct answers. 1 2 3

4

One recent sale had renovations completed. If the seller were to finish his basement, it could improve the saleability, but he may only realize about 50 percent of the cost in an increased sale price. The overall condition of one of the sales was inferior to the seller’s home, but it sold only one week ago. The seller should consider listing his property for slightly more than what this property sold for. One of the properties is an active listing. It is very similar in many respects to the seller’s property, but has been listed for two months. The seller should consider listing his property at no more than what this property is listed at. Location is very important. The sale price of the property next door that sold last year will always be a good indication of value. The seller should consider listing his property at the same price as this property was listed.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 9 of 18

The salesperson reluctantly lists the seller’s property using the price that the seller wants. Based on the CMA, the listing price should be much lower, but the salesperson tells himself that if the property does not sell within 30 days, he will suggest a price reduction at that point. What could be the consequences of the salesperson overpricing the seller’s property? There are four options. There are multiple correct answers. 1 2 3 4

The property may not be shown by other salespersons. The property may become a “comparison house” that may be shown only to provide evidence on the saleability of another listing. The property could be perceived by buyers as having something wrong with it, given its extended time on the market without selling. The property not selling will have a negative impact on the reputation of the salesperson and brokerage even though the seller determined the listing price.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 10 of 18

Listing a Residential Property You will now learn how to promote a listing to other brokerages, salespersons, and the public. As a salesperson, once you have verified the listing information and completed the documentation to list the property, you will need to make the information available to others. The data sheet is used to provide a summary of the listed property information. This is entered into the brokerage’s internal database and/or the local listing service. Placing the listing on the local listing service allows other salespersons to review the listing information online and arrange to show the property to interested buyers. Marketing a new listing to the public is an important aspect of the services that you will provide. Wide exposure of the property is needed to generate interested buyers and obtain an offer satisfactory to the seller within a reasonable time period. In the next few screens, you will learn a variety of ways to advertise a property. You will want to ensure that you are implementing the marketing plan agreed to by the seller.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 11 of 18

Promoting a Property for Sale Once the listing has been finalized with a seller, promoting it is the first priority. As a salesperson, you will want to use marketing methods that will get your listing noticed. There are many ways to do this efficiently and immediately. If the listing is posted on the local listing service, the property will be identified to other salespersons as a new listing. This allows them to assess the relevance of a new listing for buyers they are currently working with. Technology has changed how you will promote a property for sale, and these methods are not only expected by a seller but are required to attract buyers and to generate an immediate response to a new listing. The following three sections contain information on how you will be able to promote a listing.

Local listing service The local listing service is a database of past and current listings for an area. Entering the property data into the system varies depending on the local listing service’s rules and regulations, and/or the policies of a brokerage. For example, a local listing service may offer a “broker load practice”. This means the listing information is entered into the local listing service from a brokerage or salesperson’s computer rather than being sent to the local real estate board/association office for entry. The latter may still happen in some jurisdictions. A

©2019 Real Estate Council of Ontario

brokerage’s policy may allow you, as a salesperson, to enter the listing yourself, or it may require someone at the brokerage to complete this. A local listing service allows photos and other documents related to the listing to be uploaded as well. Any information that you would like to share with other brokerages and buyers can be placed on the system, such as a seller disclosure document, survey, or other important information. If you are entering the information into the local listing service, you will be able to do it at your home office or the brokerage’s office. A location that is away from distraction is required to ensure accuracy of the information. You may also choose to enter the information while at the seller’s home if this can be completed with accuracy. No matter who inputs the information into the local listing service, you are responsible for its accuracy and completeness. When your new listing has been input into the system, you should review the information for accuracy as soon as possible, as other salespersons will get immediate notifications of your posting if your property matches their search criteria. You should also let the sellers know when the listing is active, as activity surrounding the new listing can happen immediately.

©2019 Real Estate Council of Ontario

House tour for other salespersons House tours for salespersons, from both the listing brokerage and other brokerages, can be an effective way to introduce a listing. These tours are often conducted during business hours and provide an opportunity for salespersons to view the property without an appointment. By attending house tours, a salesperson is better informed to provide listed property information to a buyer. This can also assist them with providing firsthand knowledge to a seller whose property listing would be in competition with this new listing. Note that house tours for other salespersons are different from an open house held for the public to view the property without an appointment. You will learn more about open houses later in the module.

©2019 Real Estate Council of Ontario

Advertising a property Advertising a property requires some imagination and work. It is more than just placing the listing on the local listing service or letting other salespersons know of the property. A new listing needs to be noticed, and there are many ways that you, as a salesperson, can market a new property listing. These include the following: • Social media and other forms of social networking: Facebook, Twitter, Pinterest, Instagram, and blogs are all useful tools. Include social sharing buttons to make it easy for potential buyers to email and share what is posted. • Laminated real estate signs (for example, a sign on the property stating that the house is for sale): A “for sale” sign is an effective marketing tool as buyers may drive through neighbourhoods they are interested in to see what properties are available. Keep your sign in good condition and provide information about the property in a weather-proof container attached to the sign. • Open house signs when conducting an open house: These are typically placed at strategic intersections and on the property to let the public know the home can be viewed without an ©2019 Real Estate Council of Ontario

•

•

•

•

appointment. Lesson 5 explains the requirements and/or restrictions on any signage. Using technology as an open house tool: Live videos via Skype or Facetime can bring distant buyers into the home on a real-time tour and allow them to ask questions and view the property from offsite. Brokerage and personal websites: These are a staple of today’s marketing tools. Ensure the website is accurate, easy to navigate, and continually updated with new information. A website can offer many tools for a buyer, such as a mortgage payment calculator. Classified advertising: This includes paper and online advertising in a newspaper or other periodicals that can be sold or distributed free of charge. Targeted mailings to the neighbourhood, such as flyers or postcards indicating “New Listing” or “Just Listed”: Provide a short description of the home and a few photos.

When advertising a new listing, make it easy for a potential buyer to reach out to you for more information. Ensure your contact information is on every page of a website or other marketing materials and is easy to find. Any form of electronic advertising should be mobile-friendly as internet users are likely to use their mobile device for searching.

©2019 Real Estate Council of Ontario

You will learn more about REBBA’s requirements for advertising later in this module. As a salesperson, your advertising must meet minimum standards. At all times, the advertising is done on behalf of the brokerage, so it is important to ensure that it complies with the brokerage’s policies.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 12 of 18

Guidelines Under the Competition Act for Advertising a Property The Competition Act is a federal statute addressing many forms of competition in the interest of promoting a fair and efficient Canadian marketplace. This legislation seeks to protect consumers by regulating selected business conduct throughout Canada. The Competition Act applies with few exceptions to all businesses, including real estate. The Competition Act prohibits misleading advertising and deceptive business practices in the promotion of a service or the supply/use of a product. It is important for you, as a salesperson, to understand the relevant advertising and marketing sections of the Competition Act to reduce the potential liability associated with non-compliance, which could include investigation, fines, imprisonment, and negative publicity. In 1999, members of the Canadian Real Estate Association (CREA) adopted the Principles of Competition for Real Estate Boards and Associations, from a Prohibition Order that was negotiated between the Competition Bureau and CREA. Although the Principles of Competition were voluntarily adopted, they are mandatorily implemented. ©2019 Real Estate Council of Ontario

In regard to advertising, the Principles of Competition specify that real estate boards and associations must not: • Prevent advertising of remuneration rates, mere postings, or limited service agreements. • Prevent advertising of inducements, incentives, gifts, prizes, refunds, or rebates. • Prevent advertising unless the advertising is: o False or misleading o Prohibited by law o Restricted at the request of the seller When you become a salesperson, it is important that you do not make a representation to the public that is false or misleading. The misleading advertising sections of the Competition Act apply to all types of representations to the public regardless of the media used (including print, broadcast, written, oral, and electronic representations, such as the internet). As such, you will need to ensure that all representations to the public comply with the Competition Act.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 13 of 18

Advertising Requirements CREA has its own advertising rules and trademark/term usage that only a member is permitted to use. The trademarks REALTOR®, REALTORS®, and the REALTOR® logo are controlled by CREA and identify a real estate professional who is a member of CREA. Only a salesperson who is a member of CREA can refer to themselves as a REALTOR®. Trademark misuse falls into two general categories: • Unauthorized use by a non-member. For example, a salesperson who is not a member of CREA uses the term REALTOR® in an advertisement. • Improper use by a member. For example, a salesperson is authorized to use the term REALTOR® but violates the terms for usage.

©2019 Real Estate Council of Ontario

You should consult with your brokerage before advertising to determine which terms and trademarks you are permitted to use in your advertising and how they are used. As a salesperson, you will need to be aware of additional advertising requirements under other legislation. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 14 of 18

The local listing service is a database of past and current listings for an area. The process of entering the property data into the system varies depending on the local listing service’s rules and regulations, and/or the policies of a brokerage. Identify which of the given statements about entering the listing in the local listing service is correct. There are two options. There is only one correct answer. 1 2

A local listing service may offer a broker load practice. This means the listing information is entered into the local listing service from a brokerage’s or salesperson’s computer. A local listing service may offer a salesperson load practice. This means the listing information is entered into the local listing service from a seller’s or salesperson’s computer.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 15 of 18

The local listing service is a database of past and current listings for an area. The process of entering the property data into the system varies depending on the local listing service’s rules and regulations, and/or the policies of a brokerage. Identify which of the given statements about the local listing service is correct. There are two options. There is only one correct answer. 1

2

A local listing service allows photos and other documents related to the listing to be uploaded as well. Any information a salesperson would like shared with other brokerages and buyers can be placed on the system, such as a seller disclosure document, the data sheet, or information such as the seller’s mortgage. A local listing service allows photos and other documents related to the listing to be uploaded as well. Any information a salesperson would like shared with other brokerages and buyers can be placed on the system, such as a seller disclosure document, survey, or other important information.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 16 of 18

The local listing service is a database of past and current listings for an area. The process of entering the property data into the system varies depending on the local listing service’s rules and regulations, and/or the policies of a brokerage. Identify which of the given statements about local listing service is correct. There are two options. There is only one correct answer. 1 2

No matter who inputs the information into the local listing service, a salesperson is responsible for the accuracy and completeness of the information. No matter who inputs the information into the local listing service, a seller is responsible for the accuracy and completeness of the information.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 17 of 18

A salesperson is creating a customized marketing plan for an upcoming listing presentation.

What are the most effective marketing techniques that the salesperson should use in the marketing plan? There are four options. There are multiple correct answers. 1 2 3 4

“For sale” signs Classified advertising Online blog/website Open house signs

©2019 Real Estate Council of Ontario

Lesson 2 | Page 18 of 18

Congratulations, you have completed the lesson! There are nine sections on this page with a summary of the key topics that were discussed in this lesson.

Understanding the housing market The right listing price

Factors that affect the listing price

Salesperson skills

To arrive at an appropriate listing price for a seller’s property, as a salesperson, you will have to be able to discuss market conditions and be fully informed on any sales or listings used in a comparative market analysis (CMA). As a salesperson, you will have to ensure that you are listing the property correctly from the start. Verify all information and do your due diligence in researching the property before preparing the seller representation agreement and a data sheet. Your ability as a salesperson to advise on an appropriate listing price can directly impact the final selling price of a property. Factors that may affect what a property sells for include: • The location of the property • The layout and condition of the property • Updated features • Competition between similar properties for sale The professional skills that you, as a salesperson, should have can also impact the saleability of a listing. These skills include: • Promotional strategy • Typical marketing time • Appropriate marketing time • Accurate information • Knowledge of the property • Rapport with the seller • Intangible factors

©2019 Real Estate Council of Ontario

Consequences of an overpriced listing

Promoting the listing

Advertising a property

Advertising guidelines under the Competition Act

Consequences of overpriced listings include: • Having the property not sell because the price is too high • Having the seller reduce the price, which gives potential buyers the impression that there is a stigma or something wrong with the property • Having the seller unhappy with the lack of results—especially if there are no offers for the seller to consider Once the listing has been finalized with a seller, promoting it is the first priority. Below are ways to promote the listing: • Place the listing on the local listing service. This will allow other salespersons to review the listing information online. They can then arrange to show the property to interested buyers. • Expose the property in a wide number of ways. Your goal is to generate interested buyers and obtain an offer satisfactory to the seller within a reasonable time period. • House tours for other salespersons are another effective way to promote a listing. As a salesperson, you will need permission from the seller before advertising. You should be able to create an effective marketing plan and know your various marketing options. Some options for marketing are: • Social media • Real estate “for sale” signs • Open house signs • Flyers • Online blog/website • Classified advertising • Targeted mailings The Competition Act is a federal law governing competition law in Canada. Its purpose is to prohibit anti-competitive conduct. Failure to not comply with anti-competitive behaviour could lead to criminal prosecution, Competition Tribunal proceedings, and civil court actions. In regard to advertising, the Principles of Competition (adopted from CREA) specify that real estate boards and associations must not:

©2019 Real Estate Council of Ontario

Rules under CREA when advertising

• Prevent advertising by members or non-members unless the advertising is: o False or misleading o Prohibited by law o Restricted at the request of the vendor CREA Rules for Advertising and Trademark Use: A salesperson who is a member of CREA must comply with the advertising standards of trademark use of the association/board. Trademark Rules: The trademarks MLS®, Multiple Listing Service®, and the associated logos are owned by CREA. The trademarks REALTOR®, REALTORS®, and the REALTOR® logo are controlled by CREA and identify real estate professionals who are members of CREA. Only a salesperson who is a member of CREA can refer to them self as a REALTOR®.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 1 of 14

Lesson 3: The Salesperson’s Obligations in the Listing Process

This lesson identifies your obligations as a salesperson in the listing process. This includes accurate representations of the property and the sellers, and prevention of unethical practices. It contains information about mere postings/limited services obligations and how to document services for mere postings/limited services agreements. Finally, you will learn about common representation agreement errors and leading practices for documenting listing information.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 2 of 14

This lesson explains what you, as a salesperson, will be obligated to do during the listing process. You will have to ensure that complete and accurate information is provided for the property and that services being provided by you and the brokerage are documented. Leading practices to avoid errors and omissions in the listing process are also detailed. Upon completion of this lesson, you will be able to: • Identify a salesperson’s obligations in the listing process • Describe leading practices to avoid errors and omissions in the listing process Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 3 of 14

A Salesperson’s Obligations in the Listing Process As a salesperson, you will have legal obligations when listing a property to ensure that the property is represented accurately and that there is no misleading information regarding the property or the services you provide. Your obligations will extend to using your best efforts to prevent error, misrepresentation, fraud, or any unethical practice in the course of a trade. This obligation will require you to take steps to prevent these practices by others in a trade, for example, ensuring a seller does not provide inaccurate information about the property. In the case of a mere posting or limited services agreement, you will also be obligated to fulfill all requirements under the Real Estate and Business Brokers Act (REBBA) to ensure compliance. You will learn more about mere postings later. ©2019 Real Estate Council of Ontario

Lesson 3 | Page 4 of 14

Listing Obligations When listing a property for sale, the services being provided under the agreement should be detailed. A seller could require a brokerage to provide full services or, in some instances, to provide a selected few services. In all situations, as a salesperson, you will have obligations to ensure the information is accurate and that any representations made about the property or your services are not misrepresented. The following three sections contain information on a salesperson’s listing obligations. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Accurate representations and prevention of unethical practices

As a salesperson, you will be required to ensure all statements regarding a trade or services provided are accurate. Under the Code of Ethics, a salesperson cannot knowingly make an inaccurate representation or statement and must prevent others from doing so as well. This means that you cannot purposely present inaccurate information—whether verbally, in an advertisement, or in any other form of making a representation regarding a property. During the course of a trade, if you know of another individual making an inaccurate representation, you must take steps to correct this. Below are a few examples of how you can avoid inaccurate representations: • Do not imply that a chattel, which the seller plans to take with them, is included in the listing. • Do not overstate the square footage of a structure or the size of the property. • Do not misrepresent the age of any structures, renovations, or improvements, such as the age of the roof shingles or furnace.

©2019 Real Estate Council of Ontario

 Do not misrepresent the taxes or omit special tax assessments when advertising the property. In addition, the Code of Ethics states that a salesperson is required to do their best to “prevent error, misrepresentation, fraud, or any unethical practice in respect of a trade in real estate.” This requires you to complete all due diligence—such as verifying the listing information to ensure an accurate representation. For example, if you are asked by your seller about other potential uses for their property under the zoning bylaw, you would describe your current understanding of local zoning restrictions and also confirm this information with the appropriate authority to avoid any possible error or misrepresentation.

Mere posting/limited services obligations

In instances where a seller does not require the full services of a brokerage, a limited services agreement could be established. This is also known as a mere posting and occurs when a brokerage agrees to list a property for sale but provides no further services. In a limited services arrangement, a brokerage agrees to provide some services but allows the seller to take responsibility for many of the services typically offered by the brokerage. For example, a brokerage may agree to list the property for sale, but the seller is required to book appointments with other salespersons to show the property, hold an open house, do any other form of marketing, and negotiate an offer. Regardless of the terms of the mere posting/limited services agreement, as a salesperson, you will have to comply with REBBA. The obligations of the brokerage under a mere posting include:  Confirming information about renovations, specific features, square footage, and taxes that appear on the listing  Providing a description of the services being provided under the agreement and at what cost  Providing a copy of the agreement to the seller immediately upon signing  Providing conscientious and competent service for the activities the brokerage has agreed to perform  Advising on matters after completing the required due diligence, such as an appropriate listing price

©2019 Real Estate Council of Ontario

How the seller would handle the showings would depend on the mere posting agreement and the services provided and agreed upon. The seller may deal with the enquiry directly or refer the enquiry to their salesperson for their attention. There is no special form for a mere posting. Typically OREA Form 200, Listing Agreement Seller Representation Agreement Authority to Offer for Sale, is where a detailed list of services being provided by the brokerage would be listed.

Services under a mere posting/limited services agreement

Documenting the services to be provided to a seller for any listing is important. However, in a mere posting or limited services agreement, the importance of this is heightened due to the nature of the relationship. When a brokerage is retained to provide specific services only, documenting these and the associated cost will prevent misunderstandings during the term of the agreement. A la carte services are a list of services available for a seller to select from and are provided by the brokerage for a fee. Examples of a la carte services that a brokerage may provide include but are not limited to:  Creating feature sheets (flyers that showcase features of the home)  Conducting open houses (public or salesperson tours)  Marketing and advertising (website or print media)  Hiring a professional photographer, home stager, or conducting a virtual tour  Use of a lockbox  Creating “For sale” and open house signage  Providing market updates on a monthly basis to identify recent listings, change in market conditions, average selling price for the area, and so on  Showing the property  Preparing paperwork or negotiating an offer

©2019 Real Estate Council of Ontario

Lesson 3 | Page 5 of 14

A salesperson is meeting with sellers to gather specific information and details about the property before listing it. The sellers have a long list of upgrades they have made to the property in the last year that they would like used in the marketing. Upgrades include new shingles on the roof, new hardwood floors, and a new rear deck. The sellers tell the salesperson that their property is 2,000 square feet. However, the previous listing had the property listed at 1,800 square feet. How should the salesperson work with the information provided by the sellers? There are four options. There is only one correct answer. 1 2 3

4

The salesperson should use the previous listing’s square footage as the information was listed by another salesperson who would have taken the right precaution to accurately measure the property. The salesperson should include all recent upgrades that the sellers have informed her about in the listing without verification as they are the home owners. The salesperson should use the seller’s square footage measurements of the property in the listing as they are the home owners and would likely have an accurate measurement of their home due to their recent renovations. The salesperson should obtain from the seller any available receipts indicating the upgrades and dates they were completed to accurately represent the property and confirm through reputable sources the square footage of the house.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 6 of 14

The sellers have decided they would like a mere posting/limited service agreement with the salesperson’s brokerage. What are the salesperson’s obligations when completing a listing for a mere posting/limited service agreement? There are four options. There is only one correct answer.

1 2 3 4

There are no obligations other than to ensure the property is identified as an active listing for the agreed upon listing period. The obligations under REBBA for a mere posting/limited service are the same as any other listing agreement. The salesperson has a partial obligation under REBBA. It is the seller’s responsibility to check that they have the correct information; the salesperson only needs to input this information accurately. Under a mere posting/limited service agreement, services do not need to be documented given the nature of the relationship.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 7 of 14

Avoiding Errors and Omissions When Listing a Property Next, you will review potential errors and omissions that can occur while documenting and verifying information during the listing process as well as leading practices to ensure property information is accurate and complete when listing a property for sale. The listing process involves gathering details, facts, and figures, all of which can be relied upon by others. The information in any advertisement—including the listing—can be used as the basis for subsequent offer negotiations. Inaccurate information can expose a brokerage and salesperson to risk. The obligations to ensure proper conduct can be complex, particularly as requirements are not only under REBBA but also privacy legislation, consumer protection legislation, and other legislation. It is also important to avoid providing any advice that requires knowledge beyond your area of expertise or experience.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 8 of 14

Potential Errors and Omissions in the Listing Process As a salesperson, there are key activities in the listing process that can increase the potential for risk: • Representation duties, disclosures, and related procedures when representing sellers • Misrepresentation of facts concerning listed properties • Documentation errors in listings and any additional forms • Verbal misunderstandings with sellers Let’s take a look at potential errors and omissions in the listing process. Later, you will learn how to avoid them. The following four sections contain information on potential errors and omissions. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic. Potential errors leading to disputes when obtaining a listing include: Representation • Failure to document the services being provided under the agreement duties, disclosures, • Non-disclosure of material facts impacting the seller’s decision to list the property for and related sale procedures • Failure to provide a copy of the agreement to the seller immediately upon signing • Failure to verify ownership of the property Misrepresentation Potential errors leading to disputes when information has not been verified include: • Size errors in listings (for example, building and lot sizes) of facts concerning • Incorrect or incomplete information regarding wells and septic systems listed properties • Failure to recognize the importance of patent and latent defects when listing property

©2019 Real Estate Council of Ontario

• Inaccurate details relating to overall property condition (for example, the age of various components, water leakage, roof problems, and whether mechanical systems are fully functioning) • Encroachments or easements not identified or improperly described • Structural defects, including leaks/moisture in basement areas • Zoning and land designations (for example, restricted uses applying to the property) Potential errors leading to disputes when completing any documents include: Documentation • Failure to carefully read/analyze source documents errors in listings • Incorrect transfer of information from source materials to the representation and any additional agreement (including the data sheet) forms • Lack of knowledge and/or improper document preparation regarding taxation (for example, property taxes or if HST is included or excluded in the purchase price) Potential errors leading to disputes caused by verbal misunderstandings include: Verbal • Vague or incomplete list of items the seller will include/exclude with the sale misunderstandings • Status of any rental items, such as a furnace, which may need to be assumed by a with sellers buyer or paid prior to the closing by the seller • Explanation of the services being provided under the agreement (for example, whether the services include holding an open house) • Agreements related to showing the property, such as the time of day or the requirement for the listing salesperson to be in attendance for all showings

©2019 Real Estate Council of Ontario

Lesson 3 | Page 9 of 14

Leading Practices for Documenting Listing Information As a salesperson, it is important to follow leading practices for documenting listing information to ensure that the information you place in the listing is accurate and correct. You will not be able to include any information that cannot be verified by source documentation. Information concerning items such as lot size, legal description, mortgage financing, taxes, chattels and fixtures, current zoning, and rentals comes under scrutiny. Inaccurate representations are not only actionable under REBBA but also under common law as either innocent or fraudulent misrepresentation. You should take the prudent path and ensure you have evidence of key information included in representation agreements. Complete further investigation if needed to ensure a data sheet is complete and accurate. Below is a reminder of some leading practices that will help you avoid common errors when documenting the listing information. • Double-check all information and use source documents • Ensure accuracy in measuring the building(s) on a property—whether you take the measurements yourself or use a measurement service company • Do not rely on information from a previous listing

©2019 Real Estate Council of Ontario

• Take notes when viewing the property (for example, the type of furnace, appliances included/excluded, and any rental items) to ensure that every detail is mentioned • Discuss the seller’s obligation to disclose all known latent defects • Note in the data sheet what is included and/or excluded along with any items required to be disclosed, such as rental appliances or service contracts • Verify information provided by the seller relating to the property condition, repairs, and so on • Complete a comparative market analysis (CMA) to assist the seller in arriving at an appropriate listing price • Document any disclosures made by the seller and ensure these are available to other brokerages and buyers While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 10 of 14

A salesperson has just returned from finalizing a listing. An assistant at the salesperson’s brokerage office is going to enter the information into the local listing service and is reviewing the salesperson’s notes. Upon review, there appears to be missing information and confusion over some documents: • There is new flooring and drywall in the basement. The assistant asks when and why the renovations were done, and the salesperson admits that she is not exactly sure. • The room sizes were not obtained. The assistant suggests they refer to a previous listing done by a top salesperson and use those measurements. • The salesperson explains that the sellers were undecided on what appliances they wanted to keep. The assistant suggests including all of the appliances on the listing and address this when an offer is received. • The assistant reviews the file and sees that the seller has made a disclosure regarding an easement on the property. The assistant wants confirmation whether this should be identified on the listing. • The assistant asks if there is a survey available for the property. The salesperson says there might be an older survey that can be included in the listing. Confirmation of it can be addressed if there is an offer. The salesperson expresses that she is late for another appointment. She had promised the sellers the listing would be entered into the listing service right away. How should the salesperson address the given comments before the assistant enters the listing information? There are four options. There are multiple correct answers.

©2019 Real Estate Council of Ontario

1 2 3 4

Confirm which appliances will stay and the status of the survey before specifying them in the listing. Wrong information might cause a problem when negotiating an offer. Complete the room measurements herself. Relying on the information from the previous listing can be problematic for the seller and brokerage if the information is incorrect. Inquire about the basement renovations as this could be the result of a leak. If it has not been fixed, the sellers would be at risk of non-disclosure. Place the easement disclosure in the brokerage file rather than documenting it with the listing. This would be shown on the survey, and this information could hinder the property being shown.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 11 of 14

Leading Practices When Advertising There are leading practices to follow when listing and advertising a property, more of which will be discussed in the following screens. RECO’s Registrar’s Bulletin, titled “Advertising Checklist”—which can be found on RECO’s website— is a good resource for additional information on applying these practices. Leading practices can include the following: • Having your ad approved by a broker of record/manager • Reviewing other salesperson’s advertisements to see what is appealing, but being cautious not to duplicate or infringe on any copyrights that may exist • Using a checklist to ensure advertising is in compliance with REBBA, the Code of Ethics, and other legislation When advertising, you will have to adhere to the following: • Real Estate and Business Brokers Act (REBBA) • Code of Ethics • Competition Act • Personal Information Protection and Electronic Documents Act (PIPEDA) • Consumer protection legislation • Municipal bylaws You will also have to follow your brokerage’s policies. These policies could—and often do—include requirements for marketing materials, from business cards to blog posts. If you need to identify specific property information in an advertisement, you will want to ensure that you have written consent from the respective parties. Having written consent on file protects you, as the salesperson, from potential legal ramifications.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 12 of 14

Leading Practices When Advertising As discussed in the previous screen, you will now learn about additional leading practices in advertising and ways that you, as a salesperson, can promote a listing. The following five sections contain information about different advertising leading practices. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Photographs when listing a property Photographs are proprietary under the law. This means that photographs taken by a local listing provider, such as a Board or Association, may claim these photographs as proprietary. To avoid legal issues, as a salesperson, you will want to take your own photographs of the property to be listed or hire a photographer.

©2019 Real Estate Council of Ontario

Listing photography leading practices

As a salesperson, you will have to ask the seller for permission before photographing the house. You may choose to hire a professional photographer. Not all photographers hired are the same. If you hire a professional photographer, you will want to be in attendance while the pictures are being done to ensure the same practices are adhered to as when taking your own pictures. If you decide to photograph the property yourself, the following leading practices should be kept in mind: • Do not take photographs of people • Ensure there are no family photographs in the frame • De-clutter the rooms being photographed • Stage items (such as fruit, pillows, and furniture) to increase appeal The seller’s personal photographs/videos of the home should not be used in the listing advertisement except in special circumstances or by a specific request from the seller. For example, the sellers might have summer pictures of the property that is being listed in the winter.

©2019 Real Estate Council of Ontario

Print and marketing strategies Advertising is often associated with print media and web pages, but promotion extends to any method that informs and persuades. Many advertising options are available. As a salesperson, you will be able to select options that will help you produce a creative, unique, and effective marketing plan for promoting the property and advancing the client’s best interests. Unique and creative advertising is important as it creates a marketing advantage. A successful brokerage and salesperson will continually seek and refine their distinct market positions.

©2019 Real Estate Council of Ontario

Brokerage policies on advertising

As a salesperson, you will have to follow your brokerage’s advertising policies. Some policies may include: • The brokerage reviewing and approving all advertising designed by the salesperson • The brokerage monitoring all advertising activities of the salesperson • The brokerage ensuring that the salesperson adheres to the advertising policies of the local listing service, the use of signs, and bylaws that may exist While advertising policies vary across brokerages, all brokerage advertising policies must comply with REBBA. You will only be able to publish what a seller permits, as set out in the Code of Ethics relating to best interests. For example, you will not be able to include statements such as, “Desperate! Any offer accepted!” unless instructed in writing by the seller.

©2019 Real Estate Council of Ontario

Privacy and permissions from the seller Once a sale has occurred, there might be some private information that you, as a salesperson, would have obtained from the seller at the time the property was listed for sale and/or during the marketing process. This information can be their legal names, address, the seller’s new address, and information required by FINTRAC that was obtained when a property was listed. You will learn more about FINTRAC later. According to the Code of Ethics, as a salesperson, you must not identify specific information unless appropriate consent is obtained. For example, a party cannot be identified in an advertisement without written consent. Also, you will not be able to include anything in any form of advertising that could reasonably be used to determine any contents of an agreement of purchase and sale without written permission from the parties involved in the transaction. To stay in compliance with the Code of Ethics, you must not identify any real estate in any advertising without the informed written consent of the owner of that property. The provisions of a listing agreement signed by the seller are typically drafted to give authority to

©2019 Real Estate Council of Ontario

the listing salesperson to advertise the property and may include permission for that property to be advertised on listing services and/or other media outlets. It is important to note that permission for advertising a property must not go on indefinitely. You will need permission to advertise if a property has been sold from seller, the buyer, or both. This will depend on the contents of the advertisement and the date on which the advertisement is run. You will learn more about after sale advertising later in this module. As you learned earlier, you will need to be aware of other privacy issues relating to advertising when you become a salesperson, such as ensuring not to violate: • Canada’s Anti-Spam Law (CASL) • Privacy legislation (PIPEDA) • Canada’s Competition Act • Canada’s National Do Not Call List (DNCL)

©2019 Real Estate Council of Ontario

Lesson 3 | Page 13 of 14

A salesperson will be listing a seller’s property on the local listing service. What should the salesperson do to ensure the listing is both effective and complies with all policies and regulations? There are four options. There are multiple correct answers. 1

Use the previous listing photographs on the local listing service taken last summer because they look better than the ones the salesperson can take now during the winter.

2

The seller's personal photographs of the home could be used in special circumstances.

3 4

Indicate “must sell, all offers will be considered” in the listing as the salesperson knows the sellers are eager to sell. Because the sellers have signed a representation agreement with the brokerage, written permission is not required. Review the brokerage’s policies to ensure compliance with their requirements.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 14 of 14

Congratulations, you have completed the lesson! There are six sections on this page with a summary of the key topics that were discussed in this lesson.

Accurate representations and prevention of unethical practices

Mere posting/limited service obligations

Services under a mere posting/limited service agreement

As a salesperson, you are required to ensure that all statements regarding a trade or the services provided are accurate. Under the Code of Ethics, you cannot knowingly present inaccurate information—whether verbally, in an advertisement, or in any other form of making a representation regarding a property. In addition, the Code of Ethics states that, as a salesperson, you are required to do your best to “prevent error, misrepresentation, fraud, or any unethical practice in respect of a trade in real estate.” A limited service or a mere posting occurs when a seller does not require the full services of a brokerage. The brokerage agrees to provide some services but allows the seller to take responsibility for many of the services typically offered by the brokerage. The obligations of the brokerage under a mere posting include: • Confirming information that appears on the listing • Providing a description of the services being provided under the agreement and at what cost • Providing a copy of the agreement to the seller immediately upon signing • Providing conscientious and competent service for the activities the brokerage has agreed to perform • Advising on matters after completing the required due diligence Documenting the services to be provided in a mere posting or limited service agreement is of high importance due to the nature of the relationship. A la carte services are a list of services available for a seller to select from, which are provided by the brokerage for a fee. Examples of a la carte services include: ©2019 Real Estate Council of Ontario

Potential errors and omissions in the listing process

Leading practices for documenting listing information

Leading practices when listing and/or advertising a property

• Creating feature sheets • Conducting open houses • Marketing and advertising • Hiring a professional photographer, home stager, or conducting a virtual tour • Use of a lockbox • Creating “For sale” and open house signage • Providing market updates • Showing the property • Preparing paperwork or negotiating an offer Key activities in the listing process that have a potential for risk are: • Representation duties, disclosures, and related procedures when representing sellers • Misrepresentation of facts concerning listed properties • Documentation errors in listings and any additional forms • Verbal misunderstandings with sellers Below are some leading practices to help you, as a salesperson, avoid making common errors when documenting information for the listing: • Do not include any information that cannot be verified by source documentation • Complete further investigation if needed to ensure a data sheet is complete and accurate • Double-check all information and use source documents • Ensure accuracy in measuring the building(s) on a property • Do not rely on information from a previous listing • Take notes when viewing the property • Discuss the seller’s obligation to disclose all known latent defects • Note in the data sheet what is included and or excluded along with any items required to be disclosed • Verify information provided by the seller relating to the property condition Below are some leading practices to help you, as a salesperson, avoid making common errors when listing and/or advertising a property:

©2019 Real Estate Council of Ontario

• Advertising Leading Practices—Listing a Property: Photographs are proprietary under the law. You need to take your own photographs or hire a photographer to take photographs of the property for your listing. • Listing Photography Leading Practices: You will have to ask permission before taking photographs. The seller usually gives the brokerage authority to take photographs used for the listing. A form of written authority may be contained within a seller representation agreement. • Print Marketing Strategies: Advertising is often associated with print media and web pages, but promotion extends to any method that informs and persuades. • Brokerage Policies on Advertising: You will have to comply with your brokerage’s advertising policies. • Privacy and Permissions from the Seller: The Code of Ethics requires consent before specific information regarding a property or transaction is used in an advertisement.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 1 of 17

Lesson 4: Complying with Advertising Requirements under REBBA

This lesson defines advertising activities under REBBA, advertising requirements and guidelines under REBBA, and advertising using social media and the internet. As a salesperson, you must comply with REBBA’s requirements for advertising.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 2 of 17

This lesson explains requirements that you, as a salesperson, will have when advertising. This includes your obligation to ensure compliance when using the internet and social media. Advertising will be a large part of your activity, whether promoting a property or services provided. Compliance can be inadvertently overlooked, so a complete understanding of the obligations under the Real Estate and Business Brokers Act (REBBA) will help ensure advertising meets all of the requirements. Upon completion of this lesson, you will be able to: • Identify activities considered advertising under REBBA • Identify advertising requirements under REBBA • Identify requirements for advertising using social media and the internet Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 3 of 17

Advertising Under REBBA REBBA does not define various advertising terms, however, there are certain definitions for the purposes of advertising guidelines: • “Advertising” means any notice, announcement, or representation directed at the public that is authorized, made by or on behalf of a salesperson, and is intended to promote a salesperson or the business, services, or real estate trades of a salesperson in any medium including—but not limited to—print, radio, television, electronic media, publication on the internet (including websites and social media sites), business cards, letterhead, or fax cover sheets that contain promotional statements. • “Broadcast and electronic” means any advertisement in any electronic medium, including the internet, radio, and television.

©2019 Real Estate Council of Ontario

• “Disclaimer” means a disclosure that must be included in an advertisement to explain, modify, or qualify a claim or promise made in that advertisement to provide accurate and complete information and avoid ambiguity, confusion, deception, or misrepresentation that might be caused by the omission of the disclaimer. It is necessary to understand these advertising definitions to ensure compliance with the requirements and prohibitions relating to any advertising that will be done by you as a salesperson. Remember, all aspects of trading in real estate (including advertising) are done on behalf of the brokerage. A brokerage may have specific criteria for business cards, signage, flyers, websites, and so on, which will help you when designing any advertising. To ensure your advertising complies with REBBA, seek guidance from the brokerage.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 4 of 17

Advertising Obligations Advertising is a key regulatory consideration as it impacts many listings and selling activities. As a salesperson, your advertising will be regulated under REBBA as well as other legislations. Understanding all of the requirements to prepare compliant advertising can be complex. As such, the Real Estate Council of Ontario (RECO) provides advertising guidelines to assist in complying with REBBA. Considerations when creating advertising will be detailed under the following headings: 1. REBBA requirements for advertising (a description of the minimum requirements) 2. False advertising and its consequences (a description of advertising that would be considered false) 3. Advertising a sold property (requirements when a property has been sold) Details on these obligations are explored in the following screens.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 5 of 17

Advertising in Compliance with REBBA The following screens will discuss advertising requirements under REBBA for any business-related promotions. There are four minimum requirements in any advertisement, whether the advertisement is done by you as the salesperson or by the brokerage. With this information, you will be better equipped to properly and effectively promote your listings, yourself, and your brokerage while maintaining legal compliance. The following five sections contain information on REBBA’s requirements.

Minimum requirements

Identification of the registrant

The Code sets out four minimum requirements that must appear in all advertising: • Identification of the registrant • Identification of the individual • Identification of the brokerage • Description of the registrant The following pages contain details on each of these four minimums. All advertising by a registrant—including a brokerage, broker or salesperson—must clearly and prominently include the name of the registrant placing the advertisement. For example, as a salesperson, if you are advertising a listed property for sale, you will need to ensure that your name is clearly written in the advertisement. Your identification information must be sufficiently sized and placed within the advertisement so it can reasonably be noticed and understood by the intended audience. If there is a complaint about the name of a salesperson in an advertisement, the Registrar will consider the following to determine if an advertisement violates the Code of Ethics:

©2019 Real Estate Council of Ontario

Identification of the individual

Identification of the brokerage

Description of the registrant

• For visual advertising, the size and legibility of the printed name, and the location of the name relative to the other elements of the advertisement • For orally-based advertising (for example, radio), the frequency with which the name is used, the point in the advertisement when the name is used, and the speed with which the name is mentioned If an individual broker or salesperson is identified in the advertisement, the name must be the same name that is registered with RECO. An individual may also register a trade name with RECO. A trade name is an alias that an individual elects to use instead of their given name. For example, Elizabeth Jacobs may prefer to be called Betty Jacobs. Individuals may elect to trade using an anglicised version of their legal given name followed by their legal surname. As a salesperson, if you are working together with another salesperson, and you have a common last name and designation, you may be identified jointly, (for example, Tom & Rita McIntyre, Salespersons). Every advertisement by a broker or a salesperson must clearly and prominently identify the brokerage that employs the broker or the salesperson. The brokerage’s name used in the advertisement must be the name that is registered with RECO. Where an advertisement identifies a registrant, the specific description of the registrant, or category of registration must be noted. Allowable descriptions or categories include the following (or the French equivalents): • • • • • • • • •

Real estate agent REALTOR® (limited to CREA members in good standing) Salesperson Real estate salesperson Sales representative Real estate sales representative REALTOR® salesperson (limited to CREA members in good standing) Broker Real estate broker

©2019 Real Estate Council of Ontario

• • • • • •

Broker real estate agent REALTOR® broker (limited to CREA members in good standing) Broker of record Real estate broker of record Brokerage Real estate brokerage

There may be instances where an advertisement contains several salespersons or brokers employed at the brokerage. To reduce the visual clutter associated with repetition of “salesperson” and “broker”, a clear and visible symbol, such as an asterisk, to denote a description throughout the page is allowed. For example, the following could be placed in a visible area of the advertisement: * Salesperson ** Broker The salesperson or broker’s name would then appear as: Rita McIntyre * Betty Jacobs ** When working with a group or “team”, all members must be identified by name and description (such as salesperson). Other terms such as “Group” or “Crew” (such as “The John Johnston Crew”) are permitted to be used rather than the term team if it does not imply they are a separate business entity from the brokerage. For example, “The John Johnston Company” would not be acceptable.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 6 of 17

Ensuring Advertising is not False or Misleading To promote public confidence and uphold the integrity in real estate transactions, REBBA contains requirements related to making statements in an advertisement that could be false, misleading, or deceptive. The following five sections contain information on ways to ensure compliance with REBBA when advertising.

False advertising The Code of Ethics prohibits you, as a salesperson, from knowingly making an inaccurate representation in respect of the services that you will provide and in respect of a trade in real estate. This would include inaccurate representations made in an advertisement. A false statement is one that is factually incorrect. For example, if you state in an advertisement “Selling real estate for 20 years”, this would be factually incorrect if you were registered as a salesperson for 10 years and worked at a brokerage and as an unregistered assistant for the other 10 years. An inaccurate representation is one that, although it may be true, it is not precise or complete enough for someone to understand its truth. Inaccurate representations can be avoided by following a number of good practices.

©2019 Real Estate Council of Ontario

The following links explain four ways to reduce the risk of making an inaccurate representation and the consequences of false advertising.

Comparative claims and awards An advertisement that makes a comparative claim, or one that refers to the volume of business or trading activity of you, as a salesperson, or indicates an award or honour, will require information disclosing the basis for the claim. Examples of claims that would require additional information include: • “#1 brokerage in town” • “I sell more homes for more money than anyone else.” • “Chairman Club Winner” Advertisements such as these should include the source of information and the period of time it applies to, including any other conditions related to the claim. If the basis of the claim concerns more than one salesperson (for example, a team), then the claim must clearly disclose this information. A claim based on a team must include the size of the team or the identities of the team members.

©2019 Real Estate Council of Ontario

Promises and offers

All claims that refer to remuneration rates or savings should also be accompanied by a disclosure of any conditions or circumstances in which the remuneration rate would not be charged. Examples of claims that would require additional information include: • “$1,000 cash back” • “Remuneration as low as 1%” • “If your home is not sold in 30 days, I’ll buy it.” If the offer in your advertisement is not a brokerage offer, the terms of the offer must clearly indicate the offer does not oblige the entire brokerage to honour it. Additionally, the terms of your offer(s) can be identified in the advertisement as being available by contacting the brokerage for additional details, or if applicable, with a link to another location within a site or document. Any individual inquiring about the offer(s) shall be able to do so without an obligation to provide confidential or personal information.

©2019 Real Estate Council of Ontario

Disclaimers Advertising that requires additional information to avoid ambiguity, confusion, deception, or misrepresentation will include a disclosure relating to the claim or promise. The disclosure is known as a disclaimer/qualifier. RECO requires these to be easy to read and clearly connected to the content they reference. For example, a disclaimer that would meet RECO’s requirements would be: “#1 in the Cold Bay region* (*for vacant land sales in the City of Cold Bay, 20172018).” This disclaimer includes the relevant time period and the source of the information (the geographical area and the type of properties referenced).

©2019 Real Estate Council of Ontario

Consequences of non-compliant advertising When an instance of non-compliant advertising is first discovered, RECO will contact the registrant in writing to identify the non-compliance and request prompt action to bring the advertisement into compliance. As you have learned earlier, failure to respond to the requirements may result in more formal action being taken under REBBA. This could include a requirement to submit all proposed advertisements to RECO for review first or sanctions by the Discipline Committee. As a reminder, you can access RECO’s advertising checklist to ensure your advertisement is compliant.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 7 of 17

Advertising a Property Any form of advertising for a property listed for sale or for a property once it has been sold must comply with the requirements under the Code. When a property has been listed for sale by a brokerage, permission to advertise the property for sale is typically within a seller representation agreement. As a salesperson, you may elect to promote the property as sold in various methods, including placing a “sold” sign on the property. But other forms of advertising the property as sold could take place between the time the transaction has been entered into and its completion—as well as advertising the property as sold once the buyer has taken ownership.

©2019 Real Estate Council of Ontario

Any form of advertising a property as sold (such as distributing “sold” cards to neighbouring properties or a photo of the home with a “sold” banner on a website) requires consent. Depending on when the advertising takes place and the content of the advertisement, consent must be obtained from the seller, the buyer, or both parties. When advertising a property, you will have specific guidelines for the advertisement. The advertisement must not include any image or text that could reasonably be used to: • Identify any party to the transaction, unless they have consented in writing • Identify the specific property, unless the owner of the property has consented in writing Within the terms of a representation agreement or a customer service agreement, you will want to include wording that provides consent to allow the individual and/or the property to be identified within an advertisement. If consent is required from a party to the transaction who was not represented by the brokerage, the request for consent must be communicated through the other brokerage. When advertising a property as sold, understanding the various factors that impact whose consent is required is important to ensure compliance. If advertising the property as sold, written consent from the owner of the property is required. This means: • If the advertisement is before the transaction closes, consent from the seller. • If the advertisement is after the transaction closes, consent from the buyer. If any terms of the agreement are included in the advertisement, all parties to the agreement must consent in writing regardless of when the advertisement is being placed. Terms of the agreement can include: • Sale price expressed as a dollar amount or as a percentage of the listing price (for example, “Sold for 95% of the asking price” or “Sold for more than asking”). • Number of days the listing was on the market prior to the sale (for example, “Sold in 30 days”). In practice, it is advisable to obtain written consent from both the sellers and buyers as to the content of any advertising. For more information on what you need to know before advertising a sold property, please refer to RECO’s Registrar’s Bulletin, titled “Advertising Sold Properties”, found on RECO’s website.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 8 of 17

A salesperson is newly registered and wants to create a business card. He is registered with RECO as Jason Sewell, but his friends and family all call him “Bubba”. What can the salesperson put on his business card? There are four options. There are multiple correct answers. 1 2 3 4

The name “Bubba” provided that it is clearly and prominently shown The name “Jason Sewell” shown clearly and prominently The name of the brokerage who he is employed with shown clearly and prominently The description “sales consultant: residential” shown clearly and prominently

©2019 Real Estate Council of Ontario

Lesson 4 | Page 9 of 17

A salesperson has created a new real estate advertisement: “Remuneration as low as 1%! A member of the Chairman’s Division! #1 salesperson in Anycity! Call me now! Jason Sewell Sales Representative XYZ Realty Ltd., Brokerage 555-567-8999” His Broker of Record told him that he needs to add some disclaimers so that his ad is compliant with REBBA. Which of the following disclosures should the salesperson add so that his advertising is compliant with REBBA? There are four options. There are multiple correct answers. 1 2 3 4

When XYZ Realty Ltd. brokerage represents both the seller and buyer. In other situations, a higher rate may be negotiated Based on the number of properties listed by XYZ Real Estate Inc. on the Anycity local listing service for the past two years Chairman’s Division, XYZ Real Estate Ltd. 2018 Only call after 5 p.m.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 10 of 17

A salesperson has successfully listed and sold 123 Main Street. He would like to send out a “just sold” flyer to the neighbourhood to advertise the sale and his excellent sale prowess. What must the salesperson consider when crafting his “just sold” card to ensure compliance with the Code of Ethics? There are two options. There is only one correct answer.

1 2

The card will be distributed prior to close and will simply state the address and “sold”. The salesperson must get written permission from the seller. The card will be distributed prior to close and will simply state the address and “sold”. The salesperson must get written permission from the seller and buyer.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 11 of 17

A salesperson has successfully listed and sold 123 Main Street. He would like to send out a “just sold” flyer to the neighbourhood to advertise the sale and his excellent sale prowess. What must the salesperson consider when crafting his “just sold” card to ensure compliance with the Code of Ethics? There are two options. There is only one correct answer.

1 2

The salesperson decides he would like to advertise that the property sold for 105 percent of the list price. The salesperson must then get written permission from the buyer. The salesperson decides he would like to advertise that the property sold for 105 percent of the list price. The salesperson must then get written permission from the seller and buyer.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 12 of 17

A salesperson has successfully listed and sold 123 Main Street. He would like to send out a “just sold” flyer to the neighbourhood to advertise the sale and his excellent sale prowess. What must the salesperson consider when crafting his “just sold” card to ensure compliance with the Code of Ethics? There are two options. There is only one correct answer. 1 2

The flyer is not distributed until after closing and only states “just sold” and the property address. In this case, he must get written permission from the buyer. The flyer is not distributed until after closing and only states “just sold” and the property address. In this case, he must get written permission from the seller.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 13 of 17

You will now review requirements for advertising using social media and the internet. This includes the definition of social media and common platforms that you will use as a salesperson. You will also review challenges that come with advertising online and special considerations to keep in mind when advertising using social media.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 14 of 17

Guidelines Relating to Social Media and Internet Advertising A few of the most popular social media platforms that you, as a salesperson, will likely use include Facebook, Instagram, Twitter, YouTube, and LinkedIn. A brokerage or your own advertising strategies may also include a website. No matter which form of advertising is used, compliance with the requirements under REBBA apply. The following five sections contain information on social media and internet advertising.

Requirements for advertising using social media and the internet Buyers often do their own online research about many aspects of real estate. As such, it will be beneficial if you, as a salesperson, have a strong social media and internet presence. Social media consists of interactive platforms that enable users to digitally create and share information, ideas, personal messages, and other content. When planning an internet presence, brokerages and salespersons focus on providing a well-designed and interactive website. Properties and brokerage services are marketed 24/7, and websites can include various online tools to assist sellers and buyers. From a business perspective, social media and the internet are great tools for reaching large numbers of consumers rapidly.

©2019 Real Estate Council of Ontario

RECO's advertising guidelines for social media As a salesperson, every advertisement you create, including social media, must comply with REBBA. The four minimum requirements for any advertisement include: • Your name as registered with RECO • Description of your role (for example, salesperson) • Name of the brokerage • The words “brokerage” or “real estate brokerage” If you decide to use social media, you will have to be diligent to ensure compliance with REBBA and RECO’s advertising guidelines for each platform they use to advertise as each platform has different regulations. You are encouraged to use RECO’s guide to social media, found on the RECO website. This guide helps real estate professionals comply with requirements, restrictions, and prohibitions contained in REBBA when using social media for advertising. It is to be used in conjunction with the Advertising Guide.

©2019 Real Estate Council of Ontario

Challenges of advertising using social media Advertising using social media is not as straightforward as printed advertisements because each platform presents information differently. For example, a post on Twitter is restricted to 280 characters whereas a blog post online can be as detailed and elaborate as possible. As a salesperson, you could face additional challenges with social media. Since social media advertising is presented on an interactive medium like Facebook or LinkedIn, the general public can, in some cases, directly comment on posts. Any negative feedback on posts can impact buyer interest, saleability of the property, and your professional reputation as a salesperson.

©2019 Real Estate Council of Ontario

Special considerations when advertising on social media Different social media platforms have different profile types. For example, when using Facebook to advertise, all content must comply with REBBA. Since the basic Facebook profile fields do not comply with REBBA, a customized cover page that satisfies the REBBA requirements must be created. Twitter is one of the simpler social media platforms for creating a compliant profile because the salesperson’s username does not have to meet the guidelines. However, their profile needs to. When tweets refer to any subject in real estate, they must comply with REBBA. Personal or other general topics are not required to comply with REBBA. LinkedIn is a professional social media site. To ensure compliance as a salesperson, you will have to ensure that your name is displayed as registered with RECO and that your professional headline states your registration description, your brokerage’s name, and brokerage’s description. Although social media platforms are different, any social media platform you use to create a profile must comply with RECO’s advertising guidelines.

©2019 Real Estate Council of Ontario

RECO’s advertising guidelines for internet advertising When advertising on the internet, you will have to comply with RECO’s advertising guidelines. For a website, the guidelines include: • Showing your brokerage name and its description, and your own name and description as registered with RECO prominently displayed on every page of the website. • Achieving compliance requirements by placing these four minimum requirements at the top of each page of your website. • Displaying a method to contact you directly, whether it is a telephone number, mailing address, or email address. • Ensuring all disclaimers and qualifiers are clearly shown on your website. • Obtaining consent from the respective parties to advertise a sold property.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 15 of 17

A salesperson is active on social media and has a large following. The salesperson is considering using his social media popularity to advertise his seller’s property. Before advertising his listing on social media, what are some social media and internet requirements that the salesperson should be aware of? There are four options. There are multiple correct answers. 1 2 3 4

To use the same profile type for each social media platform To ensure that his profile is open to the public To use a creative name to match his unique social media handle To use the words “brokerage” or “real estate brokerage”

©2019 Real Estate Council of Ontario

Lesson 4 | Page 16 of 17

A salesperson, Jason Sewell, has recently updated his Facebook business page in hopes that more buyers would see his posts about his seller’s property he has listed for sale. The page has a banner “Call Salesperson Jay Today!” at the top, followed by the name of his brokerage ABC Real Estate Inc., Brokerage and his contact number 555-123-9999 at the bottom of the page. What is the compliance concern with Jason's Facebook cover page? There are four options. There is only one correct answer. 1 2 3 4

The name of his employing brokerage His name is inconsistent The word “brokerage” Description of his role

©2019 Real Estate Council of Ontario

Lesson 4 | Page 17 of 17

Congratulations, you have completed the lesson! There are six sections on this page with a summary of the key topics that were discussed in this lesson.

Activities considered advertising under REBBA Ensure advertising is not false or misleading

Activities that are considered advertising under REBBA include promotion of self, business services, or real estate trades regarding yourself as a salesperson in any medium including but not limited to print, radio, television, electronic media, or publication on the internet. Business cards, letterhead, or fax cover sheets that contain promotional statements may be considered “advertising”. False Advertising The Code of Ethics prohibits you, as a salesperson, from knowingly making an inaccurate representation in respect of the services you provide and in respect of a trade in real estate. A false statement is one that is factually incorrect. Comparative Claims and Awards An advertisement that makes a comparative claim, or one that refers to the number of trading activities of a salesperson, or one that indicates an award or honour, will require information to disclose the basis of the claim. Promises and Offers All claims relating to remuneration rates or savings should be accompanied by a disclosure of the conditions or circumstances where the remuneration rate would not be charged. Disclaimers Advertising with a claim or promise must include a disclosure statement. RECO requires disclaimers to be easy to read and clearly connected to the content referenced.

©2019 Real Estate Council of Ontario

REBBA requirements for marketing and advertising

Consequences of noncompliant advertising

Advertising a property

Identification of Registrant As a salesperson, your advertising must include the name in which you are registered with RECO. Identification of Individuals Brokers or salespersons identified by name must use the same name as registered with RECO. Identification of Brokerage Brokers and salespersons must identify their employing brokerage and use the same name as registered with RECO. Description of Registrant Where an advertisement identifies a registrant, the specific category of registration must be noted. Allowable terms are: salesperson, real estate salesperson, sales representative, real estate sales representative, real estate agent, REALTOR® (limited to CREA members in good standing), REALTOR® salesperson (limited to CREA members in good standing), broker, real estate broker, broker real estate agent, REALTOR® broker (limited to CREA members in good standing), broker of record, real estate broker of record, brokerage, or real estate brokerage). Advertising Specific rules and regulations exist to govern advertisements. To ensure compliance with REBBA and RECO’s advertising guidelines, brokers and salespersons should review an advertising checklist of requirements and prohibitions. RECO will contact a registrant in writing if any non-compliance is discovered and request prompt action to bring the advertisement into compliance. Failure to respond to the requirement may result in more formal action being taken under REBBA. Any form of advertising for a property listed for sale or for a property that has been sold must comply with the requirements under the Code. Permission to advertise a property for sale is typically in the seller representation agreement. As a salesperson, you may also want to promote a property as sold. Any form of advertising that identifies a property as sold requires written consent. Depending on

©2019 Real Estate Council of Ontario

when the advertisement takes place and the contents of the advertisement, consent must be obtained from the seller, buyer, or both.

Social media and advertising online

When advertising a property, you will have to follow specific guidelines. Every online advertisement must comply with all requirements for name identification and display. REBBA compliance must be closely followed as social media and online advertising can be more complicated than print. The five most common social media platforms that a salesperson will use are: Facebook, Instagram, Twitter, YouTube, and LinkedIn. Website advertising must also comply with RECO’s advertising guidelines. Including consistent frames or headers on all website sections that include the four minimum requirements will help satisfy compliance requirements.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 1 of 14

Lesson 5: Open House Consideration and Marketing Materials

This lesson details how you, as a salesperson, will be able to collaborate with the seller to prepare them for an open house. You will also learn about marketing materials and procedures that will help in this preparation.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 2 of 14

In this lesson, you will learn about the considerations related to holding an open house for the seller’s property and the marketing materials you, as a salesperson, will be able to use. Open houses are a great opportunity for you to create an effective first impression and demonstrate to the seller that you are doing your best to market and sell their home. This is also a great opportunity for you to meet potential sellers or buyers who may be interested in purchasing a home or listing theirs for sale. Upon completion of this lesson, you will be able to: • Identify considerations for a seller when holding an open house • Describe signage and marketing materials used with an open house Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 3 of 14

Open Houses This screen will explore the details and activities that you, as a salesperson, will need to know when holding an open house. You will learn the benefits of holding an open house as well as additional considerations related to this type of market. Depending on the property type, there will be additional considerations when contemplating an open house. The following four sections contain information on key considerations when holding an open house. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

What is an open house? An open house is an event to showcase a property at a specific time when potential buyers can view the property without an appointment. With the permission of the seller, the salesperson hosts the open house to show attendees the property. Open houses are normally held for a few hours on the weekends and are a good opportunity for potential buyers to view the property.

©2019 Real Estate Council of Ontario

Open house benefits Hosting an open house holds many benefits for a potential buyer, the seller, and you, as a salesperson. These include the following: For a potential buyer: • It is an informal and comfortable atmosphere to view a property. • It allows a preview of the property to ensure it meets their criteria before booking an individual appointment. • It offers an opportunity for those who have seen the property via a booked appointment with their salesperson to come back on their own time and see it again. • It allows a buyer to gain knowledge and perspective on properties listed for sale to assist them when making decisions regarding a purchase. For a seller: • It can sometimes result in an unexpected desire from an attendee to purchase the property. • It allows the seller to have ample people view the property at one time rather than the interruptions of individual appointments. • An open house allows a seller to fully prepare their home in advance to have it in the best condition possible.

©2019 Real Estate Council of Ontario

• Increased exposure for the property can result in more interested buyers. Following an active open house, there could be multiple offers on the property, which gives the seller more options to consider. • The additional advertising for an open house may prompt an interested buyer into making a decision to purchase before the property is bought by someone else. For a salesperson: • When held in coordination with other salespersons’ open houses in the neighbourhood, it can become a major event draw with potential buyers. • It is a great way to demonstrate to the seller that you are working hard for them. • Visitors to the open house might be searching for a salesperson to work with. • It can be an additional form of advertising. “Open House” signs set up on many street corners can help promote you as a salesperson. Advertising within open house hours: • You will have to ensure that the open house signs are removed after the specified hours are over. • You will have to check the local municipal bylaws to ensure the open house signs comply with the bylaws and are placed and removed accordingly. • You will have to ensure your sign is not placed on city property.

©2019 Real Estate Council of Ontario

Open house considerations

Despite the many benefits of open houses, there are some considerations that you, as a salesperson, will want to be aware of, which include the following: • Some visitors may only be curious and not interested in buying a property. • There is no guarantee that anyone will attend the open house—and sometimes—no one does. • There is potential for crime. For example, one visitor distracts the salesperson while the other searches the bedroom for jewellery, money, and other valuables, or the medicine cabinet for prescription drugs. (This is rare, but it is something that you should be aware of). • Careless visitors may accidentally cause damage; for example, breaking a vase or leaving dirty shoe marks on the carpet. • Visitors may object to your security measures, such as identifying themselves or signing a guest register. This may create a negative impression of you, as the salesperson. As a precaution, you should always ask open house guests for identification, but potential buyers are not required to give their contact information unless they want to be contacted with real estate information by a salesperson. The Code of Ethics requires a salesperson to first determine if the potential buyers are already being represented by another brokerage. If they are

©2019 Real Estate Council of Ontario

represented by the other brokerage, then you must respect that relationship. If the potential buyer requires any additional information about the property, you are required to provide that information to their salesperson and not directly to the buyer.

Open houses for different property types Open houses for townhouse condominiums are similar to a detached home, except permission may be required for temporary open house signs. High-rise condominiums are more difficult as some do not allow open houses. If they do, the following may apply: • Permission by the condominium board of directors or management company to hold an open house. • Multiple salespersons present with the listing person for an open house. • A salesperson who greets visitors at the front door, verifies their identity, and then lets them enter the building, and—if possible—escorts them to the unit, with another salesperson showing the unit. • Permission for signage for the open house. As a salesperson, you must evaluate based on the property whether an open house would be

©2019 Real Estate Council of Ontario

appropriate or not. Not all sellers will want an open house. For example, a listing that is a high-end property may not be suitable for an open house because of the following: • Security issues, such as ensuring all valuables are safely stored, may not always be possible. • Privacy concerns could be an issue if the seller understands many of the visitors to an open house are not interested in purchasing but are instead curious about the seller and their property. Buyers who are genuinely interested in purchasing such a property would likely prefer to make a private appointment with a salesperson.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 4 of 14

Collaborating with Sellers A marketing plan should be tailored to suit the property type and the requirements of a seller. To ensure your marketing strategy is appropriate right from the time of the listing, an open and candid discussion with the seller should be held. This will give the seller a better understanding of what is involved in the listing and selling process, including showing the property and obtaining an offer. This is also an opportunity to discuss how the seller can assist. An engaged seller who provides detailed and accurate information will help you, as a salesperson, target marketing efforts more effectively. In terms of an open house, the seller can assist in the following ways: • Allowing an open house. ©2019 Real Estate Council of Ontario

You will want to discuss this option candidly, including your responsibilities and the responsibilities of the seller, security measures, the typical procedures, and the risks involved when inviting members of the public to an open house. • Addressing security concerns. Removing valuable articles from the home or ensuring they are adequately secured will reduce the potential for any loss. Other personal or security concerns can also be safeguarded by removing paperwork or personal information from any office, desk, or drawer, and by ensuring any information that indicates when the home might not be occupied, such as a calendar with family schedules, is not visible. • Preparing the house. Any necessary repairs, cleaning, or decorating should be discussed and agreed to by the seller. Removing excessive furniture, such as ottomans and tables, will create better space both visually and physically as the home should present no safety concerns, such as tripping hazards or ice and snow on the walkways. • Leaving during the open house. In most instances, the seller should be asked to vacate the property during the open house. This is done for several reasons, including: o Allows you to discuss the property openly with potential buyers o Allows a buyer to view the property more freely and picture themselves as the property owner o Eliminates the potential for a seller to say something that could impact their negotiating position o Ensures a seller does not overhear any negative comments or remarks about the property, which could impact their willingness to negotiate if an offer were received from the buyer You should discuss how to minimize open house risks. For example, ensuring all visitors sign the guest registry and provide photo identification before entering the home, limiting the number of people in the house at any time so that reasonable supervision can be carried out, having more than one salesperson present, and so on. It is important for you to ensure security measures are taken as there can be significant legal consequences for yourself and your brokerage. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 5 of 14

Preparing a Property for an Open House In addition to preparing the seller for an open house, as a salesperson, you will also want to ensure that the property is prepared. This is an opportunity to present it in its best condition in order to obtain a sale in a timely manner while also meeting the seller’s needs. The following general tips will help you conduct an effective open house that can result in achieving the goals of the seller. The following three sections contain information on preparing the property for an open house. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Tips for preparing the property Below are some general open house tips that you should discuss with a seller: • Attend to any potential hazards, such as extension cords in traffic areas, sharp table or countertop corners, slippery stairs and walkways, and fragile items that can be easily damaged • Clean and organize the home by decluttering and removing large pieces of furniture to make viewing easier and rooms appear spacious • Remove any potentially dangerous items, such as a knife block • Lock away or remove valuables, such as jewellery, cameras, currency, and personal information or identification • Depersonalize the home by removing family photos, awards, or diplomas • Avoid cooking food with strong odours; however, the smell of fresh baked bread or cookies can be appealing • Provide a place for boots, umbrellas, and coats • Place a sign near the entrance reminding visitors to remove footwear • Set up a place for a guest register near the front door and place a sign informing them they are required to provide photo ID • Turn on lights in all rooms to improve visibility • Remove pets from the home, if possible; if not possible, make sure they are secured and do not become a distraction or annoyance ©2019 Real Estate Council of Ontario

Open house preparation checklist: exterior

• Ensure all gates open easily • Clean all exterior surfaces, including decks, pools, walkways, and driveways • Ensure the exterior is well manicured; lawns should be mowed, leaves removed, trees pruned, gardens weeded, and hedges trimmed • Ensure winter maintenance is completed, such as removing snow and ice from the driveway and walkways

Open house preparation checklist: interior • Vacuum, dust, and clean all surfaces, mirrors, and floors • Repair any damaged areas, such as holes and cracks • Repair any non-functioning items, such as doors that do not open or shut properly • Ensure all door handles are secure and working properly • Organize kitchen countertops • Neatly store books, toys, and clothes in closets and on shelves • Open drapes and blinds on windows • Ensure pet areas are clean, organized, and odour-free

©2019 Real Estate Council of Ontario

Lesson 5 | Page 6 of 14

A salesperson is meeting with sellers to ensure they are prepared for an upcoming open house. During this meeting, the salesperson reminds them of the general open house expectations and procedures they discussed when the listing was taken. What are some key points that the salesperson should remind the sellers about to ensure that they are prepared for the open house? There are four options. There are multiple correct answers. 1 2 3 4

Ask them to be present during the open house in case a buyer has a question. Ask them to ensure the home is ready for an open house by tidying the interior and exterior. Advise them to remove any valuables to help in protecting their home from theft during the open house. Advise them that another salesperson from the brokerage will also be in attendance.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 7 of 14

A salesperson is continuing her conversation with the sellers, ensuring they understand the procedures for holding an open house. The sellers ask the salesperson how they can prepare their home for the open house. The salesperson explains that when potential buyers tour their home, the idea is to make the home feel inviting. The salesperson tells the sellers to try to make their home appear welcoming, spacious, and bright, and to be free of distractions so that a potential buyer can easily picture themselves living there. The seller’s kitchen has older cupboards, and some of the doors do not close completely. A window that no longer opens is disguised by keeping the drapes closed, a countertop tray is filled with recent mail (including their tax returns), and breakfast dishes—although washed—remain in the sink. In the dining area, the buffet is filled with family photos, and the dinner table has a bowl of fresh fruit. What actions should the salesperson advise the sellers to take to prepare their home for the open house? There are five options. There are multiple correct answers. 1 2 3 4 5

Remove the collection of family photos and replace them with something less personal. Replace the cupboards in the kitchen. Remove all personal information or identification from the countertop and place it on the office desk. Put away any dishes. Open drapes and pull up blinds on windows.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 8 of 14

The salesperson and the sellers go outside the home to prepare the exterior for the open house. A recent storm has broken some branches off a tree. They are now cut and piled in a corner of the backyard. The storm has muddied the walkway leading up to the front of the home and washed away some of the ground cover in the flower bed. A crack on the driveway has weeds starting to grow, and the gate leading to the backyard sags when left open. At the side of the home is a hose that is lying loose on the driveway. Which actions should the salesperson tell the sellers to take in preparation for the open house? There are five options. There are multiple correct answers. 1 2 3 4 5

Remove the entire tree damaged by the storm. Clean the dirt on the walkway and replace the ground cover. Repair the driveway crack and remove any weeds. Roll up the hose and consider installing a holder to keep the hose off the driveway. Keep the gate permanently locked so the sagging is not noticeable to open house visitors.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 9 of 14

Marketing Materials when Hosting an Open House Open house signs and other marketing materials are used to promote and attract visitors to an open house. Signage and website advertising inform members of the public and other salespersons about the open house, whether on the day of or prior to the open house. Providing flyers highlighting the key features of the property should be made available for open house visitors. Although there are benefits to advertising an open house in advance, as a salesperson, you will have to follow municipal signage guidelines to ensure that you are compliant. You should also check with the brokerage or municipal office for further guidance.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 10 of 14

Marketing for an Open House This screen details marketing strategies for an open house and how you, as a salesperson will be able to employ these techniques. The following four sections contain information on marketing for an open house.

While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Signage and marketing materials As a salesperson, you will want to have various signs and marketing materials for an open house, including the following: • Feature sheets for attendees to take with them. Feature sheets contain details about the property, such as room sizes, lot size, taxes, special features, chattels included, information about local schools, transit, the salesperson’s contact numbers, and so on. • A copy of the survey, if available, and pictures displayed on the kitchen or dining room table for review. Exterior pictures taken during the summer are important should the property be on the market during the winter months.

©2019 Real Estate Council of Ontario

• Open house signs on nearby street corners as well as in front of the house, which include steel sign frames and lawn signs. • Marketing materials that may include promotional information on the salesperson and the brokerage. Tent cards set up to draw attention to unique or special features about the property while guests are touring the house (for example, cards pointing out the granite counter tops, or quartz tile floors).

Online marketing As a salesperson, you will be able to use technology to advertise an open house in a variety of ways. This includes advertising on your professional social media accounts, personal blogs, and websites for the brokerage and yourself. For example, if a website features your listings, when an open house is scheduled for one of those listings, it could be moved up to the landing page with the open house information.

©2019 Real Estate Council of Ontario

Email marketing and targeted mailing lists As a salesperson, you will be able to promote an open house using email and targeted mailing lists to the neighbourhood. This type of marketing can attract potential buyers and other salespersons working with buyers. You will have to comply with the provisions set out in Canada’s Anti-Spam Legislation (CASL) regarding any commercial electronic messages (CEM) being sent by email.

Open house notices As a salesperson, you will have the option of promoting an open house by doing an advance distribution of flyers around the neighbourhood a few days prior to the open house. An open house preview invitation can also be included, which welcomes neighbours to come an hour before the public open house to view the home.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 11 of 14

Sign Compliance and Benefits of Advertising an Open House in Advance Whenever promoting an open house, there will be considerations relating to where, when, and how any signage can be used. There are benefits to advertising an open house in advance, but it is important to ensure the use of signs is in compliance with any regulations or rules. The following two sections contain information on sign compliance and the benefits of advertising an open house in advance.

Sign compliance As a salesperson, you will have to comply with other advertising standards and municipal bylaws for any advertising, including restrictions on terms and signage. Each municipality will establish regulations relating to signage. These sign bylaws identify the requirements for advertising a listing and promoting an open house, and can vary by municipality. You will need to know about the bylaws of the municipality in which you are advertising to ensure compliance. Typical municipal sign bylaws can restrict the following: • The size of any sign • Where a temporary sign, such as an open house sign, can be placed • How many signs can be located in one intersection

©2019 Real Estate Council of Ontario

• When a sign can be placed in advance of an event Some bylaws will prevent you from putting up an “open house” sign too early. For example, some bylaws may only allow this on the day of the event. If you forget to collect your open house signs following the event, or if the signs are placed too soon in advance, the municipality could pick up and dispose of any signs.

Benefits of advertising an open house in advance There are many benefits to advertising an open house in advance: • It allows buyers to schedule which open houses they wish to attend. • Buyers who are not familiar with the neighbourhood may want to drive around the area prior to the day of the open house to determine if it is a property or location they would be interested in viewing. • Buyers who are not working with a salesperson may drive around neighbourhoods of interest to see what homes are available and then plan to attend the open house knowing it is scheduled. • It lets other salespersons know of the open house, so they can show the property without having to make an appointment.

©2019 Real Estate Council of Ontario

• Advertising an open house in advance results in more exposure for the listing and likely more attendees at the open house. In addition to placing an open house sign on the property or nearby intersection, consider using the following avenues to advertise an open house in advance: • Your social media, blog, or other professional websites • Email or targeted mailing lists • Newspapers/flyers and local listing services

©2019 Real Estate Council of Ontario

Lesson 5 | Page 12 of 14

Anycity Open House Sign Bylaws • • • • •

The maximum size of an open house sign should not exceed 0.40 sq. m. The maximum number of open house signs is five per open house. Only one sign per street corner can point in one direction. A permit is not required to place open house signs. Open house signs can be placed no earlier than one hour before the open house and must be removed within one hour of the open house concluding.

Two salespersons are colleagues having a discussion at their brokerage office. One salesperson asks the other if he is ready for his very first open house. He responds by saying that he is almost ready but wants to confirm the municipal bylaws, so he can appropriately place his open house signs. What should the salesperson do in order to comply with the municipal bylaw? There are four options. There are multiple correct answers. 1 2 3 4

Post signs no sooner than the day of the open house and remove the signs by the following day. Obtain a permit before posting open house signs. Use a sign that measures 0.35 sq. m. Ensure there are no more than five open house signs used.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 13 of 14

A salesperson tells her colleague that she needs to update her real estate sign because she recently changed her phone number and her headshot was taken almost 10 years ago. Her colleague agrees that her sign should be updated but reminds the salesperson to look at the municipal bylaws first to make sure her sign complies. She remembers that one bylaw required real estate signs to display content relating to the sale, rent, or lease of the respective property and no other message. Another bylaw stated that the size of the sign on a residential property could not exceed one square metre. And another stated that a real estate sign could not be illuminated or have any attachment to make the sign taller or wider. What should the salesperson do to ensure that her new “for sale” sign is compliant with local municipal bylaws? There are four options. There are multiple correct answers. 1 2 3 4

Make the sign to be half a square metre in size. Add an in-ground flood light to highlight the sign in the evening. Ensure that only the necessary contact information, the brokerage’s name, and the salesperson’s name are on the “for sale” sign. Install an attachment that will heighten the sign.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 14 of 14

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were discussed in this lesson. Open House Benefits: An open house provides benefits to potential buyers, sellers, and the brokerage and salesperson. Open House Considerations: However, there is no guarantee that anyone will attend the open house or be interested in purchasing. There is also a chance for crime and incidental damage from visitors attending the open house. Open Houses for Different Property Types: Holding an open house for a condominium unit may require permission from the board of directors or management company. The leading practice for a condominium open house is for a minimum of two salespersons to be present: one to verify visitors before allowing them entry into the building and another to show the unit. After the seller is prepared for the open house, the seller can assist with the Preparing a seller for marketing process by having the home ready for viewings, being flexible for open an open house house appointments, and willing to vacate the premises for the duration of the open house. Preparing the property A seller needs to ensure the home is clean; provide a place for boots, umbrellas, and coats; attend to any potential hazards or damage; and remove dangerous items and for an open house valuables. The seller should depersonalize the home and avoid cooking foods with strong odours. The seller should ensure that the exterior makes a good first impression with clean surfaces, groomed lawns, and clear driveways, depending on the season.

Open house considerations

©2019 Real Estate Council of Ontario

Marketing for an open house

Marketing: Marketing is essential to the success of an open house. Common marketing approaches include online marketing, email marketing, targeted mailing lists, open house signage, and flyers. Sign Compliance: As a salesperson, you will have to know and comply with the open house sign bylaws applicable to the location of the listing because sign bylaws vary across municipalities. Advertising in Advance: Although there are bylaws that may prevent you from putting up “open house” signs too far in advance of an open house, you will still be able to promote the open house in other ways, such as social media, email, flyers, and newspaper.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 1 of 11

Lesson 6: Open House Interactions and Leading Practices

This lesson explains compliant behaviour that you, as a salesperson, will need to know when interacting with attendees at an open house. You will also learn about leading practices that are important for you to know if or when you hold an open house.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 2 of 11

This lesson explains actions you will take as a salesperson to protect the personal information of sellers and attendees at an open house. This is accomplished through compliance with Canada’s Anti-Spam Legislation (CASL), open house leading practices, and the role of an unregistered assistant at an open house. Knowing these leading practices and compliance requirements will help you be prepared to hold successful open houses. Upon completion of this lesson, you will be able to: • Describe compliant salesperson behaviour when interacting with attendees at an open house • Describe leading practices for a salesperson when holding an open house Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 3 of 11

Interacting with Attendees at an Open House An open house is a great opportunity to showcase the seller’s property and attract potential buyers. However, as a salesperson, you will have certain responsibilities while hosting an open house. These obligations include disclosing that you are representing the seller, protecting the seller’s personal information, and promoting the seller’s best interests. In addition, you will also have to protect the personal information of attendees collected during the open house and comply with Canada’s Anti-Spam Legislation (CASL), a law that regulates the use of email, text messages, and other forms of electronic messages for marketing purposes—if sending a commercial electronic message (CEM) to attendees after the open house. Next, you will review compliant behaviours that you will have to exhibit when interacting with attendees at an open house.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 4 of 11

Compliant Behaviour when Interacting with Attendees at an Open House As a salesperson, you will have to display compliant behaviour when interacting with attendees at the open house. The following four sections contain information on how to behave with compliance as a salesperson. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Disclosures at open houses

Protecting the client’s personal information and best interests

As a salesperson, you will not be able to interfere with other client - salesperson relationships —such as an attendee at the open house being represented by another brokerage —as this violates the Code. For example, an attendee asks for advice as they have had their house listed for some time with no luck getting it sold with their current salesperson. The correct response would be to immediately inform them that you cannot get involved with this situation. As it involves a client relationship with another brokerage, they should speak to their salesperson directly. Additionally, if a buyer who is represented by another brokerage expresses a desire to make an offer on the property, the buyer must be directed to contact their own salesperson. These obligations are outlined in the Code of Ethics. As your client’s representative, you will have to safeguard their best interests. At the time of taking the listing, you will want to communicate your strategies for protecting the safety and privacy of your sellers. Examples of strategies include the following: • Discuss insurance issues and safety. This includes the importance of home insurance coverage if a claim arises. Please refer to the Preparing to Buy/Sell Residential Real Properties module for more information.

©2019 Real Estate Council of Ontario

Complying with CASL

Protecting an attendee’s personal information

• Communicate and practice strategies for protecting the safety and privacy of the seller. This includes not sharing any personal information about the seller. Personal information can include their reason for selling, where they are moving to, their occupation, and so on. • Discuss the importance of removing or concealing valuables, fragile items, and personal information before the open house. • Ensure you can monitor all visitors in the home. As a salesperson, you may work in a team or have assistants monitor the attendees. You can limit the number of attendees allowed in the house at the same time, which will allow you to maintain control of the activity at the open house. • Encourage the use of a sign-in sheet or guest registry. You will have to determine whether potential buyers are being represented by other brokerages. This can be accomplished through the use of a guest registry. As you learned earlier, signed consent is important. As a salesperson, you will need signed consent from open house attendees before adding them to an email list (as outlined in CASL). These consents are often obtained on the open house “sign-in” sheet that require attendees to grant permission to be contacted with additional real estate information. Marketing materials could include brochures or information on other listings the salesperson may have. Contact information must be kept confidential and in a secure location. In respect to regulations under CASL, you will need to have consent to send electronic messages (such as a text, picture, or video) to attendees if the purpose is to promote yourself or a listing. This type of message known as a CEM requires diligence to ensure compliance. When you, as a salesperson, have collected contact information from the attendees of the open house, you will only be able to use that information for the intended purposes as described when the information was collected. As you learned earlier, this is a requirement under the Personal Information Protection and Electronic Documents Act (PIPEDA). Physical copies of that information should be kept in a secure location (such as in a locked desk). Never leave this information in the open unattended. If you have transferred this information to an electronic device, ensure that you close the screen once you are finished and have a password on your lock screen.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 5 of 11

A salesperson is holding an open house and begins a discussion following the signing of the guest registry by an attendee. The salesperson learns the attendee’s name and that she has been looking at properties with another salesperson for quite some time. But when she saw the open house, she thought she would come in. The attendee states that she knows this neighbourhood typically has an older population and asks if the seller is looking to downsize. How should the salesperson respond to the attendee? There are four options. There is only one correct answer.

1 2 3

4

“Yes, the seller is looking to downsize, so if you’re looking for a nice family home, this may be the one for you! Other attendees are expressing an interest, so you shouldn’t delay.” “I can’t disclose whether they are downsizing, but I can help you if you are interested in the property. I can contact you after the open house to give you more information and discuss placing an offer.” “I am representing the seller, and therefore can’t disclose any information that would be deemed confidential. However, I would be happy to answer other questions you may have about the property while you are here.” “I am representing the seller and therefore can’t disclose any information that would be deemed confidential. However, since it is apparent the seller wishes to sell, I am allowed to disclose they are downsizing.”

©2019 Real Estate Council of Ontario

Lesson 6 | Page 6 of 11

The open house has ended, and the salesperson wants to follow up with the attendees. How should the salesperson contact the attendees? There are four options. There is only one correct answer. 1 2 3 4

Send a bulk “thank you for coming” email to all attendees. Send an individual “thank you for coming” email to all attendees who consented to receive marketing materials. Send an email to all attendees who consented to receive marketing materials stating the seller is interested in selling their home as soon as possible. Send an email to all attendees stating the seller is interested in selling their home as soon as possible.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 7 of 11

Leading Practices when Holding an Open House Now you will explore leading practices that you, as a salesperson, will need to know when holding an open house. Open house leading practices will demonstrate the information you have learned in this module, including how to prepare and market a home for an open house, how to hold an open house, how to ensure safety during an open house, and how to contact attendees after the open house.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 8 of 11

Open House Leading Practices A leading practice for you as a salesperson includes ensuring that an open house is held in a way that provides the seller with security of the property. One way to achieve this will be to ensure an open house is sufficiently staffed. You can have a registered colleague from your brokerage or the option to involve an unregistered assistant for specific activities to help ensure a successful open house, while ensuring the security of the property. The following three sections contain information on open house leading practices and the role of the unregistered assistant at an open house. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Unregistered assistants at an open house

Only a registrant can hold an open house, but an unregistered assistant can help during this time. It is important to ensure that an unregistered assistant does not discuss anything about the property as this would be considered trading in real estate, as defined in the Act. A partial list of permitted activities for an unregistered assistant includes: • Greeting attendees at the door. • Monitoring the safety and security of the property, such as asking guests to sign the registry. • Limiting the number of attendees inside the home at any given time by asking them to view the exterior of the property until others have completed their viewing. • Directing any questions related to the property to the salesperson for response. • Assisting in preparing the home and ensuring the home is secured at the conclusion of the open house. • Compiling feature sheets and ensuring sufficient copies are always available during the open house. • Placing and removing open house signage.

©2019 Real Estate Council of Ontario

Open house leading practices: last-minute preparations

As a salesperson, you will want to: • Arrive at the house early to get it ready (for example, turn on all lights, remove the seller’s personal items from view, and make last-minute arrangements to rooms). • Ensure any potentially dangerous items (for example, noxious chemicals) are out of reach or removed from the house. • Turn on all room lights, open drapes and blinds, and ensure access to the required areas of the home are unobstructed. • Ensure key features of the home are highlighted, such as opening up the door to a large walk-in closet or placing feature cards in various rooms. • Be ready for early arrivals as your signs on nearby streets may already be in place and visitors could arrive at any time.

©2019 Real Estate Council of Ontario

Open house leading practices: open house attendees

As a salesperson, you should: • Greet all visitors at the door during the open house. • Introduce yourself as representing the seller and provide a business card, feature sheet, and/or marketing material of interest so that if they are interested in the property, they have information including how to contact you. • Post a sign on the front door advising the attendees that they will be required to sign a guest register or provide photo identification prior to viewing the home. • Politely ask visitors to sign the guest register and advise that this is at the request of the seller. • If an attendee refuses to sign the guest registry, you may decide to ask them to book an appointment to view rather than tour the property during the open house. Ultimately, how to handle such cases is up to what the salesperson and their seller decide. • Ask visitors for written consent to contact them after the open house so that any questions can be addressed or feedback on their impression of the property can be collected. This information will provide the seller with excellent feedback and can help the salesperson with marketing the property. • Remind visitors that unless the seller has consented in writing to allow photos to be taken, they should not be taking photos inside the house.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 9 of 11

An unregistered assistant is helping a salesperson at an open house. It has been a busy hour with many visitors. The assistant is reorganizing the open house materials and signin register. One of the attendees asks the assistant to explain something on the feature sheet regarding the property because they must leave. At the same time, four additional couples have just entered the home through the front door. The salesperson is currently in the basement with another visitor who appears very interested in the property. As an unregistered assistant, which actions are the assistant eligible to perform? There are four options. There are multiple correct answers.

1 2 3 4

Quickly answer the question regarding the property and then proceed to greet the additional attendees and ask them to sign the registry. Advise everyone he will be right back and ask the new attendees to sign the register while he goes to the basement to have the salesperson return to the main floor. Ask the four new couples if they could view the outside of the property first to allow time for the salesperson to return from the basement. Advise the attendee that he can have the salesperson call after the open house to answer any questions, and ask if some of the new attendees would agree to view the outside of the home first.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 10 of 11

A salesperson and their unregistered assistant meet with the sellers to discuss the upcoming planned open house. The salesperson is expecting the open house to be busy as there are two other open houses within the neighbourhood being held the same day. When the salesperson explained their marketing plan, the sellers expressed concerns over their privacy and security in the home during an open house. The salesperson discussed how this would be handled and the sellers are now satisfied their concerns will be addressed. What leading practices should the salesperson remember to apply when preparing and holding the open house to ensure the sellers concerns are addressed? There are six options. There are multiple correct answers.

1 2 3 4 5

6

Ask the unregistered assistant to set up the open house signs shortly before the open house is to begin and then join the salesperson at the property. Allow visitors to take photographs of the home’s interior so they don’t confuse the property with one of the other properties having an open house. Ask the unregistered assistant to arrive at the home early, and if there are any attendees who would like to view the property prior to the salesperson arriving, they should allow them in but ensure they escort them through the property. Arrive at the house early, turn on all lights, and make any last-minute arrangements to rooms. Post a sign on the front door advising visitors that the guest registry is optional. The salesperson or the unregistered assistant should meet the visitors at the front door during the open house and introduce themselves as the salesperson representing the seller or the unregistered assistant to the salesperson.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 11 of 11

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were discussed in this lesson.

Compliance obligations for a salesperson when advertising and interacting with attendees at an open house

As a salesperson, you are required to demonstrate compliant behaviours when interacting with attendees at an open house and respect any agreement an attendee may already have with another salesperson. Compliance obligations include: • Protecting the client’s personal information and acting in their best interests. • Complying with CASL. • Protecting the attendees’ personal information. • Ensuring that only a salesperson or a broker is holding the open house. • (An unregistered assistant can help, but they cannot do anything that may be regarded as trading in real estate.) • Advertising in compliance with the Real Estate and Business Brokers Act (REBBA). • Complying with municipal sign bylaws, providing full and accurate information to prospective buyers.

Leading practices for a The following are leading practices to consider when preparing for, and when holding an open house: salesperson when • Provide guidance on what the seller can do to prepare for the open house, such preparing for, and as ensuring the property is clean, removing any obstacles to ensure attendee when holding an open safety, and removing dangerous items. house • Prepare the seller and the property. • • • • •

Advertise widely (for example, open house signs and flyers). Ensure valuables are safely stored. Arrive early and meet all visitors at the door. Ensure all doors and windows are secure when the open house is over. Follow up with the seller to discuss the results of the open house. ©2019 Real Estate Council of Ontario

Lesson 7 | Page 1 of 9

Lesson 7: Summary Practice Activities This lesson provides a series of activities that will test your knowledge on the entire module.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 2 of 9

This lesson reviews the content from the module. You will answer a series of knowledge check questions. This will help you to review what you have learned about listing and marketing a residential property and complete some additional practice before finishing the module. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 3 of 9

A new salesperson registered with the Real Estate Council of Ontario (RECO) as Rita Simmonds has created a bus shelter advertisement. Her brokerage’s name is ABC Real Estate Inc. The advertisement contains a headshot of Rita, her name Rita Simmonds, her brokerage’s name ABC Real Estate Inc., Brokerage, and her role Sales Consultant. Determine what is not compliant about her bus shelter advertisement. There are four options. There is only one correct answer. 1 2 3 4

Her headshot Her category of registration Her name Her brokerage’s name

©2019 Real Estate Council of Ontario

Lesson 7 | Page 4 of 9

A salesperson has just successfully listed and sold 123 Main Street. The salesperson would like to send out a “just sold” card to the neighbourhood showcasing that the house has been sold for 106 percent of the list price (which will be indicated on the card). Identify how the salesperson should ensure compliance with the “just sold” card. WHILE NAVIGATING THROUGH THE ONLINE MODULE, CLICK THE EXPERT RESPONSE BUTTON TO VIEW THEIR ANSWER.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 5 of 9

A salesperson has listed a property for sale and has verified the necessary information required to list and market the property. The sellers have received their copies of the listing documents and seller representation agreement. Now, the salesperson must ensure compliance because they are returning to their brokerage to submit the listing. What is the best course of action a salesperson can take to ensure they are complying with all document retention requirements at their brokerage? There are four options. There is only one correct answer.

1 2 3 4

Retain the original documents in a shadow file and provide photocopies of all documents to the brokerage as soon as possible. Ensure the original documents are permanently retained at the branch office where the transaction originated. Retain the original documents related to the listing until an offer has been accepted. At this time, all documents are to be submitted to the main office. Provide their brokerage with original copies of all documentation related to the listing and any trade.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 6 of 9

The seller has just signed the listing agreement, and the salesperson needs to enter the listing into the local listing service as soon as possible. What steps should the salesperson take to ensure they do their due diligence in avoiding common errors and omissions in the listing process? There are four options. There are multiple correct answers.

1

3

Ensure accuracy when measuring the home. Include complete information about the seller in the listing, including the seller’s legal name, place of employment, and minimum acceptable offer price. Use the previous listing information such as room sizes and photographs, before creating a new listing.

4

Specify which chattels are being included with the sale of the property.

2

©2019 Real Estate Council of Ontario

Lesson 7 | Page 7 of 9

A salesperson is working in her branch office when she comes across an advertisement for a home in an area where she also has a listing. She is surprised by some of the content in the advertisement and is discussing this with her manager. The advertisement reads: “Walter Teller: ‘If I can’t sell it, nobody can!’ $750,000 – This spacious home is one of a kind. Four bedrooms, two bathrooms. Upgraded kitchen with dishwasher and gas stove. Open-concept home features hardwood flooring and a gas fireplace. Walk-in closet in the primary bedroom and three more spacious bedrooms. Call my cell now at 555-1212!” What revisions does Walter need to make his ad compliant with REBBA? There are four options. There are multiple correct answers.

1 2 3 4

Include the name of the brokerage and brokerage description. Include his registration status. Remove the subjective promotional statement, “If I can’t sell it, nobody can!” Remove the listing price.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 8 of 9

A new salesperson would like to hold an open house for their sellers. What should the salesperson do to ensure that they are prepared for the open house? There are four options. There are multiple correct answers.

1 2 3 4

The salesperson should ask the sellers to place lots of family photos throughout the home to show it is a family-friendly neighbourhood. Discuss with the sellers why they should not be present during the open house. Have a plan in place to protect the home from theft or damage. Put up as many open house signs as allowed by the municipality’s bylaws in various locations to attract the maximum number of potential buyers.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 9 of 9

Congratulations, you have completed the lesson!

©2019 Real Estate Council of Ontario

Module Summary | Page 1 of 4

Module Summary This lesson contains a summary of the entire module and a list of helpful resources available in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 2 of 4

Congratulations, you have completed this module!

Congratulations, you have completed this Module!

This lesson contains a summary of the entire module and a list of helpful resources available in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 3 of 4

There are six sections on this page with a summary of the key topics that were discussed in this module.

Preparing to list a residential property

As a salesperson, you will need the following information forms to list a property for sale: • Property checklist information • Data sheet information form • Seller representation agreement • Seller disclosure statements • Verification of ownership The following are sources that you can use to gather important information for the listing: • The municipality • GeoWarehouse® • Municipal Property Assessment Corporation (MPAC) • Review of previous listings You will need to know the following about document retention: • According to the Real Estate and Business Brokers Act (REBBA) and the Code of Ethics, you are required to give the seller a copy of the representation agreement immediately upon signing. • The brokerage needs to retain all listing documents. • You must be aware of the requirements to keep business records in the main office or as otherwise specified by the Registrar. • You must be aware of the requirements when maintaining a shadow file. Completion of this lesson has enabled you to: • Describe the type of information required to list a residential property for sale. • Identify requirements for document retention by a brokerage.

©2019 Real Estate Council of Ontario

Listing a residential property

As a salesperson, you will need to ensure that you are listing the property correctly from the start. There are consequences if the listing is overpriced. Arriving at the right price can be done by verifying all information provided and by doing your due diligence in researching the property before preparing the listing agreement. By reviewing active, sold, and expired listings of comparable properties, you will be able to recommend a list price with your client’s best interests in mind. You will need to follow the policies of your brokerage when entering a listing onto the local listing service or when sending it to the local listing service office for entry. There are many benefits to hosting house tours for other salespersons in your brokerage as well as to the public. When advertising a listing, it is important to ensure that you receive permission from the seller. You will also want to create an effective marketing plan and strategy. Familiarize yourself with the various marketing options available. Some options are: • Real estate signs (for example, a sign on the property stating that the house is for sale) • Open house signs • Flyers • Online blog/website entries • Classified advertising • Targeted mailings The Competition Act prohibits misleading advertising and deceptive business practices in the promotion of a service or the supply or use of a product. Organized Real Estate Rules for Advertising and Trademark Use: Organized real estate has its own terms and trademarks that only members are permitted to use, for example, REALTOR® and MLS®. Completion of this lesson has enabled you to: • Describe characteristics of a saleable listing • Identify how a listing is promoted to other salespersons and the public • Identify advertising requirements under the Competition Act Identify advertising requirements under other regulations

©2019 Real Estate Council of Ontario

The salesperson’s obligations in the listing process

The Code of Ethics states that as a salesperson, you will not be able to “knowingly make an inaccurate representation.” Misrepresentation extends to any and all aspects of trading in real estate. The Code of Ethics also states that as a salesperson, you will be required to do your best to “prevent error, misrepresentation, fraud, or any unethical practice in respect of a trade in real estate”. A mere posting is when a real estate brokerage agrees to list a property on the local listing service but performs no other services. A limited service agreement typically includes more brokerage services but allows the client to perform many of the services typically offered by brokerages. According to the Code of Ethics, a co-operating brokerage cannot contact a mere posting seller directly without written authorization from the listing brokerage. You will have to document the services provided in a mere posting or limited service agreement. You will be required to keep a copy of the listing agreement, the listing information, and any other documents pertaining to the property. You will also have obligations to fulfill all requirements under REBBA when a brokerage has a mere posting/limited service agreement. You will have to verify the accuracy of the listing information to comply with the Code of Ethics. You will need to pay attention to details to reduce or eliminate allegations of misrepresentation. Listing data sheet errors can lead to disputes and litigation. Below are key tips for avoiding common errors: • Double-check all information • Ensure accuracy in measuring the property • Make notes when physically attending the property to ensure every detail is recorded, including details of conversations with clients and customers • In the remarks section, disclose anything that needs to be disclosed Advertising Leading Practices—Listing a Property Photographs are proprietary under the law. You will have to take your own photographs or hire a professional photographer to take photographs of the property for the listing. Brokerage Policies on Advertising You will have to follow your brokerage’s policies on advertising. For example, one policy could be that the broker of record reviews all advertising before publication. Privacy and Permissions from the Seller

©2019 Real Estate Council of Ontario

Complying with advertising requirements under REBBA

The Code of Ethics provides that as a salesperson, you will not be able to identify specific information, such as the seller’s name, unless appropriate consent is obtained. Completion of this lesson has enabled you to: • Identify a salesperson’s obligations in the listing process • Describe leading practices to avoid errors and omissions in the listing process • Identify leading practices for a salesperson when advertising Activities that are considered advertising under REBBA include promoting of self, business, services, or real estate trades of a salesperson in any medium including, but not limited to, print, radio, television, electronic media, or publication on the internet. Business cards, letterhead, or fax cover sheets that contain promotional statements may be considered “advertising.” As a salesperson, you will have to be aware of the rules and regulations regarding advertising materials so that you will be able to protect yourself from complaints and litigation. All advertising must include your legal name as registered with the Real Estate Council of Ontario (RECO) and the name of the brokerage (as registered with RECO) that employs you. It is recommended that you follow a standard checklist of requirements to avoid making any false advertising statements or violations surrounding advertising for sold properties. You are required to obtain written consent from the sellers to advertise that the property has sold. Once the title of the property has been transferred to the buyer (the transaction has closed), you will need the buyer’s written consent to make any reference to the property in sold cards or other advertisements. You will also need written consent from both the seller and the buyer if anything in the advertisement could reasonably determine the contents of an agreement (for example, if the advertisement said, “sold for 95 percent of the asking price”). Online advertising must follow all requirements for name identification and display. REBBA compliance must be closely followed as social media and online advertisements can be more complicated than print advertisements.

©2019 Real Estate Council of Ontario

Any advertising on a social media platform or online advertising medium that you use will have to comply with RECO’s social media advertising guidelines. Completion of this lesson has enabled you to: • Identify activities considered advertising under REBBA • Identify advertising requirements under REBBA • Identify requirements for advertising using social media and the internet

Open house considerations and marketing materials

As a salesperson, you will have to discuss open house advantages and disadvantages with the seller. You will also have to prepare them for the open house, if they choose to have one. In preparation for the open house, you will want to advise the sellers to do the following: • Keep the property clean • Provide a place for boots, umbrellas, and coats • Attend to any potential hazards or damage • Remove dangerous items and valuables from the property • Depersonalize the home and avoid cooking foods with strong odour • Ensure the exterior makes a good first impression with clean surfaces and groomed lawns and driveways, depending on the season Open Houses for Different Property Types There are nuances when holding an open house for different property types. For example, if holding an open house for a condominium unit, you may need permission from the condominium board of directors or management company. You will be able to arrange for multiple salespersons (team members and/or assistants) to be present to assist you during an open house. Marketing Common open house marketing approaches include online marketing, email marketing and targeted mailing lists, open house signage, and flyers. Sign Compliance You will have to know the municipal sign bylaws in the areas that you are advertising a listing and holding an open house, as bylaws vary across municipalities. Advertising in Advance

©2019 Real Estate Council of Ontario

Open house interactions and leading practices

Although there are bylaws that may prevent you from putting up “open house” signs too early, you will be able to promote the open house in other ways (for example, social media, email, and flyers). Completion of this lesson has enabled you to: • Identify considerations for a seller when holding an open house • Describe signage and marketing materials used with an open house As a salesperson, you are required to demonstrate compliant behaviour when interacting with attendees at open houses and respect any representation agreement a potential buyer has with another brokerage. This includes: • Open house disclosures (for example, providing full and accurate information to prospective buyers) • Protection of the client’s personal information and best interest • Canada’s Anti-Spam Legislation (CASL) compliance • Protection of attendees’ personal information The following are leading practices to consider when holding an open house: • Remember that only a salesperson or broker can hold an open house. However, an unregistered assistant can help in any matter that is not considered trading in real estate. • Always ask the seller for permission to hold the open house. • Provide guidance to prepare for the open house. • Advertise widely to gain the greatest amount of exposure for the open house. • Comply with municipal sign guidelines and bylaws. • Arrive early to the open house. Completion of this lesson has enabled you to: • Describe compliant salesperson behaviour when interacting with attendees at the open house • Describe leading practices for a salesperson when holding an open house

©2019 Real Estate Council of Ontario

Module Summary | Page 4 of 4

Module Resources There are fourteen helpful resources related to this module that you can search for in the Knowledge Management System. 1. Interacting with Open House Attendees: This job aid includes information on leading practices for Canada Anti-Spam Legislation (CASL), open house disclosures, and confidentiality for both a seller and open house guests. A salesperson can use this job aid to help interact with open house attendees. 2. Leading Practices of unregistered Assistants at Open Houses: This table describes leading practices for unregistered assistants at open houses. A salesperson can use this job aid when deciding on if to have unregistered assistants attend an open house. 3. Advertising Requirements Under Other Legislation: This table highlights the regulatory advertising requirements a salesperson must be compliant with, in addition to the Real Estate Business Brokers Act (REBBA) and the Code of Ethics. A salesperson can use this job aid prior to advertising themselves, or a trade, in real estate. 4. Salesperson’s Regulatory Listing Obligations: This table lists a salesperson’s regulatory obligations, including accurate representations, ethical practices, and documenting services for mere postings. A salesperson can use this job aid when listing a property for sale. 5. Common Errors When Documenting Listing Information: This table demonstrates common errors that occur throughout the listing process, and the methods to avoid these errors. A salesperson can use this job aid to help handle challenges associated with acquiring a listing, obtaining listing information, completing documents, and working with a seller. 6. Leading Practices for Documenting Listing Information: This checklist provides some of the leading practices that a salesperson should follow when preparing a listing. This asset will be useful to the salesperson when preparing a listing. 7. Marketing Leading Practices: This table highlights leading practices for photography, marketing, and confidentiality in advertising. A salesperson can use this job aid when marketing a listing. 8. Open Houses for Different Property Types: This job aid contains important information on how to prepare an open house for different property types. A salesperson can use this job aid when preparing an open house for condominiums, cottages, farms, high-end homes, and single-family homes.

©2019 Real Estate Council of Ontario

9. Preparing a Seller for an Open House: This job aid includes a checklist of steps to take to prepare a seller for an open house, as well as a sample Open House Sign-In Sheet, which can be printed out and used during an open house. A salesperson can use this job aid when preparing a seller for an open house. 10. Open House Preparation Checklist: This checklist provides information that will help a salesperson and a seller prepare the property for the open house. A salesperson can use this job aid when working with a seller who consents to an open house. 11. Methods to Market an Open House: The table provides suggestions to a salesperson on leveraging email, online, and print advertising methods to promote an open house. A salesperson can use this job aid when marketing an open house. 12. Property Listing Checklist: This checklist lists necessary information to obtain when listing a residential property for sale. A salesperson can use this job aid to ensure that they have gathered all the necessary information about a property before they list it, and also when marketing a property. 13. Documents to List a Residential Property for Sale: This checklist assists with the collection of necessary information and documentation when listing a residential property for sale. Some of this information can be collected prior to meeting with a potential seller. This can be used by a salesperson when preparing to list a residential property for sale. 14. Factors to Increase the Marketability of a Residential Property: This table highlights some leading practices for creating a listing that is appealing to potential buyers. A salesperson can use this job aid when helping a seller determine the listing price. While navigating through the online module, click the KMS button for tools and information on this topic.

©2019 Real Estate Council of Ontario

Module 13: Showing Residential Properties and Advising on Properties of Interest Disclaimer: This is a reference document which contains pages from the Accessible eLearning module. You should complete the eLearning module to proceed to the next step. Please note that the accessible module on the LMS only contains the interactive pages and you need to go through the content of this document thoroughly to attempt the interactive activities in the module. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Salesperson Program ©2019 Real Estate Council of Ontario. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or in any means – by electronic, mechanical, photocopying, recording or otherwise without prior written permission, except for the personal use of the Real Estate Salesperson Program learner.

©2019 Real Estate Council of Ontario

V7

Module 13: Showing Residential Properties and Advising on Properties of Interest To complete this module, you will need to complete all the activities. During this module you will learn about a salesperson’s activities to build their business and what is involved in showing properties. Finding potential buyers is a critical part of growing your business. You will learn about your obligations when you have identified buyers and you begin to define whether they are a client or a customer. As you learn to show properties you will understand how qualifying your buyer will help you ensure you are finding the most suitable properties. Lastly, you will learn how to build a network of third-party professionals that will help your buyers get the appropriate information and is important to add value to your services. This module contains information about many aspects of showing residential properties and advising on properties of interest, that are: • Finding potential buyers • Preparing buyer’s packages • Working with buyers and assessing their needs • Preparing and showing properties • Referring third-party service providers To check your understanding of this module, you must complete all the activities in the online module.

©2019 Real Estate Council of Ontario

While navigating through the online module, click the Legislation button to view laws and regulations related to this module. While navigating through the online module, click the KMS button to access the Knowledge Management System or visit the Module Resources to find the list of all the KMS assets for this module. The contents of the thumbnails throughout this Accessible PDF.

and References from the module are added to support your learning

©2019 Real Estate Council of Ontario

Menu: Showing Residential Properties and Advising on Properties of Interest Number of Lessons

Lesson Number Lesson 1 Lesson 2 Lesson 3 Lesson 4 Lesson 5 Lesson 6 Lesson 7

8 Lessons

Lesson Name Prepare to Meet with Potential Buyers Salesperson’s Obligations to Buyers Selection of Properties to Show Showing Properties to the Buyer Property Showing when Seller has Limited/No Services Provided Due Diligence Requiring a Third-Party Provider Summary Practice Activities Module Summary

©2019 Real Estate Council of Ontario

Lesson 1 | Page 1 of 43

Lesson 1: Prepare to Meet with Potential Buyers

This lesson identifies activities that you, as a salesperson, will undertake to identify potential sources of buyers. These activities include individual tasks as well as working with others at the brokerage. As real estate is a servicebased profession, it is important for you to be prepared to meet a potential buyer at any time. One tool to help you make a good first impression is a buyer’s package. It gives relevant and important information to a buyer. This lesson will detail what could be included in a buyer’s package along with options to customize it for the various needs and circumstances of a buyer.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 2 of 43

Identify Potential Sources of Buyers There are a number of potential sources you can use to find buyers. You must know how to build opportunities by using methods such as, open houses, referrals, networking, and advertising, including putting together buyer’s packages. Upon completion of this lesson, you will be able to: • Identify potential sources of buyers • Prepare a buyer’s package for initial contact • Identify the options for personalizing a buyer’s package Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 3 of 43

Open House as a Potential Source for Finding Buyers An open house is a public event held by a salesperson with the purpose of marketing the property and exposing it to potential buyers. The sellers see that you are working to sell their home and you also have the added opportunity of meeting prospective buyers, often referred to as prospects. People who walk into an open house are usually potential buyers or know someone who is. They may be from the neighbourhood and could be curious to see what their neighbour’s home looks like and to get an idea of the value of their own home. Some may be people who may have seen the for sale sign and are actively looking. These are potential sources for buyers or referrals. This is a great opportunity to show how you represent homes and to see you in action. The most successful days to show a home are on Saturday and Sunday. You should meet the viewers at the front door and introduce yourself. Have them sign in with their name, to know who went through the home from a safety perspective. However, there is a possibility that they may not be represented by a brokerage, so you may want to inquire about their current state of representation. To collect this information, some people have a paper form for the individuals to fill out, while others use a tablet or computer. Use what works for you and your viewer demographic.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 4 of 43

Using Sign-ins for Qualifying Buyers When potential buyers sign in at an open house, have them confirm if they are already working with a salesperson. This is a good time to capture their information. This will give you the opportunity to answer their questions appropriately and allow you to begin to build a good faith relationship with other salespeople. Ask who their sales representative is and reach out to their salesperson for follow up afterwards. You will want to gather general information through questions, such as: • Have you been looking for long? • What brings you to this location? • Are you local? Does this home fit your needs? • Would you like me to send you other properties that are comparable or would fit your needs better? These questions are non-invasive, casual and non-threatening. They show you are interested in helping them as people, not just buyers. It also allows you to ask the question: “May I help you further by sending you more info?” If you are new and have no listings, ask other salespeople in the Brokerage if you can host open houses at their listings as a way to develop your skills to meet and develop relationships with buyers. Busy salespeople will often gladly let you host an open house on their behalf.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 5 of 43

Gathering Information at Your Open House The primary reason for gathering contact information is for safety and legal reasons. If anything happens to you or the home, either during the open house or after (for example, a break-in) you have a record of who was there to provide to the authorities. The second reason for gathering contact information is to follow up at a later time. For privacy and legal reasons, have a place to record that it is okay for you to contact the visitors at a later date. If they give you permission to contact them, check yes on the sign-in sheet and get their phone number and email address. It is most important to ask if they are currently working with a salesperson. If they tell you they are working with a salesperson, continue to be professional and courteous, but do not do something that induces or could be perceived as trying to induce someone to break their agreement with the other brokerage. Such conduct would be a breach of section 7 of the Code. If they are not working with a salesperson, you may ask them questions about their family, needs, wants, and offer them your business card. If it is not a busy open house, you have an opportunity to go into more detail with them to build rapport and develop a relationship, if not for this transaction, perhaps another.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 6 of 43

A salesperson is selling a home for a seller who is retired and looking to sell a large home and buy a smaller property that is easier to maintain. The salesperson is holding the first open house on Saturday. What are some of the best practices the salesperson can follow to make sure the open house is successful and provides new business sales leads? There are six options. There are multiple correct answers. 1 2 3 4 5 6

Greet each visitor at the front door and introduce himself Give a business card to each visitor to the open house Have visitors sign a guest registration form to provide their name, address, and contact information. Also, have guests confirm on the form if they have entered into a representation agreement with any other brokerage and, if not, that they consent to be contacted Inform each visitor that prior to viewing the property, it is necessary to provide what prompted their visit and when they plan on purchasing Answer questions in a friendly and honest way Contact each person within a week of the open house

©2019 Real Estate Council of Ontario

Lesson 1 | Page 7 of 43

Sign Call as a Potential Source for Finding Buyers Sign calls are when buyers drive through the neighbourhood and see a “For Sale” sign, take the information and call the salesperson. The thing to remember is that each buyer is also a potential seller. The key to a high lead-to-appointment conversion rate is the speed you respond to the call. It is helpful to use sign call scripts; most often provided by the brokerage. They can be essential to taking control of the initial conversation in order to provide better service to buyers, limit time being wasted and to reduce the risk of breaching the law. Learning to ask the right questions will allow you to qualify the leads that come in and helps you to collect the important information you need to determine how to proceed. Good examples of questions would be: • Have you just started your search for a property? • Are you looking to make a move sooner rather than later? • Do you have a home to sell first? • Would you prefer to buy first or sell first? • Are there certain locations you prefer over others? • Is there a certain price range you would like to stay in? • Would you like me to send you other properties that are comparable to the one you called about? Remember that it is most important to determine whether they are working with a salesperson. If they are, limit what you tell them and direct them back to their salesperson to contact you for more information. You do not want to be accused of trying to induce a client to break an existing contract, because you did not make efforts to determine any existing relationships.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 8 of 43

hen potential buyers sign in at an open house, have them confirm if they are already working with a salesperson. This is a good time to capture their information. This will give you the opportunity to answer their questions appropriately and allowCall you to begin to build a good faith relationship with other Handling the Incoming salespeople. Ask who their sales representative is and reach out to their salesperson follow up afterwards. You will want to gather general information

If they are not working with a salesperson, the two major objectives in handling a call are to: 1. Create a good first impression 2. Arrange for a face-to-face appointment The more natural and non-aggressive you are the better. Develop good telephone etiquette and speak with prospects, not at them. Be forthcoming with information, involve the prospect, qualify their needs, ask pertinent questions, and above all be helpful. Remember to listen to what the caller is saying to you. Do not be dismissive. Often the caller will say things that will be important to qualify their needs and help determine whether or not you want to work with them and whether or not they are seriously looking at real estate to purchase now or later in the future. As much as they are looking for the right fit, you also want to assess the fit and your areas of expertise.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 9 of 43

A salesperson receives a call from someone who spotted their number on a sign in front of a property currently for sale. The most important first qualifying question to ask anyone who calls is: “Are you currently working with a salesperson?” Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 10 of 43

Referrals as a Potential Source for Finding Buyers As a general rule, the majority of a salesperson’s business will come from referrals. Being active in your community and your sphere of influence is important to grow your network of friends and family, professional contacts, and people in your community. The easiest way to get started when you are new to the business is to send out a letter, email or call your contacts and let them know that you are now a salesperson. Let them know you are looking for business and contacts, what services you are offering and if they know someone looking to buy or sell a home. If they do, ask them to send along your information. Existing happy clients are also an easy source of referrals. They know how you work, how you helped them, and are often happy to refer your name to people they know. Give them business cards with your picture or logo on the front and a “referred by” line on the back.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 11 of 43

hen potential buyers sign in at an open house, have them confirm if they are already working with a salesperson. This is a good time to capture their information. This will give you the opportunity to answer their questions and allow you to begin to build a good faith relationship with other Referrals in appropriately Your Community salespeople. Ask who their sales representative is and reach out to their salesperson for follow up afterwards. You will want to gather general information

Being active in your community is important in generating referrals. This creates opportunities to tap into your community contacts and grow your relationships in places such as: • Your children’s schools • Organizations you belong to • The committees you are on • Places where you are volunteering It also gives you a good reference point to learn more about your community and projects that may be up and coming in your neighbourhood; for example, a new park or school construction, a new store or restaurant opening, etc. This information might be a source of new leads if new employees are coming to the area and can be helpful when dealing with your own buyers. The more active and visually seen you are in the community the more referrals you are likely to get, especially if you are well liked. Someone is always paying attention.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 12 of 43

Referrals from Other Professionals Finally, no one refers more people to other businesses than salespersons. So like top salespersons, you can tap into this power by developing real estate referral networks by: • Making friends with listing salespersons and working out remuneration for leads that turn into business. • Growing a list of people (for example, handymen, landscapers, painters, home stagers etc.) who can let you know when someone starts to spruce up their house to get ready to sell. • Networking with investors, lawyers, accountants, financial planners, and any other type of professional who works in a real estate related field.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 13 of 43

A great source of potential buyers is referrals from others. Which of the given choices is/are correct regarding potential sources of referrals? There are three options. There are multiple correct answers. 1 2 3

Family and friends Committees and organizations a salesperson belongs to Other real estate related professionals a salesperson knows

©2019 Real Estate Council of Ontario

Lesson 1 | Page 14 of 43

Duty Time as a Potential Source for Finding Buyers Many brokerages divide up the office hours in half-day or three hour increments where a designated salesperson must be on duty in the office. This is often referred to as duty time. Office time may be available to you as a salesperson for servicing phone calls and walk-in people with inquiries. As a new real estate salesperson, especially if you have a small sphere of influence, it is important to do duty time. You get the calls that are not intended for another salesperson or broker and equally important is that it provides opportunities to work on and refine your ability to make a great first impression. The procedure for handling floor duty, assignment of times, and in fact the existence of such times, vary greatly and are completely dependent on brokerage policy and employment contracts between salespeople and the employing brokerage.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 15 of 43

Best Practices and Guidelines for Duty Time If duty time is offered in the brokerage, these tips and guidelines can help: • Be friendly and professional. When on duty, you will be giving potential buyers the first impression of the brokerage. • Be well informed about all listed properties. Have electronic access ready to attain needed information. In particular, keep the most recent print and Internet advertisements within easy reach for fast reference. Have information on good backup or alternative properties to the advertised property. Remember, the caller seldom buys the advertised property. It just caught their interest. It is up to you to find the right property. • Be well organized. Do not shuffle needlessly to get such things as scratch paper, a pen, a calculator, amortization schedules, area maps, and your appointment book. Have the necessary paper and electronic tools ready. Do not frustrate people with, “Hang on, let me find a pen” or “I’ll have to start up my computer.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 16 of 43

Brokerages are obligated to offer duty time to their real estate salespersons. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 17 of 43

Advertising, and Networking as a Potential Source for Finding Buyers Advertising and networking are critical, especially when you are new and want people to know you are there. There are a variety of activities you can do to get your marketing in motion. The benefits of these activities are that they can elevate your brand, grow web traffic, and bolster lead generation. The following six sections contain information on advertising and networking.

Traditional advertising Traditional advertising can be done through drop mail to a targeted area through postal services, door knocker pieces (printed material hung on a door knocker or door knob of the property), or advertising done on benches and billboards. A printed advertisement can be effective at capturing attention. The brokerage will often do brokerage advertising. Even if you do not have something to list, put your friendly and approachable headshot on your materials to get yourself known.

©2019 Real Estate Council of Ontario

Web advertising Web advertising Spending money on online realestate advertising can bring buyers in for business. There are different types of ads to promote your business or a particular listing, such as text ads, display ads with static or animated banners or video ads with short clips. As a salesperson you can advertise through search engines like Google AdWords or look for opportunities to advertise for free with other providers like Craigslist, Facebook, the DDF (if your Brokerage has allowed for the DDF Access), Kijiji, and Real Estate Portals.

Mobile marketing Mobile marketing A popular trend is mobile marketing. First and foremost make sure that any website you have is mobile friendly. If you open your site on your phone, and you have to pinch and zoom, it is not responsive or mobile friendly. Be sure to use a website building platform that features responsive design. You can buy advertising that targets buyers within a geographic location, searching for specific words and have your ad appear on prospective buyers’ mobile phones and devices.

©2019 Real Estate Council of Ontario

Blogs can be a good way to write about your city and neighbourhood. People research prospective homes and locations online first when moving to a new area. Your content can generate leads. Get comfortable with video. People tend to watch videos more often than read when given the choice. Whether you do the videos yourself or hire a real estate specific videographer, ensure it is good quality. Once it is posted it is out there for good, even if you take it down.

Social networking Social networking A growing trend in the field, social networking enables you to build relationships and keep yourself top of mind with potential buyers. Facebook, Twitter, Instagram, and YouTube are just some of the places you can put out content and listings to grow your business. Sites such as Yelp can be a good way to get your name out there and even gather testimonials of happy customers to build your brand. Social channels such as Facebook and Instagram, with Live Feed capabilities, allow you to stream from an open house or out in a neighbourhood. This allows you to generate interest from potential sellers and buyers. The services will notify your followers when you are live and promote the recording after it ends. Use your headshot to build recognition. Post pictures of properties and start conversations to build a following that lead to opportunities. Twitter is used to ©2019 Real Estate Council of Ontario

gather followers, disseminate content to attract buyers, and build credibility. It is important not to be aggressive in these forums, but rather be helpful and provide information that followers will like and share with others. You want to become a trusted source.

Traditional networking Traditional networking A selling career begins with building relationships in the brokerage. The ultimate test lies in developing meaningful relationships and connections in the marketplace. Your first few weeks are critical in setting up systems that will move your career forward. While networking can be as simple as writing down a list of everyone that you know and contacting them, successful salespeople prefer a more focused plan that challenges them to develop worthwhile personal contacts on a continuing basis. Attend all the events put on by your local real estate board (for example, courses, fundraising events, Christmas parties etc.). These are great ways to develop relationships with other sales representatives in your community. It gives you opportunities to ask questions about the real estate world and how they deal with challenging situations, new technologies, advertising, etc. There are a variety of networking groups, such as Toast Masters, the Chamber of Commerce, or Business Networking International ©2019 Real Estate Council of Ontario

(BNI). These paid groups tend to attract paying customers. If you cannot find one to join, you can go to free events through portals like Meetup or create your own events, such as seminars to generate opportunities. Enter all contacts into your contact management program immediately. Be the first to follow up with your contacts. Just give them a call and get permission to “stay in touch.” That is all you need at first.

Business cards Business cards are very important to a real estate salesperson in an industry with large amount of networking and serious competition. It is important that you put some thought, time, and effort into the creation of your business card. This will represent you as a brand, a person, and a professional. If you use a headshot on your card, make sure it is friendly and approachable. Ensure your contact information is clear and visible for all ages, and leave room for people to make notes on it. Let them know that you appreciate referrals. Your calling card will represent you once you walk away and leave it behind.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 18 of 43

A salesperson plans to use a variety of methods to elevate their brand, grow web traffic, and generate leads. Targetting the ads to buyers' mobile phones when in specific geographic location or using a responsive site are some of the tactics a salesperson can use to grow web traffic. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 1 | Page 19 of 43

A salesperson plans to use a variety of methods to elevate their brand, grow web traffic, and generate leads. Modern advertisements to generate leads can be done through dropping mails by postal services and door knocker pieces. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 20 of 43

A salesperson plans to use a variety of methods to elevate their brand, grow web traffic, and generate leads. Streaming on Facebook or posting on instagram are the social networking methods that can be used by a salesperson to promote the content. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 1 | Page 21 of 43

A salesperson plans to use a variety of methods to elevate their brand, grow web traffic, and generate leads. Banner advertisements and Google AdWords are the web advertisements that can be used to grow web traffic. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 22 of 43

A salesperson plans to use a variety of methods to elevate their brand, grow web traffic, and generate leads. Joining groups and meeting industry professionals do not contribute in generating contacts in the real estate field. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 23 of 43

Farming a Neighbourhood or Community, Including Door-to-Door Canvassing, as a Potential Source for Finding Buyers A systematic method of prospecting known as “farming”, has been successfully used by many real estate salespeople. Farming involves the selection of a specific territory, geographic or otherwise (for example, social), and the development of that territory by the sales representative. The farm territory does not need to be large. As a salesperson you can develop a rewarding career in residential real estate sales with a base of as few as 200 properties in larger cities or less in rural towns. Decide what type of properties you want to sell and what type of buyers you want, then select a territory you know matches. It is an advantage to be known by some of the persons in the farming area. Regardless, a salesperson must become aware of, and familiar with, all the political, social, physical, and economic features of the entire territory. You want to distinguish yourself as the area expert and that takes work.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 24 of 43

The Objective of Farming The overall objective of farming is to become acquainted with everyone who resides within the area and make a good impression; to become established in their minds as the person who offers real estate services in that area. To accomplish this goal you need regular communication through an organized logical system. Mailings and door knocker advertising are tools that can assist, but are only aids in the overall campaign. Fortunately, many customer relationship management (CRM) software programs are available to assist in the process. These programs can help organize your network and produce both electronic and print mailings. However, remember that there is no substitute for personal contact. Make certain that the CRM enhances your face-to-face visits and telephone calls, not replace them.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 25 of 43

A Targeted Approach By farming a neighbourhood you can get to know potential buyers, ask them if they would like monthly updates, and generally make friends with the homeowners. You want to demonstrate that you also care about the neighbourhood. Have something to give them; for example a sheet with a list of local tradespeople, schools, emergency numbers, and your contact information in case they need a great real estate salesperson in the future. If you have sold a property in the area use that to start discussions. Offer them information and request they pass on your name to people they know who want to buy in the area. It is a good practice to target homes that look like they are undergoing some remodeling. There is a good chance that the homeowners are getting ready to put their home on the market or that they just moved into the home. If it is the latter, they may have another home to sell. Always have some quick statistics on recent sales in the neighbourhood. It is important that a salesperson not have any discussions with or leave any material with an owner whose property is currently listed with another brokerage. This is a violation of the Code and could be seen as soliciting clients under

©2019 Real Estate Council of Ontario

contract with another brokerage. A responsible salesperson would always check whether any properties in the farm area are currently listed for sale before delivering any targeted advertising material. To ensure compliance with the Code, all mass mailing advertising will have a disclaimer statement included clarifying that the materials are not intended to solicit clients who are already working with another brokerage.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 26 of 43

A salesperson is preparing to farm a neighbourhood and asks their broker of record for advice on this method of prospecting. What are some of the best practices that the broker of record could share with the salesperson? There are six options. There are multiple correct answers. 1 2 3 4 5

Become acquainted with as many people as possible who reside within the area Target homes where the landscaping appears to be undergoing improvements Mailing campaigns and door knocker advertising are tools that can assist Leave door hangers on homes with a Brokerage For Sale sign on the front lawn Regular communication through an organized, logical system

6

Post signs advertising yourself on people’s front yards (much like a politician’s sign)

©2019 Real Estate Council of Ontario

Lesson 1 | Page 27 of 43

hen potential buyers sign in at an open house, have them confirm if they are already working with a salesperson. This is a good time to capture their information. This will give you the opportunity to answer their questions appropriately and allow you to beginWith to build aBuyers good faith relationship with other Prepare a Buyer’s Package for Initial Contact salespeople. Ask who their sales representative is and reach out to their salesperson for follow up afterwards. You will want to gather general information

Every buyer you meet should receive a buyer’s package in hopes of retaining them as a client or customer. Properly educating your real estate buyers about the process of buying a home can help your transactions go more smoothly. It will ensure that your buyers pass your name along to all of their friends and family in the future. With all the information on the internet, some salespersons just assume their buyers know what they need to know. Setting expectations upfront and educating the home buyer can help avoid challenges later on in the process. You will walk through the process with: 1. Leading practices to prepare a customizable buyer’s package 2. Leading practices for what to include in a buyer’s package 3. Optional tools to include in a buyer’s package

©2019 Real Estate Council of Ontario

Lesson 1 | Page 28 of 43

Leading Practices to Prepare a Personalized Buyer’s Package A buyer’s package is a valuable tool to give buyers in order to build a professional image that positions you as an expert. Have a friendly headshot, ensure your contact information is clearly visible, and ask qualifying questions to help you tailor it to the buyer for a personal experience. To begin assembling a personalized package you need to collect information on: • Family details • The purpose for moving • Wants and needs • Budget and pre-approvals Any property listing you include will need to meet the criteria of these qualifiers.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 29 of 43

Providing Valuable Information Some offices have packages or files that contain standard paperwork when working with sellers or buyers. A salesperson could use those or add to the package by inserting information specific to a particular buyer depending on the neighbourhood and level of buyer. Often buyers are not aware of hidden costs associated with purchasing a property. Costs, such as land transfer fees, lawyer’s fees, and third-party expenses, are not top of mind when they make their budgets. Providing a list of these costs, along with referral information in advance, makes the buyer’s package a valuable tool that saves everyone time. Be sure to provide more than one referral name for each referral to give the buyer the ability to make their own choice. The best practice is to provide three different names for any one category. You do not want to appear biased to one third-party professional or another. If you only give them one choice and things go badly you do not want to be the person they blame. Better to let them choose for themselves. Packages can be enhanced with modern presentations on tablets or even links to videos online providing additional information and tips of value.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 30 of 47

Leading Practices for What to Include in a Buyer’s Package Anticipating buyer needs and being proactive will help you cement your expertise with buyers and increase your opportunities for referrals. The documents you could provide for an effective buyer’s package are: • • • • • • • • • • • •

A cover page in colour Your contact information A list of what they should expect from you as their salesperson An overview of what they should expect throughout the process (for example, the home search, writing an offer, negotiations, inspections and appraisals, title work, the closing process) Brokerage information Property listings that match their criteria Lists of third-party referrals (best practice is to provide three for each category) Information on the mortgage pre-approval process Common buyer mistakes A map of the area (if they are moving from out of town) Testimonials from happy buyers A glossary of real estate terms

©2019 Real Estate Council of Ontario

Lesson 1 | Page 31 of 43

A salesperson’s buyer is ready to start looking at properties. The salesperson has decided to assemble a buyer’s package for them. What should the salesperson consider when assembling a buyer’s package for the buyer? There are three options. There is only one correct answer. 1 2 3

Personal contact information for the Broker of Record A list of clauses that might be included in a schedule to an agreement of purchase and sale Needs and wants

©2019 Real Estate Council of Ontario

Lesson 1 | Page 32 of 43

hen potential buyers sign in at an open house, have them confirm if they are already working with a salesperson. This is a good time to capture their information. This will give you the opportunity to answer their questions appropriately allow you to begin to build a good faith relationship with other Optional Tools to Include in and a Buyer’s Package salespeople. Ask who their sales representative is and reach out to their salesperson for follow up afterwards. You will want to gather general information

Some of the good additions to the buyer’s package that will help support your content and work to personalize it to your buyers are: • Stats on properties, neighbourhood specific data, schools, frequently asked questions • Links to YouTube videos you have created as an introduction or where you are presenting relevant information and tips • Social media information, links and resource websites of interest. Try and keep them on your content and pages, but linking them to reputable sites, such as RECO for articles and content, will ensure that they are receiving accurate information • Feel free to customize and add any other documents or information you think your buyers would find valuable

©2019 Real Estate Council of Ontario

Lesson 1 | Page 33 of 43

A salesperson is making a list of items to include in the buyer’s package. What are some of the items he would want to include? There are six options. There are multiple correct answers. 1 2 3 4 5

Contact information Municipal property tax calculations Neighbourhood specific data Property listings that match their criteria An overview of what buyers should expect throughout the process

6

Referral information for a preferred lawyer, home inspector, etc.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 34 of 43

hen potential buyers sign in at an open house, have them confirm if they are already working with a salesperson. This is a good time to capture their information. This will giveIdentify you the opportunity answer their questions appropriately and allow a youBuyer’s to begin to build a good faith relationship with other thetoOptions for Personalizing Package salespeople. Ask who their sales representative is and reach out to their salesperson for follow up afterwards. You will want to gather general information

It is important to understand what your buyers are looking for. A clear picture only comes through by asking qualifying questions and going through a list of features they want and need. As a salesperson, you can save everyone a great deal of time by anticipating needs and providing information guides that complement the search. Moving forward you will learn: • Qualifying questions to identify different buyer needs • Buyer preference list to assess specific priorities • Different types of home buyer’s guides based on needs/preferences

©2019 Real Estate Council of Ontario

Lesson 1 | Page 35 of 43

List of Qualifying Questions to Identify Different Buyer Needs Show your professionalism and care by asking qualifying questions to identify different buyer needs. Qualifying questions will help you show the best property matches to the buyer. When a salesperson asks questions it creates an opportunity to provide personalized service, cement their expertise and build their relationship. The following six sections contain information on qualifying questions to identify different buyer needs.

Representation

Timing

• Are they working with a salesperson? This is the most important question to ask and the very first that needs to be asked. You are legally obligated to respect a salesperson-buyer relationship and you will be limited in what you can and cannot say in accordance with Section 7 of the Code of Ethics. • How many houses have they looked at? Many buyers now come with research they have done online. This question will help you qualify them as potential clients or if they have already been working with other salespersons. • What is their reason for buying and why now? Tailor your services to a buyer’s situation by getting insights into their reasons and motivations. • What if the buyer found the perfect house tomorrow? Gauge a buyer’s readiness to move and get insight into their ideal timeline. Are they looking to move in the next three months? If they are first-time buyers, now is the time to discuss the closing process.

Financial

• How long does the buyer think they will live in the house they buy? Some buyers may want a house they can enjoy for now, but will be easy to sell later. Some may want a home for their retirement years. Others may want a forever home and have more specific requirements. • What is their budget or have they been pre-approved for a mortgage? ©2019 Real Estate Council of Ontario

There is no point showing them a home they may fall in love with if they cannot afford it. Open the financial conversation and be prepared to refer lenders if they are not preapproved. • What monthly mortgage payment are they comfortable with? Just because they qualified for a $800,000 mortgage does not mean that it is what they are comfortable with. Work within their comfort zone as much as possible. If they have not thought about what they can afford, it might help ground them and help you both understand what they can or want to afford.

Wants and needs

• Do they have an understanding of the costs that come along with purchasing a home? Most buyers understand that there is a down payment, but often forget about other added costs such as the lawyers, inspectors, movers, etc. • What are their needs (for example, number of bedrooms, bathrooms) versus their wants (for example, hardwood floors, a pool)? It is important to know the difference between what they need and what they want from the beginning to save everyone time and show your professionalism. As you view homes the list may change. Keep your notes updated and adjust your future showings to reflect their growing changes. • What is a deal breaker for them? Roads with a lot of traffic? Apartment complex neighbors? No front yard? Save time by knowing their deal breakers upfront.

Lifestyle

• How many people are in their household? Do they have guests that stay over often? This will help you better understand their needs for space. Sometimes a family believes they need three bedrooms, but with visitors staying for extended periods of time, there may be a need to expand to more bedrooms. • What are their three favourite neighbourhoods? This is a good way to talk about where they would like to live, how important schools are, and showcase your neighbourhood expertise. • What physical property features will meet their lifestyle needs? ©2019 Real Estate Council of Ontario

Learn more about the lifestyle of your buyers and begin the discussion about features they are looking for.

Contact

• How important is an outdoor/garage space? In many areas and price ranges, this question can quickly eliminate a number of options, so it is good to discuss it early. Would they be willing to live in a condo with a parking space or do they require a private back yard? • How does the buyer prefer to be contacted? Personalize your service to them and how they like to be contacted. Offering to communicate via phone, email, text or even Skype shows flexibility and accommodation. This is also the time to set expectations as to when the buyer (and you) are available.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 36 of 43

A young couple is looking for a new home. They currently live in a two bedroom apartment with two children and are expecting a third child soon. They have been to a few open houses in a rural town and looked at several homes on Realtor.ca®. Their family is growing, and they want to live in a family-friendly neighbourhood near a school. They spend a lot of time entertaining friends and having dinner parties. Asking the buyers about their reason as why is a rural town important to them and when would they like to move are two of the qualifying questions that a salesperson would ask to identify the best property matches for the buyers. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 37 of 43

A young couple is looking for a new home. They currently live in a two bedroom apartment with two children and are expecting a third child soon. They have been to a few open houses in a rural town and looked at several homes on Realtor.ca®. Their family is growing, and they want to live in a family-friendly neighbourhood near a school. They spend a lot of time entertaining friends and having dinner parties. Asking the buyers about why a rural town is important to them and when they would like to move are two of the qualifying questions that a salesperson would ask to identify the best property matches for the buyers. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 38 of 43

A young couple is looking for a new home. They currently live in a two bedroom apartment with two children and are expecting a third child soon. They have been to a few open houses in a rural town and looked at several homes on Realtor.ca®. Their family is growing, and they want to live in a family-friendly neighbourhood near a school. They spend a lot of time entertaining friends and having dinner parties. To identify the best property matches for the buyers, the salesperson would ask them about their budget and if they have been pre-approved for a mortgage. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 39 of 43

A young couple is looking for a new home. They currently live in a two bedroom apartment with two children and are expecting a third child soon. They have been to a few open houses in a rural town and looked at several homes on Realtor.ca®. Their family is growing, and they want to live in a family-friendly neighbourhood near a school. They spend a lot of time entertaining friends and having dinner parties. To identify the best property matches for the buyers, the salesperson would ask the buyers about their favourite paint colour. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 40 of 43

Buyer Preferences List to Gather Specific Priorities There is a difference between wants and needs. It is best to understand them both as you look for properties. Including a list directly in the buyer’s package will help everyone be on the same page. A small list of priorities you could include would be: • Location • Age of home • Style of home • Stories • Bedrooms • Bathrooms • Types of rooms (for example, library, office area, gym, etc.) • Basement • Kitchen features • Single or multiple car garage (for a car or just for storage) • Home energy • HVAC • Flooring • Fireplace • Front/back yard • Walk-in closets • Deck • Swimming pool • Amenities • Basement apartment

©2019 Real Estate Council of Ontario

Lesson 1 | Page 41 of 43

Different Types of Home Buyer’s Guides Based on Needs/Preferences Buyers looking at houses versus buyers looking at condominiums will have different priorities with specific information needs. Some buyers may need information on their rights, what to look for, or extra expenses that may come up during the purchase of a property. Understanding what your buyers are looking for and tailoring your buyer’s package using trusted outside content will help you put together a comprehensive package with accurate information. A number of associations like RECO, the Canadian Mortgage and Housing Corporation (CMHC), and other groups have their own guides you can use. Some even allow space to insert your own contact information to help you to demonstrate your helpfulness. Go to their websites, download them, and if you can, customize them. This allows you to look professional, meet buyers’ needs, and save time explaining other processes surrounding home buying. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic. ©2019 Real Estate Council of Ontario

Lesson 1 | Page 42 of 43

RECO and CMHC are the only trusted websites that offer brochures and pamphlets for home sellers and buyers. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 43 of 43

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Potential sources of buyers

The growth of your business is key to being successful, and finding potential sources of buyers is at the heart of it. Open houses, duty time, farming and networking put you physically in the path of potential buyers. Activities, such as putting out signs for calls, encouraging referrals, advertising, and building an online presence, create opportunities for potential buyers to reach out to you.

A buyer’s package for initial contact

Make sure you are doing a variety of activities that will ensure that you are not relying on any one method. A buyer’s package is a good tool for a salesperson to use during the sales process. It is another way to show value, to showcase yourself and how you are different from other salespersons. Having a friendly headshot and contact information is just the beginning. It is truly the content that helps you shine. Include ways to collect information from your buyer that will help you give them personalized service. Provide valuable information, such as a list of additional costs they should plan for, a variety of information on third-party professionals they may need, and perhaps some geographical information. These are ways to set yourself apart, and position yourself as an expert and professional. A package, no matter what form it takes, must provide value. Think of ways you can help your buyers and tailor the package to reflect it.

©2019 Real Estate Council of Ontario

Options for personalizing a buyer’s package

What can set you apart and is critical is understanding what your buyers are looking for and personalizing your services to them. This can only be achieved by asking qualifying questions that will help you put together a picture of what your buyers want and need. Once you have asked the first and most important question: “Are you currently working with a salesperson?” and taken steps to satisfy yourself they are not, it is time to begin the qualifying process. A salesperson can save everyone time and frustration by having a list of qualifying questions to ask the buyers. This enables the buyers to gather their priorities and get a clear picture of what to search for. Information such as their motivations, timing preference, budget, and wants and needs based on lifestyle should all surface for you to know what to look for in the property search. Once you have all the information, you can begin to personalize buyer’s packages to suit different needs, enabling you to stand out from the competition.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 1 of 51

Lesson 2: Salesperson’s Obligations to Buyers

This lesson is focused on describing your obligations as a salesperson when working with buyers, whether they are clients or customers. You will discuss the relationship options with a potential buyer and your obligations when showing property to a potential buyer.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 2 of 51

Discussing Relationship Options With a Potential Buyer In this lesson you are revisiting ideas presented earlier, what the differences are between a client versus a customer relationship and how to establish if a seller or buyer is to be a client or a customer. This is important because these differences define the salesperson’s regulatory obligations and actions throughout the real estate transaction. Upon completion of this lesson, you will be able to: • Discuss relationship options with a potential buyer • Describe the salesperson’s obligations when showing property to a potential buyer Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 3 of 51

Reviewing Differences Between Client Versus Customer Relationship Options The difference between a customer and a client is very important. A salesperson must be careful that they know the difference so they can represent people properly and be able to explain it to sellers and buyers effectively. As you learned earlier, a customer is typically someone using a salesperson to help oversee the buying or selling of a house. You owe them competent service, honesty and good faith but you do not owe them confidentiality and fiduciary duty. In contrast, a client allows a salesperson to represent them and expects all information known by the salesperson to be used for their benefit. The salesperson is bound by confidentiality and has a fiduciary duty to only act in their client’s best interest.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 4 of 51

Examples of Differences Between Client and Customer Although there is an obligation under REBBA to document a buyer representation agreement in writing, a buyer could become a client by verbal agreement or by the words and actions of the salesperson. In that case, any information the buyer shared with the salesperson must be kept confidential. When a client shares information with the salesperson, such as the maximum price they are willing to pay on a property, it is a confidential information and is not to be shared with anyone else unless given specific permission to do so. Alternatively, if a buyer is a customer and your seller client asks if the buyer will go higher and the buyer had previously disclosed their budget to you, you are bound by the duty of disclosure to your seller client to answer truthfully. As a salesperson, you have to be careful how you interact with sellers and buyers and know the difference between the duties and obligations owed to customers and clients.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 5 of 51

Representation Agreement Versus Customer Service Agreement Sellers and buyers may enter into one of two types of agreements with a brokerage, a representation agreement or a customer service agreement. Both are considered legally binding agreements. When someone enters into a representation agreement, they are considered a client of the brokerage. As a client: • The brokerage has an important obligation to them, called fiduciary duty, and must promote and protect their best interests in the real estate transaction. • If they are looking to purchase a property, under a legislated Code of Ethics, you as the salesperson must take reasonable steps to determine, and then disclose to them, all material facts about the property. When someone enters into a customer service agreement, they are considered a customer. As a customer: • The brokerage does not have the obligation of fiduciary duty, but is obligated to treat them with fairness, honesty and integrity, and to provide them with conscientious and competent service. • You as a salesperson only have to disclose to the customer the material facts that you already know or ought to know. ©2019 Real Estate Council of Ontario

Lesson 2 | Page 6 of 51

A salesperson is reviewing the differences between a customer and a client relationship with a broker. A customer is someone that uses a salesperson to help assist in the selling or buying of a house, but not to act directly on his or her behalf. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 2 | Page 7 of 51

A salesperson is reviewing the differences between a customer and a client relationship with a broker. A client allows a salesperson to represent him or her and expects all information known by the salesperson to be used for his or her benefit. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 8 of 51

A salesperson is reviewing the differences between a customer and a client relationship with a broker. A salesperson is bound by confidentiality and fiduciary duty to only act in a customer's best interest. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 2 | Page 9 of 51

A salesperson is reviewing the differences between a customer and a client relationship with a broker. Clients are owed honesty and good faith, but the salesperson doesn’t owe them confidentiality and fiduciary duty. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 10 of 51

Complying with Section 10 of the Code: Information Before Agreements It is important to introduce client and customer agreements to potential buyers as early as possible in the relationship. Every brokerage has a different set of services such as referring properties, setting up viewings and negotiating contracts, etc. You must make sure that your seller or buyer is fully educated on the services available through your brokerage and the difference between customer and client relationships before they sign any written agreement. It is critical that you obtain written acknowledgment from the buyer that they have received and understand the information. Section 10 of the Code, information before agreements, addresses what must be discussed before entering into an agreement with a seller or buyer in respect of trading in real estate. You must inform the seller or buyer of: • Brokerage services and their alternatives provided under the agreement • What circumstances may come up for both customers and clients if the brokerage represents more than one seller or buyer • How services being provided would be altered when dealing with multiple clients along with what consent would be needed in writing

©2019 Real Estate Council of Ontario

Lesson 2 | Page 11 of 51

Compliance With Documenting the Relationship Between the Brokerage and the Buyer Many brokerages develop their own policies for working with buyers that go beyond what’s in the regulatory framework. For example, some may have policies that require documenting the relationship with a buyer before the salesperson shows a property or within a specified amount of time after their first meeting. A salesperson needs to familiarize themselves and comply with those policies. They constitute both an ethical and a business obligation for a professional salesperson.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 12 of 51

Contents of Written Agreements As per Section 11 of the Code, it is a salesperson’s responsibility to sit down with the buyer and explain the contents of the written agreements before getting a signature. The written agreement must: • Include the date it takes effect and when the agreement expires. If the contract is longer than six months the buyer needs to initial that they understand it is for a period longer than six months • Specify the remuneration payable to the brokerage for the services provided • Describe how remuneration will be made • Outline what services will be provided While there is the ability to send forms electronically and get electronic signatures, it is best practice to meet in person to go over the document to ensure a buyer is clear on and understands what they are signing.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 13 of 51

Complying with Obligations When Providing Copies of Written Agreements According to Section 12 of the Code, the salesperson must provide a copy of the agreement to every person who is party to the agreement immediately upon signing of the agreement. If the buyers are spouses, make sure that each of them is given a copy, and you must keep a copy for yourself and the brokerage. The copy can be a paper copy or if the party approves, it can be an electronic copy.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 14 of 51

Buyer Representation Agreements Section 14 of the Code focuses on buyer representation agreements. It stipulates that before you draw up any offer, you prepare, sign a representation agreement and deliver it to the buyer for signature. If you have been working with buyers for a while without a representation agreement in place and are at the offer stage, you must prepare one and deliver it to the buyer, before the buyer makes an offer. It is important to have a representation agreement signed prior to signing the offer as it confirms your relationship with the buyer. This information is documented on the Confirmation of Cooperation document that is submitted with the Offer. This confirms that the co-operating brokerage is representing the interests of the buyer in the transaction.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 15 of 51

Agreements with Customers Section 15 of the Code refers to agreements with customers. The Code requires that relationships be documented in writing and signed by the brokerage and given to a customer for their signature at the earliest practical opportunity. Since relationships can be established by implication, providing the buyer with a written agreement will avoid a misunderstanding. A customer must be clearly differentiated from a client. A customer is provided services by way of a service agreement but is not represented and has a non-fiduciary relationship with the brokerage. While the responsibilities are not the same as with a client, a customer service agreement must be in writing, signed on behalf of the brokerage and submitted to the buyer for signature before making an offer.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 16 of 51

Importance of Discussing and Documenting the Relationship Early The importance of documenting the relationship early cannot be stressed enough. Having it documented in an agreement is the absolute best way to ensure that everyone working together is clear on what services are being provided, how the brokerage will be representing the buyer, and what the responsibilities and duties are in either the customer or client relationship; so there is no misunderstanding later. It documents the commitment from the buyer to the brokerage and from the brokerage to the buyer. It covers how and when, or if, the salesperson will be remunerated for their services.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 17 of 51

All brokerages require a buyer to sign a representation agreement before the salesperson shows them a property. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 2 | Page 18 of 51

It is a salesperson’s responsibility to explain to a potential buyer the contents of a buyer representation agreement or a buyer customer service agreement before asking the buyer to sign the agreement. Which of the given information is included in the written agreements? There are three options. There is only one correct answer. 1 2 3

The date the agreement takes effect with an open end date The remuneration payable to the salesperson How remuneration will be made

©2019 Real Estate Council of Ontario

Lesson 2 | Page 19 of 51

Every buyer who is a party to a buyer representation agreement or a buyer customer service agreement must receive a copy of the agreement. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 20 of 51

The Comparison of a Client and a Customer The services differ depending upon whether the buyer is a client or a customer. As a salesperson, you should know about them as it helps outline the importance of your fiduciary duty and adherence to Code 4. The key points that should be remembered are: • Both a client and a customer know about the remuneration that the brokerage may receive as a result of another agreement entered into with another person in respect of the same trade. • Both a client and a customer are provided conscientious service and are demonstrated reasonable knowledge, skill, judgement and competence in providing services. • A salesperson should treat every person they deal with in the course of a trade in real estate fairly, honestly and with integrity. Both a client and a customer are disclosed any material facts known or ought to be known to the salesperson.

©2019 Real Estate Council of Ontario

• If a buyer is in a client relationship with a salesperson, they should take reasonable steps to determine the material facts relating to a property. • If a buyer is in a client relationship with a salesperson, they will promote and protect the best interests of the buyer. • If a buyer is in a client relationship with a salesperson, they have a duty of confidentiality and loyalty to the buyer.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 21 of 51

Brokerage Policies with Regard to Working with Buyers: Documenting the Relationship Before Showing a Property More brokerages are refusing to show properties without an agreement first in place and are including this in their policies. It is important to get into the practice of having agreements in place when working with buyers, whether they are a client or a customer. If a buyer is not comfortable signing an agreement, signing a Buyer Representation specific to the property to be shown is one way to gain their trust and not tie them to you beyond what they may be comfortable doing. It only ties them to you for the specific property you have shown them and explains the terms relating to your agreement with them. On the Buyer Representation Agreement, there is a section that asks for geographic location. In this section you can write in the property address you are showing them. This protects you and the brokerage from the risk of lost time and revenue due to an undocumented relationship. It also clarifies the relationship and how the brokerage is representing the buyer.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 22 of 51

A listing salesperson is going to present an offer from a co-operating brokerage this evening. The broker/manager and the salesperson are discussing the various forms that are involved in a transaction, more specifically, a buyer representation agreement and a confirmation of co-operation and representation. Which of the following statements about the buyer representation agreement and confirmation of co-operation and representation are correct? There are six options. There is only one correct answer.

1 2 3 4 5 6

The confirmation of co-operation and representation stipulates the fees that will be paid to the salesperson. The buyer representation agreement indicates the buyer is a customer. The confirmation of co-operation and representation states that the co-operating brokerage represents the interest of the buyer in the transaction. The confirmation of co-operation and representation states that a buyer representation agreement will be signed in a separate binding agreement. Completing a buyer representation agreement is the salesperson’s legal obligation before a buyer signs an offer. The buyer representation agreement states a salesperson has the authority to act on the buyer’s behalf and the authority to receive the listing remuneration.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 23 of 51

A salesperson is meeting with a family to discuss signing an agreement that will best represent their buyer/brokerage relationship. If a buyer is in client relationship with a brokerage, a salesperson promotes and protects the best interests of the buyer. Identify whether the given statements are true or false. There are two options. There is only one correct answer. True

False

Lesson 2 | Page 24 of 51

A salesperson is meeting with a family to discuss signing an agreement that will best represent their buyer/brokerage relationship. A salesperson discloses only to a customer any financial or other benefit the salesperson or brokerage may receive as a result of recommending real estate products or services. Identify whether the given statements are true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 25 of 51

A salesperson is meeting with a family to discuss signing an agreement that will best represent their buyer/brokerage relationship. If a buyer is in a client relationship with a brokerage, honesty and fairness are owed to the buyer. Identify whether the given statements are true or false. There are two options. There is only one correct answer. True

False

Lesson 2 | Page 26 of 51

A salesperson is meeting with a family to discuss signing an agreement that will best represent their buyer/brokerage relationship. If a buyer is in client relationship with a brokerage, they have a fiduciary duty of confidentiality and loyalty to the buyer. Identify whether the given statements are true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 27 of 51

Describe the Salesperson’s Obligations When Showing Property to a Potential Buyer There are a number of activities a salesperson does that demonstrates compliance with their obligations to both clients and customers when showing properties. These obligations include: • Fairness, honesty, etc. • Conscientious and competent service, etc. • Providing opinions, etc. • Dealings with other salespersons • Services from others • Information before agreements • Seller property information statement • Material facts Next, we will explore how a salesperson can ensure that they include all of these obligations to provide the best service possible.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 28 of 51

Demonstrate Fairness, Honesty As per Section 3 of the Code, a salesperson is to treat every person they deal with in the course of a trade in real estate fairly, honestly and with integrity. When people ask you about the property, you have to be honest with them. If there is something you know about the property, tell them. If there is something you can see, tell them. If they ask you for your opinion, be honest. Not all buyers can see past the beautiful paint and the shiny new faucets.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 29 of 51

Demonstrate Conscientious and Competent Service Section 5 of the Code, conscientious and competent service, relates to a salesperson’s responsibility to provide conscientious service to clients and customers with reasonable knowledge, skill, judgement, and competence when providing those services. When you see something that could potentially pose a problem or you see something that may not be a right fit with a need or want they have, let them know. Buyers have a legal right to competent service. If a buyer tells you what their budget is, be sure to take all of the costs into account so that your buyer is not surprised on closing.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 30 of 51

Providing Opinions Adhering to Section 6 of the Code, providing opinions, means that a salesperson must demonstrate reasonable knowledge, skill, judgement and competence in providing opinions, advice or information to any person in respect of a trade in real estate. You have to be very careful when providing opinions. A salesperson is not an expert at everything and should not represent themselves that way. If the buyer asks you what you think of the asking price, and you do not have the experience or expertise, you need to refer to someone who does. Be transparent, fair, and clear in the opinions you express.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 31 of 51

Dealing with Other Salespersons A salesperson who knows or ought to know that a buyer is a client of another salesperson can only communicate information in any trade through the other salesperson, unless the other salesperson has consented in writing otherwise. This is to adhere to Section 7 of the Code, dealings with other registrants. You will be working with other salespeople for the length of your career. Be fair and forthcoming with them and be as honest as possible without crossing any confidentiality or client privilege lines. Be professional in all of your dealings.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 32 of 51

Activities in Regards to Services from Others Section 8 of the Code, which deals with services from others, means that a salesperson will advise a client or customer to obtain service from another person if they are not able to provide the services with reasonable knowledge, skill, judgement, and competence. Nor will a salesperson discourage them from getting a particular kind of service. Make sure that if inspections are done you are there. For example, a home inspection is to be done by a qualified home inspector. The lender will be sending an appraiser to satisfy themselves as to the value of the property they are financing. Sellers and buyers will also need the services of a lawyer to close the transaction. They may have a lawyer or may ask if you could suggest the name of a lawyer.

©2019 Real Estate Council of Ontario

When others need access to the home and you are to be involved in escorting them, you are responsible to supervise them and to look after the security of the home. Do not give out lockboxes to anyone other than another brokerage that has an appointment to show the property unless the seller has given express permission to do so.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 33 of 51

Gathering Information Before Agreements Section 10 of the Code requires that before entering into an agreement with a buyer, it is necessary to give the buyer information about the service alternatives available to them. This is to ensure the buyer is fully aware of the services the brokerage can provide and describes the different circumstances that can arise in a real estate transaction. This includes what would happen should the brokerage represent more than one client in the same transaction with written consent. Support tools exist to help brokerages explain and make necessary disclosures about the various service alternatives. For example, OREA has created a form, Working with a Realtor, which is one way to highlight what is included in each type of relationship whether it be customer, client or in multiple representation. You must understand these relationships well enough to explain them to sellers and buyers. It is important to review what duties each is owed and allow the buyer to make an informed decision. Also, knowing what is owed to them and what you are legally responsible for disclosing will affect their conversations with you. You should use your best efforts to obtain written acknowledgement that they have received this information. Depending on the buyer’s decision, you will need to prepare the necessary written agreement for either client or

©2019 Real Estate Council of Ontario

customer services. As the salesperson, you will sign the written agreement on behalf of your brokerage and submit it to the buyer to sign. The written agreement of the relationship clearly defines the terms and obligations of both the buyer and the brokerage before moving forward. Once the decision is made, their choice will dictate your activities, such as property research using GeoWarehouse® or PropertyLine to see the Municipal Property Assessment Corporation (MPAC) assessment on the property, and any disclosures that may or may not be made on your findings.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 34 of 51

How to Best Use the Seller Property Information Statement Section 20 of the Code addresses the seller property information statement (SPIS). The statement is an excellent document to gather information about the property, but sellers should understand the implications if they complete it. It asks detailed questions about the property, such as wiring and electrical box, plumbing and flooding, renovations, etc. Because of the implications of completing the document, some lawyers have been recommending that sellers not complete them. The key issue is that if it has been completed, the salesperson must disclose it to a buyer, unless they are directed otherwise by the seller. The risk is that if it is not filled in properly it opens both the salesperson and the seller to possible liability and lawsuits. Even if the information was left off accidentally or was written with facts that the sellers thought were to be true. Section 20 requires that if it is filled out it must be disclosed, unless the seller directs otherwise. When looking at properties you can ask the listing salesperson if there is a seller property information sheet. Ask questions and put them in your personal notes to ensure you are gathering as many details as possible.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 35 of 51

Obligation to Disclose Material Facts By definition under the Code of Ethics, material facts means, with respect to the acquisition or disposition of an interest in real estate, a fact that would affect a reasonable person’s decision to acquire or dispose of the interest. Material facts may be identified on the listing data sheet or may be apparent when viewing the property or through other sources. It is factual information about the property that would, in the case of a buyer, affect a reasonable person's decision to purchase the property. For example, how many bedrooms and bathrooms does it have? Does it have a kitchen and how many? Does it have a finished basement? How big is the garage? If you can see it, it is your job to report it. Other material facts may be more technical in nature or not as easily assessed, for example the age of the home, the type of plumbing, or electrical service and panel. Other types of material facts may need some other research, for example is the property in a flood plain or on an airport flight path. These are all facts that are pertinent to the offer or a buyer coming through the house. Anything discovered is something that is to be shared with the buyer.

©2019 Real Estate Council of Ontario

In addition, if your buyers have expressed a concern about living in a home where something horrible has happened such as a violent crime, be sure to make the necessary enquiries. Any disclosure should be documented for the buyer. Transparency is important and necessary.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 36 of 51

An unrepresented buyer comes through an open house and asks the listing salesperson for advice regarding the structural condition. The salesperson informs the buyer that he is representing the seller but that most buyers seek the assistance of a home inspector to evaluate the condition of a property. The given scenario matches with Section 3: Fairness and honesty of the Code of Ethics. There are two options. There is only one correct answer. True

False

Lesson 2 | Page 37 of 51

If a buyer has told a salesperson what their budget is, they do not show them properties that are beyond the budget. The given scenario matches with Section 4: Conscientious and competent service of the Code of Ethics. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 38 of 51

A salesperson should only make educated statements regarding the value of a property. The given scenario matches with Section 6: Providing opinions of the Code of Ethics. There are two options. There is only one correct answer. True

False

Lesson 2 | Page 39 of 51

When a buyer who is represented by another brokerage calls for information on one of your listings, only communicate information to them through their salesperson. The given scenario matches with Section 7: Dealings with other registrants of the Code of Ethics. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 40 of 51

A salesperson is showing a buyer a property that was previously used as a day care centre. The buyer asks the salesperson whether HST would apply to the sale. The salesperson thinks it may but is not sure. The given scenario matches with Section 8: Services from others of the Code of Ethics. There are two options. There is only one correct answer. True

False

Lesson 2 | Page 41 of 51

A salesperson meets a buyer for the first time and explains the type of services that are offered by the brokerage. The given scenario matches with Section 11: Information before agreements of the Code of Ethics. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 42 of 51

A salesperson is showing a buyer client through a property and refers to a document that was provided by the listing salesperson which contains additional information on the property. The given scenario matches with Section 22: Seller property information statement of the Code of Ethics. There are two options. There is only one correct answer. True

False

Lesson 2 | Page 43 of 51

A salesperson is showing a buyer a property that backs onto vacant land. The buyer asks if there are any plans to develop the vacant land but the salesperson is unaware of any. The given scenario matches with Section 21: Materials facts of the Code of Ethics. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 44 of 51

Client Services Versus Customer Services Client A client expects that the salesperson who represents them will use all their knowledge and information for their benefit. This means that the salesperson owes a fiduciary duty to act only in their client’s best interest. In addition, anything the client shares with their salesperson is confidential. Customer A buyer may not wish to be under contract as a client with a brokerage but would rather be treated as a customer. The essential difference between services is you work for a client but you only guide a customer. A salesperson would not advise a customer on how to negotiate or to provide other professional advice as this would indicate a client relationship where one did not exist. A customer may ask you to put their offer in writing and present it to the seller. If the buyer is your client it is your duty to take reasonable steps to determine and confirm the material facts and advise the buyer. It is also your duty to do necessary research by going to GeoWarehouse® or the Municipal Property Assessment Corporation (MPAC) to gather available information. You are there to protect the buyer client’s interests when negotiating on their behalf. With a customer you do not negotiate, you present the offer. However, a salesperson is obligated to treat every person, whether they are a customer or client in a real estate transaction, with fairness and honesty. ©2019 Real Estate Council of Ontario

It is important for a buyer to understand which relationship they are in and what they can and cannot expect from you. Lack of clarity in expectations often lead to disputes and buyers feeling misrepresented. You can reduce this risk by making certain the relationship is clearly understood and documented in writing.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 45 of 51

A salesperson is discussing options with a family who came to the brokerage during duty time. They discuss their options regarding representation. The salesperson when in discussion with the family should say “Our brokerage can represent you as a client, or we can have a customer relationship. There is no rush. You have plenty of time to determine which relationship you would prefer later, as the distinction is not that critical.” Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 46 of 51

A salesperson is discussing options with a family who came to the brokerage during duty time. They discuss their options regarding representation. The salesperson when in discussion with the family should say “If you sign a representation agreement, you become our client. In this case, we owe you fiduciary duties, which means we must protect and promote your best interests. If you sign a customer service agreement, our obligation is to provide you with accurate information and treat you fairly, honestly and with integrity.” Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 47 of 51

A salesperson is discussing options with a family who came to the brokerage during duty time. They discuss their options regarding representation. The salesperson when in discussion with the family should say “If you already have some kind of a relationship with another brokerage, I would strongly advise you to switch over to us. We can guarantee that you get the best service above and beyond what you would get from our competitors.” Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 2 | Page 48 of 51

A salesperson is discussing options with a family who came to the brokerage during duty time. They discuss their options regarding representation. The salesperson when in discussion with the family should say “Whether you opt for a client or a customer relationship, I need to point out that in both cases we are obligated to disclose all known material facts to you about a property in which you are interested.” Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 49 of 51

Obligations to Clients When Showing Properties When showing homes you want to make sure that you are meeting most, if not all of your client’s needs and criteria regardless of the remuneration being offered. It is your obligation to inform your client before showing them the property that they may be responsible to pay the remuneration on top of the purchase price. Let them decide whether or not they want to see the property. Best Interests You want to work in your client’s best interests and work within their buying criteria. If they are qualified for a certain amount, only show them properties within budget. Otherwise, it can be interpreted as if you are working in your best interest and not theirs. Properties That Meet Buyer’s Criteria When considering a buyer’s criteria it is important to listen and know as much about your clients as possible. This is essential to meet their criteria and stay within the line of fiduciary duty adhering to Codes 4 and 19. You are expected to inform the buyer of all properties that meet the buyer’s criteria regardless of the amount of remuneration being offered.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 50 of 51

Demonstrate Compliance with a Salesperson’s Obligation to Clients When Showing Properties As a salesperson, you are responsible to point out or ask any questions needed to discover material facts about the property and relay the information to your client. A material fact as defined in the Code of Ethics and as it relates to a buyer is a fact that would affect a reasonable person’s decision to acquire the property. You have an obligation to a buyer client to take reasonable steps to discover and disclose such material facts. As you recall, a latent defect is something that you cannot necessarily see. You would need to ask questions or in some cases may require an intrusive inspection to discover it and in some cases, it may not be known. For example, mould hidden behind a wall in the basement. The seller may not even know it is present. A patent defect is something you can see by visual inspection. For example, mould that is clearly visible around a window. In this case, you would point it out to the buyer. It is your duty to look out for your buyer’s best interest. Keep their criteria in mind, and point out any and all material facts that could influence their decision, whether latent or patent defects or other facts about the property.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 51 of 51

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were discussed in this lesson.

Relationship options with a potential buyer

When you have determined that a potential buyer is not a party to a representation agreement with another brokerage, the next step is to qualify the buyer. There is more work necessary when moving forward to qualifying the buyer and establishing a relationship as client or customer. It is important that you know the critical differences between a client and a customer and be able to explain them, because it will shape the conversations you have with them moving forward. While honesty, integrity and competent service are due to all, confidentially and fiduciary duty are owed to clients and you will have to explain that to buyers as they decide on the type of relationship they will enter with your brokerage.

Obligations when showing property to a potential buyer

It is important to discuss the differences with buyers and have them commit in writing to their choice before business moves too far forward. A growing number of brokerages will not allow their salespeople to book a viewing until they have a signed agreement identifying the type of relationship. So making it a habit to explain and establish the relationship and put it in writing is a best practice and will serve you well in your career. We explored a salesperson’s obligations to buyers when showing properties. Keep in mind the difference between a client and a customer. A salesperson must adhere to the Code when conducting business. This part of the lesson was divided into key topics. The Code prohibits you from working with another salesperson’s clients without the other salesperson’s written consent to do so. Fairness, honesty and conscientious service are owed to all, as well as disclosing material facts.

©2019 Real Estate Council of Ontario

When recommending third-party services you want to make sure you are impartial. You want to offer multiple sources and allow the buyer to choose the third party that best suits their needs. There are differences in your duties and obligations regarding best interests, properties and material fact disclosures when dealing with a client versus a customer. And, as you learned earlier in this course, these duties are also altered in multiple representation situations.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 1 of 24

Lesson 3: Selection of Properties to Show

This lesson reviews leading practices in qualifying your buyer, and continually assessing their needs and wants as these may change once a buyer starts looking at properties. In other words creating a property profile sheet. The lesson is also about how to determine which properties are most suitable for the buyer to view.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 2 of 24

Identify Buyer Needs and Property Requirements to Select Appropriate Properties to Show Providing conscientious competent service not only helps to minimize risk, but also better ensures that buyers receive the professional help needed to make an informed decision about property. Upon completion of this lesson, you will be able to: • Identify buyer needs and property requirements • Identify properties that meet the buyer’s criteria Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 3 of 24

How to Select Properties to Show Buyers Being a buyer can be a very scary, complicated and confusing process. It is your job to help alleviate those fears and make the process as seamless and simple as possible for your buyer, allowing your buyer to make informed decisions. The following material will deal with the most common services typically provided by a salesperson to a buyer before the offer is made or negotiated. The following six sections contain information on each service. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Establish a Buyer Profile Establishing a buyer profile involves conducting a detailed interview with the buyer to understand property specifications and their special needs and/or requirements. Typically, buyers do some research beforehand. So when they come to you it is important to get a good picture of who they are and what they are looking for so you can help them achieve their goals. The most direct method to know what a buyer wants is to ask: • “Why are you looking to buy a home?” • “What is your family’s needs? How big is your family?” • “What is your location/area preference?” • “What is your timeframe?” • “What is your budget? Have you been preapproved for a mortgage?” ©2019 Real Estate Council of Ontario

Once you know the answers to the questions you can start the search. Understanding the difference between what they need and what they want will be important. For example, if they are an older couple, a two-storey may not be the best fit for them. A young family or a buyer just starting out would be open to looking at different housing styles, or may insist on having a home with a basement apartment for extra income. Taking the time to help the buyer understand their wants and needs will help you focus your search on the right homes. Otherwise, you risk presenting homes the buyer will see as missing the mark and impact their confidence in your ability to understand what they are looking for.

Providing Area Information Requires providing the buyer with facts. This includes property values and market conditions, and additional information, such as school logistics, neighbourhood details for desired search areas, community profiles, transportation services, etc. GeoWarehouse® is a very good resource for finding neighbourhood values, demographics and where the schools are in a particular area.

©2019 Real Estate Council of Ontario

Identifying Target Properties This service is focused on searching for and identifying properties that meet buyer preferences related to price range, location, property type, age, and floor plans. All local listing service providers have the capability to search for properties using specific search criteria to speed up the search process. It will also include properties that meet certain requirements, such as the condition of the home, closing date, fixtures/chattels, outbuildings, lot size, services (for example, water, sewer, natural gas), etc.

©2019 Real Estate Council of Ontario

Viewing and Showing Properties Identifying properties that meet the buyer’s profile and specifications, and arranging showings, takes effort. But what you do is well worth the time that is invested. Activities surrounding showings include: • Previewing the property prior to showing • Providing realtor/client data sheets to the buyer for each property being shown • Reviewing the history on the listing • Review local listing service data for recent sales in the neighbourhood • Preparing the buyer to view the property (such as, telling them if there is something unusual about the property so they are not surprised when they arrive) • Plan your route to optimize the time you have (set up the showing tour in a manner that makes travelling sense so you are not travelling back and forth across the area/town/city) • Setting the number of properties to show in one outing based on the buyer’s needs (the buyer may have travelled a long way and wants to see as many as possible, or has a limited amount of time to spend and wants to be as efficient as possible)

©2019 Real Estate Council of Ontario

Comparing Properties Comparing properties involves providing guidance in the selection process by comparing features/benefits of viewed properties; discussing price and identifying key trends that may impact the buying decision. Property comparisons include details of comparable homes currently listed, those that have recently sold, and listings that have recently expired and not sold.

©2019 Real Estate Council of Ontario

Exploring the Need for Outside Professional Services Another good way to discover your buyer’s needs and narrow down your field of search is to consider the different outside services that may be needed. As the need for inspector and lawyer services, appraisers, mortgage brokers, moving companies, electricians, carpenters, plumbers, roofers, etc., come up you will begin to get a clearer picture of the buyer’s threshold, and understand how to narrow down your field of search for listings. It is always best to align selected properties with a buyer’s specific needs allowing you to build a more accurate and refined buyer profile; for example, if they are an investment buyer or a buyer with no interest in doing home improvements.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 4 of 24

Property Profile Sheets for Buyers The property profile sheet includes a series of questions for buyers to help you identify and keep track of their preferences and the desired features they are looking for in a property. The property profile sheet may also include a place to record a potential buyer’s “deal-breakers” (for example, wheelchair access must be available). When new properties come on the market, you can use your buyer’s property profile sheets to determine whether the new properties meet the buyer’s requirements. Once you have conducted an interview and discussed a buyer’s list of wants and needs, you will want to keep the property profile open as a live and changing document.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 5 of 24

Information to Collect for a Buyer’s Property Profile Sheet There is no standardized form used for the purpose of gathering information on a buyer’s preferences or requirements. Depending on the trading area, the general type of property being sought, age of the consumer, ethnicity or other cultural factors, there will be unique questions or topics that impact a buyer’s preferences. There are also questions or topics that would apply to most buyers no matter where the property search is, or the type of property being sought. The following six sections contain information on the items found in a property profile sheet.

Basic information Basic information specifies the price range and type of property the buyer is looking for; for example, style, size, lot size, neighbourhood or location, number of bedrooms and bathrooms, floor plan preferences, garage or other outbuildings, exterior features such as fencing, decking, pool, and other similar items.

©2019 Real Estate Council of Ontario

Environment This section identifies the buyer’s preferences for natural location characteristics, such as escarpments, lakefront, view, near wooded area, etc.

Access and accessibility This is where the salesperson details the type of access to and from the property that the potential buyer prefers. This may include items such as cul-de-sac, highway access, availability of public transit, proximity to schools or employment, and similar considerations. Accessibility is about the property itself, such as how many stories it has and accommodations it may have for disabilities; for example wheelchair access. These are critical to some buyers and can often be deal-breakers.

©2019 Real Estate Council of Ontario

Utilities This section highlights the various utilities preferred, such as municipal or private water supply, municipal sewers or private septic systems, primary heating system, central air, natural gas, hot water system, and whether or not modern conveniences are available (for example, high speed internet, fibre optic cable, curbside garbage pickup, etc.).

Amenities Amenities are services available in an area. They are usually based on who lives there (for example, close to health services based on age group of buyer, community centres, sports activities, shopping, restaurants, parks, etc.).

©2019 Real Estate Council of Ontario

Other sections There are no formalized standards for property profile sheets. They can include additional sections that the salesperson finds useful for identifying appropriate properties for showing. Additional sections or items may be types of schools nearby, time of possession (for example, immediate versus to be arranged), architectural style (for example, mid-century modern, side split, back split, bungalow, two-storey, etc.), finishes (for example, solid-surface kitchen countertop, heated bathroom floor), etc.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 6 of 24

Value of Creating a Property Profile Sheet for the Buyer For a property profile sheet to fulfill its purpose and function, it must meet two criteria: 1. It must have all the preferences that a potential buyer has communicated to the salesperson, recorded accurately and precisely 2. It must be updated regularly throughout the search Completing a property profile sheet early on in the relationship is not sufficient in itself. In the process of visiting multiple properties, a buyer’s needs, wants, and preferences can – and frequently do – change. Buyers may change their minds once they have seen what is available in a market, neighbourhood, or in their price range. They may realize their preferences do not actually align with their lifestyle choices, or the vision they have about a feature may not necessarily reflect reality. For example, they realize they will need a bigger dining room to fit their furniture. Property profile sheets help to paint a clear picture of what the buyer is looking for, both for you and for them. Investing time upfront will usually save time searching. You are showing them what they have told you they want and ultimately you find them the right property sooner.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 7 of 24

A buyer has signed a buyer representation agreement with a brokerage. It is now time for the salesperson to begin narrowing down what the buyer is looking for in a property. What does the salesperson need to do to identify potential properties in preparation for the first property tour? There are six options. There are multiple correct answers. 1 2 3 4 5 6

Establish a buyer profile Compare properties Provide area information Viewing and showing properties Identifying target properties Exploring the need for outside professional services

Lesson 3 | Page 8 of 24

A salesperson is reviewing the information on a buyer’s property profile sheet in order to determine which homes to show to the buyer. House style, house size, lot size, neighbourhood or location, number of bedrooms and bathrooms, floor plan, etc. are all the basic information that a salesperson can find on a buyer's property profile. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 9 of 24

A salesperson is reviewing the information on a buyer’s property profile sheet in order to determine which homes to show to the buyer. Natural location characteristics, such as escarpments, lakefront, view, near wooded area, etc. are all environment-related information that influence where a buyer would like to live. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 10 of 24

A salesperson is reviewing the information on a buyer’s property profile sheet in order to determine which homes to show to the buyer. Accessibility is the section of the profile sheet were the information such as number of stories, accommodations it may have for disabilities and wheelchair access is filled. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 11 of 24

A salesperson is reviewing the information on a buyer’s property profile sheet in order to determine which homes to show to the buyer. Amenities is the section of the profile sheet that highlights the various services such as municipal or private water supply, municipal or private sanitary sewers, primary heating system, central air, natural gas, hot water system, etc. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 12 of 24

A salesperson is reviewing the information on a buyer’s property profile sheet in order to determine which homes to show to the buyer. Amenities is the section of the profile sheet that highlights the various services such as community centres, sports activities, etc. close to health services based on age group of buyers, etc. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 13 of 24

Updating Property Profile Sheets for Buyers A salesperson should update a buyer’s property profile sheet after each showing and modify its contents based on the buyer’s feedback. As you go out looking at properties, it is important to take copious notes on what the buyer likes in one house or dislikes in another. Doing so enables you to respond to refining requirements quickly, track preferences of different buyers efficiently, and to effectively select suitable properties for showing. After you identify a buyer’s needs, wants, and preferences, the next step is to identify properties that match the buyer’s criteria.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 14 of 24

A salesperson should update a buyer’s property profile sheet after each showing, modifying its contents based on the buyer’s feedback. It is important that a salesperson takes notes while viewing properties on what the buyer liked and did not like. Why would a salesperson regularly update a buyer’s property profile? There are four options. There are multiple correct answers. 1 2 3 4

Enables a salesperson to respond to changing requirements quickly Track preferences of different buyers efficiently Select suitable properties for showing effectively Allows a salesperson to double up on showings when two different buyers are looking for the same property

©2019 Real Estate Council of Ontario

Lesson 3 | Page 15 of 24

Identify Properties That Match a Buyer’s Criteria Moving forward, you will explore the different ways to identify properties that meet your buyer’s criteria and how to use them to ensure what is shown to them is a good fit. You will cover: • Using fundamental marketing services to identify properties to show that meet a buyer’s criteria • Using print and electronic sources to identify properties to show that meet a buyer’s criteria • Ensuring that an identified property to show meets a buyer’s criteria

©2019 Real Estate Council of Ontario

Lesson 3 | Page 16 of 24

Marketing Tools and Digital Services to Identify Properties for Buyers Professional real estate associations maintain databases and local listing services. They are available to members only. They are considered the most complete and comprehensive source of properties available for sale. Some of their features and functions are also accessible to buyers, under certain circumstances, through public websites and interfaces. Many online marketing services, such as local listing service listings, real estate portals, and print advertising are available to the salesperson to find appropriate properties available for sale. The following six sections contain information on sources of properties that may meet a buyer’s criteria.

Local listing service

New listings

When you are ready to start the property search, you will set up a buyer profile with their needs in the local listing service. This can be set up as a client portal, which comes directly to you or to you and the client. The system will automatically pull every house that matches the description and the criteria you put in and sends them to you and/or the buyer. You will then look through the properties and read the descriptions to see if they fit. If they do, you will either send it or have the system send it directly to the buyers. It is good practice to view listings every morning and night to see what new listings are on the market that may work for your buyer. Be diligent about looking at them. Many brokerages and real estate boards issue regular “Hot Sheets”, which show all new listings, price changes, conditional offers, and properties that are sold, expired, suspended or cancelled. If your buyer lives a good distance away, or you cannot view the property yourself, do the due diligence before sending the property listing to the buyer. Call the listing salesperson and ask questions about the property to assess whether it is a good fit for the buyer before you book a viewing.

©2019 Real Estate Council of Ontario

Other salespersons

Classified advertising

Smart phone and computer applications

Social networking and media platforms

Talk to the other salespersons in your brokerage. Do any of them have any properties that meet your buyer’s needs? Attend brokerage tours, salesperson’s open houses and public open houses to see what houses are available. In some situations, especially if your buyers need to commute in, it is a good idea to ask another salesperson if you may preview their property to see if it meets your buyer’s needs. It is important to know the inventory you are working with. Newspapers and online ads are another source to find properties. With the gradual decline of print media, newspapers have become far less popular in recent years. There are new options to advertise online; for example, on free websites such as Craigslist and Kijiji. Properties that are for sale by owner (FSBO) will favour these options. Some salespersons will list the property features in an ad in the hope of attracting potential buyers. Classified ads will offer you an opportunity to widen your search in an attempt to meet your buyers’ needs. The number and diversity of applications, such as realtor.ca and redfin.ca that run on smartphones, tablets, or computers are growing on a daily basis. You can find a specialized application for virtually every single aspect of the real estate transaction. These apps help you to keep track of the newest listings. All of them use a “Map Feature” to allow you to see what’s for sale (or been sold) in a certain geographical area. A quick check of the appropriate app store can offer you a broad range of tools that help you identify and locate properties suitable to your buyer’s criteria, such as location and price. Sellers and salespersons increasingly use social media platforms to market and find available properties and services. This is another way to find properties instantly and easily; by searching for listings that fit their buyer. Never discount your social network. It can be an invaluable place to learn about private sales and opportunities that are coming on the market. Facebook, Instagram, and Twitter are all excellent platforms to share and find property listings.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 17 of 24

Ensure Showing Identified Property Meets Buyer’s Criteria You will be in control of your buyer’s search as long as you update the property profile sheet every time you meet with them, keep track of new listings and other properties that have come up online, or go to open houses in your area. Buyers often change their pricing and may vary their criteria. They may increase it once they actually know what they can afford or start cancelling out must haves because they realize their budgets cannot withstand the long list. This is usually when space and location become prime targets over hardwood floors, air conditioning or move-in ready condition. As you show your buyer properties, it is always a good idea to sit down and catch up with them to make sure you are still on the right track or if you need to explore other options. The buyers will always need reassurance that you are working for them and are on top of the searches.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 18 of 24

A salesperson is representing a family as buyers. They have given the salesperson property preference details and would like to start viewing homes. The salesperson is now ready to start searching for homes that meet the buyers’ requirements. Local listing service is a property search technique in which the system will automatically pull every house that matches the description and the criteria provided. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 19 of 24

A salesperson is representing a family as buyers. They have given the salesperson property preference details and would like to start viewing homes. The salesperson is now ready to start searching for homes that meet the buyers’ requirements. Hot sheets method utilizes a system that will show which properties are new to the market, have price deductions, have conditional offers, have sold, are expired, suspended or cancelled. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 20 of 24

A salesperson is representing a family as buyers. They have given the salesperson property preference details and would like to start viewing homes. The salesperson is now ready to start searching for homes that meet the buyers’ requirements. Talking to colleagues, attending other open houses and brokerage tours to see what houses are available is not one of the property search techniques. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 21 of 24

A salesperson is representing a family as buyers. They have given the salesperson property preference details and would like to start viewing homes. The salesperson is now ready to start searching for homes that meet the buyers’ requirements. Classified advertisement includes reviewing classified ads online or in newspapers including free websites such as Craigslist and Kijiji. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 22 of 24

A salesperson is representing a family as buyers. They have given the salesperson property preference details and would like to start viewing homes. The salesperson is now ready to start searching for homes that meet the buyers’ requirements. Smart phone and computer applications such as realtor.ca and redfin.ca can offer a salesperson a broad range of tools to help identify and locate properties suitable to a buyer’s criteria. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 23 of 24

A new salesperson is at a real estate function. While networking with salespersons from other brokerages, the salesperson learns of a new listing that seems to meet their buyer's criteria. What type of tool has the new salesperson used to find the buyer a potential property? There are four options. There is only one correct answer. 1 2 3 4

Hot sheets Other salespersons Local listing service Classified ads

©2019 Real Estate Council of Ontario

Lesson 3 | Page 24 of 24

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were discussed in this lesson.

Identify buyer needs and property requirements

Once qualifying questions have been asked and a buyer profile has been outlined, it is time to start the property search. As you go through the process of searching and targeting properties, then viewing and comparing them, you will get a clearer picture of what the buyer needs. Over and above the basic information, you must consider environment, accessibility, utilities and amenities when narrowing down the field of search.

Meeting a buyer’s criteria

Keeping your buyer profile and property profile sheet updated will be key throughout the process. There are a number of places you can look to find properties that are suitable for the buyer. Depending on the need, you may use the local listing service in your search but you could also search private listings, such as classified ads, online ads, computer apps and social networking to help get results. The most important thing is to keep your buyers needs and wants in mind when searching, and continually adjust the profile property sheet as they become clearer during the search.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 1 of 45

Lesson 4: Showing Properties to the Buyer

As discussed in the preceding lessons, in service-based businesses – and especially in real estate – the secret of success is being capable, understanding, diligent, and reliable. After a buyer’s needs, wants and property requirements have been identified, the salesperson selects appropriate properties of potential interest to the buyer. The next phase of the process is to prepare to show the properties to the buyer.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 2 of 45

The Leading Practices Related to Showing Properties Showing properties provides you with multiple opportunities to service your buyer in a personalized way, and refine the search to find a successful match to their needs and wants. Upon completion of this lesson, you will be able to: • Describe leading practices related to showing properties • Describe leading practices of a salesperson related to protection of a buyer Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 3 of 45

Preparing to Show Properties: Coordinating Schedules Showing a property is a pivotal step in the sale process. Be adequately prepared and sensitive to feedback during the showing. Various guidelines are provided to assist you with your first showing and many more. Once you find properties on the local listing service and other listings, you will want to confirm the properties your buyers would like to visit. It is a best practice to ask your buyers: “What day do you have available and what are your preferred times on each of those days?” This will help you arrange times that work in a schedule for all three parties, the buyers, you, and the sellers. Generally speaking, sellers will accommodate a viewing but in some cases there are circumstances that will prevent it. Let the buyer know that it is important to accommodate the seller too. The buyer wants to be as accommodating as possible if they decide later on that they want to put in an offer on the property. The more flexible and versatile you are the more open the seller will be to negotiating with you.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 4 of 45

Allotting a Proper Amount of Time Give buyers about an hour for each house being shown. This will allow for a walk through, feedback after, and travel time to the next showing. Each buyer’s style and approach will be different. Take notes on how long they were in each house or property for future bookings so you can time visits accordingly. It is important to plan and leave enough time for the buyers to look around at their pace. Some will spend a half hour in the home fully inspecting it, even if they are not liking what they are seeing. Other buyers may only glance through it even though they love it. The time spent will also depend on the buyer’s availability; for example, if this is their only chance to see the property, if they can come back for future visits, or if the property is in a fast paced marketplace. You should be looking for serious interest in the property. If it is not there, move on.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 5 of 45

Travelling with Your Buyers In the past, it was advisable to travel with your buyers when viewing properties. It allowed you one-on-one time to discuss the properties, gauge interest, and ensure that everyone arrives at the same time. However, there is a much safer way to gauge your buyer’s interests rather than being alone in a vehicle. For example, you might meet the buyer at the property. Depending on the proximity of the property you could also meet at the office or at a local coffee shop first, then from there you could travel to the property in separate vehicles. Safety needs to be a consideration in all your options. As a general rule, a salesperson will not take a new buyer in their vehicle nor get into theirs. A relationship must be built first and trust established before they would do this. In most cases, even after a salesperson and buyer have established a pattern of meeting at the interested properties, they will usually continue their business relationship in separate cars. Most buyers rush after work to see a property, but in a slower market you could make an afternoon of showings on the weekend and schedule a meeting time as well.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 6 of 45

Before the First Showing The first showing will give you a good idea of your buyer’s style and viewing preferences. The best practices for the property tour are: • Make all showing appointments through the listing brokerage, and confirm them on the day of showing with both prospective buyers, and with sellers through the listing brokerage • Request, through the listing salesperson, not to have the seller present unless situations arise where they are an essential source of information, or that would be helpful when showing the property • Previewing properties prior to showing them to a buyer can be a useful means of becoming familiar with the features of the home. Rather than relying exclusively on the listing, speaking with the listing salesperson to gain more knowledge of the property is also beneficial especially if previewing the property in advance is not possible

©2019 Real Estate Council of Ontario

Lesson 4 | Page 7 of 45

A salesperson is sitting down with a broker to review what needs to be completed prior to the first property tour with the buyer. The first thing that a salesperson needs do prior to the first property tour with the buyer is to find properties that match the buyer’s needs and wants. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 4 | Page 8 of 45

A salesperson is sitting down with a broker to review what needs to be completed prior to the first property tour with the buyer. A salesperson must co-ordinate with the seller and buyer with the salesperson’s schedule 24 hrs in advance to arrange property showings before reviewing the realtor remarks on the data information sheet for seller direction on showings. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 9 of 45

A salesperson is sitting down with a broker to review what needs to be completed prior to the first property tour with the buyer. Before arranging one hour visits to a series of properties, a salesperson should co-ordinate with the seller and buyer with the salesperson’s schedule 24 hrs in advance to arrange property showings. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 4 | Page 10 of 45

A salesperson is sitting down with a broker to review what needs to be completed prior to the first property tour with the buyer. Arranging one hour visits to a series of properties based on their location and availability should be done by a salesperson prior to the first property tour with the buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 11 of 45

A salesperson is sitting down with a broker to review what needs to be completed prior to the first property tour with the buyer. Meeting the buyer at the brokerage to start the property tour is the final step in the first property tour with the buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 12 of 45

Leading Practices for Showing Properties: Being Prepared Go to your showings prepared with each listing sheet (one for you and one for your buyer), the lockbox code, and a pen or note app ready for notes. If it is a first time out, it may be a good idea to send the listings in advance electronically or provide your buyers a clipboard with their sheets attached and a pen so they can take notes of their own. Prior to going into the showing, discuss the amenities offered in the locale and be sensitive to the buyer’s reaction. You may be able to gauge if the area is right for them. It is important to make sure you bring your business card to each visit. You will need to leave it behind in every house you visit so that the seller is aware of who was in their home. Leaving a card confirms that you kept the appointment and were there.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 13 of 45

Showing Courtesy It is good to remember that you are visiting other peoples’ homes and property. It is also good practice to prepare your clients to show respect for the seller’s property. That protects the seller’s property, which you are responsible for during the showing and also shows you and your buyers in the best light should they want to make an offer. If you are going to be late for a showing or need to cancel you must contact the listing brokerage immediately so the seller can be notified. Remember if you are late, the seller may not be able to accommodate the later time. You should be with your buyers at all times while in the home. When leaving a showing, leave your business card, turn off all the lights (unless otherwise instructed) and lock all doors to be sure that you have left the home secure.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 14 of 45

Leading Practices for Showing Properties It is important to mention to buyers to refrain from touching personal items or looking in cabinet and dresser drawers. Although this sounds like common sense, you cannot always supervise each individual when showing the property to large groups. It is also easy to lose track of children when they are present. Remind your buyers they are not buying the furniture only the home. It is important to be vigilant so that the seller’s privacy is respected and their personal property is not taken or damaged. As a professional, you need to be respectful of the homes you visit, since you are responsible for what happens while you have control of the home. This will help you build a positive reputation with your colleagues, clients, customers, and the industry.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 15 of 45

During the Showing Be patient during the showing and allow the buyer adequate time to investigate the property, to appreciate the look, feel and flow of the home. You can step back during a showing if you feel your buyers need some privacy, but still be nearby and vigilant. If an important feature may have been overlooked, point it out. Otherwise, resist any attempt at ongoing conversation, except to expand on comments made. Effective listening is a vital aspect of any showing. It is important to remind your buyers that sellers might have video or audio recording devices. It is best to assume they are there and to act accordingly. People who bring an expert friend are often insecure about their own competence. Be prepared to treat such friends as true experts and sell to them as much as to the buyer. During the showing, try to keep it positive from start to end, regardless of whether the buyers like the property. It is good to remember that both positive comments and criticisms have value in narrowing the field. Again, sellers sometimes have recording devices and information collected on them could be used to the seller’s advantage.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 16 of 45

Concerns During Showings Do not be misled or dismayed by people who are critical. Often buyers criticize what they like, as they are setting the stage for negotiations. No objections can often mean no interest. Experience will inevitably show that someone who loves everything may have great difficulty in making a decision. Watch the actions and expressions of the buyer. Listen to understand concerns raised, to help better understand the buyer’s wants and needs. Be honest, but tread carefully, be helpful, and understanding. It is their decision, not yours, though they may want to hear your perspective.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 17 of 45

When conducting a property tour, a salesperson should follow best practices to ensure a positive experience for the buyer. Which of the given scenarios are best practices? There are six options. There are multiple correct answers. 1 2 3 4 5 6

Arrange to have the seller present to provide information and assist in the showing. Set up at least 10 houses for each tour to avoid additional tours in the future. Prepare the seller well in advance so that they can spruce up the property. Make all arrangements through the sellers when showing properties listed with other brokerages. If possible, inspect all properties thoroughly in advance of showings to avoid unpleasant surprises. If the property has not been pre-inspected, the salesperson should openly disclose this to the buyer. Confirm all appointments on the day of showing, both with prospective buyers and with the sellers’ salespersons.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 18 of 45

Following Up After Showing Properties After your buyer has had a chance to look at some properties, there are two follow-ups that need to happen. The first is to requalify and gauge your buyer’s interest in the properties they have seen so far and whether they want to look more closely at one of them or to continue looking at other properties. Skilled salespeople listen and watch for signs of true interest, such as minor criticisms, phrases indicating acceptance, anticipated presence in the home. For example: “We could use this room as a den,” or “we could convert that room to a bedroom or office” or “That’s a great location for the TV,” are all signs that they might be more interested than they are letting on or even realize themselves. A point exists in every negotiation when the sales representative must ask if the buyer is ready to make an offer. However, asking someone if they are ready to make an offer before someone is ready to buy can turn buyers off, making them feel undue pressure. Asking for the offer is not a pressure technique, but a matter of providing assurance to the buyer that what they think emotionally also has merit from a practical, objective viewpoint. Some buyers might take a very long time to be ready to make an offer, while others will know right away. The second type of follow-up is with the seller’s salesperson or listing brokerage. You will want to give them feedback from your showing as a professional courtesy. This may include information on the property condition or ©2019 Real Estate Council of Ontario

opinions expressed by your buyers that will help the seller’s salesperson discuss impressions of the property, pricing, or potential repairs the seller may want to consider that may create more interest in the home. Understanding your duties and obligations, you would restrict the information shared by your buyers, ensuring you do not divulge any personal or confidential information such as how much they would be willing to pay for the home.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 19 of 45

A salesperson has finished walking a buyer through the first of three 2-bedroom bungalows on a property tour. Before leaving, the salesperson reviews the checklist that was created with the broker to make sure all of the necessary steps are completed at the end of a visit. What does the salesperson need to ensure is completed? There are four options. There are multiple correct answers. 1 2 3 4

Leave a business card Lock up the property Turn off all the lights (unless instructed otherwise) Leave a brochure outlining your sales success

©2019 Real Estate Council of Ontario

Lesson 4 | Page 20 of 45

Securing the Property After a showing, you must make sure the property is locked up properly. Leaving a property unsecured can make you liable for any damages that arise from your negligence. Note that listing brokerages often times provide instructions to salespersons to lock up upon leaving, turn off all lights, and to leave their business card as proof to the seller that the salesperson was in their home as arranged by the appointment. This is the best way to give sellers a sense of safety knowing who was in their home and give assurance that there was a showing. There may be special instructions around pets or other issues. Always follow those instructions carefully.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 21 of 45

Using Showings to Re-Qualify the Buyer Following the showing, you should continue the qualifying process. This means debriefing the buyer about their likes and dislikes, and revisiting and refining the buyer's property profile sheet, and criteria. Following the showing of a property, you should compare it to all subsequent properties, maintaining a comparison model if a property is considered a potential, using it as a sort of leading candidate. There is no such thing as an unsuccessful showing. By continually re-qualifying the buyers as to their required features and benefits you are always moving one step closer to finding the right property.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 22 of 45

Deciding How Many Properties to Show a Buyer The decision on how many properties to show in a day will come down to distance travelled and timing. If the buyer is coming from a long distance, they cannot afford the luxury of multiple visits. Generally speaking, it is recommended to show three to five houses during a property tour. Showing several properties in rapid succession can cause confusion and buyers misremembering the distinct features of each home. It will also depend on market conditions. If the market is a fast moving one and there are 10 houses that appear to meet the buyer’s criteria, it is best to book as many as possible and leave time for discussion. Book the day with them if necessary so that if they see a property they like, they can make an offer as fast as they are comfortable with, keeping in mind that some may sell before you even get in to see them.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 23 of 45

Re-Qualifying to Prioritize Showings Following each showing, the buyer should be re-qualified. This, in turn, may mean you re-evaluate what properties to show on another day based on their current feedback. You can prepare summary information regarding each property being shown and briefly introduce the buyer to these lists before the showing process. If there are negative attributes about a property, disclose them before the showing. The buyer will not be surprised by the drawbacks and will not be easily predisposed to a negative impression. Caution is advised, however, as people’s tastes differ. What the sales representative views as a drawback may not in fact appear so to others. Of course, all known material facts must be disclosed.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 24 of 45

Ideal Sequence and Emphasis Some believe that an ideal sequence to the order of showing properties exists, but in reality many factors can vary the approach. Most buyers know where they want to be, i.e., city, town, suburbs, or other location. The majority of buyers base their search on that first and then the specific features within a home second. Know the reasons for their preference as there may be other locations that can offer the same value to them that they may not have otherwise considered. Therefore, place emphasis on the neighbourhood, amenities and general locale of the house. Secondly, discuss the layout and specific features.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 25 of 45

During a showing tour, a salesperson must always stay with the client in order to be available to discuss key issues. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 4 | Page 26 of 45

When buyers criticize a property during its showing, a salesperson should take it as a cue that they are not interested. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 27 of 45

During a property showing, if a buyer has brought along an expert friend, a salesperson should be prepared to treat such friends as true experts. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 4 | Page 28 of 45

Following the showing, a salesperson must debrief the buyer about their likes and dislikes, and revisit and refine the buyer's property profile sheet and criteria. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 29 of 45

The initial decision on how many properties to show in a day will depend on distance travelled, timing and market conditions. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 4 | Page 30 of 45

A salesperson has planned four property visits for a property tour. The first property was visited and the feedback was mixed. How should the salesperson prioritize the remainder of the tour? There are four options. There is only one correct answer.

1 2 3 4

Stick to the planned visits for the day and re-evaluate what properties to show on another day based on the current tour’s feedback Re-qualify during the tour after each property visit and rearrange the remaining appointments Consider specific features within a home first, location second Cancel the rest of the tour until the buyer is able to figure out exactly what they want

©2019 Real Estate Council of Ontario

Lesson 4 | Page 31 of 45

Having a Discussion with a Buyer About Taking Photographs during the Showing Some buyers think that because the property is listed on the internet and photos are available online that it is okay to take photographs during a showing. Legally, it is not. You need a seller’s permission to take photographs because without it, it is a violation of privacy laws. It is good practice to know why a buyer would want to take photographs, especially since anywhere between 10-20 images are generally found in the listing. If you are granted permission, do not take pictures of the security features or of personal items. Use photographs instead to show parts and angles that are not seen in the listing, or of distinguishing features and fixtures that make the listing stand apart from the rest.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 32 of 45

A buyer would like to take a photograph of the master bedroom in a property. The salesperson informs them that the seller’s permission would be needed to take photographs. Is the salesperson’s response true or false? There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 33 of 45

Asking for the Offer Many techniques are taught in sales training materials. The following are four popular approaches to assist the buyer in arriving at the decision to make an offer. The following four sections contain information on each technique to help your buyer.

©2019 Real Estate Council of Ontario

Comparison Faced with two alternatives, the buyer can make exact comparisons of benefits and features. The process then becomes which one of the properties should they buy.

Minor versus major details When buyers have narrowed down their search to two properties, they will often begin to consider the minor and major differences between them. Minor details would be chattels/fixtures included, carpeting, and painting. Major details would be location, house size does the property satisfy their family needs, and how well the property has been maintained can play an important factor as well. A salesperson can help with the process by reminding the buyers that minor details they object to can either be changed or be reflected in the offer price.

©2019 Real Estate Council of Ontario

Advantages versus disadvantages This approach is often referred to as the Benjamin Franklin technique. Franklin would draw a line down the middle of a sheet of paper and list all positive arguments on one side and all negative arguments on the other. An affirmative decision would simply be based on positives outweighing negatives. Visually seeing the descriptions can often help buyers be more objective about their options.

Confirming advantages Ideal for buyers who have found the right property, but are unsure about making a decision. By summarizing major advantages and directing their attention away from minor details, you help things fall into proper perspective. Remember to summarize the benefits of home ownership and not just the features of a specific home. Home ownership can provide security, a hedge against inflation, an attractive neighbourhood and, above all, personal satisfaction.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 34 of 45

A salesperson and a buyer have completed two property tours. The buyer is considering the first and fourth homes visited on the second tour, but is having a hard time deciding which property is the best choice. To help the buyer, the salesperson should start with the minor details and work towards the major decision. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 4 | Page 35 of 45

A salesperson and a buyer have completed two property tours. The buyer is considering the first and fourth homes visited on the second tour, but is having a hard time deciding which property is the best choice. To help the buyer come to a decision, the salesperson should filter out the small details of the homes to allow him to focus on the major advantages. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 36 of 45

A salesperson and a buyer have completed two property tours. The buyer is considering the first and fourth homes visited on the second tour, but is having a hard time deciding which property is the best choice. To help the buyer come to a decision, the salesperson does not need to list all positives on one side of a piece of paper and all negatives on the other to see how they compare. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 4 | Page 37 of 45

A salesperson and a buyer have completed two property tours. The buyer is considering the first and fourth homes visited on the second tour, but is having a hard time deciding which property is the best choice. To help the buyer come to a decision, the salesperson should book another tour to give him four more home comparisons for benefits and features. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 38 of 45

The Leading Practices Related to the Protection of a Buyer Another important consideration you must be mindful of in relation to showing properties is buyer protection. This covers three major areas concerning: • Buyer privacy and safety • Risk of damage to property and brokerage liability while showing properties • Communication, appointments, and access while showing properties The salesperson should discuss any privacy concerns the buyer may have related to being videotaped and possibly voice recorded and let the buyer decide if they wish to view a property where this is a possibility. If the buyer had wished to have their identity remain confidential, the buyer could elect not to view the property and the salesperson would notify the listing brokerage of the cancellation. Protecting buyers helps you protect their interests and increases the likelihood of a positive outcome. It also reduces the risk of negative outcomes, such as complaints, disciplinary measures, and legal actions against all parties. ©2019 Real Estate Council of Ontario

Lesson 4 | Page 39 of 45

Buyer Privacy and Safety Safety and privacy are two of the most fundamental buyer interests to protect. Your responsibilities and obligations are to ensure that your buyer’s protection cannot be restricted to a single phase of showing properties; they must be followed before, during, and after showing a property. Safety can be the condition on the home, visible mould or rotten planks on the deck. If you choose to move forward with a viewing, always take reasonable steps of care; for example, if there is no railing on a staircase. Use your best judgement going forward based on the conditions you can see. Safety can also be in regards to confidential personal information that buyers can disclose, such as names, number of children, financial status etc., during a viewing. With the growing amount of smart home features, remind buyers not to say too much inside homes that they do not wish to become public information, as homeowners are more frequently using security systems that include audio and video recordings. For their own safety, it is important to safeguard privacy information or it could be used against them in an offer negotiation situation. ©2019 Real Estate Council of Ontario

Lesson 4 | Page 40 of 45

Smart Homes and Privacy More and more people are setting up security systems and smart home features that allow them to see what people are doing and saying in their homes. So it is always a good idea to remind your buyer that people may be doing this. This way if your buyer is not comfortable being captured on video or talking freely they can be aware that it is a possibility, and they can decide whether or not they want to: • Continue to view the home • Limit their comments and conversations in a home, deferring detailed discussions till after they have left the home It is important to understand that buyers may want to limit their conversation while in the home, especially around anything that could tip the scale in the seller’s favour. There is currently no legislation that discusses security systems, or that says a seller must disclose that there is a security system installed. As a buyer’s representative, it would be a good idea to assume there is and to remind buyers to be mindful of their comments.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 41 of 45

In the second home of a tour, a salesperson notices a camera doorbell and a remote camera inside the home. Unsure if it also has audio capabilities, a call is placed to the seller’s salesperson who discloses that it does. What would be the best way for the salesperson and the buyers to proceed in the viewing? There are four options. There are multiple correct answers. 1 2 3 4

Discuss whether they want to proceed with the viewing Refrain from any conversations inside the home that would affect negotiations in an offer situation Have any conversations pertaining to the property in a privately secured location Tell the buyer that since the seller is video taping the buyers, the buyers are free to take any photos in the house

©2019 Real Estate Council of Ontario

Lesson 4 | Page 42 of 45

The Risk of Damage to Property and Brokerage Liability While Showing Properties When signing listing documents, the seller signs off on indemnification saying that if something goes missing during a showing or something is broken, provided you are not negligent, you are not responsible. Even though you know that things are in place to make sure everyone is protected, you must be vigilant and do your due diligence. If someone is walking in with a large bag, it is best to ask them to keep it in the car. This is to avoid them forgetting it or accidentally knocking over and breaking something as they tour the house. If a child picks up a figurine, it is best to ask the parents to have them ask their child to put it down. The only agreement in place to avoid liability is Form 200 – Listing Agreement that does not mean people may not seek action. Use common sense to avoid as much risk as possible during a showing.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 43 of 45

Communication, Appointments, and Access While Showing Properties Communicate with your buyer verbally and in writing so that it is really clear what time their appointment is and where it is located. Other details can also be discussed, such as whether you are to meet at the property and what they can do on the property (for example, take pictures, have access to all rooms, if there is a dog on the property should anyone have allergies, etc.). The better your communication with your buyers the smoother the showings will go.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 44 of 45

A salesperson has set up an appointment to show properties to a couple and their two children. Which of the given practices are best practices to employ prior to and during showings? There are six options. There are multiple correct answers.

1 2 3 4 5 6

Communicate with the buyers verbally and in writing so that the time and location of the showing is clear Remind the buyers that some homes are equipped with smart home devices and security so feel free to talk about the maximum price you would pay for the home Alert buyers if animals will be in the home Keep an eye on buyers and children to ensure personal property is respected and left untouched Warn buyers if any hazards are spotted such as missing railings and advise they stay away from those areas Remind the buyers’ children that the home belongs to someone else, so they must stay with their parents and not leave the group

©2019 Real Estate Council of Ontario

Lesson 4 | Page 45 of 45

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Before the tour

Showing properties provides you with a number of different opportunities to service your buyer and enrich the experience with personal service. Being prepared by coordinating schedules to book showings is the first way to show professionalism and courtesy. Showing buyers properties in geographical order and leaving enough time for each visit allows you and the buyers to make the best of the property visits. Being courteous to sellers and respecting their time also provides you the opportunity to put the buyers in the best light should negotiations go forward. It is not necessary to travel in the same car as your buyers as the tour gets underway, instead meeting at the brokerage gives everyone the chance to coordinate, communicate locations, travel safely and enable each to go their own way once the tour is concluded. Planning your tour by booking enough properties without overwhelming the buyers is important, but it is good to note that distance, timing and market conditions play a factor in the decisions.

During the tour

Remember, it is important to confirm all meetings prior to setting out on your tour. This allows sellers to prepare their homes to set a visit up for success and gives them the time to leave the premises so your buyers have the privacy to view the home at their pace. It’s important to go to the properties prepared with the listing sheets and to take notes. You’ll want to set up conversations in advance by telling your buyers about the location, amenities in the area and of course details on the home itself. At each property you’ll want to show proper respect for the seller’s personal possessions by removing your shoes and refraining from touching personal items. You’ll want to ensure that photographs are not taken without permission. You’ll also want to ensure that all

©2019 Real Estate Council of Ontario

potentially hazardous areas are pointed out to avoid any accidents, personal injuries or damage to the home. Safety and security are of utmost importance. Be diligent and keep an eye on buyers so things go smoothly, while still allowing them some personal space to discuss things privately from time-to-time. Be patient when listening to feedback, and answer questions and concerns with positivity but remember to be honest with your responses. Don’t be misled or dismayed with criticisms. Sometimes it’s a sign of interest and negative feedback can provide insights to requalify your buyers.

After the tour

Keep diligent notes during visits and write down any observations that will help you narrow down what your buyers are looking for. These notes will also be helpful when providing showing feedback to the sellers or their representatives. No showing is a waste of time. In each showing something can be learned and used to help close a transaction or direct the next property tour. Using feedback to re-qualify the buyers is important if you are going to find the right fit for them. Responding to it also shows you were listening and are providing personalized service that is of value. A successful showing will lead to an offer opportunity. You will then be able to assist your buyers with their decision, whatever it may be. Whether it is through comparisons, looking at the details, weighing advantages versus disadvantages, and confirming advantages, you can help your clients make an educated decision.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 1 of 15

Lesson 5: Property Showing when Seller has Limited/No Services Provided The leading practices and legal obligations you studied in the previous lessons apply to most scenarios of preparing and showing properties that meet a buyer’s criteria. In this lesson you will learn about special situations that impose additional obligations on the buyer’s salesperson, such as for sale by owner and mere postings.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 2 of 15

Property Showing When Seller Has Limited/No Services Provided As a salesperson, it is important to recognize there are additional leading practices and legal obligations to be aware of in situations where the seller has limited or no services being provided by a brokerage. Upon completion of this lesson, you will be able to: • Describe leading practices in situations where the seller has limited or no services being provided by a brokerage • Describe the type of agreement used by a co-operating brokerage to confirm remuneration terms with a seller Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 3 of 15

To begin our lesson, let’s recap the types of listings you will encounter when searching for properties. The following three sections contain information on each type of listing.

Mere posting

For sale by owner (FSBO)

Full service listing

A mere posting is an arrangement where the seller’s brokerage lists the property on a local listing service, but provides no other services. A mere posting is often done through a limited service agreement. The seller is selling their own home but have used a brokerage to post their property to the local listing system. In these cases as the buyer’s salesperson, you will need to contact the brokerage to know the extent of services being provided and set up a viewing. In many cases, you will have to contact the seller directly to arrange viewings, negotiate remuneration, and present offers directly to the seller. For sale by owner is when the seller is working independently from any brokerage. They are selling their own property through their own advertising, arranging their showing and representing themselves in negotiations. You will contact them directly to arrange viewings, negotiate remuneration, and in these situations more due diligence is needed on the buyer’s behalf. The seller has engaged the services of a brokerage to represent them at all stages of the real estate trade; for example, listing, marketing, negotiation of an offer, and closing details. In a full service listing, the brokerage is the point of contact for setting up showings and will be active in the transaction from beginning to end.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 4 of 15

Instances When Seller Has Limited/No Services From Brokerage Now you will look further in detail at each of the instances; where a seller is not receiving full service or any service from a brokerage. The first is when there is representation through a limited services agreement with a brokerage. This is called a mere listing or more commonly as a mere posting. In these situations, even though the property is listed with a brokerage, the seller is taking on all functions to do with showings, remuneration negotiation with a co-operating brokerage and presentation of any offers. The seller buys services as needed. For example, they would pay fees for the brokerage to put their property on the local listing system or measure their home. Typically, the seller does all the negotiations in these instances. In return, a flat fee for the posting or a reduced remuneration rate is paid to the brokerage on their sale. Regardless of the agreement for services provided, all salespersons and brokerages must fully comply with REBBA and other legislative requirements, such as verifying identification and the accuracy of the information on the listing and documenting deposits as required under FINTRAC. ©2019 Real Estate Council of Ontario

Lesson 5 | Page 5 of 15

Providing Limited Services In circumstances where a brokerage is providing limited services only to the seller, often referred to as a mere posting, brokerages working with buyers will be required to alter some of their typical activities surrounding the showing of the property, payment of remuneration, and negotiating an offer. In these situations, you must consider four actions that arise from their legal obligations. Next, you will learn about these actions to best avoid challenges and disputes over remuneration down the road. The following four sections contain information on the actions.

©2019 Real Estate Council of Ontario

While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Contacting the brokerage

When it is a mere posting, depending on what the listing says, you may or may not have direct access to the seller for things like showings or other activities related to the transaction, such as negotiations, inspections, and appraisals. The listing brokerage typically grants permission to other brokerages to contact the seller for three purposes: 1. To make arrangements for showing the property to a buyer 2. To negotiate remuneration to be paid to the buyer’s brokerage by the seller 3. To make arrangements to present and negotiate any offers directly with the seller

Contacting the seller

The buyer’s salesperson must have clear instructions from the listing brokerage on when they may contact the seller directly. Any contact outside of these permissions would not be in compliance with requirements under REBBA. Upon receiving permission, the buyer’s salesperson may contact the seller for the purposes identified by the listing brokerage. The salesperson would inform the seller that they have a buyer interested in viewing the property and that prior to showing the property, they would like to establish the remuneration paid by the seller. This way the buyer can decide whether or not to view the property based on any buyer obligations to pay remuneration.

Remuneration agreement with the seller

If the seller did not agree to pay any remuneration in the listing agreement, or intends to pay less remuneration than what is in the buyer’s representation agreement, the salesperson may try to negotiate with the seller to increase the amount of remuneration they are paying upon a successful property transaction. In the event that the seller is unwilling to pay a remuneration to the buyer’s brokerage, then the buyer may be required to pay remuneration to their brokerage, as outlined in their buyer representation agreement. Therefore, once the remuneration has been ©2019 Real Estate Council of Ontario

agreed to between the seller and the buyer’s brokerage, documenting this agreement should be completed prior to showing the property to a buyer. As an example, OREA Form 202, Seller Commission Agreement with Co-operating Brokerage For a Listed Property. It is important to note that the seller is not obligated to agree to pay the buyer’s brokerage any remuneration unless that forms part of the remuneration agreement between the seller and the listing brokerage. The agreement between the seller and the buyer’s brokerage would confirm the seller’s obligations to compensate the buyer’s brokerage should that buyer agree to purchase the property during a specified time period. Informing the buyer Once the seller and the buyer’s brokerage have agreed to the payment of remuneration by the seller, the salesperson would disclose this to the buyer. This should be disclosed prior to showing the property so that the buyer is fully informed of any remuneration obligations on their part. If a buyer is obligated to pay some or all of the remuneration to the brokerage, this could impact what a buyer would do. This is why it is important to disclose and discuss remuneration obligations prior to showing the property because the buyer may choose to: 1. Not see the property 2. Agree to pay the brokerage the required remuneration, whether it be all of the remuneration or just the deficiency, that is to say, the difference between the remuneration from the seller and the remuneration stated in the buyer representation agreement In accordance with section 18 (5) (a) and (b) of the Code, the salesperson could negotiate an agreement whereby remuneration would be shared between the seller and the buyer based on an agreed-upon formula. In this instance, the salesperson must ensure disclosure requirements have been met when remuneration is being paid under separate agreements involving the same trade.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 6 of 15

For Sale By Owner The other instance is for sale by owner (FSBO), where a seller is not receiving any service from a brokerage. In this situation, there is no brokerage involved on the seller’s side, and the seller is representing themselves. You will not find their listings on the local listing service, realtor.ca or any brokerage websites. Instead, they are found on classified ad services such as Kijiji, or the seller may choose to have a private sale sign with a phone number in front of the home.

©2019 Real Estate Council of Ontario

In a FSBO, you will have to do significantly more work. The actions of private sellers are not regulated. The seller is not bound by a set of rules to follow or a Code of Ethics. It is your responsibility to do additional due diligence and research to ensure you fulfill your duties and obligations.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 7 of 15

How to Work with a For Sale by Owner Property When you approach a property selling privately, you should consider the following actions to ensure you have met your legal obligations and the buyer’s best interests. The following four sections contain information on the actions.

Contacting the seller When a property is not listed with any brokerage (often referred to as FSBO), the seller has no relationship with any brokerage or salesperson. This means the buyer’s salesperson is free to contact the seller directly to inform them there is a buyer expressing interest in their property. This initial contact would be made to enquire if the seller would be agreeable to the brokerage showing the property and if so, would the seller pay remuneration to the brokerage. Nonetheless, when contacting the seller the first time, leading practice requires the salesperson to confirm that the seller has no representation agreement with another brokerage.

©2019 Real Estate Council of Ontario

Customer service agreement with seller When a property is not listed with any brokerage (commonly referred to as FSBO), the interested buyer’s salesperson typically has the seller sign some form of agreement regarding any remuneration the seller is prepared to pay the buyer’s brokerage. As an example, OREA Form 201, “Seller Customer Service Agreement (Commission Agreement For Property Not Listed)”. This is a non-exclusive seller customer service agreement in which the seller agrees to pay remuneration to the brokerage representing the buyer, in consideration of the buyer’s brokerage representing the buyer in the sale or lease of the property.

©2019 Real Estate Council of Ontario

Informing the buyer A buyer's obligations for remuneration payable when purchasing a property from a FSBO or private sale is the same as under a mere posting. It is important for the salesperson to ensure the buyer is aware of any obligation that may exist with respect to any remuneration payable to the salesperson's brokerage prior to the showing of any FSBO or private sale properties. Often buyers realize that the added cost of your remuneration, in cash, over and above the deposit, the lawyer fee, and the statement of adjustment, which may include property tax, can put the amount over their budget and put the home out of reach. You do not want your buyers surprised. In the end, you may be the one who does not get paid.

©2019 Real Estate Council of Ontario

Added due diligence actions

Should the buyer choose to move forward and make an offer, there are a number of activities you may need to do in a FSBO or private sale: • Conduct a registry record search online or ask a lawyer to check the title and see what liens, etc., are on the home so your buyers get a free and clear title. You will also want to ensure that the seller has the right to sell the property. • Call the township or go to the municipal office to make sure that there is no easement, encroachment, right of way, and that all the building permits are filled and satisfied. • Make sure there are no outstanding work orders or open building permits. You will want them closed before the transaction closes. • Measure each room if measurements are important to your buyers. • Talk to the neighbors to ask if the house has had issues in the past; for example, it was once a cannabis or marijuana grow-op. The sellers are not obliged by any legislation or any code to tell you if it has or has not, if any damage has been remediated. • Advise your clients to arrange a property inspection and take more care because the seller is not a registrant. They do not have the

©2019 Real Estate Council of Ontario

same disclosure obligations that a brokerage or salesperson would have. • Do closer due diligence on appliances and fixtures. • Explain documents to the seller to ensure they understand the legalities; you may have to work with their lawyer.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 8 of 15

A salesperson has found a house on the local listing service that appears to meet the requirements of his buyer. It appears the seller has a mere posting arrangement with another brokerage and the salesperson is not sure how to proceed. If you were the broker/manager, what advice would you give the salesperson? There are four options. There is only one correct answer.

1

2 3

4

Ignore the property. The seller chose to have a mere posting agreement with the listing brokerage, which indicates that they don’t want to pay for any additional services. This means the buyers would have to pay the remuneration in its entirety (based on the buyer representation agreement with the brokerage), so they wouldn’t be interested in the property anyway. Contact the seller right away to make arrangements for showing the property. Under the Code, the salesperson has an obligation to show the buyers all properties that match the criteria. Before doing anything else, the salesperson should read the listing to see if it allows a salesperson to contact the seller directly. If it does not, the listing brokerage should be contacted for permission. If it does, the salesperson should proceed with contacting the seller. Contact the seller, and ask them if they would be willing to sign a “Seller Commission Agreement with Cooperating Brokerage For A Listed Property”. If the seller agrees, inform the buyers about the property. If the seller does not, the salesperson does not have to inform the buyers about the property.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 9 of 15

The Type of Agreement Used by a Co-operating Brokerage to Confirm Remuneration Terms with a Mere Posting Seller A salesperson can use a form specifically designed in these circumstances such as the OREA Form 202, “Seller Commission Agreement with Co-operating Brokerage For A Listed Property”. In a mere posting or limited service listing, it is critical to document your legal obligations to the seller and point out who is paying remuneration so there is no confusion on closing. For this reason, it is important to pay particular attention to the details of the agreement and its essential components.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 10 of 15

Remuneration Agreement When dealing with limited services listings or mere postings, it is important to have the remuneration agreement in writing with the seller prior to showing the property. The following three sections contain information on important components of the remuneration agreement used by a co-operating brokerage to confirm remuneration terms when showing a limited services listing or mere posting.

Remuneration In this section, the seller agrees to pay the brokerage that introduces the buyer to the property a specific percentage of the sale price of the property (or a flat fee, or a combination thereof), for any valid offer to purchase or lease the property that is entered into between the seller and the buyer during the term of the remuneration agreement.

©2019 Real Estate Council of Ontario

Deposit This section identifies who will hold the deposit in trust. Most commonly, it is held by the seller's brokerage or the seller's lawyer, but the parties to the agreement must agree. The parties also commonly agree that such deposit will be applied to reduce the remuneration payable, and in case the deposit is insufficient, further invoicing will need to be sent to the seller or their legal representative. In the majority of agreements, the seller is liable to pay the brokerage the deficiency and taxes owing on such remuneration. In some cases, there are situations, such as unpaid taxes, a lien or a second mortgage where the deposit may have to legally be forwarded to the lawyer in order for the transaction to close. Other outlets such as civil litigation or separate arrangement with the seller may need to be sought to be paid remuneration.

©2019 Real Estate Council of Ontario

Permission to contact seller Brokerage confirmation that the brokerage obtained written consent from the listing brokerage to communicate directly with the seller.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 11 of 15

A seller is listing his home as a mere posting. The salesperson has informed the seller that co-operating brokerages will contact the seller directly and may ask the seller to sign a remuneration agreement. Even though a co-operating brokerage may be representing the buyer who purchases the property, the co-operating brokerage will also be representing the seller because the seller is paying the remuneration. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 5 | Page 12 of 15

A seller is listing his home as a mere posting. The salesperson has informed the seller that co-operating brokerages will contact the seller directly and may ask the seller to sign a remuneration agreement. The remuneration agreement confirms that the co-operating brokerage obtained written consent from the listing brokerage to communicate directly with the seller. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 5 | Page 13 of 15

A seller is listing his home as a mere posting. The salesperson has informed the seller that co-operating brokerages will contact the seller directly and may ask the seller to sign a remuneration agreement.

The deposit for the transaction will be held in trust by the co-operating brokerage. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 5 | Page 14 of 15

A salesperson is showing properties to a buyer who has signed a buyer representation agreement. The buyer informs the salesperson of an ad for a private for sale (FSBO) property that the buyer would like to see. The salesperson makes an appointment with the private seller to sign a remuneration agreement. Which of the given statements is correct regarding a remuneration agreement with a private seller (FSBO)? There are four options. There is only one correct answer.

1 2 3 4

A remuneration agreement makes the co-operating brokerage an agent for the seller and therefore the brokerage is acting in multiple representation. A remuneration agreement is exclusive and the seller cannot deal with any other brokerages during the term of the agreement. The deposit for the transaction is typically held in trust by the seller's brokerage subject to some other agreement between the parties. Once a seller signs a remuneration agreement, the buyer’s obligation to pay remuneration is eliminated.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 15 of 15

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were discussed in this lesson.

Obligations for a mere posting or FSBO

Legal obligations for contact and remuneration for mere posting or FSBO listings

Regardless of services provided, all salespersons and brokerages must fully comply with REBBA and other legislative requirements, such as FINTRAC requirements, among others. When a property that matches the buyer’s criteria is FSBO, this means the seller does not have any agreement or relationship with any brokerage, not even for a mere posting or limited services. To clarify these matters, an information bulletin titled Questions & Answers Related to REBBA 2002 and the Consent Agreement was published by the Real Estate Council of Ontario. When a seller has a mere posting/limited service listing agreement with another brokerage, and the seller has not agreed to pay remuneration, the buyer’s salesperson must consider four actions that arise in connection with their legal obligations: 1. Contact listing brokerage 2. Contact the seller 3. Enter a remuneration agreement with seller 4. Inform the buyer of the remuneration arrangement When a seller has a FSBO property and the seller has agreed to pay remuneration, the salesperson must consider three actions that arise in connection with their legal obligations: 1. Contact the seller 2. Sign customer service agreement with seller 3. Inform the buyer of the remuneration arrangement

©2019 Real Estate Council of Ontario

Key components of a remuneration agreement with the seller

The Seller Commission Agreement with Co-operating Brokerage For A Listed Property has a critical role to play in assisting you in meeting your legal obligations when dealing with a mere posting/limited service arrangement with another brokerage.

Key components of an agreement include: • Remuneration payable • Deposit details (amount, form of deposit, and deposit holder) • Confirmation of Permission to Contact the Seller You are obligated to inform the buyer of all properties whose attributes meet those your When there is no agreement between buyer is seeking and whose seller has a mere posting/limited service agreement with another brokerage (or when the property is a FSBO) to your buyer client (though not to a mere posting your buyer customer) regardless of whether the seller signed a remuneration agreement seller or a FSBO and with you.

a buyer’s representative

There are distinct disadvantages to both a seller and a salesperson when the seller does not sign either a seller remuneration agreement or seller customer service agreement. The primary disadvantage to a seller is the limited exposure to prospective buyers. For the salesperson a claim to remuneration can be called into question if there is no agreement for payment in place.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 1 of 20

Lesson 6: Due Diligence Requiring a Third-Party Provider

Third-party providers such as lawyers, home inspectors and mortgage brokers are important people to have in your referral network. They are often instrumental in the due diligence process to help move deals forward with full disclosure. For example, in the case of a cottage or secondary home being sold it would be important to advise the seller to consult with their lawyer or accountant, or other qualified professionals, as there may be capital gains or other tax matters to be considered. You will cover your obligations when referring third-parties, identify the circumstances that warrant a referral, and describe leading practices when referring them.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 2 of 20

Identify Salesperson's Obligations Regarding Third-Party Service Providers Buyers will ask you for advice. Make sure you are skilled and knowledgeable in the areas in which you are giving advice or opinions. If you are not, you are expected to refer them to a third-party provider who does have the skill and knowledge. Having a good network of professionals who you know and have worked with before and trust is a value added service that not only helps your buyers but also helps ensure due diligence before transactions are done. Upon completion of this lesson, you will be able to: • Identify salesperson's obligations regarding third-party service providers • Identify circumstances that warrant referral to a third-party service provider • Describe leading practices of a salesperson when referring a buyer to a third-party service provider Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 3 of 20

Providing Opinions When providing opinions make sure the buyer knows it is your opinion. As per Section 6 of the Code, you should not provide opinions unless you are skilled or competent in that area. Because the buyer is looking at you as the expert, every time you say something the buyer will take you on your word because they will believe you know. Therefore, before you comment or provide an opinion on anything make sure you truly know what you are talking about or refrain from commenting or offering an opinion. This is where you would commit to getting the correct answer or refer the buyer to an expert in the area. For example, you are looking at a home where a few shingles are curling and the buyer asks you: “How much life is there left on the roof?” Unless you have experience you would answer: “I’m not a roofer. I can see some wear so I recommend you contact a roofing company. They would be better suited to give you an accurate idea of how much time that roof has and give you an estimate of how much it would cost to repair or replace it.”

©2019 Real Estate Council of Ontario

Lesson 6 | Page 4 of 20

Providing Referrals to Other Service Providers Buyers will ask for advice on a number of aspects of the home, such as environmental, mortgage, electrical, plumbing, home inspections, insurance, and many others. As per Section 8 of the Code, if you are not an expert in a said topic, you must recommend that the buyer talk to a third-party professional. When referring a third-party service provider, it is best practice to give three names and let the buyer decide on who to work with. They may ask you who you would work with. While it is helpful to tell them who you may have worked with in the past, or let them know which providers you have heard good things about in the area, it is good to emphasize that It is really up to them. The pricing and services need to match their requirements, not yours. They should be comfortable with who they choose. Also, if you select the individual, they will likely hold you responsible if something goes amiss. The last thing you want is to show favouritism to any one provider or appear like you are getting fees for referring them. You want to be helpful and impartial. If you do not have a good contact it is best to say you do not know one. Never guess or refer someone you do not know.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 5 of 20

Discovering Material Facts with Third-Party Service Providers As you learned earlier, when dealing with customers you are required to disclose only the information you know or ought to know, treat them with honesty and in good faith. When dealing with clients it is your job to take reasonable steps to discover material facts and that may also require the assistance of a third-party service provider. Home inspectors or insurance companies can supply you with material facts about the property (for example, insurance claims, flooding, electrical or plumbing issues, possible mould or roof issues etc.). Lawyers search the registry to discover mortgages, liens and encumbrances against the property. The sale price may not be enough to cover what is owing which could stop the transaction from closing or the purchaser will have to come up with extra funds to close the transaction. Environmental agencies are helpful if you are dealing with conservation constraints. Township offices will confirm zoning and that permitted uses conform with your buyer’s ideas. Experience plays a big part in what you will observe yourself. It is your obligation to attend all your home inspections. You will get to know what is or is not a material fact when it comes to a building structure. Most importantly, never guess. Recommend that a third party, who is an expert, have a look at something in question.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 6 of 20

Qualifying Third-Party Service Providers The quality of the referrals you make will directly reflect on you. Therefore it is important to qualify the expertise of the third parties you are referring. Your first source for qualified third-party service providers is your own brokerage. Check with your broker/manager and other salespeople in your office to find out who they recommend. When you are first starting in the business, it is good practice to check references and visit other homes where work has been done. Doing a search online through a search page like Google may help you find reviews and testimonials. Another good source to contact is the Better Business Bureau who will have records if anyone has made a complaint against them. Remember your business network of other real estate colleagues and your own personal network. Ask family and friends who they have used and would recommend. All these methods, combined with attending education courses and inspections, will help you build a list of good quality third-party referrals.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 7 of 20

Working with Third-Party Service Providers Nothing can substitute your own personal experience with a third-party provider. Attend every home inspection. Even after years in the business, you can learn something new each time. Whether they are home inspectors, painters, plumbers, or other tradesmen, being on site and seeing how a third-party professional provides their service will give you an excellent indication of their work. Every professional may see things differently and every property is unique in some way. You can pose some questions to the professional to help your buyer. There is likely a learning opportunity for you as well. Remember to ask your buyers who they used after their move. Find out who they liked and did a great job, who they had to call back, who was reasonably priced and what their experience was, etc. All of these steps will help you ensure you are referring quality providers who will take care of your clients.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 8 of 20

A salesperson has taken buyers to view a house that has the basement concrete floor and walls painted. The salesperson has not experienced this previously but remembers the broker/manager telling him that this could be a sign that water damage is being covered up. If the salesperson suspects that water damage is being covered up, what actions should the salesperson take? There are six options. There are multiple correct answers. 1 2 3 4 5 6

Provide his professional opinion that there is water damage Take pictures of the painted floor and send them to a home inspector for advice Refer the buyers to a home inspector whose card was on a bulletin board at a local networking event Ask the broker and other colleagues at the brokerage for a list of reputable home inspectors Inform the buyer that they are not skilled in that particular area of expertise and suggest that they hire a home inspector to look over the property Provide a list of three home inspector referrals for the buyers to choose from

©2019 Real Estate Council of Ontario

Lesson 6 | Page 9 of 20

Identify Circumstances That Warrant Referral to a Third-Party Service Provider It is important to know when a referral is needed. For example, a buyer is looking at an older property with a painted basement floor and walls. Experience tells you that this is a way to disguise water damage. But without skilled experience, a referral to a third party is needed. Other examples include curling shingles that may require a professional roofer to come out, cracks in a foundation where you will need a foundation specialist, or water leaks in the basement where you would need a water specialist, etc. Next you will cover: • Circumstances that warrant referral to a third-party service provider • Consequences of not obtaining third-party advice

©2019 Real Estate Council of Ontario

Lesson 6 | Page 10 of 20

Circumstances That Warrant Referral to a Third Party Circumstances that warrant a referral to a third-party service provider are often ones that are necessary to a transaction. The four professionals that you will most often refer are: Lawyer A lawyer is the person who will close the transaction for them. If your buyers do not already have a working relationship with one, help them find a lawyer. Lender or Mortgage Broker You will want to ensure the buyer has their financing in place and you want to make sure that they are working with a financial services professional or mortgage broker who knows timelines are extremely important. Insurance Professionals Insurance professionals will ensure the buyers are made aware of the coverage they need. This is important because it is often a condition of an offer. Home Inspector A professional home inspector will assess whether the property is sound and whether there are hidden problems with the home. These four service providers are key to keeping a buyer out of trouble. The need for others may arise as the property transaction progresses and material facts or other issues arise or are revealed.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 11 of 20

Consequences of Not Obtaining Third-Party Advice In some cases the consequences of not obtaining third-party advice can be detrimental to both the property and to the buyers. Without services from a third party, your buyers can find themselves in scenarios where they could be involved in costly repairs, be involved in a lawsuit or even have serious medical conditions arise. Lawyer Lawyers do all the necessary searches and requisitions before closing. If they are not done, on closing you may find a second or even third lien/mortgage registered against the home. If the proceeds from the sale are not enough to cover the extra expenses, your buyer must come up with extra cash in order to close the transaction or there will be no purchase.

©2019 Real Estate Council of Ontario

Mortgage Broker Without pre-approval you may be looking at homes that are out of your buyer’s financial reach and therefore cause embarrassment when offers fall apart on financing. Or it may cause disappointment when your clients realize what they can actually afford. Insurance Insurance providers may not cover your home for fire insurance because there is a woodstove that is not WETT Certified or there is knob and tube electrical wiring in your home that needs to be removed. Inspector Inspectors assess the integrity of the home. For example, a house looks sturdy and clean so an inspector is not hired. No one thinks to look in the attic. You move in only to discover you begin to have breathing issues. After much investigation you finally look in the attic to discover mould growing all over the trusses. This is due to a leak in the roof no one noticed. Another example would be in rural areas. Missing a test to see if the well water is potable could pose a health hazard to the buyers. You should be familiar with what a home inspection covers and ensure that where required other experts are called. For example a home inspector may not have the qualifications to inspect a well or complete a WETT (Wood Energy Technology Transfer) inspection on a wood stove. Issues that are of concern to the buyer can be addressed during the offer process by negotiating terms with the seller such as a price reduction, having the sellers fix the problem prior to the closing, or even the option to walk away from the sale. It is always best to err on the side of caution and ensure you address any potential issues before the transaction is closed.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 12 of 20

A salesperson has begun assembling a list of third-party professionals to refer to clients and customers. It starts with the top four professionals that will most affect business. A lawyer is one of the top four professionals and will review all the documentation and close the transaction for the buyers. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 6 | Page 13 of 20

A salesperson has begun assembling a list of third-party professionals to refer to clients and customers. It starts with the top four professionals that will most affect business. A home inspector ensures that the financing is in place for the transaction. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 6 | Page 14 of 20

A salesperson has begun assembling a list of third-party professionals to refer to clients and customers. It starts with the top four professionals that will most affect business. An insurance professional provides their product or coverage, which is often a condition of a sale. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 6 | Page 15 of 20

A salesperson has begun assembling a list of third-party professionals to refer to clients and customers. It starts with the top four professionals that will most affect business. A mortgage broker identifies any physical problems with the property. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 6 | Page 16 of 20

A salesperson should always look out for the best interests of the buyer client. Many instances will arise where a buyer should be directed to contact a third-party professional. Which of the given statements is correct in regard to the use of third-party professionals? There are four options. There is only one correct answer.

1 2 3 4

Provided that a house is less than five years old and appears to be well kept there is usually no need for a buyer to make an offer conditional upon a property inspection. Lawyers should always be used to perform the various searches involved in the closing of a transaction. Buyers are in the best position to know what they can afford to pay for a house and a salesperson can start a property search based on that information. Property insurance is relatively easy to obtain and should not be an issue when a buyer is purchasing a property.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 17 of 20

Leading Practices for Referring a Buyer to Third-Party Service Providers It is worth repeating that as per Section 6 of the Code, you are not to provide opinions, unless you have education and experience in the particular problem area. Instead, refer the buyer to a third-party professional, otherwise the buyer might consider you as an expert in the field. Buyers may choose not to follow up on your advice to bring in a third party, and when this happens you are best to put something in writing that you suggested that they hire a third party in that particular field. Make reference to what the issue is, and that they have chosen not to seek external advice, then have them initial or sign it. Putting it in writing is important and can be at minimum sending them an email detailing the situation and your recommendation. As much as you want to protect their assets, you also want to protect yourself. As per Section 8 of the Code, services from others, you must advise buyers to a third party should you not have the necessary knowledge or skill. In the court of law, the court will look at you as the expert and expect you to go above and beyond in guiding your buyers through the transaction.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 18 of 20

Common Mistakes When Referring to Third-Party Service Providers A mistake when referring a third party is referring someone you do not know without doing the due diligence. If you can confidently refer a third party, that is helpful. If you are gathering names from colleagues, let the buyers know your source. If you do not have any references or do not have any experiences with the contractors, let the buyers know that too, and the buyers can make their own inquiries. If you do not know someone to refer, tell the buyers you do not. It is better than forwarding the name of someone and taking a risk that they will not do the job properly, and put you at risk for liability.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 19 of 20

Buyers have decided to make an offer on a home with painted basement floor and walls. At the salesperson’s urging they have agreed it would be in their best interest to include a home inspection clause in the offer. Which of the following options should the salesperson suggest for home inspection services? There are four options. There are multiple correct answers.

1 2 3 4

The salesperson refers ABC Inspectors, 123Homes, and XYZ Home Inspections, three companies that the salesperson’s colleague commonly uses and refers The salesperson found Dad’s Home Check Inspection Services through Google A1 Home Inspections was recommended by the salesperson’s brother, who has used them and was impressed with the quality of their work and is rated well with the Better Business Bureau The salesperson’s uncle who has done a lot of small repair jobs for people in his neighbourhood

©2019 Real Estate Council of Ontario

Lesson 6 | Page 20 of 20

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Obligations regarding thirdparty service providers

Providing opinions is something you can do only when you are skilled or knowledgeable in the area you are commenting on. Never guess. If it is your opinion, say it is your opinion upfront and be clear. Failing to do so opens you up to liability. Your buyers are looking to you to be the expert, and the courts do as well. To move a transaction forward, third-party professionals are needed. If the buyer does not have their own providers it is a good idea to recommend no less than three for any one category, if possible. It is important to be impartial and let the buyer decide who is best for them.

Circumstances that warrant referral to a third-party service provider

The more experience you have the easier this will become. Attend inspections and other appointments to show your buyer that you are engaged and supportive and doing your due diligence to look after their interests. The additional benefit is it allows you to increase your own knowledge. The more educated you are the easier you will be able to spot problems and help your clients, and customers. In the beginning, you will identify obvious areas where a third party needs to be brought in. As your experience grows and you attend more inspections, other areas that are less obvious will get flagged and you will be able to help your buyers to a greater degree. There are four professionals that are key in most transactions: the lawyer, the mortgage broker, the insurance broker and the home inspector. Others over and above that will likely be identified as issues arise and material facts are revealed.

©2019 Real Estate Council of Ontario

Leading practices when referring a buyer to a thirdparty service provider

Doing your due diligence will help ensure that your buyers are getting complete and accurate information and are safe in their purchase. It will also help you to have your bases covered to avoid any liability on your part. No matter the situation it is always a good idea to document your referrals in writing. Whether in a printed document or by emails, sending referrals and getting acknowledgement that you have recommended a third party is important. Buyers may not go with your advice, but with it documented you have demonstrated your actions and advice and have done the necessary due diligence. That due diligence also includes doing your research on third-party providers you are recommending. When you are new and starting to gather good professionals to refer, start with your colleagues, as well as friends and family. Personal experience is key to ensuring that names given will take good care of your buyers, and reflect well on you and your service.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 1 of 7

Lesson 7: Summary Practice Activities

This lesson contains several review activities to test your knowledge.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 2 of 7

This lesson provides summary practice activities. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 3 of 7

A salesperson is preparing a list of potential properties to show buyers who are interested in a specific neighbourhood. What steps should the salesperson take to prepare for a scheduled appointment? There are four options. There are multiple correct answers. 1 2 3 4

Call the seller’s salesperson to verify advance notice and appropriate appointment times Review potential offer details in advance of the appointment Confirm any safety measures and requirements (alarms, lockboxes, video surveillance, photo IDs, etc.) Research the listing to ensure they’re fully informed

©2019 Real Estate Council of Ontario

Lesson 7 | Page 4 of 7

A salesperson is showing a couple a property, and they are very excited about it. The salesperson starts to prepare a buyer representation agreement as a first step. The buyers ask the salesperson to just skip the buyer representation agreement and immediately sign the offer. They don’t want to waste time reading long documents and risk losing the home. What potential concerns can you identify? There are four options. There are multiple correct answers. 1 2 3 4

The buyers may regret signing an offer they did not fully read or understand Skipping the representation agreement is a compliance concern The buyers could file a complaint or proceed legally against the salesperson/brokerage if issues arise later The buyers must sign the representation agreement before the salesperson acts on their behalf

©2019 Real Estate Council of Ontario

Lesson 7 | Page 5 of 7

A salesperson has a number of obligations that they owe a buyer client. Which of the given obligations does a salesperson owe to their buyer clients (excluding multiple representation)? There are four options. There are multiple correct answers. 1 2 3 4

Locate properties that meet the buyer’s criteria Research zoning and other restrictions on properties of interest Inform the buyer of other offers for the same property Inform the buyer only when the transaction is complete

©2019 Real Estate Council of Ontario

Lesson 7 | Page 6 of 7

A salesperson has prepared an offer for buyers who have asked to have a lawyer review it before submitting it. The buyers contact the salesperson two days later indicating that they are changing their mind about submitting the offer. The feedback from their lawyer indicates that the offer lacks several important conditions. How can the salesperson respond to the buyers? There are four options. There are multiple correct answers. 1 2 3 4

“No problem. We can keep looking at more homes.” “You haven’t signed the offer so it’s actually the best time to change your mind.” “This offer protects your interests and you will lose this house unless you sign immediately.” “Let’s discuss which conditions to include to better protect your interests.”

©2019 Real Estate Council of Ontario

Lesson 7 | Page 7 of 7

Congratulations, you have completed the lesson!

©2019 Real Estate Council of Ontario

Module Summary | Page 1 of 4

Module Summary

This lesson contains a summary of the entire module and a list of helpful resources available in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 2 of 4

Congratulations, you have completed this module! This lesson will present a summary of Learning Objectives and a list of helpful resources that you can search for in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 3 of 4

There are five sections on this page with a summary of the key topics that were discussed in this module.

Prepare to meet with potential buyers

Finding buyers and standing out from the competition is critical to a career in real estate sales. You must find ways to not only be seen but also found by potential clients and customers. Making sure you are doing a variety of activities will ensure that you are not relying on any one method. A buyer’s package is a good tool for you to use during the sales process. It is another way to show value, showcase yourself and your difference to potential buyers. Having a friendly headshot and contact information is just the beginning; it is truly the content that helps you shine. Include ways to collect information from your buyer in order to provide them with personalized service. Provide valuable information, such as a list of additional costs they should plan for, a variety of information on third-party professionals they may need, and perhaps some geographical information. These are ways to set yourself apart and position yourself as an expert and professional. A package, no matter the form it takes, must provide value. Think of ways you can help your buyers and tailor the package to reflect it. Understanding what your buyers are looking for is a critical piece in providing personalized service that will set you apart. This can only be achieved by asking qualifying questions. They will help you put together a picture of what your buyers want and need. As you begin assessing whether the buyer is already working with a brokerage, you will ask the first and most important question: “Are you currently working with a salesperson?” You will then continue from there and move through the qualifying process. You can save everyone time and frustration by having a list of qualifying questions to ask a buyer, enabling you to gather priorities and get a clear picture of what to search

©2019 Real Estate Council of Ontario

for. Information such as their motivations, timing preference, budget, and wants and needs based on lifestyle should all surface for you to know what to look for in the property search. Once you have all the information, you can begin to personalize your buyer packages to suit different needs, enabling you to stand out from the competition.

Describe the salesperson's obligations when working with buyers, whether clients or customers

Completion of this lesson enabled you to: • Identify potential sources of buyers • Prepare a buyer’s package for initial contact • Identify the options for personalizing a buyer’s package It is important to review a buyer’s options with them. Each has a specific set of rules of conduct and the decision made will affect the types of conversations you will have with them moving forward. Generally, buyers become clients. This relationship is often implied, but it is important to document it. In some cases a buyer may choose to be a customer. While honesty and integrity are due to both, confidentially and fiduciary duty are not. It is important to discuss the differences with your buyers and to have them commit in writing to one of them before business moves too far forward. You are to ensure you are not working with another salesperson’s client. This is critical for adherence to Code 7, dealings with other registrants. When working with buyers, your obligations will differ from client to customer. Fairness, honesty and conscientious service are owed to all, as does providing opinions and disclosing material facts when dealing with one or the other. There are differences on best interests, informing buyers of properties and obligations to determine material facts when dealing with a client versus a customer. It is therefore important to know the difference, especially in a multiple representation situation. Completion of this lesson enabled you to: • Discuss relationship options with potential buyers • Describe the salesperson’s obligations when showing property to a potential buyer ©2019 Real Estate Council of Ontario

Select properties to show based on identified buyer needs and wants

As a salesperson you will ask qualifying questions around wants, needs and budget. Once you have an idea of the requirements, you will begin to look for properties that are a match for your buyers. As you go through the process of identifying, viewing, and comparing properties, you will begin to get a clearer view of what your buyer needs. It is important to keep updated notes during this time to ensure you capture as many details as possible. Over and above the basic information, a salesperson must consider environment, accessibility, utilities and amenities when narrowing down the field of search. Keeping your buyer profile and property profile sheet updated will be key throughout the process. Looking for properties in a variety of places will help you find suitable properties to show your buyers. Beginning your search on the local listing service and browsing through recent listings that have been posted is a best practice. Also, places for private listings, such as classified and online ads, computer apps and social networking can also help you get results. The most important thing is to keep your buyer’s needs and wants in mind when searching and to continually adjust the property profile as they become clearer during the search.

Provide detailed information on specific residential properties of interest to the buyer

Completion of this lesson enabled you to: • Identify buyer needs and property requirements to select appropriate properties to show • Identify properties that meet a buyer’s criteria Showing properties provides you with multiple opportunities to service your buyer in a personalized way and refine the search to find a successful match to their needs and wants. As a salesperson your safety and the safety of your buyer is very important. Safety of information, as well as physical safety when on site is your responsibility. With the invention of smart homes and surveillance, the protection of privacy during showings is also a consideration and you must be proactive to safeguard yourselves when having discussions in order to maintain privacy. ©2019 Real Estate Council of Ontario

Protecting buyers helps the salesperson protect their interests and increases the likelihood of a positive outcome. It also reduces the risk of negative outcomes; for example, complaints, disciplinary measures, and legal actions against all parties. Regardless of services provided, all salespersons and brokerages must fully comply with REBBA and other legislative requirements, such as FINTRAC. When a property that matches the buyer’s criteria is for sale by owner (FSBO), this means the seller does not have any agreement or relationship with any brokerage, not even for a mere posting or limited services. Your responsibilities and due diligence needs will be greater in these situations. When a seller has a mere posting/limited service listing agreement with another brokerage, the buyer’s salesperson must contact the listing brokerage and confirm consent to contact the seller directly to work out a remuneration agreement with the seller and then inform the buyer. When a seller has a property for sale by the owner (FSBO) the salesperson contacts the seller directly to work out a remuneration agreement with the seller and then inform the buyer of the outcome. The salesperson is obligated to inform the buyer client of all properties of interest including those that are mere posting/limited service agreements with other brokerages, or when the property is a FSBO. If the seller has not signed a remuneration agreement or customer service agreement, any obligation for the buyer to pay their salesperson remuneration should be documented in the buyer representation agreement. Completion of this lesson enabled you to: • Describe leading practices related to showing properties • Describe leading practices in situations where the seller has limited or no services being provided by a brokerage • Describe the type of agreement used by a co-operating brokerage to confirm remuneration terms with a seller • Describe leading practices of a salesperson related to protection of a buyer

©2019 Real Estate Council of Ontario

Describe salesperson due diligence and when to refer the buyer to a third-party service provider

It is important to avoid providing opinions unless you are skilled and have expertise in the area. You are the real estate expert in the eyes of your buyer and the courts. If it is your opinion, say it is your opinion up front and be clear. Failing to do so opens you up to liability. To move a transaction forward, if third-party professionals are needed it is a good idea to recommend no less than three professionals for any one category, if possible. It is important to be impartial and let the buyer decide who is best for them. The more experience you have, the easier this will become. Attend as many inspections and other appointments when possible to increase your knowledge. The more educated you are, the easier you will be able to spot problems and help your clients and customers. With experience it will be easier to identify when a third-party service provider needs to be recommended. Attend inspections and learn the terms and things to look for. You will gradually be able to help your buyers to a greater degree. Consult with your broker/manager when you are unsure. There are four professionals that are key in most transactions: the lawyer, the mortgage broker, the insurance broker and the home inspector. Others over and above that will likely be identified as issues arise or material facts are revealed. Doing your due diligence will help ensure that your clients and customers are getting complete and accurate information and are safe in their purchase. It will also ensure you have done your due diligence to reduce the risk of liability on your part. As a salesperson it is always a good idea to document your referrals in writing. Whether in a printed document or by emails, sending referrals and getting acknowledgement that you have recommended a third party is important. With it documented, you have demonstrated your actions and advice and have done the necessary due diligence. That due diligence also includes doing your research on third-party providers you are recommending. When you are new and starting to gather good professionals to refer,

©2019 Real Estate Council of Ontario

start with your colleagues, as well as friends and family. Personal experience is key to ensuring that names given will take good care of your buyers and reflect well on you and your service. Completion of this lesson enabled you to: • Identify salesperson's obligations regarding third-party service providers • Identify circumstances that warrant referral to a third-party service provider • Describe leading practices of a salesperson when referring a buyer to a thirdparty service provider

©2019 Real Estate Council of Ontario

Module Summary | Page 4 of 4

Module Resources There are four helpful resources related to this module that you can search for in the Knowledge Management System. 1. Canada Mortgage and Housing Corporation (CMHC) ©2019 Homebuyers Kit: This job aid provides a link to the CMHC Homebuyers Kit website. The CMHC Homebuyers Kit is a great reference for a salesperson to share with potential clients when they are considering purchasing a home for the first time. It provides worksheets, calculators and checklists for each step in the homebuying process. It includes detailed budget calculations, home features checklists and comparison tools. It also includes a practical home maintenance calendar for firsttime homeowners. A salesperson can use this job aid to build their value with clients. 2. GeoWarehouse® Sample: This job aid provides a link to a GeoWarehouse® website page that lists various types of informational reports. A salesperson can use this job aid to better understand how they can use GeoWarehouse® to assist them when finding properties for their buyers. 3. Buyer Profile Sheet: This job aid provides key information and considerations a salesperson should capture and update on their buyer’s property preferences during the length of their relationship. A salesperson can use this profile sheet to accurately record and better understand a buyer’s property preferences. 4. Questions & Answers Related to REBBA 2002 and the Consent Agreement: This job aid outlines questions and answers related to the Consent Agreement between the Canadian Real Estate Association (CREA) and the ©2019 Real Estate Council of Ontario

Commissioner of Competition filed with the Competition Tribunal on October 25, 2010, and the Real Estate and Business Brokers Act. A salesperson can use this job aid to understand their obligations and requirements under REBBA. While navigating through the online module, click the KMS button for tools and information on this topic.

©2019 Real Estate Council of Ontario

Module 14: The Offer Process and Regulatory Obligations Disclaimer: This is a reference document which contains pages from the Accessible eLearning module. You should complete the eLearning module to proceed to the next step. Please note that the accessible module on the LMS only contains the interactive pages and you need to go through the content of this document thoroughly to attempt the interactive activities in the module. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Salesperson Program ©2019 Real Estate Council of Ontario. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or in any means – by electronic, mechanical, photocopying, recording or otherwise without prior written permission, except for the personal use of the Real Estate Salesperson Program learner.

©2019 Real Estate Council of Ontario

V7

Module 14: The Offer Process and Regulatory Obligations This module introduces the offer process from both a seller’s and buyer’s perspective. It explains your role and obligations as a salesperson relating to compliance with REBBA. The negotiation of an offer can be fast-paced and requires due diligence, attention to detail, and time management. Ensuring that the offer process is carried out with fairness and honesty is an important aspect of a salesperson’s role. Understanding the complexities of an offer and negotiation is essential as an accepted offer places obligations on sellers and buyers. This is the first of six modules which details the knowledge you will need to complete a transaction competently and professionally. Specifically, this module details the requirements under REBBA relating to conveying offers at the earliest practical opportunity, the handling of a buyer’s deposit, and multiple representation disclosures. As you learned earlier, organized real estate includes membership with a local real estate board, OREA, and CREA. If you are a member, you will have access to standard forms and clauses available through organizations you belong to. However, not all registrants choose to be members of organized real estate and may not have access to these forms. As they are commonly used in trading, specific forms will be used throughout this module for illustrative purposes. Images of OREA standard forms and clauses are included with permission of the Ontario Real Estate Association (OREA). To check your understanding of this module, you must complete all the activities in the online module.

©2019 Real Estate Council of Ontario

While navigating through the online module, click the Legislation button to view laws and regulations related to this module. While navigating through the online module, click the KMS button to access the Knowledge Management System or visit the Module Resources to find the list of all the KMS assets for this module. The contents of the thumbnail icon and References from the module are added to support your learning throughout this Accessible PDF.

©2019 Real Estate Council of Ontario

Menu: The Offer Process and Regulatory Obligations Number of Lessons Lesson Number Lesson 1 Lesson 2 Lesson 3 Lesson 4

5 Lessons Lesson Name The Offer Process Deposits and Other REBBA Considerations The Impact of Multiple Representation Summary Practice Module Summary

©2019 Real Estate Council of Ontario

Lesson 1 | Page 1 of 24

Lesson 1: The Offer Process

You will learn about the offer process from the perspectives of both a seller and buyer.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 2 of 24

In this first lesson, you will learn about the key components of an offer, and how the typical offer process occurs from both a seller and buyer’s perspective. Upon completion of this lesson, you will be able to: • List the key components of an agreement of purchase and sale • Identify and explain a typical offer process from the buyer's perspective • Identify and explain a typical offer process from a seller's perspective • Describe the steps for presentation and acceptance of an offer Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 3 of 24

For many people, selling or buying a home is one of the biggest factors impacting their financial future. For a seller, their investment in a property could be a major component of their net worth. For a buyer, it is likely the single, largest purchase they will make in their lifetime. Negotiating an offer can be exciting but is often a stressful time for the parties involved. The offer process can happen quickly and decisions will need to be made, sometimes within a limited period of time. As a salesperson, ensuring a seller or buyer is prepared to make these decisions based on the realities of the situation rather than the emotions of the moment, is a key aspect of the services you will provide. Understanding the seller’s or buyer’s needs and wishes will allow you, as a salesperson, to work effectively to draft and negotiate an offer that successfully achieves their goals. You will do this within a regulatory framework, which is in place to promote fairness and honesty, and provide protection to consumers throughout a real estate transaction.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 4 of 24

Agreement of Purchase and Sale An agreement for the sale of property in Ontario must be in writing and signed by the parties to be enforceable. You are not required to use a specific form; however, whichever form is used, it is referred to as an agreement of purchase and sale. Although there is no standard form, there is certain information relating to the rights and obligations of the parties that statutorily must be included in all agreements under the Vendors and Purchaser’s Act. Examples of these terms include: • The buyer is required to search the title at their own expense and make any objections within 30 days of when the agreement is made • The seller has 30 days to remove any objection. If the seller is not able or is unwilling to remove any objection that the buyer does not agree to accept, the agreement can be terminated and the buyer’s deposit is returned • All adjustments made to the purchase price; for example, property taxes, rents, and interest, are adjusted as of the date of closing with the day of closing apportioned to the buyer • The deed is prepared by the seller and registered at the expense of the buyer

©2019 Real Estate Council of Ontario

Lesson 1 | Page 5 of 24

Offer Versus Agreement As a salesperson, you will be directly involved in many aspects of negotiations between a seller and a buyer. This includes explaining and advising on terms and conditions, and drafting the required documentation. During negotiations, the agreement of purchase and sale form is referred to as an offer. Once all of the terms are agreed to between the parties, the offer can be referenced as one of two types: • When the offer is conditional upon an event, such as the buyer obtaining financing, the offer is referred to as an accepted, conditional offer • When the offer is a legal binding contract, it is called an agreement In summary, the document used is called an Agreement of Purchase and Sale, however it is referred to as an offer until the time it becomes binding, after which it is referred to as an agreement. Before we look at the offer process, we will review the key components in an agreement of purchase and sale.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 6 of 24

Key Components of an Agreement of Purchase and Sale An agreement of purchase and sale is used to document the terms by which one party agrees to sell and another party agrees to purchase a property. The title is transferred from the seller to the buyer based on the terms agreed upon in the agreement of purchase and sale. Although there is no standard form, there are key components which are included in all agreements of purchase and sale. The following four sections contain information on the key components of an agreement of purchase and sale. This list of components continues on the next screen.

Names of the sellers and buyers

The parties to the transaction must be accurately identified using the full legal names of the sellers and buyers.

©2019 Real Estate Council of Ontario

Address and legal description A municipal address and a complete legal description is required to identify the property being sold. In some locations, a rural route number or an address used under the 911 program is used for the municipal address.

Purchase price The purchase price is the amount that the seller will receive in return for the property being sold. The purchase price must be clearly identified on any agreement and is described in both words and numbers.

©2019 Real Estate Council of Ontario

Deposit amount Although a deposit is not required to have a binding agreement, a deposit is considered a show of good faith to the seller that the buyer is committed to completing the transaction. The deposit is identified in both words and numbers and is credited toward the purchase price when the transaction is completed. The agreement of purchase and sale identifies: • Who the deposit holder is; deposits are typically held in trust by the seller’s brokerage • When the deposit will be provided; options typically include: herewith or with the offer, upon acceptance of the offer, or as otherwise described in the agreement, which requires additional details to be included on a schedule to the agreement of purchase and sale Additional details regarding deposits and the obligations of a salesperson under REBBA are detailed later in this lesson.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 7 of 24

Key Components of an Agreement of Purchase and Sale The following five sections contain information on the key components of an agreement of purchase and sale.

Irrevocable date

The irrevocable date on an agreement of purchase and sale identifies the time and date the person making the offer is obligated to the offer. The wording uses the terms seller or buyer to identify who the offer is from, not who the offer is to. If the offer is not accepted within the irrevocable time period, it becomes null and void and the party no longer has any obligations related to making the offer.

©2019 Real Estate Council of Ontario

Completion date The completion date identified in the agreement of purchase and sale is the date set for closing. This is the agreed upon date when the title will be legally transferred to the buyer. In most instances, the seller agrees to provide vacant possession of the property on this date. In instances where the buyer has agreed to assume an existing tenancy, vacant possession would not be given. The completion date must be a business day, which excludes Saturdays, Sundays and statutory holidays as the Land Registry Offices are closed.

Title search date The title search date, also known as the Requisition Date, is the time period in which the buyer’s lawyer completes a search at the Land Registry Office. The purpose of the search is to review the information registered on the title and provide an opinion on these matters, such as confirmation of ownership, any mortgage or lien registered, or any easement affecting the property.

©2019 Real Estate Council of Ontario

Chattels and fixtures A chattel is personal moveable property. Unless identified in the agreement of purchase and sale that the item will remain, it is excluded from the sale. Common chattels a buyer may ask for include the appliances, such as a fridge and stove. A fixture is attached to the property. It is deemed to be included unless identified in the agreement of purchase and sale as excluded. In some instances, the seller will replace any fixture not remaining prior to the property being offered for sale to avoid any misunderstanding or confusion by a buyer. Common fixtures excluded by a seller include light fixtures or ceiling fans.

©2019 Real Estate Council of Ontario

Conditions An agreement of purchase and sale can include conditions on behalf of a seller or a buyer, although most conditions are included for the benefit of the buyer. Common conditions for a buyer include obtaining financing or having the property inspected. An offer containing conditions allows the party to complete the required due diligence prior to the offer becoming a binding contract, sometimes referred to as a firm offer or agreement.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 8 of 24

The Offer Process: The Buyer’s Perspective 1. Initiate the offer The offer process begins by either a seller or a buyer identifying they are prepared to submit an offer. Most offers are initiated by a buyer, but certain market conditions could result in a seller making the initial offer to a buyer. Perhaps a buyer has previously submitted an offer which was not accepted. A seller may choose to re-open negotiations by approaching this buyer with an offer for their consideration. As a salesperson working with a buyer, you will ensure you are prepared to draft an offer by making notes on each of the properties you show. Your notes would detail anything that is needed if an offer were to be drafted on that property without the opportunity to return for another viewing. For example, you would document the details regarding the chattels included in the price or insert a clause to address any conditions noted, such as signs of an old water stain in the basement. You would also follow up with any additional questions or concerns with the listing salesperson after the showing if the buyer has expressed an interest in the property. When the decision is made to place an offer on a property, you would discuss all of the terms and conditions required for the offer with the buyer prior to drafting the agreement of purchase and sale.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 9 of 24

Preparing to Draft the Offer The agreement of purchase and sale must be accurate and complete. To ensure all information was obtained to draft the offer, key activities should be completed before the offer is prepared and signed by a buyer. The following five sections contain information on how to prepare for drafting the offer.

Review the listing

Identify the information from the property listing that will be required for the offer. This may include any additional information received from the listing salesperson resulting from follow-up questions after the property is shown. Review the notes taken during the showing to ensure the offer addresses these notations. Although the listing salesperson is obligated to ensure the listing information is accurate, part of the due diligence of the buyer’s salesperson is to also confirm the information before relying on it for the offer. Use online sources including the municipality’s web site or GeoWarehouse, to verify the owner’s name(s), legal description, and lot size.

©2019 Real Estate Council of Ontario

Contact the listing salesperson Prior to drafting the offer, contact the listing salesperson to enquire if there are any other offers registered on the property. A registered offer means there is an offer signed by a buyer which may or may not have already been presented to the seller. If more than one registered offers occurs, it is referred to as competing offers. This allows a seller to consider multiple offers at the same time. For a buyer, it is important to know if there are other offers, and if so, the number of competing offers as this information could impact the buyer’s decisions regarding the terms of the offer, including whether to continue with making an offer.

©2019 Real Estate Council of Ontario

Complete a comparative market analysis (CMA) A comparative market analysis (CMA) is used to assist the seller to decide on a price when listing a property for sale. However, it can also be used to assist the buyer to decide on an appropriate price to offer for a property. As a salesperson, being familiar with the area and staying up to date on the listing and sale activity will assist the buyer in making an informed decision on the price they offer.

©2019 Real Estate Council of Ontario

Obtain details from buyer Discuss the specific offer details with the buyer. This would include: the offer price, deposit, completion date, chattels, fixtures, and any other terms or conditions they want included in the offer. Obtain and verify the full legal names of all buyers and ensure they are accurately identified on the agreement of purchase and sale.

©2019 Real Estate Council of Ontario

Organize the required information Once all the information is obtained, it will need to be organized to ensure nothing is missed when the offer is drafted. There are many considerations when preparing to draft an offer, and each offer can be unique. Typically, the information required includes: • The offer mathematics, including the offer price, deposit, and the amount due on completion • The terms, conditions or other clauses required to address the needs or concerns of the buyer • The irrevocable date, completion date, title search date, and dates for any conditions and other due diligence to be completed Ensuring the offer is drafted accurately and completely is key to the services you provide. To ensure the information is organized, an offer plan can be created before drafting the offer. You will learn about an offer plan later.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 10 of 24

The Offer Process: The Buyer’s Perspective When the offer is initiated, you will continue with the rest of the steps in the process. The following four sections contain information on the remaining steps in the offer process from the buyer’s perspective.

©2019 Real Estate Council of Ontario

Step 2 - Draft the offer Draft the offer based on the buyer’s instructions for terms and conditions. You can advise or provide guidance to the buyer regarding the terms, however the ultimate decision on what to include in any offer is theirs. Ensure the offer is thoroughly reviewed for any missing terms or any errors before presenting the offer to them for their review and signature. Market conditions can impact certain aspects of an offer, such as the conditions included and the amount of time the offer is open for acceptance. For example, in a seller’s market, a seller would not likely accept an offer that contains a condition allowing the buyer two to three months to sell their property before purchasing the seller’s property. This type of market would also impact the irrevocability; the time could be shortened which would benefit the buyer by reducing the chance of another competing offer appearing while the seller is contemplating the buyer’s offer. Review the entire offer with the buyer. This requires all of the pre-set clauses, and any information inserted into the agreement of purchase and sale, to be explained carefully to ensure the buyer fully understands the offer being made.

©2019 Real Estate Council of Ontario

Explain the legal ramifications of signing the agreement of purchase and sale under seal. The buyer should understand that signing under seal means that the offer cannot be withdrawn once it is presented to the seller, as the irrevocable clause becomes binding. Where a brokerage is authorized to give and receive notices on behalf of the seller, the buyer’s offer cannot be withdrawn once it is presented to the seller’s brokerage or the seller’s salesperson. All offers must be in writing and signed to be deemed an offer.

Step 3 - Register the offer with the seller’s brokerage Once the offer is signed, the seller’s brokerage is advised and arrangements are made to have the offer presented to the seller. This is known as registering the offer. When in contact with the seller’s brokerage or the listing salesperson, you would not discuss any details of your buyer’s offer. If there are any offers also registered on the property, the listing salesperson is required to advise you of how many offers are currently registered.

©2019 Real Estate Council of Ontario

Step 4 - Present the offer to the seller A leading practice is for the buyer’s salesperson to be present when the listing salesperson reviews the offer with the seller. In this case, if the seller has any questions, you could answer them directly or be able to quickly contact your buyer and make the necessary enquiries. Being in attendance during the offer presentation allows you the opportunity to promote the offer and your buyer to the seller. For example, you could provide copies of the comparable sales the buyer used when arriving at an offer price, or you could promote how your buyer will care for the property once purchased. Remember, a residential transaction can be steered by emotions; if the seller likes your buyer, the negotiations could fall in your favour. The highest price is not always the best offer for the seller. In some instances, it may not be possible to be present when an offer is being presented; for example, if the sellers are not in the same location as the property. Other times, the seller may prefer the offer be presented privately with their own salesperson. In these situations, the offer is provided to the listing salesperson and they would present it. The offer could be delivered personally or electronically to the listing salesperson.

©2019 Real Estate Council of Ontario

Step 5 - Await the seller’s response to the offer You should prepare your buyer for the possibility that the seller may reject the offer with no further negotiations on the seller’s part. Alternatively, the seller could make a counter offer back to the buyer.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 11 of 24

Over the weekend a buyer and a salesperson viewed several properties. On Wednesday, the buyer calls the salesperson to indicate readiness to make an offer on one of the properties they visited. Which of the given tasks should the salesperson complete before drafting the offer? There are five options. There are multiple correct answers. 1 2 3 4 5

Review and verify the listing information Contact the seller to confirm listing details Complete a comparative market analysis (CMA) Obtain offer details from the buyer Register the offer

©2019 Real Estate Council of Ontario

Lesson 1 | Page 12 of 24

The salesperson’s buyer client has asked that an offer be prepared on the property just viewed. One of the salesperson’s responsibilities is to review the offer with the buyer. Identify if the statement is true or false. There are two options. There is only one correct answer. True

False

2019 Real Estate Council of Ontario

Lesson 1 | Page 13 of 24

The salesperson’s buyer client has asked that an offer be prepared on the property just viewed. One of the salesperson’s responsibilities is to make decisions on the terms and conditions that would be best for the buyer and should be included in the offer. Identify if the statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 14 of 24

The salesperson’s buyer client has asked that an offer be prepared on the property just viewed. One of the salesperson’s responsibilities is to explain to the buyer the significance of signing the offer under seal. Identify if the statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 15 of 24

The Offer Process: The Seller’s Perspective From the seller’s perspective, the offer process starts formally when the offer is registered. You will prepare the seller beforehand by explaining some of the aspects of receiving an offer. Under the Code of Ethics, an offer must be presented at the earliest opportunity. Discuss the seller’s preferences for how the offer process will occur and mention that the offer will have an irrevocable time period which must be adhered to. The location should be determined, e.g., the seller’s home or the brokerage’s office, and whether the buyer’s salesperson will be in attendance. An offer presentation time should be set that is convenient to the seller, e.g., after dinner as both sellers work during the day or after the children have gone to bed. Leading practice would have any preferences or restrictions in writing from the seller. We will next look at the steps in the offer process from the seller’s perspective.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 16 of 24

The Offer Process: The Seller’s Perspective The following six sections contain information on the offer process from the seller’s perspective.

©2019 Real Estate Council of Ontario

Step 1 - Arrange offer presentation time Once an offer is registered, arrange for the offer presentation to take place as soon as possible, keeping in mind any preferences or requests from the seller. At this time, you should follow up with any other salespeople who have shown the property and inform them that an offer has been received. This is done so the salespeople can let their buyers know that if they intend on placing an offer, this should be done right away as the property could be sold. Advise the other salespeople of the time when the seller will be reviewing the registered offer and encourage others to submit any offers prior to that time. Generating competing offers is considered working in the seller’s best interests. If additional offers are received you must notify all of the brokerages, with registered offers, how many offers are registered without divulging the contents of the offers.

©2019 Real Estate Council of Ontario

Step 2 - Prepare the seller for offer presentation Prepare the seller for the offer presentation by explaining how many offers they will receive and how the presentation will be conducted. If the buyer’s salesperson will be present, you will advise the seller to discuss any confidential information with you privately. Also explain that after the offer is presented they may ask questions or discuss any concerns they have. It is important for the seller to understand that they do not have to ask questions or make decisions during the offer presentation. If there is more than one offer being presented, let the seller know they will have an opportunity to review and analyze all offers prior to deciding on the next step. It is in this respect that the irrevocability of any offer will be a key consideration.

©2019 Real Estate Council of Ontario

Step 3 - Update seller on current market conditions Update the previous comparative market analysis (CMA) to show any recent activity that occurred since the most recent update was provided. You would review the listing and update the seller on the current market conditions to ensure they understand how this might impact any offer made. Retain a copy of the updated CMA as part of the documentation. This will help support any advice you provide to the seller and any decisions made during negotiations. You may also prepare an example of the seller’s net proceeds based on the updated CMA. This will help the seller understand approximate selling costs associated with any offer received.

©2019 Real Estate Council of Ontario

Step 4 - Review and analyze the offer During the offer presentation, if the buyer’s salesperson is in attendance, they may take this opportunity to explain and support their buyer’s offer. Once the offer is presented, if there are additional offers that have not yet been presented to the seller, this offer would be set aside for the time being. In the case of multiple offers, advise the seller not to discuss the contents of any of the offers in front of the other salespeople. Once all offers are presented, each offer will need to be thoroughly reviewed and analyzed. Although the seller will place a significant amount of importance on the offered price, there are other factors that must be taken into consideration, as these can have an impact on any decisions made. Review additional aspects of each offer such as: • Deposit amount • Completion date • Chattels included and fixtures excluded • Rental or Lease-to-Own contracts (if any) to be assumed • Conditions included, such as financing, home inspection, sale of a buyer’s property, etc. • Time period of the conditions As a salesperson, you should assist the seller in assessing the entire offer and understand the ©2019 Real Estate Council of Ontario

importance of what could be a seemingly insignificant component, such as the completion date. An inappropriate completion date could cause the seller additional expenses for moving, storage of furniture, accommodations; for example, if the completion date does not align with their new residence.

Step 5 - Discuss options to address the offer Once an offer is presented, the seller can respond in one of four ways: • Accept the offer • Reject the offer • Counter the offer by making an offer back to the buyer from the seller • Send all or some offers back for improvement if there are competing offers If the seller wants to accept an offer, the acceptance must be done and communicated back to the other party prior to the irrevocable period expiring. If there is more than one offer for the seller to consider, and none of the offers are acceptable, the seller can counter only one of the offers. If two offers were signed back and both buyers accepted the offers, the seller would have sold the property twice. Once a seller makes an offer back to the buyer, the seller is obligated to that offer for the irrevocable time specified. ©2019 Real Estate Council of Ontario

A counter offer is also referred to as a sign back. Both terms are used within the profession as they mean the same thing; the offer was not acceptable and the party is making an offer back to the other party with terms acceptable to the offering party. If there is more than one offer on a property, a seller may elect to have their salesperson inform all of the competing salespeople that none of the offers are being accepted. The salespeople are given an opportunity to go back to their buyers and improve their offers. The listing salesperson may offer some guidance on what the seller is looking for, e.g., a particular closing date, the highest price possible, etc. Before selecting this option, the seller must be cautioned that some or all of the buyers may drop out of the negotiations and the seller may be left with no offers on the property. Any offers that do return would be presented in the same manner as the original presentation.

©2019 Real Estate Council of Ontario

Step 6 - Negotiate the offer Negotiating the offer means the seller chooses how they want to address the buyer’s offer. As the seller’s salesperson, you will implement those instructions and advise the buyer’s salesperson of the seller’s decision. For example: • If the seller chooses to accept the offer, you will advise the buyer’s salesperson that the offer is accepted, arrange to meet with the buyer’s salesperson (if they were not at the presentation) to finalize and exchange copies of the accepted offer, and make arrangements to obtain any deposit that is required • If the seller chooses to reject the offer, you will advise the buyer’s salesperson that the offer will not be addressed by the seller and return additional copies of the offer or the deposit cheque • If the seller chooses to counter the offer, advise the buyer’s salesperson that the offer is being signed back and ensure the buyer’s salesperson is able to present the seller’s offer within the irrevocable period REBBA requires the seller’s brokerage to retain copies of all written offers that it receives. This will require the brokerage to retain a copy of all offers, whether accepted, rejected, or countered. Prior to countering ©2019 Real Estate Council of Ontario

an offer, the salesperson is required to retain a copy of the offer exactly as it was received from the buyer. You will learn more about this later.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 17 of 24

Once an offer is presented, the listing salesperson should take the time to review and assess the entire offer with the seller to ensure the seller makes an informed decision to accept, reject, or counter it. A salesperson should ensure that the seller considers the price while assessing the offer. Identify if the statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 18 of 24

Once an offer is presented, the listing salesperson should take the time to review and assess the entire offer with the seller to ensure the seller makes an informed decision to accept, reject, or counter it. A salesperson should ensure that the seller considers the deposit while assessing the offer. Identify if the statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 19 of 24

Once an offer is presented, the listing salesperson should take the time to review and assess the entire offer with the seller to ensure the seller makes an informed decision to accept, reject, or counter it. A salesperson should ensure that the seller considers the title search while assessing the offer. Identify if the statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 20 of 24

Once an offer is presented, the listing salesperson should take the time to review and assess the entire offer with the seller to ensure the seller makes an informed decision to accept, reject, or counter it. A salesperson should ensure that the seller considers the conditions while assessing the offer. Identify if the statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 21 of 24

The offer process involves many activities for the salespersons of sellers and buyers. Some of these activities are unique to the seller or buyer in the process and some activities may be similar in each process. Which of the following activities would take place for a seller in the offer process? There are seven options. There are multiple correct answers. 1 2 3 4 5 6 7

Draft the completion date and title search date Verify owner’s name, property legal description and lot size Explain the irrevocable time period Include or adjust conditions for specific needs Complete a comparative market analysis (CMA) Generate competing offers Calculate net proceeds

©2019 Real Estate Council of Ontario

Lesson 1 | Page 22 of 24

The offer process follows specific steps for the salespersons for the seller and buyer. Which of the following steps are completed by a salesperson for a buyer in a typical offer process? There are ten options. There are multiple correct answers. 1 2 3 4 5 6 7 8 9 10

Initiate the offer Draft the offer Register the offer Presentation of the offer Await seller’s response to the offer Review and analyse the offer Arrange offer presentation time Discuss options to address the offer Listing salesperson prepares client for offer presentation Negotiate the offer

©2019 Real Estate Council of Ontario

Lesson 1 | Page 23 of 24

Steps for Acceptance of an Offer When a buyer’s offer is presented, the seller will review and discuss the terms with their salesperson. As you learned earlier, one of the options available to the seller is to accept the buyer’s offer. If the offer is accepted, specific steps must be completed to ensure the acceptance is correctly executed and communication of the acceptance is made to the other party. REBBA requires each seller and buyer to receive a copy of the accepted offer as soon as possible. Additionally, copies of the agreement are retained by each brokerage. The following six sections contain information on the steps to complete when accepting the buyer’s offer. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Accept the offer To accept the buyer’s offer, all sellers must sign and initial the agreement of purchase and sale. A verbal acceptance is not considered an acceptance of the offer. In the case of a non-titled spouse of a matrimonial home, written consent for the sale must also be obtained. Acceptance of the offer must be communicated to the other party prior to the expiration of the irrevocable time period.

©2019 Real Estate Council of Ontario

Confirm acceptance To confirm when the offer is accepted, the agreement of purchase and sale will provide for the time and date of acceptance to be identified. This statement is then signed by the last party who accepted the offer.

©2019 Real Estate Council of Ontario

Distribute copies REBBA requires each seller and buyer to receive a copy of the accepted agreement as soon as possible. The brokerage will provide these copies and obtain the party’s signature acknowledging they have received their true copy. When the seller accepts the offer, a copy is provided at that time for each seller. The buyer’s salesperson will obtain copies for each buyer, have them sign acknowledgement of receipt and deliver the acknowledged copy to the listing brokerage as soon as possible. In addition to acknowledging receipt of the accepted offer, the seller and buyer will provide the brokerage the authority to send copies to their respective lawyers. This process may be paper-based or electronic.

©2019 Real Estate Council of Ontario

Sign a remuneration or commission trust agreement When there are two different brokerages involved in the transaction, a trust agreement is created which protects the co-operating brokerage’s remuneration should the listing brokerage become insolvent or bankrupt. A salesperson can sign this on behalf of their brokerage. If only one brokerage is involved in the transaction, it is not signed.

©2019 Real Estate Council of Ontario

Retain a copy for the brokerage The brokerages involved in a transaction are required to retain a copy of the fully signed and accepted agreement of purchase and sale. As a salesperson, it is your responsibility to ensure the brokerage is provided a copy of the accepted agreement of purchase and sale as soon as possible.

©2019 Real Estate Council of Ontario

Forward a copy to the lawyer A lawyer will be retained by the seller and the buyer to complete the transaction. The brokerage will provide copies of all documentation relating to the trade to the lawyer on behalf of the seller or the buyer.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 24 of 24

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were discussed in this lesson.

Components of an agreement

The offer process from a buyer’s perspective

The offer process from a seller’s perspective

An agreement of purchase and sale documents the terms and conditions involved in a real estate transaction between the seller and the buyer. During negotiations, the document is referred to as an offer. Once the offer is accepted and unconditional, it becomes a binding contract, referred to as an agreement. The key components of an agreement of purchase and sale are the names of the sellers and buyers, address and legal description of the property, purchase price, deposit amount, irrevocable date, completion date, title search date, chattels and fixtures, and conditions. From a buyer’s perspective, the offer process consists of working with a salesperson to complete these five steps: 1. Initiate the offer 2. Draft the offer 3. Register the offer with the seller 4. Present the offer to the seller 5. Await the seller’s response to the offer Once the offer is presented, either electronically or in person, the seller has the irrevocable time period to decide on the offer. From a seller’s perspective, the offer process consists of working with a salesperson to complete these six steps: 1. Arrange offer presentation time 2. Prepare the seller for offer presentation 3. Update seller on current market conditions 4. Review and analyze the offer 5. Discuss options to address the offer

©2019 Real Estate Council of Ontario

6. Negotiate the offer

Steps for acceptance of an offer

As the final step in the process, the seller has three options: accept the offer, reject the offer, or make a counter offer. If there is more than one offer on a property, a seller should not sign back or accept more than one offer. The offer acceptance process consists of these six steps: 1. Accept the offer by signing and initialling where necessary 2. Complete and sign the confirmation of acceptance 3. Acknowledgement signed and distribute copies 4. The brokerages sign a remuneration or commission trust agreement 5. Retain a copy for the brokerage 6. Forward a copy to the other party When an offer is accepted, the confirmation of acceptance must be communicated to the other party prior to the end of the irrevocable period. The acceptance must be in writing and include the date and time. The last party who accepted the offer confirms the acceptance. If there are two brokerages involved, a remuneration or commission trust agreement is also signed. All parties, including the brokerages, receive a copy of the signed and completed agreement as soon as practicable. The lawyers for each respective party also receive copies of the signed agreement. The copies may be paper-based or electronic.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 1 of 28

Lesson 2: Deposits and Other REBBA Considerations

You will learn about the key regulations that impact the activities of a salesperson regarding receiving a buyer’s deposit and presenting offers.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 2 of 28

In this lesson you will learn about the requirements under REBBA that will guide your actions, as a salesperson, during the offer process. The requirements are related to a buyer’s deposit, and the conveyance of an offer to promote a fair and ethical transaction. Upon completion of this lesson, you will be able to: • Identify the requirements under REBBA regarding deposits • Describe additional considerations regarding deposits • Identify the requirements of a salesperson under REBBA regarding activities associated with an offer Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 3 of 28

The deposit is a part of the offer transaction and is applied towards the purchase price when the transaction is completed. The agreement of purchase and sale will identify key aspects of the deposit. The Code of Ethics requires a salesperson to perform any action related to the deposit in accordance with the terms agreed to in the agreement of purchase and sale.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 4 of 28

Define the Deposit, I The agreement of purchase and sale will identify the deposit amount, when it will be delivered, and to whom it will be delivered. One of three options is used to identify when it will be delivered: 1. Herewith – the deposit will be provided along with the offer when initially presented to the seller. 2. Upon acceptance of the offer – the deposit will be provided once the offer is accepted. Most offers will also identify that “upon acceptance” requires the deposit to be provided within 24 hours of acceptance. 3. As otherwise described in the agreement – the deposit will be provided at some other time which is then identified in the agreement by including the details on a schedule added to the agreement. For example, this could identify that the deposit will be paid within seven business days (as defined by REBBA) from acceptance of the offer.

©2019 Real Estate Council of Ontario

Whichever option is identified, if a salesperson is to deliver the deposit, they must follow these instructions. When obtaining a buyer’s deposit, ensure the buyer understands their obligations relating to the deposit: • Provide the deposit in the manner specified in the agreement – this could include a cheque, bank draft, or a money order. If the buyer provides a cheque, it must be capable of being presented immediately for payment (i.e., it must be a negotiable cheque). In some instances, there could be a requirement for the cheque to be certified; this would be identified in the offer • Ensure the deposit is payable to the deposit holder identified on the agreement of purchase and sale • Provide the deposit when required as specified in the agreement of purchase and sale

©2019 Real Estate Council of Ontario

Lesson 2 | Page 5 of 28

Define the Deposit, II

©2019 Real Estate Council of Ontario

There is no minimum amount that must be provided as a deposit. The deposit is a sign of the level of commitment being made by the buyer and the amount often varies relative to the purchase price or the practices of the specific trading areas. A deposit is typically held in trust by the listing brokerage. As the salesperson for the seller, you would ensure the deposit is delivered according to the option identified in the agreement by maintaining contact with the buyer’s salesperson. The deposit is placed in the brokerage’s real estate trust account which is a non-interest bearing account unless otherwise specified in the agreement of purchase and sale. You must also ensure all time limits associated with depositing the funds are complied with. You will learn about your obligations under REBBA for depositing funds later in this module.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 6 of 28

The buyer’s deposit is a part of the transaction and is applied towards the purchase price when the transaction is completed. Which of the given statements about the buyer’s deposit are correct? There are five options. There are multiple correct answers. 1 2 3 4 5

Details of the deposit are recorded in the buyer representation agreement Interest on the deposit may be payable to the buyer The deposit is normally due when the offer is registered The minimum deposit required is 10% of the purchase price If the buyer provides a cheque for the deposit, the cheque must be capable of being presented immediately for payment

©2019 Real Estate Council of Ontario

Lesson 2 | Page 7 of 28

Time Requirements for Deposit of Funds Under REBBA, if an amount of money is received by a brokerage in trust for another person, the brokerage must deposit the funds into their real estate trust account within five business days of receipt. Business days exclude Saturdays, Sundays, and statutory holidays. When a holiday falls on a Saturday or Sunday, the following Monday is also a holiday, so the time limit is extended to include the next day that is not a holiday. The five-day requirement begins when the brokerage receives the money and the timing may vary depending upon how the agreement of purchase and sale is written. If the agreement of purchase and sale indicates a deposit is submitted herewith, the agreement clearly implies that the deposit is already with the brokerage and must be placed in the real estate trust account within five business days from when the cheque and the offer was received by the listing salesperson. For example, a buyer's ©2019 Real Estate Council of Ontario

salesperson delivers the offer and the deposit cheque to the listing salesperson on Wednesday, June 26 at 11:00 a.m., to be presented to the seller. The funds must be deposited into the brokerage real estate trust account no later than the end of the day on Wednesday, July 3. If the agreement of purchase and sale indicates the deposit will be submitted upon acceptance, the agreement clearly implies that the deposit is provided to the brokerage upon the acceptance. In this case, the deposit must be placed in the real estate trust account within five business days following acceptance. For example, an offer is accepted by the seller on Wednesday, June 26. The buyer delivers the deposit cheque to the salesperson on Thursday, June 27 at 11:00 a.m. The funds must be deposited into the brokerage real estate trust account no later than the end of the day Thursday, July 4. A delay by a co-operating brokerage in timely delivery of the deposit could potentially jeopardize the listing brokerage's ability to satisfy the requirement of Sec. 17 General Ontario Regulation 567/05 and Sec. 29 of the Code of Ethics, both of which require the salesperson to deliver the deposit in accordance with the agreement of purchase and sale. Deposit cheques received should be deposited as soon as is practicable. Common practice is that a brokerage will deposit any funds that have been received before the end of the day on each business day.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 8 of 28

The brokerage receives a cheque representing the deposit for an accepted offer on one of their listings. The cheque is received on the Wednesday before a long weekend. Monday is the statutory holiday in the upcoming long weekend. Based on the obligations under REBBA for deposit of funds, what is the latest day by which the cheque must be deposited into the brokerage’s trust account? There are four options. There is only one correct answer. 1 2 3 4

The Wednesday after the statutory holiday The Tuesday after the statutory holiday The Thursday after the statutory holiday The Friday after the statutory holiday

©2019 Real Estate Council of Ontario

Lesson 2 | Page 9 of 28

Real Estate Trust Account When a brokerage is named in the agreement as the deposit holder, the funds are placed in the brokerage’s real estate trust account. Under REBBA, all brokerages must maintain a designated trust account in Ontario. Trust funds must be kept separate, and clearly identifiable as separate from any other account the brokerage has, such as the general account which is used for the day-to-day banking for the brokerage. A trust ledger must be maintained and disbursements can only be made within the terms of the trust. The trust account imposes fiduciary and legal responsibilities on the brokerage. REBBA has specific requirements relating to a brokerage’s real estate trust account, including: • The trust account must be designated as a real estate trust account • Only one trust account may be used, unless otherwise approved by the Registrar • All disbursements must be authorized by the brokerage’s broker of record • All trust cheques must be signed by the brokerage’s broker of record • Brokerages must prepare a monthly reconciliation of the trust account within 30 days of the monthly bank statement Payments to salespersons and co-operating brokerages are not paid from the real estate trust account, but rather through a separate account; either a commission trust account or the general account. Should any bank charges be applicable on a real estate trust account, these charges must be drawn from the brokerage's general account. ©2019 Real Estate Council of Ontario

Lesson 2 | Page 10 of 28

To comply with REBBA, all trust funds such as deposits received by a brokerage must be placed into their designated real estate trust account. If the trust account incurs bank charges, they are paid from the trust account. Identify if the statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 2 | Page 11 of 28

To comply with REBBA, all trust funds such as deposits received by a brokerage must be placed into their designated real estate trust account. Trust funds must be kept separate from money belonging to the brokerage. Identify if the statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 12 of 28

To comply with REBBA, all trust funds such as deposits received by a brokerage must be placed into their designated real estate trust account. Disbursement from a real estate trust account can only be authorized by the brokerage’s broker of record. Identify if the statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 13 of 28

Deposit Protection Under the RECO Insurance Program A buyer can be assured that when a brokerage places the deposit in their real estate trust account, the funds are protected under RECO’s Insurance Program. In the event of a brokerage becoming insolvent (i.e., the brokerage becomes bankrupt), or there is theft, fraud, misappropriation, or wrongful conversion of the deposit by a registrant, the buyer’s deposit is safeguarded. The insurance provides coverage up to a maximum of $200,000 per claim, with no deductible paid for the buyer to make a claim. The policy has a limit of $4,000,000 per event, so if the brokerage does not have additional insurance coverage and claims related to an event exceeds $4,000,000, the amount recoverable by each buyer may be pro-rated. You will learn about the RECO Insurance Program later.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 14 of 28

Documenting a Deposit Documenting a buyer’s deposit will help ensure the funds are properly handled and deposited as required under REBBA. Most residential transactions identify the listing brokerage as the deposit holder on an agreement of purchase and sale. When there are two brokerages involved in the transaction, the deposit will need to be forwarded to the listing brokerage. This is typically done by the buyer’s salesperson, although there may be instances where a buyer provides the deposit directly to the listing brokerage. When there is a co-operating brokerage, the given steps outline the typical flow of a deposit being held by the listing brokerage:

©2019 Real Estate Council of Ontario

Step 1. Obtain the buyer’s deposit as identified in the agreement of purchase and sale and provide a receipt to the buyer. This will confirm the buyer’s compliance with the terms of the agreement. Step 2. Deliver the buyer’s deposit to the listing brokerage as soon as possible and obtain a receipt from the listing brokerage. This will confirm the salesperson’s compliance with REBBA and the beginning of the five business day requirement for the listing brokerage to deposit the funds. Step 3. Listing brokerage deposits the funds into their real estate trust account within five business days. The bank statement will note the date of deposit which confirms the brokerage’s compliance with REBBA. Step 4. Listing brokerage documents the deposit on a trust ledger. This is completed by the brokerage and a salesperson would not be required to document anything further regarding the deposit. Step 5. Monthly reconciliation while the deposit is held in trust. This ensures the deposit is safeguarded while being held in trust. A brokerage is required to immediately deposit funds if there is any shortfall in the trust account identified by the reconciliation. In some instances, a buyer’s deposit could generate interest while being held in trust. See the next screen for information on interest paid on deposit funds.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 15 of 28

When two separate brokerages are involved in a transaction, each one has responsibilities to ensure the deposit funds are handled properly and in compliance with REBBA. In the majority of cases, the listing brokerage will be the holder of the deposit funds. Which of the following are the deposit-related responsibilities of a cooperating brokerage? There are five options. There are multiple correct answers. 1 2 3 4 5

Obtain deposit funds Deliver deposit funds Deposit of the funds Enter deposit on trust ledger Monthly reconciliation of deposit

©2019 Real Estate Council of Ontario

Lesson 2 | Page 16 of 28

Interest on Deposits REBBA requires a brokerage to fully disclose to persons depositing trust money the terms on which the money is deposited. If the deposit is made to an interest bearing account, the brokerage must disclose the interest rate the brokerage receives on the account. If the funds are placed in a variable interest rate account, the brokerage would disclose the current interest rate. Interest on trust money will accrue to the beneficial owner of the trust money, unless otherwise agreed to in the agreement of purchase and sale. In a transaction, the buyer is typically the beneficial owner of the trust money until closing.

©2019 Real Estate Council of Ontario

OREA Form-100 Agreement of Purchase and Sale states that unless otherwise provided for in this agreement, the deposit holder shall place the deposit in trust in the deposit holder's non-interest bearing real estate trust account and no interest shall be earned, received, or paid on the deposit. In order for the deposit holder to retain any interest earned on the deposit, a salesperson shall disclose this fact to all parties of the agreement. The deposit holder shall place the deposit in its interest bearing real estate trust account where interest is earned at a specified rate and any interest earned over a specific dollar amount shall be paid to the buyer. In other words, the interest earned on the deposit and retained by the deposit holder shall be for the amount of earned interest less than the specified dollar amount owed to the buyer on the interest earned. This written disclosure is done in the form of a clause included in the agreement of purchase and sale on the Schedule A. If interest is earned by the deposit holder and this clause is not included in the agreement of purchase and sale or other form of contractual agreement, the full interest earned shall be paid to the beneficial owner of the trust money, namely the buyer. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 17 of 28

Interest-bearing Trust Accounts There are several types of interest bearing accounts that are used and each has different disclosure obligations. The terms for how interest is disbursed must be clearly described in the agreement of purchase and sale and explained to the parties. The following four sections contain information on the disclosure requirements under various scenarios for a brokerage to deposit funds that generate interest.

©2019 Real Estate Council of Ontario

Payment of all interest earned

Payment of interest at a rate less than earned

This option pays the full interest earned. The agreement of purchase and sale would include a clause whereby the seller and the buyer acknowledge: • The terms on which the brokerage deposits the money (e.g., the deposit will be placed in an interest-bearing real estate trust account) • The interest rate received from the financial institution (e.g., interest is earned at 2%) • The payment of interest at the same rate as the brokerage earns on the deposit (e.g., the brokerage agrees to pay any interest earned to the buyer) • Identify who will receive the interest (e.g., insert the buyer’s name to avoid any miscommunication as to who the beneficial owner of the trust money is) This option pays less than the interest earned on the account.

The agreement of purchase and sale would include a clause whereby the seller and the buyer acknowledge and agree: • The terms on which the brokerage deposits the money (e.g., the deposit will be placed in an interest-bearing real estate trust account) • The interest rate the brokerage earns (e.g., the account earns interest at 2%) • The lower rate of interest to be paid (e.g., the brokerage will pay interest at 1%) • Identify who will receive the interest (e.g., insert the buyer’s name to avoid any miscommunication as to who the beneficial owner of the trust money is) • The deposit holder may retain the difference in interest earned and the interest paid This option pays less than what is earned on the account by creating a minimum Payment of interest earned less than a fee payment threshold. The agreement of purchase and sale would include a clause whereby the seller and the buyer acknowledge and agree: • The terms on which the brokerage deposits the money (e.g., the deposit will be placed in an interest-bearing real estate trust account) • The interest rate the brokerage earns (e.g., the account earns interest at 2%)

©2019 Real Estate Council of Ontario

Term deposit bearing interest

• The interest payable is the amount equal to or more than a specified amount (e.g., $25.00) • Identify who will receive the interest (e.g., insert the buyer’s name to avoid any miscommunication as to who the beneficial owner of the trust money is) • The deposit holder may retain any interest earned that is less than the specified amount This option requires the brokerage to place the funds in an interest bearing security with all accrued interest being paid to the buyer. The agreement of purchase and sale would include a clause whereby the seller and the buyer acknowledge: • The terms on which the brokerage deposits the money (e.g., the deposit will be placed in an interest-bearing security) • The interest rate received on the deposit (e.g., 2%) • The interest will be paid to the buyer as soon as possible following the transaction closing • An agreement to accept the short-term rate for any deposit withdrawn before the term is expired

©2019 Real Estate Council of Ontario

Lesson 2 | Page 18 of 28

Electronic Funds Transfer Deposits are typically provided by a buyer in the form of a personal cheque, a certified cheque, bank draft, or money order. However, buyers are increasingly choosing to provide a deposit by way of an electronic funds transfer (EFT). A brokerage must retain a proper audit trail for each transfer in and out of their bank accounts. These guidelines should be followed when a brokerage has agreed to receive an electronic deposit: • Ensure the deposit is noted as an EFT payment on the deposit section of the agreement of purchase and sale. • The brokerage should obtain written confirmation of the EFT deposit from the brokerage’s financial institution. • The details of the EFT deposit are documented in the brokerage’s deposit book and the trust account ledger. • The EFT transaction is also recorded on any other document referencing the buyer’s deposit, such as a trade record sheet, which is used to record any money that the brokerage holds in trust, along with every transaction relating to that money. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 19 of 28

Conditions for Return of Deposit An agreement of purchase and sale may not be completed for a number of reasons, including one of the parties not being able to satisfy a condition included in the offer (e.g., a condition allowing the buyer time to obtain financing). In most instances, the buyer’s deposit is received and placed into the brokerage’s real estate trust account when the transaction occurs. When a condition cannot be satisfied, the buyer would request a return of the deposit. A brokerage may only disburse a deposit from their real estate trust account in accordance with the terms of the trust. The proper course of action when a transaction has failed is one of the given points: • By mutual consent with a release or direction signed by the seller and the buyer agreeing to the disbursement • A Court Order authorizing the disbursement if either the seller or the buyer does not sign a release or direction When a seller and a buyer sign a mutual consent to release the deposit, the listing and co-operating brokerage’s broker of record will also sign the document. The release will specify who the deposit will be paid to and in most instances it will be the buyer. However, if the release is not signed by the seller and the buyer, and the parties become involved in a court action to determine entitlement to the deposit, the brokerage would not be authorized to release the funds at the time of the failed transaction and it will remain in the brokerage’s real estate trust account. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 20 of 28

REBBA Requirements for the Offer Process The offer process, by its very nature, is stressful for sellers and buyers and they need to feel confident that they are being treated with fairness and honesty throughout a transaction. REBBA addresses these concerns by regulating the offer process relating to the: • Obtaining of an offer • Conveying an offer • Providing copies of an accepted offer • Retaining copies of all offers In some instances, the requirements under REBBA can be altered if the seller or the buyer has provided clear written direction to do otherwise. However, not all of the requirements under REBBA can be altered.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 21 of 28

Requirement Under REBBA Related to an Offer The following three sections contain information on each requirement under REBBA relating to an offer.

Offers to purchase real estate

REBBA does not permit a salesperson to indicate an offer that exists, or present any offer, unless it is in writing. This means an offer cannot be verbal. • Only written and signed offers from a buyer to purchase a property may be presented to the seller. • A seller’s salesperson may not indicate that they have received an offer or convey an offer to the seller, unless the offer is in writing. Verbal interest in a property cannot be presented as an offer. For an offer to be valid, it must be signed by the party making the offer. This requirement under REBBA may not be altered by a seller or a buyer.

©2019 Real Estate Council of Ontario

Conveying/Presenting offers Time is of the essence in offers. You must convey a written and signed offer to a seller or a buyer at the earliest practical opportunity. All offers will identify the irrevocable time period for which the offer is open for acceptance. Once the irrevocable period has elapsed, the offer may no longer be accepted. REBBA requires the conveyance of an offer, regardless of the identity of the person making the offer, the contents of the offer, or the nature of any arrangements for remuneration. As a salesperson, you are required to present the offer at the earliest opportunity, and if you are going to be unavailable (e.g., you will be away for the weekend), there must be an arrangement made with another salesperson in your brokerage to receive and present the offer. The requirement to convey an offer as soon as possible can be altered under the written instructions of a seller or a buyer. For example, a seller has implemented a specific strategy for offer presentation which results in no offers being presented prior to a specific date. The instructions must be clear, detailed, and unequivocal written directions that the seller does not want to know about any offers received prior to this date. If these instructions are not provided, the seller must be informed of any offer received. These instructions must be in writing and disclosed in the

©2019 Real Estate Council of Ontario

listing information. The brokerage must act in strict accordance with the instructions given. If these instructions change; for example, the seller has decided to review offers received prior to this date, the listing information must be updated and all interested parties must be notified of the change. Written notice of the change must be given to everyone who has expressed an interest in the property. Expressing an interest includes: • Anyone who has booked an appointment to view the property • Anyone who has previously viewed the property • Anyone who has informed the listing brokerage or salesperson they will be submitting an offer, or have submitted an offer on the property Written notice can be by facsimile, email, or text message.

©2019 Real Estate Council of Ontario

Copies of the agreement Once an offer is accepted, REBBA identifies the requirements for providing copies: • Signed copies of the agreement must be provided to the parties at the earliest opportunity • Every party to the agreement receives a copy of the agreement • In situations where copies of the agreement are provided personally to sellers and buyers, when the agreement is accepted, the party accepting the offer receives a copy immediately. For example, if there are two sellers who accept a buyer’s offer, both sellers will receive a copy of the agreement at the same time as the acceptance occurs. The salesperson working with the buyer would then provide a copy of the signed agreement to the buyer as soon as possible. If there are two buyers, then two copies of the agreement would be provided. In addition, the listing brokerage and the co-operating brokerage are required to retain copies of the agreement for their records • Where an offer is sent electronically to a seller or a buyer, the party is deemed to have received and retained a copy of the agreement • Lawyers for the seller and the buyer will also receive copies of the signed agreement. These do not need to be original copies and can be sent electronically as well ©2019 Real Estate Council of Ontario

Lesson 2 | Page 22 of 28

Based on REBBA requirements, a salesperson has several responsibilities related to offers. Which of the given statements about offers are in accordance with REBBA? There are four options. There are multiple correct answers. 1 2 3 4

Verbal offers must be presented in person Signed, written offers should be delivered at the earliest practicable opportunity Under REBBA, a verbal offer can be presented to a seller providing both the seller and buyer agree to this Once accepted, copies of the written agreement should be provided to all parties

©2019 Real Estate Council of Ontario

Lesson 2 | Page 23 of 28

The listing on the seller’s property specifies that no offers are to be presented to the seller prior to May 12, which is in two days’ time. There have been many showings and two offers have already been registered. The seller has been advised by the listing salesperson of several more viewing appointments over the next few days. Suppose the seller asks the listing salesperson to change the date so that no offers are to be presented before May 14, how should the seller’s salesperson deal with this request? There are five options. There are multiple correct answers. 1 2 3 4 5

Ask the seller to provide written instructions detailing the change in date Advise the seller that the date for the offer presentation cannot change now that there are offers registered on the property Update any listing information with the change in dates Since the information contained in a listing cannot be changed, only the buyers who have an offer registered on the property can be notified of the change in date Provide written notice of the change to all persons who have expressed an interest in the property

©2019 Real Estate Council of Ontario

Lesson 2 | Page 24 of 28

The buyers’ offer has just been accepted by the two sellers who own the property. The buyers are represented by one salesperson and the sellers are represented by a salesperson with another brokerage. Which of the following would be a salesperson’s obligations under REBBA with respect to providing copies of the agreement? There are four options. There are multiple correct answers. 1 2 3

4

Salespersons must do their best to ensure copies of the agreement are given to each of the parties to an agreement at the earliest practical opportunity. Salespersons must ensure copies of the agreement are given to each of the parties to an agreement immediately after the offer is signed. Salespersons must ensure that one copy of the agreement is given to each buyer and one copy is given to each seller. Salespersons must ensure that the brokerage employing them is provided with a copy of the accepted agreement as soon as possible.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 25 of 28

Recommend Independent Legal Advice In the offer process, situations may arise that are outside of the expertise of a salesperson and require the advice or services of someone with specialized knowledge or skills, such as a lawyer. A salesperson must advise a seller or a buyer to obtain such services from others when they are not able to provide the services with reasonable knowledge, skill, judgement, and competence. Under no circumstances, should a seller or a buyer be discouraged from seeking such services. Example – Seller: A seller has received an offer on their property which includes a clause asking the seller to provide a warranty to the buyer regarding the condition of the property. The seller informs their salesperson they are concerned about the clause as there was a previous problem with the property that was discovered after they purchased it, but the problem has now been remedied. The seller wants to discuss the legal ramifications of the clause now that the property is being resold, and would like their lawyer to review the offer before accepting it. As the salesperson for the seller, you would encourage the seller to seek this advice as soon as possible. A condition may need to be added to the offer allowing the seller time to obtain this independent legal advice. Example – Buyer: While showing a property to a buyer, a salesperson notes water staining on the basement wall in one corner. The salesperson explains they are not qualified in determining the physical condition of a property, however the water stain could be an indication of a more serious problem. The salesperson advises the buyer to include a condition in their offer for an inspection by a qualified property inspector to determine the extent of the water seepage problem. The buyer does not want a condition in the offer and the salesperson suggests they speak to their lawyer to fully understand the risk of not including a condition before proceeding.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 26 of 28

Dealings with Other Registrants Although negotiating a typical real estate transaction involves opposing interests, all discussions between the salespeople must be ethical and according to the obligations owed to the seller or buyer regarding confidentiality. Any interaction with the parties or other individuals a salesperson interacts with during the course of a trade, must be approached with fairness, honesty, and integrity. As a salesperson, you must respect the relationship between a salesperson and a seller or a buyer: • If you know or ought to know that a person is a client of another brokerage, any communication of information for the purpose of a trade must be done through the other brokerage, unless the other brokerage has agreed in writing • If you know or ought to know that a seller or buyer is a party to a representation agreement with another brokerage, you may not induce the seller or buyer to break the agreement

©2019 Real Estate Council of Ontario

Example: A buyer’s offer is being presented to a seller which does not contain a condition allowing the buyer time to confirm financing is available for the purchase. The seller wants confirmation that the buyer has the available funds to complete the transaction. The buyer’s salesperson has obtained a proof of funds letter from the buyer’s bank and wants to provide it to the seller. The salesperson is required to relay the information to the seller’s salesperson rather than providing it directly to the seller.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 27 of 28

The Code of Ethics requires that a salesperson’s interactions with all parties in a real estate transaction must be marked by fairness, honesty, and integrity. This is one of the many requirements of the Code of Ethics. Which of the given statements reflect requirements as set out in the Code of Ethics? There are four options. There are multiple correct answers. 1 2 3 4

It is not acceptable for a salesperson to communicate directly about a transaction with the client of another brokerage unless that brokerage provides consent. A salesperson may present to the seller either a verbal or written offer. A registered salesperson is by law automatically considered to have the competency and knowledge to offer legal advice to a seller or buyer during the offer process. A client should not be discouraged from seeking independent expert advice if required.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 28 of 28

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Requirements under REBBA regarding deposits

Additional considerations regarding deposits

REBBA has the given requirements regarding deposits: • A brokerage must deposit money it receives in trust into a designated trust account within five business days of receipt. • All Ontario brokerages must maintain a real estate trust account, which is separate from any other brokerage accounts. The trust account imposes fiduciary and legal responsibilities on the brokerage. A buyer’s deposit held by a brokerage in their real estate trust account is protected under the RECO insurance program. To ensure funds are handled properly, RECO requires a buyer’s deposit to be documented. REBBA requires a brokerage to fully disclose to persons depositing trust money the terms on which the money is deposited. If the account bears interest, then the disclosure must include the interest rate paid to the person as well as the interest rate that the account generates. There are several types of interest-bearing accounts that are used, and each has different disclosure obligations. The terms for how interest is disbursed must be clearly described in the agreement of purchase and sale and explained to the parties. Buyers may choose to provide a deposit using an electronic funds transfer (EFT). A brokerage must retain a proper audit trail for each transfer in and out of their bank accounts.

©2019 Real Estate Council of Ontario

A brokerage may only disburse a deposit from their real estate trust account in accordance with the terms of the trust. When a transaction has failed, the proper course of action is by mutual consent of the seller and buyer or by court order.

REBBA requirements for the offer process

Offers to purchase real estate must be in writing and signed by the party making the offer. As a salesperson, you are required to convey an offer at the earliest opportunity. All offers will identify the irrevocable time period for which the offer is open for acceptance. Once an offer is accepted, signed copies of the agreement must be provided at the earliest opportunity to every party to the agreement.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 1 of 46

Lesson 3: The Impact of Multiple Representation

You will review the disclosure requirements of a salesperson under REBBA regarding multiple representation, including a review of the scenarios with the emphasis on the salesperson’s obligations for disclosure relating to multiple representation.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 2 of 46

Multiple representation can occur in the offer process when sellers and buyers are represented in the same transaction by the same brokerage. This activity is not prohibited, but because of the inherent conflict of interest for the sellers and the buyers, it is strictly regulated under REBBA. As you learned in an earlier module, as a salesperson, you are required to disclose the possibility of the brokerage entering into multiple representation and the differences in your obligations owed or the services provided. All parties must agree in writing to proceed with an offer under multiple representation. This permission is obtained before an offer is made. Upon completion of this lesson, you will be able to: • Identify different scenarios where a brokerage is working under multiple representation • Identify the limitations to services provided to a client under multiple representation • Identify a salesperson’s disclosure obligations under REBBA regarding multiple representation • Identify the requirements to disclose and obtain written consent for multiple representation • Explain how to complete a document to confirm the representation status and remuneration obligations of a seller and a buyer • Identify leading practices of a salesperson regarding multiple representation Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 3 of 46

When operating in a multiple representation situation, the brokerage must act impartially and equally to protect the interests of the sellers and the buyers while abiding by a limited duty of disclosure. The sellers and the buyers must fully understand the limitations to the services being provided and the disclosure of information when multiple representation occurs.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 4 of 46

Multiple Representation Situations The brokerage has a fiduciary relationship with clients and must act in their best interests. However, when operating in a multiple representation situation, the interests of these clients are opposed and the brokerage is in the difficult position of trying to promote and protect competing interests. The following four sections contain information on possible multiple representation situations. Consider the conflicting interests as you review each situation.

Situation 1

One brokerage representing both the seller and the buyer through different salespersons. a) The salespersons are employed within the same brokerage office. b) The salespersons are located in different branch offices of the same brokerage.

©2019 Real Estate Council of Ontario

Situation 2 One brokerage representing competing buyers who are placing offers on the same property at the same time through different salespersons. a) The salespersons are employed within the same brokerage office. b) The salespersons are located in different branch offices of the same brokerage. In this scenario, the seller is being represented by a different brokerage.

©2019 Real Estate Council of Ontario

Situation 3 One brokerage representing both the seller and the buyer with the same salesperson working with all parties.

©2019 Real Estate Council of Ontario

Situation 4 One brokerage with the same salesperson working with competing buyers for the same property. The buyers are both being represented by the brokerage. In this scenario, the seller is being represented by a different brokerage.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 5 of 46

Multiple representation is strictly regulated under REBBA. A brokerage representing both the buyer and the seller in the same trade is multiple representation. Identify if the statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 6 of 46

Multiple representation is strictly regulated under REBBA. A brokerage representing a seller and providing customer service to a buyer in the same trade is multiple representation. Identify if the statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 7 of 46

Multiple representation is strictly regulated under REBBA. A brokerage representing two buyers purchasing a property together is multiple representation. Identify if the statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 8 of 46

Multiple representation is strictly regulated under REBBA. A salesperson from one office of a brokerage representing a buyer and a salesperson from another office of the same brokerage representing the seller in the same trade is multiple representation. Identify if the statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 9 of 46

Limitations to Services, I Prior to entering into a representation agreement with a seller or a buyer, REBBA requires specific information to be provided. This includes the nature of the services the brokerage would provide to each client if the brokerage represents more than one client for the same trade, and any differences in the sharing of information with seller or buyer. This includes information the brokerage will NOT disclose unless otherwise instructed in writing by the seller or buyer to do so, and services they will NOT perform. Information NOT disclosed and services NOT performed include: • The amount a seller may or will accept (e.g., a salesperson may not disclose to the buyer that the seller will accept less than the listed price) • Advising a seller how much they should accept (e.g., a salesperson may not advise the seller how much they should accept when receiving a buyer’s offer, nor at what price they should counter the buyer’s offer) or the amount a buyer may or will pay (e.g., a salesperson may not disclose to the seller that the buyer will offer more than the offered price) ©2019 Real Estate Council of Ontario

• Advising a buyer how much they should offer (e.g., a salesperson may not advise the buyer how much they should offer when submitting an offer, nor whether any offer from the seller should be accepted) • The terms of any other offer (e.g., a salesperson may not disclose to the buyer the offered price of any other buyer’s offer, nor the price the seller has agreed to when previously considering a buyer’s offer) • The motivation or personal information about the seller or the buyer (e.g., a salesperson may not disclose to the buyer why the seller is selling, nor disclose to the seller any motivation the buyer may have to purchase the property)

©2019 Real Estate Council of Ontario

Lesson 3 | Page 10 of 46

Limitations to Services, II Information the brokerage is permitted to disclose to assist the seller and buyer in arriving at their own conclusions includes: • Full disclosure to both parties about the property, including factual information • Market information about comparable properties for sale or sold • Information regarding the potential uses for the property As you learned earlier, a client relationship can be established with a seller or a buyer by the words and actions of a salesperson. A client relationship can exist without any signed documentation. However, it is important to document and ensure a seller or a buyer is fully informed at the earliest opportunity, and always before an offer is made, of the nature of the relationship, the potential for multiple representation, and how this impacts the services they will receive from the brokerage under the agreement.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 11 of 46

Disclosure Requirements Under REBBA Due to the restricted nature of the services provided, and the information shared by a brokerage when operating in a multiple representation situation, there are disclosure requirements at several stages of any relationship with a seller or a buyer. The following four sections contain information on the requirements under REBBA relating to a brokerage’s relationship with a seller or a buyer, and specifically, when working under multiple representation.

Information before agreements (Section 10 of the Code of Ethics)

The Code identifies the requirement to provide information to a seller or a buyer prior to entering into a representation or customer service agreement. The service alternatives and the services being offered under the agreement are to be identified, along with an explanation of multiple representation and how this alters the obligations and services. The Code requires the disclosure that the brokerage proposes to work under multiple representation, but that the brokerage could not do so unless all clients consent in writing. Nature of relationship A brokerage which represents or provides services to more than one seller or buyer in (Section 17 of the Code the same transaction is required to disclose in writing, at the earliest practical opportunity and before an offer is made, the nature of the brokerage’s relationship to of Ethics) each seller and buyer. As a salesperson, you would disclose to all parties the fact that only one brokerage is participating in the transaction, and the type of services the brokerage is providing to each party. The brokerage’s relationships must be clearly explained and acknowledged in writing by every person involved in the trade before an offer is made. This disclosure requirement applies not only to multiple representation, but to both a client and a customer relationship the brokerage has with a seller or a buyer.

©2019 Real Estate Council of Ontario

Disclosure before multiple representation (Section 16 of the Code of Ethics) Multiple representation (Section 22 of O. Reg. 567/05)

A brokerage is required to disclose at the earliest opportunity, and before any offer is made, that the brokerage is proposing to represent more than one client in the same trade and how that impacts the obligations and the services being provided. You must clearly explain the differences in services provided under multiple representation versus single representation. A brokerage must obtain informed written consent from all parties when multiple representation occurs. Informed consent is given by an individual who has a clear understanding of the facts and implications of a proposed action that they would not do without this understanding. If a client refuses to consent to multiple representation, the brokerage must release one or more of the clients to seek alternate representation with another brokerage. The brokerage cannot represent more than one client to a trade without the written consent of all clients it is representing in that trade.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 12 of 46

The salesperson explains to a prospective buyer client the possible limitations to the services the brokerage would provide to that prospective buyer if a multiple representation situation occurred. The prospective buyer is satisfied with the salesperson’s explanation and signs the representation agreement. What would be examples of limitations to those services if multiple representation were to occur in a situation where the brokerage represented both the seller and buyer in the same trade? There are six options. There are multiple correct answers. 1 2 3 4 5 6

Personal Information or motivations about the seller and buyer will not be disclosed without seller or buyer consent in writing Factual Information about the property beyond what is described in the listing description will not be given to the buyer The terms of any other buyer’s offer may not be given to the buyer client Advice about what price should be offered by the buyer or accepted by the seller will not be given Market information about comparable properties for sale or sold will not be given to either the seller or buyer Other than providing the listing price, information about the actual price a seller may or will accept will not be disclosed to the buyer

©2019 Real Estate Council of Ontario

Lesson 3 | Page 13 of 46

The buyer would like to put in an offer on a property that is listed for sale. Both the seller and buyer are being represented by the same brokerage and salesperson. This situation is going to involve multiple representation. A brokerage will have to obtain written consent from both the seller and buyer agreeing to this multiple representation. In this situation, what option would the brokerage have if one or both of the parties refuses to consent to multiple representation? There are four options. There is only one correct answer. 1 2 3 4

The brokerage will have to release both the seller and buyer so that they can obtain representation from another brokerage. The brokerage can have another one of its salespeople work with either the seller or buyer and this would relieve the requirement for consent. The brokerage would be required to release either the seller or the buyer so that one of them can seek representation at another brokerage. The brokerage should have the seller and buyer agree in writing to waive the need for written consent.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 14 of 46

The buyer would like to put in an offer on a property. The buyer is being represented by a brokerage through a salesperson employed by the brokerage. The seller of the property is represented by another salesperson within the same brokerage. In these situations, the brokerage must make a disclosure in writing to both the seller and buyer about the nature of the relationship it has with both of them, i.e., the client relationship. Based on the given scenario, when would the brokerage need to make this disclosure? There are four options. There is only one correct answer. 1 2 3 4

At the very latest, before an offer is actually made on the property At the very latest just prior to an offer being accepted by the seller At the very latest just prior to the buyer viewing the property At the very latest, prior to an appointment being booked for the buyer to view the property

©2019 Real Estate Council of Ontario

Lesson 3 | Page 15 of 46

A brokerage operating in a multiple representation situation is restricted in what information it can disclose to the seller and buyer clients. Unless otherwise instructed in writing by the clients, which of the given information is a brokerage not to disclose to either party under multiple representation? There are five options. There are multiple correct answers. 1 2 3 4 5

Seller’s or buyer’s ideal price Factual information about the property Information on comparable properties The terms of someone else’s offer to the buyer Seller’s or buyer’s motivation

©2019 Real Estate Council of Ontario

Lesson 3 | Page 16 of 46

The process of explaining multiple representation and confirming disclosure of the relationship occurs at specific times over the course of a transaction. At the earliest practical opportunity, and before any offer is made, written consent for the brokerage to operate under multiple representation must be obtained.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 17 of 46

Disclosure Requirements to Operating in a Multiple Representation Situation To comply with the requirements under REBBA, disclosure regarding multiple representation involves at minimum, two steps. The specific disclosures required at each step are in place to help ensure a seller or a buyer fully understands how this will alter the obligations of a brokerage and the services being provided under the representation agreement. Step 1 : Disclosure before agreement Before entering into a representation agreement, the Code of Ethics requires a disclosure that the brokerage may enter into representation agreements which would result in the brokerage representing more than one client in respect of the same trade, but that the brokerage could not do this unless all clients represented by the brokerage consent in writing. This is explained when using OREA form 810 Working with a REALTOR®.

©2019 Real Estate Council of Ontario

Step 2: Disclosure before offer Multiple representation occurs during the offer process when the brokerage, which has entered into a representation agreement with a seller, has also entered into a representation agreement with a buyer. Before any offer is made, the seller and buyer must consent in writing to the brokerage representing both clients under multiple representation. Multiple representation can also occur when a brokerage is representing competing buyers. In this situation, a brokerage may not know multiple representation is occurring, so consent to the multiple representation would be required as soon as the brokerage becomes aware that it is operating in a multiple representation situation. This knowledge may come through the listing brokerage or the listing salesperson, as they are in a position to know the source of all buyers, and they report this to the co-operating brokerage salespersons. The listing brokerage/salesperson must inform all interested buyers of the existence of multiple representation. This disclosure is documented using OREA form 320 Confirmation of Co-operation and Representation.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 18 of 46

Disclosure and Written Consent In the course of a transaction, there are several occasions to discuss multiple representation with a seller or a buyer which will help ensure they fully understand the nature of this relationship. When discussing this throughout the relationship, a seller or buyer will be better prepared when asked to provide written consent for the brokerage to operate under multiple representation. The following four sections contain information on how disclosure and consent are handled at each point during the relationship with a seller or a buyer.

Before a representation agreement

In initial discussions with a seller or a buyer, a salesperson would provide information on the service alternatives available. This would include representation, customer service, and multiple representation. The prospective seller or buyer should be provided sufficient information to determine the type of relationship they would like to establish with the brokerage. Brokerages could have a document which explains the service alternatives and facilitates a discussion with a seller or a buyer to ensure their understanding. To assist in complying with the obligations under the Code of Ethics, a seller or a buyer might be asked to

©2019 Real Estate Council of Ontario

sign the document confirming they have received the information. A copy of the document would be retained by the seller or the buyer as well as a copy for the brokerage.

When entering into a representation agreement When documenting the relationship with a seller or a buyer, the salesperson would confirm the given information is understood: • Description of the services that will be provided to the seller or the buyer • Explanation of the possibility of multiple representation, and how the services the brokerage would provide will be altered in that situation • Confirmation of the requirement to obtain written consent from all parties for the brokerage to operate in a multiple representation situation The representation agreement is signed by the salesperson on behalf of the brokerage and presented to the seller or buyer for signature. A copy of the representation agreement is provided to the seller or the buyer and a copy retained by the brokerage.

©2019 Real Estate Council of Ontario

During the term of a representation agreement As a salesperson for a seller or a buyer, you will have opportunities to remind them of the possibility of multiple representation. For example, when showing a property to a buyer that would result in multiple representation. If an offer is pursued, you would remind the buyer of how this would alter the services provided or the information disclosed. Or when confirming an appointment with a seller for a showing, you would disclose that the salesperson representing the buyer is also employed by your brokerage, which would result in multiple representation should the buyer place an offer on the property. This helps to maintain an open and transparent relationship with clients and ensures they understand how the showing might differ from other showings where multiple representation would not occur. If the seller or buyer remains informed throughout the listing and showing process, this will help prepare them when asked to provide written consent for the brokerage to operate under multiple representation.

©2019 Real Estate Council of Ontario

Before an offer is made At the earliest practical opportunity, and before any offer is made, written consent for the brokerage to operate under multiple representation must be obtained. At the time of placing an offer by a buyer, or the receiving of an offer by a seller, the emotions and anxiety they experience could be heightened. To help avoid any misunderstandings, a salesperson should use the previous opportunities to discuss and clarify the party’s understanding of the brokerage’s requirements when operating under multiple representation. When this is done throughout the relationship, obtaining the seller’s and the buyer’s consent should not be a point of confusion or misunderstanding between the party and the brokerage. To obtain written consent, confirm the party fully understands the impact of multiple representation, and then document this consent in writing. Copies of the signed consent are provided to the parties and retained by the brokerage. Additional information on obtaining written consent is on the next screens.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 19 of 46

A salesperson has responsibilities to ensure a client understands the impact of multiple representation. Which of the following is a salesperson's responsibility regarding multiple representation? There are two options. There is only one correct answer.

1 2

A salesperson should explain the potential for multiple representation and how it alters the services and information provided by the brokerage. A salesperson should explain the potential for multiple representation and how it alters the remuneration due on a transaction in a multiple representation situation.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 20 of 46

A salesperson has responsibilities to ensure a client understands the impact of multiple representation. Which of the following is a salesperson's responsibility regarding multiple representation? There are four options. There is only one correct answer.

1

2

3

4

A salesperson should explain the potential for multiple representation and how it alters the services and information provided by the brokerage. This information should first be provided prior to a seller or buyer signing an agreement with the brokerage and once again to sellers and buyers when it appears that there is a potential for them to become involved in a multiple representation situation. A salesperson should explain the potential for multiple representation and how it alters the services and information provided by the brokerage. This information should first be provided prior to a seller or buyer signing an agreement with the brokerage and once again after a buyer client has signed an offer but before a seller client accepts the offer. A salesperson should explain the potential for multiple representation and how it alters the services and information provided by the brokerage. This information should first be provided after a seller and buyer have signed a representation agreement and once again to sellers and buyers when it appears that there is a potential for them to become involved in a multiple representation situation. A salesperson should explain the potential for multiple representation and how it alters the services and information provided by the brokerage. This information should first be provided after a seller and buyer have signed a representation agreement and once again after a buyer client has signed an offer but before a seller client accepts the offer.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 21 of 46

A salesperson has responsibilities to ensure a client understands the impact of multiple representation. Which of the following is a salesperson's responsibility regarding multiple representation? There are four options. There is only one correct answer.

1 2 3 4

A salesperson must obtain written consent before an offer is made for the brokerage to operate under multiple representation. A salesperson must obtain verbal consent before an offer is made for the brokerage to operate under multiple representation. A salesperson must obtain written consent at the time an offer is made for the brokerage to operate under multiple representation. A salesperson must obtain verbal consent at the time an offer is made for the brokerage to operate under multiple representation.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 22 of 46

Before any offer is made, there are various matters that must be addressed and documented by a brokerage, including: single representation, multiple representation, customer service, and remuneration involving a cooperating brokerage. As you learned previously, a brokerage must obtain written consent to operate under multiple representation.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 23 of 46

Confirm Representation and Remuneration Obligations of a Seller and a Buyer Documenting representation, multiple representation, customer service, and remuneration involving a co-operating brokerage are done prior to the signing or presentation of an offer. All agreements requiring signature must be reduced to writing, and the parties would sign to acknowledge the information documented, although obtaining the seller’s or buyer’s signature on a representation or customer service agreement is not mandatory. Providing written confirmation of this pertinent information ensures all parties clearly understand the relationship between each party and each brokerage, the remuneration obligations of the seller and the buyer, and the remuneration payable to the co-operating brokerage. The signatories include the seller(s), the buyer(s), the listing brokerage, and when applicable, the co-operating brokerage. Documenting this information is required before any offer, therefore it is typically the buyer’s salesperson who would prepare and complete a form with the buyer and include it with the offer. The seller would review the document and typically sign indicating they have received, read and understood the information prior to reviewing the buyer’s offer. In instances where multiple representation does occur during an offer process, the Act does require that all parties provide their consent in writing to multiple representation. If they do not consent in writing, the brokerage must remove itself from its representation of one of the parties. The information provided before entering into any agreement with a consumer varies: Category 1: Listing Brokerage (Explains the relationship of the listing brokerage to the parties) The listing brokerage is required to document that they: • Represent the seller and: a) Do not represent or provide customer service to the buyer OR b) Do provide customer service to the buyer

©2019 Real Estate Council of Ontario

If the listing brokerage is operating under multiple representation, the disclosure would include: • That they represent the seller and the buyer with their consent • The limitations to the services being provided Category 2: Buyer Brokerage (Explains the relationship of the brokerage to a buyer and remuneration obligations when purchasing a property not listed with a brokerage (i.e., a private for sale)) The buyer's brokerage is required to document that they: • Represent the buyer OR • Do not represent the buyer Payment of remuneration is agreed to as: • By the seller OR • By the buyer Buyer Customer Service Agreement versus Buyer Representation Agreement remuneration obligations: • In a Buyer Customer Service Agreement, there is no requirement for the buyer to pay the brokerage compensation for the customer service provided by the brokerage, unless otherwise agreed to in writing • A Buyer Representation Agreement can obligate a buyer to pay directly to a buyer brokerage any deficiency between what is paid to the brokerage by a seller or pay the brokerage the full amount of remuneration indicated in the agreement Category 3: Co-operating Brokerage (Explains the relationship of the co-operating brokerage to the parties) The co-operating brokerage is required to document that they: • Represent the buyer OR • Provide customer service to the buyer OR • Do not represent or provide customer service to the buyer Payment of remuneration is agreed to as: • Indicated in the listing information for the property OR • Specifically described in the agreement ©2019 Real Estate Council of Ontario

Lesson 3 | Page 24 of 46

CREA WEBForms As a reminder, not all registrants choose to be a member of OREA, the forms and clauses provided by OREA are commonly used in trading. This module will reference the OREA forms and clauses for illustrative purposes only. Images of the OREA form and clauses are included with permission from OREA. One benefit of membership in the Canadian Association of REALTORS® is access to CREA WEBForms®, a complete document and transaction management solution. CREA WEBForms® is included as part of your membership benefits without any added cost. CREA WEBForms® allows you to manage all your real estate documents in one centralized location with unlimited storage. A seamless integration with your board or association, guarantees access to the latest forms and automatically populates them with relevant MLS® data. You are able to go paperless from contract to close because CREA WEBForms® provides access to all your forms and documents from any device, anywhere. CREA WEBForms® also provides integrations with industry-leading e-signature applications. CREA WEBForms® contains a new built-in wizard that walks you through your transactions. In addition, in-depth training videos and tools will ensure that you are able to take full advantage of CREA WEBForms®.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 25 of 46

Confirm Co-operation and Representation for Single Representation: Two Brokerages Single representation occurs where the listing brokerage represents the seller and a co-operating brokerage represents the buyer. In this scenario, both the seller and buyer are clients of their respective brokerages. This scenario does not involve any customer services from a brokerage. In addition to identifying the representation status of each brokerage, the remuneration due to the co-operating brokerage is clearly defined. This includes the amount being paid and who will pay it. The total remuneration being paid by the seller to the listing brokerage is not documented; the seller representation agreement identifies this. The listing brokerage will identify the amount of remuneration being offered to a co-operating brokerage on the document confirming co-operation and representation. When the co-operating brokerage’s remuneration is as per the listing agreement, this is identified on the document. If the co-operating brokerage is

©2019 Real Estate Council of Ontario

being compensated in another way, those details would be included on the document. For example, the cooperating brokerage will be paid by the buyer rather than the seller or the co-operating brokerage is being paid by both the seller and the buyer. The remuneration terms are important for all parties to understand as this can impact the price offered or the price accepted, and factor into the net dollar considerations for a seller. For example, a co-operating brokerage who is being compensated by the buyer directly may propose to waive their share of the offered co-operating remuneration. If the seller and brokerage agree to this reduction, and amend the original listing contract terms, the total remuneration payable to the listing brokerage will be reduced by the offered co-operating remuneration amount. As previously discussed, a brokerage has obligations to disclose any remuneration being paid, including disclosure when the brokerage is being paid by both the seller and the buyer for the same trade.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 26 of 46

From form 320: Confirmation of Co-operation and Representation. © 2022 Ontario Real Estate Association. All rights reserved. Used under license.

Single Representation – Listing Brokerage When a co-operating brokerage is drafting the Confirmation of Co-operation and Representation, they will insert the seller and buyer names and the address of the property. Under single representation, where the buyer is being represented by the co-operating brokerage, the listing brokerage will be shown as representing the interests of the seller. In this example, Imree Ana Santosh is the buyer interested in placing an offer on the property being sold by Jurgen Horst Aldridge. The property address is 5678 Main Street, Anycity, AnyRegion. Imree Santosh is represented by Maya Thom of ABC Real Estate Inc., at 3999 North Street, AnyCity, AnyRegion (Tel: 555-323-1234/Fax: 555-323-4567). Jurgen Aldridge is represented by Rita Hollis-Laga of XYZ Realty Ltd. at 1898 Central Street, AnyCity, AnyRegion (Tel: 555-565-2345/Fax: 555-565-9876). ©2019 Real Estate Council of Ontario

Lesson 3 | Page 27 of 46

From form 320: Confirmation of Co-operation and Representation. © 2022 Ontario Real Estate Association. All rights reserved. Used under license.

Single Representation – Co-operating Brokerage The co-operating brokerage will confirm that they are representing the interests of the buyer and also disclose how remuneration will be paid. For example, the co-operating brokerage is paid the remuneration offered in the listing service information. Should the co-operating brokerage represent competing buyers for the property (i.e., multiple representation), this disclosure is made by inserting additional comments. In this example, Maya Thom is representing the interests of Imree Santosh. The remuneration inserted is the percentage of the selling price identified in the listing service information, which is 2.5% plus HST.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 28 of 46

From form 320: Confirmation of Co-operation and Representation. © 2022 Ontario Real Estate Association. All rights reserved. Used under license.

Signing Once the seller and buyer have reviewed and agree with the information initialling is required on page 1 and signing is completed on page 2. An example of how this can be completed is shown in the given image. Information on each brokerage is provided along with signatures.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 29 of 46

From form 320: Confirmation of Co-operation and Representation. © 2022 Ontario Real Estate Association. All rights reserved. Used under license

Acknowledgement The brokerage will obtain an acknowledgement from the seller and the buyer that they have received, read and understood the information contained within the disclosure document. An example of this acknowledgement is shown in the image.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 30 of 46

From form 320: Confirmation of Co-operation and Representation. © 2022 Ontario Real Estate Association. All rights reserved. Used under license

Confirmation of Co-operations and Representation: Single Representation The background shows the page 1 of OREA Form 320: Confirmation of Co-operation and Representation. Three sections are highlighted in the form. ©2019 Real Estate Council of Ontario

1. The buyer’s name is Imree Ana Santosh. The seller’s name is Jurgen Honst Aldridge. For the transaction on the property known as 5678 Main Street, Anycity, AnyRegion. In this section, the names of the seller and buyer and the property in the transaction are identified. 2. Under the Listing Brokerage section, the ‘Listing Brokerage represents the interests of the Seller in this transaction. It is further understood that:’ checkbox is selected. Under this checkbox, ‘The Listing Brokerage is not representing or providing Customer Service to the Buyer. (If the Buyer is working with a Co-operating Brokerage, Section 3 is to be completed by Co-operating Brokerage)’ checkbox is selected. In this section, the listing brokerage identifies their representation status for seller and buyer. 3. The INITIALS OF BUYER(S)/SELLER(S)/BROKERAGE REPRESENTATIVE(S) (Where applicable) section is initialed by the Buyer, Co-operating/Buyer Brokerage, Seller, and Listing Brokerage. The document is reviewed first usually by the buyer and then the seller; they initial the front of the form along with their representatives to confirm the review.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 31 of 46

From form 320: Confirmation of Co-operation and Representation. © 2022 Ontario Real Estate Association. All rights reserved. Used under license

Confirmation of Co-operation and Representation: Single Representation The background shows the page 2 of OREA Form 320: Confirmation of Co-operation and Representation. Four sections are highlighted in the form. ©2019 Real Estate Council of Ontario

1. The ‘Co-operating Brokerage completes Section 3 and Listing Brokerage completes Section 1’ Section contains two subsections, CO-OPERATING BROKERAGE - REPRESENTATION and CO-OPERATING BROKERAGE COMMISSION. ‘The Co-operating Brokerage represents the interests of the Buyer in this transaction’ check box is selected under the CO-OPERATING BROKERAGE – REPRESENTATION subsection. In this subsection, the cooperating brokerage identifies their representation status with the buyer. 2. ‘The Listing Brokerage will pay the Co-operating Brokerage the commission as indicated in the MLS® information for the property 2.5% plus HTS (Commission As Indicated In MLS® Information) to be paid from the amount paid by the Seller to the Listing Brokerage’ check box is selected under the CO-OPERATING BROKERAGE - COMMISSION subsection. In this subsection, the co-operating brokerage identifies the remuneration to be paid. In this case, it is the percentage of the selling price according to the listing. 3. In the SIGNED BY THE BROKER/SALESPERSON REPRESENTATIVE(S) OF THE BROKERAGE(S) (Where applicable) section, Name of Co-operating/Buyer Brokerage is ABC Real Estate, Inc. 3999 North Street, AnyCity, AnyRegion. Telephone number is 555-323-1234. Fax number is 555-323-4567. Authorized to bind the Co-operating/Buyer Brokerage by Maya Thom. Date is April 24, 2019. Print Name of Broker/Salesperson Representative of the Brokerage is Maya Thom. Name of Listing Brokerage is XYZ Realty, Ltd. 1898 Central Street, AnyCity, AnyRegion. Telephone number is 555-565-2345. Fax number is 555-565-9876. Authorized to bind the Cooperating/Buyer Brokerage by RHollis-Laga. Date is April 24, 2019. Print Name of Broker/Salesperson Representative of the Brokerage is Rita Hollis-Laga. In this section, each brokerages’ information is provided along with the signatures of the salespersons. 4. In the ACKNOWLEDGEMENT section, Signature of Buyer is Imree Santosh. Date is April 24, 2019. Signature of Seller is Jurgen H Aldridge. Date is April 24, 2019. In this section, the brokerages will obtain the acknowledgement from the seller and buyer that they have received and understand the information within this disclosure document.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 32 of 46

A buyer is about to make an offer on a seller’s property. Documenting, disclosing and acknowledging the relationships that a seller and buyer may have with a brokerage or brokerages is required. Which of the following could be correct in terms of the types of relationships that might be documented and disclosed to a buyer, seller, brokerage or brokerages in a particular transaction prior to an offer being made? There are five options. There are multiple correct answers. 1 2 3 4 5

The listing brokerage might be representing the seller and providing customer service to the buyer A co-operating brokerage might be representing the buyer The buyer brokerage might be representing both the seller and buyer The listing brokerage might be representing both the seller and the buyer The co-operating brokerage might be providing customer service to the buyer

©2019 Real Estate Council of Ontario

Lesson 3 | Page 33 of 46

Confirm Co-operation and Representation of Seller and Buyer Under Multiple Representation Written consent is required from both the seller and the buyer when the listing brokerage is operating under multiple representation. The disclosure requirements will also provide the seller and the buyer with information on how multiple representation impacts the brokerage’s obligations for disclosure. The next screens provide an example of how the disclosures for multiple representation are made and written consent is obtained. All other information on the document is completed as previously identified. In this example, Lincoln Dan Post is the buyer interested in placing an offer on the property being sold by Yasmin Alia Muflatte and Piet Duroche Muflatte. The property address is 4321 Anystreet, North Anytown, AnyRegion. Lincoln Post is represented by Santi Rhodes of ABC Real Estate Inc. at 456 East Street, North Anytown, AnyRegion (Tel: 555321-4321/Fax: 555-323-3456). The sellers, Yasmin and Piet Muflatte are also represented by Santi Rhodes of ABC Real Estate Inc.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 34 of 46

From form 320: Confirmation of Co-operation and Representation. © 2022 Ontario Real Estate Association. All rights reserved. Used under license.

Disclose Multiple Representation The listing brokerage discloses they represent both the seller and the buyer under multiple representation. The limitations to the brokerage’s disclosure requirements are identified to help ensure the seller and buyer understand how multiple representation impacts the brokerage’s obligations prior to providing their consent.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 35 of 46

From form 320: Confirmation of Co-operation and Representation. © 2022 Ontario Real Estate Association. All rights reserved. Used under license.

Seller and Buyer Consent The seller and the buyer initial their consent in the appropriate location on the form which allows the brokerage to operate under multiple representation. If a party does not consent, the offer cannot proceed and one of the parties must be released to seek representation from another brokerage.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 36 of 46

From form 320: Confirmation of Co-operation and Representation. © 2022 Ontario Real Estate Association. All rights reserved. Used under license.

Initials and Signing Under multiple representation, only the listing brokerage is involved. As offers typically begin with a buyer, Santi Rhodes creates the document and initials pages 1 and 2 on behalf of the listing brokerage. The buyer initials and signs the form before signing the offer. Santi Rhodes will review the form with the sellers and have them initial and sign before presenting the offer to them. Only the listing brokerage’s details are provided on page 2.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 37 of 46

From form 320: Confirmation of Co-operation and Representation. © 2022 Ontario Real Estate Association. All rights reserved. Used under license.

Confirmation of Co-operation and Representation: Multiple Representation The background shows the page 1 of OREA Form 320: Confirmation of Co-operation and Representation. Three sections are highlighted in the form. ©2019 Real Estate Council of Ontario

1. The buyer name is Lincoln Dan Post. The seller name is Yasmin Alia Muflatte and Plot Duroche Muflatte. For the transaction on the property known as 4321 Anystreet, North Anytown, AnyRegion. In this section, the names of the seller and buyer and the property in the transaction are identified. 2. Under the Listing Brokerage section, the ‘Multiple Representation’ checkbox is selected. It states that the Listing Brokerage has entered into a Buyer Representation Agreement with the Buyer and represents the interests of the Seller and the Buyer, with their consent, for this transaction. The Listing Brokerage must be impartial and equally protect the interests of the Seller and the Buyer in this transaction. The Listing Brokerage has a duty of full disclosure to both the Seller and the Buyer, including a requirement to disclose all factual information about the property known to the Listing Brokerage. However, the Listing Brokerage shall not disclose: • That the Seller may or will accept less than the listed price, unless otherwise instructed in writing by the Seller; • That the Buyer may or will pay more than the offered price, unless otherwise instructed in writing by the Buyer; • The motivation of or personal information about the Seller or Buyer, unless otherwise instructed in writing by the party to which the information applies, or unless failure to disclose would constitute fraudulent, unlawful or unethical practice; • The price the Buyer should offer or the price the Seller should accept; • And, the Listing Brokerage shall not disclose to the Buyer the terms of any other offer. However, it is understood that factual market information about comparable properties and information known to the Listing Brokerage concerning potential uses for the property will be disclosed to both Seller and Buyer to assist them to come to their own conclusions. In this section, the listing brokerage identifies their multiple representation status for seller and buyer. 3. The INITIALS OF BUYER(S)/SELLER(S)/BROKERAGE REPRESENTATIVE(S) (Where applicable) section is initialed by the Buyer, Seller, and Listing Brokerage. When the document is reviewed first by the buyer and then the seller, they initial the front of the form along with their representative to confirm their review.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 38 of 46

From form 320: Confirmation of Co-operation and Representation. © 2022 Ontario Real Estate Association. All rights reserved. Used under license.

Confirmation of Co-operation and Representation: Multiple Representation The background shows the page 2 of OREA Form 320: Confirmation of Co-operation and Representation. Three sections are highlighted in the form. ©2019 Real Estate Council of Ontario

1. In the SIGNED BY THE BROKER/SALESPERSON REPRESENTATIVE(S) OF THE BROKERAGE(S) (Where applicable) section, Name of Co-operating/Buyer Brokerage field is blank. Telephone number field is blank. Fax number field is blank. Authorized to bind the Co-operating/Buyer Brokerage field is blank. Date field is blank. Print Name of Broker/Salesperson Representative of the Brokerage field is blank. Name of Listing Brokerage is ABC Real Estate, Inc. 456 East Street, North Anytown, AnyRegion. Telephone number is 555-321-4321. Fax number is 555-323-3456. Authorized to bind the Co-operating/Buyer Brokerage by Santi Rhodes. Date is April 10, 2022. Print Name of Broker/Salesperson Representative of the Brokerage is Santi Rhodes. In this section, the listing brokerages’ information is provided along with the signature of the salesperson. 2. The CONSENT FOR MULTIPLE REPRESENTATION (To be completed only if the Brokerage represents more than one client for the transaction) section is initialed by the Buyer and Seller. In this section, the seller and buyer must provide written consent here for multiple representation. If consent is not provided, the offer cannot be presented and one or both of the parties must seek representation elsewhere. 3. In the ACKNOWLEDGEMENT section, Signature of Buyer is Lincoln Post. Date is April 10, 2022. Signatures of Seller are Pist Muflatte and Yasmin Muflatte. Date is April 10, 2022. In this section, the brokerage will obtain the acknowledgement from the seller and buyer that they have received and understand the information within this disclosure document.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 39 of 46

A brokerage is representing both a seller and a buyer. The buyer wishes to put in an offer on the seller’s property. The relationships that the brokerage has with the seller and buyer has to be disclosed to both parties. What information would be shown in a document disclosing the relationships? There are six options. There are multiple correct answers. 1 2 3 4 5 6

Multiple Representation: The listing brokerage has a representation agreement with the buyer and represents the best interests of both seller and buyer The co-operating brokerage represents the buyer The limitations to the services being provided as a result of the multiple representation The listing brokerage does not represent or provide customer service to the buyer The remuneration the co-operating brokerage will be paid Consent for multiple representation- seller and buyer initial their consent

©2019 Real Estate Council of Ontario

Lesson 3 | Page 40 of 46

Confirm Representation Status and Remuneration Obligations - When the Seller or the Buyer Is a Customer Within a transaction, a seller or a buyer could be provided customer service from a brokerage rather than be represented as a client. Under these situations, a brokerage will disclose the relationship status and any remuneration agreements. The next screens provide an example of how the disclosures would be made under various scenarios of providing customer service.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 41 of 46

From form 320: Confirmation of Co-operation and Representation. © 2022 Ontario Real Estate Association. All rights reserved. Used under license.

Listing Brokerage: Providing Customer Service to Buyer Where a listing brokerage is representing a seller and providing customer service to the buyer, the disclosure of these relationships would be documented as shown in the given image.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 42 of 46

From form 320: Confirmation of Co-operation and Representation. © 2022 Ontario Real Estate Association. All rights reserved. Used under license.

Co-operating Brokerage: Providing Customer Service to a Buyer Where a co-operating brokerage is providing customer service to a buyer, the disclosure of this relationship would be documented as shown in the image. In this instance, remuneration being paid to the co-operating brokerage is generally identified as indicated in the listing information, as a buyer customer service agreement does not typically require a buyer to pay remuneration.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 43 of 46

From form 320: Confirmation of Co-operation and Representation. © 2022 Ontario Real Estate Association. All rights reserved. Used under license.

Property Sold By Buyer Brokerage - Property Not Listed In situations where the seller has not listed the property for sale with a brokerage (i.e., a private for sale), and the buyer’s brokerage is preparing an offer, the disclosure of the brokerage’s relationships would be documented as shown in the image. Prior to drafting an offer, the remuneration obligations of the seller and the buyer would be documented under a separate agreement. In this example, the remuneration being paid to the brokerage is documented in a Seller Customer Service Agreement.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 44 of 46

Providing customer service in a trade requires the same confirmation of representation and remuneration obligations as those provided to clients. Customers, while not owed fiduciary duties must be dealt with honestly and with integrity. If a brokerage were representing a seller and providing customer service to a buyer who wanted to put in an offer on the seller’s property, what information would be shown in a document disclosing representation, co-operation and remuneration. There are six options. There are multiple correct answers. 1 2 3 4 5 6

The listing brokerage represents the seller The co-operating brokerage represents the buyer The co-operating brokerage is providing customer service to the buyer The listing brokerage does not represent or provide customer service to the buyer The remuneration that the co-operating brokerage will be paid The listing brokerage is providing customer service to the buyer

©2019 Real Estate Council of Ontario

Lesson 3 | Page 45 of 46

Leading Practices for Multiple Representation Situations Multiple representation places the brokerage, the seller, and the buyer in a situation where opposing interests can be the core of the negotiations. The key to successfully operating in a multiple representation situation is to ensure the brokerage and all salespeople act in an impartial manner, to best protect the interests of multiple clients. To assist in complying with the requirements under REBBA, the given leading practices should be incorporated into your day-to-day business practices. The following five sections contain information on leading practices that can help you incorporate compliance with the requirements under REBBA into your day-to-day activities.

Impartiality while maintaining fairness, honesty, and integrity

As a salesperson, this is the foundation for all of your actions. Every person involved in a trade must be treated fairly, honestly, and with integrity. This goes beyond the seller and buyer. This extends to all persons, such as an appraiser, lender, property inspector, etc. When a brokerage is operating under multiple representation, the potential for misunderstandings or confusion regarding the obligations of the brokerage could occur. Ensuring the brokerage is impartial while maintaining fairness, honesty, and integrity throughout the transaction is a leading practice to successfully work with sellers and buyers under these situations. Leading Practice: There are many opportunities to discuss, explain, and demonstrate how the brokerage’s obligations will be altered when representing more than one client in the same trade. As a salesperson, use these opportunities to ensure the seller or buyer understands the limitations to the services and the information that may not be disclosed. As you complete various activities throughout the transaction, inform the parties of the reason for the action and how it fits within the limitations imposed with multiple representation. This approach to openness provides transparency in a transaction, and is especially relevant when a brokerage is operating under multiple representation. ©2019 Real Estate Council of Ontario

Disclosure before entering into an agreement

Entering into an agreement with a seller or a buyer to represent them in a transaction can occur intentionally or by accident. Creating a client relationship can unintentionally occur based on the words and actions of the parties. A seller or buyer could, by the words or actions of a salesperson, believe they are being represented. Documenting this relationship in a seller or buyer representation agreement could occur at a much later time. Leading Practice: To ensure a seller or a buyer is fully informed prior to creating a client relationship, limit your interactions with the party until sufficient time is allocated to discussing and detailing the service alternatives, the services a brokerage would provide, and the limitations to those services when operating under multiple representation.

Disclosure when entering into a representation agreement

The brokerage’s proposal to work under multiple representation should be clearly understood by a seller or buyer in advance of any actual situations occurring. If a client relationship has already been established through the words and actions of the salesperson, the opportunity for customer service is no longer available. After fully explaining the service alternatives available, the services the brokerage will provide, and the limitations when operating under multiple representation, a brokerage should document the relationship chosen by the seller or the buyer. Leading Practice: If the relationship chosen is one where the brokerage is representing the seller or the buyer, documenting this relationship early will help avoid any misunderstandings or confusion. This is an opportunity to reinforce the limitations to the brokerage’s services and obligations for disclosure of information, while also reminding the party the brokerage is not permitted to operate under multiple representation unless all clients for the trade consent in writing.

©2019 Real Estate Council of Ontario

Nature of relationship and consent for multiple representation

A brokerage is required to disclose the nature of their relationship if more than one seller or buyer is being represented or provided services for the same trade. A brokerage is also required to obtain written consent for multiple representation. These disclosures are required at the earliest opportunity and at all times before an offer is made. Leading Practice:

Requirements if consent is not obtained

When the potential for multiple representation occurs during the listing and selling activities, use this as an opportunity to reinforce the information previously provided. As there could be many weeks or months pass between the initial discussions, a seller or buyer might be concerned or confused over the brokerage’s obligations pertaining to multiple representation. When the seller or the buyer have remained fully informed, asking for their consent to operate under multiple representation is a natural aspect of the offer process. When consent for a brokerage to operate under multiple representation is not given by a seller or a buyer, a brokerage may not proceed with the offer. As consent must be obtained from all clients in the trade. The brokerage is required to release one or more of its clients to seek alternate representation with another brokerage. Leading Practice: When properly explained, a seller or buyer typically enter into a representation agreement with the intent to provide consent for multiple representation. When consent is not received, a salesperson should understand that certain events or circumstances occurring during the listing and selling period may have impacted this decision. An open and detailed discussion to address the specific concerns should be undertaken to ensure the decision is based on a full understanding of the limitations of the brokerage. Rather than place a seller or a buyer in an uncomfortable or detrimental position, provide an opportunity for them to seek representation with another brokerage.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 46 of 46

Congratulations, you have completed the lesson! There are six sections on this page with a summary of the key topics that were discussed in this lesson.

Multiple representation Multiple representation can occur in the offer process when a seller and buyer, or when two competing buyers, are represented in the same transaction by the same scenarios

brokerage. Prior to entering into a representation agreement, REBBA requires the brokerage to Limitations to client services under multiple provide a seller or buyer with the given information: • The services the brokerage will provide to each client if the brokerage representation represents more than one client for the same trade. • Any differences in the sharing of information with the seller or buyer. This includes Information the brokerage will NOT disclose unless otherwise instructed in writing by the seller or buyer to do so, and services they will NOT perform. Disclosure regarding multiple representation takes place in two stages: before a Disclosure obligations under REBBA regarding representation agreement is signed and before an offer is made.

multiple representation Disclosure and written To comply with the requirements under REBBA, disclosure regarding multiple consent requirements representation involves at minimum, two steps: 1. Disclosure before agreement - Before entering into a representation for multiple agreement, the brokerage must disclose the possibility of multiple representation

representation and inform the client that they must consent in writing before an offer is submitted or presented. 2. Disclosure before offer - Before any offer is made, the seller and buyer must consent in writing to work under multiple representation.

©2019 Real Estate Council of Ontario

Confirmation of representation status and remuneration obligations of a seller and buyer

Before signing or presenting an offer, the relationship of the brokerage to seller and buyer must be explained in writing and signed by all parties as acknowledgement. This confirmation practice helps ensure all parties understand who is being represented by whom, the remuneration obligations of the seller and the buyer, and the remuneration payable to the co-operating brokerage. The signatories include the seller(s), the buyer(s), the listing brokerage, and when applicable, the co-operating brokerage or buyer brokerage.

Documenting this information is required before any offer, therefore it is typically the buyer’s salesperson who would complete a form with the buyer and include it with the offer. The seller would receive and review the document and sign indicating their acknowledgement of the information prior to reviewing the buyer’s offer. Every person involved in a trade must be treated fairly, honestly, and with integrity. Leading practices of a salesperson regarding To provide transparency throughout a transaction, inform the parties of the reason multiple representation for each action and how it fits within the limitations imposed with multiple representation. The brokerage’s proposal to work under multiple representation should be clearly understood by a seller or buyer in advance of any actual situations occurring. If the brokerage is representing the seller or the buyer, documenting this relationship early will help avoid any misunderstandings or confusion. A brokerage is required to disclose the nature of their relationship if more than one seller or buyer is being represented or provided services for the same trade. A brokerage is also required to obtain written consent for multiple representation. A brokerage may not proceed with an offer if consent to operate under multiple representation is not given by a seller or a buyer.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 1 of 5

Lesson 4: Summary Practice

You will practice how to complete the offer process using an example from a real-life scenario.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 2 of 5

This lesson reviews the content from the module, providing an opportunity to complete a confirmation of cooperation and representation form. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 3 of 5

Scenario Intro: Multiple Representation Fernando Kumara was looking for an investment property. He wanted to purchase a property that was in the vicinity of the two universities and within walking distance of downtown. He was represented by Analyn Santosh who worked very hard to find suitable properties. After looking at many properties, Fernando finally decided to place an offer on the property at 43 North Street, Anytown, AnyRegion. The property was being sold by Vin Dao Tran and Karen Li Tran who were also represented by Analyn Santosh. Analyn is a salesperson with XYZ Realty Ltd., at 46 Centre Road, Anytown, Any Region (Tel: 555-333-4221 or Fax: 555-323-5656). Analyn ensured both seller and buyer completely understood the ramifications of working under multiple representation. Before the offer was presented, she disclosed to both the seller and buyer the limitations to services and information shared under multiple representation and received their consent in writing on April 24, 2019. Analyn documented the brokerage relationship and the consent from seller and buyer using OREA form 320: Confirmation of Co-operation and Representation. ©2019 Real Estate Council of Ontario

Lesson 4 | Page 4 of 5

Analyn and the seller and buyer have completed the OREA Form 320: Confirmation of Co-operation and Representation. The details for Section 1 of the form are as follows: • Buyer is Fernando Kumara. • Sellers are Vin Dao Tran and Karen Li Tran. • For the transaction on the property known as 43 North Street, Anytown, AnyRegion. This is the address of the property. The details for Section 2 of the form are as follows: • The following checkboxes are not selected as these fields are not completed for identifying multiple representation. The listing brokerage represents the interests of both seller and buyer under multiple representation. o The listing brokerage represents the interests of the Seller in this transaction. It is further understood and agreed that: 1. The Listing Brokerage is not representing or providing Customer Service to the Buyer (If the Buyer is working with a Co-operating Brokerage, Section 3 is to be completed by Co-operating Brokerage). 2. The Listing Brokerage is providing Customer Service to the Buyer. • The checkbox for multiple representation is selected. The listing brokerage identifies they represent both the seller and the buyer under multiple representation. The limitations to the brokerage’s disclosure requirements are identified to help ensure the seller and buyer understand how multiple representation impacts the brokerage’s obligations. • The field for additional comments and/or disclosures by Listing Brokerage is left blank. This filed is not required for this scenario. There are no additional disclosures. The details for Section 3 of the form are as follows: • The following checkboxes are not selected as this section does not pertain to multiple representation. This section pertains to a property that is not listed with a brokerage and documents the disclosure of the relationship of the buyer’s brokerage and any remuneration obligations.

©2019 Real Estate Council of Ontario

1. The Brokerage does/does not represent the Buyer and the property is not listed with any real estate brokerage. The Brokerage will be paid 2. By the Seller in accordance with a Seller Customer Service Agreement 3. Or by the Buyer directly • In the initials of buyer(s)/seller(s)/brokerage representative(s) section, the initials of buyer are FK, the field for initials of co-operating/buyer brokerage is left blank, the initials of seller are VDT KLT, and the initials of listing brokerage are AS. Once the seller and buyer have reviewed and agree with the information, they initial page 1. Under multiple representation, only the listing brokerage is identified. Analyn Santosh can initial on behalf of her brokerage as its representative. The details for Section 4 of the form are as follows: • The following checkboxes are not selected as these sections do not pertain to this multiple representation situation. There is no co-operating brokerage involved. 1. The Co-operating Brokerage represents the interests of the Buyer in this transaction. 2. The Co-operating Brokerage is providing Customer Service to the Buyer in this transaction. 3. The Co-operating Brokerage is not representing the Buyer and has not entered into an agreement to provide customer service(s) to the Buyer. 4. The Listing Brokerage will pay the Co-operating Brokerage the commission as indicated in the MLS information for the property, to be paid from the amount paid by the Seller to the Listing Brokerage. 5. The Co-operating Brokerage will be paid as, followed by a field to enter the information. The details for Section 5 of the form are as follows: • The section where the name of co-operating/buyer brokerage is to be added is left blank. Under multiple representation, there is no co-operating brokerage. • Name of Listing Brokerage is XYZ Realty Ltd and address is 46 Centre Road, Anytown, AnyRegion; telephone number is 555-333-4221; and fax number is 555-323-5656. • Analyn Santosh is entered in the "Authorized to bind the Listing Brokerage" field; date is April 24, 2019; and print name of Broker/Salesperson Representative of the Brokerage is Analyn Santosh. The salesperson for the listing brokerage signs and dates the form and prints their name below.

©2019 Real Estate Council of Ontario

• Buyer's initials are FK, and seller's initials are VDT KLT. The seller and the buyer initial their consent in this section on the form which allows the brokerage to operate under multiple representation. If a party does not consent, the offer cannot proceed and one of the parties must be released to seek representation from another brokerage. • Signature of buyer is Fernando Kumara, April 24, 2019; signatures of sellers are Vin Dao Tran, April 24, 2019 and Karen Li Tran, April 24, 2019. The brokerage obtains an acknowledgement from the seller and the buyer that they have received, read and understood the information contained within the disclosure document.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 5 of 5

Congratulations, you have completed the lesson!

©2019 Real Estate Council of Ontario

Module Summary | Page 1 of 4

Module Summary

You will see a summary of concepts from the entire module.

©2019 Real Estate Council of Ontario

Module Summary | Page 2 of 4

Congratulations, you have completed this module! This lesson will present a summary of Learning Objectives and a list of helpful resources that you can search for in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 3 of 4

There are three sections on this page with a summary of the key topics that were discussed in this module.

The offer process

An agreement of purchase and sale documents the terms and conditions involved in a real estate transaction between the seller and buyer. From a buyer’s perspective, the offer process consists of working with a salesperson to complete five steps from initiating the offer to awaiting the seller’s response to the offer. Once the offer is presented, either electronically or in person, the seller has the irrevocable time period to decide what they will do with the offer. From a seller’s perspective, the offer process consists of working with a salesperson to complete six steps from arranging an offer presentation time to negotiating the offer. As the final step in the process, the seller has four options: accept the offer, reject the offer, make a counter offer or if there are multiple offers, a seller may elect to send all or some of the offers back for improvement. The offer acceptance process consists of six steps from accepting the offer to forwarding a copy of the completed agreement to the buyer. During the acceptance process, the parties involved must sign and date specific parts of the agreement. Once the agreement is completed, each party receives signed copies, which may be paper-based or electronic. Completion of this lesson has enabled you to: • List the key components of an agreement of purchase and sale • Identify and explain a typical offer process from the buyer's perspective • Identify and explain a typical offer process from the seller's perspective • Describe the steps for presentation and acceptance of an offer

©2019 Real Estate Council of Ontario

Deposits and other REBBA criteria

REBBA requires a brokerage to deposit money it receives in trust into a designated trust account within five business days of receipt. A buyer’s deposit held by a brokerage in their real estate trust account is protected under the RECO insurance program. To ensure funds are handled properly, RECO requires a buyer’s deposit to be documented. REBBA requires a brokerage to fully disclose to persons depositing trust money the terms on which the money is deposited such as whether the account bears interest and the rate of interest paid. Buyers may choose to provide a deposit using an electronic funds transfer (EFT). A brokerage must retain a proper audit trail for each transfer in and out of their bank accounts. A brokerage may only disburse a deposit from their real estate trust account in accordance with the terms of the trust. When a transaction has failed, the proper course of action is by mutual consent of the seller and buyer or by court order. According to REBBA, offers to purchase real estate must be in writing and signed by the party making the offer. As a salesperson, you are required to convey an offer at the earliest opportunity. All offers will identify the irrevocable time period for which the offer is open for acceptance. Once an offer is accepted, signed copies of the agreement must be provided at the earliest opportunity to every party to the agreement. Completion of this lesson has enabled you to: • Identify the requirements under REBBA regarding deposits • Describe additional considerations regarding deposits • Identify the requirements of a salesperson under REBBA regarding activities associated with an offer

©2019 Real Estate Council of Ontario

The impact of multiple representation

Multiple representation can occur in the offer process when a seller and buyer, or when two competing buyers, are represented in the same transaction by the same brokerage. Prior to entering into a representation agreement, REBBA requires the brokerage to provide a seller or buyer with the information regarding the services provided to each client and how they differ under multiple representation. Disclosure about multiple representation takes place in two stages: before a representation agreement is signed and before an offer is made. To comply with REBBA requirements, the disclosure prior to an offer must be in writing, confirmed and signed by the seller and buyer. Leading practices for a salesperson in a multiple representation situation involve treating people fairly, being transparent regarding the obligations of the brokerage throughout a transaction, keeping parties informed about each action, and following the requirements set by REBBA for disclosure of relationships, documentation, and obtaining consent of the seller and buyer. Completion of this lesson has enabled you to: • Identify different scenarios where a brokerage is working under multiple representation • Identify the limitations to services provided to a client under multiple representation • Identify a salesperson’s disclosure obligations under REBBA regarding multiple representation • Identify the requirements to disclose and obtain written consent for multiple representation • Explain how to complete a document to confirm the representation status and remuneration obligations of a seller and a buyer • Identify leading practices of a salesperson regarding multiple representation

©2019 Real Estate Council of Ontario

Module Summary | Page 4 of 4

Module Resources There are five helpful resources related to this module that you can search for in the Knowledge Management System. 1. Bill 55 - Changes for Handling Offers: This is a summary of REBBA requirements for handling offers which includes answers to frequently asked question. A salesperson will need to be aware of the requirements when trading in real estate. 2. Interest Bearing Trust Accounts: This bulletin addresses the provisions regarding any interest generated on money held in trust by a brokerage. 3. Trust Deposits and Interest: This bulletin addresses the brokerage’s obligations under REBBA 2002 with respect to trust deposits and interest. 4. Electronic Funds Transfer: This bulletin addresses an Electronic Funds Transfer (EFT) and how to use it in relation to processing real estate transactions. 5. Failed Agreements of Purchase and Sale: This bulletin explains some of the reasons an agreement of purchase and sale would fail. This will help a salesperson understand REBBA requirements for handling monies held in trust and circumstances under which it can be released. While navigating through the online module, click the KMS button for tools and information on this topic.

©2019 Real Estate Council of Ontario

V7

Module 15: Introducing a Residential Agreement of Purchase and Sale Disclaimer: This is a reference document which contains pages from the Accessible eLearning module. You should complete the eLearning module to proceed to the next step. Please note that the accessible module on the LMS only contains the interactive pages and you need to go through the content of this document thoroughly to attempt the interactive activities in the module. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Salesperson Program ©2019 Real Estate Council of Ontario. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or in any means – by electronic, mechanical, photocopying, recording or otherwise without prior written permission, except for the personal use of the Real Estate Salesperson Program learner.

©2019 Real Estate Council of Ontario

Module 15: Introducing a Residential Agreement of Purchase and Sale This module will guide you through the clauses commonly used in residential transactions. The OREA Form 100: Agreement of Purchase and Sale will be used to illustrate how required clauses are typically presented. As a salesperson, you will need to understand each clause so you can explain it to a seller or buyer. Some clauses require information you will need to insert. Accuracy, completeness, and clarity are important whenever preparing any documentation used for a transaction. You will also need to understand how to do the given:  Reference any schedule attached to the agreement of purchase and sale  Ensure any clause contained on a schedule is accurately written and understood by a seller and a buyer By the end of the module, you will have a foundation for completing the agreement of purchase and sale to ensure sellers and buyers are aware of their obligations prior to signing the document. This module contains information about the given aspects of the agreement of purchase and sale:  The parties, property description, purchase price, and deposit  Clauses typically Included in a residential agreement of purchase and sale  The signing process and attaching schedules

©2019 Real Estate Council of Ontario

This module also provides opportunities for you to review scenarios that highlight how to discuss, and act accordingly when faced with the previously listed topics. To check your understanding of this module, you must complete all the activities in the online module. While navigating through the online module, click the Legislation button to view laws and regulations related to this module. While navigating through the online module, click the KMS button to access the Knowledge Management System or visit the Module Resources to find the list of all the KMS assets for this module. The contents of the thumbnail icon and References from the module are added to support your learning throughout this Accessible PDF.

©2019 Real Estate Council of Ontario

Menu: Introducing a Residential Agreement of Purchase and Sale Number of Lessons

Lesson Number Lesson 1 Lesson 2 Lesson 3 Lesson 4 Lesson 5

6 Lessons

Lesson Name The Parties, Property Description, Purchase Price, and Deposit Clauses Typically Included in a Residential Agreement of Purchase and Sale – Part 1 Clauses Typically Included in a Residential Agreement of Purchase and Sale – Part 2 The Signing Process and Attaching Schedules Summary Practice Activities Module Summary

©2019 Real Estate Council of Ontario

Lesson 1 | Page 1 of 29

Lesson 1: The Parties, Property Description, Purchase Price, and Deposit

This lesson details how to properly complete the contract details: the date of offer, seller and buyer names, the property description, purchase price, deposit and deposit holder, and any schedule attached to the agreement.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 2 of 29

An agreement of purchase and sale is used to document the terms between a seller and a buyer. An offer must clearly represent the intentions of both parties and fully provide for all agreed terms. This lesson details the information required to identify the parties, the property description, the purchase price, and deposit provisions. Upon completion of this lesson, you will be able to identify and explain the information typically required to detail key aspects of the parties, the property description, the purchase price, and the deposit provisions in an agreement of purchase and sale. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 3 of 29

Date of Offer The date of an offer is the date the document was prepared and appears at the top of page 1 of the agreement of purchase and sale. If an offer is drafted in advance of when the salesperson will be meeting with the buyer to obtain signatures, common practice is that the salesperson will insert the anticipated date to review and obtain the buyer's signature. Most offers are initiated by a buyer. For example, John Huddle wants to place an offer on a property. The salesperson drafts the offer on September 27, 2022, and knows they will not be able to meet with John until September 28, 2022, to have John review and sign the offer. The date of the offer in this scenario is September 28, 2022. Does the Date of an Offer Change? No, the date of an offer will not change. For example, a seller and their salesperson receive the offer made by John Huddle on September 28, 2022, and decide to wait until the next day to make any decisions on how to address the offer. The following day, the seller and their salesperson discuss the offer and decide to make changes to the offer and submit it back to John Huddle for his consideration. In this instance, the date of the offer remains the same. Using our example, the date of the offer would remain as September 28, 2022, and not be changed to September 29, 2022. ©2019 Real Estate Council of Ontario

Lesson 1 | Page 4 of 29

Date of Offer As an example, the given statement could be used to document the date the offer was drafted:

From OREA Form 100: Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 5 of 29

A buyer wants to place an offer on a property. The buyer's salesperson drafts and dates the offer on August 14, 2019, then contacts the buyer to make arrangements to meet the following day. The salesperson meets with the buyer to review the offer and the buyer signs it on August 15, 2019. The following day, August 16, the seller and listing salesperson discuss the offer and decide to make changes and submit it back to the buyer for the buyer’s consideration. Which of the following statements is true? There are four options. There is only one correct answer. 1 2 3 4

The date of the offer is August 14, 2019 The date of the offer is August 15, 2019 The date of the offer is August 16, 2019 The date of the offer has changed from August 14 to August 15 and then to August 16

©2019 Real Estate Council of Ontario

Lesson 1 | Page 6 of 29

Legal Seller and Buyer Names When drafting an offer, use the full legal names of the seller(s) and buyer(s). If the individual has one or more middle names, at a minimum identify the initial(s). Whenever possible, include the full middle name(s) as this helps to distinguish the seller or the buyer who has a common first and last name. If there is more than one seller or buyer, document each person’s name individually. For example, John William Smith and Mary Jane Smith. Buyer Verification Identify all buyers on the agreement of purchase and sale. A person can be named as a buyer but their name may not ultimately appear on title at registration. Conversely, an offer may be made in one buyer’s name but the transaction closes with a second or third buyer also on title.

©2019 Real Estate Council of Ontario

A minor is someone under the age of 18, which is the age of majority in Ontario. Any offer where the buyer is a minor could be voided by the minor. For example, if the buyer is a minor and refused to close the transaction, under contract law the buyer cannot be forced to close. Information on the requirements under contract law was detailed in an earlier module. Tip: Under the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), as a salesperson, you are required to verify the identity of a seller and a buyer. Prior to drafting an offer, obtain the buyer’s identification and document their full legal name to be used when preparing an offer. In a previous module, the requirements under FINTRAC were detailed. You will learn more about identification verification later. Seller Verification As a listing salesperson, you are required to confirm the seller’s information and must also verify the identity of the individual(s) acting as the seller. You can verify the ownership of the property using various methods, such as the transfer/deed the owners received when the property was purchased, information from the Land Registry Office, Municipal Property Assessment Corporation (MPAC) assessment information, or from the municipality. When drafting an offer, the seller(s) full legal name can be obtained from the listing information. Spouses as Sellers and Buyers When a married couple is buying a property to be registered in both their names, typically both buyer spouses’ names are shown as a buyer and both will sign the agreement of purchase and sale. When a married couple is selling a property they own jointly, both spouses’ names are shown as a seller. Both will sign the agreement of purchase and sale as a seller. To confirm joint ownership, both names must appear on the title. If only one spouse is on the title, but the property is considered a matrimonial home, the spouse on title is identified as a seller and that spouse signs the agreement of purchase and sale as a seller. The non-titled spouse is not identified as a seller, but is asked to provide consent to the sale by signing under Spousal Consent. If the nontitled spouse does not provide their consent, the transaction can be delayed or terminated as the non-titled spouse has rights associated with the property under the Family Law Act. A matrimonial home is one in which both individuals have an interest, and that is ordinarily occupied by the person and their spouse. It is important to ensure all seller and buyer names are completed accurately on an agreement of purchase and sale as there may be legal implications if recorded incorrectly. ©2019 Real Estate Council of Ontario

Lesson 1 | Page 7 of 29

Implications of Missing or Incorrect Seller and Buyer Names As a salesperson, it is important you ensure the names of the sellers and buyers inserted in the agreement of purchase and sale are accurate. The parties named will be legally bound to the agreement and this will be important in the event the agreement is breached. Example 1: Buyer Breaches the Agreement Robert Smith is buying Sally Jones’ property, and they are identified as the seller and buyer in the agreement of purchase and sale. Robert agreed to pay a deposit of $50,000 upon acceptance; however, he is now refusing to do so. Robert has breached the agreement. Sally can take legal action against him, but only him, for breaching the agreement. If Robert has few or no assets Sally’s legal action, if successful, may be futile.

©2019 Real Estate Council of Ontario

Example 2: A Named Seller Does Not Own the Property Robert Smith and Barbara Smith are married. An agreement of purchase and sale is prepared showing Robert and Barbara as the sellers, and Thomas Johnson, as the buyer. The Smiths refuse to complete the transaction on the closing date. Thomas Johnson, the buyer, has legal recourse against the Smiths, the sellers, for breach of the agreement. However, after checking the registered ownership of the property, it is discovered that only Robert Smith is registered on title. Barbara is not a registered owner. Despite not being an owner of the property Barbara will be exposed to liability because she was named as a seller when she should not have been. On the other hand, if the transaction is completed, Thomas Johnson may insist upon Barbara being responsible for all the sellers’ contractual representation and warranties (e.g. Urea Formaldehyde Foam Insulation (UFFI); mechanical systems being in good working order) despite not being an owner of the property. Example 3: A Buyer is Not Named in the Agreement Jill Williams and Kathy Wong are friends and decide to buy a property together. After many months of looking, they found the perfect property that they want to put an offer on. Before they could sign the offer, Jill had to go out of town on business, so the offer was prepared showing Kathy as the buyer. Prior to the closing date, Kathy planned to direct that ownership of the property be placed in her name and Jill’s name, as tenants in common. Kathy’s offer was accepted by the seller. Jill and Kathy apply for a mortgage to complete the purchase. The lender notices that Jill is not named as a buyer in the agreement and refuses to approve the mortgage until the agreement is amended to add Jill as a buyer. An amending agreement must be prepared. Jill and Kathy must sign it, and the seller must also sign. Will the seller agree? This extra work and uncertainty could have been avoided by having named both Jill and Kathy as buyers in the original agreement. Consider another possibility. While Jill was out of town on business, she decided she did not really want to buy a property with Kathy. Upon her return, Kathy excitedly told her that she had bought a property for them, but Jill tells her she is no longer interested. What will happen? Will Kathy be able to complete the transaction on her own? If she cannot or refuses to complete the transaction, the seller will take legal action against Kathy since she was the only named buyer. Can Kathy sue Jill? What a mess! This could have been avoided by ensuring that all the buyers entered into the agreement. The leading practice is to get all parties to sign the agreement and for them to clearly understand their legal obligations. ©2019 Real Estate Council of Ontario

Lesson 1 | Page 8 of 29

Legal Seller and Buyer Names For example, the given lines could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 9 of 29

Additional Considerations When Identifying a Seller or Buyer Sellers and buyers are not always identified as an individual on an agreement of purchase and sale. As a salesperson, you could encounter situations where a party to the agreement is a corporation or a partnership which will alter how an agreement is prepared. In some instances, someone other than the seller or buyer will be signing on behalf of the party. These situations involve an estate, a person acting under a Power of Attorney, or an individual who is acting in trust for another individual or entity. You will need to verify the correct names for each situation and request the legal documentation as required to ensure appropriate identification of a party, and ensure the individual has the authority to sign an agreement on their behalf. The following five sections contain information on the requirements for each option of identifying a seller or a buyer.

Corporations as Seller or Buyer

A corporation is a separate entity and ownership is by way of shares in the corporation. A corporation can include one or more individuals and will have officers and directors named for the corporation. Use the full legal name to identify the corporation and ensure the appropriate officer(s) are identified, and the corporate seal is used with their signature. In lieu of a seal, individuals signing can write “I/we have the authority to bind the corporation” on the signature lines on the agreement of purchase and sale. For the agreement of purchase and sale, insert the legal name of the corporation; for example:  ABC Rentals Limited  1234567 Ontario Inc. Information on verifying the corporation and the signing officer(s) is in a later module.

©2019 Real Estate Council of Ontario

Partnership as Seller or Buyer

A partnership is where one or more individuals enter into an agreement to carry on a business. In some instances, the partnership could be identified as a limited partnership where one or more persons are general partners and one or more persons are limited partners. A limited partner does not provide any services for the business, but rather may contribute money and other property to the limited partnership. When preparing an agreement of purchase and sale, use the partnership name; confirm who the partners are, and who has the authority to bind the partnership.

Estates and Estate Trustees

In a general partnership, one partner can sign the agreement of purchase and sale which binds the partnership. In a limited partnership, a limited partner may not have this authority. To avoid any problems when the offer is being negotiated or the transaction is being completed, the leading practice would be to obtain the signatures of all authorized partners on the agreement of purchase and sale. For the agreement of purchase and sale, insert the legal name of the partnership; for example:  ABC Rentals  smith and Jones, Partnership An estate trustee is the only person with the legal authority to manage or distribute an estate and is named in the deceased’s will. When there is no will, an application for probate in the Ontario Superior Court of Justice is required to give a person the authority to act as the estate trustee of an estate. With proper legal authority, an estate trustee may sign the agreement of purchase and sale as a non-owner. If there is more than one estate trustee, obtain a signature from all estate trustees. To verify if an individual has the authority to act as the estate trustee, ask for a notarized copy of probate documents to ensure all the trustees have signed and have the power to sell under the will. An estate trustee can list a property for sale prior to obtaining probate but the title cannot be transferred until probate has been obtained. A copy of all documentation is retained by the brokerage and is used to ensure the appropriate individuals are identified and sign the agreement of purchase and sale.

©2019 Real Estate Council of Ontario

Beneficiaries may also need to sign the agreement of purchase and sale. If unsure who is required to sign, seek advice from the lawyer for the estate. Failure to include all trustees or confirm the authority to sell may result in a contract that is not valid or enforceable. The agreement of purchase and sale would indicate the seller as “The Estate of John Doe”. The estate trustee would sign the agreement of purchase and sale, followed by the words “Estate Trustee”.

Power of Attorney

A Power of Attorney (POA) is a legal document giving authority for someone to act on behalf of another person. A POA may involve a general power to act on behalf of another or it might be limited in scope and contain precise details. As a salesperson, you may encounter a POA in the given scenarios:  A daughter might have a POA for an elderly mother suffering from dementia  A spouse might have a POA for their spouse who is in the military and assigned overseas  A seller grants their lawyer a POA to negotiate and sell a property because the seller is out of the country If a person (i.e. an Attorney) is claiming to have authority to sign an agreement on behalf of another person (i.e. the Donor) as the salesperson, you must verify that authority by obtaining an original copy of the Power of Attorney (POA) or a notarized copy of it. Furthermore, you must verify that the POA is legally valid, gives the attorney the authority to sign that particular type of agreement (e.g. agreement of purchase and sale), and that the POA is still in full force and effect (e.g. has not been revoked by the Donor or has not expired if it had an expiry date). For example, if John Smith is the Donor and he has appointed Sally Jones, as his Attorney, pursuant to a Power of Attorney. The signing of the agreement of purchase and sale should look as follows:

©2019 Real Estate Council of Ontario

Additional considerations:  A POA for Personal Care also exists, so ensure you request the POA for Property  When the person represented by the POA dies, the POA is no longer valid

In Trust Arrangement

An “In Trust” arrangement occurs when a person known as a trustee signs the agreement of purchase and sale on behalf of one or more other parties, known as beneficiaries. Trusts can be used by sellers or buyers. A buyer may use a trustee to make an offer to remain anonymous or to incorporate a company. Using a trustee for a company to be incorporated is statutorily permitted and has special rules. On the other hand, a seller may have taken ownership of a property through a trustee in order to remain anonymous. The proper use of trusts, and the liability of the parties (trustee, beneficiaries) is complicated, and legal advice for the parties is strongly recommended before preparing the agreement of purchase and sale.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 10 of 29

Real Property Each property must have an accurate description to distinguish it from other properties and ensure the correct property is being transferred to the buyer. Accuracy in the property description benefits both the seller and the buyer as in some cases where the property was not described accurately, the buyer has been allowed to terminate the agreement. To ensure a complete description for each property is identified, the given information would be included in an agreement of purchase and sale items:  Address  Side of the road the property is fronting on  Municipality, city, township, region  Lot size  Legal description including any easements

©2019 Real Estate Council of Ontario

Lesson 1 | Page 11 of 29

Real Property As an example, the OREA Form 100 contains a Real Property section, which could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Real Property ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 12 of 29

Address Include the full civic address of the property. Verify the address on the listing and ensure you have the correct street type; for example:  Jane Road  Jane Street  Jane Boulevard  Jane Crescent, etc. For rural properties, many areas have adopted the 911 program. If the area does not have this system, include the lot number, concession number, and township for the property’s address. In addition, the listing could indicate the

©2019 Real Estate Council of Ontario

property’s address; for example, R.R. #1, Anyregion, but this is not complete enough to identify the property. Do not use the mailing address; for example do not use a PO Box number. Side of the Road on Which the Property Is Fronting Include the direction (north, east, south or west) of the side of the road that the property is fronting on. To determine the direction, stand facing the front of the house. The direction in which you are facing is the side of the road that the property is fronting on. Where the Property is Located Include the municipality and the geographic area where the property is located. Municipalities can be single tier, lower tier, or upper tier. If the property is in the lower tier, also include the upper tier. For example:  Single tier: City of Anycity  Lower and upper tier: Township of Anytownship, Region of Anyregion

©2019 Real Estate Council of Ontario

Lesson 1 | Page 13 of 29

Lot Size Specify the frontage and depth of the property in metric or imperial units. Verify the dimensions of the property by using a source document such as a survey, property tax bill, or notice of assessment. For irregularly shaped lots, include all of the lot dimensions, if known. If appropriate, attach the survey as a schedule to the agreement of purchase and sale. When the words “more or less” are preprinted on an agreement of purchase and sale, this allows for minor discrepancies that both parties are willing to accept. It does not replace the need for verification of the lot size. An Ontario land surveyor is qualified to provide accurate dimensions for a property. In some instances, a seller may be requested to provide an up-to-date survey. For example:

©2019 Real Estate Council of Ontario

And having a frontage of 19.76 meters more or less by a depth of 32.18 meters

more or less

The accuracy of the lot dimensions identified on an agreement of purchase and sale can have an impact on a transaction as demonstrated by the given examples involving a discrepancy in the property size. Example: More or Less – Seller Loses Claim for Damages A buyer was interested in purchasing a specific property with the intent to subdivide the lot. When viewing the property, the boundaries were not readily visible, as the lot line was not identified by any markings, such as a fence. The buyer agreed to purchase the property based on a lot size provided by the seller. The agreement of purchase and sale identified the property as having a depth of 180 feet more or less. After agreeing to purchase the property, the buyer discovered the actual depth of the property was only 154 feet, which would not allow for the lot to be subdivided. The buyer refused to complete the transaction. The seller later resold the property for less money and sued the original buyer for damages. The judge ruled against the seller’s claim for damages for two reasons: 1) since the boundaries of the lot were not apparent on inspection, the deficiency in the lot size is sufficient enough that it did not fall within the intent of the words "more or less"; 2) the exact measurement was an important aspect of the purchase to the buyer as the intent was to subdivide the lot. Example: More or Less – Seller Wins Claim for Damages A seller and a buyer negotiated an agreement of purchase and sale, however on the closing date, the buyer refused to complete the transaction claiming the property had been misdescribed in the agreement of purchase and sale. The lot size incorrectly stated the depth of the property as 138 feet when the actual depth was only 120 feet. The seller resold the property to another buyer for a lower price than agreed to with the first buyer, and sued the original buyer for the loss. The judge ruled in favour of the seller as the defendant (the original buyer) had the opportunity to view the property and see the actual size of the property. A contributing factor to the defendant losing was that the rear yard was bounded by a cedar hedge and so there was no deception as to the lot's true depth. These examples illustrate the importance of an accurate description of the lot size. For some properties, the lot size might be uncertain, for example an irregular-shaped lot. What can happen if you specify a dimension as “to be verified”?

©2019 Real Estate Council of Ontario

Lesson 1 | Page 14 of 29

Example: Lot Size – Depth “to Be Verified” The listing salesperson checked the municipal database for the dimensions of a property, which has an irregularshaped lot as the seller, had no survey. The database described the property as having a frontage of 87.64 feet and a depth of 0 feet. As a result of this information, the salesperson measured the property depth using a tape measure and listed it as 87.64 feet by 100 feet. The listing also identified the property was an irregular corner lot and the depth was to be verified. A buyer, who wanted to sever the property into two lots and build a house on each of the lots, submitted an offer to purchase the property. The offer was amended by adding the words “to be verified” by the description of the depth of 100 feet. The parties agreed to the sale and the buyer made a deposit of $100,000. However, the buyer later discovered the dimensions were too small and refused to close the transaction. Not only was the depth incorrect, but the frontage of 87.64 feet was also incorrect. The seller resold the property but refused to return the $100,000 deposit. The seller and buyer went to court to settle the deposit dispute. The court ruled the seller could keep the $100,000 deposit stating the words “to be verified” meant the buyer had accepted responsibility to be satisfied with the accuracy of the dimensions. The buyer appealed the decision and in the final judgement was granted a return of the full deposit plus costs. In the final judgement, the court ruled the words “to be verified” only meant the depth dimension of 100 feet had to be verified, and that it did not indicate the obligation was on the buyer to verify the information (i.e., the agreement of purchase and sale did not state “to be verified by the buyer”). The judge ruled the added wording to the agreement of purchase and sale indicated the accuracy of the lot size was not to be taken as a representation by the seller. As well, the “more or less” wording remained in the agreement which allows for some flexibility with the contract regarding the lot size discrepancy. However, it was deemed the discrepancy in this case was outside the “more or less” flexibility, thus allowing the buyer to receive the return of his deposit. This case could have been avoided if the dimensions had been verified with the deed, a land survey, or the plan of subdivision

©2019 Real Estate Council of Ontario

Lesson 1 | Page 15 of 29

Legal Description A legal description is used to identify a property and is required when transferring a title. As such, a legal description for the property being sold is necessary on the agreement of purchase and sale. The legal description is separate from the property’s address and can be obtained by reviewing primary documents such as the deed or survey. In cases where a primary document is not available, a secondary document, such as the property tax statement or property assessment notice could be used. As a salesperson, using a primary document is preferred. When drafting an offer, you should always verify the lot dimensions and legal description of a property. This practice will enable you to provide accurate information and prevent any problems. The legal description will also indicate any easements affecting the property. The property could be the dominant tenement (i.e., the property which is benefiting from the easement) or the servient tenement (i.e., the property that ©2019 Real Estate Council of Ontario

is subject to the easement). This would be indicated in the legal description along with the statement T/W (i.e., together with) for the dominant tenement, or S/T (i.e., subject to) for the servient tenement. In a residential transaction, most easements relate to utility and municipal services, or a right-of-way providing access. You learned about easements earlier. A legal description will contain one or more of these words and abbreviations along with an identifying number and the geographic location of the property:  BLK – Block  CON – Concession  LT – Lot  PCL – Parcel  PL – Plan  PT(S) – Part(s)  SEC – Section You learned about land descriptions earlier.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 16 of 29

Legal Description Examples Examples of legal descriptions include: Example 1: Lot 12, Plan 99M-5683, City of Anycity, Region of Anyregion In this example, the property is described as lot 12, the Land Registry Office is identified by the number 99, and the letter M identifies the plan of subdivision is registered under Land Titles. Plans are registered in sequential order, and this plan is registered as number 5683. Example 2: Part of Lot 15, Concession IV, Township of Anytownship, Region of Anyregion In this example, the property is located where there is no plan of subdivision registered. As a lot was typically 200 acres in size, this property is identified as being part of the lot which indicates it is less than 200 acres in size. In some instances, this legal description could identify a reference plan affecting the property which has been deposited at the Land Registry Office. If so, the legal description would be expanded to include that information. This legal description would be amended to read: Part of Lot 15, Concession IV, shown as Part 1 on 99R-8976, Township of Anytownship, Region of Anyregion In this example, the part identifies which part on the reference plan the property is identified as. This could include more than one part, or the reference plan could apply to more than one parcel of land. The Land Registry Office is identified by the number 99 and the letter R identifies this as a reference plan. Reference plans are deposited at the Land Registry Office in sequential order, and this reference plan is identified as number 8976.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 17 of 29

Obtaining a Legal Description from a Survey In this sample survey, the legal description for the property is located in the top left-hand corner: Lot 30, Plan 434 – Township of Silver, County of Gold. ©2019 Real Estate Council of Ontario

Lesson 1 | Page 18 of 29

Obtaining a Legal Description from a Reference Plan In this sample reference plan, the legal description for the property is located in the middle right-hand side: Part of Lot 2, Concession 1, shown as Part 3 on 99R-1033.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 19 of 29

How would you specify this property on the agreement of purchase and sale? There are four options. There is only one correct answer. 1 2 3 4

Fronting on the North side of Wilson Street Fronting on the East side of Wilson Street Fronting on the South side of Wilson Street Fronting on the West side of Wilson Street

©2019 Real Estate Council of Ontario

Lesson 1 | Page 20 of 29

Purchase Price The purchase price is how much the buyer is paying for the property on the completion date. When the transaction is completed, the amount of money required by the buyer, and the amount of funds ultimately received by the seller, will be adjusted. Details regarding the adjustments made when a transaction is completed are detailed in an upcoming module. When assisting a buyer with an offer to purchase, provide market research to help the buyer establish the purchase price. Of course, the buyer always has the final decision on what the offered price will be. For example: Purchase Price: Dollars (CDN$) 250,000.00 Two hundred and fifty thousand Dollars Ensure the words and numbers for the purchase price match.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 21 of 29

Purchase Price As an example, the given line from OREA Form 100 captures the purchase price in both words and numbers:

From OREA Form 100: Agreement of Purchase and Sale, Purchase Price ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 22 of 29

Purchase Price for Acreage/Frontage For some properties like a lot or farm, the purchase price could be based on other criteria. Example 1: A larger property being sold where the overall acreage is not verified, the purchase price could be identified based on the estimated size. The agreement of purchase and sale would be required to contain a clause identifying the purchase price is based on a specified price per acre (e.g., $7,000 per acre) and will be adjusted when a new survey has been completed. In this example, if the property was estimated at 50 acres, the agreement of purchase and sale would identify the purchase price as $350,000. Once a survey has been completed, the lawyers for the seller and the buyer will adjust the purchase price based on the terms agreed to of $7,000 per acre. Example 2:

©2019 Real Estate Council of Ontario

A lot that is yet to be severed and the exact size is not determined could be identified based on a price per front foot, or on a price per square foot. The purchase price would be identified based on the estimated size. The agreement of purchase and sale would be required to contain a clause saying the purchase price is based on a specified price (e.g., $1,000 per front foot) and will be adjusted once the severance has been approved. In this example, if the lot was estimated at 52.35 feet frontage, the agreement of purchase and sale would identify the purchase price as $52,350. The lawyers for the seller and the buyer will adjust the purchase price based on the terms agreed to of $1,000 per front foot. In addition to the purchase price on the agreement of purchase and sale, the buyer’s deposit is detailed.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 23 of 29

Deposit The deposit is an amount of money the buyer will pay prior to the transaction closing and is typically held in trust by the listing brokerage. The amount of the deposit is an indication of the buyer acting in good faith as a larger deposit shows a stronger commitment to completing the transaction. The deposit amount can vary based on market conditions, the purchase price of the property, the location of the property, and the amount a seller is willing to accept. As a salesperson, seek guidance from your brokerage for any concerns relating to a buyer’s deposit. The initial deposit is identified on page one of the agreement of purchase and sale with any deposit(s) detailed on a schedule. The agreement will identify that the deposit is paid by negotiable cheque, which means the cheque must be capable of being deposited and the funds are available. Buyers will typically provide this deposit by way of a cheque, money order, or bank draft. In some instances, a certified cheque could be required. The agreement of purchase and sale will also indicate when the buyer will submit the deposit. The given three options are provided:

©2019 Real Estate Council of Ontario

 Herewith – the buyer must submit the deposit at the same time as the offer  Upon Acceptance – the buyer must submit the deposit when the offer is accepted (an agreement of purchase and sale typically states that upon acceptance means within 24 hours of the offer being accepted)  As otherwise described in this Agreement – the buyer must submit the deposit according to a clause included on a schedule attached to the agreement Specify the amount in the same format as the purchase price using words and numbers. For example: Deposit: Buyer submits Ten thousand Dollars

upon acceptance (CDN $) 10,000.00

A deposit should not be confused with the buyer’s down payment. A deposit is any money paid by the buyer toward the purchase price prior to the transaction being completed. The buyer’s down payment is the equity invested into the purchase of the property, and includes any money paid as a deposit. For example, a buyer is purchasing a property for $250,000 and submits a $10,000 deposit upon acceptance of the offer. The buyer is obtaining a new mortgage for $175,000 and has sufficient funds to pay the balance of the purchase price. The buyer’s down payment is $75,000. The deposit of $10,000 is taken from the buyer’s down payment, not in addition to the down payment. On completion of the transaction, the balance of the purchase price is comprised of the new mortgage and the buyer’s remaining down payment of $65,000.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 24 of 29

Deposit As an example, the given statement could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Deposit ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 25 of 29

Deposit Clauses Added to a Schedule When a buyer’s deposit is to be submitted “as otherwise described in this Agreement”, a clause is added to identify when the deposit will be submitted. Use a definite number of days, for example, fourteen (14) days from the confirmation of acceptance date or a specific date, for example, 6:00 p.m. on the 24th of March 2019. Example 1: Specific Number of Days The buyer wants to submit a deposit a specific number of days after the offer is accepted. The agreement specifies “As otherwise described in this Agreement” and a clause is included on the Schedule A. Given is an example of a clause that addresses this requirement:

©2019 Real Estate Council of Ontario

The Seller and Buyer agree that the deposit will be submitted in the form of a bank draft or certified cheque to the Listing Brokerage within fourteen (14) days from the date of the Confirmation of Acceptance of this Agreement. Example 2: Deposit By Electronic Funds Transfer The buyer wants to make a deposit using an electronic funds transfer rather than by a bank draft or certified cheque. The agreement of purchase and sale requires a clause to be included on the Schedule A. Given is an example of a clause which addresses this requirement: In addition to any other provision in this Agreement or any Schedule thereto the parties agree that any deposit to be delivered by the Buyer to the Deposit Holder may be delivered by Electronic Funds Transfer (EFT) to an account designated by the Deposit Holder. Provided further that the buyer making the EFT shall, with respect to the said EFT, provide such information to the Deposit Holder as required by the Deposit Holder to comply with the requirements of the Real Estate and Business Brokers Act, 2002, as amended from time to time and or to comply with other relevant statutory requirements.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 26 of 29

Deposit Questions and Answers You will need to explain the requirements related to the buyer’s deposit while explaining the agreement of purchase and sale. Here are six questions and answers to help you prepare for that discussion. The following six sections contain the answer to each question.

How Can the Buyer Pay the Deposit?

Who Holds the Deposit?

The buyer can provide a cheque, bank draft, money order, or submit a deposit using an Electronic Funds Transfer (EFT). In some instances, a buyer may be required to submit a deposit by certified cheque. In this case, consider the timing of the deposit and whether the bank will be open for the buyer to obtain a certified cheque. For example, if the deposit is identified as “upon acceptance” the buyer is required to provide the certified cheque to the deposit holder within 24 hours of the offer’s acceptance. In a typical transaction, the buyer makes the deposit cheque payable to the listing brokerage; for example, ABC Real Estate Inc. The listing brokerage holds the deposit in trust pending completion or other termination of the agreement. Deposits held by a brokerage in the statutory trust account are covered under the RECO insurance program. Some circumstances may vary from the listing brokerage being the deposit holder. For example, the buyer might request their brokerage or lawyer hold the deposit. In those situations, seek guidance from your broker of record or manager.

When Are the Funds Deposited?

The Real Estate and Business Brokers Act (REBBA) requires that monies received by a brokerage be deposited into the brokerage’s statutory trust account within five business days of receipt. Receipt of the deposit by anyone employed by the brokerage is deemed to be receipt of the deposit. This includes a salesperson or any non-registered employee of the brokerage, such as an administrative person. Business days exclude Saturday, Sunday, and statutory holidays. The time limit of five business days is the maximum number of ©2019 Real Estate Council of Ontario

days. A salesperson who receives a deposit on behalf of the buyer should ensure the deposit is submitted to the deposit holder according to the terms of the agreement and at the earliest opportunity.

Does the Deposit Earn Interest?

How Can a Brokerage Return a Deposit?

Ensure buyers are aware a cheque must be negotiable (i.e., the funds must be available) when the deposit is made. Most agreements of purchase and sale stipulate that no interest shall be earned, received, or paid on the deposit. If the buyer makes another arrangement concerning interest, insert an appropriate clause on Schedule A. A brokerage is permitted to have an interest bearing trust account. If the buyer’s deposit is to be placed into an interest bearing trust account, a brokerage is required to disclose in writing the interest rate that the brokerage receives on the money. If there is a difference between the interest generated by the account and the interest paid by the brokerage to the individual, the brokerage must obtain consent. A clause can be included on a schedule to the agreement of purchase and sale that obtains the consent of the seller and buyer regarding any deposit interest. Once a deposit has been placed in the brokerage’s real estate trust account, there are regulations regarding the disbursement of the deposit. For example, if a deposit is identified as “herewith” and the deposit was placed into the brokerage’s trust account, but the offer was never accepted, the brokerage can refund the deposit to the buyer without any documentation signed by the seller and buyer. In this instance, a brokerage would retain a copy of the unaccepted offer to show why the funds were deposited and disbursed. For example, if an accepted agreement of purchase and sale contains a condition for the benefit of the seller or buyer, and the condition cannot be fulfilled or waived, this results in the offer becoming null and void. The brokerage must receive written, signed direction from the seller and buyer relating to the return of the deposit, prior to disbursing the deposit from the trust account.

©2019 Real Estate Council of Ontario

Additional information relating to the return of a buyer’s deposit and the required documentation is detailed in a later module.

How Must Receipt of a Deposit be Documented?

A brokerage has various obligations when documenting the receipt of a buyer’s deposit. A listing brokerage will typically provide a receipt to a co-operating brokerage when the deposit has been received. The receipt of the deposit will be documented in the trust ledger when placed into the brokerage’s statutory trust account. A brokerage also has obligations under the Federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act relating to a buyer’s deposit. Information regarding the requirements under FINTRAC are detailed in a later module.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 27 of 29

A salesperson needs to explain the requirements and conditions of a deposit when reviewing the agreement of purchase and sale with a seller or buyer. Which of the following statements are true with respect to deposits? There are five options. There are multiple correct answers. 1 2 3 4 5

A minimum deposit of 5-10% of a property’s purchase price is required. A buyer can make a deposit using an electronic funds transfer provided a clause allowing for electronic funds transfer is added to the Schedule A of an agreement of purchase and sale. REBBA requires that deposit monies received by a brokerage be deposited into the brokerage’s statutory trust account within three business days of receipt. The choice the buyer makes for submitting the deposit is typically provided in the agreement of purchase and sale. The buyer typically makes the deposit payable to the listing brokerage.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 28 of 29

Buyer Agrees to Pay the Balance An agreement will identify the purchase price and deposit, and will contain a clause stating the buyer agrees to pay the balance set out on a schedule attached to the agreement. You will learn more about the details relating to the balance due by the buyer later. A schedule will be required for all agreements of purchase and sale and is used to identify the terms agreed to by the parties. There are various schedules that can be attached, such as those required for complex legal descriptions, detailed lists, and additional clauses. When including additional schedules, make sure of the given points:  Identify schedules sequentially; for example, A, B, C, D, etc.  Ensure all parties to the agreement have initialled each schedule  Attach all schedules in the same sequential order as listed; for example, A, B, C, D, etc.  Ensure each schedule has enough information to be able to connect it to the correct agreement of purchase and sale ©2019 Real Estate Council of Ontario

Lesson 1 | Page 29 of 29

Congratulations, you have completed the lesson! There are six sections on this page with a summary of the key topics that were discussed in this lesson.

Date of Offer

Legal Sellers and Buyers Names

Real Property

The date identified on an agreement of purchase and sale as the offer date is when the offer is drafted and usually when the party making the original offer first signs. The date would not change as the offer is addressed by the other party. The date of the offer will also be referred to on any attached schedule or additional traderelated documents. Use the full legal names of the seller and buyer. Verify ownership and the names of the parties using the appropriate documentation. Other considerations for seller and buyer names include:  Corporation  Partnership  Estate Trustee  Power of Attorney Ensure proper documentation is obtained for each. To ensure the correct property is being transferred, the given information is included in an offer:  Municipal address  Side of the road the property fronts on  Municipality  Lot size  Legal description including easements Ensure the property description is accurate.

©2019 Real Estate Council of Ontario

Purchase Price Deposit

Payment of Balance

Make sure you verify details using source documents. The purchase price is the total money the seller is to receive in return for transferring the title on the completion date. When indicating this on the offer, ensure the numbers and words for the purchase price match. A deposit is any money paid by the buyer prior to the transaction closing. The amount is identified in both words and numbers. The deposit can be paid:  Upon acceptance of the offer  Herewith the offer  As otherwise described in the offer The amount of the deposit can vary according to jurisdictions and there is no minimum amount. However, a deposit is often deemed to be a sign of good faith indicating the buyer’s intent to complete the transaction. The offer will specify how the balance of the purchase price will be paid by the buyer. Ensure that the balance due is accurate based on the purchase price, any deposits and the type of financing, if any.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 1 of 36

Lesson 2: Clauses Typically Included in a Residential Agreement of Purchase and Sale – Part 1 This lesson describes the given clauses: irrevocability, completion date, chattels included, fixtures excluded, rental items, Harmonized Sales Tax (HST), title search, future use, and title.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 2 of 36

This lesson continues to explore a residential agreement of purchase and sale. This is the first of two lessons which detail the pre-set clauses typically included in an agreement. Understanding these clauses, and explaining their intent and ramifications to a seller or a buyer, is an important role you, as a salesperson, will have. Once signed, the seller or the buyer is bound to the terms of the agreement of purchase and sale. Your obligations under REBBA are to ensure your party understands the agreement prior to signing. Upon completion of this lesson, you will be able to identify and explain the clauses typically included in an agreement of purchase and sale. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 3 of 36

Irrevocability An agreement of purchase and sale must identify the time limit for acceptance by the other party. This is known as the irrevocability of the offer and there is no minimum irrevocable required, but the time should be reasonable. The party making the offer should be advised the agreement is being signed under seal which results in the individual being bound to the offer until the stated time and date. If the offer is not accepted within the time period, the offer becomes null and void and any deposit submitted by the buyer is returned. The irrevocability must address three items:  Party making the offer  Time limit  Consequences of failure to achieve an accepted offer

©2019 Real Estate Council of Ontario

Many aspects of the irrevocable clause are based on contract law. For example, an essential element of a contract requires both offer and acceptance. Two of the requirements for acceptance is the offer must be open for acceptance for a reasonable period of time and the acceptance must be communicated to the person making the offer within the time required. Contract law was detailed in an earlier module. The person making the offer has the right to specify the length of the irrevocable time. The irrevocable period can be an integral part of any negotiations. For example, a reduced amount of time for the seller to consider a buyer’s offer can limit the seller’s ability to obtain another competing offer. As a salesperson, ensure the party making the offer fully understands their obligations associated with the irrevocable period. Negotiate a reasonable time period based on current market conditions, and the specifics of the offer and the parties, to allow for informed decisions to be made within the required time period. If a dispute arises regarding the offer or acceptance, advise the parties to refer the matter to their respective lawyers.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 4 of 36

Irrevocability Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Clause 1: Irrevocability ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 5 of 36

Specifying Irrevocability The irrevocability of the offer identifies the time and date the party making the offer is bound to the offer. A specific time and date must be identified, which is known as the irrevocable period. The following three sections contain information on the three items you will specify in the Irrevocability clause.

Party Making the Offer

This identifies who the offer is being made by, rather than who the offer is being made to. Select either the seller or the buyer as the party making the offer. For example: A buyer submits an offer and the purchase price is $250,000. The Irrevocable clause identifies the offer is being made by the buyer. The seller does not want to accept the offer, but is willing to sell the property for $255,000. In this case the seller is making an offer to the buyer. This would require changes to the offer, including the irrevocability; strike out the word buyer and insert seller in the Irrevocability clause.

Time Limit

The time limit is the specific time and date the party making the offer is bound to the offer. The other party has only until this time to accept the offer and communicate that acceptance back to the other party. For example, until 8:00 p.m. on the 22nd day of June 2019. After this time, the offer may no longer be accepted. The offer has expired and the party making the offer is free to transact with another party.

Consequences of Failure to Achieve an Acceptance

The irrevocability identifies the status of the offer if it is not accepted. The words “after which time, if not accepted, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without interest” would identify what the parties agree to. What this wording means is if the offer is not accepted, the offer automatically expires and is considered rejected by the other party.

©2019 Real Estate Council of Ontario

The consequences of the expired or rejected offer are the same:  The offer becomes null and void  The deposit returns to the buyer in full without interest

©2019 Real Estate Council of Ontario

Lesson 2 | Page 6 of 36

Completion Date The completion date, also known as the closing date, is the date set for the transfer of title from the seller to the buyer. The date selected is important for a seller and a buyer as this could become part of the negotiations. The date selected also impacts their respective lawyers as there are tasks and due diligence to be completed in advance of this date. Although transactions are completed electronically, the completion date cannot be a day that the Land Registry Office is closed (Saturday, Sunday or a statutory holiday). When a transaction is completed, the buyer is provided vacant possession of the property unless otherwise agreed to in the agreement of purchase and sale. The actual transfer of title could occur at any time during the day, and no later than 6 p.m. Additional information regarding the closing of a transaction is detailed in a later module. ©2019 Real Estate Council of Ontario

Lesson 2 | Page 7 of 36

Completion Date Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Clause 2: Completion Date ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 8 of 36

Completion Date – Tenanted Property The wording of the Completion Date clause specifies that vacant possession will be given to the buyer unless otherwise provided for in the agreement. In the case of a tenanted property being sold, as a salesperson, you will need to consider the impact of the completion date clause when selecting the date. If the buyer is not occupying the property, a clause is required to address the fact that vacant possession will not be provided and the buyer agrees to assume the tenancy. If the buyer requires vacant possession, the completion date must not conflict with the requirements for notice under the Residential Tenancies Act (RTA). If the tenancy is month to month, a tenant must receive a 60-day written notice to vacate. A 60-day notice means at least 60 days from the

©2019 Real Estate Council of Ontario

date on which the rent is paid. If the tenancy is within the term of a lease, the notice to vacate cannot be effective any earlier than the end of the term. Example – Month-to-Month Tenancy A tenant is on a month-to-month tenancy and rent is paid on the first day of the month. An offer to purchase the property indicates a completion date of June 30 and the buyer requires vacant possession. The tenant must receive written notice prior to May 1 and must vacate the property no later than the end of day on June 30. A problem providing vacant possession would occur if the seller accepted an offer on May 10 with a completion date of June 30. The tenant has the right to stay until July 31 based on the timing of the notice. If the buyer agrees to delay their occupancy of the property until the tenant later vacates, but still requires the completion date of June 30, then this should be clearly indicated on the agreement of purchase and sale. Example – Annual Lease A tenant has a lease which expires on November 30. An offer to purchase the property indicates a completion date of June 30. The buyer cannot be provided vacant possession as the tenant has the right to occupy the unit until the end of the lease term. On the agreement of purchase and sale, the buyer must agree to assume the tenancy. The buyer would then provide the notice to the tenant no later than September 30 to vacate and to obtain occupancy of the unit at the end of the lease term. The agreement of purchase and sale would require a clause added to the schedule stating the buyer agrees to assume the tenancy and vacant possession will not be provided. Should the clause not include the statement that vacant possession will not be provided, the added clause identifying the buyer will assume the tenancy will override the pre-set wording of the Completion Date clause. This will be further detailed in Lesson 3 when the clause “Agreement in Writing” is explained. As a salesperson, you will need to be familiar with the requirements of the Residential Tenancies Act as this could impact the decisions of a seller or a buyer, or how an agreement of purchase and sale is completed. Additional information regarding the sale of a property that is tenanted is detailed in a later module.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 9 of 36

The completion date for a sale is stated as Saturday, December 14, 2019. Which of the following statements is false? There are four options. There is only one correct answer. 1 2 3 4

The completion date would cause a problem, as the transaction must be completed on a day when the Land Registry Office is open. The completion date describes the date when the seller signs the agreement of purchase and sale to sell the property to the buyer. The completion date is often used as part of the negotiations. The date selected impacts the lawyers of both seller and buyer as there are tasks and due diligence to be completed in advance of this date.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 10 of 36

Notices At various times throughout a transaction, notices related to an offer may need to be given or received by the seller or the buyer. Notices can include any documentation connected to the transaction. Under a seller and a buyer representation agreement, the brokerage is typically provided the authority to give and receive notices on behalf of the seller or the buyer. On the agreement of purchase and sale, the authority granted to the brokerage is referenced and allows information to be included to identify a facsimile number or email address where a notice may be sent. Once the notice has been sent electronically to the facsimile number or email address, it is deemed the seller or the buyer has also received the notice, and any signature on the document is deemed to be original. If a notice is not faxed or emailed, the notice is deemed received once it has been delivered personally or handdelivered to the seller’s or the buyer’s address for service provided in the agreement of purchase and sale. Under multiple representation, or a customer service agreement, a brokerage is not authorized to act on behalf of the seller and the buyer for the purpose of giving and receiving any notice. In these instances, the notice is not deemed received until the seller or the buyer receives the notice. This could be done by inserting the seller’s or the buyer’s

©2019 Real Estate Council of Ontario

information in the facsimile or email address portion of the clause, or by delivering the notice to the party’s address for service. IMPORTANT: When sending a notice by fax, print a confirmation that the transmission was sent. This would include the time and date, the facsimile number sent to, and the number of pages sent. This will confirm the notice was sent and received. If sending a notice by email, ensure you are using the correct email address. If delivering a document that must be received within a required time period, verify the recipient has received the document. In many instances, the salespersons involved in the transaction will have verbal communications throughout this time period. However, it is always preferred to have written confirmation that the notice was received.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 11 of 36

Notices Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Clause 3: Notices ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 12 of 36

A notice clause legally appoints brokerages for the seller and buyer to be able to give or receive notices relating to the agreement on their behalf. Which of the following statements are true related to the notice clause? You may assume the OREA form 100 is being used. There are five options. There are multiple correct answers. 1 2 3 4 5

The clause allows a brokerage representing both the seller and buyer to send and receive notices on their behalf by fax or email. The clause indicates that a notice could be delivered by fax and/or by email providing a fax or email is provided in the agreement. The clause specifically states that a notice cannot be delivered in person to a brokerage, seller or buyer. A notice can be hand delivered to the address for service provided for in the agreement of purchase and sale. A good practice is to always verify delivery of a notice however sent.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 13 of 36

Chattels, Fixtures, and Rental Items When buyers are purchasing a property, they may note some items owned by the seller which they would like to have included in the purchase price; for example, a refrigerator, stove, hanging mirrors not permanently attached, patio furniture, etc. These items are known as chattels and a buyer must request these in the agreement of purchase and sale, otherwise no chattels remain when the transaction is completed. Other items such as lighting fixtures, or any built-in appliance or furniture, are known as fixtures and are to remain with the property unless excluded in the agreement of purchase and sale. A last category to understand and be aware of is any rental items on the property, such as a hot water tank. The following three sections contain information on chattels included, fixtures excluded, and rental items.

Chattels Included

From OREA Form 100: Agreement of Purchase and Sale, Clause 4: Chattels Included ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

A chattel is a personal possession that is a moveable object that can be removed from the property without damage. In a residential transaction, common chattels a buyer may ask to be included in the offer are various pieces of furniture, appliances, rugs, hanging mirrors not permanently attached, yard equipment, garage door remotes, etc. Chattels are excluded from the purchase price unless they are specifically noted in the agreement of purchase and sale. When listing an item to be included in the agreement, be as specific as possible by listing a detailed description.

©2019 Real Estate Council of Ontario

For example: Easywash Cyclone Washer–Model 300A Serial Number XXXXX and Dryer–Model 300B Serial Number YYYYY When in doubt if an item is considered a chattel or a fixture, include the item in the clause identifying chattels included to ensure the parties understand the item is to remain. If there is a lengthy list of chattels, attach a schedule to the agreement.

Fixtures Excluded

From OREA Form 100: Agreement of Purchase and Sale, Clause 5: Fixtures Excluded ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

A fixture is an object that is to some degree, permanently attached to the property. Fixtures are included in the purchase price unless the agreement of purchase and sale specifically excludes the item. When listing a property for sale, a discussion with the seller identifying items that will be included or excluded will help prevent problems when an offer is received. Problems arise more from confusion and incomplete documentation than from wrongful intent of the seller. As a salesperson, encourage sellers to remove or replace any fixture to be excluded prior to the property being shown to prospective buyers. Never make assumptions. Clearly identify items that are included and excluded from the sale. In a residential transaction, common fixtures a seller may ask to be excluded from the sale are ceiling or wall lighting fixtures (e.g., an imported chandelier), any

©2019 Real Estate Council of Ontario

item that has sentimental value, (e.g., a light fixture that is a family heirloom), ceiling fans, specialized equipment installed in the home, etc.

Rental Items

From OREA Form 100: Agreement of Purchase and Sale, Clause 6: Rental Items ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

A rental item may potentially require a buyer to assume the rental or lease, or require a seller to terminate the contract if it cannot be assumed by the buyer. Traditionally, rental items included hot water tanks, water purification equipment, propane tanks, satellite receivers, and alarm systems. However, in more recent years, furnaces and air conditioning units have become more common as a rental item, or on a lease-to-own contract. Check with the seller regarding assumability of any rental equipment and be able to explain the implications of such with the buyer. The agreement of purchase and sale must describe any item where the buyer is agreeing to assume the rental contract. If the buyer cannot assume the rental contract, the seller must take one of the given actions:  Remove such equipment  Perform requirements set out in the rental agreement, such as the required buyout prior to the end of the lease term  Prior to listing the property, ensure the seller understands any obligations to pay out a contract. In some instances, this contract must

©2019 Real Estate Council of Ontario

be paid prior to the transaction being completed  Carefully detail rental arrangements wherever possible and provide details in the agreement of purchase and sale to identify the estimated costs associated with the rental item Example: Rental hot water tank, Union Energy, currently $36.40 monthly rental. Descriptions may be more complex depending on circumstances such as rent-to-own contracts and shared rental/ownership plans. Failure to accurately identify items not owned could result in the item not remaining when the transaction has closed, or the buyer being responsible for a lease/rental payment they were unaware of. As a salesperson, ensure the agreement of purchase and sale is properly completed and all sellers and buyers understand any obligations.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 14 of 36

A buyer wants to make an offer on a property that had a dining room containing a beautiful chandelier and a very attractive dining room table and chairs. The buyer would like the chandelier and dining room furniture included in the purchase price. What does the salesperson need to do to ensure the dining room furniture and chandelier remain with the property? There are four options. There is only one correct answer. 1 2 3 4

Nothing–they are all included as fixtures. Ensure the chandelier is listed in the Fixtures Excluded section of the agreement of purchase and sale. Nothing–anything that the buyer sees on the property during the showing is deemed included in the purchase price. List all the furniture wanted in the Chattels Included section of the agreement of purchase and sale and ensure the chandelier is not listed in the Fixtures Excluded section.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 15 of 36

HST The Canada Revenue Agency collects Harmonized Sales Tax (HST) on new home purchases. Typically the HST does not apply to resale residential properties where the home has been used only for residential purposes. If the home was used partially for commercial purposes, HST would apply on the percentage of the property used for the commercial purposes. However, if a resale home has been substantially renovated, or a home was rebuilt that was destroyed by fire, it may be treated as a new home for the purposes of charging HST on the sale. A portion of the HST paid is eligible for an HST rebate. The HST clause allows for a salesperson to insert one of two phrases that identifies who will pay in the event the transaction is subject to HST.

©2019 Real Estate Council of Ontario

Included In When the HST is 'included in' the purchase price, the seller is at risk and would be responsible for payment, this places the risk on the seller should the property be subject to HST. In a residential resale transaction, the HST would be included in the purchase price. If the property is not subject to HST, the seller must certify this before the transaction is completed. This would be done by the seller and their lawyer. As a salesperson, you would ensure the seller is aware of any obligations to pay HST if the words “included in” are used on the agreement of purchase and sale. In Addition To When the HST is 'not included' in the purchase price, the onus to pay the HST is the buyer’s responsibility. This indicates that any HST owed on the sale of the property must be paid by the buyer in addition to the purchase price. This is seldom used in a residential agreement of purchase and sale for a resale home; however, it is the preset wording used for a commercial agreement of purchase and sale. You need to be aware of basic procedures while appreciating that HST rules are complex. Advise sellers and buyers to seek expert advice regarding HST, such as with their lawyer and accountant. An appropriate condition may be required to override the pre-set clause if HST issues arise during negotiations. Example: HST Applicable on a Resale Residential Property A seller operating a day care business from the residential home lists their property for sale with the brokerage. The salesperson advises the seller that the business being operated from the home would likely cause HST to be applicable on a portion of the sale price. The salesperson advises the seller to seek expert advice. Before the seller is able to meet with their lawyer and accountant, an offer is received from a buyer who is being represented by a co-operating brokerage. The offer indicates HST is “included in” the purchase price. The listing salesperson advises the seller of the implications of the clause and recommends the offer be amended to allow the seller an opportunity to obtain independent advice prior to a binding agreement. The listing salesperson adds a clause to the agreement of purchase and sale allowing the seller three days from acceptance of the offer to confirm their obligations to pay HST.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 16 of 36

HST Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Clause 7: HST ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 17 of 36

Harmonized Sales Tax (HST) typically doesn’t apply to the resale of residential homes. The HST clause allows a salesperson to insert one of two phrases to identify who will pay HST if the transaction is subject to HST. Which of the following statements are true about applying HST? There are six options. There are multiple correct answers. 1 2 3 4 5 6

When HST applies, inserting the phrase “included in” in the HST clause places the cost of paying any HST on the seller. HST applies only to new home purchases. Salespersons should determine whether HST applies. When HST applies, inserting the phrase “in addition to” in the HST clause places the cost of paying any HST on the buyer. If the home was used partially for commercial purposes, HST would apply on the percentage of the property used for the commercial purposes. If a resale home has been substantially renovated, or a home was rebuilt that was destroyed by fire, it may be treated as a new home for the purposes of charging HST on the sale.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 18 of 36

Scenario A residential property has a tenant on a month-to-month lease. A buyer has agreed to purchase the property and requires vacant possession as they plan to live in the property. Which clause on the agreement of purchase and sale should you review to avoid a conflict with the requirements of the Residential Tenancies Act (RTA)? There are four options. There is only one correct answer. 1 2 3 4

HST clause Notices clause No clauses are impacted Completion date clause

©2019 Real Estate Council of Ontario

Lesson 2 | Page 19 of 36

Title Search A title search is completed by the buyer’s lawyer within a specified time period prior to the completion of the transaction. The lawyer will examine the title to the property to ensure the seller’s interest in the property can be transferred, identify any easements affecting the property, and search for any mortgages or other encumbrances, such as a lien for property taxes not paid. A title search will also confirm the property’s legal description and the name(s) of the registered owner(s). As a salesperson, the agreement of purchase and sale will require you to insert a date for completion of the title search. This date is referred to as the Requisition Date and should not be a Saturday, Sunday, or statutory holiday.

©2019 Real Estate Council of Ontario

The time limit should extend beyond any conditions inserted in the agreement so the buyer does not incur any expenses should the offer become null and void due to conditions not being met. The buyer’s lawyer does a title search at the Registry Office, which could uncover two types of title objections: 1) Root of title objection – this relates to fundamental title issues; for example, an old mortgage still registered against the property. The seller’s lawyer would be required to ensure the lender is paid in full, or if already paid, have a discharge of the mortgage registered on title. 2) Matters of title objection – this involves title issues that the seller does not have the right or authority to remove. For example, a right-of-way is granted to another party and is registered on the title. If found, the buyer’s lawyer must report these title objections to the seller’s lawyer prior to the Requisition Date. Resolution of these issues requires the involvement of both lawyers. To help ensure the closing date does not need to be delayed so any objections can be dealt with, the Requisition Date should be a reasonable time period after any conditions in the offer are completed and generally no later than two weeks before the scheduled completion date. In addition to searching the title, the buyer’s lawyer will also complete non-title searches. The agreement of purchase and sale will provide for a second date for matters such as outstanding work orders, deficiency notices, confirmation that the present use of the property is permitted under the zoning bylaw, and whether fire insurance on the principal building can be obtained. The clause stipulates two options for determining this second date, the earliest of which applies: 1. Thirty days from the Requisition Date or the date on which the offer conditions are fulfilled or waived, whichever is the later date, or 2. Five days before closing

©2019 Real Estate Council of Ontario

Lesson 2 | Page 20 of 36

Scenario – Identifying the Date for Non-title Searches An offer has been prepared which indicates a closing date of August 30. Today is June 1 and conditions in the agreement of purchase and sale are to be fulfilled or waived by June 10. The offer specifies a Requisition Date of August 15, about two weeks before closing. Question: Until what date does the buyer’s lawyer have to do the non-title searches? Recap The date required for the non-title searches is the earlier of 1 or 2: 1. Thirty days from whichever one of these two dates is later:  Requisition Date, or  Date conditions are fulfilled/waived 2. Five days before closing For this scenario which is the earliest date between 1 and 2? 1. Thirty days from whichever one of these two dates is later: ©2019 Real Estate Council of Ontario

 Requisition date: August 15 + 30 days = September 14  Date conditions are fulfilled/waived: June 10 + 30 days = July 10 The later date for this option is September 14 2. Five days before closing: August 30 – 5 days = August 25 Answer: The non-title searches must be complete by August 25. In this scenario, the buyer would have five days before closing for any problems to be corrected and still complete the transaction on August 30. As a salesperson, ensuring the Requisition Date is a reasonable time prior to the completion date will allow for sufficient time prior to completing the transaction to discover and correct any title or non-title issues. Additional information on title searches and the role of a lawyer to complete a transaction are detailed in a later module.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 21 of 36

Title Search – Identifying the Present Use The buyer’s lawyer, when completing the non-title searches, will confirm the zoning for the property. This will allow the lawyer to assess whether the present use may be lawfully continued by the buyer. To assist the lawyer in completing this due diligence, the agreement of purchase and sale allows for the present use of the property to be identified. For example, a resale residential property could state “single-family residential” as a description of the present use. At all times, insert the present use of the property, not the zoning designation (For e.g., do not insert R1 Residential). The zoning designation may conflict with the present use of the property, which could impact the buyer’s ability to lawfully continue the use. Although the present use of the property is not legally required to be inserted into the agreement of purchase and sale, a leading practice is to complete the field to ensure the lawyer can fully complete their investigation into the legality of the use. Should the present use not be identified, the wording allows for the buyer to ensure the present use currently being carried on by the seller is legal. If it is not legal, the buyer may be able to use the present use as an objection to completing the transaction. Example: A property is presently being used as a two-family dwelling and the buyer wishes to continue the use once ownership is taken. The title search clause in the agreement of purchase and sale has not been completed with a description of the present use. The buyer’s lawyer, when completing a zoning search, verifies the allowable use under the zoning designation is restricted to a single family dwelling. In this instance, because the present use has not been identified, the lawyer would be required to confirm with the buyer or the salesperson what the present use of the property is. If the lawyer were not to confirm this, but rather was to assume the present use was a single family dwelling, then the buyer’s interests would not be protected. After the transaction closes, the buyer will discover that he will not be able to legally continue the use. Had the agreement of purchase and sale identified the present use as “two-family dwelling”, the lawyer would be provided the required information needed to assess the buyer’s ability to lawfully continue the use.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 22 of 36

Title Search Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Clause 8: Title Search ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 23 of 36

Future Use There are times when a buyer will purchase a property with the intent of changing the existing use. Approval to make a change will be impacted by the present zoning for the property. An agreement of purchase and sale will take this potential change to the future use of the property into consideration by including an acknowledgement that the seller and buyer understand there is no representation or warranty of any kind that the future intended use of the property by the buyer is or will be lawful. If the buyer intends to use the property for a purpose other than continuation of the present use, a condition should be inserted into the agreement of purchase and sale allowing the buyer the opportunity to investigate the potential for a re-zoning, or confirm the present zoning would allow for the intended use. Example: A buyer is seeking to purchase an investment property and is shown a large, older, single family dwelling which has the potential to be redeveloped into two or more self-contained rental units. The salesperson is aware of the buyer’s intent to change the use, and inserts a condition into the agreement of purchase and sale allowing the buyer a specified amount of time to confirm the future intended use is allowed under the present zoning. Should it not be allowed and a rezoning of the property is required, the buyer may elect not to purchase the property. By including the condition, the buyer is allowed time to complete the required due diligence as the agreement of purchase and sale does not provide any representation or warranty that the future intended use is lawful.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 24 of 36

Future Use Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Clause 9: Future Use ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 25 of 36

A buyer is seeking to purchase an investment property and is shown a large single family home with the potential to be redeveloped into two self-contained rental units. The buyer asks the salesperson to draft an offer for the property. The salesperson is aware of the buyer’s intent to change the use, and inserts a condition into the agreement of purchase and sale to protect the buyer. What is the purpose of the future use clause? There are four options. There is only one correct answer. 1 2 3 4

To provide a warranty as to what future uses of the property are legal or illegal To allow the buyer a specified amount of time to investigate the future potential for a re-zoning, or confirm the present zoning would allow for the intended future use To allow the buyer to warrant that the intended future use of the property will be legal at the time of closing It is an acknowledgement that there is no representation or warranty by the seller that the intended future use of the property by the buyer is or will be lawful

©2019 Real Estate Council of Ontario

Lesson 2 | Page 26 of 36

Title Search Clauses - Potential Items Discovered During a Title Search The buyer’s lawyer, while completing a title search for the property, is advised by the wording of the title clause that the title being provided to the buyer will be good and free from restrictions, charges, liens and encumbrances except for the given potential matters. The following four sections contain information on potential matters related to title.

Specific Items in the Agreement

Items specifically set out in the agreement, such as an existing mortgage being assumed.

Registered Restrictions or Covenants

Registered restrictions or covenants which are complied with.

The mortgage will not be discharged and title will show this registered mortgage when ownership is transferred as the buyer is assuming the seller’s mortgage.

This statement identifies the buyer is obligated to accept title to the property with these restrictions or covenants, regardless of whether the buyer has been informed of these, or if the seller is currently complying with the restriction or covenant. Examples include restrictions to parking recreational vehicles in the driveway, limitations to house size or exterior finish, permitted use of the property (e.g., a restriction to use the property for a business activity, even though the zoning bylaw permits the use), erecting of a fence, etc. Should the buyer wish to use the property in any manner different from the seller’s current use, the agreement of purchase and sale should contain an appropriate condition allowing the buyer time to have the matter investigated. For example, the buyer wants to erect a fence in the backyard that is currently not fenced, but surrounded by a cedar hedge. The salesperson includes a condition in the buyer’s offer allowing for time to complete the

©2019 Real Estate Council of Ontario

Minor Easements

required due diligence and gain approval regarding the fence. Should a fence not be permitted, the buyer would not be obligated to continue with the purchase of the property as a condition had been included in the agreement. If no condition is included, the lawyer will identify the restriction when completing the title search, but the buyer would not be allowed to terminate the agreement because of this. Minor easements for the supply of utilities and telecommunication services for the property or adjoining properties. As many properties can contain these easements, the wording is intended to avoid frivolous title objections regarding usual utilities servicing residential properties.

Easements That Do Not Impact Property Use

Easements such as drainage, sewer, utility lines, etc. that do not materially affect the property, meaning that the easement does not impact the use of the property. For example, the easement could include a drainage culvert underneath the driveway. This would not be an allowable objection to title as the assumption is the easement will not impact the buyer’s ability to enjoy the property. The size and location of the easement would be criteria used to determine whether the easement is minor, or if it materially affects the use of the property. Should the easement materially affect the use of the property, the buyer can use this as an objection to title. If the property is subject to an easement for any reason other than drainage, sewer, utilities, and telecommunication (i.e., those reasons specified in the preset clause), the buyer must be made aware of that easement and accept the easement. Otherwise, when the easement is discovered during the title search, the buyer can use that as an objection to title. For example, during the title search, the buyer’s lawyer discovers the property is subject to a right-of-way to provide another property owner access to the lake. As this was not disclosed to the buyer, the buyer could use this as an objection to title and terminate the agreement. As a salesperson, any easement affecting the property, whether minor in nature or one that could materially affect the use of the property, should be disclosed to the buyer prior to submitting an offer, and then an acknowledgement accepting the easement should be included in the agreement of purchase and sale.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 27 of 36

Title The buyer is deemed to accept the title unless a valid objection has been provided by written notice to the seller. This would occur by the buyer’s lawyer providing a written notice to the seller’s lawyer. If the objection cannot be remedied or removed (i.e., an easement providing a right-of-way cannot be terminated), or if the seller is unwilling to resolve the objection (e.g., high cost to remedy), the agreement is at an end and the buyer’s deposit is returned. The seller, brokerage(s) and salesperson(s) are not normally liable for any costs or damages. In some instances, title insurance can be obtained to remove, remedy, or satisfy an objection. Additional information on title insurance is detailed in a later module.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 28 of 36

Title Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Clause 10: Title ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 29 of 36

Documentation Review Related to Title While the lawyers are retained to investigate and address any title issues, as a salesperson, you can review certain documents to help ensure the seller and the buyer are aware of any potential conflicts that could impact a transaction. The following three sections contain information on different documents related to title.

Source Documents

Property Disclosure Form

While a salesperson is not responsible for title issues, they can assist by reviewing the deed and asking the seller specific questions at the point of listing the property. This will help identify any significant issues that may affect the property, such as a large drainage easement, a right-of-way such as a shared driveway, or any restrictions or covenants registered on title. Any easements, restrictions or covenants should be fully disclosed on a listing and a buyer should be advised of these prior to submitting an offer. An appropriate clause documenting the buyer’s acknowledgement of the disclosure should be included in any offer. If completed by the seller, a property disclosure form can be useful in identifying any title related issues. If title problems or concerns arise, it is important to direct both sellers and buyers to seek advice from their lawyer. The Code of Ethics requires a salesperson to disclose to every interested buyer, the existence of any property disclosure form completed by a seller intended for a buyer’s use. Upon request, the buyer is to be provided a copy at the earliest opportunity. A salesperson representing a seller, would identify the existence of the disclosure form on a listing. A buyer’s salesperson would then be advised of its existence, and should request a copy prior to showing the property so the document could be referenced during the viewing.

©2019 Real Estate Council of Ontario

Buyer Plans/Uses

If a buyer plans to make a change to the property; for example, construct an addition on the home which will increase the overall square footage, it is important for the salesperson to exercise caution. The property renovation could result in the size exceeding the restrictions in the zoning bylaw. The pre-set wording provides that the buyer must accept title if registered restrictions are complied with. The existing home complies, however the renovated one will not. In such instances, an appropriate condition is required to allow the buyer time to seek legal advice on the matter.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 30 of 36

A buyer is shown a property that has a frontage of 100 feet and a depth of 200 feet. The house on the property is currently used as a single family residence. The seller provides no disclosure regarding any easements or restrictions. The buyer places an offer, which is accepted. The offer does not acknowledge any easement or restrictions. During the title search, the lawyer finds two easements, a restriction and an encumbrance. The buyer must accept an easement in favour of Bell Canada along the rear of the property line that is 10 feet in depth. Identify if the statement is true. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 31 of 36

A buyer is shown a property that has a frontage of 100 feet and a depth of 200 feet. The house on the property is currently used as a single family residence. The seller provides no disclosure regarding any easements or restrictions. The buyer places an offer, which is accepted. The offer does not acknowledge any easement or restrictions. During the title search, the lawyer finds two easements, a restriction and an encumbrance. The buyer must accept an easement for a sewer line along the west lot line that is 5 feet in width. Identify if the statement is true. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 32 of 36

A buyer is shown a property that has a frontage of 100 feet and a depth of 200 feet. The house on the property is currently used as a single family residence. The seller provides no disclosure regarding any easements or restrictions. The buyer places an offer, which is accepted. The offer does not acknowledge any easement or restrictions. During the title search, the lawyer finds two easements, a restriction and an encumbrance. The buyer must accept a mortgage registered on title which was paid in full but never discharged. Identify if the statement is true. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 33 of 36

A buyer is shown a property that has a frontage of 100 feet and a depth of 200 feet. The house on the property is currently used as a single family residence. The seller provides no disclosure regarding any easements or restrictions. The buyer places an offer, which is accepted. The offer does not acknowledge any easement or restrictions. During the title search, the lawyer finds two easements, a restriction and an encumbrance. The buyer must accept a restriction on the property preventing it from containing anything other than a single family home. Identify if the statement is true. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 34 of 36

A buyer is shown a property that has a frontage of 100 feet and a depth of 200 feet. The house on the property is currently used as a single family residence. The seller provides no disclosure regarding any easements or restrictions. The buyer places an offer, which is accepted. The offer does not acknowledge any easement or restrictions. During the title search, the lawyer finds two easements, a restriction and an encumbrance. The buyer must accept an easement providing a right-of-way to the adjoining property owners to walk over a 10 foot wide portion of the property along the east lot line. Identify if the statement is true. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 35 of 36

Congratulations, you have completed the lesson! There are five sections on this page with a summary of the key topics that were discussed in this lesson.

Irrevocability

The Irrevocability is the time limit for acceptance of an offer. If not accepted, or communication of the acceptance is not completed during the irrevocable period, the offer expires and becomes null and void.

Completion Date

The completion date is the date the transfer of title occurs. The pre-set clause provides for vacant possession, unless an alternative arrangement is stated in the agreement. The completion date cannot be on a Saturday, Sunday, or statutory holiday. An agreement of purchase and sale identifies the various ways in which notices necessary to the agreement may be given and received. A brokerage is typically authorized to give and receive a notice on behalf of a client. However, under multiple representation, the brokerage is not authorized. Notices can be provided by facsimile, email, or personally delivered to the seller’s or the buyer’s address for service as identified in the agreement of purchase and sale. The agreement of purchase of sale must identify any chattels to be included, such as furniture or appliances, otherwise, no chattels are included in the purchase. Clarity and specific details are required to avoid any confusion or mistakes on the chattels which are to remain. The agreement of purchase and sale must identify any fixtures to be excluded from the sale, such as a specific light fixtures or permanently attached mirror. If no fixture is identified as excluded, all fixtures are to remain with the property when it is sold. As with chattels, a precise, specific description should be given for every fixture excluded. Whenever possible, any fixture not remaining should be replaced prior to the property being viewed.

Notices

Chattels Included Fixtures Excluded

©2019 Real Estate Council of Ontario

Lesson 2 | Page 36 of 36

There are five sections on this page with a summary of the key topics that were discussed in this lesson.

Rental Items

HST

The buyer is provided information on any rental item they will assume when the transaction is completed. These are items not owned by the seller and might include an alarm system, hot water tank, furnace and air conditioner, etc. In some instances, a seller may be required to pay out the cost associated with the item; for example, a furnace that is on a rent-to-own contract. If the sale of the property is subject to HST, the offer will describe who is responsible to pay the applicable amount. In resale residential offers, typically “included in” the purchase price is identified. This would place the responsibility to submit any HST on the seller.

Title Search

The buyer’s lawyer must complete a title search within the time period identified as the Requisition Date. The buyer’s lawyer must submit any concerns to the seller’s lawyer which are to be addressed. The clause also allows for the buyer’s lawyer to investigate non-title aspects of the property such as outstanding work orders, deficiency notices, zoning compliance, and the obtaining of insurance. When completing the clause, insert the present use of the property; for example, single family residential.

Future Use

An agreement of purchase and sale provides an acknowledgement from the seller and the buyer that unless otherwise provided for in the agreement, there is no representation or warranty that the intended future use of the property will be lawful.

Title

When title is transferred to the buyer, the seller warrants the title is good and free from restrictions, charges, liens, easements, and encumbrances with the exception of certain specified matters. This includes any existing mortgage that is being assumed, registered restrictions or covenants which are complied with by the seller, minor utility easements, and other specified easements that do not materially affect the use of the property. A salesperson should review any available documentation and enquire with the seller, to determine any factors which could impact the sale of the property. Any information in this regard should be included on a listing, provided to a buyer, and acknowledged in an agreement of purchase and sale. If a title search results in objections to title that the seller is unwilling or unable to resolve, the agreement is terminated and the buyer’s deposit returned. ©2019 Real Estate Council of Ontario

Lesson 3 | Page 1 of 50

Lesson 3: Clauses Typically Included in a Residential Agreement of Purchase and Sale – Part 2 This lesson describes the given clauses: closing arrangements, documents and discharge, inspection, insurance, Planning Act, document preparation, residency, adjustments, property assessment, time limits, tender, Family Law Act, legal, accounting and environmental advice, consumer reports, agreement in writing, time and date, and successors and assigns.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 2 of 50

This lesson continues to explore a residential agreement of purchase and sale. This is the second of two lessons which detail the pre-set clauses typically included in an agreement. Understanding these clauses, and explaining their intent and ramifications to a seller or a buyer, is an important role you, as a salesperson, will have. Once signed, the seller or the buyer is bound to the terms of the agreement of purchase and sale. Your obligations under REBBA are to ensure the party understands the agreement prior to signing. Upon completion of this lesson, you will be able to identify and explain the information typically required to detail key aspects of the parties, property and purchase price in an agreement of purchase and sale. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 3 of 50

Closing Arrangements A seller and a buyer will each retain a lawyer to complete the transaction. The agreement of purchase and sale will set out details regarding the closing procedures for the transaction to be completed by electronic registration (eregistration). The seller’s lawyer will prepare the transfer/deed of land for electronic registration, and the buyer’s lawyer will electronically register the transfer/deed and any other documents (e.g., a charge/mortgage). In Ontario, virtually all transfers/deeds of land are registered electronically. Only lawyers that have been approved for registering transfers/deeds can do so. Non-lawyers can electronically search properties, but they cannot register transfers.

©2019 Real Estate Council of Ontario

Other documents which are not registered (e.g., undertakings, directions, declarations, survey), closing funds, keys, garage door remotes, key fobs, etc. are exchanged between the lawyers, but this exchange will not occur at the same time as the registration of the transfer/deed. Additional information regarding the closing procedures is detailed in a later module.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 4 of 50

Closing Arrangements Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Clause 11: Closing Arrangement ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 5 of 50

Documents and Discharge The agreement of purchase and sale identifies the obligations of the seller to provide certain documents related to the property to the buyer. The seller is obligated to provide any title deed, abstract, survey, or other evidence of title only if the document is in the seller’s possession or control. If a buyer requests a copy of any sketch or survey of the property within the seller’s control, the seller is obligated to provide this as soon as possible and prior to the Requisition Date. The seller is not obligated to provide the buyer with a new survey if the existing one is not up to date, unless agreed to specifically within the agreement. As a salesperson, you must be cautious of surveys supplied by sellers with regards to completeness and accuracy. Older surveys may contain limited or inaccurate information concerning boundaries and building locations as the requirements for surveys have changed. Also, changes may have been made to the property since the date of the

©2019 Real Estate Council of Ontario

survey, which are not reflected. For example, a previous owner may have erected a fence in the back yard which is not wholly located on the seller’s property. This fence would not be identified on the older survey and a buyer may experience legal consequences and expenses if the incorrect fence location is later identified. If the seller furnishes a survey, you should make it readily available to the buyer, but caution the buyer to seek legal advice. The buyer has several options regarding surveys:  Accept the existing survey, understanding its historical nature and limitations  Ask the seller to provide a new survey. The offer would need to contain an appropriate clause for this request  Order a new survey at the buyer’s expense  Purchase the property without a survey  Obtain Title Insurance. A new survey may not be required depending on the insurer In situations where a seller’s mortgage is to be discharged from title, the parties should understand how registration of the discharge of the charge/mortgage could occur, as such mortgages are not typically discharged for several days following the completion of the sale. In many instances, the seller will not have available funds to discharge the mortgage prior to closing; the seller intends to use the sale proceeds to repay the amount owed to the lender. However, the agreement of purchase and sale also indicates the buyer is to be provided a title that is free and clear of all encumbrances. To avoid this conflict, the agreement states the buyer will agree to accept the seller’s lawyer’s personal undertaking (a promise) to register the discharge on title within a reasonable time after closing, using funds received at closing. This means until the mortgage is discharged, the buyer owns the property with the seller’s mortgage still registered.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 6 of 50

Documents and Discharge Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Clause 12: Documents and Discharge ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 7 of 50

Inspection Before placing an offer on a property, the buyer will have been provided the opportunity to inspect the property. The seller has provided nothing more than the opportunity for the buyer to view the property and identify any patent (visible) defects. As such, in a residential transaction, many buyers will also obtain a property inspection report prepared by a qualified property inspector which is used to assess the condition of the structure and the mechanical components. The buyer should understand that once an offer has been accepted, it is a binding agreement unless the buyer includes a requirement to obtain a property inspection report. If there is no additional clause inserted into the buyer’s offer, the buyer acknowledges that none will be obtained.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 8 of 50

Inspection Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Clause 13: Inspection ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 9 of 50

Considerations for a Buyer In many instances, a buyer has viewed several properties prior to selecting which property to submit an offer on. As a salesperson, you may consider advising the buyer to visit the property once again prior to offer submission. Depending on market conditions, this may not be possible due to time requirements related to submitting an offer. A buyer should understand the pre-set clause on the agreement of purchase and sale states they have been provided an opportunity to inspect the property. In instances where a return visit is not possible, ensure adequate notes are taken during the initial visit.

©2019 Real Estate Council of Ontario

Once an offer has been accepted, there could be weeks or months that pass before the transaction is completed. A buyer may wish to revisit the property during this time period for several reasons. The pre-set clause on the agreement of purchase and sale does not provide this right to the buyer. As such, the buyer has no right to a preclosing viewing of the property unless:  The seller, at the seller’s discretion, grants such permission  The buyer’s salesperson inserts an appropriate clause in the agreement to provide access to the property one or more times following acceptance of the offer  Substantial damage occurs between signing the agreement and closing which requires the buyer to attend the property. See page 10 of this lesson for information related to substantial damage occurring prior to closing A pre-closing viewing of the property is advisable to avoid potential problems should a buyer discover discrepancies between what was purchased and what is to be delivered on closing. The clause must be added to the agreement of purchase and sale as the pre-set clause does not grant the buyer this right.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 10 of 50

The Inspection clause provides the buyer with an opportunity to see the property and to have a home inspection. Based on the inspection clause, which of the following statements are true? There are five options. There are multiple correct answers. 1 2 3 4 5

The clause automatically requires the buyer to obtain a property inspection, and if not satisfied with any report, can declare the offer null and void. This clause acknowledges that the seller has a right to remove any clause in the agreement that calls for an offer to be conditional on a property inspection report. The clause identifies the buyer has had the opportunity to inspect the property prior to submitting an offer. The clause requires the seller to provide any copy of an existing property inspection report they have for the buyer’s review. The clause acknowledges that the buyer had an opportunity to put a requirement in the agreement for a property inspection report.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 11 of 50

Insurance The seller is responsible for the property until closing and must maintain any insurance policies until completion. If substantial damage should occur to the property prior to closing, the agreement of purchase and sale identifies the options available to the buyer:  Terminate the agreement  Complete the transaction and collect any insurance proceeds provided by the seller’s insurance policy Insurance coverage is not transferred at closing. The seller will terminate the existing coverage on the property, and the buyer will be required to purchase a new policy. Situations do occur when a buyer may encounter difficulty securing insurance for a property; for example, a property with outdated wiring or an underground oil tank. In most ©2019 Real Estate Council of Ontario

cases, insurance coverage will be granted subject to the buyer completing appropriate modifications. However, insurance refusals can occur. If the age or condition of the structure might impact the ability to obtain insurance, recommended practice is to insert an appropriate condition in the offer. If a seller take back mortgage is involved, the buyer agrees to provide proof of adequate insurance to the seller or to the mortgagee with a mortgage assumption.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 12 of 50

Insurance Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Clause 14: Insurance ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 13 of 50

The salesperson represents a buyer in the purchase of a property, and the sale is to be completed in a week’s time. The buyer has just called the salesperson and is upset. While driving by the property, the buyer observed fire trucks in the driveway and flames in the back portion of the house. Based on the Insurance clause, which of the following statements are correct? There are four options. There are multiple correct answers. 1 2 3 4

The seller is required to maintain any insurance policies on the property until completion. If there is substantial damage to the property as a result of the fire, the buyer has the option of terminating the agreement. If there is substantial damage to the property, the seller’s insurance policy is transferred to the buyer when the sale closes so that the buyer can make a claim. If there is substantial damage to the property, the buyer can take the proceeds of the seller’s insurance policy and complete the purchase.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 14 of 50

Planning Act An agreement must comply with the Planning Act, for the transaction to be completed. The Planning Act governs activities such as a consent for severance. Compliance is not required when listing the property for sale or accepting an offer, however for the property to be transferred to the buyer, it must comply. The agreement of purchase and sale will identify this requirement. In instances where the property does not comply with the Planning Act, one of three considerations will impact the agreement:  Invalid if Not Compliant – the agreement is deemed invalid if by completion, any necessary consents are not obtained  Required Prior to Completion – the seller must comply with the provisions under the Planning Act by completion  Seller Involvement – if a condition in the offer requires the seller to obtain the necessary consent, the seller must proceed diligently at their expense to obtain such consent. Be aware that a consent can take three to six months, but much longer periods may be necessary if difficulties arise. An earlier module detailed the requirements for obtaining a consent to sever Example: A seller owns a 25 acre parcel of land and would like to sever the parcel into two lots and sell each one individually. A salesperson lists the two properties for sale and indicates on the listing that the properties are subject to a consent for severance being approved. The seller immediately applies for the severance and while awaiting approval, receives an offer on one of the properties. The salesperson adds a clause to the agreement of purchase and sale making the offer conditional upon obtaining approval for the severance. The closing date for the agreement is in six months with an option to extend if more time is needed. The salesperson ensures the buyer understands the seller must have both the approval for the severance and the severed property registered in compliance with the Planning Act for the transaction to be completed.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 15 of 50

Planning Act Clause As an example, the Planning Act clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Clause 15: Planning Act ©2022 Ontario Real Estate Association. All rights reserved. Used under license. The Documentation Preparation clause assigns responsibility for covering costs to prepare certain documents in a real estate transaction.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 16 of 50

A seller and buyer have agreed to the sale of a piece of land that has yet to be severed. The written agreement of purchase and sale accepted by the seller includes a Planning Act clause. Based on the Planning Act clause, which of the following statements are true? There are four options. There are multiple correct answers. 1 2 3 4

The seller should have had the severance approved and the new property registered prior to accepting an offer on the property. If the severance is not approved, the agreement is deemed invalid and therefore null and void. The seller is responsible for any costs to obtain the necessary consent for severance. The buyer is responsible for any costs to ensure the agreement complies with the Planning Act.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 17 of 50

Document Preparation An agreement of purchase and sale will identify who is responsible for paying costs to prepare specific documents involved in the transaction. The seller will pay for the transfer/deed. The buyer is responsible for the cost of preparing any mortgage document where the seller is providing financing to the buyer, and the Land Transfer Tax Affidavit. To ensure compliance with the Planning Act, the Transfer/Deed of Land used to transfer title to the buyer will contain a compliance statement. As well, the seller’s lawyer will provide a statement outlining that they have reviewed it and made appropriate inquiries to confirm the sale does not contravene the Planning Act. The buyer’s lawyer will also confirm no contravention was identified through research.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 18 of 50

Document Preparation Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Clause 16: Document Preparation ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 19 of 50

You will need to review the various clauses on the agreement of purchase and sale with a seller or buyer. This exercise will help you check your understanding of clauses covered in this lesson. Which of the following statements belong to Closing Arrangement clause? There are seven options. There are multiple correct answers. 1 2 3 4 5 6 7

Stipulates the deed/transfer will be registered electronically. The lawyers are bound by a document registration agreement which deals with such items as exchange of closing funds, non-registrable documents, keys and fobs. Entitles the buyer to a survey the seller possesses. May require the seller’s lawyer to withhold funds from the seller on closing to pay off the mortgage and register a discharge on title within a reasonable time after closing. Helps ensure compliance with the Planning Act. Requires the buyer to cover the cost of preparing any mortgage documents where the seller is providing financing to the buyer and the cost of Land Transfer Tax Affidavit. A seller and buyer have agreed to sell/buy a piece of land that requires a consent for severance. Requires the seller to obtain any necessary consents for severance by completion of the agreement.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 20 of 50

Residency Sellers and buyers of property may not be residents of Canada. The agreement of purchase and sale must address the sale of property by a non-resident as the Income Tax Act imposes obligations on the buyer when the seller does not reside in Canada. The sale of a property owned by a non-resident seller may be subject to capital gains tax. The tax calculation is based on any capital gain realized. For example, a property is purchased for $200,000 and is later sold by a nonresident seller for $550,000. Certain deductions are permitted from the gain of $350,000, such as legal fees, remuneration, and any capital improvements, however the capital gain realized once the deductions are applied is subject to capital gains tax. The Income Tax Act places the obligations on the buyer to ensure the tax payable by the seller is remitted to the Minister of National Revenue. An agreement of purchase and sale must provide for a method of ensuring the ©2019 Real Estate Council of Ontario

obligations of the buyer are not impacted by the actions of the seller. The given information is required in the agreement:  The seller will provide a Statutory Declaration to the buyer that they are not, and will not on completion, be a non-resident of Canada. If received, the buyer has no liability under the Income Tax Act  If the seller is a non-resident, the seller can provide a certificate showing that the seller has filed the necessary documents and paid the required taxes  If the seller is a non-resident and the certificate has not been provided, the buyer may claim a credit towards the purchase price with the amount necessary to pay to the Minister of National Revenue in respect of the tax payable by the seller This issue may be particularly relevant in areas that are common to vacation and leisure properties such as cottages.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 21 of 50

Residency Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Clause 17: Residency ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 22 of 50

Adjustments When a transaction closes, certain costs and expenses will be apportioned between the seller and the buyer, such as property taxes and heating fuel. In the case of a property that is tenanted, the rent may need to be apportioned. These adjustments are based on the number of days the seller and the buyer own the property, with the day of closing apportioned to the buyer. Example: A property is sold and the transaction closes on October 15. The seller has paid the property taxes for the entire year. In this case, the seller will receive a credit for the amount of property taxes the buyer would owe from October 15 to December 31 on a pro-rated basis.

©2019 Real Estate Council of Ontario

A seller rents out the home and the buyer agrees to assume the tenancy. The tenant has paid $1,000 in rent and has provided a last month’s rent deposit in the amount of $1,000. As these are not part of the purchase price, the buyer will receive a credit for the pro-rated amount of rent for the month based on the completion date, as well as the buyer’s last month’s rent deposit, including any accrued interest. As a salesperson, you should be able to discuss these adjustments in general terms, however the specific details and actual calculations are done by the lawyers. Additional information regarding the adjustments made on closing a transaction are detailed in a later module.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 23 of 50

Adjustments Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Clause 18: Adjustments ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 24 of 50

Property Assessment All properties are assessed by the Municipal Property Assessment Corporation (MPAC), which is used as the basis for calculating the property taxes. The seller and buyer are required to acknowledge that properties may be reassessed on an annual basis. If property taxes change as a result of a re-assessment, neither the seller nor the buyer can make a claim against each other or the brokerage and salesperson except to make a claim for property taxes that accrued prior to the completion of a transaction. It is important for all sellers and buyers to understand the impact of a property re-assessment on the property taxes owed. It is especially significant when a newer property is being resold prior to the assessment being done based on the buildings being completed. In this situation, the property taxes will be based on the vacant land only with the final taxes not yet established. As a salesperson, a clause can be included in the agreement of purchase and sale allowing the seller’s lawyer to hold back a specified amount for the payment of property taxes for the period prior to the transaction closing.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 25 of 50

Property Assessment Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Clause 19: Property Assessment ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 26 of 50

Time Limits Any term or condition set out in an agreement of purchase and sale that includes a specific time limit must be strictly adhered to. To change a time limit, both the seller and the buyer must agree to the change in writing; for example, an amendment to the agreement of purchase and sale can be signed. In some instances, the seller’s or the buyer’s lawyer may be authorized to alter any time limit.

©2019 Real Estate Council of Ontario

Agreements of purchase and sale are driven by exact time limits which must be complete, accurate and sequentially correct (i.e., dates flow logically through all agreements, amendments, etc.). Missing a time limit can result in nullifying the agreement. The completion date is one of many dates on an accepted agreement. Sellers and buyers are expected to be ready, willing and able to close the transaction on the completion date. Failure by one party can result in default action taken by the other party. Additional information regarding the failure to complete a transaction is detailed on the next screen. Example: A seller and buyer have negotiated an offer which includes a condition for the buyer to obtain financing for the purchase. The clause requires the buyer to provide notice to the seller regarding this condition prior to the expiration of the time specified in the clause, failing which the offer becomes null and void. One day prior to the time period expiring, the buyer receives notice from the lender that the approval for financing requires an appraisal to be completed. The appraisal will not be received for three days. To avoid the offer becoming null and void, the time period for the buyer to obtain the necessary financing will need to be extended. The salesperson prepares an amendment to the agreement which is then agreed to and signed by all parties. The amendment is signed prior to the time period expiring, which allows the original time period identified in the agreement to be altered.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 27 of 50

Time Limits Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Clause 20: Time Limits ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 28 of 50

Tender Tendering means an unconditional offer to perform their part of a contract. Tendering involves one of the contract parties showing the intent to perform as agreed upon, even if the other party will not close on the sale. In a real estate transaction, this would mean the required documents (i.e., the transfer/deed) would be provided by the seller, or the required funds (i.e., the balance of the purchase price), are provided by the buyer. Tendering confirms their readiness, willingness, and ability to complete the transaction. Should either the seller or the buyer refuse to complete the transaction for unjustified reasons, the party tendering is then in a position to seek remedies under breach of contract. To seek remedies, the party is required to show they were ready, willing, and able to complete the transaction. The remedies for a seller or buyer might include the given:  Recision – ask that the contract be cancelled  Damages – ask for financial compensation  Specific performance – ask that the contract be completed Example: An agreement is set to be completed on June 15. The week before closing, the buyer’s lender withdraws their approval for financing due to a critical change to the buyer’s credit. The buyer’s lawyer contacts the seller’s lawyer to request an extension to the completion date to July 10. The extension is agreed to so the buyer can attempt to obtain the financing required to complete the transaction. On July 10, the seller tenders the required documents, however the buyer is unable to provide the necessary funds. The transaction does not complete and the buyer is now in breach of the contract. The seller and their lawyer will discuss what recourse the seller has as the seller was able to show a readiness, willingness, and ability to complete the transaction.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 29 of 50

Tender Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Clause 21: Tender ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 30 of 50

Family Law Act When listing a property for sale, as a salesperson, you will discuss the ownership of the property and when required, obtain consent from a non-titled spouse for the listing of the matrimonial home. Consent is obtained as the nontitled spouse has rights under the Family Law Act which must be considered when the property is sold. The agreement of purchase and sale also provides for the non-titled spouse to consent to the sale. An agreement of purchase and sale requires a seller to warrant that no spousal consent is necessary unless the spouse has signed a consent in the area set aside for that signature. Information on the Family Law Act was detailed in an earlier module.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 31 of 50

Family Law Act Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Clause 22: Family Law Act ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 32 of 50

This exercise will help you check your understanding of the Residency and Adjustments clauses. Which of the following statements belong to Adjustments clause? There are six options. There are multiple correct answers. 1 2 3 4 5 6

If the seller is a non-resident, funds may be withheld by the buyer on completion of the sale to comply with the Income Tax Act. The buyer is responsible to ensure the tax owed by a non-resident seller is paid. If the seller is a resident, any tax owed because of the sale would be addressed by the seller when completing their annual tax return. Apportions certain costs and expenses between the seller and the buyer. Typically includes apportionment of rental income, property taxes, and heating fuel. The buyer assumes any costs on the day of closing.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 33 of 50

This exercise will help you check your understanding of the Residency and Adjustments clauses. Which of the following statements belong to Property Assessment clause? There are six options. There are multiple correct answers. 1 2 3 4 5 6

Acknowledgement from both parties that property re-assessment by the Province of Ontario may occur annually. The seller or buyer cannot make a claim against each other or any brokerage, broker or salesperson for a reassessment that results in any changes in property taxes. The Buyer must provide the balance of the purchase price to the seller on the date set for closing. The Seller must provide the transfer/deed to the buyer on the date set for completion. A non-titled spouse is required to consent to the sale of the property. Relates to a property involving a matrimonial home.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 34 of 50

Urea Formaldehyde Foam Insulation (UFFI) As you learned earlier, Urea Formaldehyde Foam Insulation (UFFI) is a type of insulation used in the 1970’s. UFFI is a low density foam and was injected into walls and other areas of an older home to increase energy efficiency. In 1980, there was a product ban due to potential health concerns. Although the general consensus now minimizes UFFI as a health concern, disclosure regarding a property containing, or previously containing UFFI is included on an agreement of purchase and sale. The seller will provide a representation and warranty to the buyer regarding the status of the property relating to UFFI as the presence of UFFI is not readily visible to the buyer. The seller’s disclosure includes:

©2019 Real Estate Council of Ontario

 The seller has not insulated any building with material containing urea formaldehyde  To the best of the seller’s knowledge and belief, no building now, or in the past, has been insulated with material containing UFFI These representations and warranties will survive closing, meaning the buyer can make a claim after taking ownership of the property should they discover the seller misrepresented the status of UFFI in any building. In instances where the property does contain, or ever did contain UFFI, or the seller is unaware of the possibility of any building containing UFFI (for example, when the property is being sold by the estate or under Power of Sale), an additional clause relating to the particular circumstance is required in the agreement of purchase and sale. Otherwise, the seller is providing an inaccurate representation and warranty.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 35 of 50

UFFI Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Clause 23: UFFI ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 36 of 50

Given that Urea Formaldehyde Foam Insulation (UFFI) is not readily visible to the buyer, a UFFI clause provides an appropriate disclosure. Based on the Urea Formaldehyde Foam Insulation (UFFI) clause, which of the following statements are true? There are four options. There are multiple correct answers. 1 2 3 4

The seller is warranting they have not insulated any building on the property with UFFI. The seller is stating to the best of their knowledge, no building on the property has ever contained UFFI. The seller is warranting the statements regarding UFFI apply to all units in a multi-unit building. The seller is representing that if the buyer discovers UFFI in the building following completion, the seller’s warranty can no longer be relied upon.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 37 of 50

Legal, Accounting and Environmental Advice As a salesperson, you will have knowledge, skills and experience a seller or buyer will rely on. However, the extent of the advice provided by you and the brokerage should be clearly understood by a seller and a buyer. Whenever required, a seller and a buyer should be advised to seek third-party professional assistance. Specifically, the agreement of purchase and sale requires the seller and buyer to acknowledge there has been no advice provided that is of a legal, tax, or environmental nature.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 38 of 50

Legal, Accounting and Environmental Advice Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Clause 24: Legal, Accounting and Environmental Advice ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 39 of 50

Consumer Reports Obtaining financing for a purchase occurs in most transactions. When arranging for any financing, there will be reliance on a report containing credit and/or personal information. The agreement of purchase and sale must provide this disclosure to the buyer to comply with the Consumer Reporting Act. If the transaction involves a seller take back mortgage, the seller will want to access a credit report to determine the credit worthiness of the buyer.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 40 of 50

Consumer Reports Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Clause 25: Consumer Reports ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 41 of 50

Agreement in Writing Various aspects associated with the agreement of purchase and sale need to be defined within the agreement. As an agreement of purchase and sale is a document that contains pre-set clauses, the agreement cannot reflect the unique aspects of every trade. As such, the agreement of purchase and sale must provide the parameters around which the parties agree to, as given.  Any information inserted into the agreement takes precedence over the pre-set text should there be a conflict or discrepancy. For example, in a previous screen, the clause regarding UFFI was provided. Should an additional clause be inserted into the agreement stating there was UFFI installed in a building, but that the UFFI has been removed, this statement would now conflict with the pre-set clause. To avoid any conflict, the parties will acknowledge that the information added to the agreement supersedes the pre-set clause.

©2019 Real Estate Council of Ontario

 All representations, warranties, collateral agreements, or conditions affecting the agreement must be included in the agreement. The parties are agreeing that nothing has been said or done, other than specifically stated in the agreement, to bring them to a mutual agreement. For example, should the buyer state the purchase would only be made if the seller were to warrant the condition of the property (e.g., a warranty that there has been no water seepage in the basement during their time of ownership), this warranty must be contained in the agreement of purchase and sale.  Real estate terminology can vary across Canada and many statutes continue to use original British references. The parties acknowledge that seller and vendor have the same meaning, as do buyer and purchaser. For example, the Vendors and Purchasers Act is applicable even though Ontario may reference the parties as a seller and a buyer.  Most contracts will provide that any wording related to gender and number are to be read and understood with any change required for the wording to accurately apply to the reference. For example, the agreement of purchase and sale states: “In Witness whereof I have hereunto set my hand and seal” can legally be read as, “In Witness whereof we have hereunto set our hands and seals” when two or more sellers or buyers are signing.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 42 of 50

Agreement in Writing Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Clause 26: Agreement in Writing ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 43 of 50

Agreement in Writing Clause: Example The property being sold contained UFFI, which was removed from the buildings many years ago. The salesperson for the seller has added a statement to the agreement of purchase and sale disclosing this fact. The pre-printed clause on the agreement, however, states the property has never contained UFFI. According to the Agreement in Writing clause, any provisions added on behalf of the seller or buyer take precedence over any provisions in the pre-printed portion of the agreement of purchase and sale in the event of a conflict. So in this scenario, the statement the seller’s salesperson added disclosing the fact the UFFI was removed would override the UFFI clause. If the buyer signed the offer in this scenario, then the buyer would have acknowledged the disclosure of the UFFI removal and therefore would not be able to make any claim against the seller.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 44 of 50

Time and Date In Ontario, most of the province falls within the Eastern Time Zone, while areas in the northwest fall within the Central Time Zone. As well, there are some communities in Ontario which remain in Eastern Standard Time all year, rather than changing to Daylight Saving Time. As such, the agreement of purchase and sale must define any reference to time and date. Any times and dates referred to in the agreement of purchase and sale are based on the location of the property being sold should there be a discrepancy between the location of the property and where the seller or buyer is when entering into the agreement.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 45 of 50

Time and Date Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Clause 27: Time and Date ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 46 of 50

Successors and Assigns In the event a seller or a buyer dies prior to completing the transaction, the agreement of purchase and sale must provide for how that event would impact the agreement. In such an event, the parties are advised the heirs, executors, administrators, successors, and assigns of the seller, and the buyer, are bound by the agreement. As a salesperson, should this event occur, advise all parties affected to seek legal advice.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 47 of 50

Successors and Assigns Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Clause 28: Successors and Assigns ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 48 of 50

You will need to be aware of the implications of the Successor and Assigns, Consumer Reports, Time and Date, Legal, Accounting, and Environmental, and the Time Limits clauses. Which of the following statements are true related to these clauses? There are five options. There are multiple correct answers. 1

2 3 4 5

An owner of a property accepts an offer on the sale of his home. Prior to closing, the owner passes away. The owner's nephew, who is the sole heir of the estate, must complete the transaction agreed upon by the owner. The consumer reports clause provides the buyer with required notification with respect to the seller obtaining a consumer report on the buyer. The time and date referred to in any agreement is the time where the individual (seller or buyer) lives. The Legal, Accounting and Environmental clause allows a salesperson to advise a seller or buyer on legal, accounting, and environmental matters related to the property. A change in any time or date associated with the agreement must be agreed to in writing by the seller and buyer.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 49 of 50

Congratulations, you have completed the lesson! There are nine sections on this page with a summary of the key topics that were discussed in this lesson.

Closing Arrangements

The parties are informed of the procedure to complete the transaction, including when the transaction is being completed electronically. This includes details regarding documents that are not registered and the payment of closing funds.

Documents and Discharge

The seller is to deliver to the buyer those documents in the seller’s possession respecting the property, such as copies of surveys and deeds. A seller is not required to provide an upto-date survey, unless specifically provided for in the agreement. For any mortgage registered on the title which must be discharged, the buyer agrees to the discharge occurring after the transaction is completed by accepting the seller’s laywer’s personal undertaking to do so. The buyer acknowledges they have had the opportunity to personally inspect the property prior to submitting an offer. The buyer also states that they have been provided the opportunity to obtain a property inspection report. If the agreement does not contain this provision, the buyer has declined the opportunity. A buyer wishing to revisit the property prior to completion, must obtain the seller’s permission as the pre-set clause does not provide this right to the buyer. The seller is responsible for maintaining insurance on the property until closing. In the event the property suffers substantial damage prior to closing, the buyer can terminate the agreement, or can accept the proceeds paid by the seller’s insurance and complete the transaction. The agreement is subject to compliance with the Planning Act, which governs activities such as a consent for severance. If the property does not comply with the provisions of the Planning Act, the agreement is void. The property must comply for the transaction to close, however it does not have to comply when the property is listed for sale or an offer is

Inspection

Insurance

Planning Act

©2019 Real Estate Council of Ontario

accepted. Appropriate disclosures and clauses must be included in any listing agreement or agreement of purchase and sale to this effect.

Document Preparation

The transfer/deed is prepared at the expense of the seller. Should the seller be providing financing to the buyer, the charge/mortgage document is prepared at the expense of the buyer. The Land Transfer Tax affidavit is also prepared at the expense of the buyer.

Residency

The agreement must address the buyer’s obligations regarding any income tax payable by the seller who is a non-resident of Canada. Stipulations are included to ensure the seller, when required, has submitted the documents and paid the required taxes due under the non-residency provisions of the Income Tax Act, or a credit will be provided to the buyer for the tax obligations of the non-resident seller. This event is most common in areas where recreational properties are being sold.

Adjustments

The seller and the buyer acknowledge that any items to be adjusted when the transaction is completed, will be adjusted based on the day of closing being apportioned to the buyer. These adjustments are made to the purchase price for items such as property taxes, tenant rent, and heating fuel.

Property Assessment

The parties acknowledge that the property may be re-assessed on an annual basis and they may not make a claim against any brokerage, salesperson, or the other party should a reassessment take place. Of particular importance is when a newer property is being resold prior to the assessment being finalized for the property including the structures. A salesperson can address this situation by adding a clause to the agreement of purchase and sale to identify how the seller’s portion of the property taxes owed will be addressed once the final assessment has been completed.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 50 of 50

There are nine sections on this page with a summary of the key topics that were discussed in this lesson.

Time Limits

All agreements of purchase and sale will refer to time limits, and all parties must strictly adhere to meeting the obligations of such limits. Only the parties to the contract, or their authorized agent (e.g., their lawyer) can alter the time limits by mutual agreement.

Tender

Each party must be able to demonstrate they are ready, willing, and able to complete the transaction. In the case of one party not being able to complete the transaction, the other party would show the intent to fulfill their obligations. For the buyer, they must be able to provide the closing funds, and for the seller, to produce the Transfer/Deed.

Family Law Act

Pursuant to the Family Law Act, the seller is warranting that no spousal consent is required unless the spouse has signed a consent in the area set aside for that signature. Spousal consent is required when the property is a matrimonial home and one spouse only is on title. The non-titled spouse is asked to provide their consent to the sale.

UFFI

The agreement of purchase and sale provides a representation and warranty by the seller that any building located on the property does not contain, nor has ever contained urea formaldehyde foam insulation. If this is not the case, or the seller is not able to provide that representation and warranty, an additional clause should be added to the agreement of purchase and sale.

Legal, Accounting and Environmental Advice Consumer Reports

The sellers and the buyers acknowledge the brokerage and salesperson are not providing legal, tax or environmental advice. In these instances, the party should be advised to seek independent professional advice.

To comply with the requirements of the Consumer Reporting Act, the buyer is being advised that a report containing credit and/or personal information may be referred to for the transaction.

©2019 Real Estate Council of Ontario

Agreement in Writing

Time and Date

Successors and Assigns

There are several aspects of the agreement that must be defined in the agreement. If there is a conflict or discrepancy between any of the pre-set (pre-printed) clauses and anything that has been added to the agreement, the information added takes precedence over any pre-set clause. The parties also agree that nothing has been said or done to bring them to a mutual agreement, other than specifically provided for in the agreement. The terms seller and vendor have the same meaning, as do buyer and purchaser, and any legislation that refers to vendor and purchaser would be applicable, even though alternate terms have been used. Finally, any reference to gender or number is to be read and understood according to the context of the content. Any time and date referred to in the agreement of purchase and sale is the time and date of the property location and not the time or location of the party signing the agreement. This is important as areas in Ontario are located in different time zones, and some areas do not revert to Daylight Saving Time. In the event the seller or the buyer dies before the transaction is completed, their heirs, executors, administrators, successors and assigns are bound by the agreement.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 1 of 40

Lesson 4: The Signing Process and Attaching Schedules

This lesson introduces signing and initialling procedures, and the requirements when attaching a schedule to an agreement of purchase and sale.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 2 of 40

This lesson details the signing and initialling requirements of a seller or a buyer and spousal consent, as well as the requirements of a salesperson. The lesson also details the requirements when attaching a schedule to the agreement of purchase and sale. Upon completion of this lesson, you will be able to identify and explain:  Signing and initialling procedures and additional information required in an agreement of purchase and sale  Requirements when attaching a schedule to an agreement of purchase and sale Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 3 of 40

Seller and Buyer Signing Guidelines Signing the agreement of purchase and sale signifies the party understands and agrees to the terms and conditions contained in the agreement. Sellers and buyers should sign using their usual signature in lieu of the full legal name identified earlier in the agreement. As a salesperson, ask the individual to sign as they would sign any government document (e.g., a driver’s license) or a cheque. If more than two sellers or buyers are involved, add additional lines for signing as required. This would be added to a schedule attached to the agreement of purchase and sale. You must inform all parties they are signing under seal. You will learn more about signing under seal in this lesson. Additional information was also provided in an earlier module. An irrevocable instruction from the seller precedes the seller’s signature. The statement instructs the seller’s lawyer to pay the brokerage any remuneration agreed to, plus HST, from the proceeds of the sale prior to the seller receiving any payment.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 4 of 40

Seller and Buyer Signatures, Date, and Witness As you learned in Lesson 1, sellers and buyers might represent a corporation, an estate or estate trustee, a person with a power of attorney, or someone acting in trust. Some parties’ signature requires a specific notation. The following four sections contain information on the requirements for signatures, signature date, and witness.

Buyer Signatures Buyers should sign using their usual signature in lieu of the full legal name identified earlier in the agreement. In Trust Arrangement From OREA Form 100: Agreement of Purchase and Sale ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

In some instances, a buyer may be purchasing a property in trust for someone else. Typically, this is where a buyer will be forming a corporation and the property will be owned by that corporation on completion. Example: William P. Smith, In Trust for a Corporation Yet to be Formed. The signature would be William P. Smith’s usual signature.

©2019 Real Estate Council of Ontario

Seller Signatures Sellers should sign using their usual signature in lieu of the full legal name identified earlier in the agreement. Corporations From OREA Form 100: Agreement of Purchase and Sale ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

If the seller or the buyer is a corporation, the complete legal corporate name will be inserted on page one and any schedule. When obtaining a signature on behalf of the corporation, ensure the person signing has the authority to do so and indicate their position in the corporation. In addition to the signature, you will require a corporate seal or the words: “I/we have the authority to bind the corporation,” written underneath the signature. Estates and Estate Trustees If the property is being sold by an estate, the person signing must have the authority to sign. The authority is provided to an estate trustee. Include the name of the estate as the seller; for example, “The Estate of John Doe”.

©2019 Real Estate Council of Ontario

The signing is by the estate trustee; for example, John’s daughter Mary. Include Mary’s status as estate trustee after her signature (e.g., Mary Doe, Estate Trustee). Power of Attorney If the seller or the buyer has provided authority to someone else to act on their behalf, ensure the individual has the appropriate power of attorney. A power of attorney can be very general or precisely describe the limited scope of authority. When signing, the individual will use their usual signature and include the words “Power of Attorney” underneath the signature.

Signature Date

From OREA Form 100: Agreement of Purchase and Sale ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

REBBA requires a salesperson to make all reasonable efforts to ensure that a person signing an agreement in respect of a trade in real estate sets out the date upon which the signature was affixed. As such, the agreement will allow for the date to be inserted by the party signing. Although numbers only can be used (e.g., 05/12/19), this can cause confusion as this could be interpreted as May 12 or December 5. Numbers and words are preferred to avoid any confusion. The date inserted is

©2019 Real Estate Council of Ontario

the date the party signs the agreement, and not necessarily the date an agreement is accepted.

Witness

From OREA Form 100: Agreement of Purchase and Sale ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

Every signature should be witnessed. A witness does not need to date their signature, and any competent individual can witness a signature. A witness should be someone other than a party to the agreement. For example, there are two buyers named on the agreement; one buyer should not witness the other buyer’s signature, and vice versa. Encourage the party to obtain an independent witness and ask that the information regarding the identity of the witness be provided to the brokerage. A witness helps protect against forgery and they can be called upon to testify should a dispute arise. The witness may be asked to testify that the individual signed the document in their presence. As a salesperson, you are best to witness the signature for the seller or the buyer whenever possible. If you are not witnessing their signature, DO NOT sign your name as a witness.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 5 of 40

The salesperson has faxed an offer that has just been drafted to the buyers who are on vacation in California. Which one of the given statements would be correct with respect to the signing of the offer by the buyer? There are four options. There is only one correct answer. 1 2 3 4

The salesperson should ask the buyers to sign the offer and can have one buyer witness the signature of the other buyer. The salesperson will have to witness the signatures when the buyers fax the offer back to the salesperson. The salesperson should ask the buyers to sign and date their signatures and have someone at the buyer’s location witness their signatures. The salesperson should inform the buyers that they will need two separate witnesses for each of the buyers’ signatures and the witnesses must date their witnessing.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 6 of 40

Signing Under Seal One of the essential elements of a valid contract is “consideration”. Consideration is an exchange of something of value between the parties. In a typical agreement of purchase and sale the parties exchange promises. For example, the seller promises to sell the property in exchange for the buyer’s promise to pay the purchase price. In a real estate transaction, the seller and the buyer are typically signing the agreement of purchase and sale at different times. For example, a buyer will make an offer to purchase the seller’s property and allow the seller a specified time period (i.e., Irrevocability clause) to accept. However, it is important to note that the seller has not provided anything to the buyer in exchange for the buyer’s promise to leave their offer open for acceptance for that specified time. Since there is no consideration (i.e., no exchange), the buyer is not contractually bound to the Irrevocability clause thereby allowing the buyer to revoke their offer at any time prior to the seller’s acceptance.

©2019 Real Estate Council of Ontario

To make the buyer’s Irrevocability clause contractually binding, the offer must be signed by the buyer under seal. A seal is a mark that is put on a document to indicate the party’s intention to be bound even though the other party has not given consideration. So, if the buyer’s offer is signed under seal, the buyer cannot revoke the offer during the irrevocability period. As a salesperson, it is important to explain to a party the significance and legal implications of signing an offer under seal, and to ensure that they intend to do so.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 7 of 40

Seal Example As an example, the given lines could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 8 of 40

Initials On any page of the agreement of purchase and sale where a signature is not obtained, the initials of the seller(s) and the buyer(s) are placed. These initials are provided when the party first signs the agreement of purchase and sale to ensure any page of the agreement is not substituted. Initialling signifies the given:  The person is indicating they have read and understood the contents of that particular page  The person is indicating they agree with the contents of the page being initialled The party initialling should only do so after they are confident in their understanding and agreement of both the pre-set clauses and inserted information on that page. The seller or the buyer should only initial once they have had the opportunity to review, ask any questions, and obtain explanations or clarifications.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 9 of 40

Initials Example For example, the agreement of purchase and sale provides a marked space for the seller(s) and buyer(s) to initial.

From OREA Form 100: Agreement of Purchase and Sale ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 10 of 40

Spousal Consent The Spousal Consent clause on an agreement of purchase and sale applies only to the seller. Consent is obtained from the non-titled spouse when the matrimonial home is being sold because under the Family Law Act, the spouse has possessory rights. The non-titled spouse’s signature indicates they agree the property may be sold. No consent is required from the non-titled spouse for the terms of any offer, although keeping the non-titled spouse apprised can help to avoid any problems when completing the sale. Any initialling requirements of a seller for the agreement of purchase and sale would not apply to the non-titled spouse. As the non-titled spouse is not a party to the agreement, there is no requirement under REBBA to provide a copy of the accepted offer to the non-titled spouse. If no spousal consent is required, either because both spouses are on title, there is no spouse, or the property being sold is not a matrimonial home, this section is not completed.

©2019 Real Estate Council of Ontario

A non-titled spouse will not sign as a seller. They will sign the spousal consent section. Signature requirements are consistent with the procedures and requirements for a seller or a buyer. Signing by the non-titled spouse should be completed at the first opportunity. Preference would be to obtain the signature at the same time the seller is signing the agreement of purchase and sale. The non-titled spouse should sign no later than once an agreement has been reached between the seller and the buyer.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 11 of 40

Spousal Consent Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 12 of 40

The Murphys are reviewing an offer concerning the sale of their home. Frank Murphy is named on the title for the property. Frank’s wife, Julia, paid for half of the home when they bought it 5 years ago, and they have both lived in it with their children ever since it was purchased. They have been married for twenty years. Which one of the given statements is true given this scenario? There are three options. There is only one correct answer. 1 2 3

Frank Murphy and Julia Murphy should appear as sellers of the property on the agreement of purchase and sale. They both paid for it Julia Murphy should not be involved in the agreement of purchase and sale as she has no ownership rights given she is not on title. Julia Murphy should sign the Spousal Consent line on the agreement of purchase and sale.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 13 of 40

Confirmation of Acceptance Negotiations between a seller and a buyer can at times, be lengthy and complex. A key aspect of the negotiations is the requirement that the offer is accepted and communicated to the other party within the irrevocable time period, otherwise, the offer becomes null and void. The agreement of purchase and sale provides for the party who accepts the offer, to sign and identify the time and date of acceptance. The last person signing or initialling has the responsibility to accurately complete the confirmation of acceptance. The time and date stated are key when establishing time limits for certain types of conditions (e.g., a buyer is allowed five days from acceptance of the offer to fulfill a condition) and to obtain a buyer’s deposit (e.g., the buyer submits the deposit “upon acceptance”).

©2019 Real Estate Council of Ontario

Lesson 4 | Page 14 of 40

Confirmation of Acceptance Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 15 of 40

The buyer signs an agreement on August 28, 2019, at noon with an irrevocable date of September 1. The agreement is subsequently accepted verbally on a conference call by both of the sellers, on August 29 at 4 p.m. Seller 1 signs the agreement accepting the offer an hour later on August 29. Seller 2 is away on business and out of the country, but is able to sign the agreement accepting the offer at 3 p.m. on August 30. Acceptance of the offer is finally communicated to the buyer at 4 p.m. on August 30. How should a salesperson complete the Confirmation of Acceptance portion of the agreement of purchase and sale based on the above scenario? There are four options. There is only one correct answer.

1

2

3

4

CONFIRMATION OF ACCEPTANCE: Notwithstanding anything contained herein to the contrary, I confirm this Agreement with all changes both typed and written was finally accepted by all parties at 3 p.m. this 30th day of August, 2019 Seller 2 (Signature of Seller or Buyer) CONFIRMATION OF ACCEPTANCE: Notwithstanding anything contained herein to the contrary, I confirm this Agreement with all changes both typed and written was finally accepted by all parties at 4 p.m. this 29th day of August, 2019 Seller 1 (Signature of Seller or Buyer) CONFIRMATION OF ACCEPTANCE: Notwithstanding anything contained herein to the contrary, I confirm this Agreement with all changes both typed and written was finally accepted by all parties at 12 p.m. this 28th day of August, 2019 The buyer (Signature of Seller or Buyer) CONFIRMATION OF ACCEPTANCE: Notwithstanding anything contained herein to the contrary, I confirm this Agreement with all changes both typed and written was finally accepted by all parties at 4 p.m. this 30th day of August, 2019 The buyer (Signature of Seller or Buyer)

©2019 Real Estate Council of Ontario

Lesson 4 | Page 16 of 40

Information on Brokerage(s) The agreement of purchase and sale is between the seller and the buyer; however, a brokerage is an integral part of facilitating the agreement. The agreement provides for the brokerage’s information to be included so others, such as a lawyer acting on behalf of the seller or the buyer, are aware of their involvement. For each brokerage involved in the transaction, the brokerage name, phone number, and name of the individual representing the brokerage for the transaction are identified. Transactions where the listing brokerage is representing both a seller and a buyer or represents a seller and is providing customer service to a buyer, the brokerage's information is identified as the listing brokerage. Where there is no listing brokerage involved in the transaction and a brokerage is either representing or providing customer service to a buyer (i.e., for a transaction where the seller is offering their property for sale privately), the brokerage information is identified as a co-operating buyer brokerage.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 17 of 40

Information on Brokerage(s) Example As an example, the given section could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 18 of 40

Acknowledgement The Code of Ethics requires a salesperson to use their best efforts to ensure a copy of the agreement of purchase and sale is provided to every seller or buyer at the earliest opportunity. The agreement of purchase and sale provides for the seller(s) and buyer(s) to sign an acknowledgement stating they have received a copy of the accepted agreement of purchase and sale. This signature is obtained only once the offer has been accepted. The seller’s and the buyer’s address for service is indicated. As detailed in Lesson 2, if a facsimile number or email address is not provided relating to the giving and receiving of notices, a notice must be delivered to the address for service indicated in the agreement. The address inserted here is the address a notice would be delivered to when required. ©2019 Real Estate Council of Ontario

The brokerage will also need authorization to forward a copy of the accepted agreement of purchase and sale to the lawyer who will be closing the transaction on behalf of the seller or the buyer. To facilitate this, when working with a seller or buyer, ask if a lawyer has been retained. If so, the information should be included in this section as each lawyer will need to know who is representing the other party. If a seller or a buyer does not yet have a lawyer retained, this information can be obtained at a later date; however, the information should be provided as soon as possible.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 19 of 40

Acknowledgement Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 20 of 40

Remuneration or Commission Trust Agreement In a real estate transaction, the listing brokerage typically receives the gross remuneration paid for the trade. When an offer is accepted, and the transaction involves a co-operating brokerage, the agreement of purchase and sale provides for a trust agreement to be signed by the brokerages. The trust agreement indicates the funds will be held in trust by the listing brokerage. Signing is completed by each brokerage after acceptance of the offer, and not when the offer is first submitted to a seller or a buyer for signing. It is important to ensure the signing is done at the appropriate time as you must first have an accepted offer to base the trust agreement on. As a salesperson, you are authorized to sign this on behalf of the brokerage. A brokerage may operate an account used specifically for the receipt and disbursement of remuneration. This is referred to as a remuneration or commission trust account, and it could be a requirement for a brokerage to maintain one if they are a member of a local real estate board. REBBA does not require a brokerage to maintain a remuneration or commission trust account, however as part of the professional liability insurance program ©2019 Real Estate Council of Ontario

administered by RECO, the insurer encourages the use of one to help protect your remuneration. Under the insurance program, coverage may be provided for loss of remuneration if a brokerage becomes insolvent, or if there is theft, fraud, or misappropriation of funds. A remuneration or commission trust account is in addition to the statutory trust account maintained by all brokerages for the receipt and disbursement of a buyer’s deposit. Information regarding the insurance program is detailed in a later module.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 21 of 40

Commission Trust Agreement Clause As an example, the given clause could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 22 of 40

Once the seller or buyer signs to accept the purchase and sale of a property, a salesperson will need to complete the Acknowledgement, Information on Brokerage(s), and Commission Trust Agreement section of the agreement. Which of the following statements belong to Remuneration or Commission Trust Agreement section of the agreement? There are nine options. There are multiple correct answers. 1 2 3 4 5 6 7 8 9

Lists the address for service for the seller and buyer. Signed by the seller and buyer after the Confirmation of Acceptance has been completed. Provides proof the seller and buyer have received signed copies of the agreement. Gives the salesperson authority to forward a copy of the contract to the lawyers for the seller and buyer. Lists the salesperson or broker’s name. Lists the telephone number for the brokerage. Only lists the listing brokerage information in a multiple representation situation. Only required if a co-operating brokerage is involved. Declares all remuneration will be held by the listing brokerage in a remuneration or commission trust account.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 23 of 40

Electronic Signatures As an alternative to hand written signatures, Ontario’s Electronic Commerce Act permits the use of electronic signatures for an agreement of purchase and sale. Using electronic signatures requires the method be:  Authenticated, that is, the ability to confirm the signature is from the person it is supposed to be  Protected from unauthorized use, by being permanent and tamper-proof which prevents fraudulent use of the signature To use electronic signatures, all parties must consent. While consent can be implied, it is recommended the consent be in writing to avoid future disputes. If any party to the agreement insists on using written signatures, the agreement must be signed by all parties this way. Information on the Electronic Commerce Act and the use of electronic signatures was detailed in an earlier module. ©2019 Real Estate Council of Ontario

Lesson 4 | Page 24 of 40

Electronic Signatures Clause Clause 27 in the agreement of purchase and sale states:

OREA ELEC–1 Clause ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 25 of 40

Initialling and signing the agreement of purchase and sale is important. Which of the following statements are true related to signatures and initials? There are six options. There are multiple correct answers. 1 2 3 4 5 6

Signing under seal means an offer cannot be revoked during the irrevocable time period. Ontario’s Electronic Commerce Act does not permit a seller or buyer to use electronic signatures on the agreement of purchase and sale. Initials on the agreement indicate the buyer (or seller) has read, understands and agrees to the contents on the page. To use electronic signatures, a salesperson will need to add a consent to electronic signatures clause to Schedule A of the agreement. The salesperson must witness the seller or buyer’s signature. On a pre-printed agreement of purchase and sale, a seal may be indicated by a symbol.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 26 of 40

Schedules A schedule is used to insert additional terms, conditions, warranties, etc. which the seller and the buyer agree to. Any number of additional schedules can be attached to the agreement and are identified in sequential order, for example, Schedule A, Schedule B, Schedule C, etc. As explained in Lesson 1, these schedules are also identified on the first page of the agreement of purchase and sale to ensure all schedules are retained with the negotiated offer. All schedules must be initialled by the parties to the transaction. Schedules can be required for many reasons. Throughout the previous lessons, there have been many examples of a clause being required for an agreement. In a later module, information on the types of clauses and conditions contained in an agreement of purchase and sale are detailed. Additionally, schedules may be required for complex legal descriptions, detailed lists, a survey, rent roll, lengthy chattels/fixtures list, etc.

©2019 Real Estate Council of Ontario

Ensure the contents of any schedule are fully understood by the parties as the terms on any schedule form a part of the agreement. Pay particular attention to wording that impact the pre-set clauses on the agreement of purchase and sale. When a conflict or discrepancy exists between the pre-set text and the information inserted on the agreement or a schedule, remember the inserted text supersedes the pre-set text.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 27 of 40

Reference the Schedule to the Agreement of Purchase and Sale Any schedule must be fully cross-referenced to the agreement of purchase and sale to avoid any possible confusion should the schedule become detached from the balance of the agreement. To do this, ensure all schedules to the agreement include the given information:  Buyer(s) name(s)  Seller(s) name(s)  Address of the property  Date of the offer This information must match the information on the first page of the agreement.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 28 of 40

Schedule Example As an example, the given lines could be used for this purpose:

From OREA Form 100: Agreement of Purchase and Sale, Schedule A ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 29 of 40

Buyer Agrees to Pay the Balance As Follows An agreement of purchase and sale contains the given statement: “Buyer agrees to pay the balance as more particularly set out in Schedule A attached”. The schedule will now include the specifics associated with this statement. All agreements of purchase and sale must include a clause relating to the buyer’s obligations to pay the balance. The appropriate clause should contain these six key elements to describe the amount due to the seller on completion of the transaction: 1. By whom 2. The amount ©2019 Real Estate Council of Ontario

3. 4. 5. 6.

Adjustments To whom When it will be paid How it will be paid

A well-written clause will contain all six elements, including the method of payment (i.e., by certified cheque or bank draft), and “subject to adjustments”. You do not need to include the name of the seller or the closing date in the clause. The amount due on completion can be calculated using the given format: Purchase price less:  Any seller take back mortgage  Any mortgage being assumed  Any and all deposit(s) This can be easily recalled by using the given: Purchase price less:  S (Seller take back mortgage)  A (Assumed mortgage)  D (Deposit(s))

©2019 Real Estate Council of Ontario

Lesson 4 | Page 30 of 40

Buyer Agrees to Pay the Balance Examples Example 1: A buyer is offering $500,000 for a property. The buyer has $200,000 to use as a down payment out of which, he will submit a $50,000 deposit upon acceptance. The buyer will be arranging a new first mortgage for the required funds of $300,000. The seller is not willing to take back mortgage and there is no mortgage assumption. The calculation of the amount due on completion would be done in the given manner: Purchase price $500,000 Less Seller take back 0 Less Assumed mortgage - 0 Less Deposit(s) - 50,000 Balance due $450,000

©2019 Real Estate Council of Ontario

In this scenario, the buyer will pay the balance due by using the remaining funds set aside for the down payment (i.e., $150,000), plus the monies received from the new first mortgage (i.e., $300,000). Example 2: A buyer is offering $500,000 for a property. The buyer has $200,000 to use as a down payment out of which, he will submit a $50,000 deposit upon acceptance. The buyer will assume the seller’s existing first mortgage with a current balance of approximately $300,000. The calculation of the amount due on completion would be done in the given manner: Purchase price $500,000 Less Seller take back - 0 Less Assumed mortgage - 300,000 Less Deposit(s) - 50,000 Balance due $150,000 In this scenario, the buyer will pay the balance due by using the remaining funds set aside for the down payment (i.e., $150,000). As the buyer is assuming the seller’s mortgage, the buyer would not provide these funds to the seller on completion. Example 3: A buyer is offering $500,000 for a property. The buyer has $200,000 to use as a down payment out of which, he will submit a $50,000 deposit upon acceptance. The seller agrees to hold a new first mortgage for $300,000. The calculation of the amount due on completion would be done in the given manner: Purchase price $500,000 Less Seller take back - 300,000 Less Assumed mortgage - 0 Less Deposit(s) - 50,000 Balance due $150,000 In this scenario, the buyer will pay the balance due by using the remaining funds set aside for the down payment (i.e., $150,000). As the seller is agreeing to provide financing to the buyer, the buyer would not provide these funds to the seller on completion; rather the buyer would make mortgage payments to the seller as agreed to in the offer. Information regarding clauses and conditions included in an agreement of purchase and sale are detailed in later modules. If the buyer is arranging a new mortgage from an outside source, these monies are included in the balance due to the seller. The next few screen provides additional information related to the balance due clause. ©2019 Real Estate Council of Ontario

Lesson 4 | Page 31 of 40

Payment of Balance Clause Examples There are two options when identifying the buyer’s obligation to pay the balance due on completion. If an offer contains a seller take back mortgage (i.e., the seller is providing financing for the buyer’s purchase), or the buyer is assuming the seller’s existing mortgage, the offer must use a clause which identifies the amount owed. Otherwise, a clause which states “the balance of the purchase price” can be used which does not require the calculation of the amount due. A Further Sum of

©2019 Real Estate Council of Ontario

The Buyer agrees to pay a further sum of ____________________ ($ __________), subject to adjustments, to the Seller on completion of this transaction, with funds drawn on a lawyer’s trust account in the form of a bank draft, certified cheque or wire transfer using the Large Value Transfer System. OREA DEP/PAY-1 Clause ©2022 Ontario Real Estate Association. All rights reserved. Used under license. Balance of Purchase Price The Buyer agrees to pay the balance of the purchase price, subject to adjustments, to the Seller on completion of this transaction, with funds drawn on a lawyer's trust account in the form of a bank draft, certified cheque or wire transfer using the Large Value Transfer System. OREA DEP/PAY-2 Clause ©2022 Ontario Real Estate Association. All rights reserved. Used under license. If using this clause, you, as a salesperson, must ensure that the buyer understands how much the balance due amount is.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 32 of 40

A buyer is offering $600,000 for a property. The buyer has $180,000 to use as a down payment out of which, he will submit a $60,000 deposit upon acceptance. The buyer will assume the seller’s existing first mortgage with a current balance of $420,000. What will be the amount due from the buyer on completion? There are three options. There is only one correct answer. 1 2 3

$120,000 $140,000 $165,000

©2019 Real Estate Council of Ontario

Lesson 4 | Page 33 of 40

A buyer would like to make an offer on a property but is out of town on business. Because the buyer does not have access to a printer, the buyer would like to sign the offer drafted by the brokerage using the brokerage’s online software. The buyer wishes to make two separate deposits. The first deposit will be delivered to the listing brokerage 72 hours following the acceptance of the agreement and the second deposit within 24 hours following the delivery of the first deposit. Based on this scenario, the electronic signatures clause would be added to Schedule A. Identify if the statement is true. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 34 of 40

A buyer would like to make an offer on a property but is out of town on business. Because the buyer does not have access to a printer, the buyer would like to sign the offer drafted by the brokerage using the brokerage’s online software. The buyer wishes to make two separate deposits. The first deposit will be delivered to the listing brokerage 72 hours following the acceptance of the agreement and the second deposit within 24 hours following the delivery of the first deposit. Based on this scenario, the buyer’s initial would be added to Schedule A. Identify if the statement is true. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 35 of 40

A buyer would like to make an offer on a property but is out of town on business. Because the buyer does not have access to a printer, the buyer would like to sign the offer drafted by the brokerage using the brokerage’s online software. The buyer wishes to make two separate deposits. The first deposit will be delivered to the listing brokerage 72 hours following the acceptance of the agreement and the second deposit within 24 hours following the delivery of the first deposit. Based on this scenario, the deposit clause would not be added to Schedule A. Identify if the statement is true. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 36 of 40

A buyer would like to make an offer on a property but is out of town on business. Because the buyer does not have access to a printer, the buyer would like to sign the offer drafted by the brokerage using the brokerage’s online software. The buyer wishes to make two separate deposits. The first deposit will be delivered to the listing brokerage 72 hours following the acceptance of the agreement and the second deposit within 24 hours following the delivery of the first deposit. Based on this scenario, the payment of balance clause would be added to Schedule A. Identify if the statement is true. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 37 of 40

A buyer would like to make an offer on a property but is out of town on business. Because the buyer does not have access to a printer, the buyer would like to sign the offer drafted by the brokerage using the brokerage’s online software. The buyer wishes to make two separate deposits. The first deposit will be delivered to the listing brokerage 72 hours following the acceptance of the agreement and the second deposit within 24 hours following the delivery of the first deposit. Based on this scenario, the closing date would be added to Schedule A. Identify if the statement is true. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 38 of 40

A buyer would like to make an offer on a property but is out of town on business. Because the buyer does not have access to a printer, the buyer would like to sign the offer drafted by the brokerage using the brokerage’s online software. The buyer wishes to make two separate deposits. The first deposit will be delivered to the listing brokerage 72 hours following the acceptance of the agreement and the second deposit within 24 hours following the delivery of the first deposit. Based on this scenario, the address of the property being sold would be added to Schedule A. Identify if the statement is true. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 39 of 40

Congratulations, you have completed the lesson! There are eight sections on this page with a summary of the key topics that were discussed in this lesson.

Seller and Buyer Signatures and Date

Sellers and buyers are asked to sign and date the agreement when the agreement is first addressed by the party. A seller and buyer will sign using their usual signature. Corporations, estates, powers of attorney, and in trust sellers or buyers require specific notations with their signatures.

Witness

Any party signing the agreement should have a witness to their signing, ideally the salesperson. The role of the witness can become important in the event of any disputes. If a witness is someone other than the salesperson, obtain the witness’s identity and contact information for the brokerage. A salesperson should never sign as a witness if they did not actually see the person sign the document.

Signing Under Seal

In a real estate transaction, the seller and the buyer are advised they are signing the agreement of purchase and sale under seal which binds the party to their offer. Signing under seal prohibits the party making the offer from cancelling it once received by the other party. If the offer is not signed under seal, the party would be allowed to cancel their offer at any time prior to the other party’s acceptance. The party signing must be aware of the legal effect a seal has on the contract. Therefore, as a salesperson, it is important to ensure a seller and a buyer are fully informed prior to signing. For all pages where a signature is not obtained, the parties to the agreement will be asked to initial that page. This signifies the party initialling has read, understands, and agrees to the contents of both the pre-set and the inserted text on that page.

Initials Spousal Consent

Spousal consent is obtained from the non-titled spouse when the agreement of purchase and sale is for a matrimonial home. If no spousal consent is required, this area of the agreement is left blank.

©2019 Real Estate Council of Ontario

Confirmation of Acceptance

The agreement of purchase and sale must identify the exact time and date the offer was accepted by the seller or the buyer. The last person signing or initialling has the responsibility to accurately complete the information. The agreement must be accepted and communication of the acceptance made to the other party within the irrevocable date and time period. The time and date can be key when establishing time limits for certain types of conditions and obtaining a deposit from a buyer.

Information on Brokerages

The information for the listing brokerage and the co-operating/buyer brokerage is provided, including brokerage name, phone number, and name of the individual representing the brokerage. In some instances, only the information for the listing brokerage or the buyer’s brokerage is included.

Acknowledgement

An acknowledgement is signed by the seller and the buyer when they receive their copy of the accepted agreement of purchase and sale. The acknowledgement includes the parties’ address for service and the contact details for their respective lawyers. The acknowledgement provides proof the seller and the buyer have received signed copies of the accepted agreement of purchase and sale, which is required under the Code of Ethics. It also provides authority to forward a copy of the agreement to the lawyers.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 40 of 40

There are four sections on this page with a summary of the key topics that were discussed in this lesson.

Remuneration or Commission Trust Agreement

A remuneration or commission trust agreement can be entered into when there is both a listing brokerage and a co-operating brokerage involved in the sale. It is a declaration by the listing brokerage that all remuneration for the sale will be held in a remuneration or commission trust account. In the event the listing brokerage becomes insolvent or bankrupt, the Remuneration or Commission Trust Agreement provides protection for the co-operating brokerage. A salesperson is authorized to sign this section on behalf of the brokerage.

Electronic Signatures

The agreement of purchase and sale includes a pre-printed clause stating that the seller and buyer consent and agree to the use of electronic signatures. No additional clause to Schedule A is needed. Schedule A is standard part of the agreement and is used to insert offer terms, conditions, and other miscellaneous clauses. Identify schedules as A, B, C, D, etc. and attach in the same order. Ensure all parties understand what each schedule says and review to assess whether terms added to a schedule would conflict with any pre-set clause.

Schedules

Cross-reference all schedules to the agreement of purchase and sale by inserting the given information: Buyer(s) name(s), Seller(s) name(s), Address of the property, Date of the offer. This information appears at the top of the schedule and must match the information on the first page of the agreement.

Balance Due on Closing

All agreements must include a clause that addresses the balance due on closing. Options exist for an appropriate clause to be inserted, however if the agreement contains an assumed mortgage or a seller take back mortgage, a specific clause is to be used.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 1 of 22

Lesson 5: Summary Practice Activities

This lesson provides a series of activities that will test your knowledge on the entire module.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 2 of 22

This lesson reviews content covering the standard clauses provided on an agreement of purchase and sale. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 3 of 22

Each property must have an accurate description that distinguishes it from other properties. Accuracy in the Real Property description benefits both the seller and buyer. Which of the following statements are correct with respect to the Real Property description in an agreement of purchase and sale? There are five options. There are multiple correct answers. 1 2 3 4 5

A survey can be attached as a schedule to an agreement of purchase and sale only if a proper legal description is not available. The wording “more or less” in the property description protects the seller from any discrepancy in the lot size. The legal description LT 27, PL 3836, S/T EB133749 indicates an easement or right of way on the property. A salesperson should verify a property’s lot size using a primary document such as one prepared by a certified Ontario land surveyor. A property facing north would be described in an agreement of purchase and sale as fronting on the north side of a street.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 4 of 22

In addition to the purchase price, a salesperson should discuss with the buyer the deposit requirements as per the seller's direction, should the buyers wish to make an offer on a property. Which of the following statements are true related to deposits? There are five options. There are multiple correct answers. 1 2 3 4 5

A deposit is a sign of good faith in purchasing a property. There is no minimum deposit requirement. The buyer typically makes the deposit payable to the co-operating brokerage. A buyer who chooses to make a deposit “upon acceptance” has 72 hours to submit the deposit. Once the irrevocable time and date pass and the offer is not accepted, the buyer is entitled to receive a full refund of any deposit that was submitted with the offer. The deposit amount varies based on such considerations as the conditions within the local market, and where the property is situated.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 5 of 22

The Irrevocability clause relates to the time limit given by one party for the other party to accept an offer. Which of the following statements are true related to the Irrevocability clause? There are four options. There are multiple correct answers. 1 2 3 4

An offer expires if it is not accepted by the date and time specified in the Irrevocability clause. If an offer is not accepted within the time limit set by the Irrevocability clause, the buyer will receive a full refund of any deposit submitted with the offer. The refund will be without any interest. The Irrevocability clause only applies to the buyer making an offer. A seller is free to accept other offers once the seller's irrevocable time limit has passed.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 6 of 22

The completion date, also known as the closing date, is an important part of the agreement of purchase and sale. Which of the following statements are true related to the Completion Date clause? There are four options. There are multiple correct answers. 1 2 3 4

A buyer receives the transfer of title from the seller for a property on the closing date. The land registry office influences the completion date. A tenanted property would not impact the completion date. If vacant possession cannot be given because a property is tenanted, a seller can add a clause to a schedule stating the buyer agrees to assume the tenancy until the end of the lease period.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 7 of 22

When completing the agreement of purchase and sale, leaving a clause incomplete can have significance. Which of the following statements are true if the clause is not completed? There are five options. There are multiple correct answers. 1 2 3 4 5

If the present use in the Title Search clause is not identified, this means the seller is not representing that the present use is legal. If there are no rental items identified, this means the seller is representing any hot water tank, and furnace present in the property is owned and included in the purchase price. Only a brokerage’s email or fax number can be entered into the Notices clause. If no fixtures are identified as excluded, this means the seller is agreeing to include all appliances in the property such as the stove, refrigerator, microwave oven, washer and dryer. The requisition date in the agreement of purchase and sale sets a deadline for the opportunity to examine title, including matters that go to the root of that title.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 8 of 22

Some clauses on the agreement of purchase and sale assign responsibility to the buyer or provide the buyer with certain rights. Which of the following statements are true? There are four options. There are multiple correct answers. 1 2 3 4

The time limit expressed in the Title Search clause should extend beyond the time limits expressed in any conditions in the agreement of purchase and sale. The deed in a real estate transaction is typically prepared at the buyer’s cost. The Inspection clause does not give the buyer a right to re-inspect the property prior to closing. If substantial damage occurs to a house prior to the completion date, the agreement will be automatically terminated.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 9 of 22

Some clauses are required to deal with certain statutes, such as the Family Law Act, the Planning Act and the Income Tax Act. Which of the following statements about clauses referencing statutes are true? There are four options. There are multiple correct answers. 1 2 3 4

The seller is required by an agreement of purchase and sale to provide an up-to-date survey to the buyer. If the sale of a property requires a consent to sever for the transaction to be completed, the agreement is deemed invalid if the necessary consent is not obtained. The seller of a property in Ontario who lives in the U.S. could have funds withheld upon closing to ensure any Canadian taxes owing are paid. A non-titled spouse does not need to sign the agreement of purchase and sale of the matrimonial home as a seller.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 10 of 22

©2019 Real Estate Council of Ontario

Mr. and Mrs. Metzger are the buyer, and Michael Sandhu is the seller of 238 Main Street in Anycity. An initial offer by the Metzgers was finally accepted by Michael after much thought. The irrevocable date on this offer was September 23, 2019. Possible errors that can occur on page 5 of the Agreement of Purchase and Sale are as follows: SIGNED, SEALED, AND DELIVERED:  Only one witness signature, but two buyers’ signatures.  One of the buyers does not date the signature.  The seller’s signature is beyond the irrevocable date.  The seller’s signature is not witnessed. CONFIRMATION OF ACCEPTANCE:  The Confirmation of Acceptance is signed the day before the seller actually accepted the offer, and one day after the irrevocable time period had expired.  The wrong person is signing the Confirmation of Acceptance. If Sandhu accepted the initial Metzger offer, then the seller should execute the confirmation of acceptance. ACKNOWLEDGEMENT:  Only one buyer signed the acknowledgement.  All the acknowledgement show a signature date two days after the irrevocable time period had expired. COMMISSION TRUST AGREEMENT:  The Commission Trust section is not signed.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 11 of 22

A salesperson needs to ensure all the information and signatures required for page 5 of the agreement of purchase and sale (OREA Form 100) are fully and correctly completed. An incorrectly completed agreement of purchase and sale can have significant legal ramifications and costs. Which of the following statements related to the brokerage information, acknowledgement, and commission trust are true? There are six options. There are multiple correct answers. 1 2 3 4 5 6

If the buyer (or seller) doesn’t yet have a lawyer when they sign the confirmation of acceptance, they can leave the lawyer information in the Acknowledgement section blank. The signing of the Commission Trust Agreement is completed before an offer is submitted to the seller. The seller and buyer signature in the Acknowledgement section allows the salesperson to forward a copy of the contract to their lawyer. In a multiple representation situation, only include information on the co-operating brokerage under the Information on Brokerages. When lawyer information is known, their contact information is added to the Acknowledgement section of the agreement. The Acknowledgement provides proof the seller and buyer have received a copy of the agreement of purchase and sale.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 12 of 22

George Patrick McRowe and Sophie Elise McRowe are buying their first home with the help of their salesperson, Kristina Petwig. The home they are buying is 116 Church Street, Anytown, A0A 0A0. The sellers, Pietro Emilio Francesco and Maria Anna Francesco are working with their salesperson, Abdul Kapul. The sellers and buyers have come to agreement and have all signed an agreement of purchase and sale. The sale of the property completes on October 3, 2019, with a purchase price of $465,000. The McRowes wanted assurances that the building does not contain or has ever contained Urea Formaldehyde Foam Insulation (UFFI). Which of the following statements is true? There are four options. There is only one correct answer. 1 2 3 4

The offer date in the agreement is October 3, 2019. The Francescos and the McRowes need only include their last names in the Seller and Buyer lines on the agreement. The full property address—116 Church Street, Anytown, A0A 0A0—forms a complete description of the property for the Real Property section of the purchase agreement. Each salesperson should independently verify the identities of their clients.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 13 of 22

George Patrick McRowe and Sophie Elise McRowe are buying their first home with the help of their salesperson, Kristina Petwig. The home they are buying is 116 Church Street, Anytown, A0A 0A0. The sellers, Pietro Emilio Francesco and Maria Anna Francesco are working with their salesperson, Abdul Kapul. The sellers and buyers have come to agreement and have all signed an agreement of purchase and sale. The sale of the property completes on October 3, 2019, with a purchase price of $465,000. The legal description for the property is LT 17, PL 23M-1642, S/T EB132958. The entire legal description means lot 17 under registered plan number 23M-1642 with an easement number 132958, where:  LT—Lot number  17—The lot number assigned to the property is lot 17  PL—Plan information  23—The Land Registry Office is identified by the number 23  M—Indicates the plan of subdivision is registered under Land Titles  1642—This plan is registered as number 1642  S/T—Indicates an easement or right of way on the property  EB132958—Indicates an easement number 132958 registered on the property

©2019 Real Estate Council of Ontario

Lesson 5 | Page 14 of 22

George Patrick McRowe and Sophie Elise McRowe are buying their first home with the help of their salesperson, Kristina Petwig. The home they are buying is 116 Church Street, Anytown, A0A 0A0. The sellers, Pietro Emilio Francesco and Maria Anna Francesco are working with their salesperson, Abdul Kapul. The sellers and buyers have come to agreement and have all signed an agreement of purchase and sale. The sale of the property completes on October 3, 2019, with a purchase price of $465,000. The McRowes have $70,000 available for a down payment and have been approved for a mortgage for $395,000. They paid a $10,000 deposit upon acceptance of the offer. How much of their down payment will the McRowes need to use upon completion? There are three options. There is only one correct answer. 1 2 3

$60,000 $40,000 $50,500

©2019 Real Estate Council of Ontario

Lesson 5 | Page 15 of 22

George Patrick McRowe and Sophie Elise McRowe are buying their first home with the help of their salesperson, Kristina Petwig. The home they are buying is 116 Church Street, Anytown, A0A 0A0. The sellers, Pietro Emilio Francesco and Maria Anna Francesco are working with their salesperson, Abdul Kapul. The sellers and buyers have come to agreement and have all signed an agreement of purchase and sale. The sale of the property completes on October 3, 2019, with a purchase price of $465,000. The McRowes have $70,000 available for a down payment and have been approved for a mortgage for $395,000. They paid a $10,000 deposit upon acceptance of the offer. How much will the McRowes need to provide on completion of the transaction? There are three options. There is only one correct answer. 1 2 3

$455,000 $445,000 $460,000

©2019 Real Estate Council of Ontario

Lesson 5 | Page 16 of 22

George Patrick McRowe and Sophie Elise McRowe are buying their first home with the help of their salesperson, Kristina Petwig. The home that the buyers wish to purchase is in 116 Church Street, Anytown, AOA OAO and they have submitted an agreement of purchase and sale with a three-day irrevocable period. If the McRowes had found another property that they preferred during the irrevocable period, what should their salesperson, Kristina Petwig, advise them? There are four options. There is only one correct answer. 1 2 3 4

Make an offer on the second property immediately, as the sellers may reject the offer. Withdraw the offer and communicate that withdrawal. Wait until after the irrevocable period has expired or the sellers submit a counter offer before submitting an offer on the second property. Submit an offer on the second property, as the irrevocable clause is not valid as consideration for the offer, and irrevocable time period has not been given.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 17 of 22

George Patrick McRowe and Sophie Elise McRowe are buying their first home with the help of their salesperson, Kristina Petwig. The home they are buying is 116 Church Street, Anytown. The sellers, Pietro Emilio Francesco and Maria Anna Francesco are working with their salesperson, Abdul Kapul. The sellers and buyers have come to agreement and have all signed an agreement of purchase and sale. The sale of the property completes on October 3, 2019, with a purchase price of $465,000. The purchase includes all kitchen appliances. It excludes the dining room chandelier, which the Francescos received as a wedding gift from Maria’s parents. The only item on the property being leased is a hot water tank. The McRowes would like to continue with the lease. The house has never been substantially renovated. The property has been sold once before, since it was built 20 years ago. Which of the following statements are true? There are five options. There are multiple correct answers. 1 2 3 4 5

Harmonized Sales Tax (HST) will be payable by the buyers, the McRowes. The kitchen appliances should be listed in detail in the Chattels Included clause. Since the chandelier is a chattel, there is no need to mention it in the agreement of purchase and sale. Harmonized Sales Tax (HST) will be payable by the sellers, the Francescos. The hot water heater should be included in the Rental Items clause.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 18 of 22

George Patrick McRowe and Sophie Elise McRowe are buying their first home with the help of their salesperson, Kristina Petwig. The home they are buying is 116 Church Street, Anytown, A0A 0A0. The sellers, Pietro Emilio Francesco and Maria Anna Francesco are working with their salesperson, Abdul Kapul. The sellers and buyers have come to agreement and have all signed an agreement of purchase and sale. The completion date is October 3, 2019 and the purchase price is $465,000. The agreement of purchase and sale includes clauses on title search, future use, and title. Which of the following statements are true with respect to the given clauses? There are six options. There are multiple correct answers. 1 2 3 4 5 6

In the future, the McRowes may wish to convert the home to a small bed and breakfast. The Future Use clause guarantees they would be able to do so. In the agreement of purchase and sale, the chosen date for the title search clause should be October 4 or later. The title search date should be a date after conditions are fulfilled or waived. If the McRowes’ lawyer uncovers any title objections, the lawyer can cancel the contract immediately. Part of the role of the McRowes’ lawyer is to confirm the zoning for the property. If a title objection cannot be remedied or removed, or if the seller is unwilling to resolve the objection, the agreement ends and the buyer’s deposit is returned.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 19 of 22

George Patrick McRowe and Sophie Elise McRowe are buying their first home with the help of their salesperson, Kristina Petwig. The home they are buying is 116 Church Street, Anytown, A0A 0A0. The sellers, Pietro Emilio Francesco and Maria Anna Francesco are working with their salesperson, Abdul Kapul. The sellers and buyers have come to agreement and have all signed an agreement of purchase and sale. The sale of the property completes on October 3, 2019, with a purchase price of $465,000. Which of the following is true with respect to the Inspection and Insurance clauses in the agreement of purchase and sale? There are four options. There are multiple correct answers. 1 2 3 4

The Inspection clause in the agreement of purchase and sale provides for a home inspection to be completed for the buyer. If the McRowes want a pre-closing viewing of the property, the agreement should include an additional clause allowing them to revisit the property before closing. Once an offer is accepted, the property must be insured by the buyers as they now have a legal interest in the property. If the buildings on the property are destroyed by fire, the buyers can elect to still complete the purchase.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 20 of 22

George Patrick McRowe and Sophie Elise McRowe are buying their first home with the help of their salesperson, Kristina Petwig. The home they are buying is 116 Church Street, Anytown, A0A 0A0. The sellers, Pietro Emilio Francesco and Maria Anna Francesco are working with their salesperson, Abdul Kapul. The sellers and buyers have come to agreement and have all signed an agreement of purchase and sale. The sale of the property completes on October 3, 2019, with a purchase price of $465,000. The McRowes wanted assurances that the building does not contain or has ever contained Urea Formaldehyde Foam Insulation (UFFI). Which of the following is true regarding the Urea Formaldehyde Foam Insulation (UFFI) clause? There are four options. There is only one correct answer. 1 2 3 4

The warranties and representations in the Urea Formaldehyde Foam Insulation (UFFI) clause still apply even after closing. The Urea Formaldehyde Foam Insulation (UFFI) clause warrants that the seller cannot confirm whether the property has ever been insulated with UFFI. The Urea Formaldehyde Foam Insulation (UFFI) clause only applies to a property built after the 1980s. The Urea Formaldehyde Foam Insulation (UFFI) clause acknowledges that the seller is not providing any representations and warranties with respect to the presence or absence of UFFI.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 21 of 22

George Patrick McRowe and Sophie Elise McRowe are buying their first home with the help of their salesperson, Kristina Petwig. The home they are buying is 116 Church Street, Anytown, A0A 0A0. The sellers, Pietro Emilio Francesco and Maria Anna Francesco are working with their salesperson, Abdul Kapul. The sellers and buyers have come to agreement and have all signed an agreement of purchase and sale. The sale of the property completes on October 3, 2019, with a purchase price of $465,000. The McRowes offer was finally accepted by the Francescos on July 25, 2019. Which of the following statements about the agreement of purchase and sale are correct? There are four options. There are multiple correct answers. 1 2 3 4

Because the sellers are both Pietro and Maria, the Spousal Consent clause is left blank. The Confirmation of Acceptance would be completed by either Maria or Pietro Francesco. There is no co-operating brokerage in this transaction and so the Information on Brokerages section should be left blank. Only the salespersons involved in the transaction can witness the signatures of the sellers and buyers.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 22 of 22

Congratulations, you have completed the lesson!

©2019 Real Estate Council of Ontario

Module Summary | Page 1 of 3

Module Summary

This lesson contains a summary of the entire module and a list of helpful resources available in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 2 of 3

Congratulations, you have completed this module! This lesson will present a summary of Learning Objectives and a list of helpful resources that you can search for in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 3 of 3

There are four sections on this page with a summary of the key topics that were discussed in this module.

The Parties, Property Description, Purchase Price, and Deposit

As a salesperson, you will need to complete the agreement of purchase and sale accurately. This lesson detailed how to properly complete the date of the offer, seller and buyer names, the property description, purchase price, deposit and deposit holder, and any schedule attached to the agreement. When completing seller and buyer names, use their full legal names. Verify ownership and the names of the parties using the appropriate documentation. Other considerations for seller and buyer names include: corporation, partnership, estate trustee, and power of attorney. To describe a property, you require five pieces of information: municipal address, side of the road the property fronts on, municipality, lot size, and legal description including easements. Ensure the property description is accurate and make sure you verify details using source documents. The purchase price is the total money the seller is to receive in return for transferring title on the completion date. When indicating this on the offer, ensure the numbers and words for the purchase price match. A deposit is any money paid by the buyer prior to the transaction closing. The amount is identified in both words and numbers. The deposit can be paid upon acceptance of the offer, herewith the offer, or as otherwise described in the offer. The amount of the deposit can vary according to jurisdictions and there is no minimum amount. However, a deposit is often deemed to be a sign of good faith indicating the buyer’s intent to complete the transaction. The details of how the buyer will pay the balance of the purchase price are set out in a clause to be inserted on Schedule A.

©2019 Real Estate Council of Ontario

Completion of this lesson has enabled you to identify and explain the information typically required to detail key aspects of the parties, property description, purchase price, and deposit provisions in an agreement of purchase and sale.

Clauses Typically Included in a Residential Agreement of Purchase and Sale – Part 1

The OREA Agreement of Purchase and Sale (Form 100) commonly used in residential transactions contains pre-set clauses. You will need to complete and explain these clauses when you work with sellers and buyers: The Irrevocability clause specifies the time limit for acceptance of an offer. If not accepted, or communication of the acceptance is not completed during the irrevocable period, the offer expires and becomes null and void. The completion date clause specifies the date the transfer of title occurs. The pre-set clause provides for vacant possession, unless an alternative arrangement is stated in the agreement. The completion date cannot be on a Saturday, Sunday, or statutory holiday. The Notices clause identifies the various ways in which notices necessary to the agreement may be given and received. The Chattels Included clause identifies any chattels to be included, such as furniture or appliances. The Fixtures Excluded clause identifies any fixtures to be excluded from the sale, such as a specific light fixtures or mirror. If no fixture is identified as excluded, all fixtures are to remain with the property when it is sold. The Rental Items clause provides information on any rental item buyers will assume when the transaction is completed. These are items not owned by the seller and might include an alarm system, hot water tank, furnace and air conditioner, etc. The HST clause specifies whether the sale of the property is subject to Harmonized Sales Tax (HST) and describes who is responsible to pay the applicable amount. Title Search clause specifies the time period, known as the Requisition Date, the buyer’s lawyer has to complete a title search on the property. The clause also allows for the buyer’s lawyer to investigate non-title aspects of the property such as outstanding work orders, deficiency notices, zoning compliance, and the obtaining of fire insurance.

©2019 Real Estate Council of Ontario

The Future Use clause provides an acknowledgement from the seller and the buyer that unless otherwise provided for in the agreement, there is no representation or warranty that the intended future use of the property will be lawful. The Title clause warrants to the buyer the title is good and free from restrictions, charges, liens, easements, and encumbrances with the exception of certain specified matters.

Clauses Typically Included in a Residential Agreement of Purchase and Sale – Part 2

Completion of this lesson has enabled you to identify and explain the clauses typically included in an agreement of purchase and sale. You will need to understand and explain these clauses when you work with sellers and buyers: The Closing Arrangements clause informs the parties of the procedure to complete the transaction, including when the transaction is being completed electronically. The Documents and Discharge clause requires the seller to deliver to the buyer those documents in the seller’s possession respecting the property, such as copies of surveys and deeds. The Inspection clause acknowledges the buyer has had the opportunity to personally inspect the property prior to submitting an offer. The Insurance clause specifies the seller is responsible for maintaining insurance on the property until closing. The Planning Act clause requires compliance with the Planning Act, which governs activities such as a consent for severance. The Document Preparation clause requires the seller to prepare and pay for the transfer/ deed. The Residency clause addresses the buyer’s obligations regarding any income tax payable by the seller who is a non-resident of Canada. The Adjustments clause requires the seller and the buyer acknowledge that any items to be adjusted on when the transaction is completed, will be adjusted based on the day of closing being apportioned to the buyer.

©2019 Real Estate Council of Ontario

The Property Assessment clause requires the parties acknowledge that the property may be re-assessed on an annual basis and they may not make a claim against any brokerage, salesperson, or the other party should a reassessment take place. The Time Limits clause refers to time limits, and all parties must strictly adhere to meeting the obligations of such limits. The Tender clause specifies that each party must be able to demonstrate they are ready, willing, and able to complete the transaction on the date set for closing. In the Family Law Act clause, the seller warrants that no spousal consent is required unless the spouse has signed a consent in the area set aside for that signature. The UFFI clause provides a representation and warranty by the seller that any building located on the property does not contain, nor has ever contained, urea formaldehyde foam insulation. The Legal, Accounting and Environmental Advice clause provides acknowledgement by the sellers and the buyers that the brokerage and salesperson are not providing legal, tax or environmental advice. The Consumer Reports clause advises the buyer that a report containing credit and/or personal information may be referred to for the transaction. The Agreement in Writing clause establishes that information added to the agreement of purchase and sale takes precedence over any pre-set clause and that the written agreement constitutes the entire agreement between the parties. The Time and Date clause specifies that any time and date referred to in the agreement of purchase and sale are the time and date at the property location and not where the party signing the agreement may be located. The Successor and Assigns clause establishes that in the event the seller or the buyer dies before the transaction is completed, their heirs, executors, administrators, successors, and assigns are bound by the agreement. Completion of this lesson has enabled you to identify and explain the clauses typically included in an agreement of purchase and sale.

©2019 Real Estate Council of Ontario

The Signing Process and Attaching Schedules

When the parties agree to the terms of the agreement, as a salesperson, you will need to obtain their signatures and include specific information to complete the contract. Sellers and buyers will sign and date the agreement and have a witness to their signing. You will need to explain that by signing under seal, the seller or buyers are bound to their offer. For all pages where a signature is not obtained, you will need to ask the parties to the agreement initial those pages. For a seller of a matrimonial home who has a non-titled spouse, you will need to have the non-titled spouse sign the Spousal Consent portion of the agreement of purchase and sale. The Confirmation of Acceptance portion of the agreement of purchase and sale identifies the exact time and date the offer was accepted by the seller or the buyer. The last person signing or initialling has the responsibility to accurately complete the information. The Information on Brokerage(s) portion of the agreement of purchase and sale identifies information for the listing brokerage and the co-operating/buyer. An acknowledgement is signed by the seller and the buyer when they receive their copy of the accepted agreement of purchase and sale. The acknowledgement includes the parties’ address for service and the contact details for their respective lawyers. The acknowledgement provides proof the seller and the buyer have received signed copies of the accepted agreement of purchase and sale, which is required under the Code of Ethics. It also provides authority to forward a copy of the agreement to the lawyers. The Remuneration or Commission Trust Agreement portion of the agreement of purchase and sale applies to a trust agreement between a listing brokerage and a co-operating brokerage involved in the sale. The Electronic Signature clause is a pre-printed clause in the agreement of purchase and sale that states that the parties consent to the use of electronic signatures. Schedule A is standard part of the agreement and is used to insert offer terms, conditions, and other miscellaneous clauses. You will need to cross-reference all schedules to the agreement of purchase and sale by inserting the specific information at the top of the schedule to match the information on the first page of the agreement. All agreements must include a clause that addresses the balance due on closing.

©2019 Real Estate Council of Ontario

Completion of this lesson has enabled you to:  Identify and explain signing and initialling procedures and additional information required in an agreement of purchase and sale  Identify and explain requirements when attaching a schedule to an agreement of purchase and sale

©2019 Real Estate Council of Ontario

V7

Module 16: Completing a Residential Agreement of Purchase and Sale Including Terms for a Buyer or Seller Disclaimer: This is a reference document which contains pages from the Accessible eLearning module. You should complete the eLearning module to proceed to the next step. Please note that the accessible module on the LMS only contains the interactive pages and you need to go through the content of this document thoroughly to attempt the interactive activities in the module. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Salesperson Program ©2019 Real Estate Council of Ontario. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or in any means – by electronic, mechanical, photocopying, recording or otherwise without prior written permission, except for the personal use of the Real Estate Salesperson Program learner.

©2019 Real Estate Council of Ontario

Module 16: Completing a Residential Agreement of Purchase and Sale Including Terms for a Buyer or Seller An agreement of purchase and sale is a complex, legal document that once accepted, binds a seller and a buyer to the terms of the agreement. The role of a salesperson in a transaction can vary depending on the skills and experience of the seller or the buyer, the type of property being sold, and whether the relationship established between the brokerage is one of a client or a customer. A salesperson is relied on for many aspects of a transaction with one of the most important activities being the drafting, presenting, and negotiating of offers. The underlying requirements when activities relate to an offer include: • • • •

Accuracy in completing the agreement of purchase and sale Diligence in ensuring a seller’s or a buyer’s instructions are followed Competence when advising a seller or a buyer about terms included in an offer Integrity when ensuring the seller or the buyer fully understands their obligations before signing

This module focuses on being organized and capable to prepare an agreement of purchase and sale with the knowledge and skill required. The module will also introduce various clauses which can be included to an agreement of purchase and sale that address the unique aspects of an offer. To check your understanding of this module, you must complete all the activities in the online module.

©2019 Real Estate Council of Ontario

While navigating through the online module, click the Legislation button to view laws and regulations related to this module. While navigating through the online module, click the KMS button to access the Knowledge Management System or visit the Module Resources to find the list of all the KMS assets for this module. The contents of the thumbnail

and References from the module are added to support your learning

throughout this Accessible PDF.

©2019 Real Estate Council of Ontario

Menu: Completing a Residential Agreement of Purchase and Sale Including Terms for a Buyer or Seller Number of Lessons

4 Lessons

Lesson Number

Lesson Name

Lesson 1

Complete a Residential Agreement of Purchase and Sale

Lesson 2

Clauses in an Offer Identifying the Terms Parties Agree to

Lesson 3

Summary Practice Activities Module Summary

©2019 Real Estate Council of Ontario

Lesson 1 | Page 1 of 50

Lesson 1: Complete a Residential Agreement of Purchase and Sale In this lesson, you will identify the steps required to draft an offer with no conditions. You will also identify the importance of creating an offer plan prior to drafting an offer to gather, organize, and verify all pertinent information.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 2 of 50

This lesson introduces an offer plan which can be used to organize the key information required when drafting an offer. As you learned earlier, an agreement of purchase and sale is used to document the terms of an offer which is then presented to the other party for their consideration. This lesson will include drafting an offer from the buyer and completing an acceptance of the offer by the seller. Upon completion of this lesson, you will be able to: • Identify the steps required to draft an offer with no conditions • Draft an offer with no conditions • Identify how signing would be completed by a buyer when submitting an offer and by the seller when accepting the offer Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 3 of 50

The Offer Plan A key element in preparing an offer is ensuring the details, clauses including conditions and terms are accurate and complete. These terms identify what has been agreed to by the seller and the buyer, and there cannot be any ambiguity, misunderstanding or error. While many residential offers can be similar, no two transactions are alike. Competence when drafting an offer to ensure the requirements of each seller or buyer is addressed is important, as once an offer has been signed, the party is bound to that offer. To ensure the offer includes all requirements based on each situation, the information you will need to include should be summarized in advance. Before drafting an offer, create an offer plan to help ensure no detail is missed. ©2019 Real Estate Council of Ontario

Lesson 1 | Page 4 of 50

Information to Identify in an Offer Plan There are several steps that can be followed to ensure an offer is complete and addresses all requirements of the seller or the buyer. In some instances, a salesperson may not be the individual preparing the offer, so the directions to any other individual need to be clear to avoid any misunderstanding and errors. Identify the property address, and the legal names of the seller(s) and buyer(s) to ensure the offer plan is used for the correct offer. Use the following steps to prepare an offer plan: 1. Summarize the offer mathematics 2. Identify the required dates 3. List the required information to be included on a schedule 4. Identify any additional information required for the offer The following four sections contain information on the four steps of an offer plan. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Summarize the offer mathematics

In this step, a salesperson will use a formula to calculate the balance due on closing. Calculating the offer math requires subtracting the deposit (or deposits if there are to be multiple deposits) from the offer price which will be the balance due upon completion. Example: The price offered is $295,000 and the buyer is submitting a $10,000 deposit upon acceptance of the offer, and an additional $5,000 deposit in 10 days after acceptance. The balance due on completion will be $280,000. Although this example is straight forward, as you will learn in later modules, this calculation can become complex when mortgages are part of an offer being drafted.

©2019 Real Estate Council of Ontario

Identify the required dates

In this step, a salesperson will determine a number of the key dates that are required when drafting an offer. The dates should be summarized to ensure they align. For example, a title search date should be after any time period allowed for a condition to be fulfilled, such as one allowing the buyer time to arrange financing. The offer plan should summarize the following dates: • The date of the offer • The irrevocable date and time • The completion date • The title search date

List the required information to be included on a schedule

In this step, a salesperson will determine what clauses need to be included in the schedule. Schedule A is part of every offer that is drafted and is used to document the additional terms which form a part of the agreement. A clause identifying the balance due on completion must be included in every offer. Other clauses including terms and conditions, such as obtaining financing or a property inspection, are also added to Schedule A. You will learn more later in this module about some clauses which can be added. You will learn more later about writing a condition for an offer.

In this step, a salesperson will determine additional information that the offer will Identify any additional information required for require. the offer This includes items such as: • • • • •

Chattels included Fixtures excluded Easement(s) affecting the property Rental items to be assumed HST – included in or in addition to

©2019 Real Estate Council of Ontario

Lesson 1 | Page 5 of 50

Verifying Information Required to Prepare an Offer Verifying all information obtained from various sources is an integral part of preparing the offer. As a salesperson, it is important to verify the information when representing the buyer’s interests and to determine if any clauses or conditions need to be added to the offer. Information can be obtained and verified using the following sources: • • • • •

Listing data sheet (including contacting the listing salesperson) Various source documents, such as a survey Seller’s disclosure document regarding property conditions Seller’s pre-listing home inspection (if available) Online information available from the municipality

While offer plans are not mandatory, they are considered a leading practice, especially for new salespersons. The offer plan is used to ensure you are organized prior to drafting the offer.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 6 of 50

Identifying Additional Information to Prepare an Offer To prepare an offer, you will require additional information from the buyer and the listing. After a discussion with you, the buyer will determine the offer price, deposit, closing date, chattels to include, fixtures to stay, and clauses to be included on the schedule. The listing will provide the sellers’ legal names, municipal address, legal description with any identified easements, preferred closing date, preferred chattels to be included and fixtures to be excluded, and rental items that may be assumed by the buyer.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 7 of 50

Signing and Initialling an Accepted Offer Once the offer has been prepared and reviewed, the buyer will sign and date the agreement. As well, the buyer will initial each page of the agreement that does not have a signature to acknowledge their understanding of the terms. The signatures will be witnessed, often by the salesperson. If the seller accepts the offer, the seller will sign, date and have someone witness their signing. The seller will also initial all the pages that do not have a signature. Once an offer is accepted, the party who accepts the offer will complete the Confirmation of Acceptance portion of the Agreement of Purchase and Sale. The accepting party will sign and identify the time and date of acceptance. In this example, it will be the seller. When a co-operating brokerage is involved in the transaction, the salespeople for each brokerage will sign the Remuneration or Commission Trust Agreement portion of the agreement. Signing is

©2019 Real Estate Council of Ontario

completed by the listing and co-operating brokerages after acceptance of the offer. The Remuneration or Commission Trust Agreement is only required if there is a co-operating brokerage. Once the seller and the buyer receive signed copies of the agreement from their salesperson, each party will complete, sign, and date the Acknowledgement portion to acknowledge receipt of the signed copy.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 8 of 50

Offer Plan: Scenario ©2019 Real Estate Council of Ontario

The buyers, Alejandro Carlos and Maya Esmeralda Fernandez, are placing an offer on 123 Brownridge Crescent, a property located on the west side of Brownridge Crescent in the City of Anycity, Regional Municipality of Anyregion. The property has a frontage of 50.24 feet and a depth of 142.67 feet, and is legally described as Lot 16, Registered Plan 92M-3345. The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable. The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date approximately 30 days prior to completion. The completion and title search dates are business days. The HST is deemed to be included in the purchase price. The present use is single-family residential. Mario Servino is the listing salesperson with ABC Real Estate Inc., Fax: 555-433-9976, Email: [email protected], and represents the sellers, Jason Bruce Matterson and his wife Emma Sylvia Matterson, in the sale of their matrimonial home. Emma is not on title for this property. The listing brokerage is offering to pay the co-operating brokerage 2.5% of the sale price. The property is a matrimonial home and Jason’s wife is Emma Sylvia Matterson. Antonio Sorenson is employed by XYZ Realty Ltd., Fax: 555-233-2989, Email: [email protected], and is representing the buyers

Lesson 1 | Page 9 of 50

The buyers, Alejandro Carlos Fernandez and Maya Esmeralda Fernandez, are placing an offer on 123 Brownridge Crescent, City of Anycity, Regional Municipality of Anyregion. The property is a matrimonial home, and Jason Bruce Matterson is the seller, and his spouse is Emma Sylvia Matterson. The following information is entered in the offer plan based on the information above. Under the Offer Plan – Residential Real Property – Single Family section: • Address is 123 Brownridge Crescent, City of Anycity, Regional Municipality of Anyregion. The street number, name, city, and region are entered here. There is no need to enter the legal description on the offer plan. • Buyers are Alejandro Carlos Fernandez and Maya Esmeralda Fernandez. The buyer’s full, legal name is entered in this field including a middle name or initials. • Sellers are Jason Bruce Matterson. The seller’s full, legal name is entered in this field including a middle name or initials. (This is a matrimonial home and spouse not on title is Emma Sylvia Matterson).

Scenario: Create an Offer Plan The buyers, Alejandro Carlos and Maya Esmeralda Fernandez, are placing an offer on 123 Brownridge Crescent, a property located on the west side of Brownridge Crescent in the City of Anycity, Regional Municipality of Anyregion. The property has a frontage of 50.24 feet and a depth of 142.67 feet, and is legally described as Lot 16, Registered Plan 92M-3345. The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable.

©2019 Real Estate Council of Ontario

The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date 30 days prior to completion. The completion and title search dates are business days. The HST is deemed to be included in the purchase price. The present use is single-family residential. Mario Servino is the listing salesperson with ABC Real Estate Inc., Fax: 555-433-9976, Email: [email protected] and is representing the sellers, Jason Bruce Matterson and his wife Emma Sylvia Matterson in the sale of their matrimonial home. Antonio Sorenson is employed by XYZ Realty Ltd., Fax: 555-233-2989, Email: [email protected], and is representing the buyers

©2019 Real Estate Council of Ontario

Lesson 1 | Page 10 of 50

The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. The following information is entered in the offer plan based on the information above. Under the Summarize offer mathematics section: • Offer price is $425,000. • Deposit is $10,000. • To be paid checkbox to be checked upon acceptance. • Additional field is left blank. If there are any additional deposits due, you, as a salesperson, would include the amounts here. • Details field is left blank. As a salesperson, you would enter the details of any of additional deposits. An example could be upon an acceptable home inspection a further $10,000 deposit will be paid. o Under the Balance due subsection: o Offer price is $425,000. o Seller take back field is left blank. If there was a seller take back mortgage, the details of that would be entered here. We will cover seller take back in another module. o Assumed mortgage field is left blank. If there was an assumed mortgage, the details of that would be entered here. We will cover assumed mortgages in another module. o Deposit(s) total is $10,000. This is where the initial deposit would be entered. In this case, it is $10,000. o Balance due is $415,000. The balance due is the offer price – less all deposits, less any seller take back mortgage or an assumed mortgage to get the final balance due on completion.

Scenario: Create an Offer Plan The buyers, Alejandro Carlos and Maya Esmeralda Fernandez, are placing an offer on 123 Brownridge Crescent, a property located on the west side of Brownridge Crescent in the City of Anycity, Regional Municipality of Anyregion. The property has a frontage of 50.24 feet and a depth of 142.67 feet, and is legally described as Lot 16, Registered Plan 92M-3345.

©2019 Real Estate Council of Ontario

The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable. The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date 30 days prior to completion. The completion and title search dates are business days. The HST is deemed to be included in the purchase price. The present use is single-family residential. Mario Servino is the listing salesperson with ABC Real Estate Inc., Fax: 555-433-9976, Email: [email protected] and is representing the sellers, Jason Bruce Matterson and his wife Emma Sylvia Matterson in the sale of their matrimonial home. Antonio Sorenson is employed by XYZ Realty Ltd., Fax: 555-233-2989, Email: [email protected], and is representing the buyers.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 11 of 50

The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date 30 days prior to completion. The completion and title search dates are business days. The HST is deemed to be included in the purchase price. The present use is single-family residential. The offer is presented to the seller and his wife at 6:30 p.m. on October 7, 2022. After discussion with their salesperson Mario, the offer is accepted at 7:30 p.m. that evening. The following information is entered in the offer plan based on the information above. Under the Identify dates section: • Offer date is October 7, 2022. • Irrevocable date is October 7, 2022. • Requisition date is November 13, 2022. • Completion date is 30 business days prior to closing – would be December 13, 2022.

Scenario: Create an Offer Plan The buyers, Alejandro Carlos and Maya Esmeralda Fernandez, are placing an offer on 123 Brownridge Crescent, a property located on the west side of Brownridge Crescent in the City of Anycity, Regional Municipality of Anyregion. The property has a frontage of 50.24 feet and a depth of 142.67 feet, and is legally described as Lot 16, Registered Plan 92M-3345. The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable. Chattels are KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean

©2019 Real Estate Council of Ontario

The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date 30 days prior to completion. The completion and title search dates are business days. The HST is deemed to be included in the purchase price. The present use is single-family residential. Mario Servino is the listing salesperson with ABC Real Estate Inc., Fax: 555-433-9976, Email: [email protected] and is representing the sellers, Jason Bruce Matterson and his wife Emma Sylvia Matterson in the sale of their matrimonial home. Antonio Sorenson is employed by XYZ Realty Ltd., Fax: 555-233-2989, Email: [email protected], and is representing the buyers.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 12 of 50

The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. The following information is entered in the offer plan based on the information above. Under the List required information to be included on a schedule section: • Amount due on closing is $415,000. This is the total amount due at closing/completion. It is calculated by taking the offer price and subtracting all deposits. • Schedule B Conditions field is left blank. Schedule B conditions could be items like a home inspection, financing conditions to name a few. • Time period for condition field is left blank. The time period is for any other conditions and needs to be written here. • Any conditional clause field is left blank. Any conditional clauses needs to be written here.

Scenario: Create an Offer Plan The buyers, Alejandro Carlos and Maya Esmeralda Fernandez, are placing an offer on 123 Brownridge Crescent, a property located on the west side of Brownridge Crescent in the City of Anycity, Regional Municipality of Anyregion. The property has a frontage of 50.24 feet and a depth of 142.67 feet, and is legally described as Lot 16, Registered Plan 92M-3345. The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable. ©2019 Real Estate Council of Ontario

The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date 30 days prior to completion. The completion and title search dates are business days. The HST is deemed to be included in the purchase price. The present use is single-family residential. Mario Servino is the listing salesperson with ABC Real Estate Inc., Fax: 555-433-9976, Email: [email protected] and is representing the sellers, Jason Bruce Matterson and his wife Emma Sylvia Matterson in the sale of their matrimonial home. Antonio Sorenson is employed by XYZ Realty Ltd., Fax: 555-233-2989, Email: [email protected], and is representing the buyers.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 13 of 50

The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable. The following information is entered in the offer plan based on the information above. Under the Identify any additional information required for the offer section: • Chattels are KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The make and model are included to ensure that the chattels are the ones that the buyer has specified that they want. • In the Fixtures field, the dining room chandelier is excluded. It is assumed that all fixtures are included unless specified as an exclusion. • Rental item is water heater. The water heater is rented from Anycity Energy at $32.65 (plus HST) per month and is assumable by the buyer. • Other field is left blank. This field is used for items such as an easement.

Scenario: Create an Offer Plan The buyers, Alejandro Carlos and Maya Esmeralda Fernandez, are placing an offer on 123 Brownridge Crescent, a property located on the west side of Brownridge Crescent in the City of Anycity, Regional Municipality of Anyregion. The property has a frontage of 50.24 feet and a depth of 142.67 feet, and is legally described as Lot 16, Registered Plan 92M-3345. The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be

©2019 Real Estate Council of Ontario

excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable. The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date 30 days prior to completion. The completion and title search dates are business days. The HST is deemed to be included in the purchase price. The present use is single-family residential. Mario Servino is the listing salesperson with ABC Real Estate Inc., Fax: 555-433-9976, Email: [email protected] and is representing the sellers, Jason Bruce Matterson and his wife Emma Sylvia Matterson in the sale of their matrimonial home. Antonio Sorenson is employed by XYZ Realty Ltd., Fax: 555-233-2989, Email: [email protected], and is representing the buyers.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 14 of 50

Completed Offer Plan All the fields in every section of an offer plan are filled in a completed offer plan. This ensures that an offer addresses all requirements of the seller or the buyer.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 15 of 50

As you have learned previously, for every offer, you, as a salesperson, must complete a confirmation of cooperation and representation. There are two scenarios that will occur when completing the form. It will either be a scenario involving single representation or a scenario involving multiple representation. Which one you will use will depend on whether your brokerage represents both seller and buyer or just one.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 16 of 50

Mario Servino is the listing salesperson with ABC Real Estate Inc., Fax: - 555-433-9976, Email: [email protected] and is representing the seller. Antonio Sorenson is employed by XYZ Realty Ltd., Fax 555-233-2989, Email: [email protected], and is representing the buyers. The Listing Brokerage section contains the following four checkboxes: a) The Listing Brokerage represents the interests of the Seller in this transaction. It is further understood and agreed that: 1) The Listing Brokerage is not representing or providing Customer Service to the Buyer. (If the Buyer is working with a Co-operating Brokerage, Section 3 is to be completed by Co-operating Brokerage). 2) The Listing Brokerage is providing Customer Service to the Buyer. b) Multiple Representation: The Listing Brokerage has entered into a Buyer Representation Agreement with the Buyer and represents the interests of the Seller and the Buyer. Based on the scenario above, select the checkboxes that best represent the requirements of the confirmation of co-operation and representation. There are four options. There are multiple correct answers. 1 2 3 4

a) The Listing Brokerage represents the interests of the Seller in this transaction. It is further understood and agreed that. 1) The Listing Brokerage is not representing or providing Customer Service to the Buyer. (If the Buyer is working with a Co-operating Brokerage, Section 3 is to be completed by Co-operating Brokerage). 2) The Listing Brokerage is providing Customer Service to the Buyer. b) Multiple Representation: The Listing Brokerage has entered into a Buyer Representation Agreement with the Buyer and represents the interests of the Seller and the Buyer.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 17 of 50

Mario Servino is the listing salesperson with ABC Real Estate Inc., Fax: - 555-433-9976, Email: [email protected] and is representing the seller. Antonio Sorenson is employed by XYZ Realty Ltd., Fax 555-233-2989, Email: [email protected], and is representing the buyers. The MLS listing indicates that the listing brokerage is offering to pay the cooperating brokerage 2.5% of the sale price. The section titled ‘Co-operating Brokerage completes the Section 3 and Listing Brokerage completes Section 1’ contains two subsections. The Co-operating Brokerage Representation and Co-operating Brokerage - Commission. The Co-operating Brokerage – Representation subsection contains the following three checkboxes: a) The Co-operating Brokerage represents the interests of the Buyer in this transaction. b) The Co-operating Brokerage is providing Customer Service to the Buyer in this transaction. c) The Co-operating Brokerage is not representing the Buyer and has not entered into an agreement to provide customer service(s) to the Buyer. The Co-operating Brokerage - Commission subsection contains the following two checkboxes: a) The Listing Brokerage will pay the Co-operating Brokerage the commission as indicated in the MLS® information for the property to be paid from the amount paid by the Seller to the Listing Brokerage. b) The Co-operating Brokerage will be paid as follows. Based on the scenario above, select the checkbox that best represents the requirements of the confirmation of co-operation and representation. There are five options. There are multiple correct answers.

©2019 Real Estate Council of Ontario

1 2 3 4 5

a) The Co-operating Brokerage represents the interests of the Buyer in this transaction. b) The Co-operating Brokerage is providing Customer Service to the Buyer in this transaction. c) The Co-operating Brokerage is not representing the Buyer and has not entered into an agreement to provide customer service(s) to the Buyer. a) The Listing Brokerage will pay the Co-operating Brokerage the commission as indicated in the MLS® information for the property to be paid from the amount paid by the Seller to the Listing Brokerage. b) The Co-operating Brokerage will be paid as follows.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 18 of 50

Drafting an Offer Alejandro and Maya Fernandez have viewed a property for the second time with their salesperson Antonio Sorenson, and have decided to place an offer on the property. Create an offer plan and then complete the offer, including signatures. The information required for the offer is described as follows:

©2019 Real Estate Council of Ontario

Offer Details The buyers, Alejandro Carlos and Maya Esmeralda Fernandez, are placing an offer on 123 Brownridge Crescent, a property located on the west side of Brownridge Crescent in the City of Anycity, Regional Municipality of Anyregion. The property has a frontage of 50.24 feet and a depth of 142.67 feet, and is legally described as Lot 16, Registered Plan 92M-3345. The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable. The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date 30 days prior to completion. The completion and title search dates are business days. The HST is deemed to be included in the purchase price. The present use is single-family residential. Mario Servino is the listing salesperson with ABC Real Estate Inc., Fax: - 555-433-9976, Email: [email protected], and is representing the seller, Jason Bruce Matterson. The property is a matrimonial home with Jason’s wife Emma Sylvia Matterson. Jason Bruce Matterson is the only registered titleholder of the property. Antonio Sorenson is employed by XYZ Realty Ltd., Fax 555-233-2989, Email: [email protected], and is representing the buyers. Acceptance of the Offer The offer is presented to the seller at 6:30 p.m. on October 7, 2022. Jason's wife was also present during the offer presentation. After discussion with their salesperson Mario, the offer is accepted at 7:30 p.m. that evening. Contact information

©2019 Real Estate Council of Ontario

Alejandro Carlos Fernandez and Maya Esmeralda Fernandez 1122 West Ave, Anycity Telephone: 555-222-4545 Lawyer for the buyer Rita Lawless LLC 888 Scott Street North, Anycity [email protected] Telephone: 555-889-9999 Fax: 555-889-9991 Jason Bruce Matterson and Emma Sylvia Matterson 123 Brownridge Crescent, Anycity Telephone: 555-123-4567 Lawyer for the seller Rick Moralis, LLC 789 Richmond Street South, Anycity [email protected] Telephone: 555-987-6543 Fax: 555-987-1234 Insert any additional information for a fully signed offer ready to be presented to the seller.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 19 of 50

The buyers, Alejandro Carlos Fernandez and Maya Esmeralda Fernandez, are placing an offer on 123 Brownridge Crescent in the City of Anycity, Regional Municipality of Anyregion. The sellers is Jason Bruce Matterson. The offer is being signed on October 7, 2022 and will be irrevocable until 9:00 p.m. that night. The following information is entered in the Agreement of Purchase and Sale based on the information above. Under the Identify any additional information required for the offer section: • Date is 7th October 2022. • Buyers are Alejandro Carlos and Maya Esmeralda Fernandez. The first and last names must be included at minimum, adding middle names and middle initials is even better to maintain positive identification. • Seller is Jason Bruce Matterson and Emma Sylvia Matterson. The first and last names must be included at minimum, adding middle names and middle initials is even better to maintain positive identification.

Scenario: Drafting an Offer The buyers, Alejandro Carlos Fernandez and Maya Esmeralda Fernandez, are placing an offer on 123 Brownridge Crescent, a property located on the west side of Brownridge Crescent in the City of Anycity, Regional Municipality of Anyregion. The property has a frontage of 50.24 feet and a depth of 142.67 feet, and is legally described as Lot 16, Registered Plan 92M-3345. The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable.

©2019 Real Estate Council of Ontario

The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date 30 days prior to completion. The completion and title search dates are business days. The HST is deemed to be included in the purchase price. The present use is single-family residential. Mario Servino is the listing salesperson with ABC Real Estate Inc., Fax: - 555-433-9976, Email: [email protected], and is representing the seller, Jason Bruce Matterson. The property is a matrimonial home with Jason’s wife Emma Sylvia Matterson. Jason Bruce Matterson is the only registered titleholder of the property. Antonio Sorenson is employed by XYZ Realty Ltd., Fax 555-233-2989, Email: [email protected], and is representing the buyers. Acceptance of the Offer The offer is presented to the seller at 6:30 p.m. on October 7, 2022. Jason's wife was also present during the offer presentation. After discussion with their salesperson Mario, the offer is accepted at 7:30 p.m. that evening. Contact information Alejandro Carlos and Maya Esmeralda Fernandez 1122 West Ave, Anycity Telephone: 555-222-4545 Lawyer for the buyer Rita Lawless LLC 888 Scott Street North, Anycity [email protected] Telephone: 555-889-9999 Fax: 555-889-9991 Jason Bruce Matterson and Emma Sylvia Matterson. 123 Brownridge Crescent, Anycity Telephone: 555-123-4567 Lawyer for the seller Rick Moralis, LLC 789 Richmond Street South, Anycity

©2019 Real Estate Council of Ontario

[email protected] Telephone: 555-987-6543 Fax: 555-987-1234

©2019 Real Estate Council of Ontario

Lesson 1 | Page 20 of 50

The buyers, Alejandro Carlos and Maya Esmeralda Fernandez, are placing an offer on 123 Brownridge Crescent, a property located on the west side of Brownridge Crescent in the City of Anycity, Regional Municipality of Anyregion. The property has a frontage of 50.24 feet and a depth of 142.67 feet, and is legally described as Lot 16, Registered Plan 92M-3345. The following information is entered under the Real Property section of the Agreement of Purchase and Sale based on the information above. Address is 123 Brownridge Crescent, City of Anycity fronting on the West side of Brownridge Crescent in the City of Anycity, Regional Municipality of Anyregion and having a frontage of 50.24 feet more or less by a depth of 142.67 feet more or less and legally described as Lot 16, Registered Plan 92M-3345.

Scenario: Drafting an Offer The buyers, Alejandro Carlos and Maya Esmeralda Fernandez, are placing an offer on 123 Brownridge Crescent, a property located on the west side of Brownridge Crescent in the City of Anycity, Regional Municipality of Anyregion. The property has a frontage of 50.24 feet and a depth of 142.67 feet, and is legally described as Lot 16, Registered Plan 92M-3345. The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable. The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date 30 days prior to completion. The completion and title search dates are business days. The HST is deemed to be included in the purchase price. The present use is single-family residential. ©2019 Real Estate Council of Ontario

Mario Servino is the listing salesperson with ABC Real Estate Inc., Fax: - 555-433-9976, Email: [email protected], and is representing the seller, Jason Bruce Matterson. The property is a matrimonial home with Jason’s wife Emma Sylvia Matterson. Jason Bruce Matterson is the only registered titleholder of the property. Antonio Sorenson is employed by XYZ Realty Ltd., Fax 555-233-2989, Email: [email protected], and is representing the buyers. Acceptance of the Offer The offer is presented to the seller at 6:30 p.m. on October 7, 2022. Jason's wife was also present during the offer presentation. After discussion with their salesperson Mario, the offer is accepted at 7:30 p.m. that evening. Contact information Alejandro Carlos and Maya Esmeralda Fernandez 1122 West Ave, Anycity Telephone: 555-222-4545 Lawyer for the buyer Rita Lawless LLC 888 Scott Street North, Anycity [email protected] Telephone: 555-889-9999 Fax: 555-889-9991 Jason Bruce Matterson and Emma Sylvia Matterson. 123 Brownridge Crescent, Anycity Telephone: 555-123-4567 Lawyer for the seller Rick Moralis, LLC 789 Richmond Street South, Anycity [email protected] Telephone: 555-987-6543 Fax: 555-987-1234

©2019 Real Estate Council of Ontario

Lesson 1 | Page 21 of 50

The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. The following information is entered under the Agreement of Purchase and Sale based on the information above. Under the Purchase Price section: • Dollars in numbers - 425,000. • Dollars written out - Four hundred and twenty five thousand. • Buyer submits upon acceptance. • Dollars written out - Ten thousand. • Dollars in numbers - 10,000. • Cheque payable to ABC Real Estate Inc.

Scenario: Drafting an Offer The buyers, Alejandro Carlos and Maya Esmeralda Fernandez, are placing an offer on 123 Brownridge Crescent, a property located on the west side of Brownridge Crescent in the City of Anycity, Regional Municipality of Anyregion. The property has a frontage of 50.24 feet and a depth of 142.67 feet, and is legally described as Lot 16, Registered Plan 92M-3345. The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable.

©2019 Real Estate Council of Ontario

The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date 30 days prior to completion. The completion and title search dates are business days. The HST is deemed to be included in the purchase price. The present use is single-family residential. Mario Servino is the listing salesperson with ABC Real Estate Inc., Fax: - 555-433-9976, Email: [email protected], and is representing the seller, Jason Bruce Matterson. The property is a matrimonial home with Jason’s wife Emma Sylvia Matterson. Jason Bruce Matterson is the only registered titleholder of the property. Antonio Sorenson is employed by XYZ Realty Ltd., Fax 555-233-2989, Email: [email protected], and is representing the buyers. Acceptance of the Offer The offer is presented to the seller at 6:30 p.m. on October 7, 2022. Jason's wife was also present during the offer presentation. After discussion with their salesperson Mario, the offer is accepted at 7:30 p.m. that evening. Contact information Alejandro Carlos and Maya Esmeralda Fernandez 1122 West Ave, Anycity Telephone: 555-222-4545 Lawyer for the buyer Rita Lawless LLC 888 Scott Street North, Anycity [email protected] Telephone: 555-889-9999 Fax: 555-889-9991 Jason Bruce Matterson and Emma Sylvia Matterson. 123 Brownridge Crescent, Anycity Telephone: 555-123-4567 Lawyer for the seller Rick Moralis, LLC 789 Richmond Street South, Anycity

©2019 Real Estate Council of Ontario

[email protected] Telephone: 555-987-6543 Fax: 555-987-1234

©2019 Real Estate Council of Ontario

Lesson 1 | Page 22 of 50

The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date 30 days prior to completion. The completion and title search dates are business days. The HST is deemed to be included in the purchase price. The present use is single-family residential. The buyers, Alejandro Carlos Fernandez and Maya Esmeralda Fernandez. The following information is entered under the section titled ‘Buyer agrees to pay the balance as more particularly set out in Schedule A attached’ of the Agreement of Purchase and Sale based on the information above. 1.

2.

Irrevocability: The offer shall be irrevocable by buyer until 9:00 p.m. on the 7th day of October 2022 after which time, if not accepted, this offer shall be null and void and the deposit shall be returned to the Buyer in full without interest. Completion Date: This Agreement shall be completed by no later than 6:00 p.m. on the 13th day of December 2022. Upon completion, vacant possession of the property shall be given to the Buyer unless otherwise provided for in this Agreement.

Initials of buyers are ACF and MEF. Each party to the contract will have to initial each page. Since we are drafting the offer for the buyer(s), the salesperson will review the offer with the buyer(s). If they are satisfied with what has been prepared, the buyer(s) will be asked to initial each page inside the oval shape and then sign and date their signature on page 5 of the agreement. Initials of sellers field is left blank. Since we are drafting the offer for the buyer(s), we should not have the seller’s signatures or initials at this point. If they are expected to review a completed offer that has been presented to the seller, the document should show the seller’s signatures and initials.

©2019 Real Estate Council of Ontario

Scenario: Drafting an Offer The buyers, Alejandro Carlos and Maya Esmeralda Fernandez, are placing an offer on 123 Brownridge Crescent, a property located on the west side of Brownridge Crescent in the City of Anycity, Regional Municipality of Anyregion. The property has a frontage of 50.24 feet and a depth of 142.67 feet, and is legally described as Lot 16, Registered Plan 92M-3345. The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable. The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date 30 days prior to completion. The completion and title search dates are business days. The HST is deemed to be included in the purchase price. The present use is single-family residential. Mario Servino is the listing salesperson with ABC Real Estate Inc., Fax: - 555-433-9976, Email: [email protected], and is representing the seller, Jason Bruce Matterson. The property is a matrimonial home with Jason’s wife Emma Sylvia Matterson. Jason Bruce Matterson is the only registered titleholder of the property. Antonio Sorenson is employed by XYZ Realty Ltd., Fax 555-233-2989, Email: [email protected], and is representing the buyers. Acceptance of the Offer The offer is presented to the seller at 6:30 p.m. on October 7, 2022. Jason's wife was also present during the offer presentation. After discussion with their salesperson Mario, the offer is accepted at 7:30 p.m. that evening. Contact information Alejandro Carlos and Maya Esmeralda Fernandez ©2019 Real Estate Council of Ontario

1122 West Ave, Anycity Telephone: 555-222-4545 Lawyer for the buyer Rita Lawless LLC 888 Scott Street North, Anycity [email protected] Telephone: 555-889-9999 Fax: 555-889-9991 Jason Bruce Matterson and Emma Sylvia Matterson. 123 Brownridge Crescent, Anycity Telephone: 555-123-4567 Lawyer for the seller Rick Moralis, LLC 789 Richmond Street South, Anycity [email protected] Telephone: 555-987-6543

©2019 Real Estate Council of Ontario

Lesson 1 | Page 23 of 50

Mario Servino is the listing salesperson with ABC Real Estate Inc., Fax: - 555-433-9976, Email: [email protected], and is representing the seller, Jason Bruce Matterson. The property is a matrimonial home and Jason’s wife is Emma Sylvia Matterson. Antonio Sorenson is employed by XYZ Realty Ltd., Fax 555-233-2989, Email: [email protected], and is representing the buyers. The following information is entered in the Agreement of Purchase and Sale based on the information above. Under the Notices section: • Fax number of seller is 555-433-9976. • Email address of seller is [email protected]. • Fax number of buyer is 555-233-2989. • Email address of buyer is [email protected].

Scenario: Drafting an Offer The buyers, Alejandro Carlos and Maya Esmeralda Fernandez, are placing an offer on 123 Brownridge Crescent, a property located on the west side of Brownridge Crescent in the City of Anycity, Regional Municipality of Anyregion. The property has a frontage of 50.24 feet and a depth of 142.67 feet, and is legally described as Lot 16, Registered Plan 92M-3345. The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable. The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date 30 days prior to completion. The completion and title search

©2019 Real Estate Council of Ontario

dates are a business day. The HST is deemed to be included in the purchase price. The present use is single-family residential. Mario Servino is the listing salesperson with ABC Real Estate Inc., Fax: - 555-433-9976, Email: [email protected], and is representing the seller, Jason Bruce Matterson. The property is a matrimonial home with Jason’s wife Emma Sylvia Matterson. Jason Bruce Matterson is the only registered titleholder of the property. Antonio Sorenson is employed by XYZ Realty Ltd., Fax 555-233-2989, Email: [email protected], and is representing the buyers. Acceptance of the Offer The offer is presented to the seller at 6:30 p.m. on October 7, 2022. Jason's wife was also present during the offer presentation. After discussion with their salesperson Mario, the offer is accepted at 7:30 p.m. that evening. Contact information Alejandro Carlos and Maya Esmeralda Fernandez 1122 West Ave, Anycity Telephone: 555-222-4545 Lawyer for the buyer Rita Lawless LLC 888 Scott Street North, Anycity [email protected] Telephone: 555-889-9999 Fax: 555-889-9991 Jason Bruce Matterson and Emma Sylvia Matterson. 123 Brownridge Crescent, Anycity Telephone: 555-123-4567 Lawyer for the seller Rick Moralis, LLC 789 Richmond Street South, Anycity [email protected] Telephone: 555-987-6543 Fax: 555-987-1234 ©2019 Real Estate Council of Ontario

Lesson 1 | Page 24 of 50

The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable. The following information is entered under the ‘Chattels Included’ section of the Agreement of Purchase and Sale based on the information above. KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. Serial numbers can also be used to identify the included chattels.

Scenario: Drafting an Offer The buyers, Alejandro Carlos and Maya Esmeralda Fernandez, are placing an offer on 123 Brownridge Crescent, a property located on the west side of Brownridge Crescent in the City of Anycity, Regional Municipality of Anyregion. The property has a frontage of 50.24 feet and a depth of 142.67 feet, and is legally described as Lot 16, Registered Plan 92M-3345. The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable. The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date 30 days prior to completion. The completion and title search

©2019 Real Estate Council of Ontario

dates are business days. The HST is deemed to be included in the purchase price. The present use is single-family residential. Mario Servino is the listing salesperson with ABC Real Estate Inc., Fax: - 555-433-9976, Email: [email protected], and is representing the seller, Jason Bruce Matterson. The property is a matrimonial home with Jason’s wife Emma Sylvia Matterson. Jason Bruce Matterson is the only registered titleholder of the property. Antonio Sorenson is employed by XYZ Realty Ltd., Fax 555-233-2989, Email: [email protected], and is representing the buyers. Acceptance of the Offer The offer is presented to the seller at 6:30 p.m. on October 7, 2022. Jason's wife was also present during the offer presentation. After discussion with their salesperson Mario, the offer is accepted at 7:30 p.m. that evening. Contact information Alejandro Carlos and Maya Esmeralda Fernandez 1122 West Ave, Anycity Telephone: 555-222-4545 Lawyer for the buyer Rita Lawless LLC 888 Scott Street North, Anycity [email protected] Telephone: 555-889-9999 Fax: 555-889-9991 Jason Bruce Matterson and Emma Sylvia Matterson. 123 Brownridge Crescent, Anycity Telephone: 555-123-4567 Lawyer for the seller Rick Moralis, LLC 789 Richmond Street South, Anycity [email protected] Telephone: 555-987-6543 Fax: 555-987-1234 ©2019 Real Estate Council of Ontario

Lesson 1 | Page 25 of 50

The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable. Dining room chandelier is entered in the ‘Fixtures Excluded’ section of the Agreement of Purchase and Sale based on the information above.

Scenario: Drafting an Offer The buyers, Alejandro Carlos and Maya Esmeralda Fernandez, are placing an offer on 123 Brownridge Crescent, a property located on the west side of Brownridge Crescent in the City of Anycity, Regional Municipality of Anyregion. The property has a frontage of 50.24 feet and a depth of 142.67 feet, and is legally described as Lot 16, Registered Plan 92M-3345. The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable. The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date 30 days prior to completion. The completion and title search dates are business days. The HST is deemed to be included in the purchase price. The present use is single-family residential. Mario Servino is the listing salesperson with ABC Real Estate Inc., Fax: - 555-433-9976, Email: [email protected], and is representing the seller, Jason Bruce Matterson. The property is a matrimonial home with Jason’s wife Emma Sylvia ©2019 Real Estate Council of Ontario

Matterson. Jason Bruce Matterson is the only registered titleholder of the property. Antonio Sorenson is employed by XYZ Realty Ltd., Fax 555-233-2989, Email: [email protected], and is representing the buyers. Acceptance of the Offer The offer is presented to the seller at 6:30 p.m. on October 7, 2022. Jason's wife was also present during the offer presentation. After discussion with their salesperson Mario, the offer is accepted at 7:30 p.m. that evening. Contact information Alejandro Carlos and Maya Esmeralda Fernandez 1122 West Ave, Anycity Telephone: 555-222-4545 Lawyer for the buyer Rita Lawless LLC 888 Scott Street North, Anycity [email protected] Telephone: 555-889-9999 Fax: 555-889-9991 Jason Bruce Matterson and Emma Sylvia Matterson. 123 Brownridge Crescent, Anycity Telephone: 555-123-4567 Lawyer for the seller Rick Moralis, LLC 789 Richmond Street South, Anycity [email protected] Telephone: 555-987-6543 Fax: 555-987-1234

©2019 Real Estate Council of Ontario

Lesson 1 | Page 26 of 50

The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable. In the ‘Rental Items (Including Lease, Lease to Own)’ section of the Agreement of Purchase and Sale, the following information is entered based on the information above: “Hot water tank from Anycity Energy at $32.65 (plus HST) per month, and is assumable. Should the contract have a fixed term, as in the case of rent-to-own agreements, the end date should be referenced.”

Scenario: Drafting an Offer The buyers, Alejandro Carlos and Maya Esmeralda Fernandez, are placing an offer on 123 Brownridge Crescent, a property located on the west side of Brownridge Crescent in the City of Anycity, Regional Municipality of Anyregion. The property has a frontage of 50.24 feet and a depth of 142.67 feet, and is legally described as Lot 16, Registered Plan 92M-3345. The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable. The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date 30 days prior to completion. The completion and title search dates are business days. The HST is deemed to be included in the purchase price. The present use is single-family residential. ©2019 Real Estate Council of Ontario

Mario Servino is the listing salesperson with ABC Real Estate Inc., Fax: - 555-433-9976, Email: [email protected], and is representing the seller, Jason Bruce Matterson. The property is a matrimonial home with Jason’s wife Emma Sylvia Matterson. Jason Bruce Matterson is the only registered titleholder of the property. Antonio Sorenson is employed by XYZ Realty Ltd., Fax 555-233-2989, Email: [email protected], and is representing the buyers. Acceptance of the Offer The offer is presented to the seller at 6:30 p.m. on October 7, 2022. Jason's wife was also present during the offer presentation. After discussion with their salesperson Mario, the offer is accepted at 7:30 p.m. that evening. Contact information Alejandro Carlos and Maya Esmeralda Fernandez 1122 West Ave, Anycity Telephone: 555-222-4545 Lawyer for the buyer Rita Lawless LLC 888 Scott Street North, Anycity [email protected] Telephone: 555-889-9999 Fax: 555-889-9991 Jason Bruce Matterson and Emma Sylvia Matterson. 123 Brownridge Crescent, Anycity Telephone: 555-123-4567 Lawyer for the seller Rick Moralis, LLC 789 Richmond Street South, Anycity [email protected] Telephone: 555-987-6543 Fax: 555-987-1234

©2019 Real Estate Council of Ontario

Lesson 1 | Page 27 of 50

The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date 30 days prior to completion. The completion and title search dates are business days. The HST is deemed to be included in the purchase price. The present use is single-family residential In the ‘HST’ section of the Agreement of Purchase and Sale, the following information is entered based on the information above. If the sale of the property (Real Property as described above) is subject to Harmonized Sales Tax (HST), then such tax shall be included in the Purchase Price. If the sale of the property is not subject to HST, Seller agrees to certify on or before closing, that the sale of property is not subject to HST. Any HST on chattels, if applicable, is not included in the Purchase Price. Initials of buyers are ACF and MEF. Initials of buyers are ACF and MEF. Since we are drafting the offer for the buyer(s), the salesperson will review the offer with the buyer(s). If they are satisfied with what has been prepared, the buyer(s) will be asked to initial each page inside the oval shape and then sign and date their signature on page 5 of the agreement.

Scenario: Drafting an Offer The buyers, Alejandro Carlos and Maya Esmeralda Fernandez, are placing an offer on 123 Brownridge Crescent, a property located on the west side of Brownridge Crescent in the City of Anycity, Regional Municipality of Anyregion. The property has a frontage of 50.24 feet and a depth of 142.67 feet, and is legally described as Lot 16, Registered Plan 92M-3345. The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction.

©2019 Real Estate Council of Ontario

The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable. The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date 30 days prior to completion. The completion and title search dates are business days. The HST is deemed to be included in the purchase price. The present use is single-family residential. Mario Servino is the listing salesperson with ABC Real Estate Inc., Fax: - 555-433-9976, Email: [email protected], and is representing the seller, Jason Bruce Matterson. The property is a matrimonial home with Jason’s wife Emma Sylvia Matterson. Jason Bruce Matterson is the only registered titleholder of the property. Antonio Sorenson is employed by XYZ Realty Ltd., Fax 555-233-2989, Email: [email protected], and is representing the buyers. Acceptance of the Offer The offer is presented to the seller at 6:30 p.m. on October 7, 2022. Jason's wife was also present during the offer presentation. After discussion with their salesperson Mario, the offer is accepted at 7:30 p.m. that evening. Contact information Alejandro Carlos and Maya Esmeralda Fernandez 1122 West Ave, Anycity Telephone: 555-222-4545 Lawyer for the buyer Rita Lawless LLC 888 Scott Street North, Anycity [email protected] Telephone: 555-889-9999 Fax: 555-889-9991 Jason Bruce Matterson and Emma Sylvia Matterson. 123 Brownridge Crescent, Anycity

©2019 Real Estate Council of Ontario

Telephone: 555-123-4567 Lawyer for the seller Rick Moralis, LLC 789 Richmond Street South, Anycity [email protected] Telephone: 555-987-6543 Fax: 555-987-1234

©2019 Real Estate Council of Ontario

Lesson 1 | Page 28 of 50

The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date 30 days prior to completion. The completion and title search dates are business days. The HST is deemed to be included in the purchase price. The present use is single-family residential. In the ‘Title Search’ section of the Agreement of Purchase and Sale, the following information is entered based on the information above. Buyer shall be allowed until 6:00 p.m. on the 13th day of November 2022 (Requisition Date) to examine the title to the property at Buyer’s own expense and until the earlier of: (i) thirty days from the later of the Requisition Date or the date on which the conditions in this Agreement are fulfilled or otherwise waived or; (ii) five days prior to completion, to satisfy Buyer that there are no outstanding work orders or deficiency notices affecting the property, and that its present use (Single family residential) may be lawfully continued and that the principal building may be insured against risk of fire. Seller hereby consents to the municipality or other governmental agencies releasing to Buyer details of all outstanding work orders and deficiency notices affecting the property, and Seller agrees to execute and deliver such further authorizations in this regard as Buyer may reasonably require.

Scenario: Drafting an Offer The buyers, Alejandro Carlos and Maya Esmeralda Fernandez, are placing an offer on 123 Brownridge Crescent, a property located on the west side of Brownridge Crescent in the City of Anycity, Regional Municipality of Anyregion. The property has a frontage of 50.24 feet and a depth of 142.67 feet, and is legally described as Lot 16, Registered Plan 92M-3345. The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be ©2019 Real Estate Council of Ontario

excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable. The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date 30 days prior to completion. The completion and title search dates are business days. The HST is deemed to be included in the purchase price. The present use is single-family residential. Mario Servino is the listing salesperson with ABC Real Estate Inc., Fax: - 555-433-9976, Email: [email protected], and is representing the seller, Jason Bruce Matterson. The property is a matrimonial home with Jason’s wife Emma Sylvia Matterson. Jason Bruce Matterson is the only registered titleholder of the property. Antonio Sorenson is employed by XYZ Realty Ltd., Fax 555-233-2989, Email: [email protected], and is representing the buyers. Acceptance of the Offer The offer is presented to the seller at 6:30 p.m. on October 7, 2022. Jason's wife was also present during the offer presentation. After discussion with their salesperson Mario, the offer is accepted at 7:30 p.m. that evening. Contact information Alejandro Carlos and Maya Esmeralda Fernandez 1122 West Ave, Anycity Telephone: 555-222-4545 Lawyer for the buyer Rita Lawless LLC 888 Scott Street North, Anycity [email protected] Telephone: 555-889-9999 Fax: 555-889-9991 Jason Bruce Matterson and Emma Sylvia Matterson. 123 Brownridge Crescent, Anycity Telephone: 555-123-4567

©2019 Real Estate Council of Ontario

Lawyer for the seller Rick Moralis, LLC 789 Richmond Street South, Anycity [email protected] Telephone: 555-987-6543 Fax: 555-987-1234

©2019 Real Estate Council of Ontario

Lesson 1 | Page 29 of 50

From Form 100 – Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

Paragraphs 9 to 11 The background shows paragraphs 9 to 11 of OREA Form 100: Agreement of Purchase and Sale.

©2019 Real Estate Council of Ontario

• Paragraph 9: FUTURE USE states that Seller and Buyer agree that there is no representation or warranty of any kind that the future intended use of the property by Buyer is or will be lawful except as may be specifically provided for in this Agreement. As per this paragraph, if the Agreement states that it is a single-family home and there is a basement apartment in the home, there is no guarantee that this apartment is legal. • Paragraph 10: TITLE states that provided that the title to the property is good and free from all registered restrictions, charges, liens, and encumbrances except as otherwise specifically provided in this Agreement and save and except for (a) any registered restrictions or covenants that run with the land providing that such are complied with; (b) any registered municipal agreements and registered agreements with publicly regulated utilities providing such have been complied with, or security has been posted to ensure compliance and completion, as evidenced by a letter from the relevant municipality or regulated utility; (c) any minor easements for the supply of domestic utility or telephone services to the property or adjacent properties; and (d) any easements for drainage, storm or sanitary sewers, public utility lines, telephone lines, cable television lines or other services which do not materially affect the use of the property. If within the specified times referred to in paragraph 8 any valid objection to title or to any outstanding work order or deficiency notice, or to the fact the said present use may not lawfully be continued, or that the principal building may not be insured against risk of fire is made in writing to Seller and which Seller is unable or unwilling to remove, remedy or satisfy or obtain insurance save and except against risk of fire (Title Insurance) in favour of the Buyer and any mortgagee, (with all related costs at the expense of the Seller), and which Buyer will not waive, this Agreement notwithstanding any intermediate acts or negotiations in respect of such objections, shall be at an end and all monies paid shall be returned without interest or deduction and Seller, Listing Brokerage and Co-operating Brokerage shall not be liable for any costs or damages. Save as to any valid objection so made by such day and except for any objection going to the root of the title, Buyer shall be conclusively deemed to have accepted Seller’s title to the property. As per this paragraph, the buyer is entitled to a good title without liens or encumbrances other than those stated in the agreement. It also specifies that the buyer must accept any minor easements such as for the supply of utilities and other related services. Finally if there are any municipal agreements, zoning bylaws or utility or service contracts, the Buyer must assume them. • Paragraph 11: CLOSING ARRANGEMENTS states that where each of the Seller and Buyer retain a lawyer to complete the Agreement of Purchase and Sale of the property, and where the transaction will be completed by ©2019 Real Estate Council of Ontario

electronic registration pursuant to Part III of the Land Registration Reform Act, R.S.O. 1990, Chapter L4 and the Electronic Registration Act, S.O. 1991, Chapter 44, and any amendments thereto, the Seller and Buyer acknowledge and agree that the exchange of closing funds, non-registrable documents and other items (the “Requisite Deliveries”) and the release thereof to the Seller and Buyer will (a) not occur at the same time as the registration of the transfer/deed (and any other documents intended to be registered in connection with the completion of this transaction) and (b) be subject to conditions whereby the lawyer(s) receiving any of the Requisite Deliveries will be required to hold same in trust and not release same except in accordance with the terms of a document registration agreement between the said lawyers. The Seller and Buyer irrevocably instruct the said lawyers to be bound by the document registration agreement which is recommended from time to time by the Law Society of Upper Canada. Unless otherwise agreed to by the lawyers, such exchange of the Requisite Deliveries will occur in the applicable Land Titles Office or such other location agreeable to both lawyers. If the closing is being handled electronically, this paragraph outlines those terms and conditions.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 30 of 50

From Form 100 – Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

Paragraphs 12 to 14 • Paragraph 12: DOCUMENTS AND DISCHARGE states that the Buyer shall not call for the production of any title deed, abstract, survey or other evidence of title to the property except such as are in the possession or control

©2019 Real Estate Council of Ontario

of Seller. If requested by Buyer, Seller will deliver any sketch or survey of the property within Seller’s control to Buyer as soon as possible and prior to the Requisition Date. If a discharge of any Charge/Mortgage held by a corporation incorporated pursuant to the Trust And Loan Companies Act (Canada), Chartered Bank, Trust Company, Credit Union, Caisse Populaire or Insurance Company and which is not to be assumed by Buyer on completion, is not available in registrable form on completion, Buyer agrees to accept Seller’s lawyer’s personal undertaking to obtain, out of the closing funds, a discharge in registrable form and to register same, or cause same to be registered, on title within a reasonable period of time after completion, provided that on or before completion Seller shall provide to Buyer a mortgage statement prepared by the mortgagee setting out the balance required to obtain the discharge, and, where a real-time electronic cleared funds transfer system is not being used, a direction executed by Seller directing payment to the mortgagee of the amount required to obtain the discharge out of the balance due on completion. As per this paragraph, the Seller will give the Buyer any documents they have. When there is a mortgage on the property in most instances the Seller will be relying on the closing funds to obtain the discharge from the existing mortgagee. If a discharge is not available for registration on closing, this paragraph sets out the procedure for dealing with these matters. • Paragraph 13: INSPECTION states that the Buyer acknowledges having had the opportunity to inspect the property and understands that upon acceptance of this offer there shall be a binding agreement of purchase and sale between Buyer and Seller. The Buyer acknowledges having the opportunity to include a requirement for a property inspection report in this Agreement and agrees that except as may be specially provided for in this Agreement, the Buyer will not be obtaining a property inspection or property inspection report regarding the property. This paragraph has the buyer acknowledging that they have had the opportunity to see the property they are purchasing. It also states that the buyer, unless otherwise stated in the Agreement of Purchase and Sale, that they have declined the opportunity to have a professional home inspection on the property. • Paragraph 14: INSURANCE states that all buildings on the property and all other things being purchased shall be and remain until completion at the risk of Seller. Pending completion, Seller shall hold all insurance policies, if any, and the proceeds thereof in trust for the parties as their interests may appear and in the event of substantial damage, Buyer may either terminate this Agreement and have all monies paid returned without interest or deduction or else take the proceeds of any insurance and complete the purchase. No insurance

©2019 Real Estate Council of Ontario

shall be transferred on completion. If Seller is taking back a Charge/Mortgage, or Buyer is assuming a Charge/Mortgage, Buyer shall supply Seller with reasonable evidence of adequate insurance to protect Seller’s or other mortgagee’s interest on completion. This clause states that the seller is responsible for the property until closing. The Seller is to maintain any insurance policies until completion. Should there be any damage to the property before closing, the buyer will have the choice to either accept the proceeds for the damages from the insurance and close the deal or not take any proceeds and not close the deal and any monies paid by the buyer will be returned and the Agreement of Purchase and Sale will be null and void. • At the bottom of the page are fields for the initials of buyer(s) and seller(s) including first, middle, and last names. Since we are drafting the offer for the buyer(s), the salesperson will review the offer with the buyer(s). If they are satisfied with what has been prepared, the buyer(s) will be asked to initial each page inside the oval shape and then sign and date their signature on page 5 of the agreement. Since we are drafting the offer for the buyer(s), then at this point, we should not have the seller’s signatures or initials. If they are expected to review a completed offer that has been presented to the seller, then the document should show the seller’s signatures and initials.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 31 of 50

From Form 100 – Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

Paragraphs 15 to 20

©2019 Real Estate Council of Ontario

The background shows paragraphs 15 to 20 of OREA Form 100: Agreement of Purchase and Sale. • Paragraph 15: PLANNING ACT states that this Agreement shall be effective to create an interest in the property only if Seller complies with the subdivision control provisions of the Planning Act by completion and Seller covenants to proceed diligently at Seller’s expense to obtain any necessary consent by completion. This paragraph states the seller must comply with the subdivision act. This relates to severance of the property. • Paragraph 16: DOCUMENT PREPARATION states that the Transfer/Deed shall, save for the Land Transfer Tax Affidavit, be prepared in registrable form at the expense of Seller, and any Charge/Mortgage to be given back by the Buyer to Seller at the expense of the Buyer. If requested by Buyer, Seller covenants that the Transfer/Deed to be delivered on completion shall contain the statements contemplated by Section 50(22) of the Planning Act, R.S.O.1990. This paragraph states that the seller will be responsible for preparing the deed to transfer at their own expense. It also covers that the buyer will pay for the preparation of their own mortgage and land transfer tax. • Paragraph 17: RESIDENCY states that (a) Subject to (b) below, the Seller represents and warrants that the Seller is not and on completion will not be a non-resident under the non-residency provisions of the Income Tax Act which representation and warranty shall survive and not merge upon the completion of this transaction and the Seller shall deliver to the Buyer a statutory declaration that Seller is not then a non-resident of Canada; (b) provided that if the Seller is a non-resident under the non-residency provisions of the Income Tax Act, the Buyer shall be credited towards the Purchase Price with the amount, if any, necessary for Buyer to pay to the Minister of National Revenue to satisfy Buyer’s liability in respect of tax payable by Seller under the nonresidency provisions of the Income Tax Act by reason of this sale. Buyer shall not claim such credit if Seller delivers on completion the prescribed certificate. This paragraph addresses whether the seller is either a resident or non-resident of Canada. If they are a nonresident it states that the seller will either show the buyer that they have paid the necessary taxes owing to their non-residency. If the seller does not show evidence of payment to the buyer, then the buyer can withhold the amount of the tax from the closing funds and pay the tax for the seller.

©2019 Real Estate Council of Ontario

• Paragraph 18: ADJUSTMENTS states that any rents, mortgage interest, realty taxes including local improvement rates and unmetered public or private utility charges and unmetered cost of fuel, as applicable, shall be apportioned and allowed to the day of completion, the day of completion itself to be apportioned to Buyer. This paragraph addresses that there are certain charges such as taxes or utilities that will be adjusted as of the closing day. It also states that the buyer will assume responsibility for taxes and utilities from the day of the completion of sale. • Paragraph 19: PROPERTY ASSESSMENT states that the Buyer and Seller hereby acknowledge that the Province of Ontario has implemented current value assessment and properties may be re-assessed on an annual basis. The Buyer and Seller agree that no claim will be made against the Buyer or Seller, or any Brokerage, Broker or Salesperson, for any changes in property tax as a result of a re-assessment of the property, save and except any property taxes that accrued prior to the completion of this transaction. This paragraph states that a property may be re-assessed on an annual basis by the province and that if this takes place after acceptance, the seller and the buyer will not hold any salespersons or brokerages responsible for any changes that may occur. • Paragraph 20: TIME LIMITS states that time shall in all respects be of the essence hereof provided that the time for doing or completing of any matter provided for herein may be extended or abridged by an agreement in writing signed by Seller and Buyer or by their respective lawyers who may be specially authorized in that regard. This paragraph states that if a date as stated on the Agreement of Purchase and Sale cannot be met, then any changes to dates by either the buyer, seller or their lawyer as required, must be agreed to in writing by the seller and buyer by way of Amendment.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 32 of 50

From Form 100 – Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

Paragraphs 21 to 24 ©2019 Real Estate Council of Ontario

The background shows paragraphs 21 to 24 of OREA Form 100: Agreement of Purchase and Sale. • Paragraph 21: TENDER states that any tender of documents or money hereunder may be made upon Seller or Buyer or their respective lawyers on the day set for completion. Money shall be tendered with funds drawn on a lawyer’s trust account in the form of a bank draft, certified cheque or wire transfer using the Large Value Transfer System. This paragraph states that on the day of completion the buyer needs to hand over any monies owed to the seller and the seller will have to hand over any documents prepared to the buyer in order to complete the transaction. • Paragraph 22: FAMILY LAW ACT states that the seller warrants that spousal consent is not necessary to this transaction under the provisions of the Family Law Act, R.S.O.1990 unless the spouse of the Seller has executed the consent hereinafter provided. This paragraph states that no spousal consent is required for this transaction unless the spouse has signed the spousal consent indicating that the consent was required. • Paragraph 23: UFFI states that the seller represents and warrants to Buyer that during the time Seller has owned the property, Seller has not caused any building on the property to be insulated with insulation containing ureaformaldehyde, and that to the best of Seller’s knowledge no building on the property contains or has ever contained insulation that contains ureaformaldehyde. This warranty shall survive and not merge on the completion of this transaction, and if the building is part of a multiple unit building, this warranty shall only apply to that part of the building which is the subject of this transaction. This paragraph addresses that the seller while living on the property has not insulated the home with material using urea formaldehyde and to the best of their knowledge that type of insulation has never been used on the property. • Paragraph 24: LEGAL, ACCOUNTING AND ENVIRONMENTAL ADVICE states that the parties acknowledge that any information provided by the brokerage is not legal, tax or environmental advice. This paragraph states that any information provided by the brokerage is not expert advice in tax, legal, or accounting issues. ©2019 Real Estate Council of Ontario

Lesson 1 | Page 33 of 50

From Form 100 – Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Paragraphs 25 to 28 The background shows paragraphs 25 to 28 of OREA Form 100: Agreement of Purchase and Sale. • Paragraph 25: CONSUMER REPORTS states that the Buyer is hereby notified that a consumer report containing credit and/or personal information may be referred to in connection with this transaction. This paragraph addresses that the buyer may be subjected to a personal or credit check. • Paragraph 26: AGREEMENT IN WRITING states that if there is conflict or discrepancy between any provision added to this Agreement (including any Schedule attached hereto) and any provision in the standard pre-set portion hereof, the added provision shall supersede the standard pre-set provision to the extent of such conflict or discrepancy. This Agreement including any Schedule attached hereto, shall constitute the entire Agreement between Buyer and Seller. There is no representation, warranty, collateral agreement or condition, which affects this Agreement other than as expressed herein. For the purposes of this Agreement, Seller means vendor and Buyer means purchaser. This Agreement shall be read with all changes of gender or number required by the context. This paragraph states that if there is any discrepancy between the pre-written portion of the Agreement of Purchase and sale and any added conditions, then the added conditions will take the place of the pre-written portion of the agreement, to the extent of the conflict. • Paragraph 27: ELECTRONIC SIGNATURES states that parties to the agreement consent to the use of electronic signatures and ensures compliance with the Electronic Commerce Act. • Paragraph 28: TIME AND DATE states that any reference to a time and date in this Agreement shall mean the time and date where the property is located. This paragraph states that any time and date stated on this Agreement are based on the time where the property is located. • At the bottom of the page are fields for the initials of buyer(s) and seller(s) including first, middle, and last names. Since we are drafting the offer for the buyer(s), the salesperson will review the offer with the buyer(s). If

©2019 Real Estate Council of Ontario

they are satisfied with what has been prepared, the buyer(s) will be asked to initial each page inside the oval shape and then sign and date their signature on page 5 of the agreement. Since we are drafting the offer for the buyer(s), we should not have the seller’s signatures or initials at this point. If they are expected to review a completed offer that has been presented to the seller, then the document should show the seller’s signatures and initials.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 34 of 50

Antonio Sorenson is employed by XYZ Realty Ltd. and is representing the buyers Alejandro Carlos Fernandez and Maya Esmeralda Fernandez. Mario Servino is the listing salesperson with ABC Real Estate Inc. is representing the seller, Jason Bruce Matterson. Emma Sylvia Matterson is Jason’s wife. Jason Bruce Matterson is the registered titleholder of the property. The offer is presented to the seller and his wife at 6:30 p.m. on October 7, 2022. After discussion with their salesperson Mario, the offer is accepted at 7:30 p.m. that evening. The following information is entered in the ‘Successors and Assigns’ section of the Agreement of Purchase and Sale based on the information above. • Buyer witness 1 is Antonio Sorenson. • Buyer 1 is Alejandro Carlos Fernandez. • Date is October 7, 2022. • Buyer witness 2 is Antonio Sorenson. • Buyer 2 is Maya Esmeralda Fernandez. • Date is October 7, 2022. • Seller witness 1 is Mario Servino. • Seller 1 is Jason Bruce Matterson. At this point, Mario has presented the offer to the seller and the spouse. They have decided to accept the offer; therefore, Jason would initial the oval shape on each page and sign and date his signature on page 5 as the seller. • Date is October 7, 2022. • Seller witness 2 is Mario Servino. • Spouse name is Emma Sylvia Matterson. Emma will sign and date her signature in the “spousal consent” area as this is a matrimonial home, and she is not on title. • Date is October 7, 2022. Under the Confirmation and Acceptance subsection: • Time is 7:30 p.m. • Date is 7th October, 2022. • Signed by Jason Bruce Matterson.

Scenario: Drafting an Offer

©2019 Real Estate Council of Ontario

The buyers, Alejandro Carlos and Maya Esmeralda Fernandez, are placing an offer on 123 Brownridge Crescent, a property located on the west side of Brownridge Crescent in the City of Anycity, Regional Municipality of Anyregion. The property has a frontage of 50.24 feet and a depth of 142.67 feet, and is legally described as Lot 16, Registered Plan 92M-3345. The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable. The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date 30 days prior to completion. The completion and title search dates are business days. The HST is deemed to be included in the purchase price. The present use is single-family residential. Mario Servino is the listing salesperson with ABC Real Estate Inc., Fax: - 555-433-9976, Email: [email protected], and is representing the seller, Jason Bruce Matterson. The property is a matrimonial home with Jason’s wife Emma Sylvia Matterson. Jason Bruce Matterson is the only registered titleholder of the property. Antonio Sorenson is employed by XYZ Realty Ltd., Fax 555-233-2989, Email: [email protected], and is representing the buyers. Acceptance of the Offer The offer is presented to the seller at 6:30 p.m. on October 7, 2022. Jason's wife was also present during the offer presentation. After discussion with their salesperson Mario, the offer is accepted at 7:30 p.m. that evening. Contact information Alejandro Carlos and Maya Esmeralda Fernandez 1122 West Ave, Anycity Telephone: 555-222-4545

©2019 Real Estate Council of Ontario

Lawyer for the buyer Rita Lawless LLC 888 Scott Street North, Anycity [email protected] Telephone: 555-889-9999 Fax: 555-889-9991 Jason Bruce Matterson and Emma Sylvia Matterson. 123 Brownridge Crescent, Anycity Telephone: 555-123-4567 Lawyer for the seller Rick Moralis, LLC 789 Richmond Street South, Anycity [email protected] Telephone: 555-987-6543 Fax: 555-987-1234

©2019 Real Estate Council of Ontario

Lesson 1 | Page 35 of 50

Antonio Sorenson is employed by XYZ Realty Ltd., tel number 555-233-9892 and is representing the buyers Alejandro Carlos and Maya Esmeralda Fernandez. Mario Servino is the listing salesperson with ABC Real Estate Inc., telephone number 555-433-6799 and is representing the seller, Jason Bruce Matterson. Emma Sylvia Matterson is Jason’s wife. The offer is presented to the seller and his wife at 6:30 p.m. on October 7, 2022. After discussion with their salesperson Mario, the offer is accepted at 7:30 p.m. that evening. The following information is entered in the ‘Information on Brokerage(s)’ section of the Agreement of Purchase and Sale based on the information above. • Listing Brokerage is ABC Real Estate Inc. This area regarding “Information on Brokerage(s)” would be completed when Antonio first drafts the agreement of purchase and sale. • Listing Brokerage Telephone Number is 555-433-6799. • Listing Salesperson is Mario Servino. • Coop/Buyer Brokerage is XYZ Realty Ltd. • Coop/Buyer Brokerage Telephone Number is 555-233-9892. • Coop/Buyer Salesperson is Antonio Sorenson.

Scenario: Drafting an Offer The buyers, Alejandro Carlos and Maya Esmeralda Fernandez, are placing an offer on 123 Brownridge Crescent, a property located on the west side of Brownridge Crescent in the City of Anycity, Regional Municipality of Anyregion. The property has a frontage of 50.24 feet and a depth of 142.67 feet, and is legally described as Lot 16, Registered Plan 92M-3345. The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be

©2019 Real Estate Council of Ontario

excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable. The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date 30 days prior to completion. The completion and title search dates are business days. The HST is deemed to be included in the purchase price. The present use is single-family residential. Mario Servino is the listing salesperson with ABC Real Estate Inc., Fax: - 555-433-9976, Email: [email protected], and is representing the seller, Jason Bruce Matterson. The property is a matrimonial home with Jason’s wife Emma Sylvia Matterson. Jason Bruce Matterson is the only registered titleholder of the property. Antonio Sorenson is employed by XYZ Realty Ltd., Fax 555-233-2989, Email: [email protected], and is representing the buyers. Acceptance of the Offer The offer is presented to the seller at 6:30 p.m. on October 7, 2022. Jason's wife was also present during the offer presentation. After discussion with their salesperson Mario, the offer is accepted at 7:30 p.m. that evening. Contact information Alejandro Carlos and Maya Esmeralda Fernandez 1122 West Ave, Anycity Telephone: 555-222-4545 Lawyer for the buyer Rita Lawless LLC 888 Scott Street North, Anycity [email protected] Telephone: 555-889-9999 Fax: 555-889-9991 Jason Bruce Matterson and Emma Sylvia Matterson. 123 Brownridge Crescent, Anycity Telephone: 555-123-4567 Lawyer for the seller

©2019 Real Estate Council of Ontario

Rick Moralis, LLC 789 Richmond Street South, Anycity [email protected] Telephone: 555-987-6543 Fax: 555-987-1234

©2019 Real Estate Council of Ontario

Lesson 1 | Page 36 of 50

The offer is presented to the seller and his wife at 6:30 p.m. on October 7, 2022. After discussion with their salesperson Mario, the offer is accepted at 7:30 p.m. that evening. Jason Bruce Matterson 123 Brownridge Crescent, Anycity Telephone: 555-123-4567 Lawyer for the seller Rick Moralis, LLC 789 Richmond Street South, Anycity [email protected] Telephone: 555-987-6543 Fax: 555-987-1234 The following information is entered in the Agreement of Purchase and Sale based on the information above. • Seller 1 is Jason Bruce Matterson. • Date 1 is October 7, 2022. • Seller 2 is Emma Sylvia Matterson. Although Emma is not a seller but rather a spouse not on title, Mario would still provide her with a copy of the accepted agreement of purchase and sale and ask her to acknowledge receipt. • Date 2 is October 7, 2022. • Address for Service is 123 Brownridge Crescent, Anycity. • Seller telephone number is 555-123-4567. • Seller’s lawyer is Rick Moralis, LLC. There might a situation where the seller does not have a lawyer upon signing. If that is the case, this information can be submitted to their salesperson once they have obtained a lawyer’s services. • Seller lawyer’s address is 789 Richmond Street South, Anycity. • Seller lawyer’s email is [email protected]. • Seller lawyer’s telephone number is 555-987-6543. • Seller lawyer’s fax number is 555-987-1234.

Scenario: Drafting an Offer ©2019 Real Estate Council of Ontario

The buyers, Alejandro Carlos and Maya Esmeralda Fernandez, are placing an offer on 123 Brownridge Crescent, a property located on the west side of Brownridge Crescent in the City of Anycity, Regional Municipality of Anyregion. The property has a frontage of 50.24 feet and a depth of 142.67 feet, and is legally described as Lot 16, Registered Plan 92M-3345. The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable. The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date 30 days prior to completion. The completion and title search dates are business days. The HST is deemed to be included in the purchase price. The present use is single-family residential. Mario Servino is the listing salesperson with ABC Real Estate Inc., Fax: - 555-433-9976, Email: [email protected], and is representing the seller, Jason Bruce Matterson. The property is a matrimonial home with Jason’s wife Emma Sylvia Matterson. Jason Bruce Matterson is the only registered titleholder of the property. Antonio Sorenson is employed by XYZ Realty Ltd., Fax 555-233-2989, Email: [email protected], and is representing the buyers. Acceptance of the Offer The offer is presented to the seller at 6:30 p.m. on October 7, 2022. Jason's wife was also present during the offer presentation. After discussion with their salesperson Mario, the offer is accepted at 7:30 p.m. that evening. Contact information Alejandro Carlos and Maya Esmeralda Fernandez 1122 West Ave, Anycity Telephone: 555-222-4545

©2019 Real Estate Council of Ontario

Lawyer for the buyer Rita Lawless LLC 888 Scott Street North, Anycity [email protected] Telephone: 555-889-9999 Fax: 555-889-9991 Jason Bruce Matterson and Emma Sylvia Matterson. 123 Brownridge Crescent, Anycity Telephone: 555-123-4567 Lawyer for the seller Rick Moralis, LLC 789 Richmond Street South, Anycity [email protected] Telephone: 555-987-6543 Fax: 555-987-1234

©2019 Real Estate Council of Ontario

Lesson 1 | Page 37 of 50

The offer is presented to the seller and his wife at 6:30 p.m. on October 7, 2022. After discussion with their salesperson Mario, the offer is accepted at 7:30 p.m. that evening. Alejandro Carlos Fernandez and Maya Esmeralda Fernandez 1122 West Ave, Anycity Telephone: 555-222-4545 Lawyer for the buyer Rita Lawless, LLC 888 Scott Street North, Anycity [email protected] Telephone: 555-889-9999 Fax: 555-889-9991 The following information is entered in the Agreement of Purchase and Sale based on the information above. • • • • • • •

• • • •

Buyer 1 is Jason Alejandro Carlos Fernandez. Date 1 is October 7, 2022. Buyer 2 is Maya Esmeralda Fernandez. Date 2 is October 7, 2022. Address for Service is 1122 West Ave, Anycity. Buyer telephone number is 555-222-4545. Buyer’s lawyer is Rita Lawless, LLC. There might a situation where the seller does not have a lawyer upon signing. If that is the case, this information can be submitted to their salesperson once they have obtained a lawyer’s services. Buyer lawyer’s address is 888 Scott Street North, Anycity. Buyer lawyer’s email is [email protected]. Buyer lawyer’s telephone number is 555-889-9999. Buyer lawyer’s fax number is 555-889-9991.

©2019 Real Estate Council of Ontario

Scenario: Drafting an Offer The buyers, Alejandro Carlos and Maya Esmeralda Fernandez, are placing an offer on 123 Brownridge Crescent, a property located on the west side of Brownridge Crescent in the City of Anycity, Regional Municipality of Anyregion. The property has a frontage of 50.24 feet and a depth of 142.67 feet, and is legally described as Lot 16, Registered Plan 92M-3345. The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable. The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date 30 days prior to completion. The completion and title search dates are business days. The HST is deemed to be included in the purchase price. The present use is single-family residential. Mario Servino is the listing salesperson with ABC Real Estate Inc., Fax: - 555-433-9976, Email: [email protected], and is representing the seller, Jason Bruce Matterson. The property is a matrimonial home with Jason’s wife Emma Sylvia Matterson. Jason Bruce Matterson is the only registered titleholder of the property. Antonio Sorenson is employed by XYZ Realty Ltd., Fax 555-233-2989, Email: [email protected], and is representing the buyers. Acceptance of the Offer The offer is presented to the seller at 6:30 p.m. on October 7, 2022. Jason's wife was also present during the offer presentation. After discussion with their salesperson Mario, the offer is accepted at 7:30 p.m. that evening.

©2019 Real Estate Council of Ontario

Contact information Alejandro Carlos and Maya Esmeralda Fernandez 1122 West Ave, Anycity Telephone: 555-222-4545 Lawyer for the buyer Rita Lawless LLC 888 Scott Street North, Anycity [email protected] Telephone: 555-889-9999 Fax: 555-889-9991 Jason Bruce Matterson and Emma Sylvia Matterson. 123 Brownridge Crescent, Anycity Telephone: 555-123-4567 Lawyer for the seller Rick Moralis, LLC 789 Richmond Street South, Anycity [email protected] Telephone: 555-987-6543 Fax: 555-987-1234

©2019 Real Estate Council of Ontario

Lesson 1 | Page 38 of 50

Antonio Sorenson is employed by XYZ Realty Ltd., telephone number 555-233-9892 and is representing the buyers Alejandro Carlos Fernandez and Maya Esmeralda Fernandez. Mario Servino is the listing salesperson with ABC Real Estate Inc., telephone number 555-433-6799 and is representing the seller, Jason Bruce Matterson. The following information is entered under the ‘Commission Trust Agreement’ section in the Agreement of Purchase and Sale based on the information above. • Mario Servino is entered in the ‘Authorized to bind the Listing Brokerage’ field. • Antonio Sorenson is entered in the ‘Authorized to bind the Co-operating Brokerage’ field. The salespeople will be signing the Commission Trust Agreement on behalf of their Brokerages. It simply assures the co-operating brokerage that the Listing Brokerage has a commission trust account and that their remuneration will be placed and protected in that account.

Scenario: Drafting an Offer The buyers, Alejandro Carlos and Maya Esmeralda Fernandez, are placing an offer on 123 Brownridge Crescent, a property located on the west side of Brownridge Crescent in the City of Anycity, Regional Municipality of Anyregion. The property has a frontage of 50.24 feet and a depth of 142.67 feet, and is legally described as Lot 16, Registered Plan 92M-3345. The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. The chattels included in the offer are the KitchenChef refrigerator, Model 8383, the KitchenChef stove, Model 2991, the Easyclean washer, Model 7295, and the Easyclean dryer, Model 7495. The dining room chandelier will be excluded from the offer. The hot water tank is rented from Anycity Energy at $32.65 (plus HST) per month, and is assumable.

©2019 Real Estate Council of Ontario

The offer is being signed on October 7, 2022, and will be irrevocable until 9:00 p.m. that night. The completion date will be December 13, 2022, with a title search date 30 days prior to completion. The completion and title search dates are business days. The HST is deemed to be included in the purchase price. The present use is single-family residential. Mario Servino is the listing salesperson with ABC Real Estate Inc., Fax: - 555-433-9976, Email: [email protected], and is representing the seller, Jason Bruce Matterson. The property is a matrimonial home with Jason’s wife Emma Sylvia Matterson. Jason Bruce Matterson is the only registered titleholder of the property. Antonio Sorenson is employed by XYZ Realty Ltd., Fax 555-233-2989, Email: [email protected], and is representing the buyers. Acceptance of the Offer The offer is presented to the seller at 6:30 p.m. on October 7, 2022. Jason's wife was also present during the offer presentation. After discussion with their salesperson Mario, the offer is accepted at 7:30 p.m. that evening. Contact information Alejandro Carlos and Maya Esmeralda Fernandez 1122 West Ave, Anycity Telephone: 555-222-4545 Lawyer for the buyer Rita Lawless LLC 888 Scott Street North, Anycity [email protected] Telephone: 555-889-9999 Fax: 555-889-9991 Jason Bruce Matterson and Emma Sylvia Matterson. 123 Brownridge Crescent, Anycity Telephone: 555-123-4567 Lawyer for the seller Rick Moralis, LLC 789 Richmond Street South, Anycity

©2019 Real Estate Council of Ontario

[email protected] Telephone: 555-987-6543 Fax: 555-987-1234

©2019 Real Estate Council of Ontario

Lesson 1 | Page 39 of 50

From Form 100 – Schedule A Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Schedule A The background shows Schedule A of OREA Form 100: Agreement of Purchase and Sale. The buyer is Alejandro Carlos Fernandez and Maya Esmeraldo Fernandez. The seller is Jason Bruce Matterson (enter the legal names of the buyers and sellers. This page is one of six pages completed by Antonio when he drafted the offer for the buyers.) for the purchase and sale of 123 Brownridge Crescent, City of Anycity (include the address of the property), dated the 7th day of October, 2022 (include the date that the Agreement of Purchase and Sale is created). Buyer agrees to pay the balance as follows: The Buyer agrees to pay the balance of the purchase price, subject to adjustments, to the Seller on completion of this transaction, with funds drawn on a lawyer's trust account in the form of a bank draft, certified cheque or wire transfer using the Large Value Transfer System (include all payment information including any additional deposit installments and the terms). At the bottom of the form are initials of the buyer(s) and seller(s). (Since we are drafting the offer for the buyer(s), the salesperson will review the offer with the buyer(s). If they are satisfied with what has been prepared, the buyer(s) will be asked to initial each page inside the oval shape and then sign and date their signature on page 5. At this point, Mario has presented the offer to the seller and the spouse. They have decided to accept the offer; therefore, Jason would initial the oval shape on each page and sign and date his signature on page 5 as the seller.)

©2019 Real Estate Council of Ontario

Lesson 1 | Page 40 of 50

Louis Lane is salesperson with XYZ Realty Ltd., Fax: 555-233-2989, Email: [email protected]. Her buyer client Samuel Alistair McAdams and Wanda Lynne McAdams would like to submit an offer in the amount of $349,500 which is $6500 less than the asking price of $356,000. They want to provide a deposit in the amount of $40,000. No mortgage is needed. HST is included in the sale price. There are no conditions on this offer other than the deposit will be provided upon acceptance of the offer. The sellers are Walid H. Ramhal and Farrah Rose Hormel, their salesperson is Randy Howard at ABC Real Estate Inc., Fax: - 555-433-9976, Email: [email protected]. The listing is for a single-family home, it is a bungalow with 3 bedrooms and 2 bathrooms. The listing price is $356,000 and the address is 1152 Mary Street North, Any city in the Regional Municipality of Any Region. N0R 4K3. The legal description is Lot 10 Reg. Plan 1399- City of Any City, Regional Municipality of Any Region Lot Size: 74' x 210' Zoning: Residential 1 on the East side of the street. Important dates: Offer Date: March 1, 2022 Irrevocable date: March 3, 2022 at 11:59 p.m. Completion date: July 10, 2022 (Assume the land registry office is open on July 10) Title search date: June 10, 2022 What information should be included in an offer plan? There are six options. There are multiple correct answers.

©2019 Real Estate Council of Ontario

1 2 3 4 5 6

Pre-approval information for the buyer(s) Full legal name of the seller(s) Offer date Credit check information for the buyer(s) Balance due clause Completion date

©2019 Real Estate Council of Ontario

Lesson 1 | Page 41 of 50

Louis Lane is salesperson with XYZ Realty Ltd., Fax: 555-233-2989, Email: [email protected]. Her buyer client Samuel Alistair McAdams and Wanda Lynne McAdams would like to submit an offer amount of $349,500. The sellers are Walid H. Ramhal and Farrah Rose Hormel, their salesperson is Randy Howard at ABC Real Estate Inc., Fax: 555-433-9976, Email: [email protected]. The listing is for a single-family home. Based on the above scenario, identify whether this a single representation or multiple representation. There are two options. There is only one correct answer. 1 2

Single representation Multiple representation

©2019 Real Estate Council of Ontario

Lesson 1 | Page 42 of 50

Louis Lane is salesperson with XYZ Realty Ltd., Fax 555-233-2989, Email: [email protected]. Her buyer client Samuel Alistair McAdams and Wanda Lynne McAdams would like to submit an offer in the amount of $349,500 which is $6500 less than the asking price of $356,000. They want to provide a deposit in the amount of $40,000. No mortgage is needed. HST is included in the sale price. There are no conditions on this offer other than the deposit will be provided upon acceptance of the offer. The sellers are Walid H. Ramhal and Farrah Rose Hormel, their salesperson is Randy Howard at ABC Real Estate Inc., Fax: - 555-433-9976, Email: [email protected]. The listing is for a single-family home, it is a bungalow with 3 bedrooms and 2 bathrooms. The listing price is $356,000 and the address is 1152 Mary Street North, Any city in the Regional Municipality of Any Region. N0R 4K3. The legal description is Lot 10 Reg. Plan 1399- City of Any City, Regional Municipality of Any Region Lot Size: 74' x 210' Zoning: Residential 1 on the East side of the street. Important dates: Offer Date: March 1, 2022 Irrevocable date: March 3, 2022 at 11:59 p.m. Completion date: July 10, 2022 (Assume the land registry office is open on July 10) Title search date: June 10, 2022 1152 Mary Street North is the correct information to be filled in the field of Address in the Agreement of Purchase and Sale for the given scenario. Identify whether the given information is true or false. There are two options. There is only one correct answer. True

False ©2019 Real Estate Council of Ontario

Lesson 1 | Page 43 of 50

Louis Lane is salesperson with XYZ Realty Ltd., Fax 555-233-2989, Email: [email protected]. Her buyer client Samuel Alistair McAdams and Wanda Lynne McAdams would like to submit an offer in the amount of $349,500 which is $6500 less than the asking price of $356,000. They want to provide a deposit in the amount of $40,000. No mortgage is needed. HST is included in the sale price. There are no conditions on this offer other than the deposit will be provided upon acceptance of the offer. The sellers are Walid H. Ramhal and Farrah Rose Hormel, their salesperson is Randy Howard at ABC Real Estate Inc., Fax: - 555-433-9976, Email: [email protected]. The listing is for a single-family home, it is a bungalow with 3 bedrooms and 2 bathrooms. The listing price is $356,000 and the address is 1152 Mary Street North, Any city in the Regional Municipality of Any Region. N0R 4K3. The legal description is Lot 10 Reg. Plan 1399- City of Any City, Regional Municipality of Any Region Lot Size: 74' x 210' Zoning: Residential 1 on the East side of the street. Important dates: Offer Date: March 1, 2022 Irrevocable date: March 3, 2022 at 11:59 p.m. Completion date: July 10, 2022 (Assume the land registry office is open on July 10) Title search date: June 10, 2022 The property that the buyer is purchasing fronts on the north side of Mary Street North. Identify whether the given information is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 44 of 50

Louis Lane is salesperson with XYZ Realty Ltd., Fax 555-233-2989, Email: [email protected]. Her buyer client Samuel Alistair McAdams and Wanda Lynne McAdams would like to submit an offer in the amount of $349,500 which is $6500 less than the asking price of $356,000. They want to provide a deposit in the amount of $40,000. No mortgage is needed. HST is included in the sale price. There are no conditions on this offer other than the deposit will be provided upon acceptance of the offer. The sellers are Walid H. Ramhal and Farrah Rose Hormel, their salesperson is Randy Howard at ABC Real Estate Inc., Fax: - 555-433-9976, Email: [email protected]. The listing is for a single-family home, it is a bungalow with 3 bedrooms and 2 bathrooms. The listing price is $356,000 and the address is 1152 Mary Street North, Any city in the Regional Municipality of Any Region. N0R 4K3. The legal description is Lot 10 Reg. Plan 1399- City of Any City, Regional Municipality of Any Region Lot Size: 74' x 210' Zoning: Residential 1 on the East side of the street. Important dates: Offer Date: March 1, 2022 Irrevocable date: March 3, 2022 at 11:59 p.m. Completion date: July 10, 2022 (Assume the land registry office is open on July 10) Title search date: June 10, 2022 The property that the buyer is purchasing is located at Mary Street North. Identify whether the given information is true or false. There are two options. There is only one correct answer. True

©2019 Real Estate Council of Ontario

False

Lesson 1 | Page 45 of 50

Louis Lane is salesperson with XYZ Realty Ltd., Fax 555-233-2989, Email: [email protected]. Her buyer client Samuel Alistair McAdams and Wanda Lynne McAdams would like to submit an offer in the amount of $349,500 which is $6500 less than the asking price of $356,000. They want to provide a deposit in the amount of $40,000. No mortgage is needed. HST is included in the sale price. There are no conditions on this offer other than the deposit will be provided upon acceptance of the offer. The sellers are Walid H. Ramhal and Farrah Rose Hormel, their salesperson is Randy Howard at ABC Real Estate Inc., Fax: - 555-433-9976, Email: [email protected]. The listing is for a single-family home, it is a bungalow with 3 bedrooms and 2 bathrooms. The listing price is $356,000 and the address is 1152 Mary Street North, Any city in the Regional Municipality of Any Region. N0R 4K3. The legal description is Lot 10 Reg. Plan 1399- City of Any City, Regional Municipality of Any Region Lot Size: 74' x 210' Zoning: Residential 1 on the East side of the street. Important dates: Offer Date: March 1, 2022 Irrevocable date: March 3, 2022 at 11:59 p.m. Completion date: July 10, 2022 (Assume the land registry office is open on July 10) Title search date: June 10, 2022 The property that the buyer is purchasing is located in the Regional Municipality of AnyRegion. Identify whether the given information is true or false. There are two options. There is only one correct answer. True

False ©2019 Real Estate Council of Ontario

Lesson 1 | Page 46 of 50

Louis Lane is salesperson with XYZ Realty Ltd., Fax: 555-233-2989, Email: [email protected]. Her buyer clients, Samuel Alistair McAdams and Wanda Lynne McAdams, would like to submit an offer in the amount of $349,500 which is $6500 less than the asking price of $356,000. The sellers are Walid H. Ramhal and Farrah Rose Hormel, their salesperson is Randy Howard at ABC Real Estate Inc., Fax: 555-433-9976, Email: [email protected]. The listing is for a single-family home, it is a bungalow with 3 bedrooms and 2 bathrooms. If only one buyer is available to sign the acknowledgement section of the Agreement of Purchase and Sale, it is possible for them to sign without the other buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 47 of 50

Louis Lane is salesperson with XYZ Realty Ltd., Fax: 555-233-2989, Email: [email protected]. Her buyer clients, Samuel Alistair McAdams and Wanda Lynne McAdams, would like to submit an offer in the amount of $349,500 which is $6500 less than the asking price of $356,000. The sellers are Walid H. Ramhal and Farrah Rose Hormel, their salesperson is Randy Howard at ABC Real Estate Inc., Fax: 555-433-9976, Email: [email protected]. The listing is for a single-family home, it is a bungalow with 3 bedrooms and 2 bathrooms. If spousal consent had been required, the spouse would sign anywhere on the acknowledgement in the Agreement of Purchase and Sale. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 48 of 50

Louis Lane is salesperson with XYZ Realty Ltd., Fax: 555-233-2989, Email: [email protected]. Her buyer clients, Samuel Alistair McAdams and Wanda Lynne McAdams, would like to submit an offer in the amount of $349,500 which is $6500 less than the asking price of $356,000. The sellers are Walid H. Ramhal and Farrah Rose Hormel, their salesperson is Randy Howard at ABC Real Estate Inc., Fax: 555-433-9976, Email: [email protected]. The listing is for a single-family home, it is a bungalow with 3 bedrooms and 2 bathrooms. If either the seller or the buyer does not have their lawyer’s information at the time of signing the acknowledgement, the offer can still be submitted. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 49 of 50

Louis Lane is a salesperson with XYZ Realty Ltd., Fax: 555-233-2989, Email: [email protected]. Her buyer client, Samuel Alistair McAdams and Wanda Lynne McAdams, would like to submit an offer in the amount of $349,500, which is $6,500 less than the asking price of $356,000. They want to provide a deposit in the amount of $40,000. No mortgage is needed. HST is included in the sale price. There are no conditions in this offer, and the deposit will be provided upon acceptance of the offer. The sellers are Walid H. Ramhal and Farrah Rose Hormel, their salesperson is Randy Howard at ABC Real Estate Inc., Fax: 555-433-9976, Email: [email protected]. The listing is for a single-family home, it is a bungalow with 3 bedrooms and 2 bathrooms. The listing price is $356,000 and the address is 1152 Mary Street North, Any city in the Regional Municipality of Any Region. N0R 4K3. The legal description is Lot 10 Reg. Plan 1399- City of Any City, Regional Municipality of Any Region Lot Size: 74' x 210' Zoning: Residential 1 on the East side of the street. When completing Schedule A of the Agreement of Purchase and Sale, what clauses need to be included based on the scenario provided? There are three options. There is only one correct answer.

1

The Buyer agrees to pay a further sum of three-hundred thousand dollars ($300,000) to the Seller on the removal of the home inspection condition.

2

The Buyer agrees to pay a further sum of three-hundred nine thousand five hundred dollars ($309,500)to the Seller on completion of this transaction.

3

The Buyer agrees to pay the balance of the purchase price to the Seller after removing all conditions

©2019 Real Estate Council of Ontario

Lesson 1 | Page 50 of 50

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were discussed in this lesson.

Creating an offer plan

Before drafting an offer, create an offer plan to summarize the information you need and to help ensure no detail is missed. Use the following steps to prepare an offer plan: 1. Summarize the offer mathematics. 2. Identify the required dates. 3. List the required information to be included on a schedule. 4. Identify any additional information required for the offer.

Signing an accepted offer

Once an offer is accepted, the party who accepts the offer will complete the Confirmation of Acceptance portion of the Agreement of Purchase and Sale. The seller and buyer will sign and date the agreement and have someone, usually their salesperson, witness their signing. The Remuneration or Commission Trust portion of the agreement will be completed when a co-operating brokerage is involved in the transaction. The Acknowledgement portion of the agreement will be completed and signed only when the seller and the buyer have received signed, accepted copies of the agreement.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 1 of 38

Lesson 2: Clauses in an Offer Identifying the Terms Parties Agree To In this lesson, you will explore clauses related to a buyer’s deposit. You will then briefly review the five different types of clauses, specifically acknowledgements or agreements, representation or warranties, directions or consents, covenants, and conditions.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 2 of 38

A typical agreement of purchase and sale contains a number of clauses, which state the intent of the seller and buyer and protect their interests. Writing clauses is an important part of the offer. As a salesperson, you have an obligation to protect the best interests of the party you represent in the transaction. This obligation includes the insertion of appropriate clauses in the agreement. Well-written clauses document the transaction clearly for the benefit of all parties and minimize the risk of liability.

©2019 Real Estate Council of Ontario

Clauses must be complete and accurate to ensure all parties to the agreement understand any obligations stemming from an agreed upon term. Upon completion of this lesson, you will be able to identify clauses that could be included in an agreement of purchase and sale regarding the following: • Deposits • Acknowledgements or Agreements • Representations or Warranties • Directions or Consents • Covenants • Conditions Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 3 of 38

Deposit Clause Elements The initial deposit received from the buyer is identified on the first page of an agreement of purchase and sale. Any subsequent deposit provisions are identified on a Schedule A. You have several options to consider when including a clause on an offer regarding a supplemental deposit being paid by the buyer, such as the number of deposits, the amount of each deposit and when it will be paid, where the deposits will be held, and whether the deposit will earn interest. When a buyer makes one or more supplemental deposits, you will also need to consider the impact on the balance due on closing.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 4 of 38

Supplemental Deposit Paid by a Specified Date For some agreements, a buyer might pay a supplemental deposit to the initial deposit prior to the completion date. Supplemental deposits are common in transactions where the buyer has investments that are not readily convertible to cash on the signing date. A buyer might also make a supplemental deposit to provide security to the seller. Buyers are less likely to walk away from a transaction when they pay a large deposit. Making a supplemental deposit might increase a buyer’s chance of a seller accepting the offer. To pay an additional deposit at a specified time after acceptance of the offer, you will need to add a clause detailing the amount of the deposit, who it will be paid to, and how and when it will be paid.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 5 of 38

Supplemental Deposit Paid by a Specified Date Clause As an example, the following clause could be used for this purpose: The Buyer agrees to pay a further sum of ____________________ ($____________) to _______________________ by negotiable cheque not later than ______ p.m. on the ______day of _____________, 20____ as a supplementary deposit to be held in trust in the same manner as the initial deposit pending completion or other termination of this Agreement. This amount is to be credited towards the purchase price on completion of this transaction. OREA DEP/PAY-3 Clause ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 6 of 38

Multiple Additional Deposits Paid by Specified Dates Transactions involving the construction of a custom home can require multiple additional deposits. In a new home construction situation, payments might be scheduled to align with agreed-upon construction phases, for example, when the foundation is completed, when the roof goes on, etc. To pay multiple deposits prior to completion, you will need to add a clause that describes the amount of each supplemental deposit, when they will become due, and how these deposits must be handled.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 7 of 38

Multiple Additional Deposits Paid by Specified Dates Clause As an example, the following clause could be used for this purpose: The Buyer agrees to pay the following supplementary deposits in the amounts stated not later than: [List Appropriate Times, Dates and Amounts] to _________________________, by negotiable cheque, to be held in trust pending completion or other termination of this Agreement. Such payments are to be credited towards the purchase price on completion of this transaction. OREA DEP/PAY-4 Clause ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 8 of 38

Additional Deposit Paid When a Condition is Fulfilled or Waived A supplemental deposit may also be paid upon notification or removal of a condition inserted in the offer. For example, an initial deposit was submitted at the time of offer and will follow with a supplemental deposit once the sale is firm and the conditions are removed. In an all cash offer involving supplemental deposits, the balance to be paid upon completion would be: Purchase Price - Initial Deposit - Supplement Deposit(s) = Balance to be Paid To pay additional deposits when a condition is satisfied or waived, you will need to add a clause to the schedule detailing the amount of the deposit, how it will be paid, and the condition.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 9 of 38

Additional Deposit Paid When a Condition is Satisfied or Waived Clause As an example, the following clause could be used for this purpose: The Buyer agrees to pay a further sum of ___________________________ ($ __________), to ____________________, by negotiable cheque, at the time of notification of fulfilment or removal of the condition pertaining to ____________________, as an additional deposit to be held in trust pending completion or other termination of this Agreement. This amount is to be credited towards the purchase price on completion of this transaction. OREA DEP/PAY-5 Clause ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 10 of 38

Interest on Deposits The Agreement of Purchase and Sale identifies where a deposit will be held, which is typically in trust by the seller’s brokerage. A schedule attached to the agreement will state whether the trust account where the deposit is held generates interest. REBBA permits brokerages to maintain interest-bearing trust accounts.

©2019 Real Estate Council of Ontario

A buyer might request interest on a deposit being held when making a large deposit with a long closing. If the deposit bears interest, the Agreement must detail how the interest will be calculated and to whom it would be paid. In this situation, you will need to add a clause to the Agreement’s schedule. Interest on a deposit is separate from the transaction and does not affect the balance due on closing. Interest is typically paid to the buyer under the terms of the clause included in the Agreement. The clause added to the Agreement instructs the deposit holder, which is typically the listing brokerage, how to handle the deposit and who to pay the interest to after the completion date. The parties can agree to holding the deposit in an interest bearing investment such as a Guaranteed Investment Certificate (GIC). In this case, the brokerage would place the buyer’s deposit in the brokerage trust account and then write a cheque to a financial institution and buy a GIC. On the day before closing, the brokerage would collapse the GIC and put it back in the trust account pending closing. The accrued interest would be paid to the buyer (or as otherwise agreed to) on, or shortly after, closing.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 11 of 38

Interest on Deposit Clause As an example, the following clause could be used for this purpose: The parties to this Agreement hereby acknowledge that the Deposit Holder shall place all deposit monies in an interest bearing security with any accrued interest on the deposit to be paid to the Buyer as soon as possible after completion or other termination of this Agreement. The deposit holder will immediately inform the person depositing the trust money as to the interest rate received on the deposit. In the event that the closing date is advanced or the transaction is terminated, the party receiving the interest agrees to accept the short-term rate for deposits withdrawn before maturity. OREA DEP/PAY-9 Clause ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 12 of 38

Impact of Additional Deposits on the Balance Due When adding additional deposits to an agreement, the only impact is on the amount of the balance due. Recall from a previous lesson, all agreements of purchase and sale must include a clause relating to the buyer’s obligations to pay the balance. As an example, the following clause could be used for this purpose: The Buyer agrees to pay a further sum of ____________________ ($ __________), subject to adjustments, to the Seller on completion of this transaction, with funds drawn on a lawyer’s trust account in the form of a bank draft, certified cheque or wire transfer using the Large Value Transfer System. OREA DEP/PAY-1 Clause ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 13 of 38

How to Calculate the Balance Due with Additional Deposits The amount due on completion can be calculated using the following formula you covered in a previous lesson: Purchase price less: • S (Seller take back mortgage) ©2019 Real Estate Council of Ontario

• A (Assumed mortgage) • D (Deposit(s)) Example: A buyer is offering $285,000 for a property with no mortgage required. The buyer will be submitting a deposit of $8,000 with the offer. The balance due by the buyer on completion will be: Purchase price: $285,000 - S: 0 - A: 0 - D: 8,000 $277,000 Example: A buyer is offering $450,000 for a property with no mortgage required. The buyer will be submitting an initial deposit of $10,000 with the offer and a supplementary deposit of $10,000. The balance due by the buyer on completion will be: Purchase price: $450,000 - S: 0 - A: 0 - D: -10,000 - D: -10,000 $430,000

©2019 Real Estate Council of Ontario

Lesson 2 | Page 14 of 38

From all the given clauses, select the clauses which might be included in an agreement of purchase sale regarding additional deposits. There are four options. There are multiple correct answers.

1

2

3

4

The Buyer agrees to pay a further sum of ____________________ ($____________) to _______________________ by negotiable cheque not later than ______ p.m. on the ______day of _____________, 20____ as a supplementary deposit to be held in trust in the same manner as the initial deposit pending completion or other termination of this Agreement. This amount is to be credited towards the purchase price on completion of this transaction. The parties to this Agreement hereby acknowledge that the Deposit Holder shall place all deposit monies in an interest bearing security with any accrued interest on the deposit to be paid to the Buyer as soon as possible after completion or other termination of this Agreement. The deposit holder will immediately inform the person depositing the trust money as to the interest rate received on the deposit. In the event that the closing date is advanced or the transaction is terminated, the party receiving the interest agrees to accept the short-term rate for deposits withdrawn before maturity. “The Buyer acknowledges that there are no express or implied warranties on chattels included in this Agreement of Purchase and Sale.” The Buyer agrees to pay the following supplementary deposits in the amounts stated not later than: [List Appropriate Times, Dates and Amounts] to _________________________, by negotiable cheque, to be held in trust pending completion or other termination of this Agreement. Such payments are to be credited towards the purchase price on completion of this transaction.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 15 of 38

Select another clause from the given clauses which might be included in an agreement of purchase sale regarding additional deposits There are two options. There is only one correct answer.

1

2

“This offer is conditional upon the Seller obtaining a release from a prior Agreement of Purchase and Sale. Unless the Seller gives notice in accordance with the notice provisions in this agreement, on or before 11:59 p.m., on _______ (date), 20__, that this condition is fulfilled, this offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction.” The Buyer agrees to pay a further sum of ___________________________ ($ __________), to ____________________, by negotiable cheque, at the time of notification of fulfilment or removal of the condition pertaining to ____________________, as an additional deposit to be held in trust pending completion or other termination of this Agreement. This amount is to be credited towards the purchase price on completion of this transaction.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 16 of 38

The parties to this Agreement hereby acknowledge that the Deposit Holder shall place all deposit monies in trust within an interest bearing security with any accrued interest on the deposit to be paid to the Buyer as soon as possible after completion or other termination of this Agreement. The deposit holder will immediately inform the person depositing the trust money as to the interest rate received on the deposit. In the event that the closing date is advanced or the transaction is terminated, the party receiving the interest agrees to accept the short-term rate for deposits withdrawn before maturity. In the given sample clause, the clause specifies that the deposit monies will be deposited into an interest bearing security. From the following options, select what type of interest bearing security that the deposit holder can use. There are five options. There is only one correct answer. 1 2 3 4 5

Interest bearing trust account Daily interest savings account Interest bearing investment The seller’s brokerage’s general account The buyer’s lawyer’s general account

©2019 Real Estate Council of Ontario

Lesson 2 | Page 17 of 38

A buyer wishes to purchase a home for $489,600 and with a deposit amount of $15,000 upon acceptance of the offer. The completion date is eight months away and the seller has requested supplementary deposits. The buyer agrees to pay the following supplementary deposits in the amounts stated not later than $7,500 (seven thousand five hundred dollars) by July 1, 2022, and $7,500 (seven thousand five hundred dollars) by September 1, 2022, to ABC Real Estate Inc., by negotiable cheque, to be held in trust pending completion or other termination of this Agreement. Such payments are to be credited towards the purchase price on completion of this transaction. The buyer agrees to pay the balance owing subject to adjustments, to the seller upon completion of the transaction with funds drawn on a lawyer’s trust account in the form of a bank draft, certified cheque or wire transfer using the Large Value Transfer System. What is the total amount due on closing? There are four options. There is only one correct answer. 1 2 3 4

459,600 460,590 459,650 461,008

©2019 Real Estate Council of Ontario

Lesson 2 | Page 18 of 38

Assumptions and misunderstandings in a real estate transaction have the potential to result in disputes or legal action. Does the buyer acknowledge, for example, the property had water damage or was once used as a grow operation? To prevent problems after closing, you will need to ensure the party you represent is protected by adding appropriate clauses to the agreement. You will need to understand and draft clauses related to acknowledgements or agreements, representations or warranties, directions or consents, covenants, and conditions.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 19 of 38

Acknowledgements or Agreements An acknowledgement is an acceptance of an existing condition by both parties to an agreement—an affirmation and agreement of a fact that could affect one or more parties to an agreement. As a salesperson, you will use an acknowledgement clause to avoid assumptions and clarify items that could be misunderstood. As a clause, an acknowledgement is simply a written statement by one or both parties that something exists or does not exist. Example of an Acknowledgement The Buyer acknowledges that there are no express or implied warranties on chattels included in this Agreement of Purchase and Sale.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 20 of 38

How to Write an Acknowledgement or Agreement Clause An acknowledgement is useful to obtain admission or affirmation that something exists. In clause writing, an acknowledgement places emphasis on matters that might be misunderstood or misconstrued. It is an admission or affirmation that some circumstance exists, as in a fact, situation or liability. Acknowledgements are found in standard agreements (i.e., acknowledging receipt of a true copy) and in clauses where seller and/or buyer confirm certain facts.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 21 of 38

Examples of Acknowledgement Clauses In real estate transactions issues can arise that require clarification. For example, does the buyer understand the condition of appliances included with the property are as is and not under warranty? Does the buyer acknowledge that the property is without road access? Is the buyer aware the property was once used as a grow operation? Making sure the buyer acknowledges these conditions prevents surprises once the property transaction closes. The following seven sections contain examples of situations that require an acknowledgement clause.

No warranty on chattels

A seller may want to confirm there are no warranties on any appliances being left in the property being sold. The following is an example of a clause which addresses this requirement: The Buyer acknowledges that there are no express or implied warranties on chattels included in this Agreement of Purchase and Sale. OREA CHATT–3 Clause ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

Water access

Suppose the property being sold is a cottage situated on an island with no road access. To ensure the buyer acknowledges the access, you would add a clause to the Agreement of Purchase and Sale. The following is an example of a clause which addresses this requirement: The buyer acknowledges that the property is only accessible by water. OREA ACC-7 Clause ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Discharge of Existing Mortgage—Seller to pay prepayment charges

An agreement of purchase and sale may call for a seller to discharge an existing mortgage which will likely involve a fee or penalty. In this scenario, the seller needs to be aware of the possible expense to help decide whether to accept an offer. Adding an acknowledgement about the mortgage discharge to the agreement prevents the seller from claiming he was unaware of the cost. The following is an example of a clause that addresses this requirement: The seller acknowledges that there may be a penalty to discharge the existing Charge/Mortgage and agrees to pay any costs, expenses or penalties incurred in discharging the existing Charge/Mortgage. OREA MORT-12 Clause ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

Growth or manufacture of illegal substances— Acknowledgement

Properties used to grow and manufacture illegal substances can contain mould and other health hazards as well as have problems with electrical and ventilation systems. If a property has been previously used as a grow operation, the buyer needs to be made aware of this fact prior to signing an agreement of purchase and sale. The following is an example of a clause which addresses this requirement: The buyer acknowledges that the use of the property and buildings and structures thereon may have been for the growth or manufacture of illegal substances and acknowledges that the seller makes no representations and/or warranties with respect to the state of repair of the premises and the buyer accepts the property and the buildings and structures thereon in the present state and in an “as is” condition. OREA ENV-10 Clause ©2022 Ontario Real Estate Association. All rights reserved. Used under license. A buyer is making an offer on a property that contains Kitec plumbing.

Buyer acknowledges— Kitec, which was recalled in 2005 and no longer manufactured, was marketed as a Kitec plumbing on corrosion-resistance alternative to copper pipes and fittings. Industry experts believe property ©2019 Real Estate Council of Ontario

homes with Kitec plumbing will experience premature pipe failure leading to potential bursts and flooding. The following is an example of a clause that addresses this requirement: The buyer acknowledges that the property and buildings and structures have had installed therein or thereon Kitec plumbing, fittings for Kitec plumbing or Kitec Plumbing Systems (“Kitec”) and acknowledges that the seller makes no representations and/or warranties with respect to the state of repair of the premises respecting the said Kitec and the buyer accepts the property and the buildings and structures thereon in their present state and in an “as is” condition. OREA KIT-2 Clause ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

Underground tank—Seller has removed

A buyer is interested in a property that was formerly heated by an oil fired furnace. The owner converted the heating system to natural gas and had the underground fuel oil tank removed. The buyer wants assurances that the tank was removed and any contaminated soil cleaned up. The following is an example of a clause which addresses this requirement: The buyer acknowledges that there was an underground fuel tank on the property that has been removed and the seller agrees to provide to the buyer at the seller’s own expense by no later that than _____ p.m. on the ________ day of _____________ , 20_____ evidence that a contractor registered under the Technical Standards and Safety Act, 2002, and any Regulations thereto as amended from time to time, has removed the said fuel oil tank, assessed the soil surrounding the underground fuel oil tank for contamination and cleaned and removed any contamination. OREA ENV-13 Clause ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Ontario Heritage Act designation

A buyer is interested in a property located in a historical downtown area. The building has been designated as a heritage property. The following is an example of a clause which addresses this requirement: The parties hereto acknowledge that the subject property is/may be designated as a Heritage Property and is subject to the provisions of the Ontario Heritage Act, 1974. The buyer acknowledges that the seller has made this disclosure. The buyer accepts the property with this designation and agrees to continue with this transaction. OREA HERIT-1 Clause ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 22 of 38

Representations or Warranties A buyer may want an assurance from the seller that would extend beyond merely an acknowledgement of a fact. In an agreement of purchase and sale, a representation and warranty clause provides an assurance that the seller gives to the buyer. All matters in an agreement are merged or extinguished on closing. This means the seller is responsible for the condition of the property until the date of closing and the buyer would be responsible as of the day of closing. The buyer could want the seller to guarantee or warrant certain facts on the day of closing. For example, the buyer may want the seller to represent (state) and warrant (guarantee) that the garage door will be repaired and be in good working order on closing. If when the buyer has possession of the property on closing and finds the door is not in good working order, the seller would still be responsible for the repair after the closing.

©2019 Real Estate Council of Ontario

There may be a situation when the seller may not be comfortable making an absolute assurance. The wording of the clause could include the wording “to the best of the seller’s knowledge”. Example The seller represents and warrants that no water damage has occurred to the basement by water seepage or flooding during the time of their ownership nor are they aware of any previous water damage.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 23 of 38

How to Write Representation and Warranty Clauses All representation and warranty clauses follow a simple pattern. In a typical clause, the seller makes a statement (representation) about an item, a guarantee (warranty) and the fact that the representation and warranty will survive and not merge (extinguish) on closing. The representation clause should include a statement that the representation will apply only to the state (condition) of the property on the day of closing. The clause might also include a provision as to how far past the completion date the representation and warranty apply if applicable.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 24 of 38

Condition of a Component of the Property Surviving Completion As described previously, the terms of an agreement of purchase and sale are said to merge on completion. In other words, the contract has come to an end and nothing within the contract extends beyond the closing date unless specifically stated in the agreement. Example A property is sold with a number of chattels, including appliances, and the following clause is added to the agreement: The seller represents and warrants that the chattels and fixtures as included in this Agreement of Purchase and Sale will be in good working order and free from all liens and encumbrances on completion. The parties agree that this

©2019 Real Estate Council of Ontario

representation and warranty shall survive and not merge on completion of this transaction, but apply only to the state of the property at completion of this transaction. OREA CHATT-2 Clause ©2022 Ontario Real Estate Association. All rights reserved. Used under license. The seller would agree to provide a warranty until the day of closing, but generally would not want to be responsible after the buyer takes possession of the property. The clause should contain wording that states the seller would only be responsible for the condition of the property until closing. On the closing date, if the chattels and fixtures are in good working condition, the warranty is no longer needed because it only applied to the condition of the chattels and fixtures on the completion. However, if they were not in good working order on the completion date, the buyer has recourse against the seller. There could be circumstances when the warranty would apply beyond the completion date and a specific date could be added to the clause. For example, a buyer could purchase a property with a pool in the winter and insert a date for the warranty to apply in the spring when they would be able to examine the condition of the pool.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 25 of 38

Examples of Representation and Warranty Clauses Representation and warranty clauses are intended to protect the seller or buyer regarding an existing fact or event that could be the basis for rescinding an agreement, if found false. The following four sections contain examples of situations that require a representation and warranty clause.

Chattels and fixtures warranty

The buyer may want the seller to represent and warrant that the chattels included in the agreement will be in good working order on closing. When the buyer has possession of the property on the day of closing finds a chattel that is not in working order, the seller would be responsible and the buyer would have recourse. If the chattel breaks after the closing day, the buyer would be responsible. In such instances, the following clause can be added: The seller represents and warrants that the chattels and fixtures as included in this Agreement of Purchase and Sale will be in good working order and free from all liens and encumbrances on completion. The parties agree that this representation and warranty shall survive and not merge on completion of this transaction, but apply only to the state of the property at completion of this transaction. OREA CHATT-2 Clause ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

A buyer could purchase a property with an inground swimming pool. The buyer would Swimming pool by-law compliance want assurance from the seller that the pool meets municipal compliance requirements. In such instances, the following clause can be added: The Seller represents and warrants to the best of the Seller's knowledge and belief that the swimming pool, its equipment, and the fencing of the said pool, comply with all applicable by-laws, regulations, and legislation. The Parties agree that this representation and

©2019 Real Estate Council of Ontario

warranty shall survive and not merge on completion of this transaction, but apply only to the state of the property existing at completion of this transaction. OREA SWIM–1 Clause ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

Seller representations – General

When viewing a property, a buyer notices water stains on the walls and wants assurance the home has no water leakage or flooding problem. In such instances, the following clause can be added: The Seller represents and warrants that on completion:_____________________________. (e.g., There is no known damage to the basement, roof, or elsewhere caused by water seepage or flooding.) The Parties agree that these representations and warranties shall survive and not merge on completion of this transaction, but apply only to the state of the property at completion of this transaction. OREA REP/WARR-2 Clause ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

Specific time period warranty

The buyer could want the seller to warrant the condition of the furnace but the seller may only agree to for as long as the manufacturer’s warranty. In such instances, the following clause can be added: The Parties agree that the representations and warranties stated herein shall survive and not merge on completion, but shall expire at _____ p.m. on the _____ day of __________, 20_____, and be of no further force and effect unless the Buyer, prior to such expiry, has given written notice of a claim under the warranty to the Seller. OREA REP/WARR-4 Clause ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 26 of 38

Directions or Consents Direction or consent clauses give authority or instruction for a party to take action. You will use these types of clauses when circumstances arise in which a seller or buyer must take some action in furtherance of the contract. Examples of Direction Clauses 1. The Buyer authorizes and directs the Seller to deliver tenant notices regarding the new owner when the offer becomes firm and binding. 2. The Seller agrees to provide reasonable access during daylight hours to the property for the purposes of a home inspection at the direction of the Buyer between ______ (date) to ______ (date), 20__. 3. The Sellers and Buyers agree to permit the brokerages to advertise or otherwise market the property and provide information about the sale agreement, limited to the selling price, after the APS has become firm and for a period of no longer than 21 days after the completion date.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 27 of 38

Covenants A covenant is a promise by one party to another and in real estate terms can be either permissive or restrictive. A permissive covenant refers to a promise by the owner of land to do something, for example, to pay money to use land in a specified way. A restrictive covenant is a promise by the owner of land that restricts the use of that land in some way. You will use a covenant type clause when there is an enforceable restriction or obligations connected with the property for all subsequent buyers of the property being purchased (e.g., use, lease or structural restrictions etc.). Examples of Covenant Clauses 1. The Buyer agrees to honour the existing access rights to neighbouring properties. 2. The Buyer acknowledges that the municipality of the property has a by-law that restricts or limits the owner’s right to rent or lease the property and the Buyer agrees to purchase the property subject to the restriction or limitation. 3. The Tenant acknowledges and agrees that the property is for residential purposes only. Notwithstanding any municipal zoning by-law, other by-law or regulation permitting other use, the property must not be used for the purpose of any trade, employment, service, manufacture, profession or business of any description including, but not limited to, day-care, hostel, church, nursing home or short-term rental.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 28 of 38

Conditions Conditions require the occurrence of some event or performance of some act to be fulfilled. Common conditions include financing, inspection, sale of property, and insurance. You will use a conditional clause when the seller or buyer requires a condition to be fulfilled in order for the agreement to become binding. Two types of conditions are used: • Condition precedents are most commonly used and can be waived. • Conditions subsequent are self-fulfilling and tend to be used in commercial real estate. You will cover condition precedent and condition subsequent in more detail in a future module.

©2019 Real Estate Council of Ontario

Note: Specific dates, instead of business or calendar days, are preferred in conditional clauses. Often, the timeline for other types of clauses are incorporated under the agreement’s completion date. Example of a Conditional Clause This offer is conditional upon the Seller obtaining a release from a prior Agreement of Purchase and Sale. Unless the Seller gives notice in accordance with the notice provisions in this agreement, on or before 11:59 p.m., on _______ (date), 20__, that this condition is fulfilled, this offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction.” OREA SBP/SA–3 Clause ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 29 of 38

When writing clauses, which of the following should you consider to ensure both the seller and buyer are protected? There are four options. There are multiple correct answers. 1 2 3 4

Consider the potential problems in the situation that may require a clause. Only use standard clauses and never write your own. Evaluate the suitability of a clause based on the situation. Create, modify, or write a clause to fit the specific situation.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 30 of 38

Identify which of the given clauses are examples of Acknowledgement or Agreement clause. There are three options. There are multiple correct answers.

1

2

3

The buyer covenants and agrees that the buyer will in no way directly or indirectly assign, rent, lease, convey, list or in any way advertise for sale, sell, or otherwise transfer the buyer’s rights under this Agreement prior to completion to any other person or entity without the express written consent of the seller. Such consent may be granted or withheld at the seller’s sole option. The Buyer agrees not to directly or indirectly assign, rent, lease, convey, list or in any way advertise for sale, sell or otherwise transfer the Buyer’s rights under this agreement prior to completion to any other person or entity without the express written consent of the Seller. Such consent may be granted or withheld at the Seller’s sole option. OREA Clause ASSIGN-2, Right to Assign - Seller's Consent ©2022 Ontario Real Estate Association. All rights reserved. Used under license. It is understood and agreed that the purchase price for the said property will be established based on $4,900 per acre.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 31 of 38

Identify which of the given clauses are examples of Representation or Warranty clause. There are three options. There are multiple correct answers.

1

2

3

The Seller represents and warrants that on completion there is no known damage to the basement, roof, or elsewhere caused by water seepage or flooding. The Parties agree that these representations and warranties shall survive and not merge on completion of this transaction, but apply only to the state of the property at completion of this transaction. OREA Clause REP/WARR-2, Seller Representations - General ©2022 Ontario Real Estate Association. All rights reserved. Used under license. The Buyer hereby covenants with the Seller and with the Condominium Corporation that the Buyer, members of the household, and guests, will comply with the Condominium Act. The Declaration, the Bylaws and all Rules and Regulations, in using the unit and the common elements, and will be subject to the same duties imposed by the above as those applicable to other individual unit owners. The Seller represents and warrants that the appliances listed in the APS will be in good working order at the time of completion. This warranty shall not survive the date of completion.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 32 of 38

Identify which of the given clauses are examples of Covenants clause. There are three options. There are multiple correct answers.

1

2

3

The buyer covenants and agrees that the buyer will in no way directly or indirectly assign, rent, lease, convey, list or in any way advertise for sale, sell, or otherwise transfer the buyer’s rights under this Agreement prior to completion to any other person or entity without the express written consent of the seller. Such consent may be granted or withheld at the seller’s sole option. The Buyer hereby covenants with the Seller and with the Condominium Corporation that the Buyer, members of the household, and guests, will comply with the Condominium Act. The Declaration, the Bylaws and all Rules and Regulations, in using the unit and the common elements, and will be subject to the same duties imposed by the above as those applicable to other individual unit owners. The Seller represents and warrants that the appliances listed in the APS will be in good working order at the time of completion. This warranty shall not survive the date of completion.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 33 of 38

Which of the given clauses are Direction or Consent clause? There are four options. There are multiple correct answers. 1 2

3

4

The Seller agrees to provide reasonable access during daylight hours to the property for the purposes of a home inspection at the direction of the Buyer between ______ (date) to ______ (date), 20__. The Sellers and Buyers agree to permit the brokerages to advertise or otherwise market the property and provide information about the sale agreement, limited to the selling price, after the APS has become firm and for a period of no longer than 21 days after the completion date. This offer is conditional upon the sale of the Buyer’s property known as XYZ. Unless notice is given in accordance with this agreement no later than __ p.m. _____ (date), 20__, that this condition is fulfilled, this offer shall be null and void and the deposit shall be returned by __ p.m. _____ (date), 20__, to the Buyer in full without deduction. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by required notice within the time period stated herein. The offer is conditional upon the inspection of the subject property by a home inspector and the obtaining of a report satisfactory to the buyer in the buyer's sole and absolute discretion. Unless the buyer gives notice in writing delivered to the seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any schedule thereto no later than 6:00 p.m. On the 21st day of June, 2022, that this condition is fulfilled, this offer shall be null and void and the deposit shall be returned to the buyer. The seller agrees to co-operate in providing access to the property for the sole purpose of this inspection. This condition is included for the benefit of the buyer and may be waived at the buyer's sole option by notice in writing to the seller as aforesaid within the time period stated herein.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 34 of 38

You represent a cottage owner who is selling a property with a mutually owned and shared road. Cottage owners having access are required to share the maintenance costs on an annual basis. What type of clause could you include to protect the best interests of the seller? There are four options. There is only one correct answer. 1 2 3 4

Representation or Warranty Condition Direction or Consent Acknowledgement or Agreement

©2019 Real Estate Council of Ontario

Lesson 2 | Page 35 of 38

“The Buyer acknowledges that the private access road to more than one property requires maintenance.” Does this clause protect the interests of the seller? There are two options. There is only one correct answer. 1 2

Yes No

©2019 Real Estate Council of Ontario

Lesson 2 | Page 36 of 38

You represent a seller who has received an offer from a buyer interested in purchasing their property. The buyer would like the seller to include all the chattels that are currently in the home and guarantee they will be in good working order for 6 months after the Agreement of Purchase and Sale is complete. The offer includes the following clause: The seller represents and warrants that the chattels as included in this Agreement of Purchase and Sale will be in good working order and free from all liens and encumbrances on completion. The Parties agree that this representation and warranty shall survive completion of this transaction, and apply to the state of the chattels for six (6) months following completion. OREA CHATT-1 Clause ©2022 Ontario Real Estate Association. All rights reserved. Used under license. This representation and warranty clause protects the interests of the seller. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 37 of 38

You represent a buyer who wants the option to inspect the property before closing one last time and plans to bring their contractor to get some quotes and allow him to take photos for some future work that the buyer wishes to get done on the property upon completion. The offer includes the following clause: The Buyer shall have the right to inspect the property one further time prior to completion, at a mutually agreed upon time, provided that written notice is given to the Seller. The Seller agrees to provide access to the property for the purpose of this inspection. OREA INSP–15 Clause ©2022 Ontario Real Estate Association. All rights reserved. Used under license. The buyer also wants the contractor to take pictures and a video during the inspection. Does this clause allow for the contractor to take photos or videos? There are two options. There is only one correct answer. 1 2

Yes No

©2019 Real Estate Council of Ontario

Lesson 2 | Page 38 of 38

Congratulations, you have completed the lesson! There are six sections on this page with a summary of the key topics that were discussed in this lesson.

Deposit clauses

For some agreements, a buyer might pay a supplemental deposit to the initial deposit prior to the completion date. A supplemental deposit may also be paid upon notification or removal of a condition inserted in the offer. To pay supplemental deposits, you will need to add a clause detailing the amount of each supplemental deposit, who it will be pay to, and how and when it will be paid. A buyer might request interest on a deposit being held when making a large deposit with a long closing. If the deposit bears interest, the agreement must detail how the interest will be calculated and paid out. In this situation, you will need to add a clause to the agreement’s schedule.

Acknowledgements or agreements

As a salesperson, you will use an acknowledgement clause to avoid assumptions and clarify items that could be misunderstood. As a clause, an acknowledgement is simply a written statement by one or both parties that something exists or does not exist.

Representations or warranties

Representation and warranty clauses are intended to protect the seller or buyer regarding an existing fact or event that could be the basis for rescinding an agreement, if found false.

Directions or consents

You will use Direction or Consent clauses when circumstances arise in which a seller or buyer must take some action in furtherance of the contract.

Covenants

You will use a covenant type clause when there is an enforceable restriction or obligations connected with the property for all subsequent buyers of the property being purchased (e.g., use, lease or structural restrictions etc.).

Conditions

You will use a conditional clause when the seller or buyer requires a condition to be fulfilled in order for the agreement to become binding.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 1 of 20

Lesson 3: Summary Practice Activities

This lesson provides a series of activities that will test your knowledge on the entire module.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 2 of 20

This lesson provides summary practice activities. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 3 of 20

When writing an offer plan what information should be included? There are six options. There are multiple correct answers. 1 2 3 4 5 6

Accurate mathematics Seller’s lawyers contact information Signatures of both the seller and buyer Correct sequential time for condition fulfilment Title search and completion dates Clauses regarding mathematics

©2019 Real Estate Council of Ontario

Lesson 3 | Page 4 of 20

Before a salesperson writes an offer, there is another document that needs to be completed. This document gets completed for each offer whether the offer completes or not. What is the name of this document? There are four options. There is only one correct answer. 1 2 3 4

An Offer Plan Remuneration or Commission Trust Agreement Confirmation of Co-operation and Representation Agreement of Purchase and Sale

©2019 Real Estate Council of Ontario

Lesson 3 | Page 5 of 20

In a typical Representation or Warranty clause, the seller makes a statement (representation) about an item, a guarantee (warranty) and the fact that the representation and warranty will survive and not merge (extinguish) on closing. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 6 of 20

The covenants clause is a statement in an agreement of purchase and sale that admits or affirms that something exists. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 7 of 20

According to Pay the Balance as Follows: Amount in an agreement of purchase and sale calculates the balance amount as—Purchase Price Minus Deposit, Mortgage Assumptions and Seller Take Backs Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 8 of 20

The clause Agreed Facts in an agreement of purchase and sale addresses the fact that the agreement has been understood and agreed by the parties. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 9 of 20

When writing an offer plan, the offer mathematics should not be included. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 10 of 20

A co-operating brokerage represents the seller. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 11 of 20

Derrick McQuag is the listing salesperson with ABC Real Estate Inc. and is representing the sellers, Steven Robert Fieldstone and Stella Elizabeth Fieldstone. Ann Rosewood, a salesperson with XYZ Realty Ltd. is representing the buyers. Notices can be delivered by email to the brokerages. The email for ABC Real Estate Inc. is [email protected]. The email for XYZ Realty Ltd. is [email protected]. Select whether this is a single representation or multiple representation based on the above scenario. There are two options. There is only one correct answer. 1 2

Single representation Multiple representation

©2019 Real Estate Council of Ontario

Lesson 3 | Page 12 of 20

The completion date normally follows the title search date by two or three days. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 13 of 20

The buyers, Tyler Martin Ramirez and Charlotte Mae Ramirez, are placing an offer on 398 Connacher Road, a property located on the north side of Connacher Road in the City of Anycity, Regional Municipality of Anyregion. The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. A further deposit amount of $10,000 will be provided providing the buyers can arrange a new first mortgage. The deposits are payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. What would be the best clause wording based on the described scenario? There are two options. There is only one correct answer.

1

2

The buyer agrees to pay a further sum of Ten Thousand Dollars to ABC Realty Inc., by cheque, at the time of notification or fulfillment or removal of the condition pertaining to arranging a new first mortgage, as an additional deposit to be held in trust pending completion of this agreement. This amount is to be credited toward the deposit on completion of this transaction. The buyer agrees to pay a further sum of Ten Thousand Dollars ($10,000.00) to ABC Realty Inc. by negotiable cheque, at the time of notification or fulfillment or removal of the condition pertaining to arranging a new first mortgage, as an additional deposit to be held in trust pending completion or other termination of this agreement. Such payments are to be credited towards the purchase price on completion of this transaction.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 14 of 20

The buyers, Tyler Martin Ramirez and Charlotte Mae Ramirez, are placing an offer on 398 Connacher Road, a property located on the north side of Connacher Road in the City of Anycity, Regional Municipality of Anyregion. The offer price is $425,000 with a deposit of $10,000 that is being provided upon acceptance of the offer. A further deposit amount of $10,000 will be provided providing the buyers can arrange a new first mortgage The deposits are payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid on completion of the transaction. The buyers also want to be able to inspect the property once more before closing. What would be the best clause wording based on the described scenario? There are two options. There is only one correct answer.

1

2

The buyer shall have the right to inspect the property one further time prior to completion, provided that written notice is given to the seller. The seller agrees to provide access to the property for the purpose of this inspection. The buyer shall have the right to inspect the property one further time at completion, provided that notice is given to the seller. The seller agrees to provide access to the property for the purpose of this inspection.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 15 of 20

The Acknowledgements or Agreements clause is used to to obtain confirmation or affirmation that something exists. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 16 of 20

The Representations or Warranties clause is used to protect the seller or buyer with respect to some existing fact or event that could be the basis for rescinding an agreement, if found false. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 17 of 20

The Condition clause in an agreement of purchase and sale is used to give authority, direction or instruction to take an action. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 18 of 20

The Covenants clause addresses the promise by one party to another and can be either positive or negative. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 19 of 20

The Conditions clause is used to call for the occurrence of some event, or performance of some act, before the agreement becomes binding on the parties; or to refer to a future event, which, if it happens, makes the contract no longer binding on the parties. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 20 of 20

Congratulations, you have completed the lesson!

©2019 Real Estate Council of Ontario

Module Summary | Page 1 of 4

Module Summary

This lesson contains a summary of the entire module and a list of helpful resources available in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 2 of 4

Congratulations, you have completed this module! This lesson will present a summary of Learning Objectives and a list of helpful resources that you can search for in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 3 of 4

There are two sections on this page with a summary of the key topics that were discussed in this module.

Complete a residential agreement of purchase and sale

Before drafting an offer, follow the steps to create an offer plan to summarize the information you need and to help ensure no detail is missed. Once an offer is accepted, as a salesperson you will need to ensure the seller and buyer sign the required portions of the agreement at the right stage of the process including the Confirmation of Acceptance and the Acknowledgements. If there is a co-operating brokerage you will need to complete the Remuneration or Commission Trust Agreement. Completion of this lesson has enabled you to do the following: • Identify the steps required to draft an offer with no conditions • Draft an offer with no conditions • Identify how signing would be completed by a buyer when submitting an offer and by the seller when accepting the offer

Clauses in an offer identifying the terms parties agree to

As a salesperson, you have an obligation to include the appropriate clauses in the agreement. Well-written clauses document the transaction clearly for the benefit of all parties. The initial deposit received from the buyer is identified on the first page of an agreement of purchase and sale. Any subsequent deposit provisions are identified in a clause on a Schedule A. You have several options to consider when including a clause on an offer regarding a supplemental deposit being paid by the buyer, such as the number of deposits, the amount of each deposit and when it will be paid, where the deposits will be held, and whether the deposit will earn interest. When a buyer makes one or more supplemental deposits, you will also need to consider the impact on the balance due on closing.

©2019 Real Estate Council of Ontario

Assumptions and misunderstandings of what is contained in a real estate transaction have the potential for disputes and legal action. Does the buyer acknowledge, for example, the property had water damage or was once used as a grow operation? To prevent problems after closing, you will need to ensure the party you represent is protected by adding appropriate clauses to the agreement. You will need to understand and draft clauses related to rights, acknowledgements, representations and warranties. Completion of this lesson has enabled you to identify clauses that could be included in an agreement of purchase and sale regarding the following: • Deposits • Rights given to a seller or buyer • Acknowledgements • Representation and warranty

©2019 Real Estate Council of Ontario

Module Summary | Page 4 of 4

Module Resources There is a helpful resource related to this module that you can search for in the Knowledge Management System. 1. Offer Plan Flowchart: This job aid provides a visual representation of the offer plan flowchart. The offer plan is used to assist in the completion of the Agreement of Purchase and Sale and helps ensure that all the required information is clear, accurate and complete A salesperson can use this job aid to help complete an offer plan. While navigating through the online module, click the KMS button for tools and information on this topic.

©2019 Real Estate Council of Ontario

V7

Module 17: Writing Conditions to be Included in an Agreement of Purchase and Sale Disclaimer: This is a reference document which contains pages from the Accessible eLearning module. You should complete the eLearning module to proceed to the next step. Please note that the accessible module on the LMS only contains the interactive pages and you need to go through the content of this document thoroughly to attempt the interactive activities in the module. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Salesperson Program ©2019 Real Estate Council of Ontario. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or in any means – by electronic, mechanical, photocopying, recording or otherwise without prior written permission, except for the personal use of the Real Estate Salesperson Program learner.

©2019 Real Estate Council of Ontario

Module 17: Writing Conditions to be Included in an Agreement of Purchase and Sale Many offers will include additional terms or clauses to address the unique aspects of each sale. As you learned earlier, acknowledgements, representations and warranties, and various other terms can become part of an offer to document what is agreed to. These terms will help ensure the parties understand their rights and obligations associated with the agreement. This module will expand on what you learned previously; detailing the requirements when including a condition in an offer. When an offer contains a condition, it allows the party a specified amount of time to complete the necessary due diligence before being obligated to complete the transaction. Should the due diligence result in the party no longer wanting to purchase the property, the proposed transaction will not proceed. As a salesperson, you will be relied upon to provide advice and guidance to sellers and buyers relating to the transaction, including all aspects of any condition included in an offer. Accuracy in drafting a condition to ensure it’s complete and meets the needs of the party is a critical component of providing conscientious and competent service. Understanding the structure of clauses, and knowing how to create sound and accurate clauses, is important for you to be able to provide conscientious and competent service, and to ensure each party’s actions and obligations under an agreement of purchase and sale are clear and understood. Each transaction is unique and can require incorporation of many differing clauses and conditions. The conditions presented in this module focus on common circumstances encountered in residential trades.

©2019 Real Estate Council of Ontario

As you learned in an earlier module, organized real estate which includes membership with a local real estate board, The Ontario Real Estate Association (OREA) and The Canadian Real Estate Association (CREA). If you become a member, you will have access to standard forms and clauses created by OREA. However, not all salespersons choose to be members of organized real estate and are not required to use these forms. As they are commonly used in trading, specific forms and clauses will be used throughout this module and other modules for illustrative purposes. Images of OREA standard forms and clauses are included with permission from OREA. To check your understanding of this module, you must complete all the activities in the online module. While navigating through the online module, click the Legislation button to view laws and regulations related to this module. While navigating through the online module, click the KMS button to access the Knowledge Management System or visit the Module Resources to find the list of all the KMS assets for this module. The contents of the thumbnail icon and References from the module are added to support your learning throughout this Accessible PDF.

©2019 Real Estate Council of Ontario

Menu: Writing Conditions to be Included in an Agreement of Purchase and Sale Number of Lessons

Lesson Number Lesson 1 Lesson 2 Lesson 3 Lesson 4 Lesson 5

6 Lessons

Lesson Name An Introduction to Conditional Clauses Conditional Clauses Related to Financing Supplemental Conditional Clauses Environmental and Zoning Conditional Clauses Summary Practice Activities Module Summary

©2019 Real Estate Council of Ontario

Lesson 1 | Page 1 of 35

Lesson 1: An Introduction to Conditional Clauses

This lesson introduces two methods for drafting a condition. It details the distinct requirements for providing notice depending on the method used. The lesson provides an example for each method to illustrate key aspects of a condition.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 2 of 35

An Introduction to Conditional Clauses When an offer doesn’t contain any conditions, it’s a binding agreement once accepted by all parties. In residential transactions, many offers will include one or more conditions that set out stipulations that can result in a binding contract either upon the occurrence or non-occurrence of a specific event. This lesson details the methods that can be used to draft a condition. Two methods have evolved-condition precedent and condition subsequent. The vast majority of conditions found in agreements of purchase and sale are condition precedent. Most conditions involve buyer’s activities, such as obtaining financing, conducting an inspection, or selling the buyer’s property. There are situations that warrant seller conditions, but their use is more limited in scope. In many situations, a party can decide to proceed with the transaction even when a condition has not been fulfilled. This is known as waiving a condition. However, in a few specific situations, a party will not be permitted to waive a condition but rather will be required to fulfill the condition for the transaction to proceed. This is known as a true condition precedent. This is also discussed in this lesson. ©2019 Real Estate Council of Ontario

As a salesperson, including conditions in an offer will require you to monitor the due diligence time period closely. If the required notice relating to a condition is not provided within the time period, the offer could become null and void, or the seller or the buyer could be obligated to proceed with the transaction when they did not intend to do so. Upon completion of this lesson, you will be able to: • Identify how a condition precedent clause is structured • Identify how a true condition precedent clause is structured • Identify how a condition subsequent clause is structured Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 3 of 35

Benefits of Writing Clear and Effective Clauses Well-written clauses document the transaction clearly. They minimize the risk of liability for you, as a salesperson, and protect the interests of the client. Clearly-written, effective clauses benefit all parties associated with a transaction—buyers, sellers, salespersons, and the brokerages. Some of the core benefits are: • You protect the best interests of the client by ensuring each clause addresses your clients’ needs and prevents them from having to do something they are unwilling or unable to do. • The clause is less likely to be removed from the Agreement of Purchase and Sale, so you do not waste your time. • He transaction is more likely to close, which makes both sellers and buyers happy, and helps you and your brokerage meet client needs and earn an income. • Your reputation is protected as someone who is thorough and effective, and who addresses client’s needs first. This directly affects the reputation of real estate profession as an industry. • You can start to fulfill your obligations to be fair and honest and to act with integrity. Fulfilling those obligations is not simply a legal requirement. Doing so makes good business sense by helping build your reputation.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 4 of 35

Conditional Clauses As you learned earlier, many circumstances necessitate conditions, such as arranging a mortgage, sale of an existing property, or conducting a home inspection. Conditions typically contain more complex wordings than clauses concerning facts and assurances. Two methods of drafting conditions are present in the profession—condition precedent and condition subsequent. Condition Precedent A condition in an agreement calling for an event to happen, or an act to be performed, before the agreement becomes binding on the parties. Condition Subsequent A condition referring to a future event that, upon its occurrence, causes the contract to be no longer binding on the parties. The vast majority of residential conditions are condition precedent, but salespersons may encounter condition subsequent in local marketplaces.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 5 of 35

Conditional Clauses: Condition Precedent The first, and most often used, method of drafting conditions is condition precedent. A condition precedent provides that if the condition is not fulfilled or waived, no binding contract has been formed. The party must take action to create a binding agreement. The characteristics of a condition precedent include the following. • When the offer has been accepted by all parties, there is no binding agreement. • Upon acceptance of the offer, the parties are placed under some degree of obligation related to the terms of the accepted offer. For example, the buyer is obligated to act in good faith to complete the due diligence related to the condition and the seller is under an obligation to keep the property available to that buyer pending the outcome of the buyer’s due diligence. • Notice must be provided to the other party within the time period identified in the condition for the proposed transaction to proceed. • A binding agreement is formed when the notice is provided indicating the condition is either fulfilled or waived. • If the notice is not provided indicating the condition is either fulfilled or waived, the offer becomes null and void. As a salesperson, when drafting a condition precedent, specific information must be included to ensure the condition is written accurately and completely.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 6 of 35

Condition Precedent Clauses: Steps to Identify Required Information As a salesperson, to draft a condition precedent clause, you will need to complete six steps to ensure the clause contains the required information. The following six sections contain information on a condition precedent clause.

Who is to do it? Who is to pay for it?

The condition identifies which party is required to complete the tasks associated with completing the due diligence for the condition. This is the party for whose protection the condition was included (i.e., the seller or the buyer). Many conditions will have a cost associated with completing the due diligence; the condition identifies who pays this. Typically, the party who is benefiting from the condition pays, but this is not always the case. For example, an offer may be

©2019 Real Estate Council of Ontario

conditional upon a buyer obtaining a minor variance but the seller has agreed to pay for it. The condition describes the nature of the due diligence to be completed. Details What is to be done? regarding this are required to ensure the parties understand their rights and obligations for completing the required tasks. Within what time limit? The time limit for fulfilling the condition is identified, which includes both a time and date. Notice must be received by the other party prior to this time period expiring. The condition states the offer will become null and void in the event the notice is not What happens in the received by the other party within the time period identified. It’s important to event it is not done? understand that notice must be sent to proceed with the proposed transaction. No notice is required if the party is not proceeding. The condition provides a waiver provision which allows the party to waive the Can it be waived? condition rather than fulfill the condition. The notice to waive the condition must be received by the other party prior to the time period expiring.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 7 of 35

Example: Condition on Obtaining Financing – Condition Precedent A buyer wanting to ensure the appropriate financing is secured could include a condition making the offer conditional upon obtaining financing. For example, OREA Clause MORT-2 could be used for this purpose. The six components of a condition precedent clause are linked to the financing condition in the following way: 1. Who is to do it? This offer is conditional upon the Buyer arranging, 2. Who is to pay for it? at the Buyer’s own expense, 3. What is to be done? a new first Charge/Mortgage for not less than Two Hundred Thousand Dollars ($200,000), bearing interest at a rate of not more than 4% per annum, calculated semi-annually not in advance, repayable in blended monthly

©2019 Real Estate Council of Ontario

payments of about One Thousand Fifty-Two Dollars and Four Cents ($1,052.04), including principal and interest, and to run for a term of not less than 5 years from the date of completion of this transaction. 4. Within what time limit? Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than 8:00 p.m. on the 15th day of November, 2022, that this condition is fulfilled, 5. What happens in the event it is not done? This Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. 6. Can it be waived? This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 8 of 35

Providing Notice The condition identifies the time period for the due diligence relating to the condition to be completed and notice to be provided to the other party if the buyer intends on proceeding with the proposed transaction. The notice must be received by the other party prior to the time period expiring. When drafting a condition, the wording of the clause may allow the party the option of fulfilling the condition or waiving the condition. Fulfilling a condition occurs when the party has performed the required tasks associated with the condition, and the results of the due diligence reflect the wording of the condition. Example – Fulfilling a Condition: A condition allows a buyer to have an inspection completed on a property and obtain a property inspection report that is satisfactory to them. The buyer proceeds with the inspection and obtains

©2019 Real Estate Council of Ontario

a report. Although the report identifies some deficiencies in the structure, the buyer is satisfied with the report. The condition would be considered fulfilled. Waiving a condition is relinquishing a right associated with that condition. It may result from the party not attempting to perform the required tasks associated with the condition, or it may result from the terms of the condition not being completed exactly as provided for in the condition. Example – Waiving a Condition: A condition allows a buyer to have an inspection completed on a property and obtain a property inspection report that is satisfactory to them. The buyer chooses not to proceed with the inspection or obtain a property inspection report, but still wishes to proceed with the proposed transaction. In this instance, the buyer would waive the condition in order to proceed with the transaction. Although both actions result in the proposed transaction proceeding, understanding this distinction is an important part of drafting conditional clauses. No notice is required if the condition is not being fulfilled or waived as the lack of providing a notice automatically makes the offer null and void.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 9 of 35

Waiver Provision Over the years the courts have firmly established that, unless specified otherwise in the agreement, a condition precedent can be used by either party to the trade, and no one has the automatic and unilateral right to waive the condition. The inclusion of a waiver provision in a condition precedent allows the party for whose protection the condition was included to remove that condition entirely rather than fulfilling the condition. This action results in a binding agreement regardless of whether the specific terms of the condition have been fulfilled or even attempted. It provides the party with the option to release their rights associated with the condition and proceed with the proposed transaction. A waiver provision is included as circumstances can change from what was originally contemplated by the party when including the condition in the offer. Should the party determine the protection that was to be provided by the condition is no longer required, or was achieved but not in accordance with the exact wording of the terms which were included in the offer, the waiver provision permits the proposed transaction to proceed. In these instances, the

©2019 Real Estate Council of Ontario

protection and/or benefit expected by the inclusion of the condition is achieved, but not in accordance with the exact terms as expressed in the agreement. The result is the same but the circumstances of terms giving rise to that result are different from those originally considered. For example, a buyer makes an agreement conditional on arranging a new mortgage, but before it is arranged, receives a windfall and no longer requires the benefits and/or protection of the condition. The waiver form allows the buyer to waive the condition, if it was included as part of the condition, and complete the contract without reference to the fulfillment of the condition. As a consequence, rarely are condition precedent clauses seen in practice without the corresponding waiver provisions. The waiver provision reads: This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein. From OREA Clause MORT-2 ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 10 of 35

Conditions Drafted as a Condition Precedent Most conditions in a residential transaction are for the benefit of the buyer. Although the category of the condition can be the same for each buyer, there can be various options for the condition that can be selected based on the specifics of each trade. Common conditions in a residential offer include: • Obtaining financing • Having the property inspected • Confirming insurance can be obtained • Sale of a buyer’s property While many offers may contain the same conditions, as a salesperson, it is important to understand how different property types will require different conditions in an offer; for example: • Condominium: the review of the condominium documents, such as a status certificate

©2019 Real Estate Council of Ontario

• • • • •

Multi-unit residential: an inspection to confirm fire and building code compliance Rural property: testing the well and/or septic system Waterfront property: confirming the legal status of any improvements such as a dock or boathouse Investment property: reviewing the leases and financial information Vacant land: obtaining a building permit or confirming available services

Under each of the given situations, a condition can be written as a condition precedent. What is important when drafting a condition precedent clause is to ensure the six components are identified, and each is accurately and fully completed. You will learn more about writing conditions later in this module. As a reminder, the six steps to ensure a condition precedent clause contains the required information: • Who is doing it? • Who is paying for it? • What is to be done? • Within what time limit? • What happens in the event it is not done? • Can it be waived? Although in most instances the final component—the condition may be waived—is applicable, not all conditions will permit the party to do this. Prior to drafting a condition using the condition precedent method, ensure the party is able to waive the condition. A true condition precedent requires action by a third party independent of the seller or buyer. Because satisfaction of the condition is dependent on a third party, the seller or buyer cannot waive the condition. For example, a condition might be dependent on an Advisory Committee providing consent to change a zoning bylaw. You will learn more about true condition precedent clauses in this lesson.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 11 of 35

Consider this clause: “This offer is conditional upon the Seller providing the Buyer with an environmental report confirming the property is clean within 15 days from the acceptance date, otherwise the offer is terminated.” Which of the six steps to ensure the clause contains the required information are missing from this clause? There are six options. There are multiple correct answers. 1 2 3 4 5 6

Who is to do it? Who is to pay for it? What is to be done? Within what time limit? What happens in the event it is not done? Can the condition be waived?

©2019 Real Estate Council of Ontario

Lesson 1 | Page 12 of 35

Consider this clause: “The Seller agrees, at the Seller’s expense, to provide to the Buyer, the appropriate Status Certificate for the unit immediately upon receipt from the condominium corporation. This offer is conditional upon the Buyer’s lawyer’s approval of the Status Certificate on or before 7: 00 p.m., five (5) days following the receipt of the said certificate from the seller; such approval is in the Buyer's lawyer's sole and absolute discretion." Which of the six steps to ensure the clause contains the required information are missing from this clause? There are six options. There are multiple correct answers. 1 2 3 4 5 6

Who is to do it? Who is to pay for it? What is to be done? Within what time limit? What happens in the event it is not done? Can the condition be waived?

©2019 Real Estate Council of Ontario

Lesson 1 | Page 13 of 35

Conditional Clauses: True Condition Precedent In certain instances, a condition must be fulfilled exactly as it’s detailed in the offer for the proposed transaction to proceed. This type of condition is known as a true condition precedent. This condition must be met; it may not be waived. No waiver provision is possible because the condition must be fulfilled for a binding contract to be created.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 14 of 35

Conditional Clauses: True Condition Precedent A true condition precedent is used when the nature of the condition requires the approval or consent of a third party. The contract is not capable of being completed without fulfillment of the condition. The third party is someone other than the seller and the buyer identified in the offer. The situations where a true condition precedent would be used in an offer are: • The buyer has agreed to assume the seller’s existing mortgage, but the buyer must be approved by the lender as a borrower. In this instance, the seller could be harmed if the buyer does not assume the mortgage, as a lender could impose a penalty on the seller to discharge the mortgage prior to the term of the mortgage expiring. • A property being sold that requires consent to sever one part of the property from the whole property. In this instance, consent will typically be given subject to certain conditions including compliance with the Planning Act and municipal bylaw. The condition will not be considered met until the Land Registrar issues a registerable title, usually a reference plan. The person who obtained the severance has one year to complete the severance, which involves registering the new deed on title. Usually the person applying for a severance is the seller although the buyer can apply for it with the seller signing all the necessary documents to support the application.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 15 of 35

Drafting a True Condition Precedent and Providing Notice A true condition precedent clause is drafted using the same format as a condition precedent, with the exception of including the waiver provision; the condition cannot be waived by either the seller or the buyer. The condition must be fulfilled exactly as it’s written in the offer for the proposed transaction to proceed. In a true condition precedent, the following steps must be accurately and completely detailed: • Who is doing it? • Who is paying for it? • What is to be done? • Within what time limit? • What happens in the event it is not done?

©2019 Real Estate Council of Ontario

Since a true condition precedent cannot be waived, the notice that must be provided within the time limit is a notice indicating the condition has been fulfilled. If a notice indicating the condition has been fulfilled is not provided, the offer automatically becomes null and void.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 16 of 35

Example: Assuming a Mortgage – True Condition Precedent One situation that requires a true condition precedent clause is when the buyer has agreed to assume the seller’s existing mortgage, however, this mortgage assumption requires approval by the lender. For example, OREA’s clause MORT-1 can be used for this purpose. As identified in the clause, the buyer is required to provide a notice indicating the condition is fulfilled. There is no waiver provision included in the conditional clause. The information about a true condition precedent clause is as follows: 1. Who is to do it? This Offer is conditional upon the Buyer obtaining the approval of the Chargee/Mortgagee to assume the existing Charge/Mortgage. 2. Who is to pay for it?

©2019 Real Estate Council of Ontario

The Buyer agrees to assume the existing Charge/Mortgage. 3. What is to be done? Buyer obtaining the approval of the Chargee/Mortgagee to assume the existing Charge/Mortgage. 4. Within what time limit? not later than some time in p.m., date, day, and year, 5. What happens in the event it is not done? this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 17 of 35

A true condition precedent is a specific type of condition precedent. Which of the following is true about a true condition precedent? There are five options. There is only one correct answer. 1 2 3 4 5

A true condition precedent can be waived by either the seller or the buyer. A buyer requiring a home inspection as a condition is an example of a true condition precedent. A true condition precedent is considered fulfilled unless a third party provides notice stating that it is not fulfilled. A true condition precedent clause is drafted using the same format as a condition precedent. A true condition precedent is used when the nature of the condition requires the approval of a third party.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 18 of 35

Conditional Clauses: Condition Subsequent The second method of drafting a condition is by using the condition subsequent format. This method is distinctly different and the characteristics of a condition subsequent should be fully understood to ensure appropriate action is taken when the party is completing their due diligence.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 19 of 35

Conditional Clauses: Condition Subsequent A condition subsequent is in many ways the opposite of a condition precedent. It provides that if the party does not wish to proceed with the proposed transaction, they must take action to terminate the agreement within the time limits. The characteristics of a condition subsequent include the following. • Upon acceptance of any offer, there is a binding agreement between the parties with an option to terminate under certain circumstances. • Termination of the agreement can only be based on the defined circumstances identified in the condition. The conditional agreement will proceed unless the buyer terminates the agreement within the time allowed. • Notice must be provided to the other party within the time period to terminate the agreement. • If no notice is provided, the conditions within the agreement are deemed to be waived and either party can demand the agreement be completed.

©2019 Real Estate Council of Ontario

• Unless the buyer terminates the agreement within the time limit, the conditions are deemed to have been waived, and the agreement remains firm and becomes fully binding on all parties. • The only time a party needs to give notice is if they are terminating the agreement. For example, if the buyer is intending to complete the transaction then the buyer does nothing but let the time lapse on the condition. • If the condition requires the consent of a third party to be fulfilled (a true condition precedent), it cannot be drafted in a condition subsequent format. When drafting a condition subsequent, specific information must be included to ensure the condition is written accurately and completely. Conditions can be written in either a condition precedent or condition subsequent format, with the exception of those conditions that must be written as true condition precedent requiring third party approval. The decision on which format to use is usually dictated by brokerage policies or preference within the local trading area. Whichever format is used, a salesperson must exercise due diligence in drafting and following up to ensure time limits are adhered to. While navigating through the online module, click the KMS button in the Module Resources for tools and information onthis topic.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 20 of 35

Condition Subsequent Clause: Steps to Identify Required Information As a salesperson, when reviewing or drafting a condition subsequent clause, you will need to ensure the clause contains the required information. Each of the hot spots on the image corresponds to one of the five components that must be included in the clause. The following five sections contain information on a condition subsequent clause.

What is to be done? Who is to do it?

The condition describes the nature of the due diligence to be completed. Details regarding this are required to ensure the parties understand their rights and obligations for completing the required tasks. The condition identifies which party is required to complete the tasks associated with completing the due diligence for the condition. This is the party for whose protection the condition was included (i.e., the seller or the buyer). ©2019 Real Estate Council of Ontario

Who is to pay for it?

Within what time limit? What happens in the event it is not done?

Many conditions will have a cost associated with completing the due diligence. The condition identifies who pays this. Typically, the party who is benefiting from the condition pays, but this is not always the case. For example, a condition may benefit the buyer, but the expense is being paid by the seller. An offer may be conditional upon a buyer obtaining a minor variance, but the seller has agreed to pay for it. The time limit for fulfilling the condition is identified, which includes both a time and date. It’s important to understand that notice must be delivered to the other party within the time limit to terminate the agreement in the event the condition has not been satisfied. The condition states the agreement will remain firm and binding in the event the notice is not received by the other party within the time period identified.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 21 of 35

Example: Condition on Obtaining Financing – Condition Subsequent A buyer wanting to ensure the appropriate financing is secured could include a condition making the offer conditional upon obtaining financing. For example, OREA Clause MORT-5 could be used for this purpose. As identified in the clause, the buyer is required to provide a notice to terminate the agreement. If no notice is received, then the condition for financing is deemed to be waived and the agreement remains binding, whether or not the financing has been arranged. The information about a condition subsequent clause is as follows: 1. What is to be done? Provide a notice to the seller if a new first Charge/Mortgage cannot be arranged 2. Who is to do it? the Buyer 3. Who is to pay for it? ©2019 Real Estate Council of Ontario

at the Buyer’s expense. 4. Within what time limit? not later than some time in p.m., date, month, and year 5. What happens in the event it is not done? If no notice is received, the contract becomes firm and binding.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 22 of 35

Consider this clause: “The Buyer may terminate this Agreement through written notice delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto, if a new first Charge/Mortgage cannot be arranged by the Buyer, at the Buyer’s expense. This Charge/Mortgage is to be for a sum of not less than ____________________ ($ ________) bearing interest at a rate of not more than _____% per annum, calculated semi-annually, not in advance, repayable in blended monthly payments of about __________________, ($ ________), including both principal and interest, and to run for a term of not less than _____ year(s) from the date of completion of this transaction. Upon receipt of the above notice, this Agreement shall be null and void and the deposit shall be returned to the Buyer in full without deduction. If no such notice is received within the above time limit, then this term of contract shall be deemed waived by the Buyer and this Agreement shall remain valid and binding whether or not such Charge/Mortgage has been arranged.” Which of the five steps to ensure the clause contains the required information are missing from this clause? There are five options. There is only one correct answer. 1 2 3 4 5

Who is to do it? Who is to pay for it? What is to be done? Within what time limit? What may happen in the event it is not done?

©2019 Real Estate Council of Ontario

Lesson 1 | Page 23 of 35

Using OREA Clause ZONING - 3 Consider this clause: “The Buyer shall have until not later than _____ p.m. on the _____ day of __________________, 20_____, to satisfy the Buyer that the property is zoned in final and binding form under the relevant zoning bylaws and official plan to permit it to develop or use the property for the purpose of _________________________. If the Buyer is not so satisfied at the Buyer’s sole and arbitrary discretion, the Buyer may terminate this Agreement by notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto prior to the expiry of such period and the deposit shall be returned to the Buyer in full without deduction.” From OREA Clause ZONING -3 ©2022 Ontario Real Estate Association. All rights reserved. Used under license. Which one of the following requirements is missing from this clause? There are five options. There is only one correct answer. 1 2 3 4 5

Who is to do it? Who is to pay for it? What is to be done? Within what time limit? What may happen in the event it is not done?

©2019 Real Estate Council of Ontario

Lesson 1 | Page 24 of 35

Summary: Condition Precedent Versus Condition Subsequent Condition Precedent (Including Waiver Provision): This offer is conditional upon the inspection of the subject property by the home inspector at the buyer’s own expense, and the obtaining of a report satisfactory to the buyer in the buyer’s sole and absolute discretion. Unless the buyer gives notice in writing, delivered to the seller personally or in accordance to any other provisions for the delivery of the notice in this Agreement of Purchase and Sale or Schedule thereto not later than 11:59 p.m. on the 1st day of May, 20XX, that this condition is fulfilled, this offer shall be null and void and the deposit shall be returned to the buyer in full without deduction. The seller agrees to co-operate in providing access to the property for the purposes of this inspection. This condition is included for the benefit of the buyer and maybe waived at the buyer’s sole option by notice in writing to the seller as foresaid within the time period started herein. • Who is to do it: This offer is conditional upon the inspection of the subject property by the home inspector. • Who is to pay for it: at the buyer’s own expense. • What is to be done: and the obtaining of a report satisfactory to the buyer in the buyer’s sole and absolute discretion. • Within what time limit: Unless the buyer gives notice in writing, delivered to the seller personally or in accordance to any other provisions for the delivery of the notice in this Agreement of Purchase and Sale or Schedule thereto not later than 11:59 p.m. on the 1st day of May, 20XX, that this condition is fulfilled. • What happens in the event it is not done: this offer shall be null and void and the deposit shall be returned to the buyer in full without deduction. The seller agrees to co-operate in providing access to the property for the purposes of this inspection. • Can the condition be waived: This condition is included for the benefit of the buyer and maybe waived at the buyer’s sole option by notice in writing to the seller as foresaid within the time period started herein. Condition Subsequent The buyer may terminate this agreement in the event that a home inspection report satisfactory to the buyer in the sole and absolute discretion of the buyer is not obtained from a home inspector who inspects the subject property at the buyer’s expense. The buyer may notify the seller in writing personally or in accordance with any other ©2019 Real Estate Council of Ontario

provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto by 11:59 p.m. on the 1st day of May, 20XX of the inability to obtain a satisfactory home inspection report thus rendering this Agreement null and void and the deposit shall be returned to the buyer in full without interest. If no such notification is received, this term of contract shall be deemed to be waived by the buyer and the agreement shall remain valid and binding whether or not such satisfactory home inspection report has been obtained. • Who is to do it: from a home inspector who inspects the subject property. • Who is to pay for it: at the buyer’s expense. • What is to be done: a home inspection report satisfactory to the buyer in the sole and absolute discretion of the buyer is not obtained. • Within what time limit: The buyer may notify the seller in writing personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto by 11:59 p.m. on the 1st day of May, 20XX of the inability to obtain a satisfactory home inspection report. • What may happen in the event it is not done: o The buyer may terminate this agreement in the event that. o thus rendering this Agreement null and void and the deposit shall be returned to the buyer in full without interest. If no such notification is received, this term of contract shall be deemed to be waived by the buyer and the agreement shall remain valid and binding whether or not such satisfactory home inspection report has been obtained. Notable differences between the two methods include: Condition Precedent: • Terminology used: Uses the term offer • Action required: Notice is required to create a binding agreement • Waiver provision: Waiver provision must be added to the clause Condition Subsequent: • Terminology used: Uses the term agreement • Action required: Notice is required to terminate a binding agreement • Waiver provision: Waiver provision is deemed included in the clause

©2019 Real Estate Council of Ontario

Regardless of the method used, as a salesperson, you are required to follow up and remain involved during the due diligence time period. Missing the time period allowed for a condition can result in: • An offer that is null and void, when the seller or the buyer intended to proceed with the proposed transaction • An agreement that remains binding, when the seller or the buyer did not intend to proceed with the proposed transaction Depending on your trading area, the nature of the property, or the preferences of a seller or a buyer, the method used for drafting conditions can vary. For example, some new home builders might prefer to use a condition subsequent format. Although many conditions are drafted using the condition precedent method, familiarity with both methods and the specific situations which require the use of a true condition precedent are key aspects of drafting and negotiating offers.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 25 of 35

Primary Risk when Writing a Condition Subsequent When writing clauses, you can choose to write a condition precedent or a condition subsequent. However, the biggest risk to consider when writing a condition subsequent is the "deemed waiver". This means that a buyer who forgets to deliver a notice may unintentionally automatically buy a property. Keeping buyers on track to stay within the time limits can often be difficult. It’s better to have a sale fall through and start over, than to try to get out of a sale that the seller thinks is unconditional. The condition subsequent form does not work well for buyers. The best advice is to avoid using conditions subsequent wherever possible, or at the very least, use them only for relatively unimportant conditions. It is important to know about them so you will be able to caution your clients as to the risks. While the concern is usually for buyers, the same can be true with a condition subsequent for sellers. When they are obligated to do something, but fail to do it, it is deemed to be done. This could cause serious consequences. You would never be able to write a true condition precedent as a condition subsequent, by definition.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 26 of 35

Conditions precedent and conditions subsequent are differentiated by some key features. One of the features of condition precedent is that it uses the term offer. Identify if the statement is true. There are two options. There is only one correct answer. True

False

Lesson 1 | Page 27 of 35

Conditions precedent and conditions subsequent are differentiated by some key features. One of the features of condition precedent is that the waiver provision is deemed included in the clause. Identify if the statement is true. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 28 of 35

Conditions precedent and conditions subsequent are differentiated by some key features. One of the features of condition precedent is that it uses the term agreement. Identify if the statement is true. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 29 of 35

Conditions precedent and conditions subsequent are differentiated by some key features. One of the features of condition precedent is that the waiver provision must be added to the clause. Identify if the statement is true. There are two options. There is only one correct answer. True

False

Lesson 1 | Page 30 of 35

Conditions precedent and conditions subsequent are differentiated by some key features. One of the features of condition precedent is that notice is required to create a binding agreement. Identify if the statement is true. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 31 of 35

Conditions precedent and conditions subsequent are differentiated by some key features. One of the features of condition precedent is: notice is required to terminate a binding agreement. Identify if the statement is true. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 32 of 35

It’s important for a salesperson to be able to differentiate between different types of conditional clauses, so they can advise clients on what they can, must do or not do. The following clause is a condition subsequent: The Buyer shall have until not later than _____ p.m. on the _____ day of __________________, 20_____, to satisfy the Buyer that the property is zoned in final and binding form under the relevant zoning bylaws and official plan to permit it to develop or use the property for the purpose of _________________________. If the Buyer is not so satisfied at the Buyer’s sole and arbitrary discretion, the Buyer may terminate this Agreement by notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto prior to the expiry of such period and the deposit shall be returned to the Buyer in full without deduction. Identify if the statement is true. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 33 of 35

It’s important for a salesperson to be able to differentiate between different types of conditional clauses, so they can advise clients on what they can, must do or not do. The following clause is a condition precedent: This Offer is conditional upon the Seller obtaining a release from a prior Agreement of Purchase and Sale. Unless the Seller gives notice in writing delivered to the Buyer personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than 11:59 p.m. on the 12th day of January, 20xx, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. Identify if the statement is true. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 34 of 35

It’s important for a salesperson to be able to differentiate between different types of conditional clauses, so they can advise clients on what they can, must do or not do. The following clause is a condition precedent: This Offer is conditional upon the Buyer or the Buyer’s appointed representative inspecting the subject property for termites and obtaining a report satisfactory to the Buyer at the Buyer’s own expense. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than _____ p.m. on the _____ day of __________, 20_____, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. The Seller agrees to co-operate in providing access to the property for the purpose of this inspection. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein. Identify if the statement is true. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 35 of 35

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Condition Precedent

True Condition Precedent Condition Subsequent

A condition precedent provides that if the condition is not fulfilled or waived no binding contract has been formed. The party must take action to create a binding agreement. The characteristics of a condition precedent include: • When the offer has been accepted by all parties, there is no binding agreement. • Upon acceptance of the offer, the parties are placed under some degree of obligation related to the terms of the accepted offer. • Notice must be provided to the other party within the time period identified in the condition for the proposed transaction to proceed. • A binding agreement is formed when the notice is provided indicating the condition is either fulfilled or waived. • If the notice is not provided indicating the condition is either fulfilled or waived, the offer becomes null and void. A true condition precedent is used when the nature of the condition requires the approval of a third party and the contract is not capable of being completed without fulfillment of the condition. A condition subsequent provides that if the party does not wish to proceed with the proposed transaction, they must take action to terminate the agreement. The characteristics of a condition subsequent include: • Notice must be provided to the other party within the time period to terminate the agreement. • If no notice is provided, the agreement remains binding and either party can demand the sale be completed. • There is no waiver provision required as a binding agreement is in place upon acceptance of the offer. ©2019 Real Estate Council of Ontario

• If the condition is not fulfilled exactly as described in the agreement, the party can achieve the same results as a waiver by allowing the time period to pass—this results in the agreement remaining binding, whether the condition has been fulfilled or not.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 1 of 25

Lesson 2: Conditional Clauses Related to Financing

This lesson introduces conditions related to the buyer obtaining financing for a property they are interested in purchasing. The lesson highlights financing conditions to address arranging a new mortgage, assuming an existing mortgage, and Seller Take Back (STB) mortgages.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 2 of 25

Conditional Clauses Related to Financing In most cases, buyers will need to obtain mortgage financing to complete the purchase of a residential property. Lenders have a wide variety of financing options; however, buyers will want to ensure suitable financing is available to them prior to being obligated to the purchase. As a salesperson, you should consider the buyer’s needs when drafting a condition for arranging financing to ensure an appropriate condition is included in the buyer’s offer. In some instances, a seller may want assurance that the buyer will make a good faith effort in arranging the financing. In this lesson we will review a selection of conditional clauses that address the following: • Arranging a new mortgage • Arranging a new mortgage satisfactory to the buyer • Assuming an existing mortgage • Arranging a Seller Take Back (STB) mortgage Please note this is not an exhaustive list of financing conditions. A selection of conditional clauses related to financing is being presented to assist with your learning. Upon completion of this lesson, you will be able to: • Identify options for including a condition for obtaining financing • Identify additional clauses for consideration when an offer contains terms related to financing Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. ©2019 Real Estate Council of Ontario

Lesson 2 | Page 3 of 25

Conditional Clauses Related to Financing: Arranging a New Mortgage There are generally two ways of wording conditions related to arranging a new mortgage. One is to specify the minimum mortgage terms that a buyer is willing to accept in order to satisfy the condition. If the terms spelled out in the condition are realistic in the current market, this could provide assurance to the seller that the buyer is acting in good faith. The alternative is to draft a condition without identifying any specific terms and leaving it solely in the buyer’s discretion as to whether the terms of an available mortgage would be satisfactory. In either instance, the buyer has an obligation to proceed diligently and with good faith to satisfy the condition.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 4 of 25

Conditional Clauses Related to Financing: Arranging a New Mortgage At the time of submitting an offer on a property, the buyer will not know the specific terms a lender would be willing to advance funds under. Factors can affect the mortgage terms, such as the covenant of the buyer and the specific property being purchased. As a salesperson, when drafting a mortgage condition, you could include the minimum terms that a buyer would be willing to accept to ensure that all fundamental mortgage particulars are identified within the clause, including: • The required minimum principal amount of the mortgage • A maximum interest rate • A minimum term Based on these criteria, an estimated mortgage payment would also be calculated and described in the clause. Typically, the payment is based on a monthly payment and a 25-year amortization, although there is no requirement to identify the amortization in the clause. The clause would also include a waiver provision which would allow the buyer the option to remove the condition whether the buyer receives the planned financing or not. Leading practices would include both words and numbers when any dollar amount is identified. The time period for the condition to be fulfilled should be based on market conditions, but typically 5 to 10 days following acceptance of the offer is appropriate.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 5 of 25

Conditional Clauses Related to Financing: Arranging a New Mortgage As mentioned previously, a seller may look more favourably on an offer with a mortgage condition containing terms that are realistic in the current market place. As an example, the following clause could be used for this purpose: This Offer is conditional upon the Buyer arranging, at the Buyer’s own expense, a new ________ Charge/Mortgage for not less than ____________________ ($ ______), bearing interest at a rate of not more than ___ % per annum, calculated semi-annually not in advance, repayable in blended monthly payments of about __________________ ($ _______), including principal and interest, and to run for a term of not less than _____ years from the date of completion of this transaction. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than _____ p.m. on the _____ day of __________, 20_____, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.

©2019 Real Estate Council of Ontario

From MORT2: Condition Arranging a New Mortgage©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 6 of 25

Conditional Clauses Related to Financing: Arranging a New Mortgage Satisfactory to the Buyer As another option, the buyer’s salesperson could include a clause stating that the offer is conditional upon arranging financing satisfactory to the buyer. Written as a condition precedent, the clause would include waiver and notice of fulfillment provisions. During negotiations, if the purchase price is increased, there is no need to change the wording of the clause. A salesperson might use this clause if the buyer does not feel comfortable with the seller knowing their financial details. As an example, the following clause could be used for this purpose: This Offer is conditional upon the Buyer arranging, at the Buyer’s own expense, a new _______________ Charge/Mortgage satisfactory to the Buyer in the Buyer’s sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than _____ p.m. on the _____ day of __________, 20_____, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein. From MORT-4: Arranging a new mortgage satisfactory to the buyer ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Lesson 2 | Page 7 of 25

Conditional Clauses Related to Financing: Arranging a New Mortgage (Condition Subsequent) A condition subsequent for new financing would include the same mortgage specifics as the condition precedent. There would be no waiver provisions. The decision to use a condition precedent or subsequent is a matter of choice depending on the salesperson, the brokerage’s policies, or the preferences in the local market place. However, a true condition precedent cannot be written as a condition subsequent. As a cautionary note, if a condition subsequent is used and the financing is not approved, a notice of termination must be completed and delivered to the seller prior to the expiration of the time period. Otherwise, the agreement remains firm and binding. As an example, the following clause could be used for this purpose: The Buyer may terminate this Agreement through written notice delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than ______ p.m. on the _______ day of _________, 20____, if a new first Charge/Mortgage cannot be arranged by the Buyer, at the Buyer’s expense. This Charge/Mortgage is to be for a sum of not less than ____________________________,($______________) bearing interest at a rate of not more than _____% per annum, ©2019 Real Estate Council of Ontario

calculated semi-annually, not in advance, repayable in blended monthly payments of about _________________________, ($__________), including both principal and interest, and to run for a term of not less than _____ year(s) from the date of completion of this transaction. Upon receipt of the above notice, this Agreement shall be null and void and the deposit shall be returned to the Buyer in full without deduction. If no such notice is received within the above time limit, then this term of contract shall be deemed waived by the Buyer and this Agreement shall remain valid and binding whether or not such Charge/Mortgage has been arranged. From MORT-5: Condition—Arranging New Mortgage©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 8 of 25

Impact on Conditional Clauses Related to Obtaining Financing: Market Conditions Market conditions can affect which financing conditions you, as a salesperson, and the buyer would include in the offer that would be in their best interests. For example, in a seller’s market a buyer could include the details of all aspects of the financing to be arranged to reassure the seller that the buyer is committed to performing their due diligence. In a buyer’s market, a buyer could include a clause in the offer that simply states that the buyer can obtain financing satisfactory to the buyer without having to provide the specific details to the seller. The buyer is confident that they will secure the financing and does not feel the need to reassure the seller.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 9 of 25

When inserting a conditional clause related to financing, it’s important to know what information to provide in the Agreement of Purchase and Sale, and the implications of providing, or not providing that information. Which of the following statements are true? There are four options. There are multiple correct answers. 1 2 3 4

Mortgage assumptions for residential property do not typically require the mortgagee’s approval. In a seller’s market a buyer should include the details of all aspects of the financing to be arranged. In a buyer’s market, a buyer could include a clause in the offer that simply states that the buyer can obtain financing satisfactory to the buyer without providing the specific details to the seller. One risk of the condition subsequent mortgage clause is that if the buyer does nothing, the agreement will continue regardless.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 10 of 25

When writing a mortgage clause for a client, the first determination is whether to write a condition precedent or a condition subsequent. Which of the following would a well-written condition precedent mortgage clause include, assuming the buyer wants to provide information about the loan? There are six options. There are multiple correct answers. 1 2 3 4 5 6

The required minimum principal amount of the mortgage A maximum interest rate A minimum term An estimated mortgage payment The amortization of the loan A waiver provision

©2019 Real Estate Council of Ontario

Lesson 2 | Page 11 of 25

Conditional Clauses Related to Financing: Assuming an Existing Mortgage In some instances, there may be attractive financing already existing on a property. The mortgage may have been arranged at a time when interest rates were lower than the current rates available for new mortgages. A seller may allow a buyer to assume the existing mortgage in order to make the home more saleable and perhaps get a higher price. When listing a property, a salesperson should inquire about the existing financing to see if it may be beneficial to the seller to allow it to be assumed by a buyer.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 12 of 25

Conditional Clauses Related to Financing: Assuming an Existing Mortgage The buyer may, in most cases, assume an existing mortgage financing provided the mortgagee agrees. Some mortgages may be assumed without the mortgagee’s approval. When a buyer assumes an existing mortgage, they take over the mortgage balance and become responsible for the payments, terms and all monies owed. By assuming an existing mortgage, the buyer may save on appraisal fees, some legal costs and survey costs. The advantage to the seller may be a savings of any payout penalty or interest differential that may apply. However, a seller should be cautioned that unless they are released from the personal covenant by the mortgagee, there is a chance they may be responsible if the buyer defaults on the assumed mortgage and the mortgagee take action under power of sale.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 13 of 25

Conditional Clauses Related to Financing: Assuming an Existing Mortgage Mortgage assumptions typically involve two clause structures —assumption with or without mortgagee approval. If approval is required, the lender will require the new buyer to meet current lending criteria for the amount being assumed. As an example, the following clause could be used for this purpose: The Buyer agrees to assume the existing _____________ Charge/Mortgage held by _____________ for approximately ____________________, ($__________), bearing interest at the rate of _____ % per annum, calculated semi-annually not in advance, repayable in blended monthly payments of ____________________ ($ __________), including both principal and interest, and due on the _____ day of __________, 20_____. This Offer is conditional upon the Buyer obtaining the approval of the Chargee/Mortgagee to assume the existing Charge/Mortgage. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than _____ p.m. on the _____ day of __________, ©2019 Real Estate Council of Ontario

20_____, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. The Buyer hereby agrees to proceed immediately to make an application and provide such material as may be required by the Chargee/Mortgagee for approval of the Buyer as the Chargor/Mortgagor. From MORT1: The buyer wants to assume the existing mortgage ©2022 Ontario Real Estate Association. All rights reserved. Used under license. Please note that this clause is a true condition precedent and neither a seller nor a buyer is entitled to waive this condition as there is no waiver provision.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 14 of 25

Impact on Conditional Clauses Related to Financing: Time Frames There are other factors to take into consideration when using financing conditions. Time frames are important to keep in mind; for example if the financing condition is for a new mortgage, it may take approximately 5 to 10 days. Time frames could be affected by market conditions or lender requirements. In a seller’s market the clauses would most likely include shorter timelines due to the following. • There are more buyers competing for properties. • The seller has a larger buyer pool to choose from. • The seller may not want to tie up their property with too many conditions. In a buyer’s market the timelines might be longer due to the following. • More properties on the market than buyers. • Homes are more likely to sit unsold. • Buyers have more choices and more leverage to negotiate. As a salesperson, you should include a date that allows the buyer sufficient time to secure the approval. Some factors that may affect timing are as follows. • Lender requirements such as documents to provide a commitment. • If it is a high ratio mortgage, approval may be required by the lender and the insurer. • If an appraisal is required it may mean a longer conditional period.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 15 of 25

Time frames to arrange a new mortgage can be affected by market conditions or lender requirements. Which of the following statements about time frames for a financing condition are true? There are six options. There are multiple correct answers. 1 2 3 4 5 6

Typically, it takes 5 to 10 business days to arrange a new mortgage. In a seller’s market the clauses would most likely include longer timelines. For a high ratio mortgage, although approval may be required by the lender and the insurer, time frames are unlikely to be affected. If an appraisal is required the conditional period may need to be longer. Requirements for more documentation from a lender will lengthen the conditional period. In a buyer’s market, buyers can negotiate longer timelines.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 16 of 25

An offer, submitted by a buyer, includes a financing condition that requires the buyer to secure financing through the same lender that currently holds a first mortgage on the property. In this situation, which of the following statements is correct about a waiver provision? There are four options. There is only one correct answer. 1 2 3 4

The clause would include a waiver provision The clause would not include a waiver provision The clause must include both a waiver provision and an escape clause None of the options are correct

©2019 Real Estate Council of Ontario

Lesson 2 | Page 17 of 25

Conditional Clauses Related to Financing: Arranging a Seller Take Back Mortgage A financing option that could be available to a buyer is when the seller is willing to be the lender. This financial arrangement is called a Seller Take Back (STB) mortgage. An STB mortgage can allow for more creative terms negotiated between the seller (mortgagee) and the buyer (mortgagor). With an STB mortgage, the seller might improve the marketability of their property through attractive terms. The seller could also use the STB mortgage as an investment tool to earn a higher interest rate on the property’s capital. A buyer, for example, might not have enough money for the down payment. Instead of borrowing the extra money from a bank, the buyer might instead arrange a STB mortgage. By borrowing directly from the seller, the buyer can avoid certain costs and paperwork typically associated with conventional lenders.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 18 of 25

Conditional Clauses Related to Financing: Arranging a Seller Take Back (STB)Mortgage The STB could be a first, second or third mortgage. In some instances, the seller might include their willingness to do an STB mortgage in the property listing. The buyer could arrange a first mortgage with the seller. The buyer could also be assuming the current mortgage but be short of funds. In this latter case, the seller could offer a second mortgage to make up the difference. The second mortgage would allow the transaction to proceed and also save discharge fees for the seller’s mortgage. As a salesperson, you should have a general knowledge of tax implications for the seller offering an STB mortgage. The Income Tax Act provides a guideline regarding the collection of interest. You should not, however, provide tax advice and instead refer the seller to an income tax professional for help.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 19 of 25

Seller Take Back Mortgages: Benefits to the Seller A STB mortgage can be attractive to a seller for these benefits. • Higher Interest Earnings and Monthly Income. o Because the seller is acting as the lender, the seller can set the interest rate on the STB mortgage higher than market interest rates. The higher interest rate can provide the seller with an increased return on investment as well as a potential monthly income. With the proper agreement set up, the seller can be protected in the same way as a financial institute should the buyer default on the loan. • Improved Marketability of Property. o For certain buyers, an STB mortgage can be an attractive feature increasing the potential sale of a property in a slow market or for a hard to sell property. Sellers can include their intention to hold an STB mortgage in the listing stating the amount of the mortgage and interest rate. • Higher Purchase Price. o Sellers providing an STB mortgage with attractive terms might command a higher purchase price for their property.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 20 of 25

Seller Take Back Mortgages: Benefits to the Buyer A STB mortgage can be attractive to a buyer for these benefits. • Alternate Mortgage Financing. o For buyers who require additional funds to finance the purchase of a property, an STB mortgage can provide another option. The buyer’s ability to negotiate an STB will depend on the seller’s motivation to sell and willingness to tie up capital into the property. • Saving on Costs and Timing for Financing. o Financing a property through banks and other lenders involves various costs such as appraisal, survey, lender fees, and mortgage insurer fees. The process of obtaining approval for a mortgage can also take time depending on the complexity of the transaction. With an STB mortgage, buyers can save money and time because they are dealing directly with the seller. As well, the seller might not impose a penalty for pre-paying a mortgage before the end of the term which a financial lender would impose. • Negotiable Interest Rate and Terms. o An STB mortgage can allow the buyer more flexibility in negotiating the rate of interest and the terms of the mortgage.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 21 of 25

Conditional Clauses Related to Financing: Seller Take Back Mortgages As detailed earlier, the seller is the lender with an STB mortgage. Therefore, the clause included in the Offer will clearly state the terms agreed to by the seller and the buyer. The details in the clause will document the exact amount, interest rate, monthly payments and the term of the mortgage. Specific clauses for an STB mortgage will vary based on circumstances. As an example, the following clause could be used for this purpose: The Seller agrees to take back a _______________________ Charge/Mortgage in the amount of _____________________________ ($ __________), bearing interest at the rate of _____% per annum, calculated semi-annually not in advance, repayable in blended monthly payments of ____________________ ($__________), including both principal and interest, and to run for a term of _____ years from the date of completion of this transaction. From MORT-14: Seller take back mortgage©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 22 of 25

Additional Clauses to Consider When Dealing with Seller Take Back Mortgages When a STB mortgage is included in an agreement of purchase and sale, you will need to consider including additional clauses. Keep in mind that the actual mortgage documents, drafted and reviewed by respective lawyers, will include the details as they pertain to the STB. A salesperson is not involved in the drafting of the actual mortgage documents as this is beyond the expertise of a salesperson. All clauses a seller or buyer wishes to appear in a Charge/Mortgage of Land must appear in the Agreement of Purchase and Sale (e.g., pre-payment, postponement, renewal, due on sale, non-assumption, etc.). The lawyers will complete the Charge/Mortgage of Land based solely on what is in the Agreement of Purchase and Sale. The following seven sections contain information on these additional clauses.

Credit check clause

A seller offering a STB mortgage will want assurance the buyer has the ability to make payments. To ensure the buyer has the financial capability, the seller can include a credit check clause to make the offer conditional on the seller obtaining a satisfactory credit report on the buyer. The credit report will allow the seller to make a well-informed decision to proceed with mortgage arrangements. The buyer would have to be notified that a credit report would be referred to, which is covered under the Consumer Reports clause on the Agreement of Purchase and Sale. As an example, the following clause could be used for this purpose: This Offer is conditional upon the Seller being satisfied concerning the personal and/or credit worthiness of the Buyer. Unless the Seller gives notice in writing to the Buyer personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than _____p.m. on the _____day of ________, 20 ___, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full ©2019 Real Estate Council of Ontario

without deduction. This condition is included for the benefit of the Seller and may be waived at the Seller’s sole option by notice in writing to the Buyer as aforesaid within the time period stated herein.

Prepayment clause

From MORT-6: Credit Check ©2022 Ontario Real Estate Association. All rights reserved. Used under license. A prepayment is a privilege, and not a right, given to a mortgagor to pay all or part of the mortgage debt in advance of the maturity date based on stipulated terms. A prepayment clause allows the buyer to make payments toward the STB mortgage in addition to scheduled payments. Prepayment options for the mortgagor can include the following terms. • Fully open—prepay any amount at any time. • Open—pay all or part of the principal on the next mortgage payment date. If a partial prepayment is made, the amount must total the principal amounts of the payments next falling due under the mortgage. • Open on anniversary date—pay a percentage of the original principal amount on each anniversary date without notice or bonus. • Prepayment subject to a bonus— pay a percentage of the original principal amount on each anniversary date subject to a bonus of a specified number of month’s interest on the principal being prepaid. As previously mentioned, a prepayment is a privilege, not a right. Typical clause wording in a prepayment privilege would stipulate that the prepayments could only be made if the mortgage is not in default. As an example, the following clause could be used for this purpose: This Charge/Mortgage shall contain a clause permitting the Chargor/Mortgagor, when not in default, the privilege of prepaying all or part of the principal sum outstanding at any time or times without notice or bonus. From MORT-23: Term—Prepayment—Fully Open©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Renewal clause

A buyer (mortgagor) in a STB mortgage, may want to renew the mortgage with the seller (mortgagee) if it is not discharged at the end of the term. A renewal gives the mortgagor a privilege to renew the STB mortgage once the term is completed provided the loan is in good standing. When the buyer’s STB mortgage term is due, the buyer might want to renew it at the same rate if the lending interest rates are increasing. As the mortgagee, the seller may want to take advantage of current rates at the time of renewal. As a salesperson, you will want to discuss the pros and cons of a renewal. As an example, the following clause could be used for this purpose: This Charge/Mortgage shall contain a clause permitting the Chargor/Mortgagor, when not in default, the privilege of renewing this Charge/Mortgage upon its maturity, for a further term of__________ year(s) at the rate of interest charged by ____________________, on the date thirty days preceding the maturity date of the Charge/Mortgage, to credit worthy borrowers for__________ year Charge/Mortgage loans, and otherwise on the same terms and conditions save and except for the right of a further renewal.

Postponement clause

From MORT-28: Term—Renewal—At Current Rate of Interest©2022 Ontario Real Estate Association. All rights reserved. Used under license. A postponement clause, commonly used in second and subsequent mortgages such as a STB, gives the buyer the right to arrange a new first mortgage or renew the existing mortgage in priority to the second. Upon default, the first mortgage would be paid before any existing second or subsequent mortgages are paid. If the second mortgage term extends beyond the first mortgage term, a postponement clause is a must. This protects the first mortgagee. The mortgagee for the second mortgage is also protected by the postponement clause because the clause would also state that if the first mortgage is renewed or replaced at any time, any increase in the principal amount of the first mortgage would be applied to reducing the second mortgage. In the event the first mortgage is no longer on the property, the second mortgage and

©2019 Real Estate Council of Ontario

Over financing prevention clause

any subsequent mortgagee would move up as well which would move the second mortgagee into priority position. A new first mortgage clause with the wording “not less than” a certain amount to be borrowed would mean the buyer could borrow that amount or more. If there is an STB second mortgage, the seller has agreed to a set amount of the second mortgage based on their comfort level of risk, between the amount of the first mortgage, the amount the seller is willing to lend for the second and the amount of the buyer’s down payment. Because of the wording of the first mortgage of “not less than”, the buyer could arrange a mortgage for a higher amount and the seller would be unaware of the amount. The higher the amount of the first mortgage, the less the buyer’s down payment would be. This could put the seller’s second mortgage at risk in the event of a mortgage default. The salesperson would need to include a clause in the Agreement of Purchase and Sale stating that if the buyer arranges a mortgage amount higher than stated in the clause, the excess monies would need to be applied to reduce the second mortgage. The buyer would have to provide a confirmation of the amount borrowed to either the seller or their lawyer prior to completion. This clause would need to be used in conjunction with the STB clause. As an example, the following clause could be used for this purpose: In the event that the first mortgage arranged by the Buyer has a principal amount in excess of ____________________ ($ ___________), the principal amount of the second mortgage will be reduced by the excess amount, with a corresponding reduction in the payment for the second mortgage. The Buyer agrees to provide the Seller or the Seller’s lawyer with a confirmation of the principal amount of the first mortgage to be registered. From MORT-15: Seller Take Back Mortgage—Second Mortgage Clause to Prevent Over financing (Oklahoma) © 2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

The right to sell the mortgage clause

A seller may decide to sell the mortgage prior to closing to another lender. To protect the seller’s interests, a condition would be included in the offer allowing the seller to obtain a commitment of the sale to another lender. The seller would want to include a clause in the agreement that is an acknowledgement from the buyer that they understand and agree that the mortgage may be sold and the buyer agrees to provide any information required in order to sell the mortgage. As a salesperson, you should be aware that lenders involved in purchasing an STB mortgage normally require the following. • The seller to declare that there is good title other than encumbrances declared in the purchase agreement (e.g., additional mortgages) and allow a time limit to check out that title. It should be noted that title insurance can be required in support of title. • The seller to sell at a discounted value, to increase the rate of return to the investor, unless the mortgage already has terms that are very favourable compared with the current market. • The seller to supply a duly executed assignment of mortgage document. • The seller to supply an affidavit attesting to the balance of the mortgage and that such mortgage is up-to-date and not in default. • The agreement to be subject to the buyer of the mortgage making an inspection of the property. As an example, the following two clauses could be used for this purpose: This Offer is conditional upon the Seller obtaining at the Seller’s own expense, a commitment for the sale of the aforementioned _______________ Charge/Mortgage [for an amount of not less than ____________________ ($ __________)] OR [at a discount of not more than _____% of the amount of said Charge/Mortgage]. Unless the Seller gives notice in writing delivered to the Buyer personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than _____ p.m. on the _____ day of __________, 20_____,

©2019 Real Estate Council of Ontario

that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the Seller and may be waived at the Seller’s sole option by notice in writing to the Buyer as aforesaid within the time period stated herein. From MORT-10: Condition—Sale of Mortgage by Seller©2022 Ontario Real Estate Association. All rights reserved. Used under license. The Buyer acknowledges that the Charge/Mortgage being taken back by the Seller may be sold. The Buyer agrees to co-operate fully with the Seller in connection with the sale of this Charge/Mortgage, and shall provide such personal and financial information, together with such documents as the Assignee of the Charge/Mortgage may reasonably require, forthwith upon request by the Seller, in order that the sale of the Charge/Mortgage may be completed. From MORT-17: Seller Take Back—To Be Sold By Seller Prior to Closing (Buyer to Cooperate) ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

Discharge of the existing mortgage clause

Note: MORT-10 is a condition for the seller to sell the mortgage. MORT-17 would provide the buyer’s acknowledgement that the mortgage will be sold and agrees to provide any information required to sell the mortgage. There could be circumstances where the seller would need to pay a fee to discharge the mortgage currently registered on the property prior to the expiration of the term. The amount the seller would be required to pay could affect the price the seller is prepared to accept during negotiations with the buyer. They would want to confirm the details of the discharge prior to committing to an offer from the buyer. As an example, the following clause could be used for this purpose: This Offer is conditional upon the Seller being satisfied that the cost to discharge the_______________ Charge(s)/Mortgage(s) shall not exceed the sum of _________________, ($_____). Unless the Seller gives notice in writing delivered to the Buyer personally or in accordance with any other provisions for the delivery of

©2019 Real Estate Council of Ontario

notice in this Agreement of Purchase and Sale or any Schedule thereto not later than _____ p.m. on the _____ day of __________, 20_____, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the Seller and may be waived at the Seller’s sole option by notice in writing to the Buyer as aforesaid within the time period stated herein. From MORT-7: Condition—Discharge of Mortgage(s)—Cost©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 23 of 25

In most cases, buyers will need to obtain mortgage financing to complete the purchase of a residential property. A salesperson should consider the buyer’s needs when drafting a condition for arranging financing to ensure an appropriate condition is included in the buyer’s offer. When dealing with mortgage conditions, which of the following statements is correct? There are four options. There is only one correct answer. 1 2 3 4

A typical postponement clause provides that if additional monies are advanced by way of a new first mortgage, the excess must be paid to reduce the second mortgage. A renewal clause must only provide for a single renewal of a mortgage. STBs require the same approval process, as would be undertaken had the buyer secured financing through a lending institution. A seller who decides to take back a mortgage is not typically required to report interest received on that mortgage until the mortgage term has ended.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 24 of 25

Your seller client wants to offer a potential buyer an STB mortgage. While this would have some clear benefits for your client, several additional considerations may need to be addressed with additional provisions in the agreement of purchase and sale. With such a potentially complex scenario, your client is best-advised to see a lawyer to write the clauses. Which of the following are additional considerations you would discuss with your client about STB mortgages? There are seven options. There are multiple correct answers. 1 2 3 4 5 6 7

Credit check Prepayment Renewal Postponement Over financing prevention The Right to Sell the Mortgage Discharge of the Existing Mortgage

©2019 Real Estate Council of Ontario

Lesson 2 | Page 25 of 25

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Arranging a new mortgage

Assuming an existing mortgage

There is usually a clause included in the Agreement of Purchase and Sale stating that the offer is conditional upon the buyer arranging a new mortgage, unless the sale of a property is an all cash offer. The amount of the new mortgage is typically the sale price less the down payment. When using a clause to arrange for a new mortgage, the timeline typically is 5 to 10 business days to fulfill the condition. There may be circumstances when a seller will offer the buyer the option to assume the existing mortgage. The assumption would typically be dependent upon approval from the lender that currently holds the mortgage on the property. A seller may offer the buyer the option to assume the mortgage if the market conditions are slow. This may make their property more attractive to a buyer.

Seller Take Back mortgage

A buyer may want the option to assume the mortgage because the interest rates with another lender might be higher than with the current lender. In an STB mortgage, the seller is the actual lender (mortgagee). The seller could improve the marketability of their property through attractive terms. An STB mortgage also provides the seller with an investment opportunity. The buyer could avoid certain costs and paperwork typically associated with conventional lenders.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 1 of 28

Lesson 3: Supplemental Conditional Clauses

This lesson highlights supplementary conditional clauses that could be included in an agreement of purchase and sale; for example, addressing home inspections, obtaining insurance, the sale of the buyer’s property, and obtaining a lawyer’s approval.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 2 of 28

Supplemental Conditional Clauses A critical component of drafting an offer is to ensure the seller or the buyer are provided an opportunity to complete the necessary due diligence. As a salesperson, you will need to consider various factors that could impact the specific condition you include. Sellers and buyers will rely on your advice and guidance to ensure the condition is accurate and reflects their specific requirements related to supplementary conditional clauses. In this lesson we will review a selection of conditional clauses that address a property inspection, insurance, sale of the buyer’s property, and a lawyer’s approval. Please note this is not an exhaustive list. A selection of conditional clauses has been compiled to assist with your learning. Upon completion of this lesson, you will be able to:

• • • •

Identify options including a condition for property inspection Identify options for including a condition for obtaining insurance Identify options for including a condition on the sale of the buyer’s property Identify options for including a condition for the Agreement of Purchase and Sale to be reviewed by a lawyer

Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 3 of 28

Supplementary Conditional Clauses: Property Inspection To assess the structure and systems of a residential property, many buyers will request a property inspection report from a qualified property inspector. The property inspection is focused on the performance of the home rather than cosmetic or design issues. The property inspector will assess a checklist of important items such as the condition of the roof, walls, floors, windows, heating, air conditioning, electrical, and plumbing. The inspection report will summarize findings to help the buyer determine the extent and cost of repairs, replacement, and remediation work to the property. To obtain an inspection report, the buyer will need to add a clause to the agreement of purchase and sale. Without an inspection clause, buyers should understand they are acknowledging no inspection report will be obtained.

©2019 Real Estate Council of Ontario

As a salesperson, you should discuss with the buyer the benefits of having a property inspection and the type of inspection clause that would be included in the offer. You should never discourage a buyer from having an inspection completed. You have various options for the type of inspection a buyer would require, and which would be in their best interest. A clause could provide for a satisfactory inspection report at the buyer’s sole and absolute discretion. The decision as to what is satisfactory rests solely with the buyer.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 4 of 28

Supplementary Conditional Clauses: Property Inspection A typical property inspection condition allows the buyer to obtain an inspection report from a home inspector at the buyer’s expense. After the inspection is complete, if the home inspector found deficiencies and the buyer is not satisfied, they have the option to not proceed with the transaction. As an example, the following clause could be used for this purpose: This Offer is conditional upon the inspection of the subject property by a home inspector at the Buyer’s own expense, and the obtaining of a report satisfactory to the Buyer in the Buyer’s sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than _____ p.m. on the _____ day of _____________, 20_____, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. The Seller agrees to co-operate in providing access to the property for the purpose of this inspection. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein. From INSP 1 – Inspection of Property by a Home Inspector—General Inspection©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Lesson 3 | Page 5 of 28

Supplementary Conditional Clauses: Property Inspection An inspection condition can include wording that allows the seller to remedy any deficiencies found during a property inspection. The clause might also contain wording that provides certain limits, such as the remedial costs borne by the seller or the inspection scope. For example, a property inspection clause limiting the scope might limit the inspection to mechanical or electrical systems. An inspection can also focus on a specific issue such as remediation necessary to comply with the Fire Code or electrical standards.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 6 of 28

Supplementary Conditional Clauses: Property Inspection and Market Conditions With the sale of any property, market conditions can make a difference in choosing the inspection clause that is in the buyer’s best interest. In a seller’s market, the buyer could include a clause that would allow the seller to remedy any deficiencies. Including this type of clause would possibly make their offer more appealing than the buyer including a clause that would indicate that the inspection is in the buyer’s sole and absolute discretion. In a buyer’s market, the buyer might choose not to offer the opportunity for the seller to remedy any deficiencies but choose to have the inspection as their sole and absolute discretion.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 7 of 28

Supplementary Conditional Clauses: Property Inspection Other Considerations As a salesperson, you will discuss with the buyer an appropriate time period in the condition for a property inspection by a home inspector to be arranged and completed. The amount of time for the condition to be fulfilled or waived could be dictated by the trading area and market conditions. The seller may be only willing to accept a shorter time period in one market or trading area than what might be accepted in another. Generally, the time period would be 5 to 10 days and similar to the time allowed to arrange the appropriate financing. The home inspector is hired by the buyer. They receive an inspection report and there is no obligation on the part of the buyer to provide the seller with a copy of the report. The buyer may insert a clause in the agreement to provide a copy of the report showing any deficiencies in the property to the seller as a good faith gesture. A seller may also request this clause be included in the agreement in case the buyer does not proceed with the transaction. The seller may want to remedy the deficiencies prior to placing the property back on the market.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 8 of 28

Home inspections are often an integral part of an agreement of purchase and sale. Any condition relating to a home inspection must not include a waiver provision. Identify if the statement is true. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 9 of 28

Home inspections are often an integral part of an agreement of purchase and sale. In a sellers’ market where properties sell very quickly with multiple offers, you should discourage a buyer from having an inspection completed, so that their offer is as clean as possible. Identify if the statement is true. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 10 of 28

Home inspections are often an integral part of an agreement of purchase and sale. The focus of a home inspection is on the performance of the home, rather than cosmetic or design issues. Identify if the statement is true. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 11 of 28

Home inspections are often an integral part of an agreement of purchase and sale. A salesperson’s expertise includes performing home inspections. Identify if the statement is true. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 12 of 28

Home inspections are often an integral part of an agreement of purchase and sale. Home inspections are typically requested by buyers seeking to assess the condition of property prior to a planned purchase. Identify if the statement is true. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 13 of 28

Home inspections are often an integral part of an agreement of purchase and sale. A home inspection is another phrase for a municipal inspection involving compliance with local codes. Identify if the statement is true. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 14 of 28

Home inspections are often an integral part of an agreement of purchase and sale. Which of the following is a most notable benefit of a professional home inspection? There are four options. There is only one correct answer. 1 2 3 4

The determination of the presence or absence of hazardous substances The assistance given in estimating market value The assessment of the strength of internal structural components A report including systems or components in need of immediate repair

©2019 Real Estate Council of Ontario

Lesson 3 | Page 15 of 28

Supplementary Conditional Clauses: Insurance The typical agreement of purchase and sale will include a clause stating that prior to completion the buyer will confirm that the property can be insured against risk of fire. If the property can not be insured, the buyer will be unable to secure financing for the property. To protect the buyer, you will discuss the merits of including a condition upon obtaining insurance in the agreement. The decision to include a condition is typically based on the age, location, and condition of the property. Including a clause will allow the buyer to confirm they will be able to obtain the insurance, otherwise they will not continue with the transaction. The buyer can include a clause that is conditional on obtaining suitable insurance.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 16 of 28

Supplementary Conditional Clauses: Insurance This clause states that the buyer will attempt to arrange insurance that is satisfactory in their sole and absolute discretion. The buyer’s decision on what is satisfactory would typically take into account the amount and extent of coverage, and the cost. As an example, the following clause could be used for this purpose: This Offer is conditional on the Buyer arranging insurance for the property satisfactory to the Buyer in the Buyer’s sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than _____ p.m. on the _____ day of __________, 20_____, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. The Seller agrees to co-operate in providing access to the property, if necessary, for any inspection of the property required for the fulfillment of this condition. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein. NOTE: Due to the nature of this clause, a short time frame should be chosen for this condition. From Insur 1 – Arranging Insurance ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 17 of 28

Supplementary Conditional Clauses: Factors Influencing Insurance The buyer may want to purchase an older property or one that is in a remote location. In this situation, the buyer might be concerned about the ability to get or the cost of property insurance. Insurance companies are becoming more careful of what they will insure and at what cost. For instance, there could be an environmental issue or it could be on or near a flood plain. Some property types, condition, or location could impact the premium, for example: • A rural property in a remote location that is far from a fire department which could include a volunteer department—the distance to the fire department could impact the premium. • Other factors such as outdated wiring, underground oil tanks or other matters requiring remedial action can also have an impact on insurance premiums or possible refusal. Other Considerations The time frame for the insurance condition would be similar to the financing or home inspection conditions unless there are circumstances such as those mentioned previously that could require additional time. ©2019 Real Estate Council of Ontario

Lesson 3 | Page 18 of 28

Supplementary Conditional Clauses: Insurance Consider the following clause: “This offer is conditional on the Buyer, at the Buyer’s own expense, arranging insurance for the property satisfactory to the Buyer in the Buyer’s sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than time in p.m., date, month, and year, that this condition is fulfilled, this offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. The Seller agrees to co-operate in providing access to the property, if necessary, for any inspection of the property required for the fulfillment of this condition. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.” The parts of the insurance clause based on the six steps of a clause are as follows: 1. Who is to do it: “This Offer is conditional on the Buyer” The buyer is responsible for performance. 2. Who is to pay for it: “at the Buyer’s own expense” Even without explicitly stating so, it would be quite clear that this would be at the buyer’s expense. 3. What is to be done: “arranging insurance for the property satisfactory to the Buyer in the Buyer’s sole and absolute discretion.” Performance requires arranging insurance for the property. 4. Within what time limit: “not later than time in p.m., date, month, and year” The clause states a specific deadline.

©2019 Real Estate Council of Ontario

5. What happens in the event it is not done: “Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than time in p.m., date, month, and year, that this condition is fulfilled, this offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction." This clause is a condition precedent, as it requires the condition to be fulfilled or waived for the agreement to continue. 6. Can it be waived: “This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.” The clause contains a waiver statement at the end, another indication that this is a condition precedent.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 19 of 28

Supplementary Conditional Clauses: Addressing the Sale of the Buyer’s Property A buyer may find a property they are interested in purchasing. To finalize the sale, however, the buyer might need to ensure they have sold their current property. The buyer could add a clause to their offer that would ask the seller for a conditional period longer than the average 5 to 10 days to give them the opportunity to sell their property.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 20 of 28

Supplementary Conditional Clauses: Addressing the Sale of the Buyer’s Property This clause is one of the longest in terms of the conditional time period when dealing with residential properties. Selling a buyer’s property will typically take longer than other matters such as arranging financing or a property inspection. In a seller’s market, home owners are not usually inclined to accept this condition. The clause will include the municipal address of the buyer’s property. As an example, the following clause could be used for this purpose: This Offer is conditional upon the sale of the Buyer’s property known as ________________. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than _____ p.m. on the _____ day of __________, 20_____, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein. From SBP/SA 1 – Buyers Property©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 21 of 28

Supplementary Conditional Clauses: Addressing the Sale of the Buyer’s Property The condition of the sale of a buyer’s property can require a longer period of 30 to 60 days. To make the longer conditional time in the buyer’s offer more acceptable to the seller, the buyer can insert an escape clause. This clause would allow the seller to continue offering the property for sale and to accept a second offer during the conditional period of the first offer. The second offer would be conditional upon being released from the first offer. To release the first offer, the seller would need to go back to the first buyer and explain that the original time period to sell the buyer’s property is no longer available. The buyer would then need to decide whether to waive the condition and continue with the transaction or release the seller from it. The escape clause would typically include a time period of 24 to 72 hours for the first buyer to make a decision to either waive the condition or not move forward with the transaction.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 22 of 28

Supplementary Conditional Clauses: Addressing the Sale of the Buyer’s Property Sellers are not typically willing to accept offers with long conditions. However, in a buyer’s market or in the case of a property that has proven to be difficult to sell, a seller may agree to a long condition provided that an escape clause is included. The escape clause is usually added by the salesperson drafting the offer before it is presented to the seller. There is an escape clause that only requires the removal of the condition relating specifically to the sale of the buyer’s property. As an example, the following clause could be used for this purpose: Provided further that the Seller may continue to offer the property for sale and, in the event the Seller receives another Offer satisfactory to the Seller, the Seller may so notify the Buyer in writing by delivery to the Buyer personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto. The Buyer shall have __________ hours from the giving of such notice to waive this condition by notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto, failing which this Offer shall be null and void, and the Buyer’s deposit shall be returned in full without deduction. From SBP/SA4 Escape Clause—Buyer’s Property©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Lesson 3 | Page 23 of 28

Supplementary Conditional Clauses: Addressing the Sale of the Buyer’s Property Consider the scenario where a seller has accepted an offer conditional on the sale of the buyer’s property. In that first offer, the buyer’s salesperson added an escape clause to allow the seller to continue to offer the property for sale during the conditional period. A second buyer makes an offer. Before accepting the second offer, a clause must be added making it conditional upon the seller being released from the first offer. Without this type of clause added to the second offer, the seller could wind up selling the property to two different buyers. As an example, the following clause could be used for this purpose: This Offer is conditional upon the Seller obtaining a release from a prior Agreement of Purchase and Sale. Unless the Seller gives notice in writing delivered to the Buyer personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than _____ p.m. on the _____ day of __________, 20_____, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. NOTE: This clause is a true Condition Precedent and neither a Seller nor a Buyer is entitled to waive this condition. From SBP/SA 3 - Seller’s Release from Previous Agreement©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Lesson 3 | Page 24 of 28

Clients want to make an offer on a property they have just viewed for a second time. However, the clients will need to sell their current property in order to come up with the down payment. They are told by their salesperson that they could make the offer conditional upon the sale of their property. To make the offer more attractive to the seller, it’s suggested that an escape clause be inserted with the condition. Which of the following statements are correct about the sale of buyer’s property condition and escape clause? There are four options. There are multiple correct answers. 1 2 3 4

An escape clause allows the seller to continue to offer the property for sale even after accepting an offer from the buyer. An escape clause could result in the buyers having to decide to waive the condition for the sale of their property even though their property has not sold. A condition for the sale of the buyers’ property is more likely to be accepted in a seller’s market. The address of both the seller and the buyer must be included in a condition for the sale of a buyer’s property in order to identify the properties involved in the transaction.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 25 of 28

A seller has received and accepted an offer to purchase their property. The offer is conditional on the sale of the buyer’s property, which also includes an escape clause. The seller then receives a second offer, which is not conditional on the sale of the second buyer’s property. The seller wants to go ahead and accept the second offer. Given this situation, what should the seller’s salesperson do to ensure the seller does not unintentionally sell their property twice? There are four options. There is only one correct answer. 1 2 3 4

Include an escape clause for the seller in the second offer so that the seller can terminate the first offer immediately. Ensure the second offer contains a condition on the seller being released from a previously accepted offer on or before the specified date and time. Ensure the second offer has a waiver provision included with a condition for the seller’s release from a previous agreement. Advise the seller that they cannot accept another offer because the previous offer has an escape clause for the benefit of the buyer.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 26 of 28

Supplementary Conditional Clauses: Lawyer’s Approval A clause could be included in the Agreement of Purchase and Sale that is conditional upon the approval of either the seller’s or the buyer’s lawyer. There could be certain situations where you, as a salesperson may want to suggest to your seller or buyer that they should seek their lawyer’s advice regarding the transaction. A seller or buyer may themselves want to have their lawyer’s advice or approval of the agreement. Some sellers, though not many, refuse to accept any offer until their lawyer has seen it. A seller may be in an assisted living facility and as a salesperson, you would want to get their lawyer and/or family member involved. A brokerage may be selling a private sale to a buyer client and the seller may want their lawyer to review the offer since they have no representation.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 27 of 28

Supplementary Conditional Clauses: Lawyer’s Approval In some instances, whether it be initiated by the seller or the buyer or on advice from the salesperson, an offer will contain a clause on lawyer’s approval of the terms of the agreement. As an example, the following clause could be used for this purpose: This Offer is conditional upon the approval of the terms hereof by the Buyer’s Solicitor. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than _____ p.m. on the _____ day of __________, 20_____, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein. From LAW-1: Condition-Lawyer’s Approval-Buyer©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Lesson 3 | Page 28 of 28

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were discussed in this lesson. Home inspection clauses allow the buyer to have a professional home inspector inspect the property prior to finalizing the sale. Depending on the outcome of the home inspection, there might be issues that the buyer wants the seller to address. Insurance clauses In order to obtain a mortgage from a conventional lender, the buyer must be able to obtain insurance for the property they are intending to purchase. In some cases, the buyer may not be willing to pay more than a certain amount for insurance. Sale of the buyer’s Another common clause that is included in an agreement of purchase and sale is the sale of the buyer’s own property. If a buyer finds a house before selling their own, then they would property clauses include this type of clause. Many sellers may not want to accept a sale of the buyer’s property clause, so the buyer would include a clause stating that the seller can still offer the property for sale and accept offers during the conditional period. A seller might get a second offer which would then affect the original buyer’s conditional time period. There are certain circumstances where a salesperson will recommend that either the seller Clauses for a lawyer’s approval or the buyer seek a lawyer’s approval of the Agreement of Purchase and Sale.

Home inspection clauses

©2019 Real Estate Council of Ontario

Lesson 4 | Page 1 of 16

Lesson 4: Environmental and Zoning Conditional Clauses

This lesson highlights conditional clauses that could be included in an agreement of purchase and sale to address environmental issues and zoning.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 2 of 16

Environmental and Zoning Conditional Clauses A critical component of drafting an offer is to ensure the seller or the buyer are provided an opportunity to complete the necessary due diligence. As a salesperson, you will need to consider various factors that could impact the specific condition you include. Sellers and buyers will rely on your advice and guidance to ensure the condition is accurate and reflects their specific requirements related to environmental and zoning clauses. In this lesson we will review a selection of conditional clauses that address environmental issues and zoning. A selection of commonly used conditional clauses are being presented to assist with your learning. Upon completion of this lesson, you will be able to: • Identify options for including a clause to address other considerations relating to environmental and zoning considerations in an agreement of purchase and sale Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 3 of 16

Supplementary Conditional Clauses: Environmental Issues Environmental issues are increasingly impacting real estate transactions. Duties and responsibilities of a salesperson do not extend to offering advice regarding environmental legislation or understanding the technical complexities of environmental problems. Although not an expert, as a salesperson, you should have a general knowledge of environmental considerations and potential hazards to help a buyer determine the appropriate clauses to include in an offer. Buyers may want the seller to provide a representation and warranty. In other circumstances, buyers may want to include a condition that would give them the opportunity to investigate and verify any concerns with the property.

©2019 Real Estate Council of Ontario

Examples of concerns the buyer may have with the property include whether hazardous conditions or substances exist and whether limitations or restrictions exist which would affect the use of the property including an environmentally protected zone, flood plain or hazardous land.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 4 of 16

Supplementary Conditional Clauses: Environmental Issues Most properties that are new have no real environmental concerns to speak of. Depending on the age and location of the home, some residential properties may have any or all of these environmental issues: • Oil tanks • Vermiculite • Asbestos • Wells and septic It’s worth mentioning again. Although not an expert, as a salesperson, you should have a general knowledge of environmental considerations and potential hazards to help a buyer determine the appropriate clauses to include in an offer. In all cases, the Ministry of Environment, Conservation and Parks (MECP) has guidelines to follow for both potable and non-potable situations.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 5 of 16

Supplementary Conditional Clauses: Environmental Issues Related to Fuel Oil Tanks Fuel oil tanks, whether buried or above ground can present problems. The presence of a buried oil tank (if known), must be disclosed to a potential buyer as it’s a material latent defect due to the potential of environmental contamination. Insurance companies are hesitant to insure these types of properties because of the potential claims arising from spills and contamination. An appropriate clause must always be added to an agreement of purchase and sale involving a property with an oil tank. The following three sections contain information on clauses related to oil tanks.

Oil tank—Aboveground or underground clause

A buyer is interested in purchasing a property that contains an oil tank and wants to determine that the tank system is safe and meets the current requirements of the Technical Standards and Safety Act before committing to a firm and binding agreement. As an example, the following clause could be used for this purpose: This Agreement is conditional upon the Buyer, at the Buyer's (or Seller’s) expense, obtaining a report from a fuel oil distributor registered under the Technical Standards and Safety Act, 2002, and any Regulations thereto as amended from time to time stating the tank system in, on or about the property is in a safe operating condition and complies with the requirements of the Technical Standards and Safety Act, 2002, and any Regulations thereto as amended from time to time. Seller agrees to allow access to the property by the fuel oil distributor for purpose of obtaining a report. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than _____ p.m. on the _____ day of __________, 20_____, that this condition has been fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the Buyer and may be ©2019 Real Estate Council of Ontario

waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein. From ENV-5 – Oil Tank—Aboveground or Underground©2022 Ontario Real Estate Association. All rights reserved. Used under license. The fact that an underground oil tank was on a property and has since been Underground tank— Seller has removed clause removed would have to be disclosed to a buyer. Inclusion of a clause protects the seller by having an acknowledgement that the disclosure was made. It provides assurance to the buyer that it was removed properly, the surrounding soil was tested, and any contamination removed. As an example, the following clause could be used for this purpose: The Buyer acknowledges that there was an underground fuel tank on the property that has been removed and the Seller agrees to provide to the Buyer at the Seller’s own expense by no later than _____ p.m. on the _____ day of __________, 20_____, evidence that a contractor registered under the Technical Standards and Safety Act, 2002, and any Regulations thereto as amended from time to time, has removed the said fuel oil tank, assessed the soil surrounding the underground fuel oil tank for contamination and cleaned and removed any contamination.

Underground tank— Seller to remove clause

From ENV-13 – Underground Tank—Seller Has Removed©2022 Ontario Real Estate Association. All rights reserved. Used under license. A buyer may be interested in a property that has an underground oil tank but is not willing to assume the potential liability associated with the tank. The buyer’s offer may include a clause requiring the seller to remove the tank at the seller’s expense and ensure that any possible contamination is removed. As an example, the following clause could be used for this purpose: The Seller agrees that the Seller will, at the Seller’s expense, have the underground fuel oil tank on the property removed from the property by a contractor registered under the Technical Standards and Safety Act, 2002, and any Regulations thereto as amended from time to time by no later than _____ p.m. on the _____ day of __________, 20_____, and thereafter to have the soil surrounding the underground

©2019 Real Estate Council of Ontario

fuel oil tank assessed for contamination and any contamination cleaned and removed by a contractor registered under the Technical Standards and Safety Act, 2002, and any Regulations thereto as amended from time to time, and on or before closing to provide evidence of the said testing, cleaning and removal from the said contractor and to restore the grading and landscaping on the property to the existing or a comparable condition to which it was prior to the removal of the said fuel oil tank. From ENV-14 – Underground Tank—Seller to Remove©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 6 of 16

Supplementary Conditional Clauses: Vermiculite and Asbestos Vermiculite, as you learned earlier, is a mineral that does not burn and when heated expands which makes it suitable for insulation. Vermiculite itself is not a health concern, but some vermiculite insulation contains asbestos which when airborne and inhaled can cause health problems. Asbestos floor tiles were also common in houses built in the 1960s. If left intact, they do not pose health hazards. But any dust created in trying to remove them poses a health hazard. Removal of asbestos needs to be done by qualified professionals. If the seller is aware the property is insulated with vermiculite containing asbestos or any other type of asbestos, they would need to disclose this material latent defect to the buyer. The seller may not be aware of the type of insulation used in their property. In order to protect the buyer, you as a salesperson could insert a clause in the offer that is conditional upon testing the property for asbestos. If the property has been previously tested and asbestos was not found, a seller could provide the buyer with the test results. Alternatively, the seller could state in a clause that they have no knowledge of the insulation and therefore makes no warranty to the buyer.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 7 of 16

Supplementary Conditional Clauses: Vermiculite Depending on the age of the property a buyer might for their own peace of mind include a clause that is conditional upon them testing the property for the presence of asbestos within the vermiculite insulation. As an example, the following clauses could be used for this purpose: This Offer is conditional upon the Buyer testing the subject property for the presence of asbestos within the vermiculite insulation located upon the property at the Buyer’s own expense, and the obtaining of a report, respecting the said test the results of which are satisfactory to the Buyer in the Buyer’s sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than _____ p.m. on the _____ day of __________, 20_____, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. The Seller agrees to co-operate in providing access to the property for the purpose of this inspection. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein. From VER 1 – Testing of Property for Vermiculite©2022 Ontario Real Estate Association. All rights reserved. Used under license. A buyer would want this added so they can do an inspection during the conditional time period.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 8 of 16

Supplementary Conditional Clauses: Environmental Issues Related to Water and Septic System Many rural properties are not on municipal services and, as a result, have their own private water and sewage systems. A salesperson must be aware of these well and septic systems to properly advise sellers and buyers. When a property is being purchased, clauses should be added to an offer to give the buyer time to have a professional check the water and septic systems to determine that they are in proper operating condition.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 9 of 16

Supplementary Conditional Clauses: Environmental Issues Related to Water and Septic System When it comes to private water systems, in addition to the condition of the well, two things are of paramount importance—quantity and quality. A buyer wants to ensure there is a sufficient quantity of water for their normal household use and that the water is potable (drinkable). The following clause could be used for this purpose: This Offer is conditional upon the Buyer determining, at the Buyer’s own expense, that: (1) there is an adequate water supply to meet the Buyer’s household needs; (2) the pump and all related equipment serving the property are in proper operating condition; and (3) the Buyer can obtain a Bacteriological Analysis of Drinking Water from the authority having jurisdiction indicating that there is no significant evidence of bacterial contamination.

©2019 Real Estate Council of Ontario

Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than _____ p.m. on the _____ day of __________, 20_____, that these conditions have been fulfilled, this Offer shall become null and void and the deposit shall be returned to the Buyer in full without deduction. These conditions are included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein. The Seller agrees to allow access to the subject property to the Buyer or the Buyer’s agent for the purpose of satisfying this condition. From SEWER/WATER-2 – Condition—Water Supply—All Well Types©2022 Ontario Real Estate Association. All rights reserved. Used under license. The water sample used for the bacteriological analysis should be taken by the buyer or a professional retained by the buyer rather than by the seller or the salesperson. It is imperative that the sample be taken from the actual water supply and not substituted by a sample taken from a different source.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 10 of 16

Supplementary Conditional Clauses: Environmental Issues Related to Water and Septic System A private sewage system (septic system) must be adequate to meet the needs of the buyer’s family. A typical buyer would want to make sure that the system is totally within the property and meets the setback requirements, it was installed correctly and with applicable permits. The following clause could be used for this purpose: This Offer is conditional upon the Buyer determining, at the Buyer’s own expense, that: (1) all sewage systems serving the property are wholly within the setback requirements of the said property and have received all required Certificates of Installation and Approval pursuant to the Environmental Protection Act; (2) all sewage systems serving the property have been constructed in accordance with the said Certificates of Installation and Approval; (3) all sewage systems serving the property have received all required use permits under the said Act or any other legislation; and further, that on inspection, the septic bed is in good working order.

©2019 Real Estate Council of Ontario

The Buyer shall be allowed to retain at the Buyer’s own expense, a professional in the septic business to make an examination of the septic system. Seller agrees to allow access to the property for the purposes of a septic inspection and agrees to allow the Buyer to request information as outlined above from the appropriate authorities having jurisdiction. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than _____ p.m. on the _____ day of __________, 20_____, that these conditions have been fulfilled, this Offer shall become null and void and the deposit shall be returned to the Buyer in full without deduction. These conditions are included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein. From SEWER/WATER-1 – Condition—Sewage Systems—Approvals©2022 Ontario Real Estate Association. All rights reserved. Used under license. Since this condition does not speak to the working order of the septic system, the clause below could be added to the offer to have the seller warrant the condition. The Seller represents and warrants, to the best of the Seller’s knowledge and belief, that, during the Seller’s occupancy of the building, the sewage system has been and will be in good working order on closing. The Parties agree that this representation and warranty shall survive and not merge on completion of this transaction but apply only to the state of the property existing at completion of this transaction. From SEWER/WATER-4 – Sewage System—Good Working Order—Warranty©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 11 of 16

Supplementary Conditional Clauses: Zoning There could be circumstances when a buyer may want to apply to the municipality to change the zoning of the property to allow for a different use. The buyer could make the offer conditional on being able to change the zoning. If the zoning cannot be changed, the buyer may not want the property. If the buyer waits to obtain a zoning change until after closing, it will be too late. If the rezoning application is turned down, the buyer will be stuck with the property.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 12 of 16

Supplementary Conditional Clauses: Zoning Let’s assume a buyer has found a home he would like to purchase but it lacks a double garage. If a double garage were to be built on the side of the house, it would come within three feet of the property line. The current zoning requires a four-foot setback. The buyer makes his offer conditional on obtaining a minor variance to the zoning bylaw to enable him to build the double garage. As an example, the following clauses could be used for this purpose: This Offer is conditional upon the [Seller/Buyer] obtaining at the [Seller’s/Buyer’s] expense, a [rezoning/minor variance], to allow for [specify exact variance/use] for said property. Both Seller and Buyer agree to proceed in a diligent manner to acquire the [re-zoning/minor variance]. Unless the [Seller/Buyer] gives notice in writing delivered to the [Seller/Buyer] not later than ____ p.m. on the _______ day of ____________, 20___, that this condition is fulfilled, this Offer shall become null and void and the deposit shall be returned to the Buyer in full without deduction. NOTE: If the Buyer wishes to retain the right to purchase the property, even though the rezoning or minor variance is not approved, then a “Waiver” should be included. From ZONING-1 – Re-zoning/Minor Variance©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Lesson 4 | Page 13 of 16

A client wants to make an offer on a property that in the past had been the location for a manufacturing factory. The client is concerned about potential environmental contamination and has asked for the salesperson’s advice. How should the buyer’s salesperson proceed with respect to the offer and the buyer’s concerns regarding environmental contamination? There are four options. There is only one correct answer. 1 2 3 4

The salesperson should proceed to conduct their own environmental investigation prior to an offer being made. Have the buyer provide the seller with a representation and warranty that there are no environmental issues with the property. Insert a conditional seller warranty and representation clause that there are no environmental issues. Insert a clause that makes the offer conditional on the buyer determining that there are no environmental issues.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 14 of 16

A buyer wants to make an offer to purchase a property. The buyer’s salesperson has expressed concerns that a number of similar homes in the area have been found to be insulated with vermiculite. This home was built in the 1950s and the seller is the third owner. The seller says that they did not insulate the home with vermiculite, but cannot say what the previous owners did. Given the information, which of the following statements about vermiculite and drafting an offer to protect the buyer are correct? There are six options. There are multiple correct answers. 1 2 3 4 5

6

Vermiculite is another name for asbestos. If the seller is aware the property is insulated with vermiculite containing asbestos, they would have to disclose this to the buyer. Vermiculite itself is considered a health concern. To protect the buyer, the salesperson should recommend inserting a clause in the offer that states the offer is conditional upon testing the property specifically for the presence of asbestos within vermiculite. A clause which makes an offer conditional on the buyer testing a property for the presence of asbestos within vermiculite insulation would need to state that any report regarding the testing would need to be satisfactory to the seller. While the seller in this scenario could warrant and represent that they had not caused the buildings on the property to be insulated with vermiculite, they would be unable to warrant and represent that there was no vermiculite in the property.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 15 of 16

The buyer clients want to make an offer on a large century home that they have now viewed for the third time. Their intention is to convert the place into a bed and breakfast. This would require a change of zoning. The buyers have asked their salesperson to include a zoning condition in the offer that makes the offer conditional on the buyers being able to obtain the necessary rezoning. Which of the following are true about a zoning condition that may be required in an offer these buyer clients make on the property? There are four options. There are multiple correct answers. 1 2 3 4

If the buyers wish to retain the right to purchase the property, even though the rezoning is not approved, then a “Waiver” should be included in a rezoning condition. A clause that requires rezoning to be granted before the condition is fulfilled would be a true condition precedent. The zoning condition should ensure that both the seller and the buyer agree to proceed in a diligent manner to acquire the rezoning. Any conditional rezoning clause must include the current zoning and present use of the property.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 16 of 16

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were discussed in this lesson.

Environmental clauses Fuel oil tank clauses

Vermiculite and asbestos clauses

Zoning clauses

As a salesperson, it is important that you understand the impact of environmental issues on real estate transactions. You should have a general knowledge of environmental considerations and potential hazards to help a buyer determine the appropriate clauses to include in an offer. Fuel oil tanks, whether buried or above ground can present problems. The presence of a buried oil tank (if known) must be disclosed to a potential buyer as it is a latent defect due to the potential of environmental contamination. A buyer may want to include a clause that gives them the opportunity to verify any potential environmental concerns with the property before the offer becomes firm and binding. While vermiculite is not a health concern on its own, some vermiculite insulation contains asbestos which can be a health hazard when particles become airborne and inhaled. If the property has been insulated with vermiculite containing asbestos, then the seller must disclose this latent defect. It is in the buyer’s best interest that a clause is included to address any vermiculate concerns. A buyer may want to include a clause that gives them the opportunity to verify any potential environmental concerns with the property before the offer becomes firm and binding. There might be some instances when a buyer may be interested in purchasing a property for a different purpose than what it is currently zoned for. In this case, the buyer would want to include a zoning clause to ensure that if they cannot obtain rezoning/variance then they have the option to not continue with the offer.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 1 of 7

Lesson 5: Summary Practice Activities

This lesson provides a series of activities that will test your knowledge on the entire module.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 2 of 7

Summary Practice Activities This lesson provides summary practice activities. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 3 of 7

A salesperson represents a buyer looking for a single family detached house with a finished basement. The salesperson has found a property that the buyer really likes. It meets all the client’s needs and wants. The basement is newly renovated by the seller and looks beautiful. The buyer would like to make an offer on the property but is concerned about whether the seller completed the home renovations properly with the necessary permits.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 4 of 7

Consider this clause: “This Offer is conditional upon the Buyer determining that the Seller’s basement renovations received all necessary approvals and permits from the appropriate local municipality and any other relevant authorities. Unless the Buyer gives notice in writing to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto no later than __5____ p.m., on the 8th day of March, 20XX, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the buyer and may be waived at the Buyer's sole option by notice in writing to the Seller within the time period stated.” Which of the six steps to ensure the clause contains the required information are missing from this clause? There are six options. There are multiple correct answers. 1 2 3 4 5 6

Who is to do it? Who is to pay for it? What is to be done? Within what time limit? What happens in the event it is not done? Can the condition be waived?

©2019 Real Estate Council of Ontario

Lesson 5 | Page 5 of 7

A salesperson is writing a home inspection clause to protect the buyer client. The following clause has been recommended but the salesperson realizes it’s missing some key information: This Offer is conditional upon the inspection of the subject property at the Buyer’s own expense. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule that this condition is fulfilled, this Offer shall be null and void. The Seller agrees to co-operate in providing access to the property for the purpose of this inspection. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein. Which of the six steps to ensure the clause contains the required information are missing in the written clause provided? There are six options. There are multiple correct answers. 1 2 3 4 5 6

Who is to do it? Who is to pay for it? What is to be done? Within what time limit? What happens in the event it is not done? Can the condition be waived?

©2019 Real Estate Council of Ontario

Lesson 5 | Page 6 of 7

The following clause in the previous decision point is missing wording that would protect the buyer. The issues have been identified in the previous decision point. Once again, the offer is being drafted on March 3, 20XX. This Offer is conditional upon the inspection of the subject property at the Buyer’s own expense. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule that this condition is fulfilled, this Offer shall be null and void. The Seller agrees to co-operate in providing access to the property for the purpose of this inspection. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein. Identify a conditional home inspection clause that protects the interests of the buyer and addresses the buyer’s needs and concerns.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 7 of 7

Congratulations, you have completed the lesson!

©2019 Real Estate Council of Ontario

Module Summary | Page 1 of 5

Module Summary

This lesson contains a summary of the entire module and a list of helpful resources available in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 2 of 5

Module Summary Congratulations, you have completed this module! This lesson will present a summary of Learning Objectives and a list of helpful resources that you can search for in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 3 of 5

There are five sections on this page with a summary of the key topics that were discussed in this module.

Identify how a condition precedent clause is structured

As a salesperson you need to fully understand what a condition precedent clause is, how it is structured and when to use it. A condition precedent means that something has to happen in writing, within the conditional time period before an offer becomes firm and binding on the parties. When reviewing or drafting a condition precedent clause, you will complete six steps to ensure the clause contains the required information. The six steps include: • Who is doing it? • Who is paying for it? • What is to be done? • Within what time limit? • What happens in the event it is not done? • Can it be waived?

Identify how a true condition precedent clause is structured

There are many different clauses that can be included as a condition precedent clause in an agreement of purchase and sale, including but not limited to: • Obtaining financing • Having the property inspected • Confirming insurance can be obtained • Sale of a Buyer’s property A true condition precedent is structured differently than a condition precedent clause. It does not allow for the condition to be waived, meaning that the condition must be satisfied or fulfilled as written or the offer is considered null and void. A true condition precedent clause is reviewed or drafted using the same format as a condition precedent, with the exception of including the waiver provision. The condition cannot be waived by either the seller or the buyer. When reviewing or drafting a true condition precedent clause, you will complete only five of the six steps to ensure the clause contains the required information.

©2019 Real Estate Council of Ontario

Remember, the sixth step—can it be waived? Is not required. The five remaining steps include: • Who is doing it? • Who is paying for it? • What is to be done? • Within what time limit? • What happens in the event it is not done?

Identify how a condition subsequent clause is structured

A common circumstance where a true condition precedent clause must be used would be when a buyer has agreed to assume a seller’s existing mortgage, however this mortgage assumption requires approval by the lender. A condition subsequent is in many ways, the opposite of a condition precedent. It provides that if the party does not wish to proceed with the proposed transaction, they must take action to terminate the agreement.

A condition subsequent means that something has to happen in writing, within the conditional time period in order to terminate an agreement or it will remain a firm and binding contract. One of the most common conditions included in an agreement of purchase and sale Identify options for including a condition for is related to financing. There are many different clauses linked to specific conditions obtaining financing and that can be included in an agreement of purchase and sale, including but not limited to: identify additional • Arranging a new mortgage clauses for consideration • Arranging a new mortgage satisfactory to the buyer when an offer contains • Assuming an existing mortgage terms related to • Arranging a Seller Take Back (STB) mortgage

financing

The market conditions can dictate which clause you, as a salesperson should use. In a seller’s market the clauses would most likely include shorter timelines. In a buyer’s market the timelines might be longer. An STB mortgage means the seller is the lender or mortgagee and the buyer will be the mortgagor. A clause could be added to the agreement such as the seller

©2019 Real Estate Council of Ontario

obtaining a credit check of the buyer to confirm their credit worthiness. Additional clauses for the benefit of the buyer could be a pre-payment or renewal option.

Identify options for including a condition for a property inspection

There is a right to sell the mortgage clause in which the buyer acknowledges the sale of the mortgage contract and agrees to provide any necessary information to facilitate the sale of the mortgage. A common condition that would be recommended to the buyer is a property inspection by a qualified home inspector or if the buyer chooses, a third party. The general inspection clause would be at the buyer’s sole and absolute discretion as to whether they are satisfied and wish to continue with the transaction. Another clause option would allow the seller to remedy any deficiencies found during the inspection. There are also limited inspections in which the inspector only looks at the building, mechanical, and/or electrical systems.

©2019 Real Estate Council of Ontario

Module Summary | Page 4 of 5

There are four sections on this page with a summary of the key topics that were discussed in this module.

Identify options for including a condition for obtaining insurance

Identify options for including a condition on the sale of the buyer’s property Identify options for including a condition for the Agreement of Purchase and Sale to be reviewed by a lawyer

Identify options for including a clause to address other considerations in an agreement of purchase and sale

You learned about the merits of including a clause in the agreement conditional upon obtaining property insurance. Another option for a clause in regards to insurance allows the buyer to ensure they are able to obtain insurance for specified perils or risks at an amount not to exceed what the buyer determines they would be willing to pay. You learned that there are instances where a buyer may find a property that they are interested in purchasing but they have not sold their property. The buyer could insert a clause in the agreement stating that the offer is conditional upon them selling their own home within a specified time period. Purchasing a home is one of the biggest investments people can make. As a salesperson, in certain circumstances it is important for you to suggest to the seller or the buyer that they have a lawyer review the offer. The seller or buyer could include a clause in the agreement that would be conditional upon their lawyers reviewing and providing advice regarding the agreement. Some transactions in selling or purchasing a property are very complex and these should be reviewed by a lawyer especially estate sales, environmental issues, or where there is multiple representation. Environmental issues with properties, especially older homes can cause great concern for a buyer. Issues such as buried oil tanks, vermiculite, and zoning should be addressed during the offer process. Although not an expert, a salesperson should have an awareness and general knowledge of potential hazards in order to provide a seller or buyer with accurate information to determine the clauses that could be inserted in an agreement. Buyers may want the seller to provide a representation and warranty. The buyer

©2019 Real Estate Council of Ontario

may want to include a condition that would give them the opportunity of investigating and verifying any concerns with the property.

©2019 Real Estate Council of Ontario

Module Summary | Page 5 of 5

Module Resources There is a helpful resource related to this module that you can search for in the Knowledge Management System. Condition Precedent vs Condition Subsequent: This job aid provides a visual comparison between a condition precedent and a condition subsequent, outlining the differences and similarities. A salesperson can use this job aid to help identify the similarities and differences between a condition precedent clause and a condition subsequent clause. While navigating through the online module, click the KMS button for tools and information on this topic.

©2019 Real Estate Council of Ontario

Module 18: Completing a Residential Agreement of Purchase and Sale, Countering an Offer, and Working with Competing Offers Disclaimer: This is a reference document which contains pages from the Accessible eLearning module. You should complete the eLearning module to proceed to the next step. Please note that the accessible module on the LMS only contains the interactive pages and you need to go through the content of this document thoroughly to attempt the interactive activities in the module. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Salesperson Program ©2019 Real Estate Council of Ontario. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or in any means – by electronic, mechanical, photocopying, recording or otherwise without prior written permission, except for the personal use of the Real Estate Salesperson Program learner.

©2019 Real Estate Council of Ontario

V7.1

Module 18: Completing a Residential Agreement of Purchase and Sale, Countering an Offer, and Working with Competing Offers This module continues with drafting an offer and begins by completing an agreement of purchase and sale that includes conditions. The module then advances the offer process to situations where a buyer’s offer is not accepted by the seller, but rather the seller makes an offer back to the buyer. This situation is called a counter offer and sometimes referred to as a sign back. Many real estate negotiations will include one or more counter offers before an agreement is reached between the seller and buyer. The module will also identify the typical changes made during counter offer situations. In a seller’s market, the supply of available properties is less than the demand. Therefore, several buyers can be competing for the same property, which is referred to as a competing offer scenario. There are requirements under REBBA relating to these situations. To ensure ethical practices when dealing with competing offers, you will need to be familiar with and follow the requirements specified by the Code of Ethics. As with any negotiation, there can be risks associated with submitting or accepting an offer. Under typical market conditions, both sellers and buyers will include terms and conditions to help mitigate these risks. However, in a competing offer scenario, there can be additional risks when terms and conditions are not included in an attempt to make an offer more desirable. The module will also detail these risks, strategies for handling competing offers, and leading practices when working with sellers and buyers in a competing offer situation. By the end of the module, you will have a foundation for completing counter offers and competing offers. ©2019 Real Estate Council of Ontario

This module covers the following tasks and related information: • Complete an Agreement of Purchase and Sale with Conditions • Complete a Counter Offer • Work with Competing Offers This module also provides opportunities for you to review scenarios that highlight how to discuss and act accordingly when faced with the previously listed topics. To check your understanding of this module, you must complete all the activities in the online module. While navigating through the online module, click the Legislation button to view laws and regulations related to this module. While navigating through the online module, click the KMS button to access the Knowledge Management System or visit the Module Resources to find the list of all the KMS assets for this module. The contents of the thumbnail icon and References from the module are added to support your learning throughout this Accessible PDF.

©2019 Real Estate Council of Ontario

Menu: Completing a Residential Agreement of Purchase and Sale, Countering an Offer, and Working with Competing Offers Number of Lessons Lesson Number Lesson 1 Lesson 2 Lesson 3 Lesson 4

5 Lessons Lesson Name Complete an Agreement of Purchase and Sale with Conditions Complete a Counter Offer Work with Competing Offers Summary Practice Module Summary

©2019 Real Estate Council of Ontario

Lesson 1 | Page 1 of 39

Lesson 1: Complete an Agreement of Purchase and Sale with Conditions

This lesson covers drafting an offer with conditions using a scenario. You will gain practice using clauses and learn how to stack conditions.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 2 of 39

This lesson gives you practice working with a scenario to identify and draft clauses to include on an offer’s schedule. Upon completion of this lesson, you will be able to: • Identify the steps required to draft an offer that includes conditions • Draft an offer that includes conditions and other clauses • Consolidate or “stack” conditions to simplify the clause wording on an offer Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 3 of 39

Information to Identify in an Offer Plan Related to Conditions Recall the four-step offer plan you learned in a previous module. When you have an offer that includes conditions, you will need to identify the following additional information: • Summarize Offer Mathematics (Step 1 of the offer plan) To ensure that the balance due on completion is correctly calculated, the purchase price minus the deposit(s), minus any seller take-back mortgages, minus any mortgage assumptions will equal the balance due on closing. • Required Dates (Step 2 of the offer plan) To ensure dates align, you will need to identify key dates when drafting an offer. The offer plan should itemize these five dates in the following chronological order:

©2019 Real Estate Council of Ontario

• • • • •

Offer date Irrevocable Expiry of conditions – conditional date Requisition – title search date Completion or closing date

Note: The order of these dates does not follow the order on the agreement of purchase and sale. Using this chronological order will help you to determine when different activities must occur for the transaction to be successful. • Required Clauses (Step 3 of the offer plan) For Schedule A, which is part of every offer, you will need to itemize the required clauses for the offer. A clause identifying the balance due on completion must be included in every offer. Other clauses and conditions, such as obtaining financing or a property inspection, are also added to Schedule A. To organize the clauses, use these steps as a guideline: 1. List the conditions with short timeframes, for example A) financing, B) inspection, and C) insurance. These conditions can usually be fulfilled in a week. 2. For a condition with a longer period, such as D) the sale of a buyer’s property, the conditional period will be longer, for example 30 days. 3. Use one condition with the same timeframe for A, B, and C. 4. A separate condition should be used for D as the conditional period will be longer and the condition may include an escape clause. Using one date for conditions A, B, and C will simplify the process and allow you to keep better track of the dates. It will also be less cumbersome for the seller and buyer when understanding their responsibilities.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 4 of 39

Guidelines for Writing Multiple Clauses For some offers, you might need to include many clauses which can require several schedules. To help you reduce the wordiness and make the terms clear and easy to understand, follow these guidelines. The following five sections contain information on each guideline.

Review Clauses Be Precise Group Clauses

To assess the impact on pre-printed clauses and wording, carefully review the clauses you add to a schedule. Avoid vague wording and be as specific and precise as possible. Where possible, simplify by grouping similar requirements. For example, the buyer of a rental property might want to include a review or confirmation of the following items: • Tenant records • Rental amounts • Fire safety issues • Building code compliance You might group these items under one condition that states the property meets all these requirements.

Be Concise

Reduce wordiness and avoid vague clauses.

Redraft Offer

If necessary, redraft an offer to clarify clauses and present them in a logical sequence.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 5 of 39

Stacking Many salespersons find it efficient to consolidate, or “stack” conditions in offers. Stacking refers to a way of grouping and writing conditions that are required to be fulfilled by the same date for the same party. For example, you might stack financing, insurance, and buyer lawyer’s approval clauses that require the same 5 to 7 days for the buyer. When you include these conditions separately, they can clutter the offer making it overly long and more difficult to understand. When stacking these conditions, you use bullets to group the conditions into a block and remove wordiness to avoid repetitive language.

With stacking, the party responsible for completing the conditions is clear. There’s a single fulfillment or waiver date for multiple conditions. Stacking conditions avoids repetitive language for several different clauses. If a condition requires the use of an escape clause, then that condition should not be included as one of the stacked conditions as the escape clause would apply to all conditions in the stacked group. Any clauses such as a clause conditional on the

©2019 Real Estate Council of Ontario

sale of the buyer's property that includes an escape clause should be inserted in the agreement of purchase and sale as a standalone clause. Example Consider an offer that requires two conditions: a property inspection and the buyer arranging insurance. To include these two conditions, you could write two separate clauses as follows: This Offer is conditional upon the inspection of the subject property by a home inspector at the Buyer’s own expense, and the obtaining of a report satisfactory to the Buyer in the Buyer’s sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than _____ p.m. on the _____ day of _____________, 20_____, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. The Seller agrees to co-operate in providing access to the property for the purpose of this inspection. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein. From INSP 1 – Inspection of Property by a Home Inspector—General Inspection ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

This offer is conditional upon the buyer, at the buyer's expense arranging insurance for the property satisfactory to the Buyer in the Buyer's sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than ____p.m. on __ day, 20__, that this condition is fulfilled, this offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. The Seller agrees to cooperate in providing access to the property, if necessary, for any inspection of the property required for the fulfillment of this condition. This condition is included for the benefit of the Buyer and may be waived at the Buyer's sole option by notice in writing to the Seller as aforesaid within the time period stated herein. From INSUR—1 Condition-Arranging Insurance ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

As an example using stacking, you can combine the two clauses already discussed and revise them. This offer is conditional upon: • The inspection of the subject property by a home inspector at the Buyer’s own expense, and the obtaining of a report satisfactory to the Buyer in the Buyer’s sole and absolute discretion.

©2019 Real Estate Council of Ontario

• Arranging insurance satisfactory to the buyer, in the Buyer's sole and absolute discretion, at the buyer’s expense.

©2019 Real Estate Council of Ontario

Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than _____ p.m. on the _____ day of _____________, 20_____, that these conditions are fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. These conditions are included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein. Stacking clauses works in this scenario, as both conditions are for the benefit of the buyer, and both will be completed by the same date.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 6 of 39

When creating an offer plan, step two requires you to identify several key dates. These dates often create a deadline on which a certain action must be completed, or the requirement for that action waived. In chronological order, offer date is the first date for an action to be waived. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 1 | Page 7 of 39

When creating an offer plan, step two requires you to identify several key dates. These dates often create a deadline on which a certain action must be completed, or the requirement for that action waived. In chronological order, irrevocable date is the third date on which an action will be waived. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 8 of 39

When creating an offer plan, step two requires you to identify several key dates. These dates often create a deadline on which a certain action must be completed, or the requirement for that action waived. In chronological order, date of expiry of conditions is the second date on which an action will be waived. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 1 | Page 9 of 39

When creating an offer plan, step two requires you to identify several key dates. These dates often create a deadline on which a certain action must be completed, or the requirement for that action waived. In chronological order, requisition date is the fourth date on which an action will be completed. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 10 of 39

When creating an offer plan, step two requires you to identify several key dates. These dates often create a deadline on which a certain action must be completed, or the requirement for that action waived. In chronological order, completion date is the last date on which an action will be finalized. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 1 | Page 11 of 39

Following several leading practices will help you when you are adding multiple clauses to an agreement of purchase and sale. Identify which of the given statements are correct. There are five options. There are multiple correct answers. 1 2 3 4 5

Review all clauses that you plan to add to a schedule. Keep the wording of the clauses slightly vague to allow some open interpretation. Group similar clauses. Ensure your clauses are long and complex so the seller and buyer realize the value you bring when you interpret those clauses for them. If necessary, redraft the offer.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 12 of 39

Multiple Conditions You represent buyers who are looking for their dream home. The buyers want to be careful about this purchase and have a list of conditions, including a home inspection, financing, insurance, and lawyer’s review. You decide to consolidate, or stack the applicable conditions. What are the advantages of stacking multiple conditions? There are four options. There are multiple correct answers. 1 2 3 4

The offer is easy to read. The time required to fulfill the conditions will be reduced. There’s a single fulfillment or waiver date for multiple conditions. Saves space in the agreement of purchase and sale.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 13 of 39

Multiple Conditions Often, buyers want to be careful about a home purchase and have a list of conditions, including a home inspection, financing, insurance, a lawyer’s review, and more. In such cases, it often makes sense to consolidate or ‘stack’ the applicable conditions. What should you be aware of when stacking multiple conditions? There are four options. There are multiple correct answers. 1 2 3 4

Include all conditions that can be completed within the same timeframe. Waiving one condition in a stack results in all conditions being waived. Set the completion date to that of the condition with the shortest timeframe. Do not include a condition in a stacked clause that requires an escape clause because the escape clause will apply to the entire stack.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 14 of 39

Ella Jane Billingsworth wants you to draft an offer for 95 Wentworth Drive owned by Kristen Ellen Chartwell. Offer Details The property, 95 Wentworth Drive is located on the east side of Wentworth Drive, has a frontage of 52.37 feet and a depth of 138.45 feet and is legally described as Lot 73, Registered Plan 92M-4296, City of Anycity, Regional Municipality of Anyregion. The offered price is $468,900 with a deposit of $15,000 provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid upon completion of the transaction. In addition to the deposit, Ella expects to have up to $110,000 available to put towards a down payment.

©2019 Real Estate Council of Ontario

Ella requires a $350,000 mortgage. Recently, when talking with her bank, she learned that she qualified for a mortgage of that size at no more than 3.5%, with a 5-year term and amortization of 25 years. The monthly payment would amount to $1,747.45. However, she wants to make her offer conditional on obtaining such a mortgage. Ella is requesting a property inspection by a qualified home inspector. She also wants to make the offer conditional upon being able to obtain insurance on the property. Ella wants the offer to be conditional on the sale of her home at 32 Cedar Crescent in the City of Anycity and would like 60 days from acceptance of the offer to sell her home, as this is expected to provide sufficient cash for her down payment. Ella understands she may have to waive the condition on the sale of her home if a competing offer is submitted pursuant to an escape clause. The other conditions for arranging a mortgage, obtaining a home inspection, and arranging insurance are to be fulfilled within seven days from the date the offer is accepted. The chattels included in the offer are the Cooksmart stove, Model 3288, the SuperiorChef refrigerator, Model 7465, and the KitchenChef microwave, Model 2000. All existing light fixtures will be included except for the dining room chandelier. The hot water tank is rented from Anycity Energy at $38.25 (plus HST) per month, and is assumable. The offer is drafted and signed on May 15, 20xx, which is accepted at 9:00 p.m. on the same day. The irrevocable time and date is 9:00 p.m. on May 17, 20xx. The completion date is 120 days from the offer date, on September 12. The title search date is 30 days prior to the completion date – August 13. The completion and title search dates are both business days. The HST is deemed to be included in the purchase price and the present use is single family residential. Olivia Johansson is the listing salesperson with ABC Real Estate Inc. and is representing the seller Kristen Ellen Chartwell. You are a salesperson with XYZ Realty Ltd. and are representing the buyer. Notices can be delivered to the brokerages. The listing brokerage’s fax number is 555-433-9976 and the email is [email protected]. The cooperating brokerage’s fax number is 555-233-2989 and the email is [email protected].

©2019 Real Estate Council of Ontario

Lesson 1 | Page 15 of 39

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. On what date does the last condition expire? There are four options. There is only one correct answer. 1 2 3 4

May 17, 20xx July 14, 20xx July 16, 20xx August 13, 20xx

©2019 Real Estate Council of Ontario

Lesson 1 | Page 16 of 39

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. The scenario states several key dates. September 12 is the completion date. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 1 | Page 17 of 39

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. The scenario states several key dates. The date for the expiry date of the condition on sale of buyer's property is July 14. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 18 of 39

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. The scenario states several key dates. May 15 is the requisition date. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 1 | Page 19 of 39

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. The scenario states several key dates. August 13 is the requisition date. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 20 of 39

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. The scenario states several key dates. Expiry date for arranging a new first mortgage, obtaining a home inspection, and arranging insurance conditions is May 17. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 1 | Page 21 of 39

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. The scenario states several key dates. May 22 is the irrevocable date. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 22 of 39

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. You should add inspection of property by home inspector to Schedule A of the buyer’s offer. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 1 | Page 23 of 39

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. You should not add mortgage condition to Schedule A of the buyer’s offer. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 24 of 39

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. You should not add warranty to Schedule A of the buyer’s offer. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 1 | Page 25 of 39

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. You should add insurance condition to Schedule A of the buyer’s offer. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 26 of 39

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. You should add acknowledgement to Schedule A of the buyer’s offer. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 1 | Page 27 of 39

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. You should not add condition on Environmental Site Assessment to Schedule A of the buyer’s offer. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 28 of 39

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. You should add condition of sale of buyers’ property to Schedule A of the buyer’s offer. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 29 of 39

Refer to the scenario for the 95 Wentworth property used for filling the offer plan. Ella Jane Billingsworth is the buyer. For the offer Ella Jane Billingsworth wishes to make on the property at 95 Wentworth, the following information is entered in the initial section of the offer plan and the section 1. Under the initial section: Offer Plan – Residential Real Property – Single Family: • Address is 95 Wentworth Drive, Any City, Anyregion. The address of the property is required. • Buyer is Ella Jane Billingsworth. The name of the buyer is required. • Seller is Kristen Ellen Chartwell. The name of the seller is required. Under the section 1: Summarize offer mathematics: • Offer price is $468,900. The offer price is required. • Deposit is $15,000. The deposit amount is required. • To be paid upon acceptance. Identify whether the deposit is to be paid herewith, upon acceptance, or as otherwise described. • Additional deposit(s) is not applicable as there is only one deposit. • Details: payable to the listing brokerage, ABC Real Estate Inc. Identify payment details for the deposit. • Balance due is $453,900 since offer price is $468,900 and total deposit is $15,000. Insert all relevant amounts into the SAD formula to identify the balance due.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 30 of 39

Refer to the scenario for the 95 Wentworth property used for filling the offer plan. Ella Jane Billingsworth is the buyer. For the offer Ella Jane Billingsworth wishes to make on the property at 95 Wentworth, the following information is entered in the section 2 of the offer plan. Under the section 2: Identify dates: • Offer date is May 15, 20xx. • Irrevocable date is 9:00 pm on May 17, 20xx. • Requisition date is August 13, 20xx. • Completion date is September 12, 20xx.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 31 of 39

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. You want to identify the conditions and warranties to enter into the Schedule A. Identify whether each of the following items is a condition or warranty. There are five options. There are multiple correct answers. 1 2 3 4 5

Requirement for arranging a new first mortgage. Requirement for chattels and fixtures to be in good working order is a condition. Property insurance requirement is a warranty. Sale of buyer’s property with escape clause is a right. Property inspection by qualified home inspector is a condition.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 32 of 39

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. The purchase is dependent upon the sale of the buyer’s current property. Her offer contains an escape clause. Which combination of clauses would you use to fulfil these requirements? There are four options. There is only one correct answer.

1

2

3 4

Conditional upon the sale of the buyer’s property and an escape clause that requires the removal of one specific condition. Conditional upon the buyer receiving notification of the removal of all conditions in an existing agreement of purchase and sale for the buyer’s property and an escape clause allowing the seller to continue to offer the property for sale until the buyer’s property sells, or the buyer waives that condition of sale. Conditional upon the sale of the buyer’s property and an escape clause that requires removal of all conditions, not just the sale of the buyer’s property. Conditional upon the seller obtaining a release from a prior agreement of purchase and sale and an escape clause that allows the buyer to continue to look for other properties until the buyer’s property sells.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 33 of 39

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. For the offer Ella Jane Billingsworth wishes to make on the property at 95 Wentworth, the following information is entered in the section 3 of the offer plan. Under the section 3: List required information to be included on a schedule: • A. Balance due clause: amount due on closing is $453,900. Note: Of which $350,000 is from the buyer arranging the new mortgage, and the remaining $103,900 are funds the buyer may have saved and also from the sale of their current property. • B. Conditions: 1. New first mortgage: OREA MORT–2 2. Property inspection by qualified home inspector: OREA INSP–1 3. Property insurance: OREA INSUR–1 4. Sale of buyer’s property: OREA SBP/SA–1 • Time period for condition: 1. Due 7 days. This is the time period for condition 1. 2. Due 7 days. This is the time period for condition 2. 3. Due 7 days. This is the time period for condition 3. 4. Due 60 days. This is the time period for condition 4. • C. Any additional clause: 1. Escape clause: SBP/SA–4 2. Warranty on chattels and fixtures in good working order: OREA CHATT–2 3. Seller assurance regarding garage door repair

©2019 Real Estate Council of Ontario

Lesson 1 | Page 34 of 39

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. For the offer Ella Jane Billingsworth wishes to make on the property at 95 Wentworth, the following information is entered in the section 4 of the offer plan. Under the section 4: Identify any additional information required for the offer: • Chattels: Cooksmart stove, Model 3288; SuperiorChef refrigerator, Model 7465; and KitchenChef microwave, Model 2000. This is the information about chattels included. • Fixtures: All existing light fixtures will be included with the exclusion of the dining room chandelier. This is the information about fixtures excluded. • Rental items: Hot water heater rented from Anycity Energy at $38.25 (plus HST) per month, and is assumable. • Other: The HST is deemed to be included in the purchase price and the present use is single family residential. This is other pertinent information.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 35 of 39

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. The purchase is dependent upon the sale of the buyer’s current property. It contains an escape clause to permit the seller to continue to offer the property for sale. Make an attempt to draft the condition contingent upon the sale of the buyer's property, with reference to standard clauses and an appropriate escape clause. WHILE NAVIGATING THROUGH THE ONLINE MODULE, CLICK THE EXPERT RESPONSE BUTTON TO VIEW THEIR ANSWER.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 36 of 39

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. The purchase is dependent upon the sale of her current property. It contains an escape clause to permit the seller to continue to offer the property for sale. Assuming the seller accepts Ella's offer that is conditional on the sale of Ella's home with an escape clause, what is a possible outcome if the seller receives a second offer? There are four options. There is only one correct answer. 1 2 3 4

The seller can accept both offers and see which buyer fulfils their conditions first. The seller can accept the other offer and use the escape clause to inform Ella that her offer is no longer valid. Ella can counter the other offer by bidding up the purchase price of the property. Ella has a pre-determined amount of time to either successfully sell her home, waive the condition on the sale of her home or sign a mutual release.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 37 of 39

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. You have decided to stack some of the conditions. Which of the given conditions would you stack? There are six options. There are multiple correct answers. 1 2 3 4 5 6

Right to visit property once before closing Property insurance Sale of buyer’s property with escape clause New first mortgage Property inspection by qualified home inspector Warranty on chattels and fixtures in good working order

©2019 Real Estate Council of Ontario

Lesson 1 | Page 38 of 39

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. The purchase is dependent upon an inspection, and on the buyer, Ella, arranging a new mortgage and insurance on the property. Write a condition that comprises the stacked clauses for the mortgage, the home inspection, and the proof of insurance. WHILE NAVIGATING THROUGH THE ONLINE MODULE, CLICK THE EXPERT RESPONSE BUTTON TO VIEW THEIR ANSWER.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 39 of 39

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were discussed in this lesson.

Identify the steps required to draft an offer that includes conditions

To ensure dates align, you will need to identify key dates when drafting an offer. The offer plan should itemize these five dates in the following chronological order: Offer date, Irrevocable, Expiry of conditions – conditional date, Requisition – title search date, and Completion or closing date. For Schedule A, which is part of every offer, you will need to itemize the required clauses for the offer. A clause identifying the balance due on completion must be included in every offer. Other clauses and conditions, such as obtaining financing or a property inspection, are also added to Schedule A. Stacking refers to a way of grouping and writing conditions that are required to be fulfilled Stack conditions by the same date. With stacking, the party responsible for completing the conditions is to simplify the clause wording on clear. There’s a single fulfillment or waiver date for multiple conditions. Stacking conditions avoids repetitive language for several different clauses.

an offer

©2019 Real Estate Council of Ontario

Lesson 2 | Page 1 of 38

Lesson 2: Complete a Counter Offer

This lesson describes the requirements under REBBA when countering an offer rather than accepting an offer. The lesson also explains options when an offer is to be countered, identifies the typical changes that can be made, and includes drafting an offer and a counter offer.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 2 of 38

Obtaining acceptance of an offer can be complex and lengthy as sellers and buyers negotiate the terms and conditions of the agreement. Many real estate transactions will include one or more offers being made by the parties. For example, if the buyer’s offer is not acceptable, the seller can make changes to the offer and submit the new offer back to the buyer. This transaction is known as a counter offer – also referred to as a sign back – and once a seller amends the buyer’s offer, the buyer is no longer obligated to their offer. The buyer may then choose to accept the seller’s offer, reject the seller’s offer, or may further the negotiations by submitting another offer back to the seller. Offers can be negotiated between the parties many times before reaching a final agreement. REBBA has specific requirements when an offer is being countered rather than accepted. These requirements relate to retaining copies of offers and ensuring the offer is legible. As a salesperson you will need to understand how a counter offer is completed to ensure the necessary changes are made to achieve a fully accepted offer that complies with REBBA.

©2019 Real Estate Council of Ontario

Upon completion of this lesson, you will be able to: • Identify the requirements under REBBA when an offer will be countered rather than accepted • Identify the steps when an offer will be countered rather than accepted • Describe what changes are typically made when countering an offer • Complete an agreement of purchase and sale that includes a counter offer Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 3 of 38

Requirements Under REBBA Related to Counter Offers: Retaining Copies of Offers For a buyer's offer to purchase a property to be valid, it must be in writing and signed by all buyers who are party to the agreement of purchase and sale. A verbal indication from a buyer that they are prepared to submit an offer on a property is not considered a valid offer and this should not be portrayed as such by a salesperson. REBBA requires brokerages to retain documents and records relating to a trade in real estate, which would include any financial records and supporting documentation for at least six years from receipt by the brokerage. This onus of responsibility falls to all brokerages involved in the trade. A salesperson should ensure that all agreements of purchase and sale and other pertinent documents associated with the trade are submitted to their brokerage at the earliest opportunity.

©2019 Real Estate Council of Ontario

When an offer has been presented to a seller, the seller has three options — accept, reject, or counter the offer back to the buyer. When an offer is not accepted or countered back to the buyer, the seller is at liberty to reject the offer. The listing brokerage is required to retain all the documents pertaining to the rejected agreement of purchase and sale and all related documents for a period of at least one year after the brokerage received the written offer. For unsuccessful offers, the listing brokerage may retain a summary document instead of retaining the offer in its entirety. In addition, under REBBA, the listing brokerage is also required to retain all agreements of purchase and sale and related documents that were presented but not acceptable to the seller or were unsuccessful for any reason. When a seller counters an offer back to the buyer, otherwise known as a sign back or the seller's offer to the buyer, a copy of the buyer's offer, as submitted, must be retained by the listing brokerage for a period of at least one year from when the offer was received by the brokerage. Again a summary document may be retained in lieu of retaining the offer in its entirety. For every written offer that is received on behalf of a seller, whether it is a buyer's original offer or an agreement of purchase and sale with changes made during negotiations, the offer is considered a separate offer and the listing brokerage is required to retain a copy of the agreement of purchase and sale or the summary document, and all related documents and records. Once an agreement of purchase and sale has been agreed upon and accepted by all parties, the offer and related documents are retained in its entirety for at least six years by the all brokerages involved in the transaction.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 4 of 38

©2019 Real Estate Council of Ontario

Sections 35.1(2) and 19.1 of the Act cover changes related to records that must be kept for real estate transactions. Which of the following statements related to records for offers are true? There are four options. There are multiple correct answers. 1 2 3

A brokerage can choose to retain a summary document or the original offer of a successful transaction. A successful offer must be kept in its entirety (the agreement of purchase and sale) for six years. A brokerage acting on behalf of a seller shall retain copies of all written offers not accepted or a summary document. ©2019 Real Estate Council of Ontario

4

A brokerage can create its own summary document or use the Offer Summary Document, OREA Form 801 at the time an offer is drafted for a buyer.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 5 of 38

Requirements Under REBBA Related to Counter Offers: Summary Document A summary document may be used rather than the seller’s brokerage retaining the offer in its entirety. You can use a summary document under the following conditions: • The seller’s brokerage receives the offer on behalf of the seller • The offer is made through a brokerage on behalf of the buyer • The offer did not result in a transaction, that is, the offer was not accepted • The summary contains all the required information ©2019 Real Estate Council of Ontario

When using a summary document in lieu of retaining the offer, REBBA requires specific information to be included in the document: 1. Buyer’s name and signature 2. Seller’s name and contact information 3. Name of the buyer’s brokerage and their representative 4. Name of the seller’s brokerage and their representative 5. Address, legal description, or other identifier of the property 6. Date and time the offer was made 7. Date and time the offer was received by the brokerage and how the offer was received, such as in person or by fax 8. Date of presentation, if the brokerage presented the offer to the seller 9. Date and time, if any, until which the offer was irrevocable Although a summary document can be used rather than retaining an unaccepted offer in its entirety, it is important to understand that the summary document cannot be used as a substitute for the Agreement of Purchase and Sale form during negotiations.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 6 of 38

A salesperson’s listing has just sold as a result of multiple offers. The listing brokerage is required to keep records of all the offers received. Which of the given statements related to the retention of offers are true? There are six options. There are multiple correct answers. 1

The listing brokerage can retain a copy of written offers that were not accepted or a summary document for each offer that was received but not accepted.

2

The listing salesperson can retain a summary document because they are working for a brokerage that received offers on behalf of the seller.

3

The salesperson must retain a summary document for all offers that failed. The listing brokerage must keep either the summary document or the offers that are not accepted for one year. A salesperson working for a buyer in the transaction for the property can create a summary document as a record. The brokerage must use the appropriate OREA form for the summary document.

4 5 6

©2019 Real Estate Council of Ontario

Lesson 2 | Page 7 of 38

Requirements Under REBBA Related to Counter Offers: Legibility Requirements for Offers An agreement of purchase and sale being used during negotiations must remain legible at all times. In instances where an offer is being negotiated, the same agreement of purchase and sale can be used with changes made multiple times before it is accepted. The delivery of an offer can occur in various ways, personally delivered or electronically by email or facsimile. Over time, an offer can become difficult to read, and when sent by facsimile, the offer can become illegible after only a few transmissions. The Code of Ethics requires all offers to be legible. This is to ensure the terms agreed to by the parties are clearly displayed and readable. Example: A buyer receives a counter offer from a seller which is becoming difficult to read due to the number of times the offer is revised by the parties. The buyer is not willing to accept the seller’s offer and would like to submit an offer back to the seller for their consideration. The salesperson, rather than using the same agreement of purchase and sale to counter the seller’s offer, drafts a new offer based on the buyer’s new terms. The salesperson has the buyer sign the new offer and presents this to the seller. The salesperson also keeps the original offer with all the changes so it can be referred to if questions arise about the previous negotiations.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 8 of 38

You’re involved in a counter offer situation as the salesperson for a seller. The buyer has countered the offer twice but it has not been accepted by the seller. However, the seller would like to keep negotiating to reach an agreement. The offer document contains numerous changes and is getting hard to read. You can create a new offer for the next counter offer to avoid legibility issues. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 2 | Page 9 of 38

You’re involved in a counter offer situation as the salesperson for a seller. The buyer has countered the offer twice but it has not been accepted by the seller. However, the seller would like to keep negotiating to reach an agreement. The offer document contains numerous changes and is getting hard to read. You should not create a summary document to avoid legibility issues. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 10 of 38

You’re involved in a counter offer situation as the salesperson for a seller. The buyer has countered the offer twice but it has not been accepted by the seller. However, the seller would like to keep negotiating to reach an agreement. The offer document contains numerous changes and is getting hard to read. You can continue to amend the original offer to avoid legibility issues. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 2 | Page 11 of 38

You’re involved in a counter offer situation as the salesperson for a seller. The buyer has countered the offer twice but it has not been accepted by the seller. However, the seller would like to keep negotiating to reach an agreement. The offer document contains numerous changes and is getting hard to read. You should make sure each amendment to the offer is written and legible to avoid legibility issues. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 12 of 38

You’re involved in a counter offer situation as the salesperson for a seller. The buyer has countered the offer twice but it has not been accepted by the seller. However, the seller would like to keep negotiating to reach an agreement. The offer document contains numerous changes and is getting hard to read. You should copy the counter offer so you have a legible record then amend it with the next round of requested changes to avoid legibility issues. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 13 of 38

Countering an Offer Acceptance of an offer does not necessarily occur when a seller receives a buyer’s initial offer. The offer may contain terms that are not acceptable to the seller, and rather than reject the offer, the seller can make an offer back to the buyer. This situation is referred to as a counter offer, where the seller and buyer roles are reversed, and the seller is now the offeror. Counter offers can be made by either party. Typically, a buyer places an offer and if the original offer is not acceptable, the seller can make a counter offer with changes. However, if the seller’s offer is not acceptable, the buyer can make a counter offer back again to the seller. Negotiating an offer requires skill and a clear understanding of the party’s goals for acceptance. Perhaps the price is not acceptable, the completion date is too soon, the seller does not agree to leave the chattels being asked for, or a condition or other term of the offer is not agreed to. These terms can be changed in a counter offer. However, as a salesperson, you should ensure the seller or the buyer fully understands that any change they make to the offer will release the other party from their obligations to the offer. Once an offer is changed, the offer cannot be accepted by that party. To counter an offer, you have three options: 1. Amend the original offer: This is done by inserting the required changes on the agreement of purchase and sale. This would include deleting any term not acceptable and inserting any additional term. To confirm the party agrees to and understands the change, the party is asked to place their initials at each change. This method is the most common. 2. Draft a new offer: A new offer can be drafted when the offer requires significant changes and inserting these is difficult to complete while still ensuring the offer is legible. Written changes can become confusing when multiple counter offers are being made. 3. Prepare a counter offer form: A counter offer form can be used as an alternative to amending the original offer. This would include itemizing each change in detail the seller wishes to make. Rather than the seller signing the agreement of purchase and sale, the seller signs the counter offer form. If the buyer agrees to these terms, the buyer signs the counter offer form to indicate acceptance of the seller’s offer. As amending the original offer is the most common method of countering an offer, this module will explain the steps in detail. The other methods will not be detailed. ©2019 Real Estate Council of Ontario

Lesson 2 | Page 14 of 38

You are working for the sellers of a property. The sellers receive an offer from a buyer, which doesn’t meet their needs but they would like to make a counter offer. What options do you have for creating a counter offer? Describe each option. WHILE NAVIGATING THROUGH THE ONLINE MODULE, CLICK THE EXPERT RESPONSE BUTTON TO VIEW THEIR ANSWER.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 15 of 38

Amending the Original Offer Countering an offer by amending the original offer includes ruling out any term that is not acceptable and inserting any term as part of the counter offer. The counter offer can also include insertions. All changes would be initialled by the party to indicate agreement with the amended term. Prior to any changes to a buyer’s offer, the seller’s brokerage should ensure a copy of the unsuccessful offer, as received from the buyer, is retained.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 16 of 38

To create a counter offer for a seller, you will need to complete specific steps to amend the offer. You will need to make a copy of the original offer in Step 1. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 2 | Page 17 of 38

To create a counter offer for a seller, you will need to complete specific steps to amend the offer. You will need to change the irrevocable in Step 2. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 18 of 38

To create a counter offer for a seller, you will need to complete specific steps to amend the offer. You will need to amend the offer by crossing out the original text and inserting the change in Step 3. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 2 | Page 19 of 38

To create a counter offer for a seller, you will need to complete specific steps to amend the offer. You will need to make the initial changes in Step 4. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 20 of 38

To create a counter offer for a seller, you will need to complete specific steps to amend the offer. You will need to complete confirmation of acceptance and acknowledgement in Step 5. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 2 | Page 21 of 38

To create a counter offer for a seller, you will need to complete specific steps to amend the offer. You will need to present the counter offer to the buyer in Step 6. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 22 of 38

Typical Changes in a Counter Offer Although any term of an agreement of purchase can be changed by a seller or a buyer when completing a counter offer, there are some common terms which are the crux of the negotiations. These include the purchase price, completion date, chattels included, and fixtures excluded from the sale of the property. Other typical changes include the amount of deposit or modification to conditions or other terms included on Schedule A, as you learned in an earlier module. The following five sections contain information on each type of change made in a counter offer.

Purchase Price

The purchase price is the most commonly negotiated term. The seller might offer a price somewhere between the buyer’s offer and the original asking price. Or, the seller might counter the offer with the original asking price, which indicates the seller is not willing to negotiate on this term. On a counter offer, the buyer can choose to accept the seller's proposal or make another counter offer back to the seller.

Completion Date

Conditions or Other Terms in the Offer

The completion date can financially impact a seller or a buyer, and therefore, this term might become part of the negotiations. For a seller, they may need more time to arrange moving, or they have a firm date for occupancy of their new home. A completion date that is too early could cause the seller expenses to store furniture and find interim accommodations. A completion date too late could require the seller to obtain financing to purchase the new property while waiting for the transaction to be completed. The seller can make a counter offer that modifies or rejects one or more conditions set by the buyer on Schedule A of the agreement. A seller may also want to insert a condition or other term on their behalf. For example, a seller may want to add a clause identifying there is no warranty on any chattels included in the purchase.

©2019 Real Estate Council of Ontario

When an offer contains a condition, such as a home inspection or approval of the buyer’s financing, the wording of the condition should be carefully reviewed. In some instances, the buyer might ask for too much time to complete their due diligence. A counter offer would shorten the number of days allowing for the condition to be fulfilled.

Chattels Included and Fixtures Excluded

One condition which is less appealing to a seller, is the sale of the buyer’s home. In a fastpaced market, sellers are reluctant to accept offers with this condition as it can deter others from viewing the property. In a slow real estate market this condition is more acceptable to a seller as they can continue to offer the property for sale and provide notice to the buyer if they receive another acceptable offer. When viewing a property, a buyer might show interest in retaining some of the personal items belonging to the seller. A discussion of the legal requirements regarding chattels and fixtures should be held with all sellers and buyers. When working with buyers, ensure they understand the seller is under no obligation to leave any chattel. Chattels can ultimately interfere with the negotiations between the seller and the buyer. If the buyer is aware of the seller’s obligations, misunderstandings over what will remain and what will be removed can be reduced. To avoid fixture negotiation, it is best to advise sellers to remove and replace any fixtures that the seller wishes to take with them, prior to showing their property to potential buyers. For example, a dining room chandelier is considered a fixture which would remain with the property but a seller wishes to keep it. The seller could be advised to replace the chandelier before putting the property on the market.

Deposit

The amount of the deposit is an indication of the buyer acting in good faith. A deposit that is lower than typical offers in the trading area may give the seller concerns regarding how serious the buyer is about purchasing the property. If the deposit is too low, a seller might counter with an increase in the amount, when the deposit will be made, and/or add a supplemental deposit request as a clause to the schedule. Or the seller might be wary of the buyer’s intent and consider other offers. A deposit made with a certified cheque submitted with the offer can also enhance a buyer’s offer.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 23 of 38

A couple has listed their home for sale at $495,000. They are relocating and need some time to find a new place to buy, so they have set a closing date of September 30. They are planning to take the oriental rug and crystal chandelier in the dining room with them. A buyer has made an offer of $440,000 with a $5,000 deposit payable on acceptance of the offer. The buyer wants to take possession as soon as possible so sets the completion date for June 1. The buyer’s offer is conditional upon arranging a first mortgage. The offer also includes a condition for a home inspection. The sellers have decided to counter this offer. Which of the following items are the sellers likely to change on the counter offer? There are seven options. There are multiple correct answers. 1 2 3 4 5 6 7

$440,000 purchase price $5,000 deposit Fixtures Excluded: [blank] Chattels Included: [blank] Home inspection condition Closing date Financing condition for approval of first mortgage

©2019 Real Estate Council of Ontario

Lesson 2 | Page 24 of 38

Changing the Balance Due on Closing in a Counter Offer When a counter offer contains a change to the purchase price and/or deposit, that change impacts the balance due on closing. Depending on the wording of the clause on Schedule A under the Buyer agrees to pay the balance statement, you will need to amend the amount. In an earlier module, you learned how to calculate the balance due on closing. In a prior module, you learned that the formula to calculate the balance due is: Purchase price less: • S (Seller take back mortgage) • A (Assumed mortgage) • D (Deposit(s))

©2019 Real Estate Council of Ontario

Example 1: A buyer is offering $300,000 for a property and will provide a $10,000 deposit upon acceptance of the offer. The buyer is arranging a new mortgage. For this offer, the buyer’s balance due is $290,000 as calculated: Purchase price: 300,000 - S: 0 - A: 0 - D: - 10,000 290,000 The seller makes a counter offer of $315,000 with no other changes. For this offer, the buyer’s balance due is $305,000 as calculated: Purchase price: 315,000 0 - S: - A: - D: - 10,000 305,000 Example 2: A buyer is offering $350,000 for a property and will provide a $20,000 deposit upon acceptance of the offer. The buyer will assume the seller’s existing first mortgage of $210,000 and the seller will take back a mortgage of $50,000. For this offer, the buyer’s balance due is $70,000 as calculated: Purchase price: 350,000 - S: 50,000 - A: 210,000 - D: - 20,000 70,000 On the counter offer from the seller, the purchase price is increased by $25,000 and the deposit is increased by $5,000.

©2019 Real Estate Council of Ontario

For this counter offer, the buyer’s balance due becomes $90,000 as calculated: Purchase price: 375,000 - S: 50,000 - A: 210,000 - D: - 25,000 90,000

©2019 Real Estate Council of Ontario

Lesson 2 | Page 25 of 38

From Clause DEP/PAY-1 and Form 100: Agreement of Purchase and Sale, Schedule A ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

Changing the Balance Due on Closing in a Counter Offer The example uses OREA Form 100: Agreement of Purchase and Sale, Schedule A to show changes required in the balance due on closing clause for a counter offer. You will notice the initials of the seller and buyer positioned against the changes made.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 26 of 38

A buyer has offered to buy a property from a couple. Her offer is for $186,000 with a $10,000 deposit upon acceptance of the offer. She will arrange a new first mortgage for approximately $130,000. She will provide an additional deposit of $5,000 once her financing condition is removed. The couple makes a counter offer that increases the purchase price by $2,500. They also change the additional deposit from $5,000 to $10,000. Assuming the buyer accepts the couple’s counter offer, what is the balance due on completion of the transaction for this scenario? There are three options. There is only one correct answer. 1 2 3

$168500 $168600 $168400

©2019 Real Estate Council of Ontario

Lesson 2 | Page 27 of 38

Changing the Irrevocable in a Counter Offer In a counter offer, you will also need to change the irrevocable. The irrevocable specifies who the offer is coming from as well as the deadline for making the decision about the offer. Typically, the buyer initiates the offer. On a counter offer, the buyer is changed to seller by placing a line through the word buyer and inserting the word seller. If the party making the counter offer is changing the time or date, the change is made in the same way by placing a line through the time and/or date and inserting the new deadline. The party making the counter offer must initial each change to identify consent to the change.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 28 of 38

From Form 100: Agreement of Purchase and Sale, Clause 1: Irrevocability ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

Changing the Irrevocable in a Counter Offer The example shows changes required in the irrevocability clause for a counter offer. It is critically important to note any changes to this, as the timeline for responding to the counter offer has changed and any response to the counter offer must be taken by the time indicated.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 29 of 38

Example: Counter Offer Simon T. Chan and his wife Valerie have made an offer to purchase a property from the Sandersons for $390,000. The Chans’ offer includes a deposit of $20,000 upon acceptance of the offer. The Chans would like the oriental rug in the dining room and the bar stools in the kitchen included. The offer, dated at Anycity on July 10, 2022 will be irrevocable for two days and expires at 6 p.m. on that day. The offer has a closing date of September 6, 2022. Counter Offer The sellers, Eric P. Sanderson and his wife Lauren R. Sanderson, counter the Chans’ offer on July 12, for $415,000. They amend the closing date to October 1, 2022 and extend the irrevocable period until 11:59 on July 13. The Sandersons remove the chattels included in the buyer’s offer when countering the offer. The following five sections contain information on how to amend each section of the offer for the Sandersons’ counter offer.

Purchase Price

The purchase price for the counter offer is amended from $390,000 to $415,000. The sellers, Eric and Lauren Sanderson, both initial the change. From Form 100: Agreement of Purchase and Sale, Purchase Price ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Irrevocability The irrevocable is changed from Buyer to Seller, the date changes from July 12 to July 13, 2022, and the time changes from 6 p.m. to 11:59 p.m. The sellers initial all three changes. From Form 100: Agreement of Purchase and Sale, Clause 1: Irrevocability ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

Completion Date

The completion is extended to October 1, 2022, and both sellers initial the change. From Form 100: Agreement of Purchase and Sale, Clause 2: Completion Date ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Chattels Included The oriental rug and the bar stools are deleted and the sellers place their initials beside the change. From Form 100: Agreement of Purchase and Sale, Clause 4: Chattels Included ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

Balance Due on Closing The balance due on closing increases to $395,000 based on the increase to the purchase price. Both sellers initial each change, words and numbers. From Form 100: Agreement of Purchase and Sale, Schedule A ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 30 of 38

Accepting a Counter Offer To accept a counter offer from the seller, the buyer must do the following: • Initial all changes made by the seller • Complete and sign the Confirmation of Acceptance on the agreement of purchase and sale • Complete and sign the Acknowledgement portion of the agreement of purchase and sale As the salesperson for the buyer, when accepting the offer, you are required to complete the following: • Provide a copy of the accepted offer to each buyer • Sign the Remuneration or Commission Trust Agreement on the agreement of purchase and sale and obtain the listing brokerage’s signature when providing documents to the listing salesperson • Provide copies of the accepted offer to the listing salesperson • Retain a copy of the accepted offer for the brokerage’s records As the listing salesperson, provide a copy of the accepted offer to each seller and obtain their information and signature in the Acknowledgement portion. A copy of the accepted offer is also retained for the brokerage’s records. ©2019 Real Estate Council of Ontario

Lesson 2 | Page 31 of 38

A buyer has made an offer to purchase a home, which the sellers countered. The buyer has decided to accept their counter offer. The buyer works with a salesperson from a cooperating brokerage. The sellers work with the listing salesperson. Identify the correct statements about the steps the buyer and his salesperson take to accept the counter offer and complete the transaction. There are four options. There are multiple correct answers. 1 2 3 4

The buyer accepts the counter offer and initials all changes, and dates and signs the Acknowledgement on the agreement. The salesperson, after signing the Confirmation of Acceptance on the agreement, completes and signs the Acknowledgement portion of the agreement providing information about his lawyer. The buyer’s salesperson signs the Confirmation of Acceptance after signing the Acknowledgement portion of the agreement. The buyer’s salesperson after signing the Confirmation of Acceptance, distributes copies of the agreement to the buyer.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 32 of 38

Example: Counter Offer Accepted by the Buyer The Chans have met with their salesperson, Ed Morley, to review the Sandersons’ counter offer. They decide to accept the counter offer and Simon Chan signs the Confirmation of Acceptance at 5:00 p.m. on July 13, 2022. This example shows the requirements of the buyers when accepting the offer. The following seven sections contain information on each requirement.

Purchase Price

From Form 100: Agreement of Purchase and Sale, Purchase Price ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

Simon and Valerie Chan, initial the changes to the purchase price on the counter offer. This indicates their acceptance of the terms.

©2019 Real Estate Council of Ontario

Irrevocability The Chans initial the three changes the sellers made to the irrevocable. From Form 100: Agreement of Purchase and Sale, Clause 1: Irrevocability ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

Completion Date

The Chans initial the revised completion date. From Form 100: Agreement of Purchase and Sale, Clause 2: Completion Date ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

Chattels Included The Chans agree to the removal of the chattels included by placing their initials where these were deleted. From Form 100: Agreement of Purchase and Sale, Clause 4: Chattels Included ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Balance Due on Closing The Chans initial the change to the balance due on closing on Schedule A of the offer.

From Form 100: Agreement of Purchase and Sale, Schedule A ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

Confirmation of Acceptance Simon Chan dates and signs the Confirmation of Acceptance. From Form 100: Agreement of Purchase and Sale, Acknowledgement ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Acknowledgement

Simon and Valerie complete the Acknowledgement portion of the offer.

From Form 100: Agreement of Purchase and Sale, Acknowledgement ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 33 of 38

Buyers, a couple, are offering $420,000 for a property and will provide a $30,000 deposit upon acceptance of the offer. They will assume the existing first mortgage with an approximate balance owing today of $300,000. The couple has the necessary funds required to complete the transaction. The counter offer from the sellers increases the purchase price by $30,000. The sellers would like a month more for the closing to find another place to live. The irrevocable period is sufficient for the sellers counter offer so the time and date remain the same. They are satisfied with the conditions in the offer. You should change the irrevocable time and date on the counter offer. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 34 of 38

Buyers, a couple, are offering $420,000 for a property and will provide a $30,000 deposit upon acceptance of the offer. They will assume the existing first mortgage with an approximate balance owing today of $300,000. The couple has the necessary funds required to complete the transaction. The counter offer from the sellers increases the purchase price by $30,000. The sellers would like a month more for the closing to find another place to live. The irrevocable period is sufficient for the sellers counter offer so the time and date remain the same. They are satisfied with the conditions in the offer. You should change the balance due on closing on the counter offer. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 35 of 38

Buyers, a couple, are offering $420,000 for a property and will provide a $30,000 deposit upon acceptance of the offer. They will assume the existing first mortgage with an approximate balance owing today of $300,000. The couple has the necessary funds required to complete the transaction. The counter offer from the sellers increases the purchase price by $30,000. The sellers would like a month more for the closing to find another place to live. The irrevocable period is sufficient for the sellers counter offer so the time and date remain the same. They are satisfied with the conditions in the offer. You should change the home inspection clause on the counter offer. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 36 of 38

Buyers, a couple, are offering $420,000 for a property and will provide a $30,000 deposit upon acceptance of the offer. They will assume the existing first mortgage with an approximate balance owing today of $300,000. The couple has the necessary funds required to complete the transaction. The counter offer from the sellers increases the purchase price by $30,000. The sellers would like a month more for the closing to find another place to live. The irrevocable period is sufficient for the sellers counter offer so the time and date remain the same. They are satisfied with the conditions in the offer. You should not change the deposit on the counter offer. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 37 of 38

Buyers, a couple, are offering $420,000 for a property and will provide a $30,000 deposit upon acceptance of the offer. They will assume the existing first mortgage with an approximate balance owing today of $300,000. The couple has the necessary funds required to complete the transaction. The counter offer from the sellers increases the purchase price by $30,000. The sellers would like a month more for the closing to find another place to live. The irrevocable period is sufficient for the sellers counter offer so the time and date remain the same. They are satisfied with the conditions in the offer. You should not change the completion date on the counter offer. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 2 | Page 38 of 38

Congratulations, you have completed the lesson! There are six sections on this page with a summary of the key topics that were discussed in this lesson.

Record keeping

All offers must be in writing and signed for the offer to be valid. Retaining copies of the offer is regulated under REBBA. An accepted offer must be kept in its entirety for six years. Additional requirements apply to the seller’s brokerage only if an offer is unsuccessful. For every written offer that you receive on behalf of a seller, whether it is a buyer’s first offer or an offer with changes made during negotiations, the offer is considered a separate offer and the seller’s brokerage is required to retain a copy. If the offer is not accepted, that is the offer is either rejected or countered, the seller’s brokerage must retain a copy of the offer in its entirety for one year from the date the offer is signed by the buyer. Under certain conditions, the seller’s brokerage may keep a summary document rather than the unaccepted offer.

Legibility requirements Countering an offer

The Code of Ethics requires all offers to be legible. This is to ensure the terms agreed to by the parties are clearly displayed and readable.

A counter offer is completed in one of three ways: amend the original offer, draft a new offer, or prepare a counter offer form. Countering an offer by amending the original offer includes ruling out any term that is not acceptable and inserting any term as part of the counter offer. All changes are initialled by the party to indicate agreement with the amended term. Typical changes in Although any term of an agreement of purchase and sale can be changed by a seller or a buyer when completing a counter offer, there are some terms which typically become part a counter offer of the negotiations. These terms include the purchase price, a change of completion date, chattels included or fixtures excluded from the sale of the property. Other typical changes include the amount of the deposit or revisions, inclusions or deletions to a condition, or other term included on Schedule A.

©2019 Real Estate Council of Ontario

Changes required When a counter offer is being made, specific changes to the offer must be completed. The in a counter offer irrevocability clause will require a change to the term Seller/Buyer as this indicates who the

offer is coming from. Also, confirm the time and date for the offer’s irrevocability is valid. If a counter offer includes a change to the purchase price and/or the deposit, that change will impact the amount identified on Schedule A for the balance due on completion. The party making the counter offer must initial each change to identify consent to the change.

Accepting a counter offer

To accept a counter offer, the party must place their initials by every change made by the other party. This initialing indicates acceptance of those revised terms. Once an offer is accepted, additional signing is completed by the party accepting the offer, including Confirmation of Acceptance and Acknowledgement. The Remuneration or Commission Trust Agreement is signed by the salespersons representing their brokerage when there is both a listing brokerage and a co-operating brokerage. A copy of the accepted offer must be provided to each seller and each buyer as soon as possible. A copy is also retained by each brokerage.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 1 of 23

Lesson 3: Work with Competing Offers

This lesson describes the requirements under REBBA when working with competing offers and the risks associated with multiple offer scenarios. As a salesperson, you will be relied upon to provide advice and guidance to sellers and buyers, so the lesson includes strategies and leading practices when working with competing offer situations.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 2 of 23

In certain market conditions; for example, in a seller’s market, sellers can be faced with multiple buyers interested in purchasing their property. When more than one buyer is placing an offer on a property at the same time, this situation is known as competing offers. The situation is also referred to as multiple offers. Competing offers represent a new challenge for sellers and buyers, and place additional obligations on a brokerage. The Code of Ethics includes specific requirements for the seller’s brokerage in a competing offer situation. Compliance with these requirements is important to ensure all parties are treated with fairness and honesty. Competing offers can also tempt buyers to place an offer without the same level of due diligence. As a salesperson, you will need to advise a seller or a buyer about the different strategies and potential risks when working with multiple offers. Upon completion of this lesson, you will be able to: • Identify the requirements under REBBA regarding competing offers • Identify the risks associated with multiple offers for sellers and buyers • Identify strategies for sellers and buyers when working with multiple offers • Identify leading practices for the salesperson when working with multiple offers Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 3 of 23

Stacking

Requirements Under the Code of Ethics – Number of Competing Offers In certain market conditions, a seller’s property may appeal to several buyers resulting in multiple offers being received at the same time. This competing offer situation creates unique conditions in a real estate transaction.

©2019 Real Estate Council of Ontario

Both sellers and buyers need to consider how to respond when an offer is being submitted or received in a competing offer scenario As the seller’s salesperson, the Code requires you to disclose the number of competing offers to all buyers who have submitted a written offer. If one of the competing offers is from your own brokerage, this must also be disclosed. If there are two buyers from a co-operating brokerage, the listing brokerage should advise each salesperson from the co-operating brokerage when the offers are registered, so they can make the required disclosures if they are in multiple representation. However, the substance (terms and conditions) of each offer are confidential to the seller and their salesperson and may not be disclosed to any other brokerage or buyer. When there are competing offers, all buyers must be treated ethically and fairly to ensure no buyer is placed in a better position than any of the other buyers. If a buyer’s offer has not been presented to the seller or the seller’s salesperson, a buyer can withdraw their offer should they choose not to participate in a multiple offer scenario. As a salesperson, a pro-active approach to confirm the number of offers prior to submitting a buyer’s offer will result in a more informed decision by the buyer regarding the terms of an offer, or whether to participate in a multiple offer scenario.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 4 of 23

Requirements under the Code of Ethics – Disclosure of Agreements Relating to Remuneration When a brokerage offers a remuneration reduction, it is essential to create an appropriate agreement to ensure compliance with REBBA. All remuneration reduction agreements negotiated by a salesperson are binding on the brokerage. As a salesperson, ensure you are aware of any brokerage policies regarding remuneration prior to making any agreement with a seller or a buyer. In a remuneration reduction agreement, the listing brokerage agrees with the seller to reduce remuneration. This could occur when a brokerage and seller are signing a representation agreement, or when the seller is being presented one or more offers. The Code requires the disclosure whenever a remuneration agreement could impact whether an offer to buy is accepted by the seller. In any remuneration reduction situation, the listing salesperson must disclose the details and terms of the remuneration reduction agreement in writing to all buyers who have made a written offer. The disclosure must occur before the seller accepts any offer. The listing brokerage must keep a record of the disclosure. If the remuneration agreement results from an offer being negotiated, a written amendment to the documented seller representation agreement is to be provided to the seller in the event the offer is accepted. If the remuneration agreement forms part of the original seller representation agreement, the listing may indicate this as a collateral agreement. This allows all salespersons working with buyers to identify the existence of the agreement, and when in a competing offer scenario, ensure a disclosure has been provided. An agreement to reduce the gross remuneration by a brokerage may be effective only under specified conditions – these details are documented on the seller representation agreement and may include

©2019 Real Estate Council of Ontario

• When one salesperson is working with both the seller and the buyer in a transaction, the remuneration will be reduced. • When two salespersons from the listing brokerage are working with both the seller and the buyer in a transaction, the remuneration will be reduced. • When a competing offer situation exists, the brokerage may exclude any remuneration reduction identified on the collateral agreement. A remuneration reduction agreement is most common in these two situations: 1. One brokerage – The same brokerage is working with both the seller and the buyer. In this situation, the listing brokerage’s offer to reduce remuneration could be part of the original representation agreement, or the result of the seller receiving an offer. 2. Two brokerages – The co-operating brokerage offers to reduce the remuneration being paid to that brokerage. In this situation, the buyer’s brokerage offers to reduce the remuneration as part of the offer negotiations, and the listing brokerage and seller agree to reduce the total remuneration payable under the seller representation agreement. In either of the two situations, a commission reduction could result in a buyer’s offer being accepted by the seller because the seller will receive a higher “net” value for the property than they would receive if they paid the commission that they originally agreed to. Example – One Brokerage: ABC Real Estate Inc. lists a property for sale and the seller agrees to pay remuneration of five percent of the sale price. The representation agreement includes a collateral agreement that indicates a one percent reduction in remuneration if the buyer who purchases the property is also working with ABC Real Estate. In a competing offer situation, if ABC Real Estate is working with one of the buyers, a disclosure of the one percent reduction must be provided to all other buyers. If ABC Real Estate is not working with one of the buyers, the collateral agreement would not be in effect and no disclosure is required. Example – Two Brokerages: A salesperson representing a buyer offers to reduce the amount of remuneration being paid to the co-operating brokerage by 0.5%. The buyer’s offer is for $500,000 however, with the remuneration reduction, the seller will save $2,500 in remuneration. This results in this buyer’s offer netting more to the seller than another offer for the same amount, but with no remuneration reduction. Prior to the seller accepting the offer, full written disclosure of the remuneration reduction of 0.5% is made to all buyers who have currently submitted a written offer. Disclosure of multiple representation in competing offers is another requirement of the Code. ©2019 Real Estate Council of Ontario

Lesson 3 | Page 5 of 23

Stacking

Requirements under the Code of Ethics – Disclosure of Multiple Representation Multiple representation can occur whether the seller has one offer to consider or competing offers. The disclosure requirements remain the same, however there are unique considerations relating to disclosure of multiple representation when working in a multiple offer scenario.

©2019 Real Estate Council of Ontario

There are various requirements relating to multiple representation under REBBA. A brokerage may not operate under multiple representation unless: • Disclosure of the proposal to represent more than one client in the same trade is made – this disclosure must be done at the earliest opportunity and before entering into a representation agreement. This disclosure also requires the differences in the obligations of the brokerage when operating under multiple representation be explained. • All clients represented by the brokerage consent in writing to the brokerage operating under multiple representation. In a competing offer situation, multiple representation could occur when: • The brokerage represents the seller and the buyer in a transaction. This applies whether it is the same salesperson or different salespersons employed by the brokerage. • The brokerage represents multiple prospective buyers making an offer in a single transaction. This can apply when the seller is represented by the same brokerage or a different brokerage. The Code also requires a brokerage, when representing or providing services to more than one seller or buyer for the same trade, to disclose in writing, at the earliest opportunity and before an offer is made, the nature of the brokerage’s relationship to each seller and buyer. In instances where the brokerage is representing the seller and the buyer, it should be evident that the brokerage is operating under multiple representation and disclosures and consent are required. In other instances where a brokerage is representing multiple prospective buyers making an offer in a single transaction, it may not be evident to the co-operating brokerage that they are representing multiple buyers until one or more buyers have expressed an interest in the same property. This knowledge may come through the listing brokerage or the listing salesperson as they are in a position to know the source of all buyers (co-operating brokerage). The listing brokerage is then expected to pass on this information to the co-operating brokerage when two or more offers from the co-operating brokerage are registered, as they may be representing each buyer as a client. In such situations, consent to the multiple representation is required as soon as the brokerage becomes aware that it is operating in a multiple representation situation. The co-operating brokerage must disclose this information to both buyer clients and obtain each buyer’s consent for multiple representation before the brokerage can proceed with offer presentations.

©2019 Real Estate Council of Ontario

While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 6 of 23

Two or more competing offers for the same property creates a multiple offer situation. Usually multiple offers occur when demand for properties is high and supply is low, which is a seller’s market. REBBA has rules that govern multiple offer situations. Which of the given multiple offer practices comply with REBBA? There are five options. There are multiple correct answers. 1 2 3 4 5

A competing offer must be made in writing and signed by the buyer. The listing salesperson can disclose the substance of offers already made to other potential buyers. The seller’s salesperson must retain a copy of only the accepted offer. A listing brokerage providing customer service to one of the competing buyers must disclose the number of competing offers and that one of the completing offers is from their brokerage. A listing salesperson can offer to reduce their remuneration if they have a competing offer provided proper disclosure is made.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 7 of 23

Multiple representation occurs when the same brokerage represents the seller and buyer or the same salesperson or brokerage represents multiple buyers making offers on the same property. In either situation, certain rules apply. Identify the rules that apply to multiple representation in competing offer situations. WHILE NAVIGATING THROUGH THE ONLINE MODULE, CLICK THE EXPERT RESPONSE BUTTON TO VIEW THEIR ANSWER.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 8 of 23

Buyer’s Risks in a Multiple Offer Situation In a multiple offer situation, buyers competing for a property might be tempted to increase their offer price or remove conditions from their offers. Increasing the offer price and/or removing a condition included to protect the buyer, such as a condition allowing for a property inspection, exposes the buyer to risk. As a salesperson, a buyer should be made aware of certain factors when considering placing an offer in a multiple offer situation: • Offer Price: A high offer price can increase a buyer’s chance of success in a competing offer situation. However, the buyer needs to consider whether or not the offer is affordable. Can the buyer finance the amount without hardship? What will the buyer pay in interest to finance the mortgage over the long term? Is the property worth the higher offer price? As a salesperson, question how much the buyer can afford and research how much a property is worth. Also, advise the buyer that an offer meeting, or exceeding the asking price, will not guarantee the seller will accept the offer. • Financing: If buyers are pre-qualified for a mortgage, they might consider removing a financing condition as a tactic to improve their offer’s success. Pre-qualification for a mortgage does not guarantee approval of financing. Most lenders require a professional appraisal of a property before approving a mortgage. An appraiser could estimate the value of the property to be less than the amount the buyer offers. In this case, the buyer’s mortgage might not be sufficient for the purchase price and the buyer would need to fund the difference somehow.

©2019 Real Estate Council of Ontario

In terms of financing, remind the buyer that once an offer without any conditions is accepted, it becomes a binding contract. The buyer needs to consider the pre-approved mortgage versus the appraisal of the property, and the potential for having to finance the difference. • Property Inspection: Removing the condition for a property inspection in a competing offer situation might also appear as an option to improve the buyer’s offer. However, not including a property inspection can place the buyer in a risky situation. On viewing the home, it might appear to be in good repair. However, once ownership takes place, the buyer might discover defects, which can lead to costly repairs and potential upgrades. A qualified and reputable property inspector can highlight potential problems and improvement for a property and their associated costs. Advise the buyer of the risk in omitting a home inspection condition. When working with buyers in a competing offer situation, caution them around the risks involved. Remind them of the legal obligation incurred once an unconditional offer is accepted. Certain strategies can be used by a buyer to increase the appeal of their offer while not being exposed to the same level of risk.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 9 of 23

Strategies for Buyers When Working with Multiple Offers – I As a salesperson representing a buyer in a competing offer situation, you are required to promote and protect their best interests. You want to provide conscientious and competent service and negotiate a transaction which results in an accepted offer for your buyer. At the same time, you want to treat the seller with fairness. To assist a buyer, it is important to understand what could occur in a competing offer situation. Small details within an offer can impact a seller’s decision. Being aware of these small details is the first step to assisting the buyer in their purchase. No single strategy is guaranteed to work; however, you need to understand some typical options to give buyers a possible advantage. The following four sections contain information on each strategy when working with buyers in a multiple offer situation.

Best Offer First

When demand for housing is high, the seller has the advantage. In a seller’s market, the strategy of making the buyer’s first offer their best offer is common. A buyer may hesitate with this strategy, as it provides little or no room for negotiations. However, leading with a strong offer might be the only opportunity for the buyer’s offer to be considered by the seller. To assist a buyer, you should know what a strong offer looks like in your local market. Each market can be different, however, analyzing past sales to see the sale to listing price ratio would be important information. Example: Four recent sales have occurred where the transaction was negotiated in a competing offer scenario. The information obtained include: First sale details:

©2019 Real Estate Council of Ontario

• Listing price: $300,00 • Sale price: $315,000 • Sale to list ratio: 105% Second sale details: • Listing price: $309,00 • Sale price: $322,000 • Sale to list ratio: 104% Third sale details: • Listing price: $295,00 • Sale price: $310,000 • Sale to list ratio: 105% Fourth sale details: • Listing price: $299,00 • Sale price: $319,000 • Sale to list ratio: 107% A buyer would want to consider this type of information when determining an appropriate offer price. Ensure you have researched all recent comparable sales in the neighbourhood and use this historical data to assist in current negotiations.

©2019 Real Estate Council of Ontario

Pre-approved Mortgage

Buyers are well advised to get mortgage pre-approval and discuss their financial situation in depth with their lender. A buyer should know in advance what the maximum amount a lender will provide in financing. This amount, together with the buyer’s down payment, will provide guidance on the maximum purchase price. Remember though, a pre-approval does not guarantee the funds will be advanced. As a salesperson, view the property in terms of factors that may impact a lender’s decisions, such as deferred maintenance, neighbouring property conditions, or the age and condition of the structure and major components, such as the heating and electrical systems. By completing this due diligence in advance of an offer, the buyer can be more confident in their buying power.

Deposit

A large deposit can give a seller more confidence about the seriousness of a buyer’s offer and the buyer’s ability to finance the property. If the offer is conditional on financing, a large deposit can also provide the seller some reassurance of the buyer’s financial status. Having a large deposit typically indicates financing approval is more likely to occur.

Proof of Funds

Making the deposit with the offer by way of a certified cheque can also provide assurance to sellers. A buyer’s offer, whether it includes a financing condition or not, can be more desirable to a seller if there is an assurance the buyer has funds available to complete the transaction. Suggest the buyer speak with their lender and obtain a letter indicating the buyer’s financial ability. Although an appraisal may indicate the property’s value is less than the purchase price, a buyer could have sufficient funds to make up the difference. In other instances, it is the property and not the buyer’s ability to pay that reduces the amount of financing a lender will provide. Showing financial strength to a seller can increase confidence in the buyer’s offer.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 10 of 23

Strategies for Buyers When Working with Multiple Offers – II The following four sections contain information on more strategies when working with buyers in a multiple offer situation.

Completion Date

Sellers can be influenced by the completion date chosen. When drafting an offer for the buyer, pay attention to the listing data sheet to see what the seller’s preference is. Timing can have an impact. For example, a seller might need time to find another home, or prefer to finish the season at a vacation property before the sale is completed. A buyer who is flexible on the completion date might be one reason why a seller chooses their offer.

Conditions

The strength of an offer is not based solely on price, it is the cumulative effect of every term that ultimately impacts acceptance of a buyer’s offer. In a multiple offer situation, the buyer needs to consider the value of having conditions in the offer versus making an unconditional offer which becomes firm and binding once accepted. An unconditional or firm offer might be more desirable than one with conditions and a higher price. However, sellers will also consider the firm offer and the ability of the buyer to complete the sale. A firm offer does not guarantee a completed transaction. When including conditions in an offer, ensure the time period to complete the due diligence is reasonable and the condition shows an honest attempt by the buyer to have it fulfilled. For example, a financing condition that identifies specific terms may appear as a more honest attempt than a financing condition that allows the buyer a lot of latitude in determining whether it is fulfilled. This is also true with a property inspection condition. In some instances, a property inspection condition which allows a specified dollar figure in ©2019 Real Estate Council of Ontario

repairs to be reached before being able to cancel an offer might be more desirable than a condition that states “in the buyer’s sole and absolute discretion”. A buyer needs to be cautious about the risks associated with not including any conditions, and should be aware that some conditions can be included which are more favourable to a seller than others.

Inclusions

In a multiple offer situation, buyers might want to leave out the chattels they were hoping the seller would agree to include in the sale. An item that might seem insignificant to the buyer might be important to the seller. Including that item can have an impact on the seller’s view of the offer. Advise buyers it might be best to not complicate their offers with too many inclusions.

Irrevocable Period The time the seller has to accept the offer (the irrevocable period) can be another factor in a multiple offer situation.

The right price combined with a shortened irrevocable time period can help put the buyer in a better negotiation position. On the other hand, pressuring the seller to make a decision before they are ready, can result in the offer being rejected. A long irrevocable can give the seller more time to make the choice between offers or allow the seller to find more offers, but this puts the buyer at a disadvantage. The irrevocable time period should be discussed with the buyer to ensure they understand their obligations related to this.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 11 of 23

Seller’s Risks in a Multiple Offer Situation When sellers receive multiple offers on their property, they have a decisive advantage. While price can influence their decision, they need to consider other factors to ensure a successful sale that meets or exceeds their expectations. Once the offers are presented, the seller can accept one, make a counter offer, send offers back for improvement, or reject them all. Here are three factors sellers should consider in offers and their associated risks: 1. Conditions: If a seller accepts an offer with conditions, the risk is the potential loss of the transaction if conditions are not met. Along with that loss is the potential loss of offers from other interested buyers. A buyer not including conditions in an offer also presents a risk. For example, a buyer who has financing preapproval does not include a financing condition in their offer, however the pre-approval does not guarantee the lender will approve the buyer’s mortgage. If the buyer cannot arrange the required financing, the sale might not be completed. This could result in the seller needing to re-list the property for sale several weeks or months later. 2. Countering Offers: The seller can counter an offer for one of the buyers. That buyer, however, may decide against the counter offer. Other buyers who made offers may have placed an offer on a different property, resulting in the seller losing the opportunity to accept or negotiate other offers. 3. Rejecting Offers: The seller can reject all offers and advise buyers to bring back their best offer at a specific time. This strategy might result in buyers deciding not to participate. Once an offer is rejected, a buyer is no longer obligated to the offer. Certain strategies can be used by a seller when assessing the strength of various offers being received at the same time.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 12 of 23

Strategies for Sellers When Working with Multiple Offers Sellers receiving multiple written offers for their property is an exciting and desirable situation. At the same time, the seller has to consider how to handle the offers. Your role as a salesperson is to help the seller remain focused and make the best decisions. To do this, you need to understand some typical options to consider when working with multiple offers. The following three sections contain information on each strategy when working with sellers in a multiple offer situation.

Irrevocable Period All offers will identify the irrevocable period. A seller must address the buyer’s offer within

this time period, otherwise the offer becomes null and void. It is your responsibility, as the seller’s salesperson, to ensure every offer’s irrevocability is identified and the time period monitored.

If there are several offers which appear similar, a seller may be able to negotiate one of the offers during the irrevocable time period of the other offers. This would allow a seller to still consider one of the other offers should the offer they choose to negotiate not result in acceptance. The seller may request that the listing salesperson withhold any offer presentations until a Offer Presentation Time specific day and time. Offers can be registered, but no offers will be presented to the seller until this time.

Property Inspection Report

An offer presentation time allows a seller the opportunity to have as many buyers view the property and consider placing an offer before addressing any offer. The intent would be to generate interest, build competition, and produce more offers for the seller to consider. In some circumstances, a seller could obtain a property inspection report and make this report available to any buyer during the property viewing. This would indicate the seller is providing as much information as possible about the property. The result could be an offer that is higher priced with fewer conditions as the buyer is more aware of the structure’s condition. This might be an acceptable approach in several circumstances, such as when the home is older or the seller has not lived in the property (e.g., the property is inherited or being sold by the estate). ©2019 Real Estate Council of Ontario

Lesson 3 | Page 13 of 23

You are working for a couple who want to make an offer on a property listed at $450,000. The property is in a highly desirable area of the city although it is listed as needs repairs and sold “as is”. Your market research shows homes in the area have sold for $500,000 and up. The couple has a pre-approved mortgage for $450,000 and $50,000 in the bank for a down payment. They also have a certain tolerance for risk and have family available to guarantee any mortgage up to a certain amount. You learn from the listing salesperson the property has three offers registered. The sellers want a closing date of August 31. You should advise the couple to make an offer of not more than $500,000. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 14 of 23

You are working for a couple who want to make an offer on a property listed at $450,000. The property is in a highly desirable area of the city although it is listed as needs repairs and sold “as is”. Your market research shows homes in the area have sold for $500,000 and up. The couple has a pre-approved mortgage for $450,000 and $50,000 in the bank for a down payment. They also have a certain tolerance for risk and have family available to guarantee any mortgage up to a certain amount. You learn from the listing salesperson the property has three offers registered. The sellers want a closing date of August 31. You should advise the couple to waive a home inspection. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 15 of 23

You are working for a couple who want to make an offer on a property listed at $450,000. The property is in a highly desirable area of the city although it is listed as needs repairs and sold “as is”. Your market research shows homes in the area have sold for $500,000 and up. The couple has a pre-approved mortgage for $450,000 and $50,000 in the bank for a down payment. They also have a certain tolerance for risk and have family available to guarantee any mortgage up to a certain amount. You learn from the listing salesperson the property has three offers registered. The sellers want a closing date of August 31. You should advise the couple to make the completion date on the offer August 31. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 16 of 23

You are working for a couple who want to make an offer on a property listed at $450,000. The property is in a highly desirable area of the city although it is listed as needs repairs and sold “as is”. Your market research shows homes in the area have sold for $500,000 and up. The couple has a pre-approved mortgage for $450,000 and $50,000 in the bank for a down payment. They also have a certain tolerance for risk and have family available to guarantee any mortgage up to a certain amount. You learn from the listing salesperson the property has three offers registered. The sellers want a closing date of August 31. You should advise the couple to make a deposit of $25,000 upon acceptance with an additional deposit of up to $25,000 on a certain date or condition. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 17 of 23

You are working for a couple who want to make an offer on a property listed at $450,000. The property is in a highly desirable area of the city although it is listed as needs repairs and sold “as is”. Your market research shows homes in the area have sold for $500,000 and up. The couple has a pre-approved mortgage for $450,000 and $50,000 in the bank for a down payment. They also have a certain tolerance for risk and have family available to guarantee any mortgage up to a certain amount. You learn from the listing salesperson the property has three offers registered. The sellers want a closing date of August 31. You should advise the couple to waive a financing condition. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 18 of 23

You work for a seller of a property listed at $295,000. The property is in good condition in a desired neighbourhood. The seller is considering four offers. The sellers cannot move for at least three months. Which one of the offers provides the least risk to the seller? Choose the best offer. There are four options. There is only one correct answer. 1 2 3 4

A $290,000 offer with a $15,000 deposit on acceptance. The offer is conditional on the buyers selling their home. A $292,000 offer with a $10,000 deposit on acceptance. The offer has financing and home inspection conditions and a short closing date, only four weeks from now. An offer of $289,000 with a $25,000 deposit on acceptance of the offer. The only condition is a home inspection. An offer of $291,000 with a $5,000 deposit upon acceptance. The offer has no conditions and has a long list of chattels included.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 19 of 23

You work for a seller of a property listed at $335,000. The property is in good condition in a desired neighbourhood. Based on the aggressive pricing and current market conditions, you are expecting to receive multiple offers on the property. What strategies can you use to help the seller obtain and work with multiple offers? There are four options. There are multiple correct answers. 1 2 3 4

If several offers appear similar, the seller may be able to negotiate one of the offers during the irrevocable time period of the other offers. The seller could obtain a property inspection report and make this report available to any buyer during the property viewing. With the seller’s agreement, provide an offer presentation time. Offers can be registered, but no offers will be presented to the seller until the stated time. Advise the seller to be firm with the completion date.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 20 of 23

Leading Practices When Working for Buyers in Multiple Offer Situations At all times, a salesperson must ensure a buyer is making well-informed decisions and a transaction is being negotiated ethically and fairly. As a salesperson, your actions can impact the results of a buyer’s offer. Consider the following leading practices when working with a buyer in a competing offer situation.

©2019 Real Estate Council of Ontario

• Research the market to know what comparable properties have sold for recently. • Know what price the buyer is qualified to pay. You can suggest the buyer discuss mortgage options with a lender in advance to understand their financing position. Discourage buyers from overextending their offer beyond what they can afford. • Encourage the buyer to make the largest deposit they can to demonstrate their interest and commitment to the purchase. • Ensure the buyer understands and is comfortable with the risks associated with not including conditions in their offer. • Be pro-active and suggest the buyer bring along someone when viewing a property who can capably assess the condition of the structure or identify any environmental concerns. • Consider the time period for the irrevocable period. Allowing an extended time period for a buyer’s offer places them at a disadvantage as this allows the seller to address other offers in the interim. • Be prepared to act quickly. Ensure the buyer understands how events can unfold and prepare them for the necessary paperwork in advance. • Remind buyers that in a multiple offer situation, the highest priced offer is not always accepted and it might take several offers on different properties before their offer is accepted. • Advise buyers to be readily available during the time period when offers are being presented. This will allow for any counter offer to the buyer to be addressed quickly. • Before presenting an offer, contact the listing salesperson to confirm the current number of offers. Ensure the buyer is prepared to enter a competing offer scenario and may be required to make their first offer their best offer. • Register the offer, which means get it signed and let the listing salesperson and brokerage know you have an offer. • Consider presenting the offer in person. Having face-to-face contact can give you the opportunity to position the buyer and explain their offer to the seller.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 21 of 23

Leading Practices When Working for Sellers in Multiple Offer Situations Communication with all parties involved in a multiple offer situation is vital. Consider the following practices to help you manage a competing offer situation with a seller.

©2019 Real Estate Council of Ontario

• Before presenting offers, meet with the seller and review the standard clauses contained in the agreement of purchase and sale to ensure they understand the legal obligations if an offer were to be accepted. • Ensure the seller understands the required disclosures to buyers submitting written offers. You will be required to disclose the number of offers, multiple representation, and remuneration agreements. • Do not disclose any information to other brokerages or buyers regarding the details of any competing offer. • Educate the seller on the process and what to expect. If using a presentation date, choose a date and time for reviewing offers that are convenient to the seller. Discuss the options the seller has once all offers have been presented. • Unless instructed by the seller otherwise, convey each offer to the seller as soon as possible. Only counter one offer at a time. Consider whether an offer that is substantially lower than others is worth countering. If you send back a buyer’s offer for improvement, ensure the seller understands that the buyer can walk away. • As soon as an offer is registered, notify the other salespersons who have shown the property in an attempt to generate additional offers for the seller. • When a second offer is registered, contact the salespersons who registered the first offer and advise them they are in a multiple offer situation. Keep people informed as other offers get registered. Keep track of all contact information. • Consider communicating to the salesperson what the seller wants along with any special instructions. Also let them know of any changes to the process. Ensure the same information is provided to all brokerages and salespersons to ensure no buyer has an advantage. • Prior to presenting offers to the seller, notify all salespersons who have registered offers, to inform them of the total number of offers. If an offer arrives while you are presenting offers (a late offer), notify all salespersons with registered offers that the number of offers has changed. • Once the seller has accepted an offer, inform the other salespersons of the offer status. • Ensure you submit to the brokerage copies of all unsuccessful offers, including original offers and any counter offers (or a summary document when applicable). While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 22 of 23

As a salesperson you can find yourself dealing with multiple offers. Whether you are working for the seller or the buyer, some leading practices are the same for both parties. Identify at least three leading practices that apply to working with both sellers and buyers. WHILE NAVIGATING THROUGH THE ONLINE MODULE, CLICK THE EXPERT RESPONSE BUTTON TO VIEW THEIR ANSWER.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 23 of 23

Congratulations, you have completed the lesson! There are five sections on this page with a summary of the key topics that were discussed in this lesson.

Required disclosures When a seller receives competing offers, the following disclosures are required by the

Risks and strategies for buyers when working with multiple offers

seller’s salesperson to every buyer who has submitted an offer: • The number of offers received, but not the contents of any offer • Any remuneration agreement with the seller that might impact whether a buyer’s offer is accepted • The representation status when a brokerage is operating under multiple representation • The nature of the relationship to each seller and buyer when the brokerage is representing or providing services to more than one seller or buyer for the same trade Risks for a buyer include: offering a price for a property that cannot be financed or is above appraised value; relying on a pre-approval for a purchase but finding out before closing that circumstances have impacted the approval; not including conditions meant to protect the buyer, such as a property inspection.

Certain strategies can be used by a buyer to increase the appeal of their offer while not being exposed to the same level of risk. Strategies to consider for a buyer include: making their first offer their best offer; ensuring the market place has been analyzed to ensure the offer reflects the current conditions; obtaining a pre-approved mortgage; making a large deposit with a certified cheque; providing the seller with proof of funds along with any offer; being flexible for the completion date; ensuring conditions are appropriately worded and the time period for due diligence is reasonable; minimizing the chattels included; ensuring the irrevocable time period is reasonable and appropriate based on market conditions.

©2019 Real Estate Council of Ontario

Risks and strategies for sellers when working with multiple offers

Risks for a seller include: accepting offers with conditions if the buyer cannot fulfill the condition; countering an offer which could result in the buyer not accepting the offer; rejecting the offers which could result in buyers deciding to no longer participate in the offer process.

Certain strategies can be used by a seller when assessing the strength of various offers being received at the same time. Strategies to consider for a seller include: using the irrevocable period to the best advantage of the seller while ensuring the irrevocability of other offers is monitored; set an offer presentation time to allow for more offers to be obtained; providing as much information about the property as possible to allow buyers to make fully-informed decisions about the property. Leading practices for Prepare the buyer for making an offer by educating the buyer on the process, the terms of the agreement of purchase and sale, and the best strategies for their offer and the a salesperson associated risks.

working with buyers

Communicate with the listing salesperson to stay informed on the process, register and present your buyer’s offer, and be available for quick revision of an offer.

Leading practices for Prepare the seller for reviewing offers by ensuring the seller understands their obligations related to accepting an offer, discussing the offer process and how multiple salespersons working with sellers offers will be addressed, and educating the seller on the strategies for dealing with offers, and the associated risks.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 1 of 8

Summary Practice

This lesson provides a series of activities that will test your knowledge on the entire module.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 2 of 8

This lesson provides a scenario for which the possible errors, omissions, details to be filled in the form and other concerns on each page of the Agreement of Purchase and Sale have been discussed.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 3 of 8

From Form 100: Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Mr. Wayne Chisolm and Mrs. Sylvia Chisolm are negotiating the purchase of a property. Their salesperson drafted and presented an offer on their behalf, which the sellers countered. The possible errors, omissions, and other concerns on page one of the agreement of purchase and sale prepared for Mr. and Mrs. Chisolm, which was countered by the sellers and then accepted by the Chisolm's regarding 3291 Forest View Parkway in Anycity are as follows: Under the Deposit section: • Buyers’ initials are required for the change to the deposit. • Deposits are typically held by listing broker only. They cannot be held jointly by two brokerages. Under the Irrevocable section: • The offer should have been irrevocable by the buyer initially and then amended to read as seller. Under the Initials section: • Initials are reversed at the bottom of the page: the sellers initialed the buyers’ initials location, and the buyers initialed the sellers’ initials location.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 4 of 8

From Form 100: Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Mr. Wayne Chisolm and Mrs. Sylvia Chisolm are negotiating the purchase of a property. Their salesperson drafted and presented an offer on their behalf, which the sellers countered. The possible errors, omissions, and other concerns on page two of the agreement of purchase and sale prepared for Mr. and Mrs. Chisolm and countered by the sellers regarding 3291 Forest View Parkway in Anycity are as follows: Under the Chattels Included section: • The description of the security system and the lower family room furnishings is incomplete. Under the Fixtures Excluded section: • The Chattels Included clause shows all drapes included. The Fixtures Excluded clause excludes the living room drapes as fixtures. Under the Initials section: • Initials are reversed at the bottom of the page: the sellers initialed the buyers’ initials location, and the buyers initialed the sellers’ initials location.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 5 of 8

From Form 100: Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Mr. Wayne Chisolm and Mrs. Sylvia Chisolm are negotiating the purchase of a property. Their salesperson drafted and presented an offer on their behalf, which the sellers countered. The possible problem on page three and four of the agreement of purchase and sale prepared for Mr. and Mrs. Chisolm and countered by the sellers regarding 3291 Forest View Parkway in Anycity is that the initials are reversed at the bottom of the page: the sellers initialed the buyers’ initials location, and the buyers initialed the sellers’ initials location.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 6 of 8

From Form 100: Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Mr. Wayne Chisolm and Mrs. Sylvia Chisolm are negotiating the purchase of a property. Their salesperson drafted and presented an offer on their behalf, which the sellers countered. The possible errors, omissions, and other concerns on page five of the agreement of purchase and sale prepared for Mr. and Mrs. Chisolm and countered by the sellers regarding 3291 Forest View Parkway in Anycity are as follows: Under the Spousal Consent section: • Marilyn Mostofi’s signature is in the wrong location. She should sign as a seller, not under spousal consent. Under the Confirmation of Acceptance section: • The co-operating salesperson signed the Confirmation of Acceptance. It should be signed by the last person signing the counter offer. In this instance, one of the buyers, Silvia or Wayne Chisolm, should sign. Under the Acknowledgement section: • Wayne Chisolm’s signature and required date are missing from the Acknowledgement.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 7 of 8

From Form 100: Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Mr. Wayne Chisolm and Mrs. Sylvia Chisolm are negotiating the purchase of a property Their salesperson drafted and presented an offer on their behalf, which the sellers countered. The possible errors, omissions, and other concerns on Schedule A (Page 6) of the agreement of purchase and sale prepared for Mr. and Mrs. Chisolm and countered by the sellers regarding 3291 Forest View Parkway in Anycity are as follows: Under the Pay Further Sum section: • The additional amount to pay should be $225,000 ($250,000 purchase price – $10,000 deposit – $15,000 seller take back mortgage). Under the Mortgage condition fulfilment date: • The mortgage condition fulfilment date (May 24) should be before the title search date (May 20) as stated on page three. Note: While this is difficult to see here, it highlights the importance of comparing information from different pages. Under the First Mortgage: • The wording “not less than one hundred seventy-five thousand dollars ($175, 000)” should be changed to “not more than…” This change protects the seller’s security in knowing the maximum principal amount of the first mortgage that will be registered on title and have priority over the second mortgage. Under the Seller Take Back section: • This should be conditional on a credit check of the buyers credit worthiness. Under the Leakage section: • The leakage representation and warranty clause do not contain a time period for the enforcement of the clause. An example would be adding the following: “This representation and warranty shall survive and not merge on completion but will apply only to the state of the property at completion.” Under the Easement section: • The easement description poses problems, as it is indefinite regarding location. Further, no reference to easement appears in the legal description. The issue should have been addressed prior to drafting the agreement, by attaching a survey showing the easement, or inserting an appropriate condition to investigate further if it was not possible to clearly establish its location. Legal advice should be sought.

©2019 Real Estate Council of Ontario

Under the initials section: • Initials are reversed at the bottom of the page: the sellers initialed the buyers’ initials location, and the buyers initialed the sellers’ initials location.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 8 of 8

Congratulations, you have completed the lesson!

©2019 Real Estate Council of Ontario

Module Summary | Page 1 of 4

Module Summary

This lesson contains a summary of the entire module and a list of helpful resources available in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 2 of 4

Congratulations, you have completed this module! This lesson will present a summary of Learning Objectives and a list of helpful resources that you can search for in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 3 of 4

There are three sections on this page with a summary of the key topics that were discussed in this module.

Complete an agreement of purchase and sale with conditions

A fundamental part of working as a salesperson involves completing an agreement of purchase and sale. When doing so, you will need to ensure dates within the agreement align. To do so, you will need to identify key dates when drafting an offer. The offer plan should itemize these five dates in the following chronological order: Offer date, Irrevocable, Expiry of conditions – conditional date, Requisition – title search date, and Completion or closing date. For Schedule A, which is part of every offer, you will need to itemize the required clauses for the offer. A clause identifying the balance due on completion must be included in every offer. Other clauses and conditions, such as obtaining financing or a property inspection, are also added to Schedule A.

Complete a counter offer

Stacking refers to a way of grouping and writing conditions that are required to be fulfilled by the same date. With stacking, the party responsible for completing the conditions is clear. There’s a single fulfillment or waiver date for multiple conditions. Stacking conditions avoids repetitive language for several different clauses. As a salesperson, you will need to understand and complete counter offers. All offers must be in writing and signed for the offer to be valid. Retaining copies of offer is regulated under REBBA. The Code of Ethics requires all offers to be legible. A counter offer is completed in one of three ways: amend the original offer, draft a new offer, or prepare a counter offer form. Terms which typically become part of the counter offer negotiations include the purchase price, a change of completion date, chattels included or fixtures excluded from the sale of the property. Other typical changes include the amount of the deposit or revisions, inclusions or deletions to a condition, or other term included on Schedule A.

©2019 Real Estate Council of Ontario

When a counter offer is being made, specific changes to the offer must be completed, such as the irrevocability clause. The party making the counter offer must initial each change to identify consent to the change. To accept a counter offer, the party must place their initials by every change made by the other party.

Work with competing offers

Completion of this lesson has enabled you to: • Identify the requirements under REBBA when an offer will be countered rather than accepted • Identify the steps when an offer will be countered rather than accepted • Describe what changes are typically made when countering an offer • Complete an agreement of purchase and sale that includes a counter offer A competing offer is when more than one buyer places an offer on a property at the same time. These situations represent a new challenge for sellers and buyers, and places additional obligations on a brokerage. The Code of Ethics includes specific requirements for the seller’s brokerage in a competing offer situation. Compliance with these requirements is important to ensure all parties are treated with fairness and honesty. Competing offers can also tempt buyers to place an offer without the same level of due diligence. As a salesperson, you need to advise a seller or a buyer about the different strategies and potential risks when working with multiple offers. Completion of this lesson has enabled you to: • Identify the requirements under REBBA regarding competing offers • Identify the risks associated with multiple offers for sellers and buyers • Identify strategies for sellers and buyers when working with multiple offers • Identify leading practices for the salesperson when working with multiple offers

©2019 Real Estate Council of Ontario

Module Summary | Page 4 of 4

Module Resources There are two helpful resources related to this module that you can search for in the Knowledge Management System. 1. Multiple Representation: This bulletin describes the disclosure obligations of a brokerage before it enters into a multiple representation situation. This includes representing a seller and buyer or multiple prospective buyers in the same transaction. 2. Written Direction for Multiple Offers: This bulletin explains the requirements of a salesperson to convey an offer to clients and customers as soon as it is reasonably possible. It also focuses on the conduct of seller representatives in multiple offers and delayed offer circumstances. While navigating through the online module, click the KMS button for tools and information on this topic.

©2019 Real Estate Council of Ontario

V7

Module 19: Additional Sale-Related Documents and Other Legal Obligations Disclaimer: This is a reference document which contains pages from the Accessible eLearning module. You should complete the eLearning module to proceed to the next step. Please note that the accessible module on the LMS only contains the interactive pages and you need to go through the content of this document thoroughly to attempt the interactive activities in the module. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Salesperson Program ©2019 Real Estate Council of Ontario. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or in any means – by electronic, mechanical, photocopying, recording or otherwise without prior written permission, except for the personal use of the Real Estate Salesperson Program learner.

©2019 Real Estate Council of Ontario

Module 19: Additional Sale-Related Documents and Other Legal Obligations Sale-Related Documents and Legislative Requirements This module introduces you to additional documents related to a transaction including an amendment to the agreement of purchase and sale, notices relating to the fulfillment or waiver of a condition, and a mutual release when a transaction is terminated. Details for completing negotiations for a trade include information regarding obligations under REBBA for retaining copies of the agreement of purchase and sale by the brokerage and a salesperson, and guidelines to help ensure any personal or confidential information from the trade is securely retained and used appropriately according to the Personal Information Protection and Electronic Documents Act (PIPEDA). REBBA also requires specific information to be documented relating to a trade, and as a salesperson, you will be involved in reviewing and signing this document for each transaction. The module includes additional obligations relating to instances of a direct or indirect interest in a trade to ensure the required disclosure is made in compliance with REBBA. As market conditions can impact the offer process, considerations regarding this topic are detailed, including leading practices to follow regarding the offer process. The module also reviews obligations under FINTRAC and how to identify suspicious activity. There is a final segment to identify distinct challenges when explaining the agreement of purchase and sale to a seller or a buyer which includes a summary of the more complex areas of the agreement.

©2019 Real Estate Council of Ontario

To check your understanding of this module, you must complete all the activities in the online module. While navigating through the online module, click the Legislation button to view laws and regulations related to this module. While navigating through the online module, click the KMS button to access the Knowledge Management System or visit the Module Resources to find the list of all the KMS assets for this module. The contents of the thumbnail icon and References from the module are added to support your learning throughout this Accessible PDF.

©2019 Real Estate Council of Ontario

Menu: Additional Sale-Related Documents and Other Legal Obligations Number of Lessons

Lesson Number Lesson 1 Lesson 2 Lesson 3 Lesson 4 Lesson 5

6 Lessons

Lesson Name Additional Sale-Related Documents Requirements Under REBBA Relating to a Trade Compliance With Requirements Under FINTRAC Putting It All Together – A Residential Agreement of Purchase and Sale Summary Practice Activities Module Summary

©2019 Real Estate Council of Ontario

Lesson 1 | Page 1 of 54

Lesson 1: Additional Sale-Related Documents

In this lesson, you will learn how to document changes to an accepted agreement of purchase and sale, the required notices when a condition is either fulfilled or waived, and the requirements when an agreement is terminated to release the parties from their obligations and to provide directions for the brokerage relating to a buyer’s deposit.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 2 of 54

Additional Sale-Related Documents When an agreement of purchase and sale has been accepted, any change required to the original terms must be in writing and agreed to by all parties. When an accepted offer contains one or more conditions; for example, a condition on obtaining financing, notice must be provided to the other party prior to the time period for the condition expiring (when the condition is written as a condition precedent). Depending on the circumstances, one of two types of notices could be used – a notice identifying the condition is fulfilled or a notice identifying the condition is being waived. If the notice is not received by the other party prior to the time period for the condition expiring, the offer becomes null and void. When an agreement of purchase and sale is binding upon the parties – that is, it is an agreement rather than a conditional offer – and for some reason the agreement needs to be terminated, all parties must release each other and the brokerage from their obligations to the agreement and provide directions to the brokerage relating to disbursing the buyer’s deposit from their statutory trust account. In all of these situations, as a salesperson, you will need to be prepared and knowledgeable in how to properly document the action taken to ensure the requirements are accurately addressed and the parties are in full understanding. ©2019 Real Estate Council of Ontario

Upon completion of this lesson, you will be able to: • Identify key aspects of, and complete an amendment to an agreement of purchase and sale • Identify when to use, and complete a notice of fulfillment of conditions • Identify when to use, and complete a waiver • Identify when to use, and complete a mutual release Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 3 of 54

Once an offer has been accepted, there can be no additional changes made to that document. When an offer has been accepted, any change to the terms agreed to must be documented in writing. This change must be on a new document. If the amendment is accepted, it is read in conjunction with the agreement of purchase and sale and forms part of the agreement. Only the altered or amended term(s) are written in the new document. All other terms of the accepted offer remain the same. The amended terms now replace the original terms in the agreement. If the amendment is not accepted, the original terms, as agreed to, remain in effect.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 4 of 54

Amending an Agreement of Purchase and Sale An amendment to the agreement of purchase and sale is used to delete any term agreed to, revise any term agreed to, or add a new term to the agreement. An amendment is an offer to change what was previously agreed to by the parties. An amendment may be requested by either a seller or a buyer. Examples of terms which could be amended include: • Completion date – reschedule to an earlier or a later date. For example, a seller is informed that possession of the new home they are having built has been delayed by 30 days • Purchase price – revise based on new information received. For example, a property inspection report identifies a previously unknown problem and the parties agree to reduce the purchase price to reflect this new information • Chattels and fixtures – add or delete an inclusion and/or exclusion. For example, a light fixture the seller wishes to retain was not previously identified as an exclusion • Seller or buyer name(s) – add, delete or correct. For example, a spelling error to a name on the agreement of purchase and sale As a salesperson, you should exercise caution when an amendment to the agreement is being considered. Any change to the agreed upon terms can create a complex situation that requires an assessment of the impact of the change. For example, a change to the completion date may result in additional costs; the party may only accept the amendment if they are compensated for the additional expenses. Or, an amendment made within the conditional period that relates to a condition in the offer which could result in negotiation of other terms being reopened.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 5 of 54

Key Components of an Amendment to an Agreement of Purchase and Sale An amendment is a proposal or offer to amend the agreement of purchase and sale. It does not void the agreement – the amendment adds, deletes or revises one or more terms previously agreed to by the seller and the buyer. Just like an agreement of purchase and sale, an amendment will include an irrevocable time period. If the amendment is not accepted or a counter-offer to the amendment is not made by the other party within the irrevocability, the amendment is null and void and the terms originally agreed to remain in effect. The given information is required to document an amendment to an agreement of purchase and sale: • Cross reference the amendment to the agreement of purchase and sale. • Insert the wording being deleted (when required) exactly as shown on the agreement of purchase and sale. • Insert the new wording (when required) exactly as it should be shown on the agreement of purchase and sale. • Insert the irrevocable date. • Have all required parties – that being all those who signed the original agreement of purchase and sale – sign the amendment.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 6 of 54

Completing an Amendment to the Agreement of Purchase and Sale The offer for Benci and Sarika Horvath to purchase a property owned by Joseph Markes and Sebastian de Freyne was dated and accepted on September 8, 2022. The offer indicated a completion date of November 8, 2022. The buyers are now asking for the completion date to be changed to November 27, 2022. The amendment was prepared by their salesperson Rozsa Lamos on October 1, 2022.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 7 of 54

Amendment to Agreement of Purchase and Sale – Cross-Reference to Agreement of Purchase and Sale For example, OREA Form 120 contains a section at the top to cross-reference the amendment to the agreement of purchase and sale.

From OREA Form 120: Amendment to Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 8 of 54

Amendment to Agreement of Purchase and Sale – Insert Deletion and/or Insertion For example, OREA Form 120, provides areas for inserting the wording to be deleted and/or inserted. The initials of the applicable party are also obtained.

From OREA Form 120: Amendment to Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 9 of 54

Amendment to Agreement of Purchase and Sale – Insert Irrevocable Date and Signature(s) For example, OREA Form 120 provides an irrevocable date and time for the amendment to be accepted. The party making the amendment signs and dates the document.

From OREA Form 120: Amendment to Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 10 of 54

Accepting an Amendment to the Agreement of Purchase and Sale If the amendment is accepted, the other party initials and signs to confirm their agreement. All parties who signed the original agreement of purchase and sale will also sign the amendment to the agreement of purchase and sale. The Confirmation of Acceptance and acknowledgement is also signed when the amendment has been accepted. This can be by either the seller or buyer as the amendment can be initiated by either party and a counter offer made to any offer to amend the originally accepted offer. If the amendment is not accepted, all provisions of the original agreement remain the same. An example of a completed amendment to the agreement of purchase and sale is shown on the given screens. The amendment to the agreement of purchase and sale submitted by Benci and Sarika Horvath is being accepted by the sellers, Joseph Markes and Sebastian de Freyne. Their salesperson, Neo Farai, witnesses the signatures and the Confirmation of Acceptance is completed. This must be accepted and communicated back to the buyers prior to the irrevocability expiring. The acknowledgement sections are also completed identifying all parties have received their copy of the accepted amendment. ©2019 Real Estate Council of Ontario

Lesson 1 | Page 11 of 54

Amendment to Agreement of Purchase and Sale: Acceptance For example, OREA Form 120, provides for the party to sign and date their signature indicating acceptance of the amendment. The party would also initial the amendment as required.

From OREA Form 120: Amendment to Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 12 of 54

Amendment to Agreement of Purchase and Sale: Complete Acknowledgement For example, OREA Form 120 provides for both the seller and the buyer to complete the information in the Acknowledgement section to confirm they have received a copy of the amendment and also provides permission to provide a copy of the amendment to their respective lawyers.

From OREA Form 120: Amendment to Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 13 of 54

Amendment to Agreement Anette Alahodpo and George Alahodpo have just purchased their first property. The property is located at 1922 East Street, AnyCity, Municipality of AnyRegion. They are represented by Lemuel Orlov of XYZ Realty Ltd., at 30 Main Street, AnyCity, AnyRegion (tel: 555-626-2134 or fax: 555-627-2334). Anette and George currently reside at 130 End Road, AnyCity, AnyRegion (tel: 555-345-0091). Their lawyer is Thom Jason of Jason and Associates at 67 Main Road, AnyCity, AnyRegion ([email protected], tel: 555-345-9876, fax: 555-667-8876). The seller, Viloh Ebbert (tel 555-653-8765) is represented by C.A. Waur of ABC Real Estate Inc. at 2167 North Road, AnyCity, AnyRegion (tel: 555- 341-4321 or fax: 555-441-3333). Viloh’s lawyer is S.E. Das of Hodss and Associates at 34 High Blvd., AnyCity, AnyRegion ([email protected], tel: 555-998-8900, fax: 555- 999-6677). The offer was dated and accepted on May 20, 2022. On May 21, Lemuel received a call from Anette asking him to change the agreement because her last name is misspelled as Alahidpo on the first page of the agreement. Lemuel prepared an amendment document with an irrevocable until May 22 at 10 p.m. The amendment was submitted to the seller on May 21, 2022, and was accepted by Viloh on the same day at 7 p.m. and returned to the buyers. ©2019 Real Estate Council of Ontario

Lesson 1 | Page 14 of 54

The amendment was completed on OREA Form 120 – Amendment to Agreement of Purchase and Sale. The following information is entered in the page 1 of the accepted form.  Between buyers Anette Alahodpo and George Alahodpo and seller Viloh Ebbert. The legal names of the buyers and seller are required.  RE: Agreement of Purchase and Sale between the Seller and Buyer, dated the 20th day of May, 2022, concerning the property known as 1922 East Street, AnyCity, AnyRegion as more particularly described in the aforementioned Agreement. The date shown on the top of the first page of the agreement of purchase and sale and the property address are included as cross-reference to the agreement.  Delete: Anette Alahidpo under “Buyer". This is the name to be deleted.  Insert: Anette Alahodpo under “Buyer”. This is the name to be inserted.  Initials of Buyer(s) are AA GA. The buyers initialled the change to be sent to the seller.  Initials of Seller(s) are VE. When accepted, the seller initialled the change.

Scenario: Amendment to Agreement Anette Alahodpo and George Alahodpo have just purchased their first property. The property is located at 1922 East Street, AnyCity, Municipality of AnyRegion. They are represented by Lemuel Orlov of XYZ Realty Ltd., at 30 Main Street, Any City, AnyRegion. (tel: 555-626-2134 or fax: 555-627-2334). Anette and George currently reside at 130 End Road, AnyCity, AnyRegion. (tel: 555-345-0091) Their lawyer is Thom Jason of Jason and Associates at 67 Main Road, AnyCity, AnyRegion. ([email protected], tel: 555-345-9876, Fax: 555-667-8876). The seller, Viloh Ebbert (tel 555-653-8765) is represented by C.A.Waur of ABC Real Estate Inc. at 2167 North Road, AnyCity, AnyRegion (tel: 555- 341-4321 or fax: 555-441-3333). Viloh’s lawyer is S.E.Das of Hodss and Associates at 34 High Blvd., AnyCity, AnyRegion. ([email protected], tel: 555-998-8900, fax 555- 999-6677). The offer was accepted on May 20, 2022.

©2019 Real Estate Council of Ontario

On May 21, Lemuel received a call from Anette asking him to change the agreement because her last name is misspelled as Alahidpo on the first page of the agreement. Lemuel prepared an amendment document with an irrevocable until May 22 at 10 pm. The amendment was submitted to the seller on May 21, 2022 and was accepted by Viloh on the same day at 7 pm and returned to the buyers.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 15 of 54

The amendment was completed on OREA Form 120 – Amendment to Agreement of Purchase and Sale. The following information is entered in the page 2 (section 1) of the accepted form.  Irrevocability: This Offer to Amend the Agreement shall be irrevocable by Buyer until 10 p.m. on the 22nd day of May, 2022, after which time, if not accepted, this Offer to Amend the Agreement shall be null and void. Here the irrevocable date and time for the amendment to be accepted is defined.  All other Terms and Conditions in the aforementioned Agreement to remain the same. Signed, sealed, and delivered in the presence of L Orlov. In witness whereof I have hereunto set my hand and seal: A Alahodpo May 21, 2022. Signed, sealed, and delivered in the presence of L Orlov. In witness whereof I have hereunto set my hand and seal: George Alahodpo May 21, 2022. The buyer’s salesperson witnessed the signing and dating of the offer to amend the agreement and then signed as witness. The buyers signed and dated the offer to amend the agreement.  I, the undersigned, agree to the above Offer to Amend the Agreement. Signed, sealed, and delivered in the presence of C A Waur. In witness whereof I have hereunto set my hand and seal: V Ebbert May 21, 2022. After the offer to amend was accepted by the sellers, the seller’s salesperson witnessed the signing and dating of the agreement. The seller signed and dated agreement to the amendment.

Scenario: Amendment to Agreement Anette Alahodpo and George Alahodpo have just purchased their first property. The property is located at 1922 East Street, AnyCity, Municipality of AnyRegion. They are represented by Lemuel Orlov of XYZ Realty Ltd., at 30 Main Street, Any City, AnyRegion. (tel: 555-626-2134 or fax: 555-627-2334). Anette and George currently reside at 130 End

©2019 Real Estate Council of Ontario

Road, AnyCity, AnyRegion. (tel: 555-345-0091) Their lawyer is Thom Jason of Jason and Associates at 67 Main Road, AnyCity, AnyRegion. ([email protected], tel: 555-345-9876, Fax: 555-667-8876). The seller, Viloh Ebbert (tel 555-653-8765) is represented by C.A.Waur of ABC Real Estate Inc. at 2167 North Road, AnyCity, AnyRegion (tel: 555- 341-4321 or fax: 555-441-3333). Viloh’s lawyer is S.E.Das of Hodss and Associates at 34 High Blvd., AnyCity, AnyRegion. ([email protected], tel: 555-998-8900, fax 555- 999-6677). The offer was accepted on May 20, 2022. On May 21, Lemuel received a call from Anette asking him to change the agreement because her last name is misspelled as Alahidpo on the first page of the agreement. Lemuel prepared an amendment document with an irrevocable until May 22 at 10 pm. The amendment was submitted to the seller on May 21, 2022 and was accepted by Viloh on the same day at 7 pm and returned to the buyers.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 16 of 54

The amendment was completed on OREA Form 120 – Amendment to Agreement of Purchase and Sale. The following information is entered in the page 2 (section 2) of the accepted form.  Confirmation of Acceptance: Notwithstanding anything contained herein to the contrary, I confirm this Agreement with all changes both typed and written was finally accepted by all parties at 7 p.m. this 21st day of May, 2022. This is followed by the signature of the seller, V Ebbert. The seller was the last party to accept the amendment and signed and dated the confirmation of acceptance. Under the Acknowledgement section, the following information is entered for the seller. The seller signed acknowledgement to confirm they have received a copy of the amendment and permission to provide a copy of the amendment to their lawyer.  Seller is Viloh Ebbert.  Date is May 21,2022.  Address for Service is 1922 East Street, AnyCity, AnyRegion.  Telephone Number is 555-653-8765.  Seller's Lawyer is SE Das.  Address is 34 High Blvd., AnyCity, AnyRegion.  Email is [email protected].  Telephone Number is 555-998-8900.  Fax Number is 555- 999-6677. Under the Acknowledgement section, the following information is entered for the buyer. The buyers signed acknowledgement to confirm they have received a copy of the amendment and permission to provide a copy of the amendment to their lawyer.    

Buyers are Anette Alahodpo and George Alahopdo. Date is May 21, 2022. Address for Service is 130 End Road, AnyCity, AnyRegion. Telephone Number is 555-345-0091.

©2019 Real Estate Council of Ontario

    

Buyer's Lawyer is Thom Jason. Address is 67 Main Road, AnyCity, AnyRegion. Email is [email protected]. Telephone Number is 555-345-9876. Fax Number is 555- 667-8876.

Scenario: Amendment to Agreement Anette Alahodpo and George Alahodpo have just purchased their first property. The property is located at 1922 East Street, AnyCity, Municipality of AnyRegion. They are represented by Lemuel Orlov of XYZ Realty Ltd., at 30 Main Street, Any City, AnyRegion. (tel: 555-626-2134 or fax: 555-627-2334). Anette and George currently reside at 130 End Road, AnyCity, AnyRegion. (tel: 555-345-0091) Their lawyer is Thom Jason of Jason and Associates at 67 Main Road, AnyCity, AnyRegion. ([email protected], tel: 555-345-9876, Fax: 555-667-8876). The seller, Viloh Ebbert (tel 555-653-8765) is represented by C.A.Waur of ABC Real Estate Inc. at 2167 North Road, AnyCity, AnyRegion (tel: 555- 341-4321 or fax: 555-441-3333). Viloh’s lawyer is S.E.Das of Hodss and Associates at 34 High Blvd., AnyCity, AnyRegion. ([email protected], tel: 555-998-8900, fax 555- 999-6677). The offer was accepted on May 20, 2022. On May 21, Lemuel received a call from Anette asking him to change the agreement because her last name is misspelled as Alahidpo on the first page of the agreement. Lemuel prepared an amendment document with an irrevocable until May 22 at 10 pm. The amendment was submitted to the seller on May 21, 2022 and was accepted by Viloh on the same day at 7 pm and returned to the buyers.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 17 of 54

An accepted offer containing one or more conditions will require written notice to be provided to the other party within the due diligence time period provided in the agreement of purchase and sale. How the condition is structured – whether it is a condition precedent, a condition subsequent, or a true condition precedent – and whether the party has fulfilled the condition exactly as provided for in the offer, will impact the type of notice provided. When notice is provided, all other terms and conditions in the accepted offer remain unchanged.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 18 of 54

Providing Written Notice for a Condition As you learned earlier, a condition precedent requires notice that the condition is either fulfilled or waived within the specified time period, otherwise the offer becomes null and void. Notice is required to make the agreement legally binding. A condition precedent can be either fulfilled or waived, but a true condition precedent can only be fulfilled. A condition subsequent is binding upon acceptance of the offer with the ability to terminate the agreement within the specified time period. Therefore, no notice is required for a condition subsequent to identify a condition has been fulfilled or waived. Notice is only required if the party is not able to fulfill the condition or is not waiving the condition – then a notice of termination would be provided. If no notice is provided, the agreement remains binding whether the condition has been fulfilled or not.

©2019 Real Estate Council of Ontario

When a condition is satisfied, a notice identifying fulfillment of the condition is provided. For example, a condition may be worded which requires the buyer to obtain financing based on specific terms. When the financing has been obtained that meets these terms, as a salesperson, you would prepare a notice of fulfillment. Example: Financing Condition – Fulfilled A buyer’s offer is conditional upon obtaining financing. The condition identified the terms associated with the financing were to be for not less than $250,000, with interest not more than 3.5 percent per annum, calculated semiannually not in advance, and for a term of not less than five years. The lender has approved the buyer for a $260,000 mortgage with interest at 3 percent per annum, calculated semi-annually not in advance, and a five year term. The buyer provides a notice to the seller identifying the condition is fulfilled. Conversely, when a condition has not been fulfilled exactly as identified in the accepted offer, however the party is continuing with the transaction, a waiver is used. This form of notice removes the condition from the offer. Example: Financing Condition – Waived A buyer’s offer is conditional upon obtaining financing. The condition identified the terms associated with the financing which were to be for not less than $250,000, with interest not more than 3.5 percent per annum, calculated semi-annually not in advance, and for a term of not less than five years. The lender has approved the buyer for a $260,000 mortgage with interest at 4 percent per annum, calculated semi-annually not in advance, and a three year term. As the interest rate and the term have not been fulfilled as provided for in the offer, the buyer provides a notice to the seller identifying the condition is waived. Although the buyer did not obtain financing as defined within the condition, they are prepared to continue with purchasing the property, and waive the condition. The agreement is now firm and binding.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 19 of 54

Providing Notice – Using a Notice of Fulfillment of Condition(s) When a condition is fulfilled exactly as in the agreement, the other party is notified using a notice of fulfillment. If there are multiple conditions associated with the accepted offer, a separate notice may be required for each condition unless the conditions are fulfilled and completed at the same time. In that case, one notice itemizing the conditions can be used.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 20 of 54

Completing a Notice of Fulfillment of Condition(s) When a condition has been met and the party is providing notice, the given will be required: • Cross reference the notice to the agreement of purchase and sale • Insert the exact clause wording being fulfilled • The party providing the notice signs and dates the notice • The party receiving the notice signs, dates, and inserts the time when the notice was received • A brokerage representing a seller, or a buyer may sign the acknowledgement on behalf of the client. When the seller or the buyer is a customer, they must acknowledge receipt of the notice as the brokerage is not authorized to acknowledge it on the customer’s behalf. Under multiple representation, the brokerage is also not authorized to acknowledge receipt of the notice • The acknowledgement must be completed prior to the expiry of the time period provided for in the accepted offer relating to the condition(s) • Copies of the notice are provided to each party and a copy is retained by the brokerage(s) The offer for Ben and Sarika Horvath to purchase a property owned by Joseph Markes and Sebastian de Freyne has been accepted. The offer indicated a condition for the buyers to obtain an inspection of the property and obtain a report satisfactory to them. The buyers have received the property inspection report and are satisfied with the results. The notice to the seller is being prepared by their salesperson Rozsa Lamos on September 15, 2022.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 21 of 54

Notice of Fulfillment – Cross-Reference to Agreement of Purchase and Sale For example, OREA Form 124 – Notice of Fulfillment of Condition(s) can be used for this purpose. It provides a section for the seller and buyer name(s) and description of the property which is used to cross-reference the document to the agreement of purchase and sale.

From OREA Form 124: Notice of Fulfillment of Condition(s) ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 22 of 54

Notice of Fulfillment – Insert Exact Clause Wording For example, OREA Form 124 – Notice of Fulfillment of Condition(s) provides for the exact clause wording being fulfilled to be inserted.

From OREA Form 124: Notice of Fulfillment of Condition(s) ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 23 of 54

Notice of Fulfillment – Signatures and Receipt Acknowledgement OREA Form 124 – Notice of Fulfillment of Condition(s) also provides for the party fulfilling the condition to sign and date their signature. As outlined earlier, the notice must be received by the other party prior to the expiry of the condition as provided for in the accepted offer. Ensuring this information is complete and accurate is important as the accepted offer will become null and void if the notice is not received within the specified time period.

From OREA Form 124: Notice of Fulfillment of Condition(s) ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 24 of 54

Providing Notice – Using a Waiver Although a notice of fulfillment and a waiver both result in a condition no longer affecting the contract, they are used under different circumstances and must be used appropriately. A notice of fulfillment is used to indicate that a condition has been met (fulfilled). Conversely, a waiver is used to waive or remove a condition that is in the agreement. However, a waiver can only be used if the clause in the accepted offer contains a waiver provision. As you learned earlier, the waiver provision is included in most conditions, but not all. If the clause does not contain the waiver provision, it is a true condition precedent and a notice of fulfillment may only be used. The waiver provision is highlighted in the given example:

©2019 Real Estate Council of Ontario

This Offer is conditional upon the inspection of the subject property by a home inspector at the Buyer’s own expense, and the obtaining of a report satisfactory to the Buyer in the Buyer’s sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than ____p.m. on the ___day of _________, 20__, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. The Seller agrees to co-operate in providing access to the property for the purpose of this inspection. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein. From OREA Clause INSP 1 – Inspection of Property by a Home Inspector – General Inspection ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 25 of 54

Situations Requiring the Use of a Waiver Example: Property Inspection An accepted offer contains a condition for the benefit of the buyer to obtain a limited inspection of the property by a home inspection firm and obtain a report that all deficiencies can be remedied at a cost no greater than $2,000. The buyer receives an inspection report which indicates the deficiencies can be remedied for $3,000. The buyer determines this is satisfactory and would like to proceed with the offer. As the condition has not been fulfilled, the buyer provides a notice using a waiver which removes the condition from the agreement of purchase and sale. Example: Obtaining Insurance An accepted offer contains a condition for the benefit of the buyer to arrange for insurance on the property. The property is remote, and the buyer is unsure of the cost for obtaining insurance as the area is serviced by a volunteer fire department. The condition indicates the cost for insurance was not to exceed $1,000 per year. The property has just been inspected and the buyer is advised the annual policy will be $1,150 per year. The buyer is satisfied with these terms and provides a notice using a waiver rather than a notice of fulfillment.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 26 of 54

Completing a Waiver When a condition has not been met but the party wishes to proceed with the offer, a waiver is used. The given will be required: • Cross reference the waiver to the agreement of purchase and sale. • Insert the exact clause wording for the condition being waived. • The party providing the notice signs and date the notice. • The party receiving the notice signs, dates and inserts the time when the notice was received. • A brokerage representing a seller, or a buyer may sign the acknowledgement on behalf of the client. When the seller or the buyer is a customer, they must acknowledge receipt of the notice as the brokerage is not authorized. Under multiple representation, the brokerage is also not authorized to acknowledge receipt of the notice. • The acknowledgement must be completed prior to the expiry of the time period provided for in the accepted offer relating to the condition(s).

©2019 Real Estate Council of Ontario

Copies of the notice are provided to each party and a copy retained by the brokerage(s). Using the scenario presented earlier, the offer for Ben and Sarika Horvath to purchase a property owned by Joseph Markes and Sebastian de Freyne has been accepted. The offer indicated a condition for the buyers to obtain a new first charge/mortgage for not less than $200,000, at an annual interest rate of not more than 3.5 percent and a term of not less than four years. The buyers have received notice they have been approved for the required financing, however the approval includes an interest rate of 3.75 percent. The notice to the seller is prepared by their salesperson Rozsa Lamos on September 15, 2022.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 27 of 54

Waiver – Cross-Reference to Agreement of Purchase and Sale For example, OREA Form 123 – Waiver can be used for this purpose. It provides a section for the seller and buyer name(s) and description of the property which is used to cross-reference the document to the agreement of purchase and sale.

From OREA Form 123: Waiver ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 28 of 54

Waiver – Insert Exact Clause Wording For example, OREA Form 123 – Waiver provides for the exact clause wording being waived to be inserted.

From OREA Form 123: Waiver ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 29 of 54

Waiver– Signatures and Receipt Acknowledgement OREA Form 123 – Waiver also provides for the party waiving the condition to sign and date their signature. The notice must be received by the other party prior to the expiry of the condition as provided for in the accepted offer. Ensuring this information is complete and accurate is important as the accepted offer will become null and void if the notice is not received within the specified time period.

From OREA Form 123: Waiver ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 30 of 54

Anette Alahodpo and George Alahodpo have just purchased their first property. The property is located at 1922 East Street, AnyCity, Municipality of AnyRegion. They are represented by Lemuel Orlov of XYZ Realty Ltd., at 30 Main Street, AnyCity, AnyRegion (Tel: 555-626-2134 or Fax: 555-627-2334). Anette and George currently reside at 130 End Road, AnyCity, AnyRegion (Tel: 555-345-0091). Their lawyer is Thom Jason of Jason and Associates at 67 Main Road, AnyCity, AnyRegion ([email protected], Tel: 555-345-9876, Fax: 555-667-8876). The seller, Viloh Ebbert (Tel: 555-653-8765) is represented by C. A. Waur (Carla Ashen Waur) of ABC Real Estate Inc. at 2167 North Road, AnyCity, AnyRegion (Tel: 555- 341-4321 or Fax: 555-444-3333). Viloh’s lawyer is S.E. Das of Hodss and Associates at 34 High Blvd., AnyCity, AnyRegion ([email protected], Tel: 555-998-8900, Fax 555999-6677). Their offer, conditional on obtaining insurance approval, is dated May 20, 2022 and is accepted by the sellers at 10:00 p.m. on May 20, 2022. On May 24, 2022, Anette and George are advised that their property insurance has been approved with terms that are acceptable to them. Lemuel meets with the couple to complete a notice of fulfillment of the insurance condition. ©2019 Real Estate Council of Ontario

Lesson 1 | Page 31 of 54

Lemuel is completing the notice of fulfillment for the insurance clause. He uses the agreement of purchase and sale to gather the information and arranges with the buyers to sign the document. He uses OREA Form 124 - Notice of Fulfillment to record the fulfillment of the condition. The following information is entered in the form to be sent to the seller.  Buyers are Anette Alahodpo and George Alahodpo. This field identifies buyers’ full names as on the Agreement of Purchase and Sale.  Seller is Viloh Ebbert. This field identifies seller’s full names as on the Agreement of Purchase and Sale.  Real Property is 1922 East Street, AnyCity, AnyRegion. This field identifies property address as on the Agreement of Purchase and Sale.  In accordance with the terms and conditions of the Agreement of Purchase and Sale dated the 20th day of May, 2022, regarding the above property. This field records the date on the Agreement of Purchase and Sale.

Scenario: Notice of Fulfillment Anette Alahodpo and George Alahodpo have just purchased their first property. The property is located at 1922 East Street, AnyCity, Municipality of AnyRegion. They are represented by Lemuel Orlov of XYZ Realty Ltd., at 30 Main Street, AnyCity, AnyRegion (Tel: 555-626-2134 or Fax: 555-627-2334). Anette and George currently reside at 130 End Road, AnyCity, AnyRegion (Tel: 555-345-0091). Their lawyer is Thom Jason of Jason and Associates at 67 Main Road, AnyCity, AnyRegion ([email protected], Tel: 555-345-9876, Fax: 555-667-8876). The seller, Viloh Ebbert (Tel: 555-653-8765) is represented by C. A. Waur (Carla Ashen Waur) of ABC Real Estate Inc. at 2167 North Road, AnyCity, AnyRegion (Tel: 555- 341-4321 or Fax: 555-444-3333). Viloh’s lawyer is S.E. Das of Hodss and Associates at 34 High Blvd., AnyCity, AnyRegion ([email protected], Tel: 555-998-8900, Fax 555999-6677). Their offer, conditional on obtaining insurance approval, is dated May 20, 2022 and is accepted by the sellers at 10:00 p.m. on May 20, 2022. On May 24, 2022, Anette and George are advised that their property insurance has been approved with terms that are acceptable to them. Lemuel meets with the couple to complete a notice of fulfillment of the insurance condition. ©2019 Real Estate Council of Ontario

Lesson 1 | Page 32 of 54

Scenario: Notice of Fulfillment Anette Alahodpo and George Alahodpo have just purchased their first property. The property is located at 1922 East Street, AnyCity, Municipality of AnyRegion. They are represented by Lemuel Orlov of XYZ Realty Ltd., at 30 Main Street, AnyCity, AnyRegion (Tel: 555-626-2134 or Fax: 555-627-2334). Anette and George currently reside at 130 End Road, AnyCity, AnyRegion (Tel: 555-345-0091). Their lawyer is Thom Jason of Jason and Associates at 67 Main Road, AnyCity, AnyRegion ([email protected], Tel: 555-345-9876, Fax: 555-667-8876). The seller, Viloh Ebbert (Tel: 555-653-8765) is represented by C. A. Waur (Carla Ashen Waur) of ABC Real Estate Inc. at 2167 North Road, AnyCity, AnyRegion (Tel: 555- 341-4321 or Fax: 555-444-3333). Viloh’s lawyer is S.E. Das of Hodss and Associates at 34 High Blvd., AnyCity, AnyRegion ([email protected], Tel: 555-998-8900, Fax 555999-6677). Their offer, conditional on obtaining insurance approval, is dated May 20, 2022 and is accepted by the sellers at 10:00 p.m. on May 20, 2022. On May 24, 2022, Anette and George are advised that their property insurance has been approved with terms that are acceptable to them. Lemuel meets with the couple to complete a notice of fulfillment of the insurance condition.

In order to complete the notice of Fulfillment, Lemuel is reviewing the insurance clause on Schedule A. The Buyer agrees to pay a further sum of Two Hundred Thousand Dollars ($200,000.00), subject to adjustments, to the Seller on completion of this transaction, with funds drawn on a lawyer's trust account in the form of a bank draft, certified cheque or wire transfer using the Large Value Transfer System. In Schedule A, this clause will be included in the notice of fulfillment. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False ©2019 Real Estate Council of Ontario

Lesson 1 | Page 33 of 54

Scenario: Notice of Fulfillment Anette Alahodpo and George Alahodpo have just purchased their first property. The property is located at 1922 East Street, AnyCity, Municipality of AnyRegion. They are represented by Lemuel Orlov of XYZ Realty Ltd., at 30 Main Street, AnyCity, AnyRegion (Tel: 555-626-2134 or Fax: 555-627-2334). Anette and George currently reside at 130 End Road, AnyCity, AnyRegion (Tel: 555-345-0091). Their lawyer is Thom Jason of Jason and Associates at 67 Main Road, AnyCity, AnyRegion ([email protected], Tel: 555-345-9876, Fax: 555-667-8876). The seller, Viloh Ebbert (Tel: 555-653-8765) is represented by C. A. Waur (Carla Ashen Waur) of ABC Real Estate Inc. at 2167 North Road, AnyCity, AnyRegion (Tel: 555- 341-4321 or Fax: 555-444-3333). Viloh’s lawyer is S.E. Das of Hodss and Associates at 34 High Blvd., AnyCity, AnyRegion ([email protected], Tel: 555-998-8900, Fax 555- 999-6677). Their offer, conditional on obtaining insurance approval, is dated May 20, 2022 and is accepted by the sellers at 10:00 p.m. on May 20, 2022. On May 24, 2022, Anette and George are advised that their property insurance has been approved with terms that are acceptable to them. Lemuel meets with the couple to complete a notice of fulfillment of the insurance condition.

In order to complete the notice of Fulfillment, Lemuel is reviewing the insurance clause on Schedule A. This Offer is conditional upon the inspection of the subject property by home inspector at the Buyer's own expense, and the obtaining of a report satisfactory to the Buyer in the Buyer's sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than 9:00 p.m. on the 25th day of May, 2022 that this condition is fulfilled, this Offer shall be null and void, and the deposit shall be returned to the Buyer in full without deduction. The Seller agrees to cooperate in providing access to the property for the purpose of this inspection. This condition ©2019 Real Estate Council of Ontario

is included for the benefit of the Buyer and may be waived at the Buyer's sole option by notice in writing to the Seller as aforesaid within the time period stated herein. In Schedule A, this clause will be included in the notice of fulfillment. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 34 of 54

Scenario: Notice of Fulfillment Anette Alahodpo and George Alahodpo have just purchased their first property. The property is located at 1922 East Street, AnyCity, Municipality of Any Region. They are represented by Lemuel Orlov of XYZ Realty Ltd., at 30 Main Street, Any City, Any Region. (tel. 555-626-2134 or fax: 555-627-2334). Anette and George currently reside at 130 End Road, AnyCity, Any Region. (tel: 555-345-0091) Their lawyer is Thom Jason of Jason and Associates at 67 Main Road, AnyCity, AnyRegion. ([email protected], Tel: 555-345-9876 , Fax: 555-667-8876) The seller, Viloh Ebbert (tel 555-653-8765) is represented by C. A.-Waur (Carla Ashen Waur) of ABC Real Estate Inc. at 2167 North Road, AnyCity, Any Region (tel: 555- 341-4321 or fax: 555-444-3333). Viloh’s lawyer is S.E.Das of Hodss and Associates at 34 High Blvd., AnyCity, AnyRegion. ([email protected], Tel: 555-998-8900, Fax 555- 999-6677) The offer was accepted on May 20, 2022. On May 24, 2022, Anette and George are advised that their property insurance has been approved with terms that are acceptable to them. Lemuel meets with the couple to complete a notice of fulfillment of the insurance condition.

In order to complete the notice of Fulfillment, Lemuel is reviewing the insurance clause on Schedule A. This Offer is conditional upon the Buyer arranging insurance for the property satisfactory to the Buyer in the Buyer's sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than 9:00 p.m. on the 27th day of May, 2022, that this condition is fulfilled, this Offer shall be null and void, and the deposit shall be returned to the Buyer in full without deduction. The Seller agrees to co-operate in providing access to the property, if necessary, for any inspection of the property for the fulfillment of this condition. This condition is included for the benefit of ©2019 Real Estate Council of Ontario

the Buyer and may be waived in the Buyer's sole option by notice in writing to the Seller as aforesaid within the time period stated herein. In Schedule A, this clause will be included in the notice of fulfillment. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 1 | Page 35 of 54

Lemuel meets the buyers and they sign the Notice of Fulfilment at 4:30 pm on May 24, 2022. Lemuel immediately emails the Notice of Fulfilment to the Listing Brokerage who acknowledges receipt of notice at 5:00 pm on May 24, 2022. Notice of Fulfillment (form 124) attached to email. The following information is entered in the rest of the form along with the acknowledgement.

• All other terms and conditions in the aforementioned Agreement of Purchase and Sale to remain unchanged. For the purposes of this Notice of Fulfillment of Condition, "Buyer" includes purchaser and "Seller" includes vendor. Dated at AnyCity, Ontario, at 4:30 p.m. this 24th day of May 2022. These are the details on where and when the notice of fulfillment document was signed. • Signed, sealed, and delivered in the presence of Lorlov, in witness whereof I have hereunto set my hand and seal: Anette Alahopdo May 24, 2022. Signed, sealed, and delivered in the presence of Lorlov, in witness whereof I have hereunto set my hand and seal: G Alahopdo May 24, 2022. These are the buyers’ signatures and the date. Their salesperson signs as witness once the document is signed by the buyers. • Receipt acknowledged at 5 p.m. day of 24th May 2022 by Carla Ashen Waur. The notice of fulfillment is sent to the brokerage. The brokerage, (the seller’s representative in this case), may acknowledge receipt for the seller by recording the time and date on the document and signing it. The notice of fulfillment must be received before the end of the irrevocable time associated with the condition or the offer will be null and void. The parties and the brokerage receive copies of the fully signed fulfillment.

Scenario: Notice of Fulfillment Anette Alahodpo and George Alahodpo have just purchased their first property. The property is located at 1922 East Street, AnyCity, Municipality of Any Region. They are represented by Lemuel Orlov of XYZ Realty Ltd., at 30 Main Street, Any City, Any Region. (tel. 555-626-2134 or fax: 555-627-2334). Anette and George currently reside at 130 End Road, AnyCity, Any Region. (tel: 555-345-0091) Their lawyer is Thom Jason of Jason and Associates at 67 Main Road, AnyCity, AnyRegion. ([email protected], Tel: 555-345-9876 , Fax: 555-667-8876) ©2019 Real Estate Council of Ontario

The seller, Viloh Ebbert (tel 555-653-8765) is represented by C. A.-Waur (Carla Ashen Waur) of ABC Real Estate Inc. at 2167 North Road, AnyCity, Any Region (tel: 555- 341-4321 or fax: 555-444-3333). Viloh’s lawyer is S.E.Das of Hodss and Associates at 34 High Blvd., AnyCity, AnyRegion. ([email protected], Tel: 555-998-8900, Fax 555- 999-6677) The offer was accepted on May 20, 2022. On May 24, 2022, Anette and George are advised that their property insurance has been approved with terms that are acceptable to them. Lemuel meets with the couple to complete a notice of fulfillment of the insurance condition.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 36 of 54

Complete A Notice of Waiver On May 25th, Lemuel is called by the buyers who are in a panic because they haven’t been able to arrange a home inspection. At one of the open houses, they had walked through the house with a friend who is a contractor and he gave the house a positive review. The buyers feel that the home inspection is not critical, and they do not want to lose the sale on the basis of not completing the inspection.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 37 of 54

Lemuel strongly advises the buyers against waiving the condition, and thoroughly outlines the risks of not having the inspection completed. They insist they are comfortable accepting the risk, and the guidance of their contractor friend. Lemuel documents this direction to waive the condition from the buyers to confirm everyone’s understanding. In order to complete the Waiver, Lemuel is reviewing Schedule A. The background shows the OREA form 100: Schedule A – Agreement of Purchase and Sale. Five sections are highlighted in the form. 1.

The buyer name is Anette Alahodpo and George Alahodpo. In this section, the legal names of the buyers must be included on the waiver as cross-reference to the agreement of purchase and sale.

2.

The seller name is Vilot Ebbert. In this section, the legal names of the seller must be included on the waiver as cross-reference to the agreement of purchase and sale.

3.

For the purchase and sale of 1922 East Street, AnyCity, AnyRegion. In this section, the address of the property must be included on the waiver as cross-reference to the agreement of purchase and sale.

4.

Dated the 20th day of May, 2022. In this section, the date on the agreement of purchase and sale must be included in the waiver as cross-reference to the agreement of purchase and sale. This Offer is conditional upon the inspection of the subject property by home inspector at the Buyer's own expense, and the obtaining of a report satisfactory to the Buyer in the Buyer's sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than 9:00 p.m. on the 25th day of May, 2022 that this condition is fulfilled, this Offer shall be null and void, and the deposit shall be returned to the Buyer in full without deduction. The seller agrees to cooperate in providing access to the property for the purpose of this inspection. This condition is included for the benefit of the Buyer, and may be waived at the Buyer's sole option by notice in writing to the Seller as aforesaid within the time period stated herein.

5.

The applicable clause to be waived must be copied in full onto the waiver.

©2019 Real Estate Council of Ontario

From Form 100: Schedule A – Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Lesson 1 | Page 38 of 54

Lemuel completes the waiver with the buyers and sends to the seller’s brokerage at 5:00 p.m. on May 25, 2022. C.A. Waur, the salesperson for the seller acknowledges receipt of the waiver at 5:30 p.m. the same day. She reviews the waiver and notices an error. Identify the error she must correct in the waiver. There are three options. There is only one correct answer.

1

For the purposes of this Waiver, "Buyer" includes purchaser and "Seller" includes vendor. WAIVED at AnyCity, Ontario, at 5 pm this 25th day of May 2022

2

Receipt acknowledged at 5:30 pm this 25th day of June 2022

3

Print Name: Carla Ashen Waur followed by their signature

©2019 Real Estate Council of Ontario

Lesson 1 | Page 39 of 54

When an offer that contains conditions has been accepted, it may not become a binding agreement if a party fails to satisfy a condition. When a condition is not met or waived, the offer becomes null and void. The offer becoming null and void does not allow a brokerage to disburse a buyer’s deposit from their statutory trust account without written instructions from the parties. Therefore, once an offer has become null and void, the parties must provide written direction to the brokerage regarding the deposit. To ensure there are no liabilities or obligations stemming from the proposed transaction on the part of the seller, the buyer, and the brokerage, written confirmation is obtained. When a party makes a good faith effort to fulfill a condition, but the proposed transaction becomes null and void, the deposit is generally returned to the buyer. The seller is then free to continue to market the property for sale.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 40 of 54

Completing a Mutual Release A mutual release is signed to release all parties and the brokerages from any claims or obligations from the proposed transaction, and to identify how the disbursement of the deposit will occur. In most instances, a seller and a buyer will agree to sign a mutual release. However, there could be some circumstances where a seller or a buyer is not agreeable to these terms and does not sign. As a salesperson, obtain advice from your broker of record or manager, and advise the party the brokerage is working with to seek legal advice. A brokerage would not be permitted to disburse the deposit if a mutual release is not signed as the courts may need to determine the outcome.

©2019 Real Estate Council of Ontario

When a mutual release is being completed, the given information and/or actions will be required: Cross reference the release to the agreement of purchase and sale Describe the terms for disbursement of the deposit Include an irrevocable date to ensure there is no delay in obtaining the required signatures The party initiating the release signs and dates the mutual release The party receiving the release signs and dates the mutual release identifying agreement The confirmation of acceptance is signed, and the time and date of acceptance is inserted The broker of record for the listing brokerage and the co-operating brokerage (when applicable) sign and date the release • Copies of the release are provided to each party and a copy retained by the brokerage(s) • • • • • • •

Earlier in this lesson, you drafted a notice of fulfillment and a waiver relating to the offer for Ben and Sarika Horvath to purchase a property owned by Joseph Markes and Sebastian de Freyne. Rather than fulfilling and waiving those conditions, the given screens will illustrate how a mutual release would be completed based on the proposed transaction becoming null and void. The mutual release is being prepared by the buyer’s salesperson, Rozsa Lamos, on September 15, 2022.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 41 of 54

Mutual Release – Identify Parties and Cross-Reference to Agreement of Purchase and Sale For example, OREA Form 122 – Mutual Release can be used for this purpose. It provides a section for the seller and buyer name(s) and the applicable brokerage(s). The date of the offer and a description of the property is used to cross-reference the document to the Agreement of Purchase and Sale.

From OREA Form 122: Mutual Release ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 42 of 54

Mutual Release – Return of Deposit and Irrevocability OREA Form 122 – Mutual Release includes a release of the parties from all liabilities, covenants, obligations, and claims. The deposit holder – typically the listing brokerage – is provided directions for the disbursement of the deposit. This includes defining the full amount to be released and the name of the party to be paid the deposit. The irrevocability of the mutual release is also identified to help ensure the parties address the requirements in a timely manner.

From OREA Form 122: Mutual Release ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 43 of 54

Mutual Release – Signatures and Confirmation of Acceptance OREA Form 122 – Mutual Release also provides an area for signing by the seller and the buyer. Either party can initiate the mutual release, and their signature would be completed first. The second signature states the party agrees to the above offer to mutual release. When the release is accepted, the last party confirms acceptance by signing and adding the date and time for the acceptance.

From OREA Form 122: Mutual Release ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 44 of 54

Mutual Release –Brokerage Signature(s) Lastly, OREA Form 122 – Mutual Release provides for the broker of record or manager for the brokerage(s) to sign the mutual release. This releases all parties from any claim by the brokerage(s) for remuneration. As a salesperson, there are several documents which you are permitted to sign on behalf of the brokerage, such as a representation agreement and a customer service agreement. However, the broker of record or a manager for the brokerage(s) are required to sign a mutual release. A salesperson does not have permission to release the brokerage from any contract or obligation.

From OREA Form 122: Mutual Release ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 45 of 54

The previous information explained the use of a mutual release prior to a binding agreement. In those situations, the accepted offer automatically became null and void when the time period for the condition expired. The mutual release was used to release any claims against either party and the brokerage, as well as instruct the deposit holder how to disburse the buyer’s deposit. In situations where a binding agreement is to be terminated, as a salesperson, you will be required to complete additional documentation along with a mutual release. A binding agreement can occur when: • A conditional offer was accepted, and the conditions have been fulfilled or waived by the party • A conditional offer was accepted, and the conditions were written in a condition subsequent format • An unconditional offer was accepted

©2019 Real Estate Council of Ontario

Lesson 1 | Page 46 of 54

OREA Form 125: Termination of Agreement by Buyer. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

Requirement for Mutual Release Accompanied by a Notice of Termination of Agreement As you learned earlier, when a condition subsequent is included in an offer, there is a binding agreement once the offer has been accepted. The condition provides an opportunity to terminate the agreement within the time period of the condition. If the time period expires without the agreement being terminated, the agreement remains binding. As a salesperson, it is critical for you to monitor the condition(s) in a buyer’s offer to ensure they are proceeding as the transaction was intended. No matter what the cause, a binding agreement must be terminated as a mutual release does not serve this purpose. Documentation would include a mutual release and a termination notice from the seller or the buyer. Example: Buyer Termination – Condition Subsequent A buyer’s offer contains a condition on obtaining a satisfactory property inspection – the condition is written as a condition subsequent. The home inspector notes several unexpected issues after inspecting the property, which the sellers are not aware of. The buyers discuss their options with the salesperson and decide these new problems are too costly to repair and they do not want to proceed with the purchase. The results are shared with the seller’s salesperson who is advised that the required documentation will be forthcoming prior to the expiry of the conditional time period. As the buyer’s salesperson has monitored the progress of this inspection, they are prepared to complete the required documentation within the time limit. A termination of the agreement is signed by the buyers. A mutual release is also prepared and is signed by the buyers and the brokerage’s broker of record. Both documents are forwarded to the listing brokerage who obtains the seller’s signature on the notice of termination, the seller’s signature on the mutual release, and the broker of record’s signature on the mutual release. The deposit is identified as being disbursed back to the buyer.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 47 of 54

Complete A Mutual Release Anette Alahodpo and George Alahodpo have just purchased their first property. The property is located at 1922 East Street, AnyCity, Municipality of AnyRegion. They are represented by Lemuel Orlov of XYZ Realty Ltd., at 30 Main Street, AnyCity, AnyRegion (Tel: 555-626-2134 or Fax: 555-627-2334). The seller, Viloh Ebbert (Tel 555-653-8765) is represented by C.A. (Carla Ashen) Waur of ABC Real Estate Inc. at 2167 North Road, AnyCity, AnyRegion (Tel: 555- 341-4321 or Fax: 555-444-3333). The offer was accepted on May 20, 2022. One of the conditions in the offer was the completion of a home inspection with a satisfactory review from the inspector. Suppose that Anette and George did have a home inspection done and the inspector found structural problems with the house. The cost of repairing the house was too much for them and they decide not to waive the condition.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 48 of 54

Scenario: Complete a Mutual Release Anette Alahodpo and George Alahodpo have just purchased their first property. The property is located at 1922 East Street, AnyCity, Municipality of AnyRegion. They are represented by Lemuel Orlov of XYZ Realty Ltd., at 30 Main Street, AnyCity, AnyRegion. (tel. 555-626-2134 or fax: 555-627-2334). The seller, Viloh Ebbert (tel 555-653-8765) is represented by C.A. (Carla Ashen) Waur of ABC Real Estate Inc. at 2167 North Road, AnyCity, AnyRegion (tel: 555- 341-4321 or fax: 555-444-3333). The offer was accepted on May 20, 2022. One of the conditions in the offer was the completion of a home inspection with a satisfactory review from the inspector. Suppose that Anette and George did have a home inspection done and the inspector found structural problems with the house. The cost of repairing the house was too much for them and they decide not to waive the condition.

©2019 Real Estate Council of Ontario

From Form 122: Mutual Release. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. Their salesperson, Lemuel, completes a mutual release in order to release the brokerages from their obligations and direct how to release the deposit of $20,000. The completed mutual release is sent to the listing brokerage. The seller agrees and signs the form on the same evening. The background shows the OREA Form 122: Mutual Release – Agreement of Purchase and Sale. Five sections are highlighted. 1. The buyer name is Anette Alahodpo and George Alahodpo. In this section, the legal names of the buyers must be included on the mutual release as cross-reference to the agreement of purchase and sale. 2. The seller name is Vilot Ebbert. In this section, the legal names of the seller must be included on the mutual release as cross-reference to the agreement of purchase and sale. 3. Brokerages: ABC Real Estate Inc, which is the listing brokerage and XYZ Realty Ltd, which is the co-operating brokerage. In this section, the names of the brokerages involved in the trade are identified. 4. RE: Agreement of Purchase and Sale between the Seller and Buyer dated the 20th day of May 2022, concerning the property known as: 1922 East Street, AnyCity, AnyRegion as more particularly described in the aforementioned Agreement of Purchase and Sale. In this section, the date of the agreement and address of the property must be included on the mutual release as cross-reference to the agreement of purchase and sale. 5. We, the Buyers and the Sellers in the above noted transaction hereby acknowledge that the above described transaction is terminated and release each other and the Brokerage in the proposed transaction, from all liabilities, covenants, obligations, claims and sums of money arising out of the above Agreement of Purchase and Sale, together with any rights and causes of action that each party may have had against the other and/or the Brokerage, and we direct the deposit holder to disburse the deposit of: Twenty thousand CanadianDollars($CDN): $20,000 payable to: Anette Alahodpo and George Alahodpo. In this section, the amount of the deposit must be identified in words and numbers and the party the deposit is payable to is also identified.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 49 of 54

The background shows OREA Form 122: Mutual Release – Agreement of Purchase and Sale. Four sections are highlighted. 1.

IRREVOCABILITY: This Mutual Release shall be irrevocable by buyer until 9 p.m. on the 27th day of May 2022, after which time if not fully executed by Buyer and Seller, this Mutual Release shall become null and void. In this section, the irrevocability of the mutual release is identified to help ensure the parties address the requirements in a timely manner.

2.

SIGNED, SEALED AND DELIVERED: The parties initiating the mutual release, in this case, the buyers, sign and date the release and when signed, their salesperson witnesses each signature.

3.

I, the Undersigned, agree to the above offer to Mutual Release. SIGNED, SEALED AND DELIVERED. The party accepting the mutual release, in this case, the seller, signs and dates the release and when signed, their salesperson witnesses the signature.

4.

CONFIRMATION OF ACCEPTANCE: Notwithstanding anything contained herein to the contrary, I confirm this Mutual Release with all changes both typed and written was finally accepted by all parties at 8 p.m. this 26th day of May 2022. The last party to accept the agreement, confirms acceptance by signing and adding the date and time for the acceptance.

©2019 Real Estate Council of Ontario

From Form 122: Mutual Release. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 50 of 54

The background shows the OREA Form 122: Mutual Release – Agreement of Purchase and Sale. The SIGNED, SEALED, AND DELIVERED section is highlighted. The Brokerage hereby releases all parties from any claim that the Brokerage may have had for commission or other remuneration in the above transaction, except as may be hereinbefore specifically provided. SIGNED, SEALED AND DELIVERED. The broker of record or a manager for the brokerage(s) are required to sign a mutual release. A salesperson does not have permission to release the brokerage from any contract or obligation.

From Form 122: Mutual Release. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 51 of 54

The buyer wants a chandelier included in an agreement that was recently accepted. The chandelier was on the list of exclusions from seller. The buyer’s salesperson is preparing the amendment to the agreement. What information does the buyer’s salesperson document on the amendment to the agreement? There are six options. There are multiple correct answers. 1 2 3 4 5 6

Cross-reference to the agreement of purchase and sale Insert the deletion of the chandelier from the list of exclusions Insert the inclusion of the chandelier to the list of inclusions Irrevocable date Signature of the buyer Signature of the seller

©2019 Real Estate Council of Ontario

Lesson 1 | Page 52 of 54

Following the acceptance of an agreement of purchase and sale, the buyers decided they wanted the chandelier to be included in the purchase price. The listing salesperson received an amendment signed by the buyers, deleting the chandelier from the list of items to be excluded and inserted that the chandelier would be included in the purchase price. The seller wanted compensation for the chandelier. What are the next steps for the seller’s salesperson? There are four options. There are multiple correct answers. 1 2 3 4

Contact the buyer’s salesperson directly and try to negotiate the compensation amount between them Add the seller’s compensation requirements directly to the amendment and add a new irrevocable date for the buyer’s consideration Do nothing until the irrevocable expires then complete an amendment to the agreement with the seller’s offer to include the chandelier for specific compensation Discuss the acceptable compensation amount with the seller

©2019 Real Estate Council of Ontario

Lesson 1 | Page 53 of 54

The agreement of purchase and sale included this clause: “The Buyer may terminate this Agreement through written notice delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than __6___ p.m. on the _19th____ day of ____April______, 20_22____, if a new first Charge/Mortgage cannot be arranged by the Buyer, at the Buyer’s expense. This Charge/Mortgage is to be for a sum of not less than _Two hundred and fifty thousand__________________ ($250,000________) bearing interest at a rate of not more than ___3__% per annum, calculated semi-annually, not in advance, repayable in blended monthly payments of about one thousand and one hundred and eighty-three dollars and eleven cents_____________, ($ _1,183.11_______), including both principal and interest, and to run for a term of not less than __4___ year(s) from the date of completion of this transaction. Upon receipt of the above notice, this Agreement shall be null and void and the deposit shall be returned to the Buyer in full without deduction. If no such notice is received within the above time limit, then this term of contract shall be deemed waived by the Buyer and this Agreement shall remain valid and binding whether or not such Charge/Mortgage has been arranged.” On April 18, 2022, the buyers were approved for a mortgage of $230, 000 with an interest rate of 2.5% over 3 years. They have decided this is not acceptable and cannot proceed. What are the next steps for their salesperson? There are five options. There are multiple correct answers.

©2019 Real Estate Council of Ontario

1 2 3 4 5

Send a completed notice of termination of agreement to the listing brokerage before the condition time limit expires Send a completed mutual release to the listing brokerage and the notice of termination Ensure the broker of record for the brokerage has signed the mutual release Ensure the broker of record for the brokerage has signed the termination of agreement Identify how the deposit will be released on the mutual release

©2019 Real Estate Council of Ontario

Lesson 1 | Page 54 of 54

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were discussed in this lesson.

Using an amendment to the Agreement of Purchase and Sale

An amendment is a proposed change to the Agreement of Purchase and Sale that occurs after an offer has been accepted. The proposed change can revise, delete, or add to the original agreement, but must be agreed by both parties in writing to be effective. If the amendment is not accepted within the irrevocable time period, the original terms agreed to remain in effect. An amendment only changes those terms identified – all other agreed upon terms remain the same.

Providing a notice When providing a notice to the other party that a condition has been met, a notice of – using a notice of fulfillment is used. The notice is cross-referenced to the agreement of purchase and sale and includes specific information, including an exact wording of the condition being fulfillment fulfilled. This must be received by the other party within the due diligence time period identified in the accepted offer, otherwise the agreement becomes null and void.

If an offer contains a true condition precedent, only a notice of fulfillment may be used to provide notice to the other party. A waiver is not acceptable.

Providing notice – When providing a notice to the other party that a condition has not been fulfilled exactly as identified in the accepted offer, however the party is continuing with the proposed using a waiver

transaction, a waiver is used. The notice is cross-referenced to the agreement of purchase and sale and includes specific information, including an exact wording of the condition being waived. This must be received by the other party within the due diligence time period identified in the accepted offer, otherwise the agreement becomes null and void.

©2019 Real Estate Council of Ontario

Providing a mutual release

When a conditional offer does not result in a transaction, a mutual release is used to release all parties from any obligation to the agreement and to provide direction to the deposit holder relating to the disbursement of the buyer’s deposit. Once an agreement is binding, as in the case of a condition subsequent, if the agreement is to be terminated, a notice of termination from the seller or the buyer must also be provided along with a mutual release.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 1 of 21

Lesson 2: Requirements Under REBBA Relating to a Trade

This lesson details the disclosure obligations under REBBA when a salesperson is a party to a trade, either directly or indirectly, obligations when receiving written directions from a seller for receiving offers, and the requirements for a brokerage and salesperson relating to copies of Agreement of Purchase and Sale. The lesson also details the requirement for a trade record sheet which must contain specific information relating to any trade.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 2 of 21

Requirements Under REBBA Relating to a Trade This lesson details additional obligations for you, as a salesperson, related to the offer process. These obligations apply when circumstances surrounding a transaction have some unique characteristics; for example, when a registrant is acquiring or disposing of any direct or indirect interest in real estate, considerations when a seller provides written instructions for receiving offers, and obligations when there is a change in these instructions. All documentation that is part of the offer process must be handled according to the requirements under REBBA. These requirements speak about the responsibility of the brokerage to retain copies of agreements of purchase and sale and any other documentation related to a trade for a specific time period. You will be required to provide copies of all documentation obtained during a trade to the brokerage as soon as possible, and ensure appropriate steps are taken to secure any information relating to a trade that is retained or used by you. For every trade, specific information must be documented to identify the parties to the trade, the receipt and disbursement of a buyer’s deposit, the remuneration paid, and other information as required under REBBA. This is known as a trade record sheet and you will be required to review and sign this for every transaction you are involved in. Upon completion of this lesson, you will be able to: • Identify the disclosure obligations when the salesperson is party to a trade • Identify considerations regarding written directions from a seller for receiving offers • Identify the requirements under REBBA and other legislation regarding document retention and privacy • Identify requirements under REBBA regarding a trade record sheet Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. ©2019 Real Estate Council of Ontario

Lesson 2 | Page 3 of 21

REBBA includes disclosure requirements when a registrant – a brokerage, broker or salesperson – has a personal interest or knowledge regarding a real estate transaction. An interest can be any benefit, direct or indirect, that can be gained now or in the future from a transaction. The benefit is something beyond the fees or remuneration earned or potentially earned. Understanding the disclosure requirements is critical as specific information must be disclosed to a potential seller or buyer within a specified time period.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 4 of 21

Disclosure of Interest As a salesperson, you possess knowledge and skills that can place you in an advantageous position in a real estate transaction. You will use this knowledge and skill set when representing sellers and buyers as part of promoting and protecting their best interests. However, when you have a direct or an indirect interest in a transaction, REBBA requires specific disclosures be made to the prospective seller or buyer at the earliest opportunity and before any offer is made. The disclosure requirements do not change whether the interest is direct or indirect, whether the prospective seller or buyer is a client or a customer of the brokerage, or when the transaction is a private sale without brokerage participation. Some examples of an interest include: • A registrant is the seller or the buyer • A relative of the registrant is the seller or the buyer • A registrant, or a relative of the registrant is a shareholder of a company that is the seller or the buyer • A registrant, or a relative of the registrant has another role in the transaction that is not evident; for example, a registrant is a mortgagee providing financing for the seller or the buyer A direct interest is when the registrant is the seller or the buyer of the property. An indirect interest can include situations where the registrant is not clearly identified as having an interest and would include transactions involving any related persons of the registrant. The Code requires the disclosure of a relative’s interest when the registrant knows or ought to know of the interest. REBBA describes who is considered a related person: • Related by blood, adoption or conjugal relationship • An associated person, such as an officer or director of a corporation or a partner in a partnership When unsure if you have a personal interest in a transaction, leading practices would include providing the disclosure to help ensure the party is being treated fairly, ethically, and with integrity. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 5 of 21

Disclosure Requirements As a salesperson, when you are involved in a trade and have a personal interest, either direct or indirect, you must disclose in writing to the prospective seller or buyer the given information: • Notice that you are a registered salesperson. • All facts within your knowledge that affect or will affect the value of the real estate involved. If the trade involves a purchase by a registrant, the given disclosures also apply: • Notice of any negotiation, offer or agreement that you have conducted, or that has been conducted on your behalf, for the subsequent sale, lease, exchange or other disposition of an interest in the real estate to any other person. • Details of any payment that will be paid to you by anyone as part of the transaction, other than what is listed in a listing or other services agreement.

©2019 Real Estate Council of Ontario

Example: Facts Affecting the Value A salesperson is interested in purchasing a property that abuts a large vacant parcel of agricultural land. The salesperson knows the owner of the vacant land has applied for a zoning change, and if approved, will develop the land as a golf course. The development is deemed a desirable change to the area and could result in the value of the adjoining properties increasing as they will have exposure to the golf course. This disclosure is made to the seller prior to any offer to purchase. Example: Notice of Negotiation for the Subsequent Sale A salesperson has been approached by a developer who is interested in purchasing a property that abuts a property already owned. The developer wants to tear down the structure and use the land to provide additional parking for their existing commercial mall. The developer wants to remain anonymous and has asked the salesperson to purchase the property and then sell the property to the developer. The salesperson discloses the subsequent sale of the property to the seller prior to any offer to purchase. You must obtain a written acknowledgement from the prospective seller or buyer that they have received the required disclosure statement before you can proceed with an offer. A copy is provided to the party and also retained in the brokerage’s transaction file. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 6 of 21

When a brokerage is authorized to receive written offers on behalf of a seller or a buyer, the Code requires the offer be conveyed at the earliest opportunity. This is regardless of the identity of the person making the offer, the contents of the offer, or the nature of any arrangement for remuneration. As you learned earlier, an offer will include an irrevocable time period. Ensuring the offer is presented prior to it expiring is important as the offer will become null and void if not accepted within the irrevocability. However, there may be situations where the brokerage receives written directions from a seller or a buyer to delay receiving an offer. As a salesperson, you must follow these written directions and ensure they are detailed and very clear. You must also ensure the party is fully informed about the implications of these instructions. The given screens detail your obligations as a salesperson when written direction is to be received.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 7 of 21

Obligations – Written Direction for Receiving Offers It is essential that the offer process be fair and transparent. Unless clear, detailed, and express written direction has been obtained from a seller or a buyer, an offer must be conveyed as soon as possible. There may be circumstances where a seller or a buyer provides instructions to a brokerage related to receiving offers. As a salesperson, this is most likely to occur when you are the listing salesperson, however the requirements apply equally when working with a buyer should you receive such instructions. When working with a seller, written direction for receiving offers is typically associated with market conditions where the seller is expecting to receive multiple offers. Under these conditions, the written direction could relate to delaying offer presentations until a specified time and date in anticipation of generating competing offers. In a competing offer situation, a seller could receive an offer with better terms than when there is no competing offer, such as a higher purchase price or fewer conditions. Before you can receive any written direction, you must explain the pros and cons of delaying the offer presentation. ©2019 Real Estate Council of Ontario

• Pros: This strategy could generate interest in their property and potentially result in multiple offers. • Cons: A buyer who does not want to wait for the specified time could decide not to place an offer. If the offer date passes with no offers submitted, buyers may see the property as less desirable or overpriced. Although the instructions to all brokerages will identify a specific time and date for offer presentations, a buyer could provide direction to their salesperson to present the offer prior to that time. Therefore, before obtaining any written direction, as a seller’s salesperson, you are required to discuss the options for handling any pre-emptive offers. The next screen explains pre-emptive offers. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 8 of 21

Written Direction for Receiving Offers – Pre-emptive Offers As part of a marketing strategy, a seller may delay their consideration of offers to a specific time and date when all offers will be presented. A buyer may decide to ignore these instructions and direct their salesperson to present an offer prior to the specified time. This is known as a pre-emptive offer and is submitted before the presentation date in the hope the seller will accept the offer without waiting for the presentation time and date. The irrevocable period for a pre-emptive offer often expires before the presentation date. As a salesperson, prior to receiving written direction for receiving offers, you must explain that a delayed offer presentation might lead to pre-emptive offers. The written directions you receive must explicitly outline how you are to handle pre-emptive offers; however, this can only be done if the seller has been fully informed. To find out how the seller wants to handle pre-emptive offers, you can provide the given options should a pre-emptive offer be received: • • • •

Be notified of the offer, but not see the details See the details of the offer, but not formally consider the offer until the presentation time Consider all offers received before the presentation date and time Only consider offers that are above a certain price ©2019 Real Estate Council of Ontario

• Only consider offers that contain a certain term; for example, an offer that provides a deposit that is at or above a specified amount, is submitted by way of a certified cheque, and is submitted with the offer • Only consider offers that do not contain certain terms; for example, an offer that does not include a condition for a property inspection • Not be informed of any offers. A discussion of these points will help the seller make an informed decision. If the instructions are not clear after discussing these options, continue the conversation until the instructions are understood and agreed to. At this point document the instructions, in detail, and provide a copy to the seller and the brokerage. The next screen identifies your obligations if the written direction changes. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 9 of 21

Written Direction for Receiving Offers – Changes to the Direction A seller or a buyer can change their direction at any time; however, a new written direction is required to do so. When that happens, the given steps must be taken immediately: • •

The notes to any listing for the property must be changed to accurately reflect the new offer process. Notify, in writing, anyone who has expressed an interest in the property of the change to the offer process. This includes anyone who has booked an appointment to view the property, has viewed the property, has informed the seller’s brokerage that they will be submitting an offer on the property, or has submitted an offer on the property.

Notification can be delivered personally, by email, facsimile, or text message. Since the aim of delaying offers is to generate interest in the property, it would be in the seller’s best interests to inform those who may have shown an interest in the property of any change in the offer presentation time or process so they may deliver their offer on time. As a salesperson, you must ensure your actions are performed based on fairness, transparency, competence, and good judgement. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 10 of 21

REBBA has requirements relating to the retention of an agreement of purchase and sale, with additional requirements for a listing brokerage. As a salesperson, you must be fully aware of the brokerage’s requirements, as you will be the individual responsible for ensuring all documents acquired when you are working with sellers and buyers are submitted to the brokerage as required. In situations where you retain copies of any documents relating to a trade in a personal filing system outside of the brokerage, it is important to ensure that they are safeguarded. All records must also adhere to the requirements of the Personal Information Protection and Electronic Documents Act (PIPEDA) to safeguard the data.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 11 of 21

Document Retention Requirements Under REBBA As you learned earlier, a brokerage has specific requirements under REBBA for retaining all documents and records related to a trade in real estate. A seller’s brokerage has additional requirements when an offer has been received but is not accepted by the seller. As a salesperson, you are the individual who will be involved in offer negotiations. It is your responsibility to ensure all required documents are submitted to the brokerage so that your activities do not cause the brokerage to be in non-compliance.

©2019 Real Estate Council of Ontario

As a salesperson, your activities to ensure compliance include: • An offer must be in writing and signed – this requires you to ensure a buyer’s offer is in writing and signed before indicating there is an offer to anyone. • Copies of written offers received must be retained – as a listing salesperson, this requires you to ensure a copy of every offer received is kept. This includes offers that have been rejected or countered as the seller’s brokerage must retain unsuccessful offers for at least one year. • A summary document can be used for unsuccessful offers – when a buyer’s offer is made through a brokerage, a document containing specific information can be retained by the seller’s brokerage rather than the offer in its entirety. A summary document may not be used when the person making the offer is not a client or a customer of a brokerage. • Accepted offers must be retained in their entirety – this requires you to ensure a copy of a successful offer, whether you are the seller or the buyer’s brokerage, is retained in its entirety and submitted to the brokerage. This document must be retained for at least six years. The offer process is a closed offer process, meaning offers remain confidential. This restricts any information about the terms of an offer being shared by the seller’s brokerage to any person making an offer. However, to promote transparency in the offer process, record keeping, and disclosure requirements are in place. This allows for a buyer or a salesperson to ask a listing brokerage to disclose the number of other offers received.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 12 of 21

Safeguarding Information All the information on sellers, buyers, potential transactions, and completed transactions must be kept under secure conditions and should follow the requirements under the Personal Information Protection and Electronics Documents Act (PIPEDA). This applies not only to the brokerage’s records, but also any records that you keep as a salesperson. You may want to keep your own file, or “shadow file”, on potential or completed transactions for convenient access while outside the brokerage. The shadow file may include: • • •

Copies of the relevant documentation Notes taken during inspections Copies of emails or other communication with sellers, buyers, and other salespersons

Make sure that this type of data collection is allowed by your brokerage and that your activities meet the PIPEDA requirements required to safeguard the information. The following four sections contain information on safeguarding information.

Type of information

Personal information about an identifiable individual is the information that is easily associated with them; for example, their address. Sensitive information includes financial information about the individual.

Both types of information are regulated under PIPEDA and must be safeguarded by the brokerage and a salesperson. Brokerage policies A brokerage will have internal privacy policies for the handling, retention and destruction of personal and sensitive information. The brokerage will have someone designated to be accountable for privacy compliance. Creating a mailing If asking for personal information from potential sellers and buyers on a web site, clearly state why the information is required and how it will be used. Ask for explicit consent; for list

©2019 Real Estate Council of Ontario

example, add a checkbox stating, “I consent to my name being added to a mailing list for promotional materials.” If you require buyers to sign in at an open house for security reasons, ensure this is stated on the sign-in sheet and do not add anyone to a mailing list without explicit consent.

Implementing safeguards

You must also ensure your activities comply with anti-spam legislation (CASL), as outlined in an earlier module. To help ensure compliance when retaining copies of original brokerage-held documents in a shadow file, consider the given guidelines: • Identify to the seller or buyer how you intend to make use of their personal information. • Obtain data collection permission from the seller or buyer and provide disclosure. Written consent is best • Collect only what is necessary for the uses identified. • Disclose information only for the reason it was collected. • Implement adequate security at your home to ensure no other person has access to the information; for example, a locked file cabinet and password protected computer.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 13 of 21

In addition to keeping copies of all offers, for every trade, a transaction file (also referred to as a trade file) will be created. Each trade is uniquely identified with a sequential identifier – often called a trade number. No matter how a brokerage keeps track of its files, it must be able to easily find the transaction files and the associated required reports for these trades. All documents, communications, and details relating to a trade should be included in the transaction file. As a salesperson, it is your duty to make sure the brokerage is given copies of all the documents that you use so they can be included in the transaction file. The most common documents for a transaction file include: • • • • • • •

The representation or customer service agreement The agreement of purchase and sale Amendments Notices (such as a notice of fulfillment or waiver) Receipts for deposits Communication with lawyers and other brokerages Trade record sheet

The trade record sheet provides an overview of the trade. There are specific requirements under REBBA relating to this. The given screens detail the requirements for a trade record sheet. ©2019 Real Estate Council of Ontario

Lesson 2 | Page 14 of 21

Trade Record Sheet A transaction file needs to be created for all activities that result in a trade. A trade record sheet is an important part of every transaction file. As a salesperson, you are required to provide information to the brokerage that will be used in the trade record sheet. Many brokerages create a document that resembles a trade record sheet and requires the salesperson to complete the document and turn that into the brokerage together with the accepted agreement of purchase and sale and other corresponding documents. The brokerage typically transfers the information to the trade record sheet (generated through the brokerage software). REBBA identifies specific information that must be included; for example, procedures for the preparation, correction, and signature of the salesperson, as well as the review and

©2019 Real Estate Council of Ontario

signing by the broker of record. A trade record sheet is required whether the brokerage represents the party as a client, or provides services to the party as a customer. A trade record sheet must be completed with the available information when a brokerage receives any payment related to a trade in real estate, including a referral fee or an appraisal fee. When there are no conditions in the agreement that remain to be satisfied, you, as a salesperson, will be required to review, make necessary corrections, initial the corrects, and sign the trade record sheet. A trade record sheet is prepared by each brokerage involved in a trade. When the listing and sale are in the same brokerage, or two or more salespersons are involved, for privacy reasons a brokerage will prepare separate trade records for each salesperson detailing their individual remuneration distributions. Each trade record sheet will be reviewed and signed by the broker of record. When the brokerage is holding a buyer’s deposit in their statutory trust account, the trade record sheet will include additional deposit information relating to the receipt and disbursement of the funds. In some instances, a brokerage could place a buyer’s deposit into their trust account even though no acceptance of an offer occurs. For example, an offer is being negotiated over several days and the buyer’s deposit was provided along with the offer. The brokerage places the deposit into their statutory trust account. Negotiations do not result in an accepted offer so the buyer’s deposit must be returned. Under these circumstances, a mutual release is not required since the offer was never accepted. The brokerage will still create a trade record sheet to document the receipt and disbursement of the buyer’s deposit. They will also retain a copy of the unaccepted offer along with the trade record sheet to support the trust account activities.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 15 of 21

Trade Record Sheet Information When an offer has been accepted, a trade record sheet is completed by both the listing and co-operating brokerages (if applicable). When there are no remaining conditions to be satisfied, you will be required to review the trade record sheet, make all necessary corrections, initial the corrections, and sign it. When making a change, do not erase or eliminate a previous entry – leave the entry legible. The broker of record will review the trade record sheet and sign it when satisfied that the information is correct. If the broker of record is not satisfied that the information is correct, the trade record sheet is returned to you for corrections prior to being signed. The trade record sheet must have the given information: • • •

Nature of the trade: Identify if the trade involves the sale, lease/rent, exchange, or option Description of the real estate sufficient to identify it: Provide the municipal address or legal description True consideration for the trade: Identify the sale price, rent, exchange value, option price or a fee for other transactions, such as a referral fee or appraisal fee ©2019 Real Estate Council of Ontario

• • • •

• • •

Names of all parties to the trade: Include all parties, not just the parties being represented or provided services by the brokerage in instances where there is a listing brokerage and co-operating brokerage Names and contact information for the lawyers representing the parties: Include the lawyer’s information for both the seller and buyer or the landlord and tenant Names and contact information of all registrants representing or providing services to the parties: Include the listing brokerage, co-operating brokerage (if applicable) and all salespersons information Deposit information: Amount of the deposit if it is money, description of the deposit if it is not money (such as the ownership for personal property, like an off-road vehicle or a boat), record of the disbursement or withdrawal of the deposit Amount of remuneration payable to the brokerage and the name of the party paying it - include the name of the seller and/or buyer Amount of remuneration payable to another brokerage and the name of that brokerage: Include remuneration payable to a co-operating brokerage and identify the co-operating brokerage Completion date for the trade - Include the scheduled completion date and any amended completion date when applicable

©2019 Real Estate Council of Ontario

Lesson 2 | Page 16 of 21

Additional Information A brokerage may customize the format and add additional information provided that all minimum requirements for trade record sheets are met. A brokerage could include additional information such as: • • • • •

Date of the trade record sheet Internal reference number related to the transaction, such as a number provided by a local listing service Remuneration distribution between the brokerage and the salesperson Interest earned on a buyer’s deposit Remuneration trust agreement between the brokerage and the salesperson

As outlined earlier, a copy of the trade record sheet will be provided to you once the broker of record has reviewed and signed the document. This can be used as confirmation of the remuneration distribution for the trade. In some instances, the trade record sheet documents the remuneration trust agreement for you as a salesperson. Under the RECO Insurance Program, there is protection in the event of fraud, insolvency, or misappropriation of funds. You will learn more about the RECO Insurance Program and additional coverages later.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 17 of 21

A salesperson is listing a property owned by a technology company. The salesperson’s spouse has shares in the company. What are the salesperson’s requirements for disclosure to the buyer before an offer is made? There are five options. There are multiple correct answers. 1 2 3 4 5

That they are a registered salesperson Any facts that will affect the value of the real estate involved Disclosure in writing Any negotiation or agreement they have conducted for the sale or disposition of an interest in the real estate to any other person Disclosure verbally

©2019 Real Estate Council of Ontario

Lesson 2 | Page 18 of 21

The seller has indicated they are thinking about delaying offers until a specific date in order to build interest in the property and attract competitive bids. What information should the salesperson provide the seller to help them make the best decision? There are five options. There are multiple correct answers. 1 2 3 4 5

A buyer who doesn’t want to wait for the presentation time may not make an offer on the property. If no offers are received by the presentation time, buyers may feel that the property is overpriced or that something is wrong with the property. A delayed presentation date may lead to pre-emptive offers. The Code requires that all offers be presented as soon as possible regardless of any instructions from the seller. Once a seller gives written instructions to delay offer presentations, in order to provide fairness to all potential buyers, the instructions cannot be changed.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 19 of 21

A salesperson’s listing has just been sold by a salesperson from a co-operating brokerage. All copies of the agreement of purchase and sale have been distributed, and the listing brokerage has received the deposit. Based on the requirements under REBBA for trade record sheets, what statements are true about the trade record sheet prepared for each brokerage. There are five options. There are multiple correct answers. 1 2 3 4 5

The trade record sheet documents the remuneration payable and who is paying The trade record sheet documents the disbursement or withdrawal of the deposit Both the salesperson and the broker of record sign the trade sheet The trade record sheet provides an overview of the trade The trade record sheet is prepared by the brokerage when the transaction is completed

©2019 Real Estate Council of Ontario

Lesson 2 | Page 20 of 21

A listing salesperson has presented an offer from a co-operating brokerage to their sellers. The seller has accepted the offer and signed the confirmation of acceptance. What are the listing and co-operating salespersons required to do with the copies of the agreement in order to comply with REBBA? There are four options. There is only one correct answer. 1 2 3 4

The listing salesperson must give a copy to each of the sellers and must retain a copy of the agreement in their personal files The co-operating salesperson must give a copy to each of the buyers and must retain one for their personal file Since the listing brokerage receives a completed copy, there is no need for the co-operating brokerage to retain a copy If a salesperson elects to retain a shadow copy, they must follow the requirements under the Personal Information Protection and Electronics Documents Act (PIPEDA)

©2019 Real Estate Council of Ontario

Lesson 2 | Page 21 of 21

Congratulations, you have completed the lesson! There are five sections on this page with a summary of the key topics that were discussed in this lesson.

Disclosure of interest

Considerations for written directions for receiving offers

Document retention

When a salesperson has a direct or indirect interest in a trade, they must disclose this interest to all parties before an offer. The disclosure must be in writing and includes any facts known that could affect the value, any subsequent sale or lease of the property that has been negotiated, and any payment that will be made, other than what is in a listing or service agreement. All offers must be conveyed as soon as possible unless there are written directions from the seller or the buyer to do otherwise. Delaying the offer conveyance may produce preemptive offers. The seller must specify exactly how they should be handled so that the process is fair and transparent for all potential buyers, and the seller makes a fully informed decision. Any change to the written direction must be in writing and any listing information immediately updated. Anyone who has expressed an interest in the property is to be notified of the change in the written directions. REBBA has requirements for maintaining copies of documents relating to the offer process. As a salesperson, your activities to ensure compliance include the given: • An offer in writing and signed. • Copies of written offers received that must be retained by the seller’s brokerage – this includes an offer that is rejected or countered. The seller’s brokerage must retain unsuccessful offers for at least one year. • A summary document that can be used for unsuccessful offers, but only when a buyer’s offer is made through a brokerage. A summary document may not be used when the person making the offer is not a client or a customer of a brokerage. • Accepted offers that must be retained in their entirety and submitted to the brokerage. This document must be retained for at least six years.

©2019 Real Estate Council of Ontario

Safeguarding information

Requirements for a trade record sheet

Maintaining your own file on potential or completed transactions is known as a shadow file. Ensure this type of data collection is permitted by your brokerage, and if so, your activities meet the requirements required to safeguard the information. The given guidelines will help ensure compliance: • Identify the uses you intend to make of the personal information. • Obtain permission for the data collection and disclosure – written consent is best. • Collect only what is necessary for the uses identified. • Disclose information only for the reason it was collected. • Implement adequate security at your home to ensure no other person has access to the information. All activity that results in a trade requires that a transaction file (also known as a trade file) be created, which includes a trade record sheet. As a salesperson, you may not be required to prepare a trade record sheet as these can be done by the brokerage. However, REBBA identifies specific information that must be included; for example, procedures for the preparation, correction and signature of the salesperson, as well as the review and signing by the broker of record. A brokerage may customize the format and add additional information provided that all minimum requirements are met. A copy of the trade record sheet will be provided to you once the broker of record has reviewed and signed the document. This can be used as confirmation of the remuneration distribution for the trade. In some instances, the trade record sheet documents the remuneration trust agreement for you as a salesperson.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 1 of 43

Lesson 3: Compliance With Requirements Under FINTRAC

In this lesson, you will review the requirements under FINTRAC for identification verification and documenting a buyer’s deposit. The lesson also describes suspicious activity, mortgage fraud, and your responsibilities as a salesperson under the Code relating to these situations.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 2 of 43

Compliance with the Requirements under FINTRAC As part of the offer drafting and negotiations, as a salesperson, you must ensure you are in compliance with federal obligations. As you learned earlier, the Federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act requires all brokerages to comply with various requirements. Certain information must be reported to FINTRAC which administers the Act. Every brokerage must appoint a compliance officer and must develop a compliance program that includes relevant office policies and procedures. You should seek guidance from the brokerage’s compliance officer for all matters related to FINTRAC and the required reporting. In addition to individual obligations such as ‘know your client’ and recordkeeping, you are also required to be vigilant in assessing and reporting any suspicious activity that may relate to criminal or terrorist financing of real estate. This lesson explains how the Act is applied to your activities as a salesperson. ©2019 Real Estate Council of Ontario

Upon completion of this lesson, you will be able to: • List the requirements and procedures for verifying the identity of parties to a trade • Identify the information that should be reported to FINTRAC • Identify suspicious activity that should be reported to FINTRAC • Identify the record keeping requirements for compliance with FINTRAC • Identify leading practices of a salesperson during a transaction with a seller or buyer Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 3 of 43

Proceeds of Crime (Money Laundering) and Terrorist Financing Act The Proceeds of Crime (Money Laundering) and Terrorist Financing Act is administered by the Financial Transactions and Reports Analysis Centre of Canada, commonly known as FINTRAC. The Act sets out compliance requirements for all brokerages, brokers, and salespersons related to the selling and buying of real property. This includes identifying and reporting suspicious transactions or properties that may be owned by terrorists, and retaining, for a specific amount of time, records of all reports submitted and as well as information and reports related to each transaction. The purpose of the Act is to provide law enforcement officials with the information they need to investigate and deter money laundering and terrorist financing activities in Canada and abroad, and the ability to prosecute these criminal activities. As a salesperson, this will require you to understand your client to help: • Identify suspicious transactions or activities • Verify the identity of the individuals who are a seller or a buyer • Confirm the existence of corporations or other entities • Complete ongoing monitoring • Determine if a third party is acting for a transaction • Complete additional specific reports relating to a buyer’s deposit, suspicious activity, or property owned by a terrorist You are required to report certain transactions to FINTRAC and retain records relating to each transaction which can be made available to FINTRAC when requested. ©2019 Real Estate Council of Ontario

Lesson 3 | Page 4 of 43

Compliance Requirements for a Brokerage Specific requirements are set out that a brokerage is required to comply with. There are five required elements of a compliance program a brokerage must establish and implement. The following five sections contain information on the brokerage requirements.

Compliance officer

Written policies and procedures

Every brokerage must appoint a Compliance Officer to implement all of the elements of the compliance program. The compliance officer is knowledgeable about FINTRAC obligations, business practices, terrorist financing risks and vulnerabilities, and trends and typologies for the sector. Every brokerage must develop written policies and procedures. The policies and procedures are used to guide decisions and actions to ensure the brokerage and salespersons meet their obligations. These policies must be updated as required and include enhanced measures to mitigate high risks.

©2019 Real Estate Council of Ontario

Risk assessment

Every brokerage must complete a written risk assessment of their business activities and relationships. This assessment is an analysis of potential threats and vulnerabilities to money laundering and terrorist financing that the brokerage faces. The brokerage must also implement mitigation strategies associated with the risks, and document the process and results.

Ongoing compliance training

Every brokerage must implement a documented training program that is reviewed and kept up to date. The training is provided to everyone acting on its behalf who are in contact with clients. The training must address all obligations and include an overview, specifics, frequency and methods or steps for each obligation. The brokerage must keep a record of each training event detailing attendees and materials.

Two-year program effectiveness review

Every brokerage must conduct, at a minimum every two years, an evaluation to test the effectiveness of the compliance program. The review also needs to identify gaps so that the program can be adjusted.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 5 of 43

Salesperson Obligations A brokerage has specific obligations that must be met by all individuals employed by the brokerage who interact with sellers and buyers. As a salesperson, you will be directly involved in meeting these obligations. It is essential for you to understand the obligations to ensure the brokerage meets all of its requirements. These obligations apply when you receive remuneration for the transaction regardless of whether the seller or the buyer is a client or a customer of the brokerage, or is an unrepresented person, such as a private for sale by an owner. As a salesperson, your obligations can be categorized under three areas: 1. Know your client 2. Reporting 3. Recordkeeping

©2019 Real Estate Council of Ontario

Lesson 3 | Page 6 of 43

Know Your Client: Understand Your Client The term client, for the purpose of this discussion, refers to any party to a transaction and not the relationship a brokerage may have established with the seller or the buyer. Your obligation as a salesperson is to know your client. This means understanding your clients and knowing what their normal transactions and activities are so you can identify any that seem irregular or suspicious. Use questions to help understand who your client is: • Ask why they chose your brokerage – find out if the reputation, remuneration, experience of the salespersons was part of their considerations • Ask how they found you as a salesperson – if they selected you simply by searching the internet and doing no additional investigation about you or your brokerage, this might appear suspicious • Learn about their family – this helps determine if the client is purchasing property that makes sense based on their family • Determine how they are connected to the community – this helps determine if there is an existing connection to the community or if the client is new to your area • Find out what they do for a living – this helps you determine where the money for a purchase is coming from and can help assess if the income is too low to support the purchase price of a property ©2019 Real Estate Council of Ontario

Lesson 3 | Page 7 of 43

Know Your Client: Verify Individual Identity Part of knowing your client includes learning about their identity. Identifying an individual requires viewing certain information using one of the approved methods. The listing brokerage is required to identify the seller and the cooperating brokerage is required to identify the buyer. When the listing brokerage is representing or providing services to both parties, the listing brokerage is required to identify both the seller and the buyer. Typically, the listing salesperson and the selling salesperson will complete this verification, which must be done according to the allowable methods. Identifying an individual directly means you are the person responsible for verification. Depending on the verification method used, you may have to meet in person with an individual. The following three sections contain information on the acceptable photo identification documents and the methods for verifying the identity of the individual when you are doing this directly.

Photo identification (Single process method) For this method, photo identification issued by a provincial/territorial or federal government is acceptable. However, photo documents issued by a municipal government are not acceptable. A foreign issued driver’s license or passport is acceptable. The name and photograph on the identification ID must match. The individual must be present when the original document is used to compare the identification with the photo. The recordkeeping must include the date of verification.

©2019 Real Estate Council of Ontario

For recordkeeping purposes, record the given information from the identification document: • The individual’s name • Type of ID document and unique document number identifier • Issuing jurisdiction and country of the ID • Expiry date of the ID

Credit file (Single process method) For this method, a Canadian credit file in existence for at least minimum of three years can be used for verification. The credit file must be from a valid Canadian credit reporting agency such as Equifax or TransUnion provided it meets the given criteria: The name, Address, and Date of Birth of the client must match what information they have provided. If the information does not match, another form of identification must be used. Recordkeeping requires the given information to be obtained from the credit file: • The source of the credit file • A reference number from the credit file This review does not need to be face to face. The recordkeeping must include the date of verification. The search must be conducted at the time you verify

©2019 Real Estate Council of Ontario

the individual’s identity. A previous credit file is not acceptable. The credit report cannot be provided by the individual. A copy must be obtained directly by you from a Canadian credit bureau either directly or by a thirdparty vendor who is authorized to provide it to you.

Dual process method For this method, two original, valid, and current identification documents or information from independent and reliable sources can be used. The two sources must be different issuers/providers who are well known and considered reputable. Reliable sources can include: • Federal, provincial, territorial, and municipal levels of government – for example, a municipal property tax statement or a notice of assessment from the Canada Revenue Agency • Crown corporations – for example, a statement issued by an employer that is a crown corporation (e.g., Canada Post) • Financial entities – for example, a credit card statement or a bank statement • Utility providers – for example, an electric or natural gas bill

©2019 Real Estate Council of Ontario

You may not rely on the same source for the two documents. If a document does not have an expiry date, it must be a recent version of the document. Original documents must be provided. This includes either the original paper or electronic document the individual received or has obtained from the issuer either through posted mail or electronically. For electronic documents, an individual can email the original electronic document, show the document on their phone, tablet, or laptop, print the electronic document, or show the document in the original format such as a PDF. The documentation must verify the client’s name and contain two out of these three requirements: • Client’s name and date of birth – for example, an original birth certificate • Client’s name and address – for example, utility bill or a property tax assessment • Client’s name and confirmation of a financial bank account – for example, a bank statement, or a credit card statement, or loan with a financial entity Confirm with your brokerage what documents can be used under the dual process method.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 8 of 43

Additional Considerations When Verifying Individuals In some transactions, the circumstances for individuals may require additional or different verification procedures be applied. The following three sections contain information on the verification requirements for each party.

Verifying previously identified clients

A client who has previously transacted with a brokerage and their identity was verified at an earlier time, does not have to be verified again. This is provided they are recognized and the process used at that time was one of the approved methods for verification of identity. Leading practices would be to include a photocopy of the original client identification record in the applicable new transaction file. If any information has changed regarding the individual or entity, then the salesperson should verify their identity and update the client information record.

©2019 Real Estate Council of Ontario

Verifying unrepresented individuals

The identity of an unrepresented individual in the trade should also be confirmed. If after reasonable measures an individual refuses, make a note of this refusal, the measures you have taken, the date you took the measures, and why they were unsuccessful. Proceed with the transaction. You may also need to consider any requirement for a Suspicious Transaction Report to FINTRAC for the refusal. Example – Unrepresented Seller: A salesperson who is representing a buyer approaches a seller who is offering their property for sale privately. The salesperson would verify the identity of the seller should a transaction occur on the property.

Example – Unrepresented Buyer: A salesperson has a property listed for sale and receives an offer from a buyer who is not being represented or provided any services by a brokerage. The salesperson would verify the identity of the buyer should a transaction occur on the property. Excluded activities Specific activities are excluded from the requirements to verify the identity of the individual, corporation, or other entity. Any activity related to property management, such as leases or rental management is excluded. This applies whether the leasing is residential or commercial in nature.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 9 of 43

Know Your Client: Verify a Corporation or Entity When the client is not an individual but a corporation or other entity, such as a trust or partnership, the existence of the corporation or other entity must be verified. Corporation The information required to confirm that the corporation exists, includes: • Name of the corporation • Corporate address • Nature of principal business • Names of all directors ©2019 Real Estate Council of Ontario

To confirm the existence of a corporation, as well as its name and address, you can refer to: • The corporation’s certificate of corporate status • A record that confirms the corporation’s existence, such as the corporation’s published annual report signed by an independent audit firm, or a letter or a notice of assessment for the corporation from a municipal, provincial, territorial, or federal government Verification can be done using paper documents or in an electronic version. If received from a paper document, you must retain it or keep a copy of it as your record. If an electronic version is used, you must keep a record of the corporation’s registration number, the type of record referred to, and the source of the electronic version of the record. Electronic confirmation must be from a provincial or federal database that is accessible by the public. For example, you can obtain federal corporation details including directors’ names from the Corporations Canada website (http://corporationscanada.ic.gc.ca). An electronic search of provincial corporations is available if you subscribe to a corporation searching and registration service. Obtain and keep the documentation showing the authority to bind the corporation (from the articles of incorporation or bylaws) to confirm the correct individual is asked to sign any documentation relating to a trade. You will also be required to verify the individual who is acting under the authority of the corporation for the transaction. Entity An entity other than a corporation can include a trust, a fund, a partnership, and an unincorporated association or organization. The information required to confirm the existence of these other entities includes the name and address of the entity, and the articles of association, partnership agreement or similar document. A paper copy or electronic record confirming the entity existence must be retained with the verification form. As with corporations, if the confirmation is electronic, it must be from a public source and must include the entity’s registration number, and the type and source of the record used. Beneficial Ownership Requirements When verifying the identity of an entity, the following information on beneficial ownership must be obtained:

©2019 Real Estate Council of Ontario

• For Corporations: Names of all directors of the corporation and names and addresses of anyone who in any way owns or controls 25% or more of the shares of the corporation • For widely held or publicly traded trusts, such as a real estate investment trust (REIT): Names of all trustees and names and addresses of anyone who in any way owns or control 25% or more of the units of the trust • For trusts: Names and addresses of all trustees, beneficiaries, and settlors of the trust • For other entities: Names and addresses of anyone who in any way owns or controls 25% or more of the entity • For all cases: Information confirming the ownership, control, and structure of the entity Additionally, a real estate brokerage or salesperson will have to confirm the accuracy of the information when it is first obtained and keep a record of the information as well as the steps taken to verify the accuracy of the information.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 10 of 43

Obtaining Identification Verification on Your Behalf As a salesperson, there will be circumstances when the identification of an individual, corporation, or other entity is being completed by someone on your behalf, rather than by you directly. This can be done by an agent or a mandatary. • Agent – this would be an individual who is representing the client; for example, a lawyer who is representing the seller or the buyer could verify their identification. • Mandatary – this would be an individual who has been retained specifically to identify the client; for example, a salesperson with a brokerage or a lawyer or notary who is located in the same location as the client. When using an agent or mandatary, there must be a written agreement in place prior to identifying the individual on your behalf.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 11 of 43

Required information – Using an Agent or Mandatary An agent or mandatary is used when you cannot directly verify the identity of the client. This could occur because the client resides outside of Ontario or Canada. The agent or mandatary must use one of the three direct client identification methods described previously – photo ID, credit file, or dual process – to directly verify the client’s identification. FINTRAC requires the brokerage to retain the given information as a record of the identification: • • • • • •

Full name of the agent or mandatary that ascertained client identity Client identification method used Information gathered according to the method used Date the identity of the client was verified Date the brokerage referred to the client identification information provided by the agent or mandatary Copy of the agreement with the agent or the mandatary ©2019 Real Estate Council of Ontario

Lesson 3 | Page 12 of 43

Know Your Client: Determine Third Party Involvement A third party is an individual who you are not interacting directly with, but is providing the instructions or supplying the funds for the purchase. For example, a father is purchasing a property for his daughter to live in while she is at university. The father is abroad, and the daughter is making the purchase. Both the daughter and the parent must be identified for the transaction. The parent would be viewed as a third party. Ensure the relationship between the client and the third party is documented. • Ask the individual you are dealing with if they are conducting the deal on their own or on someone else’s behalf. • Obtain the third party’s name, and address: o If an individual include date of birth and principal business or occupation. o If an entity include principal business. o If a corporation include principal business, incorporation number and place of issue. • Record the relationship between the client and the third party. If you are unable to determine if a third party is involved, but there are reasonable grounds to suspect that this is the case, record your efforts to identify the third party and rationale for doing so. ©2019 Real Estate Council of Ontario

Lesson 3 | Page 13 of 43

Risk Assessment – Individual, Corporation, and Other Entities Brokerages must develop a risk-based approach for each client which includes policies and procedures used by a salesperson to determine the risk category for a client. All clients – whether an individual, corporation, or other entity – are assessed on their level of risk in relation to being involved in money laundering or terrorist financing. The risk level for each client determines how often you must conduct any ongoing monitoring of the client. The assessment can include client groups based on profiles that share similar characteristics as detailed in the brokerage’s policies. This allows a client to be placed in a specific risk category which ranges from low to high risk. If a client does not fall within the brokerage’s client groups, you will need to provide a risk assessment of the client and explain how their level of risk was determined. If a client is high risk, the brokerage may require senior management approval to continue the relationship and/or enhanced measures such as obtaining additional information on the client, their source of funds, and the reasons for the transactions. Consult with the brokerage’s Compliance Officer should there be any concern regarding risk assessment.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 14 of 43

Know Your Client: Monitor Ongoing Business Relationships A business relationship with an individual, corporation, or other entity must also be identified and documented. A business relationship is effectively established whenever a brokerage is required to verify the identification of a client. Example – Business Relationship Established: An individual sells their current property and at the same time, purchases a new property using the same brokerage. This establishes a business relationship. Example – No Business Relationship Established: An individual leases a residential apartment using the same brokerage. As the leasing does not require identification verification, a business relationship has not been established. The five-year period requirement would begin again, should the brokerage and client complete a transaction at any time during the five years following the latest transaction. For example, a client who last transacted

©2019 Real Estate Council of Ontario

three years ago is now entering into another transaction with the brokerage. The five-year period would start again with the new transaction. When a brokerage has established a business relationship with a client, FINTRAC requires that the brokerage, among other things: 1. 2. 3.

Keep a Purpose and Intended Nature record – this describes the business dealings with the client and will help you anticipate the types of transactions and activities the client may conduct Ensure client information is kept up to date – this requires ongoing, periodic monitoring of the business relationship to keep their information and Purpose and Intended Nature record accurate Keep a record of the measures taken to monitor the business relationship; for example, keeping pertinent records and correspondence on file

Depending on the level of risk determined for the client, the frequency of the ongoing monitoring will vary. Once five years has passed from the last transaction that required you to identify the client, the business relationship no longer exists and does not need ongoing monitoring. Politically Exposed Persons (PEP) and Heads of International Organizations (HIO) If a business relationship is with an individual, then the real estate broker or salesperson must determine if that person is a PEP, foreign or domestic, an HIO, or a family member or close affiliate of one of those persons. A PEP or head of an HIO is someone in a prominent position that can influence decisions and control resources. This action must be done when entering the business relationship and from time to time during the business relationship. Real estate brokers and salespersons must also take action to confirm if a person from whom they receive $100,000 or more, in cash or virtual currency, is a foreign PEP, a domestic PEP, an HIO, or a family member or close associate of any of those individuals or not. A real estate broker or salesperson must also take reasonable action to confirm if they suspect that the person they are in a business relationship with is a foreign PEP, a domestic PEP, an HIO, or a family member or close affiliate of any of them.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 15 of 43

FINTRAC requires salespersons and brokerages to confirm the identity of all parties to a trade in real estate. After completing a trade with a new client, documenting the business relationship with them is a requirement under FINTRAC. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 16 of 43

FINTRAC requires salespersons and brokerages to confirm the identity of all parties to a trade in real estate. While preparing the offer with the buyer in person, asking about the relationship and identity of a person on the phone who seems to be directing the buyer is a requirement under FINTRAC. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 17 of 43

FINTRAC requires salespersons and brokerages to confirm the identity of all parties to a trade in real estate. When representing the buyer, before proceeding with an offer, verifying the identity of the seller who is selling their home privately is not a requirement under FINTRAC. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 18 of 43

FINTRAC requires salespersons and brokerages to confirm the identity of all parties to a trade in real estate. Verifying the identity of a previously identified client by ensuring there are no changes to the records is a requirement under FINTRAC. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 19 of 43

A salesperson is working with a buyer who lives in England and would like to buy a vacation property in Ontario. How could the salesperson verify the identity of the buyer? Indicate which of the given statements is/are correct in regard to the salesperson ascertaining the identity of the buyer. There are four options. There are multiple correct answers.

1 2 3 4

Ask the buyer to fax or email a copy of their photo identification and use that document to verify the individual Ask a mandatary or agent to verify the individual using one of the three direct identification methods Arrange a written contract with a mandatary or agent to verify the identity of the buyer Ask the mandatary or agent to prepare a verbal report on their findings

©2019 Real Estate Council of Ontario

Lesson 3 | Page 20 of 43

Your obligations to FINTRAC include reporting large cash transactions, large virtual currency transactions, suspicious transactions, and terrorist properties. As a salesperson, you should be aware of suspicious activity relating to money laundering and terrorist financing. Money laundering disguises the source of money or assets received from criminal activity. In money laundering, the money is moved after a crime has taken place. Terrorist financing supports terrorist activity by using funds obtained through both legitimate and criminal or fraudulent methods. Typically, the money is moved before the crime has taken place.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 21 of 43

Required Reports The Proceeds of Crime (Money Laundering) and Terrorist Financing Act requires a report be submitted to FINTRAC when there are reasonable grounds to suspect that a real estate transaction involves activities related to money laundering and terrorist financing. All reports submitted to FINTRAC must be kept by the brokerage for a minimum period of five years. • Large Cash Transaction Report (LCTR) This report is submitted when funds received by a brokerage are $10,000 or more and the funds are provided in cash. A large cash transaction is a red flag for someone wanting to hide the source of funds from money laundering or terrorist financing. Funds of $10,000 or more received in a method other than cash, such as a certified cheque, bank draft, or money order, do not require this report. o The LCTR must be submitted within 15 days of the transaction.

©2019 Real Estate Council of Ontario

• Large Virtual Currency Transaction Report (LVCTR) This report is submitted when funds received by a brokerage are equal to $10,000 or more in virtual currency. o The LVCTR must be submitted within five working days after the day upon which the currency is received.

• Suspicious Transaction Report (STR) This report is submitted when there are reasonable grounds to suspect that the transaction is related to the commission or attempted commission of a money laundering or terrorist activity financing offence. Suspicion might result from one transaction or attempt or a series of transactions There is no monetary threshold associated with the reporting of a suspicious transaction. o The STR must be submitted as soon as practicable after determining a suspicious transaction(s). • Terrorist Property Report (TPR) This report is submitted when any property is owned or controlled by or on behalf of a terrorist or a terrorist group, or it is believed to be. A report is required when there is a transaction or a proposed transaction relating to that property. o The process for submitting a TPR is different:  Contact the RCMP or CSIS immediately to report any suspicions of terrorist financing activity.  Submit a TPR report without delay to FINTRAC. Also submit a Suspicious Transaction Report if there is a completed or attempted transaction.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 22 of 43

Indicators of Suspicious Behavior Behaviour is suspicious, not people. There is no one factor for what suspicious behaviour looks like. Generally, it is behaviour that is unusual for your client or business and often there are many factors that need to be considered. Not all indicators may apply to an interaction with a client. Consult your brokerage’s Compliance Officer for assistance in making this determination. The following four sections contain examples of what might be considered indicators of suspicious activity. The indicators have been loosely grouped into categories and are often interrelated.

©2019 Real Estate Council of Ontario

Indicators dealing with payments When obtaining deposits, indicators include: • Client refuses to identify source for funds or provides incorrect or conflicting information (i.e., information keeps changing or contradicts an earlier piece of information or does not make sense) • Client appears to be structuring amounts to avoid reporting thresholds; for example, several cash deposits within a short time period under$10,000 each • Client appears knowledgeable about reporting thresholds when paying a deposit by cash • Unrelated parties with no apparent connection to the person making the purchase provides the deposit for the transaction • Client uses multiple accounts at several financial institutions for no apparent reason • Client arrives at a real estate closing with a significant amount of cash • Client pays substantial down payment in cash and balance is financed by an unusual source or offshore bank

©2019 Real Estate Council of Ontario

Indicators dealing with the purchase and sale of properties When drafting an agreement of purchase and sale, indicators include: • Client exhibits a lack of concern about higher than normal transaction costs or fees • Client appears to be purchasing a property that is beyond their financial capabilities • Size or type of transaction is not typical of the client • A sudden change in the client’s financial profile, pattern of activity, or transactions • Client insists on providing a signature on documents by facsimile only • Client purchases property without inspecting it • Client purchases multiple properties in a short time period, and seems to have few concerns about the location, condition and anticipated repair costs, etc., of each property

©2019 Real Estate Council of Ontario

Indicators dealing with identification When identifying the person or entity, indicators include: • Client identification is not possible, or their identity creates questions • Client provides misleading, vague, or information that cannot be verified • Client provides copies of identification rather than the original document • Inconsistencies in the information, such as address, date of birth, or phone number • Address is a post office box rather than a physical residence • Client alters the transaction after being asked to verify their identity

©2019 Real Estate Council of Ontario

Indicators dealing with behaviour When applying the information obtained through the ‘know your client’ requirements, indicators include: • Client provides false or misleading information that is evident • Client exhibits unusual behaviour, such as being nervous or defensive • Client refuses or is reluctant to provide information • Client is unaware of the details about the transaction • Client uses a third party to act on their behalf when this is not logical based on what you know about the client • Client conducts a transaction while accompanied or directed by another party

©2019 Real Estate Council of Ontario

Lesson 3 | Page 23 of 43

Terrorist Property – Reporting Requirements Terrorists can be an individual, a group, a corporation, or another entity. Your brokerage will have information on accessing the applicable databases to confirm and verify whether the names of clients are on a published list of known terrorists or a terrorist group. If it is known or it is believed that the property is owned or controlled by or on behalf of a terrorist group, report your suspicions right away to the RCMP or CSIS and then submit a Terrorist Property Report to FINTRAC. The report must describe the property and include information about the terrorist, the terrorist group, the individual, corporation, or other entity that has carried out, or attempted to carry out any activity related to the property. If you know that a transaction is related to property that falls under these criteria, also submit a Suspicious Transaction Report to FINTRAC.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 24 of 43

You also have recordkeeping obligations under FINTRAC. As a salesperson, you will be responsible for records of all transactions with sellers and buyers, and for other circumstances such as reports submitted to FINTRAC. The records must be kept for a specific amount of time and be available to FINTRAC on request.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 25 of 43

Recordkeeping Requirements As a salesperson, you will be responsible for five kinds of records: • • • • •

Client information Receipt of funds All submitted reports Unrepresented party Reasonable measures taken

The following six sections contain information on recordkeeping requirements for each category.

Client information: individual identification record

As described earlier, there is specific information that must be obtained and specific methods used to verify the identification of a client. This information is then contained in a client record that must be retained for five years. Completing these records is required for each seller and buyer for every purchase and sale of real property. A separate record is completed for each seller and each buyer by their respective brokerages. If the listing brokerage is also working with the buyer, they would complete the identification information record for all parties. This includes any unrepresented party. At minimum, identification must be made: • For the buyer, when the offer is submitted, and the deposit is taken • For the seller, when the offer is accepted However, identification can be made earlier if appropriate. Salespersons are strongly encouraged to discuss FINTRAC requirements with their clients as soon as possible to avoid any problems or confusion.

©2019 Real Estate Council of Ontario

The information required for a client record when the client is an individual would include: • Full legal name, address, date of birth, and the nature of their principal business or occupation • The information required based on the method used to verify their identity – Photo ID method, Credit File method, or Dual Process method • Information on unrepresented parties • Verification of third parties • Client risk • Business relationship

Client information: corporation or other entity identification record

The information required for a client record when the client is a corporation or other entity would include: • Name and address of the corporation or other entity, and the nature of its principal business • Names of directors for a corporation • Names and addresses of all beneficial owners • Type and source of verification record • Registration number of the corporation or other entity • Identify who is shown as having authority to bind the corporation – attach a copy of the document used to confirm this • Information on unrepresented entity • Verification of third parties • Client risk • Business relationship You must keep a record of unrepresented entities. You do not have to keep a client information record if the client is a public body (government agency) or a very large corporation (must meet specific criteria).

©2019 Real Estate Council of Ontario

Receipt of funds

A receipt of funds record is required for every real estate transaction to document the receipt of a buyer’s deposit. The given information is required for the record: • The name, address, date of birth, and the principal business or occupation address of the individual who provided the funds • The name, address and nature of their principal business if the funds are received from a corporation or other entity • If received by a corporation, a copy of the official corporate records that provides for the power to bind the corporation; for example, the president, treasurer, vicepresident, or comptroller • The amount and currency of the funds received • The type of funds received; for example, cheque, certified cheque, cash, bank draft (if received in cash, how the cash was received, such as in person, by mail, or armoured car) • Date of the transaction • Purpose of the funds; for example, for the deposit on the purchase of a residential property • Information on other individuals or entities involved in the transaction; for example, a deposit cheque received from the parent of the buyer • If funds are withdrawn from or deposited to an account, document the account number, type of account, full name of the account holder A receipt of funds is not required if: • Funds are received from a financial entity (bank, credit union), a public body (government agency), or a very large corporation (must meet specific criteria) • A large cash transaction ($10,000 or more) is involved and a Large Cash Transaction Report is submitted to FINTRAC instead • If the deposit does not go into the brokerage’s statutory trust account; for example, the deposit is paid directly to a lawyer The buyer’s brokerage prepares the receipt of funds record and retains it for a period of five years. In multiple representation instances where only a listing brokerage is involved, that brokerage must complete the record.

©2019 Real Estate Council of Ontario

Submitted reports Records of all reports submitted to FINTRAC: • • • •

Large Cash Transaction Report – kept for five years Large Virtual Currency Transaction Report – kept for five years Suspicious Transaction Report – kept for five years Terrorist Property Report – no timeframe

Unrepresented party

Unrepresented parties should be identified in the transaction.

Reasonable measures

Keep a record when reasonable measures have been taken to comply with the obligations, but they were unsuccessful. The given information is to be documented: • The measures taken • Date • Reasons why the measures were unsuccessful

If an unrepresented party cannot be identified, keep a record of measures taken to identify the party and the dates the measures were taken.

Example: A salesperson asks a client if they are conducting a large cash transaction on behalf of a third party and they refuse to answer. A record must indicate you asked, the date, and the fact that the client refused to answer yes or no.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 26 of 43

A salesperson is responsible for records of all transactions with sellers and buyers. Verifying the identity of the seller and buyer is only completed after an offer has been accepted. Identify whether the given scenario is a true or false interpretation of FINTRAC recordkeeping requirements. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 27 of 43

A salesperson is responsible for records of all transactions with sellers and buyers. When completing the arrangements for renting a property, the identity of the renter must be verified. Identify whether the given scenario is a true or false interpretation of FINTRAC recordkeeping requirements. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 28 of 43

A salesperson is responsible for records of all transactions with sellers and buyers. If the entity is a provincial government agency, you do not have to keep a client information record. Identify whether the given scenario is a true or false interpretation of FINTRAC recordkeeping requirements. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 29 of 43

A salesperson is responsible for records of all transactions with sellers and buyers. Individual identification records must be kept by each brokerage for one year. Identify whether the given scenario is a true or false interpretation of FINTRAC recordkeeping requirements. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 30 of 43

A large cash transaction is a red flag for someone wanting to hide the source of funds from money laundering or terrorist financing. A brokerage receives a cash deposit of $5,000. The brokerage completes a receipt of funds record to document the receipt of the buyer’s deposit. This means that if you keep the required information and can produce it during a FINTRAC examination, you do not need to create a new record to meet your obligations. Identify whether the given scenario is true or false interpretation of FINTRAC requirements for receiving funds. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 31 of 43

A large cash transaction is a red flag for someone wanting to hide the source of funds from money laundering or terrorist financing. A brokerage receives a cash deposit of $15,000. The brokerage completes a receipt of funds record to document the receipt of the buyer’s deposit and completes a Large Cash Transaction Report to send to FINTRAC. Identify whether the given scenario is true or false interpretation of FINTRAC requirements for receiving funds.

There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 32 of 43

A large cash transaction is a red flag for someone wanting to hide the source of funds from money laundering or terrorist financing. A brokerage receives a $50,000 deposit by way of a certified cheque. The brokerage reports these funds to FINTRAC on the Large Cash Transaction Report. Identify whether the given scenario is true or false interpretation of FINTRAC requirements for receiving funds. There are two options. There is only one correct answer. True

False

Lesson 3 | Page 33 of 43

A large cash transaction is a red flag for someone wanting to hide the source of funds from money laundering or terrorist financing. A brokerage receives a $20,000 deposit from a buyer in the form of an electronic funds transfer from a bank. The brokerage completes a receipt of funds record to document the receipt of the buyer’s deposit. Identify whether the given scenario is true or false interpretation of FINTRAC requirements for receiving funds. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 3 | Page 34 of 43

Salespersons and brokerages are required to report suspicious activity to FINTRAC. Identify which of the given statements is/are an indicator of suspicious activity. There are four options. There is only one correct answer. 1 2 3 4

The new buyer client is questioning the purpose of identification verification as the salesperson completes the process A buyer client who has provided misleading information about their funds in a foreign bank that cannot be verified A buyer client is purchasing two properties and seems unconcerned about any details about a problem in one property that will require repair A buyer client who is providing multiple cash deposits of $8,000 each spread over alternating days

©2019 Real Estate Council of Ontario

Lesson 3 | Page 35 of 43

Real estate, by its very nature, presents opportunities for criminals or terrorists to take advantage of sellers and buyers for financial gain. Illegal activities in a real estate transaction can include: • • • •

Identity theft Artificially inflated property values Falsifying information on mortgage applications Falsifying documents that are registered on the title to a property that could transfer title and register a mortgage

This could all happen without the knowledge of the true owner. Salespersons, through diligent professional practices, can identify potential fraud and help minimize this type of activity.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 36 of 43

Mortgage Fraud Mortgage fraud happens when the personal and financial information of an individual and/or the information relating to the property is falsified so that an approval for mortgage funding can be obtained. Mortgage fraud can include: • Falsifying information on a mortgage application about income, work status, or other employment information • Stating the borrower will reside in the residence when they will not • Obtaining monetary compensation to obtain a mortgage from a specific lender • Being offered an interest rate or mortgage amount that appears very competitive when the borrower has been declined by other lenders

©2019 Real Estate Council of Ontario

Lesson 3 | Page 37 of 43

Types of Mortgage Fraud Mortgage fraud can take place in various ways and can include several criminals working together. Successful counter measures require the combined effort of those involved – brokerages, lawyers, appraisers, and lenders – all working along with law enforcement agencies. The following four sections contain information on the types of mortgage fraud.

Straw buyers

A common form of mortgage fraud is when an individual is paid to apply for a mortgage on someone else’s behalf. This individual is known as the “straw buyer” and they unknowingly become liable for the mortgage and responsible to make the mortgage payments.

Falsifying information

Falsifying information on a mortgage application to qualify for a larger mortgage than your income or credit history would allow is a form of mortgage fraud. This could also include non-disclosure of a second mortgage to the primary lender – the lender believes the borrower has a larger down payment – when in fact, the money is borrowed. The second mortgage may or may not be registered to conceal this from the primary lender.

Identity theft

Homeowners could have their identity stolen and then used by someone else to obtain a new mortgage on a property. Once the mortgage funds are advanced, the deceiver does not make any mortgage payments, and the lender will subsequently take steps against the true homeowners for a mortgage they did not arrange. Identity theft can also result in the deceiver transferring a mortgage-free property into their name and selling the property. Once the funds have been paid and the transaction completed, the true homeowners must take legal action to regain ownership of their property.

Value fraud

This involves purchasing a property and then selling it to another purchaser at an artificially inflated price. This includes deceiving a mortgage lender or potential buyer about the value of the property by providing a false appraisal about the estimated value or falsifying the value or the extent of any renovations completed.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 38 of 43

Identifying Fraud Fraud is often difficult to casually detect, but telltale clues are present. Anyone involved with real estate or mortgage transactions should watch for key signals. However, warning signs are cumulative in nature. Obviously, no single factor will indicate fraud potential, but the more that appear, the more vigilant and diligent you need to be. The following five sections contain information signs that may indicate potential mortgage fraud.

Value is not supported by market data If the listing price or sale price of a property is not supported by the market data, the individual could use a falsified listing data sheet or agreement of purchase and sale to sell the property or obtain a mortgage.

©2019 Real Estate Council of Ontario

Things don’t add up Be sensitive to situations that don’t make sense: • A buyer who has a significant down payment but no tangible assets • An individual with limited employment history who has accumulated significant assets • A buyer who has a drastic increase in their income due to a raise or new employment • A seller who provides a large credit to the purchase price to offset improvement allowances when no such improvements are required

Unusual circumstances Be aware of out-of-the-ordinary situations: • One person acting on behalf of another in a transaction • A buyer not wishing to personally see the property, nor have it appraised or inspected

©2019 Real Estate Council of Ontario

Close connections Large fraud schemes typically require complicity. Circumstances that might indicate this possibility include the same professionals for a transaction providing services to the same buyer; for example, a lawyer, lender, and appraiser. Circumstance could also include various corporations shown as a buyer on several transactions, however the same individual is shown as having signing authority for those corporations.

Unusual requests/facts Many possibilities exist: • The buyer wants the property removed from the listing service immediately and the sale price is not reported • The property information does not align with the facts; for example: o The square footage of the home is overstated o The extent of renovations or the time period between a previous transaction closing and the property being listed for ©2019 Real Estate Council of Ontario

sale is too short to complete the renovations o No supporting market data to validate any increase in value • The buyer requests that the deposit be held by someone other than the listing brokerage for no apparent reason • The seller or buyer instructs you not to speak to a particular party involved with the transaction

©2019 Real Estate Council of Ontario

Lesson 3 | Page 39 of 43

Steps to Deter Mortgage Fraud As a real estate professional, you have the responsibility to be vigilant about mortgage fraud and help deter potential fraud. Consider the given steps to deter fraud: • Verify identification – know your clients • Keep client information secure and discuss identity theft with clients, and how it can lead to mortgage fraud • Advise a buyer to only provide a deposit to a lawyer or a brokerage, and ensure it is held in trust • Ask the seller for copies of documents that an owner would have; for example, the deed, survey, property tax bill, or a notice of assessment – exercise caution if they cannot be provided • Research the ownership history of the property, including previous listing and selling prices to assess if this history is logical for the market conditions • Provide copies of the agreement of purchase and sale to the lender or appraiser to ensure the correct version of the agreement is being used

©2019 Real Estate Council of Ontario

• Educate your sellers and buyers about suspicious situations that could lead to mortgage fraud, including: o Being asked to inflate (overstate) their income on a mortgage application, indicate they plan to live in a property being purchased as a rental property, or provide other false statements o Being asked to sign documents that contain blanks or asked not to complete certain sections of a form or document o Being offered a fee for the use of their name and credit information o Being discouraged from visiting the property, having the property appraised, or inspecting the property they are purchasing

©2019 Real Estate Council of Ontario

Lesson 3 | Page 40 of 43

Requirements to Ensure Accuracy and Ethical Practice in a Trade As a salesperson, you have the responsibility to ensure that you do not knowingly make incorrect statements regarding a trade in real estate and to use your best efforts to prevent error, misrepresentation, fraud or any unethical practice. The following two sections contain information on the requirements to ensure accuracy and ethical practice.

Inaccurate representation

As a salesperson, you must not knowingly make an inaccurate representation about a trade or the services provided. Knowingly providing false or misleading information about a property can contribute to mortgage fraud. Example: A seller asks you to round up the square footage of the home to 2,000 square feet from the current 1,825 so that the information supports a higher listing price. If this was complied with, it would be considered an inaccurate representation about the property.

As a salesperson, not only must you avoid fraud, error, or misrepresentation but you must Prevent error, misrepresentation, take steps to prevent it. and fraud Example: A buyer is completing a mortgage application and in conversation with their salesperson states they would like to provide an income based on both spouses being employed, even though one spouse is currently unemployed and looking for a new job. If this was allowed to be submitted, the salesperson would be in non-compliance of preventing fraud, error, or misrepresentation.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 41 of 43

Salespeople should be aware of, and try to prevent, mortgage fraud. Which of the given scenarios is/are an indication of potential mortgage fraud? There are four options. There are multiple correct answers. 1 2 3 4

A buyer wants to purchase a property without personally seeing the property or having it appraised or inspected A buyer asks a salesperson for a contact for finding the lowest mortgage rate possible A buyer claims the property is for their use, but they actually intend to use it as a rental property A buyer with no visible income source or assets is able to provide a significant down payment

Lesson 3 | Page 42 of 43

Salespeople are required to abide by the Code of Ethics in all their dealings. Identify which one/ones of the given scenarios describe a salesperson abiding by the Code. There are four options. There is only one correct answer. 1 2 3 4

A salesperson provides a copy of the Agreement of Purchase and Sale to the lender or appraiser to ensure the correct version of the agreement is being used. A salesperson lists a property and asks the seller for copies of documents that an owner would typically have, e.g., the deed, survey, property tax bill, or a notice of assessment. A salesperson ignores discrepancies in the buyer’s identification. A salesperson lists a home with an area of 1,795 square feet. The salesperson agrees to the seller’s request to round it up to 2,000 square feet so that the information supports a higher listing price.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 43 of 43

Congratulations, you have completed the lesson! There are eight sections on this page with a summary of the key topics that were discussed in this lesson. FINTRAC compliance requirements

A brokerage must ensure the five required elements of a compliance program are established and implemented. These include having a Compliance Officer, written policies and procedures, completing a risk assessment, written ongoing training, and a review of the effectiveness of the program at least every two years. As a salesperson, your obligations can be categorized under: 1. Know your client 2. Reporting 3. Recordkeeping When completing a trade, you must ensure you are complying with the requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. This includes: • Verifying the identity of the seller and the buyer • Confirming the existence of a corporation or other entity • Preparing a client identification report, verifying third parties, and verifying the identity of unrepresented parties • Preparing a receipt of funds record for the money received • Completing and submitting to FINTRAC a large cash and virtual currency transactions report when funds received are in cash or virtual currency and total $10,000 or more or the virtual currency equivalent • Completing and submitting to FINTRAC a suspicious activity report or a terrorist property report • Assessing the risk of a client committing money laundering or being involved in terrorist financing • Documenting and monitoring a business relationship once it has been established ©2019 Real Estate Council of Ontario

Methods used to verify the identity of an individual

Verification of a corporation or other entity

Identify suspicious activity

• Maintaining records: o Client information o Receipt of funds o All submitted reports, unrepresented party o Reasonable measures taken The identity of the seller and buyer involved in the trade must be verified and documented. This can be done directly by you as a salesperson, or an agreement can be signed with an agent or mandatary to do this on your behalf. The allowable methods of verifying an individual include: • Photo identification – using a driver’s license or passport • Credit file – this must be obtained from a valid Canadian credit reporting agency and not the individual • Dual process – this involves two original, valid, and current documents from independent and reliable sources When the client is a corporation, you must verify the corporation exists by confirming: • Name of the corporation, corporate address, nature of principal business, and the names of all directors, and the names of all beneficial owners When the client is another entity, such as a trust, a fund, a partnership, and an unincorporated association or organization, you must verify the entity exists by confirming: • Name and address of the entity, the articles of association, partnership agreement or similar document, and the names and address of all beneficial owners of the entity Verification can be done using paper documents or an electronic version. When there are reasonable grounds to think a transaction is related to money laundering or terrorist financing, a suspicious transaction report must be submitted to FINTRAC. There are many indicators of suspicious activity, but it is generally behaviour that is unusual for your client or business. Indicators of suspicious activity can be grouped under various categories: • Indicators dealing with payments – this focuses on buyer activities when providing a deposit • Indicators dealing with the agreement of purchase and sale – this focuses on specific behaviour when preparing or negotiating an offer

©2019 Real Estate Council of Ontario

• Indicators dealing with identification – this focuses on both seller and buyers when verifying their identity • Indicators dealing with behaviour – this focuses on unusual behaviour by a seller or a buyer throughout a transaction

Mortgage fraud

Leading practices to identify mortgage fraud

Steps to deter mortgage fraud

As a salesperson, you must be diligent in monitoring and assessing situations to determine any suspicious activity. Mortgage fraud can include: • Falsifying information on a mortgage application about the income, work status, or other employment information • Stating the borrower will reside in the residence when they will not • Obtaining monetary compensation to obtain a mortgage from a specific lender • Being offered an interest rate or mortgage amount that appears very competitive when the borrower has been declined by other lenders Types of mortgage fraud include straw buyers, falsifying information, identity theft, and value fraud. Fraud is often difficult to casually detect, but telltale clues are present. These include: • Value is not supported by market data • Things don’t add up • Unusual circumstances • Close connections • Unusual requests or inconsistent facts As a salesperson, you have the responsibility to be vigilant about mortgage fraud and help deter potential fraud. Consider the given steps to deter fraud: • Verify identification • Keep client information secure and discuss how identity theft can lead to mortgage fraud • Advise a buyer to only provide a deposit to a lawyer or a brokerage, and ensure it is held in trust • Ask the seller for copies of documents that an owner would have ©2019 Real Estate Council of Ontario

Ensuring accuracy and ethical practices

• Research the ownership history of the property • Provide copies of the agreement of purchase and sale to the lender or appraiser • Educate your sellers and buyers about suspicious situations that could lead to mortgage fraud As a salesperson, you must not knowingly make an inaccurate representation about a trade or the services provided. You must not only avoid fraud, error, or misrepresentation, but you must take steps to prevent it.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 1 of 27

Lesson 4: Putting it all Together – A Residential Agreement of Purchase and Sale This lesson reviews leading practices for the offer process and presents four residential transactions which detail the necessary considerations when preparing an offer. The emphasis is on ensuring any pre-set clause or any clause added to the agreement of purchase and sale that can be fully explained to a seller or a buyer.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 2 of 27

Putting it all Together – A Residential Agreement of Purchase and Sale This lesson describes leading practices for you, as a salesperson, when drafting an offer and preparing for the offer presentation. As a salesperson, the core of your responsibilities is navigating the complexities of preparing an offer and the negotiations that follow. This requires a full understanding of the pre-set clauses, any terms or conditions added to or removed from the offer, and the impact to the seller and the buyer of the negotiated offer prior to being accepted. This lesson will help you put it all together to ensure you can provide competent and professional service and advice to sellers and buyers. Upon completion of this lesson, you will be able to: • Identify leading practices of a salesperson regarding the offer process • Identify distinct challenges for a salesperson when explaining agreements of purchase and sale to a seller or a buyer Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. ©2019 Real Estate Council of Ontario

Lesson 4 | Page 3 of 27

Leading Practices for the Offer Process The offer process can be detailed and complex – and as a new salesperson – an exciting and nerve-wracking time. The given leading practices can help you develop key skills required during the offer process. The following four sections contain information on leading practices to prepare for the offer process.

Practice presenting the offer

Explain the clauses in simple terms

Presentation skills are developed through active practice, not just reading or thinking about the event. Draft various offers using different scenarios and practice presenting these to your family and friends so when it’s time to present an offer to a seller or buyer, you are comfortable with your presentation. Ask another salesperson or a manager at your brokerage to role-play the offer process with you so that you can explore more of the details in your responsibility when working with a seller or a buyer. Attend any brokerage training courses that will help you to prepare for the offer process. You must be able to explain each pre-set clause on the agreement of purchase and sale thoroughly and in terms that are understandable. Practice explaining the pre-set clauses as well as any clause that could be added to a schedule. Analyze each clause and prepare an explanation in your own words. You don’t need to explain every line of the clause, but you will need to ensure the important aspects of each is explained and understood. Write out each explanation and practice delivering it. Use your family as your audience. Practice referring to the offer as though a seller or buyer were sitting opposite you and reviewing it. The means the offer will be upside down to you. You should be able to know what part of the offer the seller or buyer is referring to without looking at your own copy. You should not only be comfortable with what the clause says, but where it is situated on the offer.

©2019 Real Estate Council of Ontario

Although you may be extremely careful when drafting an offer, have a manager or broker Have the offer reviewed before it of record review your offer to ensure it is: • Complete is signed

• Accurate • Addresses the needs of a buyer • Complies with any brokerage requirements relating to the wording of any terms or conditions included The offer must be correct before asking a buyer to sign as the offer can become a binding agreement upon acceptance. An offer that is incomplete or contains errors can place a buyer in an unwanted or unanticipated situation.

Sufficient copies for offer signing

When you are representing a seller, the offer you receive could be presented outside of the brokerage’s office location and during evening or weekend hours. This should not result in an offer presentation that is without guidance or advice. Ask another salesperson or manager to join you on several offer presentations to assist you if needed. Or, ensure there is a manager or broker of record available by phone to assist you during the offer presentation time. To prepare in advance, ask to join another salesperson when they are presenting an offer to a seller to gain insight into the offer process from the point of view of a seller. When the offer is being presented in person, or you are providing the offer to the seller’s salesperson for presentation, ensure there are sufficient copies for all parties. Check with your brokerage to see if there are any policies or preferences regarding a summary document that can be used in lieu of the listing brokerage retaining a copy of an unsuccessful offer in its entirety. Under the Code, the given requirements relate to copies of offers. • A copy for each party to the agreement must be provided at the earliest opportunity. This requires a copy for each seller and each buyer. • A copy for each brokerage. When an offer is being sent electronically, the party is deemed to have received and retained a copy of the agreement.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 4 of 27

Preparing and negotiating an offer is one of the most important aspects of your role as a salesperson. Sellers and buyers will rely on your knowledge and professionalism to guide them through one of the most critical and complex tasks of selling or buying a property – achieving an accepted offer that has been negotiated fairly, ethically, and protects their best interests. Sellers and buyers expect you to be able to provide advice when submitting or receiving an offer, and to ensure the terms and conditions of any agreement are fully understood before signing an offer. To do this, an understanding of how the pre-set clauses on an agreement of purchase and sale can impact a seller or a buyer is critical. Four residential transactions are described on the remaining screens in this lesson to illustrate the complexities of an offer.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 5 of 27

Transaction 1: The Easement The property listed for sale is two acres in size and features a one acre bush area and ravine. The site is developed with a single family home and an attached garage. The home is located within a cleared section of the site, offset to the easterly portion of the property. The listing indicates there is an easement on the property, however there is no description identifying the specific location of the easement. The buyer is interested in purchasing the property as the additional lot area provides enough space for the buyer to construct an outbuilding without needing to clear any additional land. The building will be used to house machinery, a boat, two recreational vehicles, and a snow mobile. The ability to construct such an outbuilding is an important part of the buyer’s decision to purchase the property.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 6 of 27

Drafting an Offer As a salesperson representing the buyer, based on your knowledge of the buyer’s intention to construct the building, there are several aspects of this property that need to be investigated. If the buyer were to place an offer without the due diligence being completed, there could be ramifications to both the seller and the buyer. The buyer may find, because of the location and size of the easement, they are unable to do what they would like to with the property. Let’s review the applicable parts of an agreement of purchase and sale that impacts this proposed transaction. The following two sections contain information on the applicable clauses.

Legal description

From OREA Form 100: Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

The legal description should include the easement that is identified, including as much information as possible. In addition to the size of the easement, the location and a description of the purpose of the easement should be stated.

©2019 Real Estate Council of Ontario

Title The clause relating to the title to the property includes a provision that requires the buyer to accept title when certain encumbrances are registered on the property. Depending on the type of encumbrance, the easement on the property might be included under this clause.

From OREA Form 100/Clause 10: Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 7 of 27

Considerations for an Offer The purpose of the easement that encompasses about 25% of the property needs to be confirmed because certain easements must be accepted; meaning a buyer, whether informed about the easement or not, must complete the sale. The easements that must be accepted include a minor easement for the purpose of supplying utilities and telecommunication services for the property or adjoining properties, and other minor easements such as drainage, sewer, cable television lines etc., provided that they do not materially affect the property; meaning that the easement does not impact the use of the property. The due diligence for this transaction would need to identify the given: • The purpose of the easement • The size and location of the easement • Whether the easement is considered minor in nature

©2019 Real Estate Council of Ontario

The size and location of the easement would be criteria used to determine whether the easement is minor, or if it materially affects the use of the property. Questions to ask: • Where is the easement in comparison to the intended location of the outbuilding? • If the easement location is where the outbuilding is to be constructed, is there another suitable location on the property for the outbuilding? A title search completed by the buyer’s lawyer will reveal any easement registered on title. Based on the specific easement, the buyer could use this as an objection to title, which would allow the offer to be terminated. Circumstances which would allow for an objection to title include: • An easement that materially affects the use of the property • An easement for any purpose other than drainage, sewer, utilities, and telecommunication (i.e., those reasons specified in the pre-set clause), if the buyer has not been made aware of the easement As a salesperson, you should ensure an agreement of purchase and sale clearly identifies any easement(s) affecting the property, and an acknowledgement by the buyer accepting the easement. If not identified properly, a buyer could purchase the property, find out during the title search that there is an easement that would restrict the buyer from continuing with their plans, and use the easement as an objection to title resulting in a terminated sale.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 8 of 27

Key Takeaways Given are the key takeaways from Transaction 1: The Easement. • • • • •

Identify the purpose of the easement and see if the easement is one that a buyer is obligated to accept Identify if the easement is considered minor in nature, or if it materially affects the use of the property Include any acknowledgement in the offer as required Include any condition in the offer as required to allow the buyer to perform the required due diligence Explain the ramifications to both a seller and a buyer should the easement not be properly investigated or documented: o For a seller, the offer might be terminated o For a buyer, the offer might be binding which results in the purchase of a property that does not meet their requirements

©2019 Real Estate Council of Ontario

Lesson 4 | Page 9 of 27

Transaction 2: The Mortgage The cottage property listed for sale has been owned by the family for decades. In 1990, the mortgage was paid in full, and the owners received the papers from the lender showing proof the mortgage had been repaid. The sellers had saved for years, and when the final documents arrived celebrated by “burning the mortgage”. They lit a fire in the fire pit located on the property and tossed the mortgage papers in. When the sellers listed the property for sale, the salesperson asked if a mortgage would need to be discharged when the transaction closed. The sellers were happy to say, “No, there is no mortgage on our property.”

©2019 Real Estate Council of Ontario

The buyer is considering two properties. They select this property and are anxious to have the transaction completed right away so they can still enjoy the property during the summer months. The owners of the other property they are considering will not agree to a completion date before mid-September. To ensure a transaction can be completed in such a short time, the salesperson contacts the buyer’s lawyer. The lawyer says, “Yes, as long as there are no surprises. It will help if they have a survey.” The salesperson enquires about a survey and is immediately provided a copy. The survey was completed a few years earlier and the sellers state there have been no new structures or other improvements added since. The salesperson drafts an offer and inserts a date for the title search to be completed, which does not allow for much time if any problems arise. Knowing there is no mortgage to be discharged and having an existing survey on hand, the buyer is confident the transaction will be completed as scheduled. The ability to use the property during the summer is an important part of the buyer’s decision to purchase the property.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 10 of 27

Drafting an Offer As a salesperson representing the buyer, there are three areas of the offer that could impact the buyer’s goal of occupying the property this summer. Let’s review the applicable parts of an agreement of purchase and sale that impacts this proposed transaction. The following three sections contain information on the applicable clauses.

Completion date

OREA Form 100/Clause 2: Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

The completion date is when the property will transfer from the seller to the buyer. The completion date cannot be a Saturday, Sunday, or a statutory holiday. The buyer is anxious to take ownership as soon as possible, so after speaking to the buyer’s lawyer, the earliest completion date possible is inserted by their salesperson.

©2019 Real Estate Council of Ontario

Title search

From OREA Form 100/Clause 8: Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

A title search is completed by the buyer’s lawyer within a specified time period prior to the completion of the transaction. The lawyer will examine title to the property to ensure the seller’s interest in the property can be transferred, identify any easements affecting the property, and search for any mortgages or other encumbrances, such as a lien for property taxes not paid. A title search will also confirm the property’s legal description and the name(s) of the registered owner(s). The date inserted for the title search to be completed by is referred to as the Requisition Date. Additional searches will be completed to confirm certain non-title issues, such as work orders, deficiency notices, zoning, and insurance.

©2019 Real Estate Council of Ontario

Documents and discharge

From OREA Form 100/Clause 12: Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

The agreement of purchase and sale identifies the obligations of the seller to provide certain documents related to the property to the buyer. The seller is obligated only to provide a document that is in their possession. If a buyer requests a copy of any sketch or survey the seller has, the seller is obligated to provide this as soon as possible and prior to the Requisition Date. If the buyer wants a current, up to date survey, a clause would be included in the schedule of the offer. The seller only has to provide a survey in their possession. The clause also addresses situations where a seller’s mortgage is to be discharged from title. In some instances, the discharge of the charge/mortgage could occur several days following the completion of the sale. The agreement states the buyer will agree to accept the seller’s lawyer’s personal undertaking (a promise) to register the discharge on title within a reasonable time after closing. This means until the mortgage is discharged, the buyer owns the property with the seller’s mortgage still registered. In this example, the seller has stated that there is no mortgage registered on the property.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 11 of 27

Considerations for an Offer The buyer’s lawyer has indicated they can complete the transaction with the reduced amount of time provided there are no issues raised during the title search and the non-title search time periods. The lawyer is required to complete the title search prior to the Requisition Date, and must provide any concerns to the seller’s lawyer at that time.Based on the seller’s statement there is no mortgage. The legal investigations should result in no issues that need to be addressed. It would appear that the title and non-title searches should result in no concerns. The survey that has been provided was completed a few years ago and a discussion with the sellers indicates there have been no changes to the property since then. It would appear that the documents required by the buyer have been provided.

©2019 Real Estate Council of Ontario

The due diligence for this transaction appears to have been completed prior to the offer being submitted: • The lawyer has confirmed the transaction can be completed with a reduced time period for the legal investigations, assuming there are no issues • The sellers have owned the property for many years, and have assured the salesperson the mortgage was paid in full • A copy of the survey was provided, along with a statement from the sellers indicating it is up-to-date Two weeks before the transaction is to close, the buyer receives a phone call from their lawyer. It appears there are a few problems: • The title search indicates a mortgage is still registered on title. Apparently, the sellers did not register the discharge on title, but mistakenly burnt the document when celebrating being mortgage-free. • The sellers must obtain a copy of the discharge so it can be registered on title, however the lender was a private mortgagee who must be located to confirm the mortgage was paid in full and provide a second discharge document to be registered. • Although the clause in the agreement of purchase and sale would allow for a mortgage to be discharged off title after the transaction is completed by having the seller’s lawyer provide a personal undertaking, but this only applies to institutional mortgages. The seller’s lawyer would not likely provide this under these circumstances. There is nothing to identify there is no money owning. The lawyer would be concerned if there actually is an amount owed on a mortgage and it is more than the proceeds of the sale. • The survey that was provided by the sellers was recent, however when the lawyer was reviewing the survey, an encroachment is noted – the sellers state that this concern was addressed after the survey was done and the encroachment no longer exists. • The lawyer recommends a new survey be obtained or other documentation showing the removal of the encroachment be received. • The completion date for the transaction is now delayed by at least two to four weeks so the appropriate documentation can be obtained.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 12 of 27

Key Takeaways Given are the key takeaways from Transaction 2: The Mortgage. • Although the sellers indicated there is no mortgage on the property, mistakes and misunderstandings can occur • Although a survey can appear up-to-date, reviewing the survey can identify unexpected concerns which may have been dealt with, but not documented as a buyer might require • A title search date that is close to the completion date does not allow for time to identify and resolve any problems • Include any condition in the offer as required to allow the buyer to perform the required due diligence; in this instance a review of the survey • Explain the ramifications to both a seller and a buyer due to the problems that arose: o For a seller, the buyer does not have to agree to extend the completion date – if the seller cannot provide clear title, the offer might be terminated, or compensation might need to be paid to the buyer in exchange for extending the completion date o For a buyer, if the offer is terminated, there might not be any other properties available; the occupancy of the property during the summer was a key aspect of the transaction ©2019 Real Estate Council of Ontario

Lesson 4 | Page 13 of 27

Transaction 3: The Redevelopment Project The property is located in one of the oldest areas of the city. The large home is in poor condition and the landscaping is overgrown but the property is desirable. The lot is almost twice the size of the typical property in the city. The buyer knows exactly what the property needs. They have been carrying around plans just waiting for such a property to be available to purchase. The house is to be torn down and the property is to be severed into two parcels. Then two new structures are to be built and sold. This is the buyer’s first revitalization project and if this goes well, they plan on pursuing other properties for redevelopment.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 14 of 27

Drafting an Offer As a salesperson representing the buyer, there are five areas of the offer that could impact the redevelopment project. Let’s review the applicable parts of an agreement of purchase and sale that impacts this proposed transaction. The following five sections contain information on the applicable clauses.

Title search

From OREA Form 100/Clause 8: Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

A title search and non-title search is completed by the buyer’s lawyer. In this scenario, the ownership is not a concern. The buyer is most concerned about any encumbrances, such as an easement. The buyer is also impacted by the zoning search which is part of the non-title searches the lawyer will complete. The present use of the property is a single-family dwelling, but that is not the buyer’s intended future use.

©2019 Real Estate Council of Ontario

Future use

From OREA Form 100/Clause 9: Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

The buyer intends on redeveloping the property and has no intention of retaining the home. The clause identifies there is no warranty that the intended future use will be legal unless a clause is specifically added to the offer.

Planning Act

From OREA Form 100/Clause 15: Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

An agreement of purchase and sale must comply with the Planning Act, or the transaction will not be completed. Although this clause will not likely impact the buyer when purchasing, the future use of the property includes a severance and sale of two distinct properties. This will impact the buyer’s ability to resell the properties at a later time as the contract must be based on a lawful object.

©2019 Real Estate Council of Ontario

UFFI

From OREA Form 100/Clause 23: Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

This clause indicates the seller is providing a warranty that any building does not, nor has it ever, contained insulation containing urea formaldehyde. Even though the home is being torn down, the seller is providing a warranty that if not true, is a misrepresentation of the property. The presence of UFFI in a home can impact the value of a property and as such, this warranty is made.

Legal, accounting, and environmental advice

From OREA Form 100/Clause 24: Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

This is the buyer’s first redevelopment project, so the buyer is likely unaware of all the potential issues that could impact their plans. This clause identifies the brokerage is not providing the advice that other professionals should be consulted for.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 15 of 27

Considerations for an Offer The buyer’s inexperience and future plans for the property creates a heightened level of due diligence for this offer. Although the condition of the home is not a concern to the buyer, older homes may contain finishes that are an environmental concern and can increase costs for demolition and disposal. The severance of the property must be applied for and approval must be received for the redevelopment project to proceed. Part of the approval process will include a zoning search. This impacts not only the ability to sever the property to meet minimum lot size requirements, but also identifies the type of development permitted. The due diligence for this transaction would need to include the given: • • •

The environmental aspects of the structure and the lot should be investigated as this can impact the value of the property The legal aspects which includes confirming if any easement is located on the property as this would impact the location of any structure The severance must be approved for the property to be sold as two parcels. A condition in the offer should be included which allows for the approval to be obtained ©2019 Real Estate Council of Ontario

• • •

•

The condition for a severance must be written as a true condition precedent which provides only for a notice of fulfillment to be used rather than a waiver when providing notice to the seller The zoning will need to be searched to see if the severance and the building plans would comply as the future intended use is different from the property’s present use The property is located in an older area of the city which could mean there is no plan of subdivision on the property. This could require the severed parcels to be registered in two different names. Otherwise the properties remain as one property The financial and tax aspects of the project should be investigated; for example, if the two properties must be registered in different names, how does this impact the buyer

©2019 Real Estate Council of Ontario

Lesson 4 | Page 16 of 27

Key Takeaways Given are the key takeaways from Transaction 3: The Redevelopment Project. • Fully explain the warranties contained within the pre-set portion of an agreement of purchase and sale. A misrepresentation, even though it may appear inconsequential, can impact a party • Rely on third-party professionals related to the legal, financial, and environmental aspects of a transaction • When changing the use of a property, fully investigate the legal aspects of the transaction to ensure the intended future use of the property can be attained • Environmental concerns can be associated with older structures as the products and building materials used in the past were not as regulated as those being used in more recent construction • Explain the ramifications to both a seller and a buyer should the due diligence not be completed: o For a seller, the warranty in the offer could have financial consequences o For a buyer, the property could be purchased and the intended use, if not approved, would result in owning a property that does not meet their requirements

©2019 Real Estate Council of Ontario

Lesson 4 | Page 17 of 27

Transaction 4: The Non-Resident Seller The property is listed for sale with ABC Real Estate Inc. and is located on a small lake in a rural area not far from the city. The area is developed with a mixture of year-round and seasonal homes, and is serviced with municipal water and sewers. The home is older, but the sellers have completed major renovations over the last year. The sellers live in Arizona and had planned on spending the summers in Ontario, but their plans have now changed and they have decided to sell the property. The buyers are also being represented by a salesperson at ABC Real Estate Inc. for the purchase. The buyer would like to submit an offer that is conditional upon arranging financing, obtaining insurance, and having the property inspected to ensure they are satisfied with the condition of the structure. The offer will be conditional for 10 days.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 18 of 27

Drafting an Offer As a salesperson, whether representing the sellers or the buyers, there are seven areas of the offer that should be fully understood. Let’s review the applicable sections of an agreement of purchase and sale that impacts this proposed transaction. The following seven sections contain information on the applicable clauses.

Notices

From OREA Form 100/Clause 3: Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

This identifies how a notice can be given and received. In this instance, the brokerage is operating under multiple representation; the brokerage is not authorized to give or receive the notices. As the seller is a nonresident, obtaining a fax number or email address from the seller would be a more efficient way to address any notice required. Otherwise, the notice must be sent to the address for service under the acknowledgment section; which in the case of the seller would be Arizona.

©2019 Real Estate Council of Ontario

Inspection

From OREA Form 100/Clause 13: Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

The buyers should understand that the clause only states they have had an opportunity to inspect the property prior to an offer being submitted. For the offer to be conditional upon a property inspection, a clause must be added to the Schedule A.

Insurance

From OREA Form 100/Clause 14: Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

The buyers will be required to obtain their own insurance for the property as insurance cannot be transferred. For the offer to be conditional upon obtaining insurance, a clause must be added to the Schedule A. The sellers are only required to maintain their insurance, if any, on the buildings until completion. In the event of substantial damage, this clause would allow a buyer to either terminate the agreement or use the proceeds of any insurance and complete the sale.

©2019 Real Estate Council of Ontario

Residency

From OREA Form 100/Clause 17: Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

The sellers are non-residents of Canada and the sale of the property can be impacted by the Income Tax Act. The buyers will be required to ensure any capital gains tax owed by the sellers is submitted to the Minister of National Revenue. This will be done by giving the buyers a credit for the amount owed, if any, and then the buyers’ lawyer will ensure the required tax is submitted. If the sellers deliver a certificate showing any tax owed has been paid, the buyers will not receive a credit.

Property assessment

From OREA Form 100/Clause 19: Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

The sellers have completed extensive renovations to the home which could likely increase the value of the property. Should the property be reassessed and the taxes increase, the buyers are being given notice there can be no claim made against any party.

©2019 Real Estate Council of Ontario

Time and date

From OREA Form 100/Clause 27: Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

The sellers live in Arizona, which is in a different time zone than where the property is located. The sellers will need to understand that when a time or date is referenced in the agreement of purchase and sale, it refers to the time and date for the property’s location and not their location in Arizona.

Information on brokerages ABC Real Estate Inc. is representing both the sellers and the buyers. The information will only indicate the listing brokerage and the name of either salesperson can be inserted. From OREA Form 100: Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 19 of 27

Considerations for an Offer The seller’s non-residency status will affect the transaction, and the due diligence on their part for this transaction would need to include the given: • The sellers should seek advice on any tax implications prior to listing the property for sale • Confirmation that all required permits for the renovations were obtained and any required inspections completed • Confirmation that appropriate insurance is placed on the structure as the policy coverage should be sufficient based on the renovations that were completed • Confirmation on whether the property has been reassessed after the renovations were completed The buyers’ offer contains three conditions which must be addressed within a 10-day period. The due diligence on their part for this transaction would include the given: • Immediately proceed to arrange the necessary financing as an appraisal might need to be obtained which can take several days to arrange, complete and be reviewed by the lender

©2019 Real Estate Council of Ontario

• Contact a property inspector and arrange for the inspection to be completed; providing copies of any information relating to the improvements would assist the inspector when at the site • The existing insurance on the property cannot be transferred to the buyer and a rural property can pose unique factors that can impact the ability to obtain insurance or the cost; for example, distance from a fire hall is one contributing factor • Depending on how the notices relating to the conditions are to be sent to the sellers, the due diligence should be completed quickly to allow for any delays in obtaining approval or ensuring the sellers receive the notice on time; remember, the time and date is where the property is and not the seller’s location, in Arizona • Review the property assessment and taxes to see if any reassessment of the property has already been done, or estimate how the improvements could increase the property taxes

©2019 Real Estate Council of Ontario

Lesson 4 | Page 20 of 27

Key Takeaways Given are the key takeaways from Transaction 4: The Non-Resident Seller. • • • •

•

•

Non-resident sellers have obligations related to capital gains tax that will impact the net proceeds from the sale; this should be investigated prior to listing the property Most renovations require a building permit; ensure these were obtained Properties are reassessed periodically and renovations completed can increase the assessed value resulting in an increase in property taxes; ensure the buyer is aware of this potential Completing the due diligence should be immediately started after an offer has been accepted to allow time should any problems arise for the condition to be completed within the agreed upon time period in the offer When a brokerage is operating under multiple representation, the brokerage may not give or receive notices on behalf of the seller and the buyer; obtain their personal information to assist in the delivery of notices Explain the ramifications to both a seller and a buyer should the due diligence not be completed: o For a seller, the tax obligations result in lesser net proceeds; had this been known in advance, it would have impacted their decision to sell o For a buyer, if the due diligence is not completed early enough and notices have not been received by the sellers on time, this could result in the offer becoming null and void

©2019 Real Estate Council of Ontario

Lesson 4 | Page 21 of 27

Obligations as a Salesperson Your obligations under the Code will guide your activities as a salesperson. The previous scenarios are examples of residential transactions that you can be involved in. Understanding the complexities of a situation, ensuring a seller and a buyer fully understand the terms of any offer, and transacting in a fair and ethical manner is the basis of your role as a salesperson. The following four sections contain information on four obligations under the Code.

Best interests

All activities undertaken by a salesperson must be to promote and protect the best interests of their client. Some examples of working in the best interests of the seller or buyer have been illustrated in the previous scenarios when: • Ensuring information about an easement is discovered before a binding agreement of purchase and sale is made • Including the appropriate due diligence conditions in an offer • Advising that third-party professionals be obtained relating to various matters that are beyond the knowledge, skill, judgement, or experience of a salesperson Conscientious and A salesperson must provide conscientious and competent service to all sellers and buyers, competent service regardless of a client or customer relationship. Some examples of providing conscientious and competent service have been illustrated in the previous scenarios when: • Including an acknowledgement in an offer to ensure there is no misunderstanding by one or both of the parties • Advising the non-resident sellers about potential capital gains tax issues prior to listing the property for sale • Explaining any pre-set clause on an agreement of purchase and sale and the impact this might have to ensure a seller and a buyer are making informed decisions related to the transaction This requires all salespersons, when they are not able to provide the services with Services from knowledge, skill, judgement, and competence, to seek the services from another person. others

©2019 Real Estate Council of Ontario

Material facts

This obligation applies regardless of the length of time being registered to trade in real estate and whether the brokerage has a client or customer relationship established. Some examples of recommending services from others have been illustrated in the previous scenarios when: • A property inspector is retained to complete an inspection of the property • A lawyer provides advice related to an encroachment noted on a survey • An environmental company retained to assess any environment contamination or concerns related to a property or a structure The extent of a salesperson’s obligations will differ depending on whether a client or customer relationship has been established with the brokerage. The previous scenarios related to client relationships which required the salesperson to determine the material fact, complete the necessary due diligence related to the material fact, and disclose this to the client. Some examples of determining and disclosing material facts have been illustrated in the previous scenarios when: • The location, size, and purpose of the easement must be determined as the ability to construct the outbuilding was an important aspect of purchasing the property • Confirming with a lawyer that a transaction could be completed within a short time period as owning the cottage during the summer months was an important aspect of purchasing the property • Ensuring zoning will allow a severance and the construction of two new structures as the redevelopment of the property was an important aspect of the purchase

©2019 Real Estate Council of Ontario

Lesson 4 | Page 22 of 27

A new salesperson has just joined a brokerage and is asking you for guidance with the offer process. Identify which one/ones of the given suggestions would be useful for the new salesperson. There are four options. There is only one correct answer. 1 2 3 4

Practice locating and explaining the clauses using an agreement form that is facing the client and upside down to you Ask the manager to check your first couple of offers before asking the clients to sign Send all offers electronically so that you don’t have to make copies Practice the offer process with another salesperson at your brokerage or with your manager and receive feedback

©2019 Real Estate Council of Ontario

Lesson 4 | Page 23 of 27

It is imperative that a salesperson understand and be able to explain clauses contained in an agreement of purchase and sale. The title search clause identifies the time period for the buyer’s lawyer to examine title to the property, identify any easements, conduct searches for mortgages or other encumbrances and confirm the legal description of the property and the names of the registered owners. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 4 | Page 24 of 27

It is imperative that a salesperson understand and be able to explain clauses contained in an agreement of purchase and sale. The documents and discharge clause identifies that the seller must provide an up-to-date survey and if applicable, how the seller’s mortgage will be discharged. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 25 of 27

It is imperative that a salesperson understand and be able to explain clauses contained in an agreement of purchase and sale. The title clause includes a provision that requires the buyer to accept title including all encumbrances that are registered on the property. This provision includes all easements such as minor and major restrictions to the property. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 26 of 27

It is imperative that a salesperson understand and be able to explain clauses contained in an agreement of purchase and sale. If a property is being sold by a seller who resides outside of Canada, the residency clause is used to explain to sellers and buyers how the sale of the property may be impacted by the Income Tax Act. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 4 | Page 27 of 27

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were discussed in this lesson.

Leading practices for offer preparation

Preparing for the offer process requires a thorough understanding of the agreement of purchase and sale and the ability to explain all pre-set and inserted clauses. Leading practices include: • Practice presenting the offer • Explaining the clauses in simple terms • Having the offer reviewed before it is signed • Ensuring sufficient copies of the offer are prepared

Residential transactions

Sellers and buyers expect you to be able to provide advice when submitting or receiving an offer, and to ensure the terms and conditions of any agreement are fully understood before signing an offer. To do this, an understanding of how the pre-set clauses on an agreement of purchase and sale can impact a seller or a buyer is critical. Four residential transactions were described in this lesson to illustrate the complexities of an offer. Transaction 1 – The Easement – Key Takeaways: • Identify the purpose of the easement and see if the easement is one that a buyer is obligated to accept • Identify if the easement is considered minor in nature, or if it materially affects the use of the property • Include any acknowledgement in the offer as required • Include any condition in the offer as required to allow the buyer to perform the required due diligence

©2019 Real Estate Council of Ontario

Transaction 2 - The Mortgage – Key Takeaways: • Although the sellers indicated there is no mortgage on the property, mistakes and misunderstandings can occur • Although a survey can appear up-to-date, reviewing the survey can identify unexpected concerns which may have been dealt with, but not documented as a buyer might require • A title search date that is close to the completion date does not allow for time to identify and resolve any problems • Include any condition in the offer as required to allow the buyer to perform the required due diligence; in this instance a review of the survey Transaction 3 – The Redevelopment Project – Key Takeaways: • Fully explain the warranties contained within the pre-set portion of an agreement of purchase and sale as a misrepresentation, even though it may appear inconsequential, can impact a party • Rely on third-party professionals related to the legal, financial, and environmental aspects of a transaction • When changing the use of a property, fully investigate the legal aspects of the transaction to ensure the intended future use of the property can be attained • Environmental concerns can be associated with older structures as the products and building materials used in the past were not as regulated as those being used in more recent construction Transaction 4 – The Non-Resident Seller – Key Takeaways: • Non-resident sellers have obligations related to capital gains tax that will impact the net proceeds from the sale; this should be investigated prior to listing the property • Most renovations require a building permit; ensure these were obtained • Properties are reassessed periodically, and renovations completed can increase the assessed value resulting in an increase in property taxes; ensure the buyer is aware of this potential

©2019 Real Estate Council of Ontario

• Completing the due diligence should be immediately started after an offer has been accepted to allow time should any problems arise for the condition to be completed within the agreed upon time period in the offer • When a brokerage is operating under multiple representation, the brokerage may not give or receive notices on behalf of the seller and the buyer; obtain their personal information to assist in the delivery of notices

©2019 Real Estate Council of Ontario

Lesson 5 | Page 1 of 15

Lesson 5: Summary Practice Activities

This lesson provides a series of activities that will test your knowledge on the entire module.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 2 of 15

Summary Practice Activities This lesson is an opportunity for you to practice applying your learning from the entire module. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 3 of 15

A brokerage has specific requirements under REBBA for retaining documents and records related to a trade in real estate. A summary document may be retained for successful offers. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 5 | Page 4 of 15

A brokerage has specific requirements under REBBA for retaining documents and records related to a trade in real estate. All offers must be in writing and signed. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 5 | Page 5 of 15

A brokerage has specific requirements under REBBA for retaining documents and records related to a trade in real estate. All offers must be retained for at least six years. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 5 | Page 6 of 15

A brokerage has specific requirements under REBBA for retaining documents and records related to a trade in real estate. The listing brokerage must retain a summary document or copy of the offer for all unsuccessful offers. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 5 | Page 7 of 15

Waivers and notices of fulfillment are both used to remove conditions to create a firm and binding agreement. It is imperative that the receipt of these forms be acknowledged within the time limits specified on the condition. A co-operating brokerage’s buyer signs a waiver to remove a financing condition and it is forwarded to the listing brokerage. In the given scenario, the seller or the listing brokerage is an appropriate party to sign the receipt of the form. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 5 | Page 8 of 15

Waivers and notices of fulfillment are both used to remove conditions to create a firm and binding agreement. It is imperative that the receipt of these forms be acknowledged within the time limits specified on the condition. A seller accepted an offer that included a seller take back mortgage conditional on the seller satisfying themselves as to the credit worthiness of the buyer. After checking the buyer’s credit, the seller signs a waiver to remove the condition and it is forwarded to the buyer customer’s brokerage. In the given scenario, the buyer is an appropriate party to sign the receipt of the form. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 5 | Page 9 of 15

Waivers and notices of fulfillment are both used to remove conditions to create a firm and binding agreement. It is imperative that the receipt of these forms be acknowledged within the time limits specified on the condition. A buyer signs a notice of fulfillment for a home inspection condition and gives it to the brokerage that is representing both the seller and the buyer. In the given scenario, the buyer’s brokerage is an appropriate party to sign the receipt of the form. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 5 | Page 10 of 15

Waivers and notices of fulfillment are both used to remove conditions to create a firm and binding agreement. It is imperative that the receipt of these forms be acknowledged within the time limits specified on the condition. A private seller signs a notice of fulfillment for their condition to be able to change the closing date of their new house purchase and gives it to the brokerage that is representing the buyer. In the given scenario, the seller is an appropriate party to sign the receipt of the form. Identify whether the given statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 5 | Page 11 of 15

Complete a Waiver Oliver Matthew Fisher and Ava Lily Chen have signed a representation agreement with XYZ Realty Ltd. Their salesperson is Nyla Zhang. They placed an offer on the property at 7619 Bedford Road in the City of AnyCity, AnyRegion, on June 20th, 2022. The offer was accepted the same day. The closing date is August 21, 2022. Andrei Petro who is also from XYZ Reality Ltd., (Tel: 555-233-2900) represents the seller, Violet Amber Garrison. On June 26, 2022, the buyers receive notice from the lender that they are approved for the mortgage, but the interest rate will be 3.95% instead of 3.75%. Nyla indicates this will increase their monthly mortgage payment by less than $ 21 per month. The buyers agree to these mortgage terms and will waive the condition in the agreement of purchase and sale.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 12 of 15

From Form 100: Schedule A –Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license. ©2019 Real Estate Council of Ontario

The background shows OREA Form 100: Schedule A – Agreement of Purchase and Sale. Five sections are highlighted. 1. The buyer name is Oliver Matthew Fisher and Ava Lily Chen. The legal names of the buyers must be included on the waiver as cross-reference to the agreement of purchase and sale. 2. The seller name is Violet Amber Garrison. The legal names of the seller must be included on the waiver as cross-reference to the agreement of purchase and sale. 3. For the purchase and sale of 7619 Bedford Road, AnyCity: The address of the property must be included on the waiver as cross-reference to the agreement of purchase and sale. 4. Dated the 20 day of June 2022: The date on the agreement and purchase and sale must be included n the waiver as cross-reference to the agreement of purchase and sale. 5. This Offer is conditional upon the Buyer arranging, at the Buyer's own expense, a new first Charge/Mortgage for not less than one hundred ninety thousand dollars ($190,000.00), bearing interest at a rate of not more than 3.75% per annum, calculated semi-annually not in advance, repayable in blended monthly payments of about nine hundred and seventy three dollars and eighty-six cents ($973.86) Oliver, including principal and interest, and to run for a term of not less than 5 years from the date of completion of this transaction. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than 9:00 p.m. on June 27, 2022, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the Buyer and may be waived at the Buyer's sole option by notice in writing to the Seller as aforesaid within the time period stated herein. The applicable clause to be waived must be copied in full onto the waiver.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 13 of 15

From Form 123: Waiver – Agreement of Purchase and Sale. ©2022 Ontario Real Estate Association. All rights reserved. Used under license.

Complete a Waiver Nyla completes the waiver on OREA form 123 using the information from Schedule A on the agreement. ©2019 Real Estate Council of Ontario

Lesson 5 | Page 14 of 15

Nyla completes the rest of the form with the buyers and sends to the seller at 5:30 p.m. on June 26, 2022. The seller acknowledges receipt at 10 a.m. on June 27, 2022. The following information is entered in the rest of the form along with the seller acknowledgement. • Waived at AnyCity, Ontario, at 5:30 p.m. this 26th day of June 2022. These are the details on where and when the waiver document was signed. • Signed, sealed, and delivered in the presence of Nyla Zhang, in witness whereof I have hereunto set my hand and seal: Oliver Matthew Fisher June 26, 2022. Signed, sealed, and delivered in the presence of Nyla Zhang, in witness whereof I have hereunto set my hand and seal: Ava Lily Chen June 26, 2022. These are the buyers’ signatures and date and their salesperson can be a witness. • Receipt acknowledged at 10 a.m. this 27th day June 2022 by Violet Amber Garrison. The waiver must be sent directly to the seller. The seller acknowledges receipt by recording the time and date on the document and signing it. The waiver must be received before the end of the irrevocable time associated with the condition or the offer will be null and void. The parties and the brokerage receive copies of the fully signed waiver.

Complete a Waiver Oliver Matthew Fisher and Ava Lily Chen have signed a representation agreement with XYZ Realty Ltd. Their salesperson is Nyla Zhang. They placed an offer on the property at 7619 Bedford Road in the City of AnyCity, AnyRegion, on June 20th, 2022. The offer was accepted the same day. The closing date is August 21, 2022. Andrei Petro who is also from XYZ Reality Ltd., (Tel: 555-233-2900) represents the seller, Violet Amber Garrison. On June 26, 2022, the buyers receive notice from the lender that they are approved for the mortgage, but the interest rate will be 3.95% instead of 3.75%. Nyla indicates this will increase their monthly mortgage payment by less than $ 21 per month. The buyers agree to these mortgage terms and will waive the condition in the agreement of purchase and sale.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 15 of 15

Congratulations, you have completed the lesson!

©2019 Real Estate Council of Ontario

Module Summary| Page 1 of 4

Module Summary

This lesson contains a summary of the entire module and a list of helpful resources available in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary| Page 2 of 4

Congratulations, you have completed this module! This lesson will present a summary of learning objectives and a list of helpful resources that you can search for in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary| Page 3 of 4

There are four sections on this page with a summary of the key topics that were discussed in this module.

Additional salerelated documents

Additional documents can be part of the offer transaction when an offer is accepted. An amendment to the agreement of purchase and sale is a proposal for a change to a previously accepted term such as a closing date. If the change is not accepted, the original term remains. When the agreement has conditions, specifically a condition precedent or true condition precedent clause, and when the condition is fulfilled, a fulfillment notice is provided to the other party. If the condition precedent clause includes a waiver provision and the condition is being waived rather than fulfilled, a waiver notice is provided. When the accepted offer becomes null and void, a mutual release must be signed by the buyer, the seller, and brokerage releasing them from any obligations and claims in the agreement, and detailing how to release the deposit funds. Completion of this lesson has enabled you to: • Identify key aspects of, and complete, an amendment to an agreement of purchase and sale • Identify when to use, and complete, a notice of fulfillment of conditions • Identify when to use, and complete, a waiver • Identify when to use, and complete, a mutual release

REBBA requirements relating to a trade: Requirements • Disclosure obligations when a salesperson has or will have direct or indirect interest in under REBBA a property relating to a trade • Obligations when a brokerage has received written instructions from a seller about receiving offers and obligations when the instructions change • Requirements for a brokerage to retain documents related to a trade and for the listing brokerage to retain all offers related to a trade including unsuccessful ones • Requirements for a brokerage to complete and retain a trade record sheet for every trade All records with personal information must comply with the Personal Information Protection and Electronic Documents Act.

©2019 Real Estate Council of Ontario

Completion of this lesson has enabled you to: • Identify the disclosure obligations when the salesperson is party to a trade • Identify considerations regarding written directions from a seller for receiving offers • Identify the requirements under REBBA and other legislation regarding document retention and privacy • Identify requirements under REBBA regarding a trade record sheet

Compliance with the requirements under FINTRAC

Salespersons play an important role in detecting, deterring and preventing money laundering and terrorist financing. Brokerages and salespersons must comply with the obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Brokerage obligations include: naming a Compliance Officer who is responsible for brokerage compliance, having written compliance policies and procedures, and providing training to everyone acting on its behalf. The brokerage must also complete an assessment of risks and threats and carry out a review of program effectiveness every two-years. Salespersons have three obligations: 1. Know your client: o Understand your client to identify irregular/suspicious activity or transactions o Ascertain client identity: verify individuals and verify the existence of corporations/entities o Determine third party involvement: identify the third party or report on measures taken for identification if unable to do so o Monitor ongoing business relationships to: update identification information, reassess the risk level of activities and transactions, and ensure activities and transactions make sense with what you know about them 2. Reporting to FINTRAC: o Suspicious Transaction Report o Large Cash Transaction Report o Large Virtual Currency Transaction Report o Terrorist Property Report

©2019 Real Estate Council of Ontario

3. Recordkeeping: o Client information o Receipt of funds o All submitted reports o Unrepresented party o Reasonable measures taken Completion of this lesson has enabled you to: • List the requirements and procedures for verifying the identity of parties to a trade • Identify the information that should be reported to FINTRAC • Identify suspicious activity that should be reported to FINTRAC • Identify the record keeping requirements for compliance with FINTRAC • Identify leading practices of a salesperson during a transaction with a seller or buyer

Putting it all together- a residential agreement of purchase and sale

Use leading practices to ensure you are able to explain to a seller or buyer any pre-set clause or clause added to the agreement of purchase and sale. This includes providing advice when submitting or receiving an offer, and explaining how a clause can impact a seller or buyer. Completion of this lesson has enabled you to: • Identify leading practices of a salesperson regarding the offer process • Identify distinct challenges for a salesperson when explaining agreements of purchase and sale to a seller or a buyer

©2019 Real Estate Council of Ontario

Module Summary| Page 4 of 4

Module Resources There are two helpful resources related to this module that you can search for in the Knowledge Management System. 1. Disclosure: Personal Interest and Knowledge: This bulletin describes the disclosure obligations of a salesperson when they have a personal interest and knowledge regarding a real estate transaction. 2. Written Direction for Multiple Offers: This bulletin explains the requirements of a salesperson to convey an offer to clients and customers as soon as it is reasonably possible. It also focuses on the conduct of seller representatives in multiple offers and delayed offer circumstances. While navigating through the online module, click the KMS button for tools and information on this topic.

©2019 Real Estate Council of Ontario

V7.1

Module 20: Completing Real Estate Transactions Disclaimer: This is a reference document which contains pages from the Accessible eLearning module. You should complete the eLearning module to proceed to the next step. Please note that the accessible module on the LMS only contains the interactive pages and you need to go through the content of this document thoroughly to attempt the interactive activities in the module. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Salesperson Program ©2019 Real Estate Council of Ontario. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or in any means – by electronic, mechanical, photocopying, recording or otherwise without prior written permission, except for the personal use of the Real Estate Salesperson Program learner.

©2019 Real Estate Council of Ontario

Module 20: WELCOME TO COMPLETING REAL ESTATE TRANSACTIONS Salesperson Activities from Offer Acceptance Until Closing of a Transaction Once an offer has been negotiated and accepted by the seller and the buyer, the process is not finished and will require your diligence and attention to detail. Previous modules provided details regarding the agreement of purchase and sale and how terms and conditions can be part of an accepted offer. This module will give you a focused view of the activities that take place during the time period from acceptance of the offer until the closing, and your role as a salesperson in ensuring a smooth and successful transaction. No matter how prepared the seller and the buyer are to complete the transaction, issues may arise that require the knowledge and expertise of others. As a salesperson, you may be the first point of contact at this time and being alert to these possibilities and assisting to resolve any issues in a timely manner are important. Lack of diligence in completing tasks on time can result in many problems, including the offer becoming null and void. To check your understanding of this module, you must complete all the activities in the online module. While navigating through the online module, click the Legislation button to view laws and regulations related to this module.

©2019 Real Estate Council of Ontario

While navigating through the online module, click the KMS button to access the Knowledge Management System or visit the Module Resources to find the list of all the KMS assets for this module. The contents of the thumbnail icon and References from the module are added to support your learning throughout this Accessible PDF.

©2019 Real Estate Council of Ontario

Menu: WELCOME TO COMPLETING REAL ESTATE TRANSACTIONS Number of Lessons

Lesson Number

10 Lessons

Lesson Name

Lesson 1

Salesperson’s Due Diligence During the Conditional Offer Period

Lesson 2

Salesperson’s Due Diligence Obligations Until the Transaction Closes

Lesson 3

Title Conveyance

Lesson 4

Costs Associated with Title Conveyance

Lesson 5

Trust Account Requirements

Lesson 6

Pre-closing Issues

Lesson 7

Next Steps if a Transaction Does Not Close

Lesson 8

After Closing

Lesson 9

Summary Practice Activities Module Summary

©2019 Real Estate Council of Ontario

Lesson 1 | Page 1 of 12

Lesson 1: Salesperson’s Due Diligence During the Conditional Offer Period This lesson provides you with an overview of your duties and responsibilities as a salesperson during the conditional offer period. Duties involve preparing documents such as a notice of fulfillment of conditions, a waiver, or an amendment to the agreement of purchase and sale within defined timelines. Duties could also involve the buyer’s salesperson providing the buyer with the names of professional third-party providers, such as a home inspector or mortgage broker, and arranging appointments through the seller’s salesperson to provide access to the property for inspections or visits. Being diligent and professional can ensure the transaction does not suffer due to miscommunication or missteps.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 2 of 12

Salesperson’s Due Diligence During the Conditional Offer Period The time period immediately following the acceptance of an offer can be critical when that offer contains terms and conditions for the transaction to close successfully. The emphasis for you, as a salesperson, in this period will be organization and time management to ensure a transaction does not suffer due to miscommunication or missteps. From co-ordinating inspections or visits to the property and maintaining timeline requirements, to resolving issues related to the transaction, salespersons for both the seller and the buyer will have duties and obligations to fulfill. The conditional offer period must be monitored, as missing the time period allowed for completion of a term or condition could result in the offer becoming null and void. Upon completion of this lesson, you will be able to: • Identify requirements of a buyer’s salesperson for due diligence during the conditional time period of an accepted offer • Identify requirements of a seller’s salesperson for due diligence during the conditional time period of an accepted offer Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 3 of 12

Interactions Between the Listing and Selling Salespersons During the Conditional Time Period Throughout the offer process, salespersons working with the seller and the buyer will have many interactions. As this can be an emotional and stressful time for everyone, including you as the salesperson, having a professional relationship with your peers will prove beneficial for everyone. Many offers contain terms or conditions that must be completed by the parties for the transaction to close successfully. To fulfill any requirements, the salespersons involved in the trade will continue to communicate with each other and assist any third party engaged during the conditional time period. Activities during the conditional time period that require communication between you and the seller or the buyer could include: • Confirming appointments for any visits to be completed at the property, such as a contractor to provide quotes for the buyer on anticipated renovations. • Attending any visits or inspections at the property by third-party professionals who have been hired to assist a buyer in fulfilling any conditions, such as an appraiser or property inspector. As a salesperson, you will have to

©2019 Real Estate Council of Ontario

ensure that the inspection is carried out in an appropriate manner. You must be present during the inspection to ensure the property is properly protected during the visit. • Confirming any agreed-to terms have been met by one of the parties, such as a seller completing repairs to the property. • Addressing any issues that arise from the due diligence steps being taken, such as repairs that were not anticipated but required following the property inspection. • Obtaining relevant documents, such as an existing survey or a status certificate from the seller’s salesperson or the property manager, and delivering them to the buyer’s lawyer. Continued communication between the salespersons will help ensure a seller or a buyer can fulfill their obligations, avoid any confusion regarding aspects of the trade or the property, and proceed with the closing of the transaction.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 4 of 12

Duties of the Buyer’s Salesperson During the Conditional Time Period Many offers contain conditions for the benefit of the buyer. As such, as the buyer’s salesperson, you will have a vital role to play during the conditional offer period. Each condition within an offer will have a time period in which the condition must be fulfilled or waived. Failing to meet any timeline will have serious ramifications on you, your brokerage, and the seller and the buyer. The following four sections correspond to your duties as a buyer’s salesperson during the conditional offer phase.

Deliver relevant documents and deposit

Once there is an accepted offer, all parties must receive a copy of the agreement of purchase and sale as soon as possible. All original documents must be submitted to the brokerage as soon as possible, as the brokerage is required to retain all trade-related documents. At the time an offer is accepted, the following documents must be provided to the brokerage: • A buyer representation agreement or a buyer customer service agreement • The accepted agreement of purchase and sale • The FINTRAC form for identification verification and Receipt of Funds for the deposit

©2019 Real Estate Council of Ontario

As the buyer’s salesperson, you will be required to obtain the deposit from the buyer as directed in the agreement of purchase and sale, and deliver the deposit to the designated deposit holder, typically the listing brokerage. Considerations regarding the deposit include: • Providing a receipt to the buyer when the deposit has been obtained • Completing the required FINTRAC form, such as a Receipt of Funds and identification verification • Ensuring the deposit is forwarded to the deposit holder as per the requirement of the agreement of purchase and sale • Obtaining a receipt from the deposit holder identifying when the deposit was received In instances where a supplemental deposit is being provided by the buyer, the above considerations would also apply to that additional deposit. Interactions with As the buyer’s salesperson, you may be asked to refer other professionals to the buyer to third-party service assist in fulfilling any condition or other aspect of the agreement. A professional third-party provider could be a: providers • Home inspector • Contractor • Appraiser • Mortgage broker or another lender • Insurance broker • Lawyer In order to comply with your obligations under the Code, you will have to advise the buyer to obtain the services of another professional if you do not have the competence, skill, or education required to provide what is required. Also, you should not discourage a buyer from seeking those services from other professionals. Activities for you, as a salesperson, involving third-party professionals include making an appointment with the seller’s salesperson or brokerage for the professional to attend the property, being present during the inspection, or any visits by third-party service providers, discussing the results of any inspection with the buyer and the professional, and determining with the buyer the next steps based on the results of any inspection. Not all conditions in an offer require attendance or inspection of the property.

©2019 Real Estate Council of Ontario

For example, an insurance broker could use the information available on the property as provided by the listing brokerage, enquire with the buyer regarding certain items such as a fireplace, wood stove, heating source, type of electrical wiring, plumbing system, wood panelling, and so on, and will contact you as the buyer’s salesperson to answer any questions they may have. A lender could use the services of an appraiser or rely on the information available on the property, such as a copy of the listing and the agreement of purchase and sale, to assess the property for mortgage lending. Based on the information provided to obtain insurance or financing, an inspection may subsequently then be required. For example, an electrical inspection may be required if it is discovered the property has knob and tube wiring that was not evident during the showings with the buyer. As this would be disclosed to the insurer or lender, additional inspections may result. In the case of a buyer purchasing a condominium unit, the buyer’s offer should include a Unique condition regarding the review of an up-to-date status certificate from the condominium considerations if the purchase is a corporation or their management company, as you learned in an earlier module. As this is a time-sensitive document, the status certificate is not typically requested until an offer is condominium unit accepted. There will be a time requirement to request the status certificate as well as associated time requirements to have the documents reviewed by the buyer and/or their lawyer once the status certificate is received. As the buyer’s salesperson, your role could include requesting the status certificate, receiving and forwarding the status certificate to the buyer and the lawyer, and then addressing any issues that arise based on their review. For example, a large special assessment for repairs that exceed the amount of money set aside in the reserve funds is noted in the status certificate that was not disclosed to the buyer. As the buyer's salesperson, in this instance, you should have made the offer conditional on being satisfied with the status certificate. The status certificate contains a snapshot of all financial and other management details associated with the condo. For example, if there is a large special assessment noted in the status certificate, the buyer may choose not to go ahead with the transaction.

©2019 Real Estate Council of Ontario

Manage issues related to conditions or other terms

Not making the offer conditional on a satisfactory status certificate could lead to you, as the buyer’s salesperson, missing out on certain important details related to the property that may impact the buyer. For example, the status certificate may reveal that the condo corporation has an inadequate reserve fund. This could mean that the condo may not possibly have adequate funds for big repairs and will rely on unit owners to furnish the funds. The conditional offer stage provides an opportunity for the buyer to complete their due diligence regarding any term or condition included in the agreement of purchase and sale. Any condition included in an offer must be negotiated in good faith. What this means for you as a salesperson, is that a condition should only be included where a buyer is willing to make a good faith attempt to purchase the property. A condition should never be used to encumber the property with an offer, only to make no attempt to fulfill the condition. Conditions made in good faith are typically fulfilled or waived allowing the transaction to proceed. However, there will be times when new discoveries about the property are made during the conditional time period, resulting in a buyer choosing not to proceed, or choosing not to proceed on the same terms. When this happens, you should discuss the details with the parties involved. Questions for a buyer could include: 1. Based on the new evidence, do you want to proceed with the offer? 2. If you were to proceed with the offer, are the terms you have agreed to still satisfactory? 3. If the terms could be renegotiated with the seller, would you consider proceeding with the offer? Based on the buyer’s responses, a discussion with the seller’s salesperson should occur. This could result in the seller agreeing to fix a problem that was discovered, a reduction to the selling price to offset the cost of addressing the problem, or any other terms agreeable by the parties. Once the decision on how to proceed has been determined, additional documents will be required, such as an amendment to the agreement of purchase and sale, or a mutual release if no resolution was reached.

©2019 Real Estate Council of Ontario

For example, an offer may be conditional on a home inspection. The home inspector discovers mould in the attic space with an estimated cost of $1,500 to remediate the mould. The buyer is willing to accept the property with the defect. However, the buyer expects a $1,500 price reduction as compensation. If the seller agrees, you, as the buyer’s salesperson, will prepare an amendment changing the purchase price, have it signed by the buyer, and deliver it to the seller or seller’s salesperson for signatures. Once the amendment is signed, the buyer would sign the waiver. Once executed, the documents will be forwarded to the respective lawyers. Your ability as a salesperson to appropriately deal with an issue related to a condition or other terms is important because it will demonstrate your competence. The action will also be promoting the best interests of your clients and ensuring that the details of the transaction have been appropriately documented.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 5 of 12

Duties of the Buyer’s Salesperson During the Conditional Time Period Other professionals will be involved in many conditions on behalf of a buyer, such as a property inspector, lender, and insurance broker. As the buyer’s salesperson, you should be in contact with these professionals throughout this time period as they are providing advice, guidance, and approvals for the buyer to proceed with the transaction. Your obligations do not end at including a condition in the offer for the buyer’s benefit. Your obligations extend in ensuring that the buyer is prepared to address the said condition within the offer and that the appropriate method is used. The following four sections correspond to your duties and obligations as a buyer’s salesperson when preparing to address a condition within the offer.

Confirming the buyer’s status regarding a condition

During the conditional offer stage, as the buyer’s salesperson, you will be responsible for ensuring the buyer complies with the obligations related to any condition agreed to in the offer. Timelines must be adhered to and it is your role to ensure they are. Within the conditional time period, the buyer may be relying on other professionals to provide the necessary expertise to guide their decision on proceeding with a transaction. As a salesperson, you should ensure continued contact with these professionals when they are providing their services to the buyer. It is important that you understand their role during the conditional phase and ensure there is no misinterpretation of the results stemming from their participation. Misunderstandings can occur when a buyer is dealing directly with the professional without assistance from a salesperson. For example, a lender may indicate to the buyer that everything appears to be in place for their purchase. A buyer may misinterpret this as the financing being approved, whereas the financing is still subject to a satisfactory appraisal. As a salesperson, if you rely on the buyer’s assumption that the financing was approved, and the buyer signs a notice of fulfillment of conditions, this creates a risk that the appraisal could identify a property issue that affects the lender’s approval. Ultimately, the buyer may not be able to obtain the necessary financing yet is obligated to the purchase as a notice of fulfillment of conditions was provided. ©2019 Real Estate Council of Ontario

As a salesperson, your duties and obligations will require you to confirm the status of the buyer’s financing approval. This is best done with a written confirmation from the lender or buyer, rather than a verbal confirmation. A written confirmation could include an email from the lender confirming approval, or the buyer could provide a copy of the letter of commitment received from the lender. You should know that by waiving or fulfilling a condition, the seller or the buyer will be losing any conditional protection in the offer they previously enjoyed, and they would be bound to the agreement.

Using the appropriate document when providing notice regarding a condition

Lack of due diligence in ensuring that the buyer is prepared to waive or fulfill the condition can lead to financial, legal, and other complications for both the buyer and you, as the salesperson. Your obligations related to any condition will vary, depending on how the condition was written and the decision of the buyer regarding how to proceed. As you learned in earlier modules, the following are options for providing notice: • A condition drafted as a condition precedent and the buyer wishes to proceed with the transaction: o A notice of fulfillment of conditions if the condition has been fulfilled exactly as stated o A waiver if the condition has not been fulfilled exactly as stated • Example Using a notice of fulfillment of conditions: An offer contains a condition regarding a satisfactory inspection of the property by a third party. The buyer hires a contractor to complete an inspection as there were signs of water seepage in the basement. Following the inspection, the contractor identifies that the source of the leak is a faulty downspout, which was causing water to pond and not properly drain away. The buyer is satisfied with the report indicating there are no serious concerns with the basement and agrees to proceed with the transaction. A notice of fulfillment of conditions is prepared, which creates a firm and binding agreement. • Example

©2019 Real Estate Council of Ontario

• •

•

•

Using a waiver: An offer contains a condition regarding a limited inspection of the property by a home inspection firm and that, in their opinion, all deficiencies can be remedied at a cost of no more than $2,000. Following the inspection, the buyer receives a report indicating that the deficiencies total $2,500. The buyer is prepared to proceed with the transaction as the additional monies required are considered minor. A waiver is prepared and signed by the buyer creating a firm and binding agreement. If a notice of fulfillment of conditions or waiver is not received and acknowledged by the other party within the specified time period, the offer becomes null and void. Remember that a true condition precedent can only be fulfilled and not waived. An example of a true condition precedent for the benefit of the buyer would be the buyer being approved by the seller’s lender to assume the seller’s existing mortgage. A condition drafted as a condition subsequent and the buyer wishes to proceed with the transaction: o No action is required on the part of the party protected by the condition. No waiver is required. A condition subsequent allows for an agreement to be terminated, and if not terminated, the agreement remains firm and binding following the expiration of the time period identified for the condition. If a buyer does not wish to continue with the transaction, a notice to terminate the agreement must be received and acknowledged by the other party prior to the specified time period expiring.

In all instances where the transaction will not be proceeding, a mutual release must be completed and signed by the parties prior to the buyer’s deposit being disbursed from the brokerage’s trust account. While it may appear that both a notice of fulfillment of conditions and a waiver achieve the same result, using an inappropriate form can cause misunderstandings at a later stage in the transaction. Ensure the correct method of advising the other party is always used, even if this requires separate documents for different conditions within a buyer’s offer. If someone “waives” a condition, they are simply stating that they no longer require conditional protection in the agreement and are waiving their right to carry out further due diligence as stated in the condition.

©2019 Real Estate Council of Ontario

If, on the other hand, they deliver a “notice of fulfillment of conditions”, they are advising the other party that due diligence as contemplated by the condition has been carried out, and they are proceeding with the transaction.

Understanding the risks of waiving a condition

Lawyers may advise caution when using a waiver as the conditions are historical evidence of the progress of the parties in carrying out their various obligations. Conditions are included in an offer for the protection of either the seller or the buyer. In most instances, it may be waived at that party’s sole option. However, removing a condition from an offer without completing it, or attempting to complete it, can have severe consequences. As a salesperson, it will be your obligation to discuss the potential risks associated with these actions prior to the buyer waiving a condition. For example, a buyer’s offer includes a condition for the property to be inspected by a third party as they want to complete renovations, including removing a wall between two rooms. After the offer was accepted, a relative of the buyer, who is a contractor, states there is no need for an inspection, as there should be no concerns completing the renovations. Based on this, the buyer determines an inspection is not required and directs the salesperson to complete a waiver. The risks in following these instructions could include: • After the transaction closes, it is identified the wall is a load-bearing wall and cannot be removed • The buyer is dissatisfied with the services provided by the salesperson • The buyer’s salesperson is found to be in non-compliance of the Code of Ethics for not counselling the buyer against doing so • Their brokerage is open to risk and litigation based on the salesperson’s actions As a salesperson, there are several opportunities for you to ensure the buyer is fully informed and prepared when deciding to sign a waiver without attempting to satisfy the condition. These could include: • Encouraging the buyer to have the inspection completed • Detailing the risks associated with the proposed waiver of the condition • Advising the buyer to obtain independent legal advice prior to proceeding with a waiver ©2019 Real Estate Council of Ontario

• Documenting the guidance or advice provided to the buyer by you and the brokerage

Leading practices for managing timeline requirements

Ultimately, it is the buyer’s decision, and when representing the buyer, you and the brokerage are obligated to follow your legal instructions. However, ensure the buyer is making a fully informed decision before proceeding with their directions. The common mistake made by salespersons is not emphasizing the risks associated with waiving a condition. As the buyer’s salesperson, managing timelines will be an important duty for you. You must be detailed, organized, and proactive, as not adhering to defined timelines can place a buyer in an unwanted position regarding the property purchase. The conditional offer period lasts for a finite number of days and leaving matters to the final day or hours can result in additional problems or risks. A purchase where it appears all inspections or approvals are deemed simple may not end up as such. Unknown or unexpected complications can arise, such as: • A third-party professional delay in performing the service or in providing a report • An unexpected result from a third-party professional’s report, leaving minimal or no time to complete further investigations • Additional information required by a third-party professional to complete the report or approval Once a buyer has received the results of a third-party professional’s report, or has confirmed that the required approval has been obtained, your additional obligations as a salesperson will include: • Confirming the status of the condition with the buyer or third-party professional • Preparing the required document to proceed or terminate the transaction • Having the document signed by the buyer • Forwarding the document to the seller’s salesperson • Ensuring the document has been received and acknowledged within the time period identified in the offer • Understanding that delays in completing these steps can also occur, and that you should be proactive

©2019 Real Estate Council of Ontario

Lesson 1 | Page 6 of 12

Leading Practices to Manage Timeline Requirements When it comes to the agreement of purchase and sale, time is of the essence. The date and time specified for the fulfillment of the conditions are not approximations. A buyer will rely upon you, as the salesperson, to assist in the due diligence required to adhere to timelines. Activities will need to be undertaken by you to ensure you do not unwittingly jeopardise a transaction. Here are some leading practices that you, as a salesperson, will have to observe during the conditional time period: • Ensure the buyer understands their obligations regarding a condition prior to including the condition in an offer. • Recommend the buyer contact third-party professionals in advance of the offer to confirm their availability. • When drafting the condition, allocate a realistic time frame to fulfill the conditions based on market conditions. For example, it may take more time to hire a property inspector when the market is highly active.

©2019 Real Estate Council of Ontario

• Ensure the conditions are worded as precisely as possible to avoid any misunderstanding. For example, a condition should include an exact date and time for fulfillment rather than providing a number of days. Inserting the number of days can be unclear, such as business days versus calendar days, and whether the days begin when the offer is submitted or once the offer is accepted. • To avoid confusion or missing a condition expiry date, whenever possible, have all the conditions expire on the same date and time. • Recommend the buyer retain third-party professionals as soon as possible following acceptance of the offer. • If any documentation is to be obtained from the seller or the seller’s salesperson (e.g., source documents relating to major improvements or maintenance items such as a new furnace or roof covering), ensure this is completed and forwarded to any third-party professional requiring the information as soon as possible following acceptance of the offer. • Follow up with the buyer throughout the time period to ensure steps are being taken in order to fulfill any condition. • Note the conditional dates in a planner or calendar. Relying on memory could cause you or the buyer to miss a deadline. Documenting dates and times reduces the chance for errors. • Document the steps taken, such as when third-party professionals were retained, any follow-up contact, and results of that follow-up. Purchasing a property can be a complex and emotional time for a buyer. Your role as a salesperson during this time is key to ensuring the necessary due diligence is completed, timelines are met, and the buyer is fully prepared to take the next steps.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 7 of 12

A buyer and his salesperson put a specific date in the agreement of purchase and sale that allows them five days to satisfy the home inspection condition. The home inspector is positive about the general condition of the house in his report but points out significant mould accumulation in the attic. Though the home inspector provides a broad range of costs for the remediation, the buyer is not satisfied with the report and would prefer a more accurate estimate before moving forward. The salesperson advises the buyer to have a contractor experienced in mould remediation inspect the property. However, the home inspection condition is set to expire the next day at 5 p.m. and the buyer and the salesperson are now meeting to discuss the best approach to the problem. What would be the best action for the buyer’s salesperson to ensure the interests of the buyer are protected? There are four options. There is only one correct answer. 1 2 3 4

Advise the buyer to waive the condition, so that the transaction is not at risk of becoming null and void, and the buyer can address the mould issue later. Advise the buyer that the transaction is getting too complicated and they should allow the condition to expire so that the agreement becomes null and void. Advise the buyer that they will ask the seller’s salesperson to request an extension of the expiry of the condition so that the buyer can get estimates of the costs to correct the problem. Advise the buyer to sign the notice of fulfillment of conditions prior to fulfilling the condition. The buyer will then have time to get an estimate of the costs to correct the problem.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 8 of 12

Role of the Seller’s Salesperson During the Conditional Offer Period In most instances, if you are the seller’s salesperson, you will have fewer duties and obligations during the conditional offer period, as most conditions are for the benefit of the buyer. However, an accepted offer could contain terms the seller must complete or a condition for the benefit of the seller. At these times, you will follow comparable leading practices as a buyer’s salesperson to ensure the seller completes any obligations or fulfills any conditions. Attention to time frames and ensuring the seller is kept fully informed during the conditional time period are key aspects of your services.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 9 of 12

Duties of the Seller’s Salesperson During the Conditional Offer Period In order to provide the buyer an opportunity to complete their due diligence, you and the buyer’s salesperson will remain in contact with each other during the conditional time period. These interactions are necessary to coordinate, facilitate, and provide assistance where needed to help ensure the progress is not impeded in any manner, and any required inspections are completed as soon as possible. As the seller’s salesperson, you and your brokerage’s other obligations include retaining copies of all documents related to the trade. The following three sections contain information about your duties as the seller’s salesperson.

Interactions with the buyer’s salesperson

As the seller’s salesperson, you will need to remain in contact with the buyer’s salesperson to help ensure the transaction proceeds to closing. In all instances, you should be aware of the time periods associated with any condition to ensure access is given to the property, or the required information is provided.

©2019 Real Estate Council of Ontario

Deliver relevant documents and deposit

In addition, the seller should be kept up to date on the status of any buyer conditions. Any indications of difficulty in fulfilling a condition are to be reported to the seller immediately. As the seller’s salesperson, you must fully disclose all information known, while also investigating if the seller might be able to assist in resolving the issue by providing additional clarification or information to the buyer. As mentioned earlier, once there is an accepted offer, all parties, including the seller, must receive a copy of the agreement of purchase and sale at the earliest opportunity. All original documents must be submitted to the brokerage as soon as possible, as the brokerage is required to retain all trade-related documents. At the time an offer is accepted, the following documents need to be provided to the brokerage: • A seller representation agreement or seller customer service agreement that has been signed on behalf of the brokerage and presented to the seller for signing • The accepted agreement of purchase and sale • The FINTRAC form for identification verification In most instances, the deposit holder for a transaction is the listing brokerage. As the seller’s salesperson, you will obtain the deposit from the buyer or the buyer’s salesperson as directed in the agreement of purchase and sale. The deposit could be delivered to you or directly to your brokerage. Considerations regarding the deposit include: • Providing a receipt to the buyer or the buyer’s salesperson when the deposit has been received • Submitting the deposit to the brokerage without delay to facilitate the brokerage’s requirement to deposit the funds into the statutory trust account within five business days

Co-operate with the buyer and buyer’s salesperson

The above considerations would also apply to any supplemental deposit provided by the buyer. As the seller’s salesperson, you must fully co-operate with any requests for inspections or visits to the property that are required as part of the buyer’s due diligence. In addition, you should confirm who will be in attendance during any appointment, such as the buyer’s salesperson, and the approximate time needed for the appointment. As the seller’s

©2019 Real Estate Council of Ontario

regarding conditions

salesperson, you should be fully aware of the time limits associated with any condition and instruct the seller to make the property available at an agreed upon time. The following specific duties could be required during the conditional time period: • Arranging and confirming any appointments for inspections or visits at the seller’s property, for example, with an appraiser, property inspector, or contractor. • Providing any documents to the buyer as required by the offer; for example, an existing survey for the property. Providing additional information regarding any issues affecting the transaction which are discovered during the conditional offer phase. For example, providing information on the roof, furnace, or electrical system may be required for the buyer’s insurance approval. As the seller’s salesperson, you must treat every person with fairness and honesty during the course of a trade, including third-party professionals retained on behalf of the buyer.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 10 of 12

Duties of the Seller’s Salesperson During the Conditional Offer Period There will be instances where a seller is required to fulfill terms agreed to in an offer, as well as circumstances where a condition is included that benefits the seller. During these times, many of the due diligence requirements for you, as the seller’s salesperson, will be similar to those of the buyer’s salesperson. These would include using appropriate documents to provide notice, advising the seller on any risk associated with them waiving a condition, or not maintaining time limits associated with a term or condition. The following five sections contain information about your duties during the conditional offer period.

Assist the seller in The offer could contain terms that the seller is obligated to comply with. As the seller’s salesperson, assisting in fulfilling these terms is an important part of your duties during the fulfilling any terms of the offer conditional offer period. The terms could include:

Assist in fulfilling any conditions made for the benefit of the seller

• Ordering a status certificate from the condominium corporation or the management company in a timely manner. • Providing copies of any documents, such as providing a copy of the survey when applicable (i.e., real property), receipts for repairs done, etc. • Completing any repairs to the property in a professional and competent manner and providing receipts for these repairs to the buyer. In some circumstances, the offer could contain conditions for the benefit of the seller. As the seller’s salesperson, understanding the seller’s needs will help you identify when to insert a condition in an offer on their behalf. Seller conditions may require the assistance of third-party professionals like a planner, surveyor or contractor. Common seller conditions include: • The seller being able to buy a suitable property. This may be to accommodate a completion date that the buyer has requested in the offer that might be earlier than the seller had anticipated. The salesperson will work in the seller’s best interest to locate a property during the conditional time frame.

©2019 Real Estate Council of Ontario

• A consent to sever the property. This condition could extend several months, so a salesperson should enquire with the municipality in advance of any offer being accepted to ensure an appropriate time period for this condition is included.

Using the appropriate document when providing notice regarding a condition

Understanding the risks of waiving a condition

An offer could contain conditions for the benefit of either the seller or the buyer. Managing timelines under these circumstances can be complex as conditional time periods may be different for each party. When a seller is required to provide a notice relating to a condition in the offer, using the appropriate document for that notice is important. As detailed previously, a notice of fulfillment of conditions is used when the condition has been completed as stated. A waiver is used when the condition has not been completed as stated. Using the incorrect document could result in misunderstandings regarding a condition. Most conditions include a waiver provision that would allow the seller to remove the condition without fulfilling it. However, in some instances, only a notice of fulfillment of conditions may be used. These are referred to as a true condition precedent, and an example of this is the above noted condition regarding a consent to sever. Approval for the severance must be obtained before the offer is firm and binding. However, completion and registration of the newly severed parcel of land can be done at any time up to the transaction closing. As the seller’s salesperson, you must be wary of a party waiving a condition that is not satisfied. This applies to both conditions made on behalf of the seller as well as the buyer. Risks for a seller include: • Waiving a condition that has not been fulfilled in order to facilitate the sale could result in an obligation to close on the transaction when the seller is not in the best position to do so. For example, the sellers may have a condition in the offer to find a new home that will satisfy their needs. Towards the end of the conditional time period, the sellers may waive their conditions without having found a suitable home. The result would be that their agreement would now be firm and binding and must proceed to closing without satisfying the condition.

©2019 Real Estate Council of Ontario

• Accepting a waiver from a buyer rather than a notice of fulfillment of conditions without understanding why the waiver was used, instead of the notice of fulfillment, could result in the seller not being aware of the potential for a buyer to not complete the sale.

Leading practices for managing timeline requirements

Although the seller must accept the buyer’s notice to waive a condition, as the seller’s salesperson, you should enquire as to why a notice of fulfillment of conditions was not used. This would allow you to monitor the transaction up to the point of completion to ensure any difficulties faced by the buyer are being addressed. As the seller’s salesperson, you will have the obligations to observe due diligence with respect to managing timelines that mirror those of a buyer’s salesperson. Failure to adhere to timelines places the agreement of purchase and sale in jeopardy. The agreement could become null and void and the transaction would not close. Leading practices to ensure conditions are met within the time period not only include ensuring the seller is able to meet their obligations, but also being aware of, and following up on, the buyer’s obligations with their salesperson. Although the time period identified in the offer to fulfill the condition was deemed sufficient, there can be situations that result in a seller or a buyer needing additional time. Unforeseen events or unexpected results from inspections could occur, which do not deter the party from fulfilling the condition but may require more time to complete the due diligence. In order to extend the time period, you, as a salesperson, will prepare an amendment to the agreement of purchase and sale. Any change requires all parties to agree to the amendment within an irrevocable time period. The irrevocable time period must be completed prior to the original time period for the condition expiring. Being alert to the potential for additional time is important because, if the amendment is not completed on time, the original agreement remains valid, which could result in a seller or a buyer being placed in a position with an offer they are not prepared for.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 11 of 12

Sellers Martin and Paula have had their property for sale for an extended time period, and have finally accepted an offer on their property, conditional on their being able to purchase another property. They have a week to find another house that aligns with the closing date in the offer they have accepted. However, despite their exhaustive search, the sellers are unable to find a property of their liking. When they do like a certain house, they find that the closing date for that property would not align with the closing date on their existing property. Which among the following is the correct action for the salesperson to take to ensure the sellers’ best interests are protected? There are three options. There is only one correct answer.

1 2 3

If the sellers do not find a property within the time period stated in their offer, the salesperson should advise the sellers to let the condition expire and then try to sell their property only after having found a new home. If the sellers find a property with a different closing date than what is in the offer on their property, the salesperson should suggest asking the buyer to agree to a new closing date. If the sellers finds a property with a different closing date than what is in the offer, the salesperson should suggest that the sellers purchase that property anyway to ensure their present house is sold.

©2019 Real Estate Council of Ontario

Lesson 1 | Page 12 of 12

Congratulations, you have completed the lesson! In this lesson you were acquainted with the seller and the buyer’s salesperson’s responsibilities during the conditional offer period. As the seller and the buyer’s salespersons, you will arrange appointments and facilitate visits, ensure the appropriate documents are used and be available to answer questions or provide advice. You must also display knowledge, skill, and competence when assisting the seller or the buyer with conditional clauses. During the conditional time period the salespersons work together to achieve the best result for the parties. There are two sections on this page with a summary of the key topics that were discussed in this lesson.

Due diligence requirements of a buyer’s salesperson during the conditional time period of an accepted offer

As the buyer’s salesperson, you will have a vital role to play during the conditional offer period. Your ability to be proactive, observe due diligence, appropriately assist your buyer, and maintain timelines will determine if the transaction moves smoothly. As soon as the offer is accepted by the seller, you will submit all original documents to the brokerage. The brokerage will be required to retain all trade-related documents. Among other duties, you will obtain the deposit from the buyer as directed by the agreement of purchase and sale and deliver it to the designated deposit holder. As the buyer’s salesperson, you may be asked to refer third-party professionals to the buyer to assist in fulfilling any conditions or other aspect of the agreement. Third-party professionals may include a home inspector, an insurance broker, a lawyer, a contractor, and an appraiser. You may be required to make appointments with the seller’s salesperson or brokerage for the professional to attend the property. You may also need to be present during the inspections and discuss the results of any inspection with the buyer and the professional. You may also assist your client in assessing the results of the inspection and determine the next steps accordingly. If the buyer is purchasing a condo unit, you must make the offer conditional on the client acquiring a status certificate from the condo management and being satisfied with its contents. As salesperson, you will be required to forward the status certificate to the buyer and the lawyer and follow up on any issues based on their review.

©2019 Real Estate Council of Ontario

If a new discovery is made about the property during the conditional offer period, the buyer may consider not proceeding with the transaction. As a salesperson, you may be required to play an important part in determining the nature of the problem and assisting in determining if the two parties can come to a mutually agreeable solution. Misunderstandings can occur when a buyer is dealing with a professional without the assistance of a salesperson. As the salesperson, you should ensure that all confirmations by professionals (e.g., a lender) are in writing to eliminate ambiguity. If your buyer client decides to waive or fulfill a condition, you, as the salesperson, will have the duty to ascertain if the buyer is in a position to do so. You must understand the importance of using the correct form (i.e., waiver versus notice of fulfillment of conditions) to avoid any misunderstanding that may occur at a later stage in the transaction.

Due diligence requirements of a seller’s salesperson during the conditional time period of an accepted offer

Lastly, but most importantly, you should be diligent about maintaining timelines at this stage, as the conditional offer period only lasts for a finite number of days. Unexpected complications can occur, such as a third-party professional’s delay in performing a service or providing a report. You should be proactive and follow leading practices for maintaining timelines to ensure the transaction does not suffer. Often the conditions in an offer are for the benefit of the buyer. The bulk of the duties in the conditional offer time would rest with the buyer’s salesperson, but as the seller’s salesperson, you will be required to fulfill certain key duties. As the seller’s salesperson, you will stay in touch with the buyer’s salesperson to ensure that the transaction is moving ahead smoothly and that there are no impediments towards fulfilling conditions. You will also keep the seller up to date on the status of the buyer’s conditions. As a representative of the seller, you will be required to submit all trade-related documents to your brokerage and obtain the deposit from the buyer or buyer’s salesperson, as directed in the agreement of purchase and sale. Your key duty will be to co-operate with the buyer and the buyer’s salesperson as they satisfy their conditions. You may be required to co-ordinate and facilitate any requests for

©2019 Real Estate Council of Ontario

inspections or visits to the property. You will have to be aware of timelines associated with any condition and instruct the seller to make the property available at an agreed upon time. To ensure the buyer can fulfill their conditions, you may be required to provide relevant documents to the buyer and/or additional information regarding issues affecting the transaction. You or the seller will order a status certificate from the condominium corporation, if the agreement is conditional upon the seller obtaining the certificate. If any conditions are made for the benefit of the seller, you will assist the client or customer to fulfill them. Much like in the case of the buyer’s salesperson, as the seller’s salesperson, you must be careful to use the appropriate document – a notice of fulfillment of conditions or a waiver. You will be required to ascertain if the seller is in a position to waive a condition and advise your client accordingly of any risks with taking this action. Similarly, you must observe due diligence while accepting a waiver from the buyer.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 1 of 10

Lesson 2: Salesperson’s Due Diligence Obligations Until the Transaction Closes As a salesperson, you will have limited duties to perform once there are no remaining conditions in the offer. This lesson will discuss your duties relating to questions from the seller or the buyer, responding to any requests from their lawyer, facilitating pre-closing inspections, or visits by the buyer through the listing salesperson or brokerage, and offering advice when required. Although most activities are between the seller or the buyer and their lawyer, you will still be expected to assist and advise them to help ensure the transaction proceeds smoothly.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 2 of 10

Salesperson’s Due Diligence Obligations Until the Transaction Closes Once all conditions in an offer are fulfilled or waived, the offer becomes firm and binding. At this point, the brokerage will provide a copy of the agreement to the lawyers who have been retained by the seller and the buyer if this had not yet been done. Although it may appear that most of the work for you, as a salesperson, has been completed, remaining in contact with the seller or the buyer is still required as the offer could contain terms that will need to be addressed during the time period up to the closing of the transaction. There may also be instances where the lawyer retained by the seller or the buyer may need additional information from you regarding the transaction. Upon completion of this lesson, you will be able to: • Identify the requirements of a buyer’s salesperson for continued due diligence until the day of closing • Identify the requirements of a seller’s salesperson for continued due diligence until the day of closing • Identify the role of the seller's and the buyer's salesperson on the day of closing Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 3 of 10

Buyer Salesperson’s Continued Due Diligence Until Day of Closing As the buyer’s salesperson, you will need to ensure any additional terms agreed to in the offer are completed prior to the transaction closing. These terms could include additional visits to the property or repairs being completed by the seller with an opportunity for the buyer to inspect. Maintaining contact with the buyer throughout this time period is as important as any other time. The following five sections contain information about your duties as the buyer’s salesperson. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Maintaining contact with the buyer As a salesperson, you should remain in contact with the buyer throughout the time period after conditions are completed and the closing of the transaction for several reasons. In addition to ensuring any terms of the agreement are carried out, issues may arise that require action, or new information regarding the transaction may need to be shared with the buyer. For example, the seller may require the completion date to be extended by five days due to a delay in obtaining possession of their new home. As the buyer’s salesperson, you will explain the options available to the buyer including amending the completion date or retaining the agreed upon completion date. If required, both you and the seller’s salesperson will ensure proper documentation is completed to amend the completion ©2019 Real Estate Council of Ontario

date. As the representative of the buyer, you should be available to answer any questions or concerns the buyer may have. Although the buyer will meet directly with their lawyer to complete the closing process, you will remain involved and complete any additional tasks required leading up to the day of closing.

Co-ordinating with the buyer’s lawyer A copy of the agreement of purchase and sale and related documents will be forwarded to the buyer’s lawyer for their review and to ensure any obligations of the buyer are completed. This could include confirming mortgage funds and insurance will be in place on the day of closing, and utility companies have been contacted to have the services placed in the buyer’s name. As the buyer’s salesperson, you may be called upon by the buyer’s lawyer to assist with issues that may arise, such as a change to the closing date or confirmation on any rental items the buyer will need to assume. You will have an obligation to co-operate with the lawyer to ensure that the transaction is completed successfully.

©2019 Real Estate Council of Ontario

Arranging additional visits at the property Additional walk-throughs of the property may be part of the negotiated offer. A clause permitting the buyer a specific number of visits to the property prior to completion would require you, as the buyer’s salesperson, to make the appointment. This clause would be specific in the offer, and could detail the purpose of the visit, the number of people attending, and the amount of time allowed. The time period between the offer and the closing date may be taken into consideration to determine when these visits should occur or how many are permitted. The buyer may want to revisit the property for several reasons, including: • Allowing contractors to take measurements for carpeting, windows, or other renovations • Allowing heating, electrical, or other contractors to inspect the property to provide a quote for repairs or replacement • To ensure any repairs the seller agreed to make have been completed in a competent manner • To inspect the property where fixtures were to be removed by the seller to ensure no additional damage has been done As the buyer’s salesperson, you will be required to coordinate these visits with the seller’s salesperson and accompany the buyer during the visit(s). In most

©2019 Real Estate Council of Ontario

jurisdictions, a specific clause in the agreement is required for the buyer to attend the property prior to closing.

Performing pre-closing inspection A final walkthrough of the property for the buyer is different from the additional inspections required for contractors or to ascertain the status of any term of the agreement. The pre-closing visit is negotiated in the offer, and typically limits the visit to a shorter time period for the purpose of a final viewing only. If additional family members or friends wish to see the property, this preclosing visit could include them, but should not be abused by bringing too many people to the property. As the buyer’s salesperson, you will be required to be present with the buyer, so you can confirm that the property is in the condition that is required. The final walkthrough is normally done within the week of closing. Understanding the seller’s need to pack and vacate the property may impact when this is completed. Although a buyer may wish for this to take place the day before closing, that may not be the best time for the viewing as the home is in disarray and changes may not be noticed because of this. If the condition of the property has changed, such as damage to a wall or flooding after a storm, you as the buyer’s salesperson will notify the listing salesperson

©2019 Real Estate Council of Ontario

to try to resolve the issue with the seller prior to the closing while also communicating this to the buyer’s lawyer to ensure resolution. The final walkthrough is also an opportunity to confirm the sellers have completed any agreed-upon repairs if a visit was not previously held for this purpose. It is possible that the sellers have already moved out of the house when the buyers complete the final walkthrough. This would give the buyer the opportunity to confirm the chattels and fixtures are as described in the agreement. Otherwise, this may not be known until after the transaction closes. As the buyer’s salesperson, you must ensure that the appropriate level of due diligence is being carried out by the buyer client. This is important because an issue may come up later that could impact the smooth closing of the transaction.

©2019 Real Estate Council of Ontario

Considering moving obligations

In addition to recommending third-party professionals to the buyer, you may be asked to recommend moving companies. Previous experience with these companies and speaking with other buyers and sellers who have used their services will help ensure the referral is appropriate as select services may not be provided by all companies. Additional considerations for a buyer when moving include: • Contacting Canada Post to forward mail to the new address • Change of information for any government documents such as a driver’s license • Transferring existing accounts such as telephone, television service, and setting up accounts on the new property for other utilities A checklist will help ensure all the small details surrounding a move have been completed, and it can become part of the services you provide to a buyer.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 4 of 10

Once the buyers have a firm and binding agreement, most duties related to the closing process are handled by the buyers' lawyer. However, the buyers’ salesperson will still be required to observe due diligence in several matters. Which of the following activities will the buyers’ salesperson perform after the sale is firm and binding? There are four options. There are multiple correct answers. 1 2 3 4

Ensuring negotiated repairs are completed by the seller and receipts of the completed work are obtained. Determining the final closing costs for the buyer. Reminding the buyers to call the utility company to transfer account names on closing day. Ensuring there have been no changes which would affect the buyers’ mortgage or insurance approvals.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 5 of 10

Seller Salesperson’s Continued Due Diligence Until Day of Closing When representing a seller in a transaction, continued due diligence until the day of closing is required. As with the buyer’s salesperson, most of the activities will relate to confirming the terms of the offer are carried out. The seller’s lawyer will also complete the transaction, so, as the seller’s salesperson, you will need to be available to address any issues during this time period. The following six sections contain information about your duties. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Maintaining contact with the seller As a seller’s salesperson, you should remain in contact with the seller to ensure any terms of the agreement the seller is obligated to complete have been done prior to closing and in a competent manner. There may also be new questions from the buyer that need to be addressed, or issues raised by the lawyer that need to be dealt with prior to closing. As the seller’s salesperson, you should be aware of these issues even if not actively participating in resolving them. For example, a rental item that is not being assumed by a buyer may need to be paid by the seller prior to the closing date. You could advise the seller on the steps required to do this.

©2019 Real Estate Council of Ontario

Co-ordinating with seller’s lawyer All documents related to the trade (agreement of purchase and sale, waivers, amendments, and any other documents required by the agreement, such as a survey, and verification of current taxes) will be forwarded to the seller’s lawyer for their review and to ensure any obligations of the seller are completed. This could include arranging for the existing mortgage to be discharged and requesting a final reading for any utilities. You may be called upon by the seller’s lawyer to assist with issues that may arise, such as providing evidence that an outstanding work order with the municipality has been completed.

Assisting the seller in fulfilling their obligations As the seller’s salesperson, you may be required to assist the seller in fulfilling their obligations as specified in the offer. These obligations could include minor repairs, replacing fixtures, and removing debris from the property. Based on the wording of the clause, a seller may need to provide evidence the work was completed by a

©2019 Real Estate Council of Ontario

professional, such as forwarding the receipt to the buyer. The clause may also allow a buyer to inspect the repairs prior to closing to confirm they are satisfied with the work completed.

Confirming appointments for additional inspections of the property Additional visits to the property are based on the terms agreed to in the offer. The purpose of these visits is specified in the offer and could include the ability to bring contractors or other third-party professionals to the property. All appointments are confirmed with the seller, and confirmation of who is attending should also be done and the seller advised. The buyer’s salesperson would attend any subsequent visit(s) to the property, and, if requested by the seller, and you, as their salesperson, as well.

©2019 Real Estate Council of Ontario

Making the seller aware of moving obligations A seller is obligated to keep their property in a similar condition as when the buyer viewed the property. Any subsequent damage or notable change to the property could result in liability for the seller to repair. It would be your duty as the seller salesperson to make the seller aware of any closing responsibility that they may have, such as final utility meter reading, or filling up a propane or fuel oil tank. You may help the seller understand that they would have to provide a vacant possession to the buyers or as otherwise provided by the agreement. If this section of the agreement is not complied with, the closing could be delayed. Other considerations for moving, such as referring a mover to the seller, ensuring a change of address has been submitted for various reasons, and other details regarding a move could be provided to the seller in a checklist format to ensure nothing is missed.

©2019 Real Estate Council of Ontario

Removing the sold sign The listing/seller’s brokerage would have sought permission from the seller to place a “For Sale” and “Sold” sign on the property in the Seller Representation Agreement. This permission extends only to the time the seller is the owner of the property. Local municipal zoning bylaws or a community association’s rules may also dictate the length of time a sold sign will be allowed to remain on a property. Also, if requested by the seller, the sold sign should be removed earlier.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 6 of 10

Buyers Usha and Arvind Kumar have requested to visit the house they are purchasing one week prior to the closing. The Kumars would like to bring along their contractor to take measurements for hardwood flooring. The specific visit was included as a clause in the agreement and had stated that the visit would occur at a mutually agreed-upon time. Sellers Martin and Amanda Cooper would prefer to be at the visit, but they have already arranged to be out of town the day the Kumars have scheduled with their contractor and have therefore declined the buyer’s request for the visit. What action(s) should the seller’s salesperson take to resolve the situation? There are four options. There are multiple correct answers. 1 2 3 4

Advise the seller to offer the buyers an alternative day when the buyers may perform their visit. Advise the sellers that they must accommodate the buyer and the contractor as the closing is rapidly approaching. Inform the sellers that as their salesperson, they will be present during the visit to ensure any concerns the sellers have would be addressed. Inform the buyers that the sellers will be out of town and provide the room measurements to the buyers’ contractor so the visit will not be necessary.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 7 of 10

Salesperson’s Role on Closing Day The salespersons for both the seller and the buyer respectively usually have a limited but an important role to play on the day the transaction closes. Much of the responsibility lies with the lawyers who register the deed and mortgage, and transfer funds from the buyer to the seller. However, as a salesperson, you should remain available throughout this day. Last-minute issues may arise that may require your assistance to resolve. Or, you could be needed due to issues discovered once the buyer has possession of the property. Although all attempts are made to ensure the property is provided to the buyer in the condition required, with all chattels and fixtures as agreed to, closing day can be an emotional and stressful time for buyers and sellers. Something minor could escalate into a problem quickly if you are not available to help resolve the issue.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 8 of 10

Duties of a Salesperson on Closing Day Salespersons for both the seller and the buyer respectively may be called upon to assist on the day the transaction closes, although most times the seller or the buyer are content knowing the salesperson is available, if needed. The following three sections contain information about a salesperson may need to assist on the day of closing.

Being available

Sellers and buyers are busy on closing day with the logistics of the actual closing and the tasks related to moving. Most transactions close with no or very few problems, and many times you, as a salesperson, may need to do very little other than reaching out to ensure everything is problem free. If any issues come up related to the transaction closing, the seller and the buyer will address these with their lawyer. Issues discovered after the buyer has possession of the property will result in a phone call to you, if you are the salesperson. Depending on the nature of the issue, it might be resolved through a phone call to the seller’s salesperson, or for more serious issues, referred to their lawyer.

©2019 Real Estate Council of Ontario

Resolving issues after closing

Delivering keys to the buyers

Some minor issues could arise on closing day that you could assist with. Issues that will involve you, as a salesperson, are typically discovered after the buyer takes possession of the property, including: • Removal of fixtures that were not excluded in the offer, such as a light fixture or a built-in bookshelf • Removal of chattels that were included in the offer, such as drapery or appliances • Minor damage to the property as a result of the sellers moving • Cleanliness of the property or any structure or improvement such as a garage or swimming pool • Missing keys, fobs, or remote controls for the garage If you are the buyer’s salesperson, issues such as these could be resolved by speaking with the seller’s salesperson and arriving at an agreed upon resolution with the sellers, such as returning items to the property. If extensive damage has occurred, or an issue is of a more serious nature, you should advise the buyer to contact their lawyer for advice. Sellers will typically provide one set of keys to their lawyer, which are then passed on to the buyer once the transaction closes. Additional sets of keys, fobs, or remote garage openers are sometimes left inside the locked property once the seller has moved or provided to you, if you are the seller’s salesperson, to forward once the transaction has closed. On occasion, law offices are not able to deliver the keys to the buyer, either due to time or distance constraints. Hence, it could fall on you, if you are the buyer’s salesperson, to pick up the keys from the law office or seller’s brokerage and deliver these to the buyer as a courtesy.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 9 of 10

Following completion of the sale, the buyers discover, to their dismay, that the built-in dishwasher has been removed from the property by the sellers. The buyers make a call to their salesperson, who confirms that the dishwasher was included in the agreement of purchase and sale. Which of the following would be appropriate actions for the buyer’s salesperson to take? There are four options. There are multiple correct answers. 1 2 3 4

Ask the buyers to report this matter to their lawyer. Ask the buyers to contact the seller directly to return the dishwasher. Express regret but reiterate that nothing can be done since the transaction has closed. Contact the seller’s salesperson to ask that the seller return the dishwasher and arrange for installation.

©2019 Real Estate Council of Ontario

Lesson 2 | Page 10 of 10

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Buyer salesperson’s due diligence requirements until the day of closing

Even after the agreement becomes firm and binding, as the buyer’s salesperson, you will be required to maintain contact with the buyer and be available to answer any questions or concerns they may have. You will co-ordinate with the seller’s salesperson any additional visits to the property that may be required, as per the agreement of purchase and sale. For example, a contractor may need to take measurements for flooring. If a final walkthrough was negotiated in the offer, you will accompany the buyer to ascertain if any agreed-upon repairs have been carried out and if the condition of the property is unchanged. If an issue arises at this stage, as the buyer’s salesperson, you will notify the listing salesperson and try to resolve the problem before closing. As a salesperson, helping your buyers with their moving requirements may be part of the services you offer. If needed, you will recommend moving companies to them. Remember that it is a leading practice to recommend a minimum of three service providers, and that any referrals for recommendations to third-party service providers must be disclosed in writing. Also, if needed, you will provide the seller with a checklist of activities they may need to complete, such as transferring existing utility accounts or contacting Canada Post to forward mail to their new address. As the seller’s salesperson, you will have the responsibility to maintain contact with your seller to ensure that the transaction is proceeding as expected. Being in contact with the seller allows you to address any questions that may be raised by the lawyers or the buyer.

Seller salesperson’s due diligence requirements You will have the obligation to co-ordinate any buyer visits to the property as per the terms in the agreement of purchase and sale. until the day of closing

©2019 Real Estate Council of Ontario

Role of the salesperson on the day of closing

You will also help the seller understand that they must provide a vacant possession to the buyers or as otherwise provided by the agreement. Lastly, you will observe due diligence with respect to the removal of the sold sign to comply with the seller’s request, as well as any zoning or community association considerations. As a salesperson, you will have the obligation to remain available to the seller or the buyer on closing day. Most transactions close without incident, which means that you will not have much to do apart from enquiring with your client or customer if the closing has proceeded smoothly. However, as a salesperson, you will have the responsibility to respond to any inquiries the seller or the buyer may make to you if an issue arises. You may be required to co-ordinate with the other salesperson in case of a misunderstanding or real issue. If the problem is a serious one, you should refer the seller or the buyer to their lawyers.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 1 of 19

Lesson 3: Title Conveyance

This lesson explains how ownership is transferred from the seller to the buyer, known as title conveyance. This process will be described from the buyer’s and the seller’s perspective and will include understanding the purpose of a document that summarizes the financial aspects of the transaction, known as the statement of adjustments. Explaining the closing process, and understanding the time required for the due diligence completed by a lawyer on behalf of your client, will reinforce for you, as the salesperson, why specific tasks and documents were required throughout the transaction.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 2 of 19

Title Conveyance Once an offer is firm and binding, the bulk of the responsibility shifts to the lawyers who will complete the transaction on behalf of the seller and the buyer. As a salesperson, you will continue to assist with any matters that occur during this stage. Even though the lawyers carry out the closing process, as a salesperson, you should be familiar with the various terms and concepts associated with title conveyancing or the closing process and explain them in clear and simple language. Title conveyancing is broadly defined as the creation of transfer documents and the associated transfer of rights or interests from one party to another. Title conveyancing can be further defined as the process leading up to the transfer of ownership. Closing is the procedural, investigative process by which the parties, through legal counsel, carry out conveyancing requirements and satisfy terms and conditions set out in the agreement of purchase and sale. With manual registration, the process culminates in the exchange of documents and funds at the Land Registry Office. With eRegistration, the online process leads from electronic creation to final release for registration, once lawyers confirm that all documents are satisfactory. Upon completion of this lesson, the learner will be able to: ©2019 Real Estate Council of Ontario

• Describe the title conveyance from the buyer’s perspective • Describe the title conveyance from the seller’s perspective • Identify the purpose of a statement of adjustments Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 3 of 19

Closing a Transaction from the Buyer’s Perspective The buyer’s lawyer will meet with their clients and confirm during this meeting that they have received a copy of the accepted agreement of purchase and sale and any subsequent documents from the buyer’s brokerage. The lawyer will ask for any additional documents or information from the buyer, if required. For example, confirmation of mortgage approval or that the buyer has arranged property insurance. One of the first steps will be to ensure that there are no ownership or other title-related issues. To this end, the lawyer will carry out title and non-title searches. Any problems or questions that result from these searches that could affect the closing will be forwarded to the seller’s lawyer for a response. For example, the searches may reveal that there is an undisclosed easement on the property or that there are tax arrears. There may also be issues such as outstanding building permits or an undischarged mortgage that would have to be resolved before the transaction closes. The buyer will ensure there are sufficient funds to pay the closing costs, which are in addition to the purchase price. As a salesperson, you will have provided some guidance in this matter; however, the lawyer will provide a confirmation and explanation of these closing costs. The buyer will provide their lawyer with the funds required to complete the transaction prior to the completion date to ensure the funds are available when the transaction is ready to close. ©2019 Real Estate Council of Ontario

If any issues arise during closing, you, as the salesperson, will take directions from the lawyer to assist in solving the problem.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 4 of 19

Completing the Title Search The buyer’s lawyer completes a title search of the property to ensure there is a good and marketable title. This means the title can be transferred to the buyer without concern that claims will be made on it in the future, such as a lien, mortgage, encumbrance, or any other adverse claim or charge. As you learned earlier, all land owned in Ontario is registered under either the Registry Act (identified as the Registry System) or the Land Titles Act (identified as the Land Titles System). This provides the public with all documents affecting the ownership of land, which the buyer’s lawyer will review for the purchased property. Historically, both systems were paper-based, but the conversion to an automated procedure has made searching title less complicated and less time consuming. The date of the title search is recorded in anticipation of a sub search at point of closing to ensure there has been no change to the title since the initial title search. The buyer’s lawyer also searches non-title records that can affect property title. Although most properties are registered under the Land Titles System, some properties do remain under the Registry System. Understanding the differences between the two systems is important as this impacts the searches undertaken by the lawyer. The following two sections contain information on how the two systems differ in the context of title conveyance. ©2019 Real Estate Council of Ontario

Registry Act

Land Titles

The Registry System records property interests on a geographic basis. The property records were retained in abstract books, which were indexed under the land description rather than under the owner’s name, and were summarized in chronological order. This could result in several properties being summarized within the same page of the abstract book, requiring a complex search to identify those documents pertaining to a specific property. Due to the complexity of the system, a minimum search of 40 years is required to determine all activity registered against that property. Once the title search is completed, the lawyer provides an opinion of title. Under the Registry System, accuracy of the title is not guaranteed by the lawyer or the province of Ontario. The Land Titles System is based on the premise that the Land Titles Register (a book roughly comparable to the abstract book in the Registry System) is the sole information source for documents affecting property ownership. Completing a title search under the Land Titles System is streamlined making the title searches easier and less time consuming. All land is assigned a parcel number, and a separate parcel record is kept for each unit of ownership. Whenever a title search is done, the property is searched by the parcel number and the relevant information for only that property is provided. The Land Titles System operates in accordance with three principles: mirror principal, curtain principle, and insurance principle. These three principles define how the government provides a guarantee to the title, subject to certain limitations, by the Province of Ontario. Anyone can search for land records, however special permission to register land records is required. A lawyer or legal professional is authorized to register these documents.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 5 of 19

Title Conveyance from the Buyer’s Perspective The buyer’s lawyer will complete various searches to identify any matters or issues that must be resolved for the transaction to close. These searches include a title search at the Land Registry Office, non-title searches done at the municipal office, a Sheriff’s search and confirmation of accounts with any utility companies. The following screens detail the information the buyer’s lawyer will review under each of these searches. As a salesperson, you will have to understand the importance of the closing process and the steps involved to be able to assist the buyer. The following four sections contain information about the four steps of the closing process from the buyer’s perspective. Image: Flow chart of the Title Conveyancing Process.

©2019 Real Estate Council of Ontario

Title search and sub searches

Title searching refers to locating, organizing and condensing pertinent facts about documents and other related materials registered on title. Title information, once reviewed by the buyer’s lawyer, will lead to a conclusion as to whether the owner has good and marketable title. Under the Registry System, any gap or error in the chain of title is traditionally referred to as a cloud on title. A cloud on title is an encumbrance or claim that affects title to real property, typically discovered during a title search. One common example is an old mortgage registered on the title, but no subsequent document registered to indicate the debt was paid in full. The buyer’s lawyer will search title to identify any items that could affect the transfer of ownership. The search will look for outstanding encumbrances, restrictive covenants, nonresident parties, expropriations, and adjoining lands to ensure compliance with the Planning Act. In addition, the status of the property as a matrimonial home will need to be ©2019 Real Estate Council of Ontario

confirmed. In some instances, a spouse may unilaterally register a designation of a property as a matrimonial home. This designation would be shown on the parcel register. Any document registered that requires a statement of compliance regarding spousal status, such as a mortgage/charge being registered, could provide additional information regarding matrimonial home status. An owner is required to make one of several statements on any transfer or encumbrance added to the title. For example, a statement could include: “The property charged is not ordinarily occupied by me and my spouse, who is not separated from me, as a family residence.” Ultimately, when the deed/transfer is prepared, a statement regarding the matrimonial home status will be included on that document. A good and marketable title means that when the title to the property is transferred to the buyer on closing it will be without any liens or encumbrances that may affect ownership rights, other than what the buyer has agreed to accept, such as an easement. The buyer’s lawyer will perform a title search more than once. Prior to closing, a sub search is done to determine if there has been any change to the integrity of the title. For example, a lien may have been placed on the property a few days ago, which may not have come to light in the previous title search. A sub search provides additional scrutiny to ensure the title is good and marketable. Non-title searches The buyer’s lawyer will search various non-title records including, but not limited to, the following: • Zoning (to ensure that the present use conforms to zoning bylaws) • Work orders or deficiency notices • Writ of Execution search (conducted with the Sheriff’s office at the Land Registry and can include a search for a specific jurisdiction or Ontario wide; provides a search against an individual or company for any outstanding judgements. If no record is found, a certificate is provided. If there is an outstanding judgement, a Writ Report is provided) • Unregistered easements (e.g., hydro easements) • Personal property pursuant to the registration system established under the Personal Property Security Act • Outstanding amounts relating to a local utility company owed by the owner of the property ©2019 Real Estate Council of Ontario

• Status of property taxes including any outstanding amount owed, special assessments/local improvements and surcharges • Survey documentation concerning setbacks, encroachments, and related matters • Compliance with subdivision or site plan agreements and registered restrictive covenants • Status concerning Ontario New Home Warranties Program (if applicable) The range of non-title searches varies by property and individual circumstance.

Requisitioning

For example, a rural property may require searches involving the local health unit and/or municipal records concerning the waste disposal system, conservation authority requirements for properties within regulated areas, approvals required from the Ministry of Natural Resources under the Public Lands Act, and, in some instances, Parks Canada in relation to federally-controlled canals concerning waterfront improvements. Following searches usually conducted by the buyer’s lawyer, notice is provided by the buyer’s lawyer to the seller’s lawyer indicating such things that have been discovered during the searches and advising the seller’s lawyer what they will accept on closing as evidence that these issues have been appropriately addressed. This is a vital component of preparing for the closing. Details of requisitioning were discussed in detail in an earlier module.

Final reporting letter

Requisitions can be wide-ranging; for example, evidence that the seller is not a non-resident of Canada, or an undertaking to pay all liens, judgements, tax amounts outstanding, levies, charges, and penalties prior to closing, and provision of satisfactory evidence that all buildings have been built in accordance with municipal bylaws and provincial statutes. Upon successful resolution of matters requisitioned, the sale progresses to the scheduled closing. A final reporting letter is prepared following closing, setting out transaction particulars from the buyer’s perspective, including the statement of adjustments, opinion regarding title, adjustments, and mortgage details (if applicable) and is provided to the buyer with the other documents related to completion of the transaction, such as the deed/transfer and mortgage/charge.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 6 of 19

Salespersons are not involved in the title conveyancing process, but they should be aware of the fundamentals involved so they may explain it to the seller or the buyer. Which of the following statements could a salesperson make to a seller or a buyer when explaining the title conveyancing process? There are four options. There are multiple correct answers. 1 2 3 4

Outstanding work orders and zoning compliance are two possible non-title searches undertaken by the buyer’s lawyer. The Land Titles System requires a minimum 40-year search to examine the chain of title and to ascertain if there are any errors in that chain. Under the Registry System, all properties are assigned a parcel number and kept in a register of title for each unit of ownership. A requisition can involve a request to verify whether the seller is a non-resident as per the Income Tax Act.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 7 of 19

Closing a Transaction from the Seller’s Perspective Although most of the time-consuming tasks to prepare for a transaction to close are completed by the buyer’s lawyer, there are some specific activities the seller’s lawyer will perform. These generally relate to ensuring the seller is properly prepared to close on the specified closing date and that they are in compliance with any of the terms agreed to in the agreement of purchase and sale. The seller’s lawyer is responsible for completing some of the documentation affecting both parties. This would include preparing a draft copy of the deed/transfer, which is forwarded to the buyer’s lawyer for approval. The deed/transfer is used to register the ownership of the property under the buyer’s name. The seller’s lawyer also prepares other documentation on behalf of the seller, such as a mortgage document where the seller is providing financing to the buyer (i.e., a seller take-back mortgage), and the statement of adjustments, which is an accounting of all monies associated with the sale. As the seller’s salesperson, you should understand this process as you may become involved at various stages of the transaction closing to assist the seller or the seller’s lawyer. For example, you may have to discuss details regarding the mortgage balance being paid upon the transaction closing, or a declaration by the seller regarding the seller’s occupancy of the property.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 8 of 19

Title Conveyance from the Seller’s Perspective The lawyers representing the seller and the buyer will be in correspondence with each other throughout the time period leading up to the closing of the transaction. Each lawyer has a specific role and completing these activities on time will help ensure the transaction is successfully completed as scheduled. The following five sections contain information about each of the activities undertaken by the seller’s lawyer. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Response to requisitions

Undertakings

The seller’s lawyer will respond to requisitions from the buyer’s lawyer provided that they are consistent with the agreement of purchase and sale and within the time limits specified. Requisition items may include: • Statutory declaration that a seller is not a non-resident. This is required to assure the buyer that there will be no need to withhold funds on closing to satisfy the nonresident seller’s obligation to pay capital gains tax • Declaration of possession covering the seller’s period of ownership • Direction for payment of funds on closing • Seller’s undertaking to pay tax levies, charges, penalties, utility accounts, and provide vacant possession • Evidence of no executions, no contraventions of the Planning Act, and no unregistered liens, rights-of-way, tax arrears, expropriations, and construction liens • Discharges of any liens, mortgages, or encumbrances other than those to be assumed by the buyer • Compliance of buildings and other improvements with zoning bylaws • Statement certifying that the sale of the land and premises is exempt from harmonized sales tax, or otherwise, depending on the circumstances An undertaking is an assurance or promise given by a lawyer regarding unresolved items at closing.

©2019 Real Estate Council of Ontario

When a certain requisition remains unanswered, the seller or the seller’s lawyer could give an undertaking or promise that the issue will be resolved. Undertakings may be necessary to resolve last-minute issues arising at closing and are considered one of the following types: • Client: An assurance by the client (typically given through the lawyer) • Best Efforts: The lawyer will diligently take the necessary steps to ensure that specific assurances are carried out • Personal: A personal assurance by the lawyer that something will be done Undertakings may involve unresolved issues such as outstanding liens, an encumbrance or an encroachment, evidence that no tax arrears exist concerning the property, and that all chattels remaining with the property are not encumbered. A frequently encountered undertaking involves assurances that an existing mortgage will be discharged within a reasonable time after closing. For example, there could be an existing mortgage registered on the property, which the seller will discharge using the funds from the closing. The lawyer for the seller will give an undertaking stating the mortgage will be discharged as soon as possible. Another example includes a seller who has purchased a furnace on a rent-to-own contract. If the seller were to sell their property before the furnace is completely paid for in the contract, then the remaining balance needs to be paid prior to closing. If the seller is relying on the proceeds of the sale to pay the balance, there would be an undertaking from the seller’s lawyer that when the transaction closes, the seller’s lawyer will use part of the proceeds of the sale to discharge the outstanding balance of the conditional sale contract after closing.

Preparing statement of adjustments

As a salesperson, you should know what an undertaking is, and its relevance in the closing process, so you can explain to the seller or the buyer, if required. The seller’s lawyer prepares a statement of adjustments itemizing the financial history of the transaction. The statement sets out in balance sheet form, all credits to the seller (e.g., purchase price, prepaid taxes, and prepaid utilities), all credits to the buyer (e.g., deposits and arrears in taxes prior to the date of closing), and the balance due on closing. ©2019 Real Estate Council of Ontario

The statement of adjustments provides all parties to the transaction with a financial breakdown, as of the closing date. More details about the statement of adjustments will follow in the subsequent screens. Registering title by The traditional system of registration involved the lawyers attending the Land Registry Office to submit the documents to be registered. The automation process used today eRegistration eliminates the need for signatures on documents and permits remote access to electronic records by the lawyers. The following provides an overview of the eRegistration used today. eRegistration Methods Individuals who are provided access to the system may register documents electronically from their offices, use a kiosk in the applicable Land Registry Office, or request assisted service by a staff member in the Land Registry Office. Not all documents can be registered electronically. eRegistration Procedure eRegistration refers to title documents being created, submitted, and maintained in electronic form. eRegistration is initiated by means of dockets and messaging. A docket includes registration documents prepared by one lawyer with subsequent forwarding (messaging) by secure transmission to another user through the Teraview gateway software. Completing Documents The following description briefly summarizes steps in creating a transfer/deed of land by the seller’s lawyer, further steps taken by the buyer’s lawyer, followed by electronic signing and electronic submission to the Land Registry Office. The seller’s lawyer accesses the Teraview software and creates a transfer by inserting relevant information in successive data entry fields, which generally parallel those found in the paper-based Transfer/Deed of Land (e.g., property details, transferor, and transferee). This process would include Planning Act statements and other legal statements that are part of the document preparation process. After completing all necessary details, the seller’s lawyer sends a message to the buyer’s lawyer allowing access to the document.

©2019 Real Estate Council of Ontario

The buyer’s lawyer, upon receiving the message, electronically accepts access to the sent document (i.e., the transfer). They then check for writs of execution against the seller. Assuming none, the buyer’s lawyer adds the buyer’s information to the document. As with the seller’s lawyer, this process would include Planning Act statements and other legal statements that are part of the document preparation process. Next, the buyer’s lawyer completes the land transfer tax statements (information found in the Land Transfer Tax Affidavit that accompanies the Transfer/Deed of Land). The document, when completed by both lawyers, is ready for electronic signature. Two types of signatures are required: completeness and release. The completeness signature validates the accuracy of statements made and the release signature confirms that the document is ready for registration. With the documents now completed and signed, the electronic registration can occur. The system performs a sub search and searches for writs.

Final reporting letter

Upon registration, a registration number is assigned to the transfer by the POLARIS database. The seller’s lawyer reviews all draft documents provided by the buyer’s lawyer to ensure they comply with the terms of the agreement and discusses any items requiring clarification and/or resolution with the buyer’s lawyer. The seller’s lawyer also prepares a final reporting letter for the seller following the closing of the transaction. This sets out the particulars from the seller’s perspective, such as the statement of adjustments, details of any seller take back mortgage, the discharge of any existing mortgage, and payment of real estate remuneration.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 9 of 19

Salespersons do not participate in the title conveyancing process, but they should have knowledge about the terms used to be able to correctly answer any questions the seller or the buyer may pose to them. Identify the correct definition of Requisition. There are four options. There is only one correct answer. 1 2 3 4

An assurance by the lawyer regarding unresolved items at the closing of a real estate transaction. An inquiry, typically referred to as a requisition letter, prepared by the buyer's lawyer to the seller's lawyer concerning title matters. Update of the previous title searches to ensure there is no change to title. A document in a balance sheet format setting out the financial particulars of a real estate transaction.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 10 of 19

Salespersons do not participate in the title conveyancing process, but they should have knowledge about the terms used to be able to correctly answer any questions the seller or the buyer may pose to them. Identify the correct definition of Sub search. There are four options. There is only one correct answer. 1 2 3 4

An assurance by the lawyer regarding unresolved items at the closing of a real estate transaction. An inquiry, typically referred to as a requisition letter, prepared by the buyer's lawyer to the seller's lawyer concerning title matters. Update of the previous title searches to ensure there is no change to title. A document in a balance sheet format setting out the financial particulars of a real estate transaction.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 11 of 19

Salespersons do not participate in the title conveyancing process, but they should have knowledge about the terms used to be able to correctly answer any questions the seller or the buyer may pose to them. Identify the correct definition of Undertaking. There are four options. There is only one correct answer. 1 2 3 4

An assurance by the lawyer regarding unresolved items at the closing of a real estate transaction. An inquiry, typically referred to as a requisition letter, prepared by the buyer's lawyer to the seller's lawyer concerning title matters. Update of the previous title searches to ensure there is no change to title. A document in a balance sheet format setting out the financial particulars of a real estate transaction.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 12 of 19

Salespersons do not participate in the title conveyancing process, but they should have knowledge about the terms used to be able to correctly answer any questions the seller or the buyer may pose to them. Identify the correct definition of Statement of Adjustments. There are four options. There is only one correct answer. 1 2 3 4

An assurance by the lawyer regarding unresolved items at the closing of a real estate transaction. An inquiry, typically referred to as a requisition letter, prepared by the buyer's lawyer to the seller's lawyer concerning title matters. Update of the previous title searches to ensure there is no change to title. A document in a balance sheet format setting out the financial particulars of a real estate transaction.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 13 of 19

Statement of Adjustments When a property is sold, a statement of adjustments is prepared by the seller’s lawyer. The statement of adjustments sets out the purchase price, credits the deposit to the buyer, and pro-rates any prepaid items. For example, property tax, unmetered utilities such as an oil or propane tank, condominium fees, and rent paid when the property is tenanted. Rent as an adjustment item is the amount collected by the seller from an existing tenant and can also include the tenant’s last month’s rent deposit. These funds will be credited to the buyer on closing as the buyer will be the new owner/landlord and will hold the tenant’s last month’s rent deposit. This item would be detailed in the agreement of purchase and sale. The statement of adjustments is then reviewed by the buyer’s lawyer to ensure it is accurate and that all items to be “adjusted” are included. As per both the agreement of purchase and sale, as well as the Vendors and Purchasers Act, the day of closing is apportioned to the buyer. As a salesperson, you will explain to the seller or the buyer that the purchase price mentioned in the agreement is not the final amount payable. In the case of the buyer, they would have to have sufficient funds to pay for any

©2019 Real Estate Council of Ontario

adjustments that could be over and above the price of the property. In the case of a seller, adjustments could result in the seller receiving less than the purchase price of the property. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 14 of 19

©2019 Real Estate Council of Ontario

Lesson 3 | Page 15 of 19

Items Apportioned in the Statement of Adjustments The statement of adjustments is a detailed accounting of all monies received and disbursed in relation to a transaction. Items that are typically included for adjustments in a residential transaction are pre-paid rent, condominium fees, mortgage interest, property tax, local improvement taxes, unmetered public or private utility charges, and unmetered cost of fuel. Insurance is not typically included for adjustment. As the salesperson¸ you should know how items are apportioned so that you can explain the calculation to the seller or the buyer. Having prior knowledge about the additional funds required for closing allows the seller and the buyer to plan their finances accordingly. The following six sections contain information corresponding to an item and how it may be adjusted during closing.

Property tax

The most common item that is adjusted is the annual property taxes. The method of adjusting property tax is to take the total taxes for the year and divide it by 365 days (366 if it is a leap year). This gives a per diem, or per day, tax amount. The seller is responsible for the property taxes for the number of days that year they owned the property. The number of days they owned the property in that year is multiplied by the per diem tax rate. The resulting figure is the property tax for which the seller is responsible. If the seller has already paid property tax for the year, the buyer will be responsible to reimburse the requisite amount to the seller for the remainder of the year representing the buyer’s ownership period. If the property taxes are not paid fully for the year, the buyer may receive a credit on closing to adjust for the number of days the seller is responsible for, depending on how much of the taxes has been paid by closing. When completing these calculations, it is important to remember that the day of closing is apportioned to the buyer. Example 1 for property tax:

©2019 Real Estate Council of Ontario

The tax year in Anycity, Ontario is the same as the calendar year. When a house is sold, an adjustment for taxes is made between the seller and the buyer. Scenario 1: Assume that a sale in Anycity is completed on February 15, and the annual property taxes are $8,000. The seller did not pay any amount. The seller is responsible for the taxes from January 1 to February 14, or 45 days, and the buyer is responsible for the balance (i.e., from February 15 to December 31). The seller’s portion of the taxes is: $8,000 ÷ 365 × 45 = $986.30 The buyer will have to pay the property taxes when due and will receive a credit from the seller for $986.30. Example 2 for property tax: Assume that the sale is completed on October 1, and taxes of $7,000 have been fully paid. The buyer owes the seller taxes for the period of October 1 to December 31, or 92 days. The buyer’s portion of the taxes is: $7,000 ÷ 365 × 92 = $1,764.38

Fuel Metered utilities

Therefore, the seller will get a credit in the amount of $1,764.38 on closing and the buyer will not be required to pay any taxes to the municipality for the remainder of the year. If the property is heated by oil or propane, the seller will have the tank filled, typically the day before closing. The seller will then receive a credit for a full tank of fuel at market price from the buyer at the time of closing. Typically, the seller will order a meter reading to coincide with the date of closing. Consequently, no adjustment is required. Some areas within Ontario may have bulk charges for services provided to residents. An example is provided concerning an adjustment for this type of situation. Example for utilities: If a seller paid $100 on January 1 as a flat charge for water usage during the calendar year (not a leap year), the credit allowed to the seller is $50.68 ($100 ÷ 365 x 185) for a June 30 completion date. If the seller has not prepaid the amount, buyer will receive a credit for the seller’s share (on the statement of adjustments[($100/365) x 180]= $49.32), and the buyer will pay the full amount when billed.

©2019 Real Estate Council of Ontario

Insurance

Rent

Condominium fees

As property insurance is not transferable, the buyer must arrange their own insurance to take effect on the closing day. The seller is required to maintain insurance on the property until the transaction has closed, thus no adjustment will be made on the statement of adjustments. The buyer would receive credit for pre-paid rent accruing from the closing date to the next rent due date. Example: If rent of $900 is paid on the first day of the month, the buyer gets credit for one day if the transaction closes on June 30 (i.e., 1/30th of $900 or $30). The adjustment includes, where applicable, a credit of any deposit paid by the tenant for the last month’s rent, along with interest on that amount. If this residential tenant took possession on January 1 and paid a deposit of $900, there will be a credit to the buyer of $900 plus interest. The amount of interest that a landlord must pay is the same as the rent increase guideline that is in effect when the interest payment is due. Pre-paid condominium fees are apportioned on a daily basis, like pre-paid taxes. For example, a sale is completed on June 20, and the monthly condominium fees are $500. The seller has already paid for the entire month of June. In this case, the buyer is responsible for fees from June 20 to June 30 (i.e., 11 days). The seller will receive a credit for the condominium fees applicable to those days. $500 ÷ 30 × 11 = $183.33

©2019 Real Estate Council of Ontario

Lesson 3 | Page 16 of 19

Impact of Adjustments to the Purchase Price of a Property Now, we’ll learn about how the statement of adjustments will identify the final amount payable by the buyer when the sale of the property closes. Due to various closing costs, not the least of which are adjustment items, the final price can often differ from the sale price indicated in the agreement of purchase and sale. As a salesperson, you will have a conversation with the seller or the buyer regarding closing costs and items adjusted to provide guidance on how this will impact the final amount owed by the buyer and received by the seller. However, the accuracy of the conversation would be estimates of costs only and a detailed accounting would be provided by their lawyer. The following two sections contain information about the impact of making these adjustments on the closing funds from the perspective of the seller and the buyer respectively.

Impact of closing funds on the buyer

Impact of closing funds on the seller

The buyer may find that due to adjustments and costs associated with closing the transaction, they will require additional funds to complete the sale. As the salesperson, to help ensure the buyer budgets for these additional expenses, you will often provide estimates to the buyer in advance of placing an offer on a property. Adjustment costs may require the buyer to pay additional funds in excess of several thousand dollars, in addition to any deposit already paid during the offer process. The buyer should be aware of this to ensure the transaction closing is not jeopardized. In addition to the closing costs identified here, the buyer will also be required to pay land transfer tax. This topic is detailed in the following lesson. The seller may find that due to liens, mortgages, and/or any mortgage discharge penalties, the proceeds from the sale are less than anticipated. The net amount to the seller is important to estimate prior to any acceptance of an offer to ensure the seller is able to complete the sale transaction as well as complete any subsequent purchase. A seller is not required to have funds available to discharge any mortgage or lien registered on the property prior to closing. As indicated on an agreement of purchase and sale, the seller’s lawyer will provide an undertaking to ensure any lien or mortgage is discharged as ©2019 Real Estate Council of Ontario

soon as possible following the completion of the sale. This will be done by retaining the required funds from the sale proceeds and paying the amount owed by the seller. Typically, a discharge will be registered on title within a few weeks of the closing of the sale.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 17 of 19

A salesperson needs to understand closing costs and how items are apportioned between the seller and the buyer in the statement of adjustments. Which of the following statements are correct? There are four options. There is only one correct answer. 1 2 3 4

The seller is responsible for costs to operate the property for the actual day of closing. A meter reading for utilities is often taken by the utility company to coincide with the closing date to avoid adjustments at closing. The statement of adjustments is normally prepared by the buyer’s lawyer and approved by the seller’s lawyer. The balance due on closing specified in the agreement of purchase and sale is the final and complete amount the buyer will be required to pay at closing.

©2019 Real Estate Council of Ontario

Lesson 3 | Page 18 of 19

The salesperson will be required to explain to the seller or the buyer the pro-rated property taxes owed by them or the other party as part of the closing cost adjustments. The closing date is September 14 and the property taxes for the year are $1,425, which have been paid in full by the seller. Based on the scenario, and assuming it is not a leap year, how should the salesperson explain the amount of the pro-rated property taxes owed and which party will receive the credit? There are four options. There is only one correct answer. 1 2 3 4

The seller will get a credit of $421.64 The seller will get a credit of $425.55 The buyer will get a credit of $421.64 The buyer will get a credit of $425.55

©2019 Real Estate Council of Ontario

Lesson 3 | Page 19 of 19

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Title conveyance from the buyer’s perspective

Although the closing process is handled by the lawyers, as a salesperson, you should be knowledgeable about the steps in title conveyancing and be able to provide the correct information to the seller or the buyer. All land owned in Ontario is registered under either the Registry System or the Land Titles System. These provide the public with all documents affecting the ownership of the land, which the buyer’s lawyer will review for the purchased property while conducting searches. Both systems were paper-based, but the conversion to an automated procedure has made searches streamlined and less time-consuming. The Land Titles System operates in accordance with three principles: mirror principal, curtain principle, and insurance principle. The three principles define how the government guarantees the accuracy of the title. The buyer’s lawyer conducts title and non-title searches to ascertain that their client is receiving a good and marketable title. Issues like liens, outstanding encumbrances, restrictive covenants, and non-resident parties are title search issues, while non-title search issues include zoning non-compliance, work orders, outstanding amounts owed to local utility companies, and unregistered easements, among others.

Title conveyance from the seller’s perspective

A requisition letter is sent by the buyer’s lawyer to the seller’s lawyer seeking clarification on matters related to the searches. Upon successful resolution of matters requisitioned, the sale progresses to the scheduled closing and a final reporting letter is prepared. The seller’s lawyer reviews the requisition letter sent by the buyer’s lawyer and prepares a response.

©2019 Real Estate Council of Ontario

The letter provides a list of requisition items that the seller’s lawyer may need to address. If a certain requisition item remains unanswered, the lawyer may provide an assurance that the matter will be resolved. This is called an undertaking.

Statement of adjustments

The lawyer prepares a statement of adjustments itemizing the financial history of the transaction. The last step is the final reporting letter following closing that sets out transaction particulars from the seller’s perspective. A statement of adjustments is prepared for every transaction. It is typically prepared by the seller’s lawyer. It lays out all the credits and debits to both the seller and the buyer in a balance sheet format. The day of closing is apportioned to the buyer. After adjustments, the buyer may have to pay funds over and above the purchase price stated in the agreement of purchase and sale. Similarly, the seller may not receive the full purchase price if the seller owes the buyer a certain amount. Unmetered fuel, property taxes, utility charges, condo fees, and mortgage interest, if assumed by the buyer, are apportioned before arriving at the final figure.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 1 of 24

Lesson 4: Costs Associated with Title Conveyance

This lesson explains the closing costs associated with a transaction. For the buyer, additional expenses include land transfer tax, title insurance, and any adjustments for other items, such as property taxes, that impact the amount the buyer would owe on completion. For the seller, closing costs are typically less and are deducted from the proceeds of the sale, thus the seller is not usually required to set aside additional funds. As a salesperson, you will need to understand what common costs are involved and ensure a seller or a buyer is aware of their financial obligations in advance to avoid any issues.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 2 of 24

Costs Associated with Title Conveyance This lesson will discuss closing costs for the seller and the buyer. It will also cover two important costs typically borne by the buyer: land transfer tax and title insurance. Even though it is the lawyers who carry out the closing process, as a salesperson, you will be required to know the range of costs involved to close a transaction. It is essential that you discuss only the range of closing costs with your buyers or your sellers, not the specifics. Prudence in such matters is encouraged. You should limit yourself to giving general estimates only, leaving precise details to appropriate experts particularly their lawyer. This is because there could be variations in what needs to be adjusted that could impact costs. Depending on the complexity of the property and the transaction, closing costs can vary and be higher than anticipated. Upon completion of this lesson, you will be able to: • Identify closing costs for the buyer • Explain how land transfer tax is calculated • Describe the features of title insurance • Identify closing costs for the seller Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 3 of 24

Buyer’s Closing Costs The total cost of buying a home involves not only the purchase price of the property, but also closing costs that arise on completion of the transaction. These expenses, incurred by the buyer, are necessary to complete the purchase, but are outside of the purchase price of the property. The following list is provided for illustration purposes and is not exhaustive: • Adjustments for property taxes and unmetered fuel • Lawyer’s disbursements: a) legal fees and related expenses (disbursement, documentation); b) title search fees; c) the certificate of compliance fee from the municipality; and d) enrolment fees associated with title insurance • Home insurance for fire and other hazards • Mortgage interest adjustment • Provincial land transfer tax • Municipal land transfer tax (if applicable)

©2019 Real Estate Council of Ontario

• An additional status certificate for condominium, if there is a long period of time between the initial status certificate and the day of closing • High-ratio mortgage insurance (if applicable) • Non-resident speculation tax (if applicable) • Life insurance for mortgage balance (optional) • Personal expenses (e.g., moving costs and purchase of household goods) • Harmonized Sales Tax (HST): o Most purchases of new housing require the payment of HST on the purchase price, although a partial rebate is available o Most purchases of resale homes do not require the payment of HST, however, confirmation of this fact should be obtained o HST is applicable on all chattels included in the purchase price and further the value of the chattel would be deducted from the purchase price when calculating land transfer tax Once a total is calculated, the closing costs can be substantially higher than the buyer anticipated. All buyers should be aware of these extra costs before finding themselves legally bound to an agreement and possibly unable to fulfill the financial terms. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 4 of 24

Land Transfer Tax One of the most expensive closing costs borne by the buyer is the provincial land transfer tax. Given its significance to closing costs, it will be discussed in greater detail in the next few screens. Even though the lawyer will give the buyer the final total payable, as a salesperson, you should know how land transfer tax is calculated to provide the buyer an estimate of the costs prior to entering into an agreement to purchase the property. Land transfer tax, as the name implies, is a tax applied to the purchase price of a property at the time of the transfer of ownership or acquisition of a beneficial interest in that real estate. The land transfer tax is paid at the time of ownership registration and becomes a disbursement item on the statement of adjustments. At the time of closing, a land transfer tax affidavit identifies the consideration paid for the property (i.e., the purchase price) and the tax is calculated based on that amount. Provided that a buyer is at least 18 years of age and has never previously owned a home or an interest in a home anywhere in the world, they are entitled to claim a refund as a first-time home buyer. Details on the first-time home buyer’s refund are detailed later in this lesson.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 5 of 24

Land Transfer Tax Calculation During a conversation with the buyer, you, as the salesperson, will discuss in detail the land transfer tax, which is one of the major expenses borne by the buyer when closing a transaction. Once the agreement of purchase and sale has been negotiated, the calculation for land transfer tax can be completed. There are apps available that can be used to calculate the land transfer tax. However, there should be an understanding of the calculations required to estimate the land transfer tax owed by the buyer. As the salesperson, you should be able to provide a reasonably accurate estimation of costs associated with a real estate transaction, but the buyer should be directed to a lawyer for definitive advice. Typically, you will have a discussion with the buyer about various costs. This conversation would take place at the beginning of the buying process. Having an estimate of the land transfer tax costs will help the buyer with budgeting to ensure they have enough funds to close the transaction.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 6 of 24

Land Transfer Tax Rates Effective January 1, 2017, the land transfer tax in Ontario is as follows: 0.5% on the first $55,000 1.0% on the portion between $55,001–$250,000 1.5% on the portion between $250,001–$400,000 2.0% on the balance between $400,001–$2,000,000 Where the land contains one or two single family residences, a 2.5% rate applies to any amounts over $2,000,000. Real property including beneficial interests (e.g., life lease, life tenure, equity lease or life tenancy) are also subject to land transfer tax.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 7 of 24

Land Transfer Tax Examples Example 1: A single-family residential house was sold for $250,000. EXAMPLE Provincial land transfer tax LAND TRANSFER TAX RATE

EXAMPLE: Sale Price of 250,000

VALUE ($’s)

TAX RATE

CALCULATION

TAX PAYABLE

0 – 55,000

0.5%

275

55,001 – 250,000

1.0%

$ 55,000 × 0.005

Total

$ 195,000 × 0.010

+ 1,950

$ 250,000

$ 2,225

Example 2: A single-family residential house was sold for $495,000. EXAMPLE Provincial land transfer tax LAND TRANSFER TAX RATE

EXAMPLE: Sale Price of 495,000

VALUE ($’s)

TAX RATE

CALCULATION

TAX PAYABLE

0 – 55,000

0.5%

275

55,001 – 250,000

1.0%

$ 55,000 × 0.005

250,001 – 400,000

1.5%

+ 2,250

400,001 –2,000,000

2.0%

$ 150,000 × 0.015

Total

$ 195,000 × 0.010

+ 1,950

$ 95,000 × 0.020

+ 1,900

$ 495,000

©2019 Real Estate Council of Ontario

$ 6,375

Lesson 4 | Page 8 of 24

Land Transfer Tax Examples Example 3: A single-family residential house was sold for $1,200,000. EXAMPLE Provincial land transfer tax LAND TRANSFER TAX RATE

EXAMPLE: Sale Price of 1,200,000

VALUE ($’s)

TAX RATE

CALCULATION

TAX PAYABLE

0 – 55,000

0.5%

275

55,001 – 250,000

1.0%

250,001 – 400,000

1.5%

$ 55,000 × 0.005

400,001 – 2,000,000

2.0%

$ 800,000 × 0.020

+ 16,000

Total

$ 195,000 × 0.010

$ 150,000 × 0.015

+ 1,950 + 2,250

$ 1,200,000

$ 20,475

Example 4: A single-family residential house was sold for $2,500,000. EXAMPLE Provincial land transfer tax LAND TRANSFER TAX RATE VALUE ($’s) TAX RATE 0 – 55,000 0.5% 55,001 – 250,000 1.0% 250,001 – 400,000 1.5% 400,001 – 2,000,000

2.0%

2,000,001 – 2,500,000

2.5%

Total

EXAMPLE: Sale Price of 2,500,000 CALCULATION TAX PAYABLE $ 55,000 × 0.005 275 $ 195,000 × 0.010 + 1,950 $ 150,000 × 0.015 + 2,250 $ 1,600,000 × 0.020 $ 500,000 × 0.025 $ 2,500,000

©2019 Real Estate Council of Ontario

+ 32,000 + 12,500

$ 48,975

Lesson 4 | Page 9 of 24

Municipal Land Transfer Tax In addition to the provincial land transfer tax, a municipal land transfer tax (MLTT) is charged on properties located in the City of Toronto. The municipal land transfer tax is charged in addition to the provincial land transfer tax and must be paid when ownership is transferred. The tax amount levied through the municipal land transfer tax is the same as the provincial land transfer tax rates. As the buyer’s salesperson, you have the responsibility of identifying this additional tax burden before the buyers make their purchasing decision. This is especially important if working with a first-time home buyer who may not be prepared for the additional amount they are required to pay.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 10 of 24

First-time Home Buyer’s Refund To be able to correctly inform their buyers about the land transfer tax payable, you, as a salesperson must have the required knowledge about the first-time home buyer’s refund. The refund, if applicable, can significantly reduce the payable land transfer tax. The maximum refund is $4,000. First-time home buyers are eligible for a refund of all or a portion of the land transfer tax. To qualify for a refund: • The purchaser must be at least 18 years of age • The purchaser must occupy the home as their principal residence within nine months of the date of transfer • The purchaser cannot have ever owned an eligible home, or had any ownership interest in an eligible home, anywhere in the world, at any time • The purchaser’s spouse cannot have owned an eligible home, or had any ownership interest in an eligible home, anywhere in the world, while they were the purchaser’s spouse. In this instance, no refund is available to either spouse

©2019 Real Estate Council of Ontario

The refund is available to purchasers who are Canadian citizens or permanent residents of Canada, as defined in the Immigration and Refugee Protection Act (Canada), or purchasers who will become Canadian citizens or permanent residents within 18 months following registration of the transfer of ownership to the property. An interest in an eligible home can be obtained by any method, including a purchase, gift, or an inheritance. Some examples of an eligible home include: • Detached house • Semi-detached house (including a link home) • Townhouse • Mobile home • Condominium • Residential duplex, triplex, or fourplex The refund is based on the amount of interest the individual owns in the home. If the individual owns 100% of the interest and paid $400,000, the amount of land transfer tax payable is $4,475. The buyer will receive a refund up to the maximum of $4,000. If, however, the buyer owns 50% interest in the home, the amount will be $2,000 (50% of the maximum refund). If the sale is registered using the electronic land registration system, the refund can be claimed immediately by selecting the appropriate statements within the land transfer tax section. Where registration is completed by paper at the Land Registry Office, the applicant can receive a same-day refund by filing the appropriate affidavit along with the transfer/deed and land transfer tax affidavit. If the applicant does not apply for a refund at the time of registration, they can apply for the refund within 18 months following registration by contacting the Ministry of Finance. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 11 of 24

The Selvadurai family bought a second property for a purchase price of $300,000 outside the city of Toronto. How much provincial land transfer tax would the buyers pay? The land transfer tax rates that you learned about earlier will help you complete the calculation. LTT value

LTT tax rate

0-55,000

0.5%

55,001-250,000

1.0%

250,001-300,000

1.5%

There are three options. There is only one correct answer. 1 2 3

$2,975 $4,500 No tax paid (full refund)

©2019 Real Estate Council of Ontario

Lesson 4 | Page 12 of 24

Raghu Gunasekaran recently inherited money from his late grandfather. Raghu has never owned real estate but thought this would be an excellent opportunity to enter the Ontario market. Working through a salesperson with ABC Realty Inc., he purchased a property in a rural municipality for $2,483,000. Raghu may qualify for the First-time Home Buyer's land transfer tax refund, however the refund was not taken into consideration in the calculation. How much provincial land transfer tax would be paid on this purchase? The land transfer tax rates that you learned about earlier will help you complete the calculation. LTT value

LTT tax rate

0-55,000

0.5%

55,001-250,000

1.0%

250,001-400,000

1.5%

400,001-2,000,000

2.0%

2,000,001- $2,483,000

2.5%

There are three options. There is only one correct answer. 1 2 3

$48,550 $46,135 $66,210

©2019 Real Estate Council of Ontario

Lesson 4 | Page 13 of 24

Title Insurance Title insurance is another cost that the buyer will typically incur. It provides protection to the buyer against various title-related problems that may arise during, at, or after closing. While not mandatory, it is becoming increasingly expected that buyers will want to purchase this insurance for their property because of the benefits it provides. There are two types of title insurance: an owner’s policy and lender’s/loan policy. Lenders encourage buyers to opt for the loan policy under title insurance as it protects the bank’s interests in the property should a problem with the title arise. Without title insurance, many lenders may refuse to lend mortgage money to the buyer. As the loan policy only protects the lender, buyers are also purchasing the owner’s policy under title insurance to protect themselves against any title-related problems. Under the owner’s policy, various risks such as title fraud, encroachment issues, and unknown title defects affecting closing are covered. Title insurance can be obtained through the lawyer, title insurance company, or an insurance agent/broker. As a salesperson, you would be required to have knowledge about title insurance and be able to provide general information to your buyers if required. However, you must refrain from discussing specific policies and/or rates and should direct your buyers to their lawyers for professional advice.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 14 of 24

Overview of Title Insurance Title insurance in Ontario has been expanding rapidly since first introduced. The policies under title insurance protect the owner of a property and their lenders against title or ownership issues. One of the reasons why title insurance is gaining wide acceptance is because the policy not only covers the loss, but also the expense (i.e., legal fees to address the situation). Often, the actual cost of the defect associated with the property or the title is not as expensive as the legal costs to correct the problem. Hence, a significant insurable item is the legal cost associated with the remedy. For example, a lawyer may determine that a property does not comply with the side yard requirements of the zoning bylaw and encroaches on the side yard setback. The remedy is to obtain a minor variance, which could cost about $500. However, the legal cost associated with the minor variance could be twice that amount.

©2019 Real Estate Council of Ontario

As a salesperson, you may provide general information about title insurance and its benefits but should avoid discussing any details regarding coverage and refer the buyer to their lawyer. Also, title insurance is not a substitute for legal advice when purchasing the property.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 15 of 24

Features of Title Insurance Here, we’ll learn about title insurance as a closing cost. The following three sections correspond to policies, coverages, and benefits of title insurance. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

Owner’s policy and lender’s policy

Title insurance has two types of policies: one policy for the owner’s benefit and one policy for the lender’s benefit. At closing, the buyer will be given the option of purchasing the owner’s policy, which protects the owner, and in most cases, their heirs against any title defects or frauds that may be discovered later. The buyer pays a one-time premium for the owner’s policy that stays valid for as long as they or their heirs own the property. A lender’s policy only protects the lender. Most lenders understand that title-related issues can affect the value of the property. To safeguard their financial interests, most lenders will insist on the buyer purchasing a lender’s title insurance policy. The lender’s policy is in effect until the loan is repaid.

©2019 Real Estate Council of Ontario

Duties of a lawyer Title insurance can be arranged through the buyer’s lawyer as part of the closing of a transaction. regarding title The buyer’s lawyer has the duty of explaining to their client what the title insurance covers, insurance

what it excludes, the advantages, the conditions, and the limitations of the various options. The lawyer will arrange to place the policy on the property at the time of closing.

Types of risks covered under title insurance

The lawyer must maintain ethical standards and is not permitted to receive any compensation, directly or indirectly, from a title insurance company, agent, or intermediary for recommending a specific title insurance product to the buyer. The list below is not exhaustive, but it includes the typical risks that are covered under title insurance: • Unknown title defects: A title issue can prevent the buyer from having clear ownership of the title. For example, if a family member of the seller were to lay claim on the property, it can affect the buyer’s rights • Existing liens on the property (e.g., a contractor may have placed a lien on the property for unpaid bills) • Encroachment issues: Most policies will cover encroachment issues, but many may also exclude unrecorded encroachment • Title fraud • Errors in surveys and public records • Certain restrictive covenants may exist that affect the use of the land • Someone else owns an interest in the land As a salesperson, you should encourage buyers to seek expert advice while assessing any specific policy and confirm the risks covered. You should not be involved in placing insurance on the property. However, you should understand the role of title insurance to competently advise the buyer regarding the risks that are covered under title insurance. Recommendations for the choice of title insurance policy should come from the lawyer. Detailed explanations regarding the policy are best left to the lawyer who actually places it.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 16 of 24

Benefits of Title Insurance Title insurance is beneficial to all parties in a transaction. The following six sections contain information about title insurance benefits and how title insurance provides benefits to all parties in the transaction.

No reliance on lawyer’s letter of opinion

Traditionally, as most lands were registered under the Registry System, buyers relied on a letter of opinion from a lawyer as assurance that the title was good and marketable. A lawyer’s letter of opinion was typically qualified, at least to some degree, concerning such marketability. If a subsequent problem arose, the onus rested with the buyer to prove that the lawyer failed to do something and/or that legal services failed to meet an acceptable standard. Protection against Title insurance provides protection against various errors that could potentially occur title fraud/errors through fraudulent activity, or simply errors made in documents prepared by others. For example, the lawyer may have misspelled the name of one of the owners on the deed. In the case of a serious error, the costs to correct the mistake and possibly sue the lawyer for damages could be covered by the title insurance company.

©2019 Real Estate Council of Ontario

Addressing concerns at listing

Marketing incentive

Title problems at closing

Issues covered after the closing

Lenders, in particular, take great comfort in the value of title insurance to address issues that might be missed, despite the diligent efforts of the lawyer. Once again, prudence is advised as title policies do not solve all issues given exclusions, conditions, and stipulations affecting the scope of coverage. Title insurance can be purchased by the seller if a problem related to the title is discovered during the listing process. For example, the salesperson may identify that the deck extends beyond the approved setback in the municipal zoning bylaw. In this case, the seller may be able to secure title insurance and confirm that the property will be insured against any losses that may occur due to this problem. The seller is then in a position to assure any potential buyer that the situation has been resolved through insurance coverage. Title insurance policies for existing homeowners are slightly different than policies that are obtained at the time a property is purchased. The seller may agree to purchase title insurance as an incentive in the marketing of their property. The seller’s commitment translates into cost savings at the point of negotiations with a potential buyer. Even during negotiations, the seller may offer to pay this cost. Occasionally, lawyers may recommend placing title insurance on a property on behalf of the buyer to provide protection for some perceived problem that may arise in the future. These “problems” are usually identified during the closing preparation exercises. Title policies have proven particularly effective by insuring against certain title problems that crop up at or near closing. For example, a minor encroachment may exist that could otherwise delay or cancel a sale. Alternatively, a minor issue regarding final inspection of an addition or improvement to the property may not have been completed by the municipality. The title insurer, after an investigation of the risk involved, may determine that the issue is covered under the terms of the policy, thus allowing the transaction to close on time. Sometimes problems are discovered only after the completion of the transaction. For example, a buyer may find out after moving in that his neighbour’s garage is encroaching on his property. The previous owner may have known about the problem but may have chosen to ignore it. As the new owner, the buyer is concerned that the encroachment will impact his ownership and the value of the property. If the matter becomes a legal issue, the

©2019 Real Estate Council of Ontario

title insurance company will pay the buyer’s legal costs associated with resolving the problem.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 17 of 24

Why Title Insurance is Growing in Popularity There are many reasons why title insurance has been growing in popularity. An important reason is that all parties view it as valuable and cost effective. Typically, title insurance may cost around $500 but could be higher depending on the property. The following five sections correspond to an aspect of title insurance that makes it appealing to consumers.

Consumer acceptance Straightforward claim procedures

Consumers readily accept the widely-marketed concept given high awareness of insurance products (e.g., life, auto, mortgage, and home).

Claim procedures are relatively straightforward. For example, if a buyer relies on a lawyer’s title opinion and this opinion proves faulty, they must pursue legal action and obtain a judgement against that lawyer for title errors. With title insurance, a claim is submitted and paid, provided the defect falls within policy coverage. Scope of coverage From a risk perspective, Ontario consumers realize that insurers not only provide title defect coverages but insure over certain known or contemplated defects, and assume selected risks (e.g., the possibility of minor encroachments). With a lawyer’s title opinion,

©2019 Real Estate Council of Ontario

Existing surveys

Value-added service

the client is informed regarding the risk (i.e., the possibility of an encroachment), requiring a decision regarding whether to accept such risk. From a financial perspective, title insurance simply makes good financial sense for many real estate transactions. For example, certain insurers will accept an existing survey, thereby saving the consumer the cost of a new one. Further, by not requiring an up-to-date survey, certain losses are covered that might appear in a new survey. However, it is recommended that whenever possible an up-to-date survey be obtained. Title insurance policies also receive a boost from the real estate community. Sellers, buyers, and salespersons consider such products as value-added, consumer friendly, and a positive force in the closing process, as problems and delays can often be avoided. Given such popularity, insurers are now bundling other products and closing services, while streamlining procedures to align with the new e-Registration system.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 18 of 24

A salesperson must understand the fundamentals of title insurance to provide information to a buyer. What information should a salesperson share with a buyer as it relates to title insurance? There are six options. There are multiple correct answers. 1 2 3 4 5 6

Title insurance is recommended but not mandatory A salesperson can obtain the title insurance for the buyer Title insurance insures over minor encroachment issues An owner policy usually provides broader coverage than a lender policy Title insurance covers unforeseen closing costs for the buyer Title insurance may cover risks that are uncovered after closing

©2019 Real Estate Council of Ontario

Lesson 4 | Page 19 of 24

Mortgage Discharge Penalty When a mortgage has been registered on title for a property, there is a specified term for the mortgage. When the sale of the property occurs during this term, the seller is required to discharge the mortgage from title to the property in all cases where the buyer is not assuming the mortgage. The seller is essentially breaking the contract and causing a potential loss in interest paid to the lender. Thus, most lenders will charge a mortgage discharge penalty to compensate for the loss as a result of the early termination of the mortgage contract. The closing costs for the seller can include this discharge penalty. The method for calculating the amount of the penalty will be described in the actual mortgage document and should be disclosed to the borrower by the lender at the time the mortgage is arranged. Typically, the penalty is either three months interest or an interest rate differential. Factors such as the term remaining in the mortgage, whether the mortgage is fixed or variable, and the difference between the mortgage interest rate and current rates all contribute to the discharge penalty calculations. This discharge penalty must be paid to the lender before they will allow the discharge to occur. Therefore, it becomes part of the closing costs. In most cases, the discharge penalty can be deducted from the proceeds of the sale. But occasionally, should there be insufficient seller’s equity, then the cost would have to be paid from the seller’s other financial resources. Discharge penalties can be quite significant and often add up to thousands of dollars.

©2019 Real Estate Council of Ontario

As a salesperson, you must alert the seller about this possible expense they may incur. At the time of listing the property, advise the seller to contact their lender to determine if a penalty will be imposed, and if so, how much.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 20 of 24

Seller’s Closing Costs At the closing of a transaction, the seller will incur expenses. Below is a list of expenses the seller will typically be responsible for: • Legal fees and related expenses (disbursements, documentation, etc.) and any costs associated with satisfying the buyer’s lawyer’s requisition items. For example, expenses related to registering the mortgage discharge, or discharging a lien placed by the municipality for unpaid taxes • Real estate remuneration, plus HST • Moving costs, for example, a professional moving company and transferring utility accounts Apart from these typical expenses, the seller may incur additional expenses at the time of closing. For example, if municipal taxes have not been paid by the seller for the year, they would have to reimburse the buyer the amount that the seller would be responsible for during the time they owned the property. Also, if a title or non-title issue is revealed at the time of closing, additional legal services may be required to resolve the issue. As a salesperson, you should inform the seller about possible added expenses at closing and even provide estimates, if required. This is important because it will help the seller be prepared for costs they may not have considered.

©2019 Real Estate Council of Ontario

Lesson 4 | Page 21 of 24

Identify which closing costs apply only to the buyer. There are six options. There are multiple correct answers. 1 2 3 4 5 6

Title search fees Enrolment fees associated with title insurance Preparation of statement of adjustments Provincial land transfer tax High-ratio mortgage insurance (if applicable) Home insurance for fire and other hazards

Lesson 4 | Page 22 of 24

Identify which closing costs apply only to the seller. There are six options. There are multiple correct answers. 1 2 3 4 5

Mortgage discharge penalty Preparation of statement of adjustments Discharging a lien High-ratio mortgage insurance (if applicable) Home insurance for fire and other hazards

©2019 Real Estate Council of Ontario

Lesson 4 | Page 23 of 24

Identify which closing costs apply to both the buyer and the seller. There are four options. There are multiple correct answers. 1 2 3 4

Title search fees Lawyer’s fees and related expenses (disbursement, documentation, etc.) Moving costs Provincial land transfer tax

©2019 Real Estate Council of Ontario

Lesson 4 | Page 24 of 24

Congratulations, you have completed the lesson! There are five sections on this page with a summary of the key topics that were discussed in this lesson.

Buyer’s closing costs

Land transfer tax

Buyers must be aware that they will incur expenses over and above the purchase price. As a salesperson, you will have the responsibility of explaining to the buyer the additional expenses they may be responsible for at closing. Typical expenses borne by the buyer relate to adjustment costs. Other costs include land transfer tax, title insurance, legal expenses, home insurance, and moving costs, among others. All buyers of property in Ontario will pay land transfer tax at the time of closing. In addition to the provincial land transfer tax, the buyer may also need to pay the municipal land transfer tax if the property is in Toronto.

First-time home buyer’s refund

As a salesperson, you will be required to explain land transfer tax to the buyer and be able to calculate what they may be required to pay. To be able to correctly guide their buyers about the land transfer tax payable, you must have knowledge about the first-time home buyer’s refund. If a buyer or their co-owner has never owned real estate anywhere in the world, they would qualify for a land transfer tax refund of up to $4,000.

Title insurance

The refund is based on the amount of interest the individual owns in the home. Title insurance is a rapidly growing concept in Ontario. Title insurance is typically purchased by the buyer to insure over title-related issues. There are two types of policies within title insurance: the owner’s policy and the lender’s policy. While lender policy safeguards the interests of the lender, owner policy is for the benefit of the buyer. Some of the risks covered by title insurance include: a) documents defectively registered on title; b) forgery or fraud in documents affecting title; c) a contravention of a municipal

©2019 Real Estate Council of Ontario

bylaw; d) discovery of construction liens; and e) certain existing restrictive covenants affecting the use of the land. As a salesperson, you should be aware that title insurance may provide certain benefits from the perspective of both the seller and the buyer. For the buyer, use of title insurance eliminates the requirement for a lawyer’s letter of opinion. It has also proven effective by insuring over certain title problems that arise at the time of closing. Title insurance also benefits the seller if they discover a problem with their property at the time of listing (e.g., deck extending beyond approved setback), they may be able to secure title insurance and confirm that the property will be insured against any losses that may occur due to the problem.

Seller’s closing costs

It is important to remember that title policies do not solve all issues given exclusions, conditions, and stipulations affecting the scope of coverage. The seller will also have some closing costs to incur. Major expenses relate to the mortgage discharge penalty, real estate remuneration plus HST, legal fees, and moving costs. The seller must consider closing expenses as well as any other additional costs before calculating the amount they expect to receive through the sale.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 1 of 13

Lesson 5: Trust Account Requirements

This lesson describes the trust accounts maintained by a brokerage, and the associated requirements to document a buyer’s deposit and payment of any remuneration. There are requirements under REBBA for documenting the financial aspects of the trade, and it is important for you to understand the brokerage’s obligations regarding these to help ensure your activities support compliance.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 2 of 13

Trust Account Requirements A brokerage will receive remuneration for a transaction after it has closed. In this lesson, you will learn the requirements of the statutory trust account holding a buyer’s deposit, how remuneration is disbursed from the brokerage to you, as the salesperson, and the requirements to document specific information related to the trade. Even though the responsibility for safeguarding the buyer’s deposit and the disbursement of the remuneration is the responsibility of the brokerage, you should understand the obligations of the brokerage relating to disbursing funds and the safeguards that are in place for both the buyer’s deposit and your remuneration. This is important because you could inadvertently place the brokerage in a position of non-compliance with REBBA regarding funds held in trust accounts. Upon completion of this lesson, the learner will be able to: • Identify the requirements under REBBA for a brokerage’s statutory trust account • Identify the purpose of a brokerage’s remuneration or commission trust account and the procedures to disburse remuneration • Identify the requirements for a brokerage to document trade activities

©2019 Real Estate Council of Ontario

Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 3 of 13

Real Estate Trust Account Although it may be held by a lawyer, the buyer’s deposit is usually held in the real estate trust account of the seller’s real estate brokerage. Every brokerage must have a statutory trust account to hold all deposits received for transactions. The account must be identified as the real estate trust account and a brokerage may have only one trust account unless permission is received for an additional trust account. For example, in the case of a brokerage providing property management services, an additional trust account could be approved to hold those funds. Most brokerages also have a remuneration or commission trust account. REBBA establishes strict requirements regarding the real estate trust account to ensure that the buyer’s deposit is not mishandled or misused in any manner. This trust account is kept separate from the brokerage’s general account used for its day-to-day business transactions. Under no circumstances are the funds in these two accounts comingled or combined in any way. A brokerage that has an interest-bearing trust account must comply with the requirements under REBBA regarding the disclosure of interest. The brokerage must disclose if the money is being deposited into an interest-bearing account and the interest rate the brokerage receives on the money. If the deposit is placed in a variable interest rate account, the brokerage shall, on the request of a person for whom money is held in trust, inform the person of the current interest rate.

©2019 Real Estate Council of Ontario

All transactions within the trust account can only be authorized by the broker of record. Disbursements from the trust account are strictly enforced and, should there be any shortfall in the trust account, the funds must be immediately deposited. When the brokerage receives a request for a disbursement from the trust account, the brokerage is required to disburse the money as soon as possible, subject to the terms of the applicable trust.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 4 of 13

Transfer of the Buyer’s Deposit from the Real Estate Trust Account Once the transaction is closed, the seller’s lawyer will inform the deposit holder (i.e., the listing brokerage) of the successful closing and advise that the deposit may now be applied towards the payment of remuneration owed. One of the authorities of the brokerage is to remove funds from the real estate trust account when the transaction closes. However, the listing brokerage would require written notification from the seller’s lawyer that the closing has occurred. The broker of record cannot transfer money out of the real estate trust account until they receive written notification that the sale is complete. This is the beginning of the remuneration disbursement process. Once this confirmation is received, the broker of record will transfer the deposit money held in the real estate trust account into another account in order to pay remuneration owed, typically a remuneration or commission trust account. If there is a surplus deposit, in other words, the deposit is larger than the remuneration entitlement, the excess deposit is first paid to the seller. A cheque, or electronic funds transfer, will be used to move the remaining amount of the deposit from the real estate trust account to the remuneration or commission trust account. As a salespersons, you need to know that money can be transferred to the remuneration or commission trust account from the real estate trust account only after the seller’s lawyer notifies the brokerage that the closing has occurred. This is important because you would need to understand the brokerage’s obligations to comply with REBBA regarding the deposit, and understand the process followed to pay remuneration.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 5 of 13

Flow Chart Depicting the Six Possible Disbursements When a sale closes, a cheque, or electronic funds transfer, is issued by the broker of record from the real estate trust account payable to the commission trust account (assuming the deposit is equal to or less than the total remuneration). If a surplus exists, this amount is paid to the appropriate party, typically the seller. Remuneration earned is one of the six most common disbursements from the real estate trust account. Strict regulations govern the disbursement of funds from the real estate trust account. The following five sections correspond to one of the five other common disbursements. The sixth (i.e., remuneration earned) will be discussed in detail in the next few screens.

©2019 Real Estate Council of Ontario

Excess funds

If the deposit amount is greater than the remuneration payable, the excess funds are paid to the appropriate party, typically the seller.

Offer not accepted

In many cases, the buyer will provide the deposit upon acceptance of the offer. However, in some market conditions, a deposit is provided when the offer is submitted. The deposit must be placed in the real estate trust account within five business days of receipt by the brokerage.

Return of deposit

At this point, the seller has not accepted the offer and is possibly speaking to other prospective buyers as well. If the seller decides not to accept the buyer’s offer, but the deposit has been deposited into the brokerage’s real estate trust account, the deposit can be returned to the buyer. In this instance, as the offer was not accepted, no additional documentation is required to disburse the buyer’s deposit. An accepted offer containing conditions may not be completed due to the conditions not being fulfilled. For example, there could be unsatisfied conditions relating to a home inspection, obtaining financing, rezoning approval, or the sale of the buyer’s current house, to name a few. The failure to satisfy a condition generally will make the offer null and void,

©2019 Real Estate Council of Ontario

and require the return of the buyer’s deposit held in the brokerage’s real estate trust account. The wording of a conditional clause in the agreement pertaining to the return of the deposit is typically phrased like this: “Unless the buyer gives notice in writing delivered to the seller personally or in accordance with any other provisions for the delivery of notice in this agreement of purchase and sale or any schedule thereto not later than 5:00 p.m. on 24th day of October 20XX, that this condition is fulfilled, this offer shall be null, and void and the deposit shall be returned to the buyer in full without deduction.” Should the condition in the offer not be fulfilled, the clause identifies that the buyer will receive their deposit. However, a brokerage is required to obtain written direction regarding the disbursement of the deposit from the real estate trust account prior to returning the deposit to the buyer. In this instance, typically, as the buyer’s salesperson, you will prepare a mutual release and, when signed by both the seller and the buyer, the brokerage is authorized to disburse the deposit from their real estate trust account and return it to the party or parties as specified in the mutual release. Unclaimed money REBBA sets out specific procedures if a deposit placed in the real estate trust account is unclaimed for various reasons. If the situation involves a dispute and entitlement to the funds is not clear, the brokerage must forward those funds to RECO if unclaimed for two years. The above procedures do not apply if funds held are less than $25.

Court order

Similarly, funds held in the real estate trust account for one year after the person who was first entitled to payment of the money and cannot be located, the brokerage shall use reasonable efforts to locate the person before forwarding the money to RECO. The brokerage must provide as much information as they can in order to assist in determining who is entitled to the deposit. In case of a failed transaction, the seller and the buyer may reach an amicable agreement about how to disburse the deposit. However, the matter may be settled in the courts in a case of a dispute between the seller and the buyer regarding entitlement to the deposit. A court order will stipulate who the court considers to be entitled to the deposit and will direct the brokerage to return the ©2019 Real Estate Council of Ontario

deposit to that person or entity. The brokerage will retain the deposit in their real estate trust account until directed by the court to release it.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 6 of 13

The buyers have delivered their deposit to the listing brokerage. The brokerage in turn has deposited the funds into the statutory real estate trust account. Which of the following would allow the brokerage to release funds from the real estate trust account? There are four options. There are multiple correct answers. 1 2 3

4

Completion of the transaction confirmed by the buyer. Written confirmation from the seller’s lawyer that the transaction has closed. Return of a buyer’s deposit when an offer was not accepted by the seller, but the deposit was placed in the brokerage’s real estate trust account without needing additional documentation signed by both the seller and the buyer. Return of the buyer’s deposit when a condition regarding obtaining financing was not fulfilled and additional required documentation has been signed by both the seller and the buyer.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 7 of 13

Overview of the Commission Trust Account A commission trust account is a separate trust account that may not be part of every brokerage’s operations. Many brokerages maintain this account solely for the purpose of distributing remuneration to other brokerages and salespersons employed by the brokerage

©2019 Real Estate Council of Ontario

Lesson 5 | Page 8 of 13

Purpose of a Commission Trust Account Now, we’ll examine additional details about the commission trust account. Each of the links below corresponds to the requirements and administration of the commission trust account and the disbursement of remuneration. The following three sections correspond to the requirements and administration of the commission trust account and the disbursement of commissions. While navigating through the online module, click the KMS button in the Module Resources for tools and information on this topic.

How a commission trust account is administered

Step-by-step remuneration disbursement process

The commission trust account is the responsibility of the broker of record but may be managed day-to-day by an administrative person. When the brokerage receives confirmation that the sale has been completed, funds may now be transferred from the real estate trust account to the commission trust account. The broker of record, or a designated individual who has the authority to disburse funds from the commission account, will complete the remuneration payments to a co-operating brokerage and to the salesperson(s) within the brokerage according to the trade record sheet. 1. The listing brokerage will typically receive written confirmation from the seller's lawyer that the sale is completed. 2. If the buyer’s deposit is being held by the brokerage, the broker of record will then issue a cheque, or electronic funds transfer, from the real estate trust account to the commission trust account for the amount of the remuneration due. 3. Remuneration is paid from the commission trust account to the appropriate parties as found on the trade record sheet. This could be done by the broker of record, or any other authorized individual for the brokerage. 4. Funds are typically disbursed from the commission trust account in the following order: 1) any co-operating brokerage, who will place it in their commission trust account; 2) the salesperson(s) employed by the brokerage involved in the trade; 3) ©2019 Real Estate Council of Ontario

the balance of the remuneration that represents the brokerage’s portion of the remuneration. The brokerage’s share is transferred to their general account where it is used for the day-to-day expenses of the brokerage. 5. The co-operating brokerage will disburse money received from the listing brokerage to their salespersons from their commission trust account.

How HST is disbursed when a salesperson is an independent contractor

Any remuneration received is subject to HST. As required under REBBA, the brokerage will receive the full amount of remuneration plus HST. When disbursing remuneration to the salesperson, if you are an independent contractor with the brokerage, you will receive your share of the full remuneration plus the HST applicable to your share of the remuneration. You will be responsible for remitting the applicable HST to the Canada Revenue Agency as, in most instances, the HST is not deducted by the brokerage or remitted on your behalf. For example, if the full amount of remuneration and HST received by a brokerage is $11,300 (remuneration of $10,000 plus HST of $1,300), and you are to receive 75% of the remuneration, the brokerage would disburse remuneration and HST to you as $7,500 remuneration plus HST of $975 for a total of $8,475.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 9 of 13

RECO Insurance Program Under the Professional Liability Insurance Program administered by RECO, along with providing errors and omissions coverage, protection is provided to both consumers and salespersons through its consumer deposit insurance and commission protection insurance. These coverages protect in events such as brokerage fraud, insolvency, or misappropriation of funds, subject to the terms and conditions of the policy A consumer deposit is covered up to a maximum of $200,000 per claim, and there is no deductible. You will learn more about obtaining and maintaining your registration and insurance later.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 10 of 13

The broker of record has received written confirmation from the seller’s lawyer that a transaction has been completed and the remuneration can be paid. Which of the given statements represent the correct order of steps taken in the remuneration disbursement process? There are three options. There is only one correct answer.

1

The brokerage receives a written confirmation from the lawyer that the transaction has closed. The broker of record, or authorized individual, issues cheques from the commission trust account to the appropriate parties. Remaining remuneration is transferred to the brokerage’s general account. Funds are disbursed from the commission trust account in the following order: any co-operating brokerage; the salesperson(s) employed by the brokerage involved in the trade; the balance of the remuneration that represents the brokerage’s portion of the remuneration. The broker of record, if applicable, issues a cheque from the real estate trust account payable to the commission trust account.

2

The brokerage receives a written confirmation from the lawyer that the transaction has closed. The broker of record, if applicable, issues a cheque from the real estate trust account payable to the commission trust account. The broker of record, or authorized individual, issues cheques from the commission trust account to the appropriate parties. Funds are disbursed from the commission trust account in the following order: any co-operating brokerage; the salesperson(s) employed by the brokerage involved in the trade; the balance of the remuneration that represents the brokerage’s portion of the remuneration. Remaining remuneration is transferred to the brokerage’s general account.

3

The broker of record, if applicable, issues a cheque from the real estate trust account payable to the commission trust account. The broker of record, or authorized individual, issues cheques from the commission trust account to the appropriate parties. Remaining remuneration is transferred to the brokerage’s general account. The brokerage receives a written confirmation from the lawyer that

©2019 Real Estate Council of Ontario

the transaction has closed. Funds are disbursed from the commission trust account in the following order: any co-operating brokerage; the salesperson(s) employed by the brokerage involved in the trade; the balance of the remuneration that represents the brokerage’s portion of the remuneration.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 11 of 13

©2019 Real Estate Council of Ontario

Trade Record Sheet In an earlier module, you were introduced to the trade record sheet as a form that documents all the details of a trade. Once the sale is completed, relevant fields are updated, and it remains in the brokerage’s file. The updating of the trade record sheet happens in three stages. As a salesperson, you will be required to review the trade record sheet and sign the document after the brokerage fills in all relevant details of the transaction. You must know that the trade record sheet contains all the relevant information about a transaction. It is important, as a matter of record how all funds relating to the transaction are deposited and disbursed. The following three sections correspond to how the trade record sheet is completed and maintained.

When the offer is accepted

When an agreement of purchase and sale is entered into by the parties, as a salesperson, you must ensure all documentation related to the trade is submitted to their brokerage. These documents include the agreement of purchase and sale, a document confirming the brokerage relationship with the parties and payment of remuneration, and a representation or customer service agreement, if not previously submitted. Once an offer has been accepted, the brokerage will complete a trade record sheet, ensuring all information required by REBBA is included in the document.

When the offer contains no conditions

When there are no conditions in the agreement that remain to be satisfied, as the salesperson, you will review the trade record sheet, make any necessary updates to it, initial the changes, and sign the trade record sheet. For example, the original trade record sheet might indicate a selling price that was then reduced due to new information received during the conditional time period, such as the results of a home inspection. The next step for you will be to submit the trade record sheet to the broker of record for review and signature. A signed copy will then be given to you, which is your record of remuneration earned and HST to be collected.

©2019 Real Estate Council of Ontario

When the transaction has closed

When the transaction closes, the deposit and remuneration will be distributed as indicated in the trade record sheet, and records of the disbursements are made within the document. The trade record sheet and all related trade documents must be maintained by the brokerage for a minimum of six years, as required by REBBA. Brokerage practices vary concerning copies for salespersons. The brokerage will retain a trade record sheet that contains all remuneration disbursements on one record but may print separate trade record sheets for each salesperson, as a matter of confidentiality. As a salesperson, you will make sure to maintain a copy of the trade record sheet both as a matter of record and as evidence of the remuneration to you. In case of error or discrepancy, the trade record sheet is an excellent financial snapshot of the transaction.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 12 of 13

Which of the following are actions a salesperson should take related to the trade record sheet? There are four options. There are multiple correct answers. 1 2 3 4

Create the trade record sheet when the sale is closed. Retain a copy of the trade record sheet. Once the trade record sheet has been signed by the broker of record, review the document and make any corrections required. Sign the trade record sheet and then return the document to the broker of record for review and signature.

©2019 Real Estate Council of Ontario

Lesson 5 | Page 13 of 13

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

REBBA requirements for a brokerage’s statutory real estate trust account

A brokerage is required to maintain a real estate trust account to safeguard deposits made by buyers in a real estate transaction. Disbursements from this account must be lawful and in accordance with the terms of the trust agreement with the brokerage. The broker of record needs a written notification from the seller’s lawyer that the sale has been completed to transfer funds from the real estate trust account to another account for remuneration disbursement. Remuneration earned is one of the six most common disbursements from the real estate trust account. The other five include: • Excess funds • Offer not accepted • Return of deposit • Unclaimed money • Court order

Commission trust account and disbursement

Brokerages may choose to maintain a commission trust account. A portion or all the deposit may be transferred to this account under certain circumstances and can be used to pay remuneration. It is standard practice that remuneration will be disbursed from the commission trust account to co-operating brokerages, then to the listing brokerage’s salespersons. Any remaining amount will be transferred to the brokerage’s general account.

©2019 Real Estate Council of Ontario

Requirements for brokerage to document trade activities

A trade record sheet must be prepared for all transactions involving a trade in real estate. The purpose of the document is to record all details surrounding the transaction and to account for deposits and remuneration payable, among other things. The trade record sheet is processed by the brokerage and is generally completed in three stages. As a salesperson, you must sign the document and receive a copy, with the original retained by the brokerage.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 1 of 15

Lesson 6: Pre-closing Issues

This lesson discusses possible issues that could occur prior to the transaction closing. Most transactions proceed smoothly to completion, but there may be circumstances that could delay or cause the closing to not take place. Legal issues could arise from the title or non-title searches, or other issues could arise due to the specific actions of the seller or the buyer. There are practices and activities you will be required to perform during the offer process that will help ensure potential issues are averted. This lesson will reinforce how being proactive can result in fewer problems. At times, no matter how well the transaction was undertaken, problems can still occur. Despite your best efforts, you may be required to assist in resolving or mitigating last minute issues.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 2 of 15

Pre-closing Issues Once an accepted offer has no conditions, it is a firm and binding agreement on all parties, and any due diligence from this point forward will relate to the closing of the transaction. Although much of the direct involvement with a seller or a buyer is completed, as a salesperson, you will be required to stay in contact with them throughout the pre-closing time period. While most transactions do close without incident, issues may arise that will require the involvement of you or the lawyer. Any serious or legal matters will be looked into by the lawyer but resolving other issues may be done by you. As a salesperson, you should remain involved throughout the closing process to answer questions or assist in any last-minute issues or problems, if required. Upon completion of this lesson, the learner will be able to: • Describe issues that can occur prior to a transaction closing • Describe leading practices of a salesperson to address challenges affecting closing • Describe how issues could be resolved to ensure a transaction closes Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 3 of 15

Issues That Can Occur Prior to Closing Occasionally, when preparing for the closing, lawyers will identify issues that must be addressed in order to protect the parties to the transaction. Authority to carry out the investigations emanates from the agreement of purchase and sale. Occasionally, these matters will be referred to you, the salesperson, by the lawyer to assist with resolving them so that the transaction can close in a timely manner. Issues can range from title-related matters, the condition of fixtures and chattels, and possible unpaid taxes and utilities. Any of these issues could jeopardize the transaction and may require the involvement of you, as a salesperson, to assist. The following four sections correspond to a problem that could delay or prevent the closing. They include the type of pre-closing issues that may occur.

Concerns uncovered by

Buyers expect a good and marketable title when they purchase a property. Any cloud on title may compromise the buyer’s legal rights and can thus affect the closing.

©2019 Real Estate Council of Ontario

title/non-title searches

For example, a title search may reveal a mortgage registered on the property that the seller had paid in full. However, the discharge of the mortgage was not registered on title. In this situation, the seller would be required to obtain a copy of the discharge and have their lawyer register this on title for the closing to occur. Issues could arise in being able to obtain, in a timely manner, a copy of the discharge of mortgage document due to several reasons, such as: • Not being able to locate a private lender • An institutional lender who has now merged with another bank During the title search, it may be discovered that there is a noise caution placed on the title of all properties located in a subdivision due to its proximity to the airport. Or, a restrictive covenant might be found on title that the buyer was not aware of. For example, there could be a restriction for fencing that would alter the buyer’s intended use of the property, such as installing a swimming pool. Not all discoveries during the title search period allow for the termination of an agreement. Due diligence to discover anything that would impact the buyer’s decision to purchase would need to be completed prior to a binding agreement to avoid any problems prior to closing. Similarly, non-title searches could reveal that there is an outstanding work order for repairs required to the property. The buyer may not agree to close unless the seller completes the necessary repairs and the work order is closed. Title and non-title searches reveal any complexities regarding the title and provide the basis for the buyer’s lawyer’s letter of requisition.

Undisclosed easements

As a salesperson, understanding this process will enable you to provide competent service and information to the buyer. An easement is right enjoyed by one landowner over the land of another. For example, a portion of the owner’s land, such as a driveway, may be used by an adjacent neighbour to access the rear yard of their property. When a property sells, the easement runs with the land and, therefore, remains registered on the property, and the buyer is obligated to accept this.

©2019 Real Estate Council of Ontario

Most buyers are reluctant to relinquish any rights on their prospective property and may use the non-disclosure of the easement in the agreement of purchase and sale as an objection to the title in an attempt to terminate the transaction. Not all easements would allow for termination due to non-disclosure. Certain easements must be accepted by the buyer, whether disclosed or not. These easements generally relate to drainage, storm or sanitary sewers, public utility lines, telephone lines, and cable television lines provided they do not materially affect the use of the property. Types of easements: • Utility easements: From a residential point of view, a utility easement is the most common. For example, the title search may reveal that a public utility company has buried wires in one part of the property, affecting the buyers’ landscaping plans. There could be an easement crossing the backyard where the buyer would like to install a pool in the future. The easement would prevent them from doing this. • Drainage easement: This easement provides access by municipal authorities for maintaining the grade plan for the subdivision. No development, such as constructing a shed, can take place within the easement, as this may impact the drainage system. For example, if a lot that is 120 feet deep has a drainage easement that encompasses the final 30 feet of the lot and extends across the rear boundary of the property, it will very likely affect a potential buyer’s ability to use the rear yard for any development or landscaping purposes and may restrict the area to open space only. • Right of way for access: This easement allows for travel over a portion of the owner’s land by someone else. For example, in some older neighbourhoods, two neighbours will share a driveway that provides access to the rear lot. Part of the driveway is located on each property, with neither property having enough area for a driveway completely on their own property. The owners would still retain all benefits and privileges of ownership, but both will have non-possessory rights to use the other’s property for that specific purpose. Limitations to ownership rights due to the presence of an easement can impact the value of a property, which is why it can emerge as an issue if discovered during a title search.

©2019 Real Estate Council of Ontario

Missing heirs/no spousal consent

It is important that, as a salesperson, you perform your due diligence to protect your buyer’s interest and discover if there are any easements registered on the title of the property prior to any offer preparation. The non-disclosure of the mutual driveway, for example, could provide the buyer with an opportunity to terminate the agreement. A transaction can fail if it comes to light that there are others with an interest in the property, not specified in the deed, who have not consented to the sale. This can be true in the case of a non-titled spouse. For example, a spouse will have an interest in the property if it is the matrimonial home, even though the person’s name is not registered on the title. Before the property can be sold and transferred to a buyer, the non-titled spouse must give consent. Similarly, the transaction will not be able to close unless all the registered owners of the property sign the agreement.

Agreed-upon terms not fulfilled by the seller

To ensure these issues do not impact the closing of the transaction, at the time of listing, you, as a salesperson, will need to determine if there is a non-titled spouse that would have to provide consent for the sale and that all registered owners have agreed to the disposition of the property. Once an offer has been accepted, the sellers are required to complete any terms agreed to, such as complete any repairs that have been identified by the buyer. The repairs should be completed well in advance of the closing, with an opportunity for the buyer to inspect the repairs to avoid problems or delays in closing. For example, the home inspection reveals a roof leak with damage and rot to the wood sheathing, soffits, and fascia. In order for the transaction to proceed, the offer is amended to include an agreement by the seller to repair the area and re-shingle a portion of the roof before closing and to allow the buyer to re-inspect the roof. During the final walkthrough, the buyer may find that the problem has not been fixed, or the quality of the repair work is not satisfactory. As salesperson, you may become involved in addressing the issue before closing, such as having the parties agree to reduce the purchase price to offset the additional repairs needing to be completed by the buyer or withholding funds on closing until the repair has been completed by the seller.

©2019 Real Estate Council of Ontario

As a salesperson, one way to ensure the buyer’s interests are protected would be to include a provision to re-inspect the property to satisfy the buyer’s concern about the work being completed.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 4 of 15

Issues That Can Occur Prior to Closing Sometimes issues can arise prior to closing that risk the successful completion of the transaction. The following four sections correspond to additional situations that could impact the closing of a transaction.

©2019 Real Estate Council of Ontario

Change to condition of the property A transaction could be at risk of not closing if an incident occurs that significantly alters the condition of the property from when the agreement was made. A seller is obligated to maintain the property during the time between acceptance of the offer and the transaction closing. Whether the change to the property is accidental or due to the seller’s neglect, the buyer is to be provided with the property in a similar condition as when previously viewed. For example, a storm occurs a couple of days before closing, resulting in a tree falling on the garage and damaging the structure. In this scenario, as the buyer’s salesperson, you should ask the buyer to consult their lawyer for further direction. A change to the condition of the property has the potential to delay, if not halt the transaction. The options to the buyer are to terminate the agreement or take the money from the seller’s insurance policy to rebuild the garage after they take possession. The buyer’s lawyer will advise them of their options. As a salesperson, you may not be able to prevent accidents from occurring, but you should be diligent about ensuring that the agreement of purchase and sale provides the buyer with the right to revisit and/or reinspect the property prior to closing to avoid surprises at the last minute.

©2019 Real Estate Council of Ontario

Increase in buyer liability

A mortgage commitment does not guarantee that mortgage funds will be advanced without any further consideration. Before funds are advanced, the lender may again review the buyer’s qualifications as a borrower. If the buyer’s financial situation has changed in a significant way, the lender may refuse to provide the mortgage, or will provide a lesser amount than first agreed to. Any additional debt could change the Gross Debt Service (GDS) or Total Debt Service (TDS) ratios for the buyer, resulting in the lender revising any approvals. For example, if the buyer takes out a loan to purchase an automobile or increases their debt on a credit card to make an expensive purchase such as furniture, the lender may be concerned about the buyer’s ability to repay the mortgage. The increased debt obligation could result in the lender withdrawing or altering their earlier commitment. Similarly, a buyer becoming unemployed or changing jobs with a different income could pose similar risks. If the purchase is a condominium, the lender may also refuse or change their mortgage commitment upon learning about other financial obligations associated with the condominium, such as a large increase in the condominium fee or a special assessment. The special

©2019 Real Estate Council of Ontario

assessment would be indicated in the status certificate. As a salesperson, you should caution the buyer not to do anything that would change their borrowing qualifications. However, should that occur, you should provide guidance to the buyer regarding other sources of financing to make up for the shortfall. This should be accomplished by suggesting they obtain legal advice or speak to a mortgage professional.

Unforeseen circumstances affecting insurance

Although insurance is not always mandatory, if a mortgage is being placed on the property, the lender will require that home insurance be in place before advancing funds. Some properties may pose more risk to the insurer, and thus the buyer may not be able to arrange for insurance without added costs. For example, the house is an older structure with out-dated wiring and exterior siding in poor condition. The buyer may have to replace these items within a short time period following closing for the insurance to remain. These requirements may cost tens of thousands of dollars, which the buyer will need to spend in order to be able to close the transaction. As a salesperson, you should consider recommending a condition in the offer which allows the buyer an opportunity to confirm insurance is available, or even ©2019 Real Estate Council of Ontario

ensuring it is available at a cost not exceeding a specified amount. Although these steps can be taken during the conditional offer phase, events may occur after this where the insurance is no longer offered, or there has been a substantial increase in the premium. These events can include: • Buyer makes a large claim against their current policy • Insurer inspects the property and is dissatisfied with the age or condition of certain components, such as the furnace • Increase in premium due to insurer basing the quote on inaccurate information, which has resulted in insufficient coverage, such as house size • Change in policies by insurers, such as no longer providing insurance in certain geographic areas due to extreme weather such as ice storms, severe cold snaps, and heavy rainfall • A poor credit score, which is used when calculating insurance rates, as insurers use credit scores to assess the level of risk associated with an individual.

©2019 Real Estate Council of Ontario

Missing chattels and fixtures Sellers and buyers may not necessarily understand the difference between a chattel and a fixture, but the significance of this can be the cause of misunderstandings and problems on the closing of a transaction. Chattels are items that can be easily removed from the property and are often thought to be the personal belongings of the seller. These must be specified in the offer as remaining if the buyer is to receive these when the transaction closes. Fixtures are attached to the property and are to remain with the property, unless specifically excluded. Mirrors, shelving, appliances, window coverings, and furnishings can often become items of negotiation between a seller and a buyer. Do not assume an item will remain or will be removed; ensure these are fully documented in the offer to avoid any problems on closing. For example, during the final walkthrough, the buyers may find that the sellers have taken the decorative ceiling fan even though it was to be included in the sale. This is likely to upset the buyers and they may want the item returned. If you are the buyer’s salesperson, you will note the missing item, report the matter to the seller’s salesperson, and attempt to resolve the matter. ©2019 Real Estate Council of Ontario

Should no resolution be forthcoming, you will advise the buyer to obtain legal advice. It is important to ensure there is a full understanding between the parties as to which items will remain when the transaction closes, and which items will be removed. As a salesperson, it is your responsibility to ensure the agreement of purchase and sale clearly identifies what has been agreed to.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 5 of 15

Which among these scenarios could increase buyer liability that may affect the completion of the transaction? There are five options. There are multiple correct answers. 1 2 3 4 5

The buyer loses their job one week prior to the closing of the transaction. The buyers, in their excitement of moving into their new home, purchase all new furniture on credit. The buyer increases their down payment after receiving an inheritance from their grandfather. The buyer is notified a month prior to closing that the condominium where the buyer is purchasing their unit is increasing their condominium fees significantly. The buyer has plans to renovate the kitchen after the closing.

Lesson 6 | Page 6 of 15

During their final walkthrough, the buyers detect a water stain on the ceiling of the living room that they did not notice during previous visits. They are concerned that it could be an active water leak and may prove costly to repair. What are some of the options the salesperson can give their buyer? There are four options. There are multiple correct answers. 1 2 3 4

Suggest to the buyer not to impact the closing of the sale and fix the problem themselves after the closing. Alert the seller’s salesperson about the issue, informing them that the buyer would like to bring a professional to inspect the damage. Ask the seller’s salesperson to request that the seller repair the damage or adjust the purchase price. Convey to the seller’s salesperson that the buyer’s lawyer will withhold an agreed upon amount.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 7 of 15

Leading Practices of a Salesperson to Address Challenges Affecting Closing As a salesperson, you will have the significant role of assisting and advising the seller or the buyer correctly, so that many pre-closing issues may be prevented. These would be described as leading practices in the field. Title-related issues such as undisclosed easements and restrictive covenants do come up at the pre-closing stage. Sometimes the buyer may agree to accept certain easements, but they will not accept those that materially affect the use of the property. If the buyer is unwilling to compromise with the complete ownership rights of the property, it could derail the transaction. As a salesperson, you should be proactive and make all necessary enquiries to find out if any easements, restrictive covenants, or other notable concerns are registered on the title. Similarly, you should guide your buyers correctly to help ensure their actions do not jeopardize the transaction in any manner. You may offer them guidance about maintaining good credit scores so as to not affect their creditworthiness with the lender that would be releasing the mortgage funds. As the seller’s salesperson, you will also be required to emphasize to them the importance of not altering the condition of the property in any material way. Your timely and appropriate advice at the pre-closing stage will help to ensure that the closing process proceeds smoothly and successfully.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 8 of 15

Restrictive Covenants and Easements Identified During a Title Search A well-documented agreement of purchase and sale can assist in avoiding problems on closing. As a salesperson, you can be proactive in identifying potential problem areas when showing the property to a buyer by documenting any concerns about the property, to ensure any offer would address these and to have an open discussion with a buyer about them. One such aspect relates to you making reasonable enquiries prior to the buyers making an offer on the property to ensure there are no undisclosed easements or restrictive covenants. A leading practice could be to ask for a copy of a current survey to confirm the presence of an easement, enquiring at a municipal office with respect to any restrictions associated with the property or the subdivision within which the property is located, and including a representation and warranty clause in the offer from the seller relating to any potential concerns that have not been disclosed. Although the agreement permits the buyer’s lawyer an opportunity to investigate the title and other related matters to determine any restrictions associated with the property, such as easements and restrictive covenants, not all title matters allow the buyer any recourse. When reviewing the agreement with the buyer, as the salesperson, you should ensure that the buyer is aware that these matters would be investigated, and by whom, and that certain issues could provide no opportunity to terminate the agreement. The buyer and you should make your own enquiries to ensure there will be no issues identified during the title search that the buyer would need to accept. ©2019 Real Estate Council of Ontario

If you are the seller’s salesperson, you should make every reasonable effort to find out and disclose any information about restrictive covenants and easements registered on the title to avoid problems later when they are discovered by the buyer.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 9 of 15

Retaining Approvals for Financing, Insurance, etc. As discussed earlier, lenders will review the buyer’s financial qualifications before releasing the mortgage funds. As such, buyers should be careful about not affecting any approvals by assuming additional liabilities. For example, the mere act of the buyer applying for additional credit, such as a bank loan, credit card, or personal line of credit, could negatively impact their credit score. As a salesperson, you should explain to your buyers the impact of increasing their current debt obligations prior to preparing an offer. A buyer should be counselled to set aside additional funds for other expenses, including purchasing new furniture, or anticipated repairs to obtain the necessary insurance. This might result in the buyer choosing to purchase a property that is less expensive, so these additional funds are available to complete the transaction.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 10 of 15

Maintaining the Property Until the Transaction Closes As the listing salesperson, you should ensure that the seller understands their obligations to maintain the property leading up to the closing. As the seller’s salesperson, you will attend many inspections of the property including the inspection when listed, viewings by buyers, and professional inspections during a buyer’s due diligence period. Damage found during the listing period should be repaired as soon as possible. Providing full disclosure of material latent defects is the seller’s legal obligation. Encouraging an open and honest presentation of the property, and then maintaining this condition until closing, should be clearly explained to the seller. As the buyer’s salesperson, including a clause in the agreement permitting the buyer to re-inspect the property a pre-determined number of times between offer acceptance and the closing, is encouraged. Whether a buyer acts on this permission granted or not, it will show your intent to protect the buyer’s interests. This due diligence step allows the buyer to ensure that the property is in the same condition that was originally agreed to, or that any repairs or modifications to the property have been made as per the requirements of the agreement.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 11 of 15

The sellers decide to move out of the house one week prior to closing. Despite their best efforts and instructions to the moving company to be careful, the movers end up scratching some areas of the wood floor badly and damaging the drywall with a deep gouge. The sellers call their salesperson to seek advice. What advice should the salesperson offer to the sellers? There are four options. There are multiple correct answers. 1 2 3 4

Advise the sellers to make all reasonable efforts to repair the damage prior to completion of the transaction. Advise the sellers that they are obligated to maintain the property and the buyer could ask for compensation once the damage is discovered. Advise the sellers the damage is not severe and that buyers expect to find damage previously not seen once a home is vacant. Advise the seller to notify their lawyer.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 12 of 15

In most instances, any issue that arises during the pre-closing stage can be resolved if discovered early and all parties work together to approach the problem objectively. The goal of all parties is to complete the transaction on time, according to the terms of the agreement, and with the confidence in knowing everyone has acted in good faith and honesty.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 13 of 15

Resolving Issues to Ensure the Transaction Closes Now, we’ll learn about your role in resolving a pre-closing issue. The following six sections identify ways to resolve a potential problem.

Advising buyers and sellers to seek advice from their lawyer

In many instances, a legal issue will be discovered by the lawyer. When this is the case, you as the salesperson should promptly advise the seller or the buyer to discuss the issue with their lawyer before making any decisions on proceeding. Potential legal issues include: • Contractual matters such as failing to fulfill a term of the agreement • Title matters including ownership, spousal consent, easements, and restrictive covenants • Non-title matters including non-compliance with zoning, arrears property taxes, or obtaining required permits • Property condition matters including environmental issues

©2019 Real Estate Council of Ontario

When an issue impacting closing is legal in nature, all advice should be obtained from the seller or the buyer’s lawyers.

Seeking guidance from your brokerage

Inappropriate or unqualified legal advice can compound problems and increase any risk to the buyer, seller, salesperson, and brokerage. Options in terms of addressing and resolving the issue can vary depending on the nature of the problem. Obtaining advice and guidance from others at the brokerage should be done whenever there is concern and before a seller or a buyer is obligated to an offer. Once an offer has been accepted, there may be no opportunity to approach a problem in a way that achieves the required results for all parties. The brokerage has an obligation to provide adequate supervision to you, as their salesperson, by meeting with you and advising, providing guidance, and assisting with various matters that could affect the outcome of the transaction. For example, you may be attempting to draft a clause for the agreement of purchase and sale requiring that the seller make minor repairs to several areas of the property. You may look for assistance in drafting an appropriate clause and advice on how this requirement can be best presented to the seller and their representative.

Failing to seek advice when required can lead to an improperly drafted agreement that may not be in the buyer’s best interest. To correctly address an issue, you, as a salesperson, should verify whether the matter is Analysing if an issue is a problem one that needs to be resolved for the transaction to close, or if the matter is due to a misunderstanding by one or both of the parties.

or a misunderstanding Until the source of the problem or misunderstanding has been reviewed, any advice or

action taken by you may be inappropriate or counter-productive. Issues may arise when one or both parties have not completely reviewed or understood the documents surrounding the transaction. For example, the buyers may be upset to find that the sellers have removed the dining room chandelier from the property and replaced it with a less expensive fixture. The buyer’s salesperson may review the agreement to verify if the chandelier was an excluded fixture. If the chandelier was not excluded, the sellers would be required to return it.

©2019 Real Estate Council of Ontario

However, if the item was specifically excluded in the agreement of purchase and sale, the sellers would be within their rights to remove the item. Similarly, issues may arise as a result of you not adequately explaining moving obligations of the seller and defining key terms associated with the agreement. For example, on completion of the transaction, the seller is obligated to provide vacant possession to the buyer. If a tenant who was supposed to vacate the house prior to closing does not leave the property, it would mean the sellers were not able to provide vacant possession to the buyer. For this reason, you, as the salesperson, should advise the seller to close the transaction after the tenant has vacated to ensure vacant possession, as well as to inspect the condition of the property. As a salesperson, you should show due diligence in terms of reviewing the agreement of purchase and sale accurately and advising the seller or the buyer as required. You may review any notes, emails, or other correspondence during the transaction that might provide important information about the contentious issue. Ultimately, if the issue is a problem and not a misunderstanding, you will take the next appropriate step, which is informing the lawyer.

Ensuring due diligence entitlements are carried out

Although you can make every effort to ensure the documents are fully understood, there may be complex matters that a seller or a buyer could still misunderstand, misinterpret, or recall differently. The agreement of purchase and sale provides opportunities for the buyer and you, as the salesperson, to carry out due diligence on many matters. These may include taking necessary steps to ensure financing is approved, insurance is arranged, and the ability to inspect the property, and confirm the condition of the various fixtures and chattels, etc. For example, the agreement of purchase and sale will specify the purpose and number of visits to the property the buyer can carry out. These visits are an added opportunity for the buyer to assess that nothing about the property has substantially changed and the closing can proceed as planned. A final walkthrough just prior to closing, or other visits during the pre-closing stage provide the buyer with an opportunity to ensure that all agreed-upon repairs, if applicable, have

©2019 Real Estate Council of Ontario

been carried out, and to ascertain if there has been any change to the condition of the property.

Explaining the consequences if the transaction does not close

As a salesperson, you should encourage the buyers to take advantage of the due diligence provided for in the agreement during the pre-closing stage, as any unpleasant surprises discovered on the closing day may get progressively difficult to resolve. Breaching a contract can have serious consequences for the seller or the buyer. As a salesperson, you need to ensure that the seller or the buyer understands the ramifications of not closing a transaction. For example, a buyer may want to cancel the agreement after realizing that prices of similar homes in the area have dropped. This action increases the risk of legal consequences, as the seller may take legal action. The court may not only rule in favour of the seller keeping the deposit, but may also order the buyer to compensate the seller for any losses suffered by the seller as a result of the buyer’s breach of their contractual obligations. If the seller was not able to obtain a similar price from another buyer while attempting to re-sell the property, the buyer could be obligated to pay the difference. Similarly, an offer may be conditional upon the seller repairing a crack in the foundation. During the final inspection, the buyer may discover that the agreed-upon repairs have not been carried out and may refuse to close until such time that evidence of the repairs has been provided by the seller.

Adjustment of the purchase price to offset issue

As a salesperson, you will be required to emphasize the need for the seller or the buyer to act reasonably and in good faith to avoid disputes, and the need for them to talk to their lawyer before making reckless decisions or statements. If an issue is discovered during the pre-closing stage, such as a title-related problem or a defect such as a crack in the foundation, it could potentially put the transaction at risk. However, sometimes buyers are willing to accept deficiencies if they are compensated through a price reduction. For example, a few weeks before closing, the buyer finds out about a right-of-way existing on the rear yard of the property that was not disclosed by the seller. The buyers are still interested in completing the sale. However, taking into consideration the reduced area of

©2019 Real Estate Council of Ontario

the rear yard available to them for development, they feel that compensation would be appropriate. The buyer’s salesperson prepares an amendment describing the price adjustment and delivers it to the seller’s salesperson for review and execution. However, the value of the adjustment may become a matter of negotiation between the parties. And in the extreme, a formal appraisal of the impact on value may be required. As a salesperson, you can play a constructive role in assisting the parties to come to an amicable solution. A sale might be terminated if you cannot make a positive impact and/or give timely and negotiable advice.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 14 of 15

What situations could involve an adjustment to the purchase price? There are four options. There are multiple correct answers. 1 2 3 4

Damage such as a crack in the foundation or undisclosed material latent defect discovered during the final walk-through. The buyer discovers that a restrictive covenant is registered against a property, not allowing them to park their recreational vehicle in the driveway. Either party requests to extend or advance the closing date by a month. Undisclosed easement that materially affects the use of the property.

©2019 Real Estate Council of Ontario

Lesson 6 | Page 15 of 15

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Issues that may occur prior to the completion of a transaction

Leading practices of a salesperson to address challenges affecting closing

Issues may come up during the pre-closing stage that may require you, as a salesperson, to advise the seller or the buyer or offer assistance to the lawyer. Some of the significant issues relate to discoveries that may be made during title/non-title searches. The lawyer may discover a lien on the property or an easement that could threaten to derail the transaction. Similarly, the buyer may find that the seller has not performed the agreedupon repairs and may be unwilling to proceed. Other unexpected problems could arise that may put the transaction at risk. For example, the lender may reassess the buyer’s financial qualifications and determine the mortgage amount cannot be released. There could also be a change in the condition of the property that could make it impossible for the buyer to proceed. As a salesperson, you have the duty to correctly advise the seller and the buyer so that certain pre-closing problems can be averted. Your advice will pertain to asking the buyers to not alter their financial qualifications in any manner that may lead to the lender denying a mortgage. You will also advise them about their moving obligations to avoid misunderstandings during closing.

Certain title-related problems, such as discovery of right-of-way or easements, can derail a transaction. However, you can minimize risks by making reasonable enquiries prior to making an offer on the property. How issues can be Most issues arising in the pre-closing stage can be resolved through correct and timely intervention. As a salesperson, you will have an important role to play in ensuring that you resolved provide the most appropriate advice to the seller and the buyer. Any legal issue at this stage will be typically discovered by the lawyer, but if something new is discovered, as a salesperson, you will direct your seller or your buyer to the lawyer to ensure the problem gets resolved in an appropriate manner. ©2019 Real Estate Council of Ontario

Always involve your brokerage in the transaction, and seek advice and assistance where required. For example, if you are unsure how to draft a certain condition in the agreement, seek guidance from the brokerage to ensure there are no problems at a later stage in the transaction. Issues related to fixtures and chattels can be resolved by accurately reviewing the agreement of purchase and sale, and documents surrounding the transaction. As a salesperson, you must appropriately advise your seller or your buyer when you think their proposed action could lead to a breach of contract. Alert them to the legal and financial consequences of their actions. Sometimes defects are discovered at the pre-closing stage and may require some negotiation between the parties for the transaction to proceed. Often, adjustment of the price is a reasonable option that can save the transaction from failing. As a salesperson, your skills as a communicator and ability to conduct a transaction with fairness will determine if the transaction moves ahead.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 1 of 8

Lesson 7: Next Steps if the Transaction Does Not Close

This lesson provides an overview of the options available to the seller or the buyer if a transaction does not close. There can be various reasons why a transaction is terminated and some of these could result in legal implications for the seller or the buyer. As a salesperson, it will be important for you to understand your duties and obligations under these circumstances, as these legal issues will impact the decisions made by the seller or the buyer.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 2 of 8

Next Steps if the Transaction Does Not Close Even though all steps to document and negotiate an agreement of purchase and sale, to meet the requirements of the seller and the buyer, may have been done thoroughly and competently, occasionally transactions will fail to be completed. However, as a salesperson, your obligations to the seller or the buyer will continue. At all times, you have the duty to advise your seller or your buyer to obtain legal advice before signing any document to terminate the agreement or release the other party from the agreement. A brokerage will also have legal requirements relating to a failed transaction. These obligations can involve your participation with the seller or the buyer. Any actions taken should be only after obtaining advice from the brokerage and the respective lawyer. One of the key issues for a buyer will be the return of the deposit. One of the key issues for a seller will be related to placing the property back on the market as soon as possible. Both of these issues will require documentation to be completed first, such as preparing a mutual release. Once signed by all parties, the mutual release is the authority for the brokerage to disburse the deposit from their real estate trust account. Most times, the deposit is returned to the buyer, however, the seller must agree to this. Once the parties have been released from any obligations under the agreement, the seller’s property can be listed and marketed to secure another offer.

©2019 Real Estate Council of Ontario

It must be emphasized that it is not a common occurrence for transactions to fail. However, in cases where they do, as the salesperson, you should be prepared to provide guidance and assistance according to the legal requirements of the brokerage. Upon completion of this lesson, you will be able to: • Describe how a buyer’s deposit is dealt with when a transaction does not close • Identify a salesperson’s duties when a transaction does not close Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 3 of 8

Mutual Release or Court Order The brokerage holding the buyer’s deposit must meet their legal obligations and act impartially when dealing with potential beneficiaries of that money. The brokerage must disburse the funds in accordance with the terms agreed to by the parties, typically documented on a mutual release signed by both the seller and the buyer. Most times the seller and the buyer agree to release each other, and the buyer’s deposit is returned. There are many reasons why a transaction may not close, and each situation will need to be addressed individually. In some instances, there is an agreement the buyer will forfeit their deposit to the seller as compensation for any harm done by the transaction not being completed. For example, if the buyer is unexpectedly transferred by their employer, they may be unable or unwilling to close the transaction. After consulting with their respective lawyers, the parties may agree to release each other and have the deposit disbursed to the seller. In some instances, there may not be an agreement regarding the disbursement of the buyer’s deposit. For example, the buyer may have decided to refuse to close on the transaction citing that there is an undisclosed material latent defect in the property. The seller may believe that the buyer did not act in good faith and may disagree with the buyer’s contention. The conflicting opinions could result in either or both parties refusing to sign the mutual release. Should this occur, the brokerage is not permitted to disburse the funds until agreement has been reached or a court order is issued. Once the authority has been provided to the brokerage to disburse the deposit, the brokerage is required to do this as soon as possible, and only in accordance to the terms of the trust. Under REBBA, if the deposit ©2019 Real Estate Council of Ontario

has been held in trust by the brokerage for two years and entitlement is not clear, then the brokerage shall forward the deposit and all relevant paperwork to RECO.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 4 of 8

Obligations of a Brokerage Regarding a Mutual Release A brokerage, when holding a buyer’s deposit in trust, has significant responsibilities. If for some reason, the brokerage holding the deposit in trust is disputing some aspect of the failed transaction, the brokerage’s broker of record may refuse to sign the mutual release. However, it is important to note that the brokerage would still be required to disburse the deposit as directed. If a brokerage signs the mutual release, they could be releasing all parties from any claim that the brokerage may have had for remuneration. Once a seller and a buyer sign the mutual release, the brokerage is also released from all liabilities, obligations, claims, and monies arising from the agreement of purchase and sale. In most instances, a brokerage will also agree to sign a mutual release as this allows the brokerage to close the file. In case of doubt, brokerages should seek legal advice before signing the mutual release. In some instances, the seller or the buyer may not agree to sign the mutual release.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 5 of 8

Alex, who has made a firm and binding offer on the seller’s home, decides he cannot proceed with the transaction after he loses his job. The sellers, Gail and Wilson are extremely upset as they purchased another house on the strength of a firm and binding agreement. Alex is keen on having his deposit back and instructs his salesperson to release them from the transaction. The sellers, however, refuse to co-operate. Considering that the seller and the buyer are in dispute, what actions can be taken by the seller’s brokerage in respect to the deposit? There are four options. There is only one correct answer.

1

Leave the deposit in the real estate trust account until appropriate documentation is received by the brokerage or a court order is issued.

2

Transfer the deposit to the remuneration or commission trust account for disbursement of remuneration as the salespersons secured a firm and binding offer.

3

Submit the deposit to RECO under the provisions of REBBA after two years.

4

Transfer the deposit to the general account until the matter is settled.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 6 of 8

As a salesperson, you will make all efforts to ensure a successful transaction. However, in the event of a sale not closing, you will be required to be available to the seller and the buyer to assist them as necessary. Duties may include taking directions from the lawyer and preparing the appropriate document. As the seller’s salesperson, you may be required to relist the property as soon as possible, to minimize the seller’s losses, among other reasons.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 7 of 8

Salesperson’s Duties when a Transaction Does Not Close As a salesperson, you must fulfill your obligations and responsibilities even though the transaction did not come to fruition. You will still be expected to provide conscientious and competent service, ensuring all parties are treated with fairness and honesty. The following three sections correspond to your duties as a salesperson.

Take directions from the lawyers If the transaction is not closing, as the salesperson, you will recommend that the seller or the buyer seek advice from their lawyers. You will remain available to assist the lawyer if required. For example, after speaking to the seller and the buyer, the lawyers may determine that the seller should be allowed to retain 50% of the deposit. Accordingly, the lawyers will direct the salesperson to complete a mutual release and have it signed by the seller and the buyer. As a salesperson, you must take directions from the lawyer and not act unilaterally, as you do not want to do anything that might affect the seller's or the buyer's legal rights and obligations going forward.

©2019 Real Estate Council of Ontario

Manage documents related to mutual release Based on what the lawyers and the parties to the trade determine, salespersons may prepare the mutual release. Once executed and delivered to all parties, the document becomes a trade-related document and is submitted to the brokerage for inclusion in the trade file. The bulk of the responsibility will, however, rest with the lawyer, who will prepare an agreement to terminate the agreement of purchase and sale. The agreement would have to be terminated and the mutual release would have to be signed by the parties for the release of the deposit. As a salesperson, you continue to have the obligation to ensure that all trade-related documents are delivered to the seller or the buyer, their representatives, and the brokerage.

©2019 Real Estate Council of Ontario

Help seller to re-list and re-market their property Once the mutual release is completed, as the seller’s salesperson, you will re-list the home placing it back on the market. As their salesperson, you will try to resurrect the marketing plan as soon as possible to enable the seller to mitigate any possible losses. Often, sellers want to quickly proceed with their objectives. For example, the seller may have to move to another city for a new job or may wish to downsize. Another reason to market the property at the earliest opportunity may be to take advantage of a continuing seller’s market.

©2019 Real Estate Council of Ontario

Lesson 7 | Page 8 of 8

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were discussed in this lesson.

Describe how a buyer’s deposit is dealt with when a transaction does not close Identify a salesperson’s duties when a transaction does not close

When the seller and the buyer agree to part ways amicably, they may sign a mutual release. In this scenario, the brokerage holding the trust money must disburse the funds in accordance with the terms of the mutual release. In cases where the seller or the buyer do not sign the mutual release, the matter could be settled through a court order. Disappointing though it may be when a transaction fails, as a salesperson, you must continue to assist and advise the seller or the buyer and protect their best interests. You will be required to take directions from the lawyers and execute an action accordingly. This could include preparing the mutual release and other documentation as instructed by the lawyer. As the seller’s salesperson, you will help your seller re-list their property so that they can proceed with their objectives.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 1 of 4

Lesson 8: After Closing

This lesson explains the importance and benefits of being organized, diligent, and aware of all the new aspects a career in real estate brings with it. It is not just the completion of a transaction that will contribute to your success. A successful real estate career requires discipline, commitment, and organization in your personal financial matters.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 2 of 4

After Closing A successful real estate career requires discipline and commitment that extends beyond the closing. Many salespersons intuitively understand customer satisfaction, follow through, and keep in touch with sellers and buyers to build a client database. Sometimes, even salespersons who are successful in sales fall victim to needless financial or other related problems simply due to poor organization and planning. This lesson explains the potential pitfalls you may face and how those issues can be averted through careful organization and general efficiency in managing your finances. Upon completion of this lesson, you will be able to: • Describe leading practices for a salesperson to manage their career Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 3 of 4

Leading Practices for a Salesperson to Manage Their Career The following five sections contain information and ways that, as a salesperson, you can avoid missteps and handle your career efficiently.

Maintaining credibility with clients • Follow-up with the sellers and the buyers after the closing of the transaction to check if they are satisfied with your services and enquire if there are any remaining problems or issues that you can help them resolve. You may also consider asking them for a testimonial letter. • Seek the seller's or the buyer's consent to place them on your mailing list and email list so that you may stay in touch. • Ask them if they are aware of any friends or family members that require real estate services. • Ask them to subscribe to your brokerage’s email newsletter informing them about current market conditions and significant changes that may affect their real estate investments. • Contact them on the anniversary of their sale and send them personal promotional items like calendars and other useful items. • Suggest that they can call you regarding any real estate information or enquiries, even though they may not be buying or selling real estate.

©2019 Real Estate Council of Ontario

Your goal is to remain as their trusted real estate advisor.

Seek expert advice When consumers need real estate guidance, they seek out registered real estate professionals. Similarly, when you need financial, investment, or taxation counselling, you should seek out appropriate professionals. As a salesperson, you should take advantage of the services of these professionals as they can be a valuable resource in both the pre-closing and closing stage. Financial advice: As an independent contractor, your taxation obligations could be challenging and complex compared to regular employees, given that you will be responsible for all remittances to the Canada Revenue Agency (CRA). Your taxes won’t be deducted at source, and moreover, as an independent contractor, you will have many other opportunities for deductions that an expert can advise you on. For example, the salesperson will collect HST for services rendered and remit it to CRA after adjusting for any valid input tax credits. Speak to an accountant familiar with salespersons’ remuneration that can help you set up an appropriate bookkeeping system and advice on taxation related matters.

©2019 Real Estate Council of Ontario

Legal and insurance-related advice: Retain the services of a lawyer for periodic advice on legal matters. Also, have a working relationship with an insurance broker, not just for your own personal insurance needs, but as someone from whom you can seek advice should the need arise during a transaction. Experts will not only be able to satisfy your own personal needs, you may also approach them in case you have a question related to a transaction. Having resource people available to you will raise your service level and build credibility in the eyes of the seller or the buyer. Without the guidance of experts, you will increase the risk for yourself, the brokerage, and the seller or the buyer.

Maintaining a business journal When dealing with multiple transactions and files, details can be complex and due diligence dates can be confused between the various transactions. Any lack of organization on the part of you, as a salesperson, can lead to additional problems. By maintaining a business journal, hard copy or electronic, you can record important information and can more efficiently plan and organize your time. Missing deadlines can lead to transactions failing.

©2019 Real Estate Council of Ontario

Keeping track of your appointments will also help in the future when goal setting for the next year to see where you allotted your time and how productive it was.

Setting up a filing system To successfully conclude transactions, maintain all the relevant documentation necessary when dealing with either sellers or buyers . This would allow you to quickly refer to any documentation that was part of the transaction. You should maintain detailed records in their business journal of all activities done on behalf of the seller or the buyer (e.g., list of properties shown, emails sent). Section 23 of the Code states that you will inform a client of the significant steps you will take while representing them. Maintaining records will allow this to be accomplished efficiently and in a timely manner. As a salesperson, you should provide routine activity reports to the seller and the buyer throughout the relationship, including a post-closing report to ensure that the seller and the buyer are satisfied with your services. The conversation could be a recap of some of the things you did for them in the course of finding the house.

©2019 Real Estate Council of Ontario

Making appropriate remittances to CRA Most salespersons today and their brokerages prefer that they be independent contractors (IC status) from a taxation perspective, rather than employees. Generally, this means that as a salesperson, you will be responsible for submitting income tax and HST payments. The brokerage will not deduct income tax from the remuneration paid. It is important to remember that this IC status applies to taxation matters with Canada Revenue Agency and not REBBA. Under REBBA, salespersons are considered employees of the brokerage and all trading is done on behalf of the brokerage. The advantages and disadvantages will be discussed further in subsequent modules. Develop a bookkeeping system that will track income and expenses, and also record and notify you regarding Canada Revenue Agency remittance requirements. Part of maintaining a personal finance system would be the isolation of funds necessary for your obligation to the Canada Revenue Agency and other agencies. For example, you could create a bank account into which you may deposit 25 to 30% of your remuneration cheque, or an amount recommended by your advisor, that would be used to make timely remittances to the Canada Revenue Agency.

©2019 Real Estate Council of Ontario

By creating a separate bank account for tax remittances, you can ensure you have the requisite funds to remit to the Canada Revenue Agency on hand when payments are due.

©2019 Real Estate Council of Ontario

Lesson 8 | Page 4 of 4

Congratulations, you have completed the lesson! Here is a summary of the key topics that were discussed in this lesson. • As a salesperson, you must work towards accurate record-keeping, diligent financial management, and building credibility with your clientele for continued success after closing. • To operate your new business efficiently you should create filing systems, and maintain a business journal.

©2019 Real Estate Council of Ontario

Lesson 9 | Page 1 of 20

Lesson 9: Summary Practice Activities

This lesson presents a series of practice activities that cover key concepts from the module.

©2019 Real Estate Council of Ontario

Lesson 9 | Page 2 of 20

Summary Practice Activities This lesson contains summary decision points that will test your knowledge regarding the topics discussed in this module on completing real estate transactions. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

©2019 Real Estate Council of Ontario

Lesson 9 | Page 3 of 20

Which of the following statements are true about the remuneration disbursement process? There are four options. There is only one correct answer.

1

All real estate brokerages are required to maintain a remuneration or commission trust account under REBBA.

2

Remuneration are held in trust and disbursed directly out of the real estate trust account.

3

Remuneration disbursement occurs once the brokerage has received written confirmation from the lawyer that the transaction has closed.

4

The remuneration disbursement must occur no later than 48 hours following receipt of any balance received from a lawyer involved with the transaction.

Lesson 9 | Page 4 of 20

Buyer, Kanu Varisht, has purchased a second condominium unit for $929,000. What is the provincial land transfer tax payable? There are four options. There is only one correct answer. 1

$15,055

2

$11,055

3

$18,580

4

$14,000

©2019 Real Estate Council of Ontario

Lesson 9 | Page 5 of 20

A buyer has purchased an estate home outside of Toronto for $2,164,000. What is the provincial land transfer tax payable? NOTE: Refer the following for the calculation: Amounts up to and including $55,000: 0.5% Amounts exceeding $55,000, up to and including $250,000: 1.0% Amounts exceeding $250,000, up to and including $400,000: 1.5% Amounts exceeding $400,000: 2.0% Amounts exceeding $2,000,000, where the land contains one or two single-family residences: 2.5% There are three options. There is only one correct answer. 1 2 3

$40,575 $54,100 $39,755

©2019 Real Estate Council of Ontario

Lesson 9 | Page 6 of 20

Alice has purchased a home and has inserted a clause in the agreement that the seller would repair the shingles that had been damaged during a storm. The agreement has allowed her a certain number of visits to the property prior to closing. On one of the visits two weeks before the closing, she notices that the shingles have not been repaired and the newer, stainless steel dishwasher has been replaced by an older white dishwasher. She also notices that there is damage to a wall that wasn’t there when Alice first viewed it. Identify the correct situation for the problem of missing chattels/fixtures noticed during final walkthrough. There are three options. There is only one correct answer. 1 2 3

The seller has replaced the dishwasher. The shingles have not been repaired. Damage to the wall.

©2019 Real Estate Council of Ontario

Lesson 9 | Page 7 of 20

Alice has purchased a home and has inserted a clause in the agreement that the seller would repair the shingles that had been damaged during a storm. The agreement has allowed her a certain number of visits to the property prior to closing. On one of the visits two weeks before the closing, she notices that the shingles have not been repaired and the newer, stainless steel dishwasher has been replaced by an older white dishwasher. She also notices that there is damage to a wall that wasn’t there when Alice first viewed it. Identify the correct situation for the problem of change in the condition of the property. There are three options. There is only one correct answer. 1 2 3

The seller has replaced the dishwasher. The shingles have not been repaired. Damage to the wall.

©2019 Real Estate Council of Ontario

Lesson 9 | Page 8 of 20

Alice has purchased a home and has inserted a clause in the agreement that the seller would repair the shingles that had been damaged during a storm. The agreement has allowed her a certain number of visits to the property prior to closing. On one of the visits two weeks before the closing, she notices that the shingles have not been repaired and the newer, stainless steel dishwasher has been replaced by an older white dishwasher. She also notices that there is damage to a wall that wasn’t there when Alice first viewed it. Identify the correct situation for the problem of agreed-upon terms in the agreement of purchase and sale not fulfilled. There are three options. There is only one correct answer. 1 2 3

The seller has replaced the dishwasher. The shingles have not been repaired. Damage to the wall.

©2019 Real Estate Council of Ontario

Lesson 9 | Page 9 of 20

Sellers Ryan and Zoya ask their salesperson about the closing costs they would be responsible for in the statement of adjustments. A salesperson can say, “Adjustments are based on the closing day being apportioned to the seller.” to the sellers about closing costs. Determine whether the statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 9 | Page 10 of 20

Sellers Ryan and Zoya ask their salesperson about the closing costs they would be responsible for in the statement of adjustments. A salesperson can say, “Insurance premium is one of the adjusted costs between the seller and the buyer.” to the sellers about closing costs. Determine whether the statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 9 | Page 11 of 20

Sellers Ryan and Zoya ask their salesperson about the closing costs they would be responsible for in the statement of adjustments. A salesperson can say, “Property taxes are normally adjusted by the seller’s lawyer.” to the sellers about closing costs. Determine whether the statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 9 | Page 12 of 20

Sellers Ryan and Zoya ask their salesperson about the closing costs they would be responsible for in the statement of adjustments. A salesperson can say, “For any metered utilities, a reading is taken at closing and no adjustment is required.” to the sellers about closing costs. Determine whether the statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 9 | Page 13 of 20

Disbursing the deposit as directed by the parties documented in writing is an appropriate action for the listing brokerage to perform when a transaction does not close. Determine whether the statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 9 | Page 14 of 20

An appropriate action for the listing brokerage to perform when a transaction does not close is to disburse the deposit back to the buyer immediately. If there is any legal recourse, the deposit will be addressed at that time. Determine whether the statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 9 | Page 15 of 20

An appropriate action for the listing brokerage to perform when a transaction does not close is to delay the deposit disbursement for 30 days following written direction from both the seller and the buyer to ensure no additional legal action will be taken. Determine whether the statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 9 | Page 16 of 20

Gabriel and George Miller are excited to purchase an older property in an active market. Since many buyers are interested in the property, the Millers want to act fast and ensure they get their dream house. They want to install a pool shortly after the closing so that it will be ready for family activities in the summer. The salesperson should advise their buyers to insert a clause in the offer requesting that the sellers provide an up-to-date survey. Determine whether the statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 9 | Page 17 of 20

Gabriel and George Miller are excited to purchase an older property in an active market. Since many buyers are interested in the property, the Millers want to act fast and ensure they get their dream house. They want to install a pool shortly after the closing so that it will be ready for family activities in the summer. The salesperson should suggest to the buyers that they obtain a home inspection as the home is older. Determine whether the statement is true or false. There are two options. There is only one correct answer. True

False

Lesson 9 | Page 18 of 20

Gabriel and George Miller are excited to purchase an older property in an active market. Since many buyers are interested in the property, the Millers want to act fast and ensure they get their dream house. They want to install a pool shortly after the closing so that it will be ready for family activities in the summer. The salesperson should suggest to the buyers that they make an offer without a condition on obtaining finance to ensure the sellers accept their offer. Determine whether the statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 9 | Page 19 of 20

Gabriel and George Miller are excited to purchase an older property in an active market. Since many buyers are interested in the property, the Millers want to act fast and ensure they get their dream house. They want to install a pool shortly after the closing so that it will be ready for family activities in the summer. The salesperson should assure the buyers there will be no concerns regarding the installation of the pool because the house is on a big lot with a spacious backyard. Determine whether the statement is true or false. There are two options. There is only one correct answer. True

False

©2019 Real Estate Council of Ontario

Lesson 9 | Page 20 of 20

Congratulations, you have completed the lesson!

©2019 Real Estate Council of Ontario

Module Summary | Page 1 of 4

Module Summary

This lesson contains a summary of the entire module and a list of helpful resources available in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 2 of 4

Congratulations, you have completed this module! This lesson will present a summary of Learning Objectives and a list of helpful resources that you can search for in the Knowledge Management System.

©2019 Real Estate Council of Ontario

Module Summary | Page 3 of 4

There are eight sections on this page with a summary of the key topics that were discussed in this module.

Salesperson’s due diligence during the conditional offer period

As a diligent and organized salesperson, you can make the difference between a successful and an unsuccessful transaction. As a salesperson, you will have a range of duties to perform in the conditional offer period. The duties that apply to both the seller's and the buyer's salespersons include the following: arranging relevant documents, managing issues related to conditions, using appropriate documents when conditions are met, understanding risks of waiving a condition when it is not satisfied, and managing timeline requirements. Completion of this lesson has enabled you to: • Identify the due diligence requirements of both the buyer’s salesperson and the seller’s salesperson during the conditional time-period of an accepted offer Once an agreement is firm and binding, the bulk of the duties is handled by the lawyer. Yet, as a salesperson, you must be available to assist the seller or the buyer as required.

Salesperson’s due diligence obligations until Completion of this lesson has enabled you to: the transaction • Identify the continued due diligence requirements of both the buyer’s salesperson closes and the seller’s salesperson until the day of closing

Title conveyance

• Identify the role of both salespersons on the day of closing As a salesperson, you will not be carrying out the closing process. However, you must understand the fundamentals of the closing process and the various terms associated with it. You may be required to explain aspects related to the closing process to the seller or the buyer and must be able to do so competently. The buyer’s lawyer conducts title and non-title searches to confirm the ownership of the property and to identify if there are any problems related to the title or other aspects of the ownership. The seller’s lawyer responds to the requisitions made by the buyer’s lawyer seeking suitable action on certain items. The seller’s lawyer also prepares the statement of adjustments. ©2019 Real Estate Council of Ontario

Costs associated with title conveyance

Trust account requirements

Completion of this module has enabled you to: • Describe the title conveyance from both the seller's and buyer's perspectives • Identify the purpose of a statement of adjustments As a salesperson, you must have knowledge of closing costs for the seller and the buyer. Two buyer’s costs discussed in detail were title insurance and land transfer tax. As a salesperson, you should know how the land transfer tax is calculated. Completion of this module has enabled you to: • Identify closing costs for the buyer • Explain how land transfer tax is calculated • Describe the features of title insurance • Identify closing costs for the seller All brokerages must abide by REBBA guidelines while handling the buyer’s deposit in the statutory trust account. The most frequently encountered disbursements from the real estate trust account are: return of the excess deposit; offer not accepted but the deposit placed in the brokerage’s trust account; offer accepted but deposit returned with mutual release, typically due to a condition not being fulfilled; unclaimed deposits; court order; and remuneration disbursements. Remuneration disbursements are usually made through the remuneration or commission trust account. Some brokerages may not have this type of account. The brokerage must receive a written notification from the lawyer about the sale being completed before issuing a cheque from the real estate trust account payable to the commission trust account. As a salesperson, you must know the difference between the real estate trust account and commission trust account, and the benefits of the RECO Insurance Program. REBBA requires every trade to be documented. The trade record sheet has minimum required information and is a snapshot of the entire transaction. Important information

©2019 Real Estate Council of Ontario

being documented typically relates to the handling of the buyer’s deposit and the disbursement of remuneration. You should maintain a copy, both as a matter of record and evidence regarding the remuneration payable to them.

Pre-closing issues

Completion of this lesson has enabled you to: • Identify the requirements under REBBA for a brokerage’s real estate trust account • Identify the purpose of a brokerage’s remuneration or commission trust account and the procedures to disburse remuneration • Identify the requirements for a brokerage to document trade activities Certain problems may come up that can delay or threaten to end a transaction. For example, the title search may reveal an undisclosed easement or a pending work order that may cause a delay in the closing. As a salesperson, you should demonstrate proactive behaviour, such as alerting your sellers or buyers regarding possible issues that can affect the closing of a transaction. For example, if the buyer is making an expensive purchase that may affect their credit score, you should advise them appropriately.

Next steps if a transaction does not close

Completion of this lesson has enabled you to: • Describe issues that can occur prior to a transaction closing • Describe leading practices of a salesperson to address challenges affecting closing • Describe how issues could be resolved to ensure a transaction closes A transaction failing does not end your duties as a salesperson. You will assist the seller or the buyer with duties such as managing documents related to mutual release, co-ordinating with the seller's or buyer's lawyer, and helping the seller re-list the property. You must know a brokerage’s requirements when a transaction does not close: • If both the seller and the buyer sign the mutual release, the brokerage is required to disburse the deposit as soon as possible. A brokerage’s dispute regarding the transaction cannot delay the release of the deposit. • Similarly, in the case of legal conflict between a seller and a buyer, the brokerage may not release the deposit until written instructions are received, such as the directions of a court order.

©2019 Real Estate Council of Ontario

After closing

Completion of this lesson has enabled you to: • Describe how a buyer’s deposit is dealt with when a transaction does not close • Identify a salesperson’s duties when a transaction does not close As a salesperson, you will be required to stay organized and maintain accurate records, even after the closing of a transaction and payment of remuneration. The leading practices you may adopt to ensure that your success in the field continues: • Maintain credibility with clients or customers: Follow-up with your seller or buyer to enquire if they are satisfied with your services and if there are any pending issues that you can resolve. Ask them to subscribe to your email newsletter and wish them well on the anniversary of their sale. Encourage them to call you if they have a realestate query • Seek expert advice: When you need financial, investment, or taxation counselling, seek out professionals who can guide you appropriately. Keeping a working relationship with experts can be invaluable, as you would be able to contact them not just for your own personal requirements, but also to seek guidance should the need arise during a particular transaction • Set up a filing system: Maintain a general file for every transaction, so that you can easily refer to any piece of documentation that was used during the transaction • Make appropriate and timely remittances to CRA: Develop a bookkeeping system that will track income and expenses and record and notify you regarding CRA remittance requirements Completion of this lesson has enabled you to: • Describe leading practices for a salesperson to manage their career

©2019 Real Estate Council of Ontario

Module Summary | Page 4 of 4

Module Resources There are seven helpful resources related to this module that you can search for in the Knowledge Management System. 1. Moving Considerations for Sellers and Buyers: This guide outlines many small details involved with a move, including timing, insurance, household, and personal implications. The salesperson can refer to this list as part of their due diligence and use it to encourage a comprehensive approach to the real estate transaction. 2. Brokerage Remuneration Disbursement Process: This flowchart outlines the steps taken to disburse remuneration upon completion of a trade. This can help the salesperson understand when remuneration can be expected to reach various parties. 3. Title Insurance Risk Coverage: This guide includes examples of risks that are typically covered under title insurance relating to defects and/or validity of title. This is not an exhaustive list, but it includes some commonly encountered risks. A salesperson can use this guide to have high-level discussions on title insurance with their buyer. Disclaimer: Registrants are not qualified to provide legal or insurance advice to their clients. Salespersons should urge the clients to seek professional advice prior to acting on the information contained herein. 4. First-time Home Buyers Land Transfer Tax Refund: This job aid outlines the eligibility criteria for a land transfer tax refund of up to $4,000 for a first-time homebuyer. A salesperson who works with first-time homebuyers needs to know the eligibility criteria for a land transfer tax refund. Disclaimer: A salesperson should consult the Ontario Ministry of Finance website for the full list of criteria. 5. Closing Costs Guide: This guide outlines the typical closing costs related to a real estate transaction. In a real estate transaction, costs can vary significantly depending on the property, location, and other circumstances. This guide can help the salesperson to identify common closing costs that a seller and buyer may incur on completion of a real estate transaction. 6. Statement of Adjustments: This document contains an example of a statement of adjustments in a balance sheet format. This information will help a salesperson to explain adjustments to their client in anticipation of the final closing of a transaction. 7. Lawyers' Roles in the Closing Process: These flowcharts summarize the closing process. They can help the salesperson identify which lawyer is responsible for specific tasks required for title transfer and conveyance.

©2019 Real Estate Council of Ontario

While navigating through the online module, click the KMS button for tools and information on this topic.

©2019 Real Estate Council of Ontario