The mortgage sector is closely watching developments in the ongoing debacle
Brokerage standards and regulatory gaps in Ontario’s real estate industry are in the spotlight as the iPro Realty scandal rumbles on, with the sector still reeling from the revelation of a reported shortfall of around $8 million in trust accounts at the company.
That debacle saw funds for real estate commissions and downpayments allegedly used for operating expenses and payments to investors – and the provincial real estate regulator, the Real Estate Council of Ontario (RECO) is also taking heat.
That’s because RECO initially didn’t charge the brokerage after learning of the shortfall, with the company’s trust account only frozen in August, four months after the original discovery. Ontario Provincial Police have now commenced an investigation into iPro.
A lawsuit launched by private lenders in Ontario’s Superior Court of Justice on August 20, meanwhile, claims iPro owes them more than $4 million in loans dating back to at least 2019.
The scandal erupted a mere matter of years after Ontario’s auditor general said in a value-for-money audit of RECO in November 2022 that the regulator “has not been fully effective” in protecting the interests of consumers involved in a real estate transaction.
That report indicated areas where RECO could step up consumer protection for real estate buyers and sellers, particularly in comparison to British Columbia.
Implications for the mortgage industry
The furore has been closely followed by members of the mortgage industry, many of whom work with realtors, agents and real estate brokerages throughout the mortgage process.
John Lusink (pictured below), president and broker of record at real estate brokerage giant Right at Home Realty, told Canadian Mortgage Professional the scandal underscores the need for mortgage brokers and agents to exercise plenty of due diligence in their choice of real estate partner.
“Every time we have a mortgage firm that reaches out and wants to partner up with one of our brokerages, I have to chuckle when they say, ‘We want to work with everybody,’” he said. “My answer usually is, “‘No – you don’t.’
“You want to work with people that are active, that are busy, that have a well-established practice, and you need to understand how they work and how you can help them.”
That might be easier said than done. Before its closure, iPro was one of Ontario’s best-known real estate firms, and its closure order by RECO triggered 2,400 layoffs. But Lusink said it’s still important for mortgage brokers to get as much information as possible about companies they want to work with before shaking hands.
“I think experienced mortgage agents and those entering in who are relatively new need to take the time to interview and meet with agents,” he said. “Take the manager or get the list off the internet. It’s easy enough to sit down and have a chat and find out if that’s someone they want to work with.
“Don’t take the approach of, ‘You absolutely need to work with everybody.’ That’ll just bring you to the wrong people. Everybody seems to be in such a hurry to rush into stuff. Slow it down, get to know them, and build a solid relationship with a few good people.”
Are education standards lacking in real estate?
A longstanding issue facing the real estate industry separate from the iPro scandal, according to Lusink, is one that will be familiar to the mortgage sector: the perception that it’s too easy to become an agent, and that education standards are too lax.
When RECO assumed responsibility for agent education from the Ontario Real Estate Association (OREA), he said, the hope was that it would strengthen those standards.
“In fact, if anything, they made it easier,” he said. “Within a few months, you can be good to go. If you want to fast-track it, it’s three months. One of the biggest changes over the last 10 years is the influx of people for whom this is just sort of a sideline.
“That’s created a whole other layer of inexperienced people. Education hasn’t adapted to that. If you were someone who said, ‘Hey, I’m not planning on doing this full-time,’ well, maybe there should be a longer probationary period or something different. But those are all things that nobody’s addressed. And so it’s a little bit of the Wild West at the moment.”
