Wednesday, June 28, 2023

A recent analysis of a Manitoba case (Real Estate Agent Not Liable For Opinion Of Value) makes for interesting reading. In dispute was a significant difference between an opinion of value made by a REALTOR® and a formal appraisal prepared by a certified appraiser, including the value determined and the time and costs involved. At issue was property co-owned by separating spouses.

The case made me think about the difference between opinions arrived at in different places and how opinions change depending on where and how a dispute is judged. The judgment may be made in the courts, by the regulators, by the professional associations, or in the court of public opinion.

Specifically at issue was a $300 REALTOR®-generated “opinion of value” versus a fee appraisal costing a lot more that was provided to one of the owners of a Manitoba farm.

In this case, the Manitoba judge decided, “You get what you pay for.” I doubt that decision gave the claimant much joy.

The Realtor explained the difference between a Realtor valuation and fee-appraisal to the seller. I think this made a difference, by the way. The seller chose the Realtor valuation. We call a “valuation” or an “opinion of value” a comparative market analysis or a CMA. You know, where you interrogate Paragon for recent sales, expireds, and current listings that are similar to the subject property.

We regularly prepare CMAs for buyers, to establish their range of affordability (or to establish that they can’t afford the place they really want), and for sellers, to establish what price their place might fetch if it had a really good real estate agent like you working for them.

I used to find the whole process an exercise in futility. Why? Because whatever approximate price range I came up with was never enough for the seller. Commonly they’d say something like, “Let’s go strong on the price first; we can always come down,” or, “Let’s see how things go at my price,” or “I’ve worked too hard to fix this place up and pay for it. I’m not going to give it away,” or, “I understand, but I want this number,” or, “There’s a place in West Vancouver just like mine here on Knight Street and if they can list for this much, so can we.” Sigh.

"What do you think would have happened had the case had been heard in a BC court? Or in front of the BC Financial Services Authority (BCFSA)? Or at a hearing of the Board’s Professional Conduct Committee? They are not bound by the same set of rules. They are entitled to make more subjective decisions."
Ethics Guy® Kim Spencer

Consequently, I was really good at getting overpriced listings, not well-priced ones, which is one reason I went into brokerage management. Everyone has a skill set. Mine was management, not getting saleable listings.

Which brings me back to the Manitoba case. The Realtor did explain to the seller the difference between a Realtor valuation and fee appraisal (I think this made a difference in the judge’s decision, by the way.) The seller chose the Realtor valuation. The two spouses then started negotiating who would get what in the division of their property. Their decision was based, in part, on the Realtor’s opinion of value.

Soon after, a formal property appraisal from a fee appraiser (costing much more money) was done and, you guessed it, one of the spouses was pretty annoyed that the Realtor’s value and the appraisal’s value differed—and not in a way that benefited them.

The Realtor was hauled into court. The judge said of the seller, “You get what you pay for. There’s a difference between paying $300 for a Realtor’s valuation and $3,000 for a full-on appraisal.” End of story.

Or is it? Courts operate in a parallel universe, relying on precedent, statute, and whatever the judge thinks is fair. Court decisions can sometimes be hard to fathom, at least for a person in the street. What do you think 10 passers-by would say if you told them the story? I’d bet some of them would wonder about the Realtor’s proficiency at preparing accurate CMAs.

Would they accept the judge’s reasoning? Some would, some wouldn’t, I suppose.

What do you think would have happened had the case had been heard in a BC court? Or in front of the BC Financial Services Authority (BCFSA)? Or at a hearing of the Board’s Professional Conduct Committee? They are not bound by the same set of rules. They are entitled to make more subjective decisions.

"What’s the price of your reputation? What’s the value of our collective reputation? Cases like this don’t help how we are viewed, even though this time, the judge found for the Realtor."
Ethics Guy® Kim Spencer

And what about anyone reading the story on social media? What would they have thought? There, kindness certainly isn’t a first impulse.

In this case, and probably to the Realtors relief, their brokerage likely had errors and omissions insurance. Since no money was paid out, the insurer probably paid the full cost of defending the Realtor without any contribution from the Realtor or their brokerage. Remember though, getting defence coverage insurance for boards/associations and regulators’ investigations and hearings is difficult and pretty uncommon. You likely don’t have that kind of coverage. That means  it’s your own nickel when you’re duking it out at the Board or BCFSA.

So what’s the lesson to be learned here? I suggest you read the case and think about the possible consequences. What’s the price of your reputation? What’s the value of our collective reputation? Cases like this don’t help how we are viewed, even though this time, the judge found for the Realtor.

REALTOR® Code Article 12 – Skilled and Conscientious Service, seems relevant. If the seller were to make a complaint to the local Board’s Professional Conduct Committee, you think the committee would conclude, “Nah, nothing to see here folks—the member only charged the seller $300 bucks. If they’d charged more, maybe we’d think differently. And besides, it was just an opinion of value, not an appraisal.” Tongue in cheek, obviously, but it’s an interesting question to ponder. And one to keep in mind when giving property evaluations to buyers and sellers. Make sure you clearly explain to them the difference between your valuation and an appraiser’s.

A REALTOR® shall render a skilled and conscientious service, in conformity with standards of competence which are reasonably expected in the specific real estate disciplines in which the REALTOR® engages. When a REALTOR® is unable to render such service, either alone or with the aid of other professionals, the REALTOR® shall not accept the assignment or otherwise provide assistance in connection with the transaction.

12.1 Where a REALTOR® lacks sufficient expertise, he or she may only provide the service with the assistance of another professional who is properly qualified.

12.2 A REALTOR® shall not provide an Opinion of Value if it is outside the REALTOR®’s field of expertise to do so unless this fact is disclosed in writing to the Client or assistance is obtained from another Person who has experience in this area.

12.3 A REALTOR® shall not perform an Appraisal or Opinion of Value on a property in which the REALTOR® has a present or contemplated interest without first disclosing this fact to the Client.

12.4 Fees charged for Appraisals or Opinions of Value shall not be based on the amount of value reported.

12.5 A REALTOR® shall not perform an Appraisal unless he or she has the appropriate training.

You can read the case at Spencer v. Hutton et al., 2023 MBKB 16 (CanLII). For a full analysis of the case, see Real Estate Agent Not Liable For Opinion Of Value, in Mondaq News, June 15, 2023.