Turf war heats up between real estate disruptor and industry establishment – CBC.ca
An Ottawa entrepreneur who pleaded guilty to fraud charges over fudged car loans in 2009 is back in court — this time as a plaintiff accusing three trade associations of trying to damage the reputation of his latest venture and exile the self-styled disruptor from the real estate industry’s established turf.
Michael Ryan O’Connor, who’d previously run into legal trouble as the owner of a chain of used car dealerships in Ontario and Quebec, is currently the founder and CEO of Unreserved, an online real estate auction platform that allows people to buy and sell homes like an outsized eBay.
In a civil suit filed mid-July, O’Connor’s company alleges the Ottawa Real Estate Board (OREB), Ontario Real Estate Association (OREA) and Canadian Real Estate Association (CREA) made defamatory statements about Unreserved in an attempt to scare consumers away from the outfit’s novel approach to selling homes.
It also alleges the three organizations — which together represent and oversee every registered real estate agent and broker in the nation’s capital and run the exclusive central listing network for properties known as the Multiple Listing Service (MLS) — unfairly lobbied regulators to close a decades-old legal exemption essential to Unreserved’s operations.
OREB, OREA, and CREA have all stated they believe Unreserved’s claim is without merit.
None of the allegations have been proven in court.
Meanwhile, CBC has uncovered court documents dating back more than a decade, detailing how the province once revoked O’Connor’s licence as a motor vehicle salesperson, after he pleaded guilty to two counts of fraud related to inflating buyers’ incomes to help them qualify for used car loans they couldn’t afford. The RCMP raided one of O’Connor’s Find-A-Car dealerships and built a case against him after hundreds of customers complained about unmanageable debt in 2007.
“I paid the price. I lost everything,” said O’Connor, who performed community service and served six months’ house arrest as part of his conditional sentence.
O’Connor said he believes he has since rebuilt his credibility — first by pivoting to an online dealer-to-dealer vehicle auction platform, and now a similar model for real estate.
As the new legal battle brews, real estate law experts say the current case reveals several competing interests — consumers’ desire for greater price transparency in an era of sky-high home prices and blind bidding; the billions of dollars of commissions and fees at stake for real estate agents; and the limits of regulation when it comes to protecting consumers and enforcing a code of ethics within the industry.
As a result, observers say the legal fight could be pricey and protracted.
Online real estate bidding draws industry ire
Founded in 2021, Unreserved bills itself as a disruptor in the real estate industry.
The tech startup raked in nearly $34 million in venture capital in early 2022, and has purportedly auctioned more than 250 properties in Ottawa and a handful of other cities in Ontario using an unconventional method that has sparked a backlash from the traditional real estate establishment.
On the company’s website, listings ranging from $250,000 condos to million-dollar detached homes are bid on and bought in real-time auctions “with the click of a mouse,” O’Connor explained.
Prospective buyers can register bids in increments as low as $2,500, after submitting a mortgage pre-approval from a bank.
While traditional realtors are prohibited by law from sharing the contents of competing bids for a home, Unreserved allows participants to see the entire bid history.
The site is able to do this by exploiting an exemption in Ontario’s Real Estate and Business Brokers Act (REBBA) that allows auctioneers to buy and sell real estate outside of typical regulations for brokers.
The broad exemption dates back to the 1950s and was originally intended to be used to auction family farms.
OREA, one of the largest lobby groups in Canada with more than 90,000 members across dozens of real estate boards, called the auctioneers’ exemption “a loophole with frightening implications for unsuspecting consumers trying to buy a home” on its website in June.
OREA also commissioned a survey, citing “70 per cent of Ontarians support the regulation of auctioneers who would sell homes in an open bidding process.”
The association declined to grant an interview to CBC, but CEO Tim Hudak said in a statement that auctioneers trading in real estate has “serious negative consequences” for consumers.
“OREA won’t be intimidated from standing up to protect Ontario home buyers and sellers,” the statement read.
The other two groups named in Unreserved’s lawsuit — OREB and CREA — have also warned consumers about using an online auction platform to buy and sell homes.
“We feel it was a collaborative effort on all fronts to pressure the government to get rid of [this exemption],” said O’Connor.
“They’re doing it all in the name of consumer protection … and when you peel the layers back, it’s just false.”
The civil claim alleges that OREB, OREA, and CREA contacted the Real Estate Council of Ontario (RECO), the province’s real estate regulator, and later the minister of government and consumer services to lobby for Unreserved’s business to be shut down.
OREB and CREA both declined an interview with CBC.
Billions of dollars at stake
Mark Morris, a real estate lawyer and a former instructor at the Ontario Real Estate College who is uninvolved in the case, said a court battle over the auctioneers’ exemption is inevitable because “there’s money in it.”
“If this starts disrupting the tens of billions of dollars that is real estate,” said Morris, “people will try every avenue because the cost of attempting this pales in comparison to the pot of gold at the end of the rainbow.”
Morris added that real estate associations are naturally protective of their control on the industry like any other regulated profession, such as law and medicine.
“In fact that’s kind of their job,” he said. “They are representing a bunch of people who derive great benefit through exclusivity.”
Founder charged with fraud
This latest lawsuit is not O’Connor’s first run-in with consumer protection laws.
In the early 2000s, he ran a small chain of used car dealerships registered under the name Find-A-Car Auto Sales & Brokering Inc.
In 2007, the RCMP obtained a search warrant for the Kingston location of Find-A-Car and seized items from the premises.
O’Connor was later charged with 11 counts of fraud over $5,000, forging documents and global fraud over $5,000 following complaints from hundreds of customers who alleged they faced financial ruin after signing car loans with Find-A-Car.
The charges stated that O’Connor’s business had “knowingly [obtained] credit for people who would not qualify nor be able to repay their liability, using false statements in writing to financial institutions.”
In December 2009, O’Connor pleaded guilty to two counts of fraud over $5,000. He received a conditional sentence of two years less a day, the first six months of which were served under house arrest.
Find-A-Car ceased operations and O’Connor testified that he liquidated his inventory to pay down bank loans related to the business.
In 2011, the License Appeal Tribunal of the Ontario Motor Vehicle Industry Council (OMVIC), which regulates all motor vehicle sales in the province, revoked O’Connor’s registration, effectively stripping him of the right to sell cars.
“His past conduct gives reasonable grounds to believe he will not carry on business in accordance with law and with integrity and honesty,” wrote the tribunal in its decision.
O’Connor now says he “took full ownership of everything that happened in that business.”
“Twenty years ago I made some mistakes,” he said. “I surrounded myself with some of the wrong people.”
In 2016, O’Connor founded EBlock, an online dealer-to-dealer vehicle auction platform, and has since re-registered to sell cars.
“I was able to get a second chance and … pivot towards tech,” he said.
Wholesale auctions are exempt from the Motor Vehicle Dealers Act and do not need to be registered.
The business saw rapid growth and its parent company, E Automotive Inc., launched an initial public offering on the Toronto Stock Exchange in 2021 valued at more than $1 billion.
O’Connor said he sold most of his position in the company and has resigned from its board.
He would not share how much he made from EBlock, but called the profits “life changing.”
His latest business venture, Unreserved, applies a similar online auction philosophy to real estate.
WATCH | Lawsuit puts real estate auctions in the spotlight
Consumer protection core issue for industry
At the centre of the legal fight as disruptors like Unreserved attempt to take a share of the real estate market is consumer protection, observed another industry legal expert.
The Real Estate and Business Brokers Act — which auctioneers can bypass — is fundamentally a consumer protection law, explained David Carter, who teaches at York University’s Osgoode Hall Law School.
Operating as a broker comes with licensing, insurance and training requirements.
“The real purpose here is to make sure anyone purporting to help the public buy and sell real estate knows what they’re doing,” said Carter, “and there’s accountability when they don’t.”
Similar to OMVIC’s role in the world of auto sales, the Real Estate Council of Ontario has the power to levy severe penalties on realtors or brokers that violate its code of ethics or break the law. This can include fines of up to $50,000 and jail time up to two years less a day.
Carter adds that the auctioneer loophole is a “very broad, carte-blanche exemption.”
“So if you can fall under that global exemption, you can almost do whatever you want.”
‘At your own risk’
The legal section of Unreserved’s website includes numerous disclaimers.
“Your use of the website is at your own risk,” states the site’s terms and conditions.
Unreserved’s purchase agreement states that properties are sold “as-is” and “with all faults.” The buyer is responsible for verifying property boundaries and for retaining their own lawyer if they are not represented by a real estate agent.
Unreserved advertises its homes as being inspected prior to the auction and includes a brief inspection report as part of each listing on its website.
In traditional home sales, buyers often include an inspection clause in their purchase offer and pay for an independent inspection themselves. Unreserved’s terms state that buyers must accept any so-called patent defects which would have been discoverable by the buyer during an inspection of the home.
“They don’t want to be tied into any representations, any warranties … anything that they can get sued on in a transaction,” said Carter.
Unreserved offers a one-year, $100,000 limited warranty for the properties sold on its site.
When asked about the consumer protection measures Unreserved has in place, O’Connor said that deposits from winning bidders are stored in the trust account of a co-operating brokerage.
After that, he said, the risk is low because “the lawyers are the ones that do all the work.”
“When that hammer drops, everyone washes our hands and the paperwork’s gone to the lawyers.… The lawyers are the ones that are really protecting the buyer, protecting the seller, making sure the transaction goes smoothly,” O’Connor said.
Build Rentals/Apartments: Ownership is a Privilege and Not A Right
The availability of apartments and units that can be rented is staggeringly low. Because vacancy is so tight, competition in the open market has intensified, lifting rental prices along the way. In Canada, rent for a two-bedroom unit rose 5.6% in 2022. Some of the highest rental prices were recorded in Ottawa-Gatineau at 9.1%, Toronto at 6.5%, and Calgary at 6%.
Less housing stocks, higher prices. The marketplace and our elected officials all knew this would happen. Real Estate Agencies and land developers all but jumped for joy at the prospect of selling homes that sold for $350,000 a few years ago, and are now selling for 3X the amount. Bidding wars drive prices higher and higher. Developers who make a home at @$195,000 cost sell these homes as affordable within the 650-1M range.
So much for independent home units. What about apartment buildings? Are they being built? In Quebec they are but not in the # needed. Europeans are comfortable with renting an apartment for decades, but not so in the rest of Canada. Status, and keeping up with the “joneses” have been all the rage. First-time home buyers will spend decades gathering enough funds to make an initial deposit if the bank so allows it. Why do developers not build rental units/apartments? Well, developers would need to look upon such builds as long-term investments, waiting some time to get back their costs and make some profit. Building other types of homes guarantee them immediate compensation, gratifying their profiteering.
Why do regional, City, and Provincial Governments prefer housing builds of larger houses? The revenue they make of course. Even Premier Ford’s push to have 50,000 houses built in a few years centers upon individual homes being sold, not rented(aftermarket). Has our economic system forgotten the small fry, the average Canadian who does not make a salary over $100,000 annually? Yes, it has, and the reason for this forgetfulness is that the wealthy and mid-level middle class hold greater influence on these elected officials. They are the same people, while the dirty unwashed working stiff has very little in common with real estate agents, developers, and elected officials too. A true class system with regard to housing exists in Ontario and Canada. Are the New Democrats crying out loud for reforming this system? No, they are not. They want to represent the higher-ups. those with excess revenue and economic purchasing power.
Rental Units are Needed Stupids. A housing revolution is needed not just in Ontario but across this land. Why won’t the government put its hands into the direct building of these units? They have the funds, and the regulations to make sure these units are made appropriately and in a timely manner. The very power of the elite, real estate, and developers lobby will always sway our elected officials away from competing with these financial aggressors. In 2016 548 formers members of a government in Canada registered as lobbyists, often representing the wishes of those who once were their suppliers(developers). What am I saying? Perhaps many of our elected representatives have been padding their pocketbooks and ensuring their future careers in well-paid jobs. Corruption? Find out how much an MPP or MP was worth when they started their position, and after 4-5 years what are they worth???
Only the average Canadian, worker, student, or elderly who cares about their children’s future, can force this issue before the politicians in Ottawa, Toronto, and through out Canada. Protests like those that happened in Ottawa last spring could really change the way our representatives represent us. A wee Revolution we need indeed.
Housing and shelter are human rights. Right? So get off your couch and gather with like-minded neighbors to demand real affordable housing, and build nonprofit apartments too.
Homebuyers move swiftly to ‘lock in a good deal now’: Mortgage rates continue to melt as economists dream of a real estate ‘rebound’ in spring
Mortgage rates are still falling as the Fed announced another quarter-point rate hike on Wednesday — and indicated increases may be nearing their long-awaited end.
In the meanwhile, the homebuyer front is seeing “improved purchase demand and stabilizing home prices,” says Freddie Mac chief economist Sam Khater.
“If mortgage rates continue to slide over the next few weeks, look for a continued rebound during the first weeks of the spring homebuying season.”
Khater and other experts are anticipating more buyers will return to the market as rates become more affordable. However, that doesn’t mean housing prices are going to subside anytime soon.
30-year fixed-rate mortgages
The average 30-year fixed rate slid further to 6.42% this week, compared to last week’s average of 6.60%.
A year ago at this time, a 30-year home loan averaged 4.42%.
“With rates below 6.5%, more Americans can purchase the median-price home by putting 18% down without being cost-burdened,” says Nadia Evangelou, senior economist for the National Association of Realtors (NAR).
Evangelou anticipates the housing market to rebound even faster than expected if mortgage rates continue their decline this spring.
15-year fixed-rate mortgage rate trend
The average rate on a 15-year home loan tumbled from 5.90% to 5.68% this week. This time a year ago, the 15-year fixed-rate averaged 3.63%.
Hannah Jones, economic research analyst at Realtor.com, notes that despite the Fed’s softened stance on additional rate hikes, the federal funds rate will still remain fairly high — “meaning that a higher interest rate environment is here to stay for the time being, including for home loans.”
Jones says that while buyer demand is increasing due to slightly lower financing costs, many Americans are still grappling with affordability challenges.
“At the current price and mortgage rate level, the typical housing payment on a median-priced home is still 36.4% higher than one year ago.”
U.S. home sales pick up in February
There was an unexpected uptick in new home sales in February, inching 1.1% from January to an annual pace of 640,000 new home sales, reports Realtor.com. This is still 19% lower compared to the housing market a year ago, but sales may continue to rise as mortgage rates fall.
“Higher mortgage rates are the new normal, which leaves home shoppers measuring their willingness to participate in the market with each change in rates,” writes Jones.
She adds that sales activity is becoming increasingly concentrated toward new homes that haven’t been started yet — making up about 23% of new home sales in February, compared to 17% in January — suggesting that “buyers are looking to lock in a good deal now, before construction has started.”
Although lower mortgage rates signal increased affordability, the median new home sale price climbed to $438,200 last month — 2.5% higher than the same period last year.
“As long as the housing market remains undersupplied, buyer competition will put upward pressure on prices,” explains Jones.
Mortgage applications continue to rise
Demand for mortgages rose 3% from last week, according to the Mortgage Bankers Association (MBA).
Homeowners have also been more encouraged to refinance — thanks to lower rates — with the refinance index climbing 5% since the week prior.
“Both purchase and refinance applications increased for the third week in a row as borrowers took the opportunity to act, even though overall application volume remains at relatively low levels,” says Joel Kan, vice president and deputy chief economist at the MBA.
Kan notes that mortgage rates haven’t plunged as drastically as Treasury rates due to increased volatility in the mortgage-backed securities market.
What to read next
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
Commercial real estate is in trouble. A banking crisis will make it worse.
If there is anything commercial real estate owners don’t need right now, it’s a banking crisis.
Big owners of property around the country were already under pressure from the Federal Reserve’s aggressive campaign to raise interest rates, which raised borrowing costs and lowered building values. They also had lots of space still sitting empty in city centers as a result of more hybrid and remote work arrangements resulting from the pandemic.
Now they face the prospect that beleaguered banks, especially smaller ones, could get more aggressive with lending arrangements, giving landlords even less room to breathe as they try to refinance a mountain of loans coming due. This year, roughly $270 billion in commercial mortgages held by banks are set to expire, according to Trepp, and $1.4 trillion over the next five years.
“There were already liquidity issues. There were fewer deals getting done,” Xander Snyder, First American senior commercial real estate economist, told Yahoo Finance in an interview. “Access to capital was getting scarcer, and this banking crisis is almost certainly gonna compound that.”
Most of the banks that hold commercial real estate mortgages are small to mid-sized institutions that are experiencing the most pressure during the current crisis, which began this month with the high-profile failures of regional lenders Silicon Valley Bank and Signature Bank. The pressure on regional banks continued Friday, stoked by intensifying investor pressure on German lender Deutsche Bank as the cost to insure against default on its debt soared.
Smaller banks began ramping up their exposure to commercial real estate in the aftermath of the 2008 financial crisis, which was triggered by a housing bust, and stuck with it even after the pandemic emptied out many city-center properties and other forms of borrowing provided by commercial mortgage backed securities and life insurers dried up.
Signature was among the banks that made some of these bets, becoming an aggressive lender in New York City to office towers and multifamily properties. By the end of 2022 it had amassed nearly $36 billion in commercial real estate loans, half of which were to apartments. That portfolio comprised nearly one-third of its $110 billion in assets.
More than 80% of all commercial real estate loans are now held by banks with fewer than $250 billion in assets, according to a report by Goldman Sachs economists Manuel Abecasis and David Mericle. These loans now comprise the highest percentage of industry loan portfolios in 13 years, according to John Velis of BNY Mellon.
“There’s a lot of commercial real estate that’s been financed over the last few years,” BlackRock Global Fixed Income CIO Rick Rieder told Yahoo Finance on Wednesday. “When you raise rates this quickly, the interest-sensitive parts of the economy, and particularly where there’s financing or leverage attached to it, then that’s where you create stress. That’s not going away tomorrow.” Commercial real estate, he added, doesn’t represent the same type of systematic risk to the economy as housing did during the 2008 financial crisis but there are “isolated pockets that can lead to contagion risk.”
Two early warnings of the danger that rising interest rates pose to commercial real estate came last month. Giant landlord Columbia Property Trust defaulted on $1.7 billion in floating-rate loans tied to seven buildings in New York, San Francisco, Boston and Jersey City, N.J. That followed a default by giant money manager Brookfield Asset Management on more than $750 million in debt backing two 52-story towers in Los Angeles.
Forced sales of more trophy buildings at large discounts are expected in the coming years as owners struggle to refinance at affordable rates. “Sellers will want the price that everyone was getting [back] in December 2021, and buyers are kind of even afraid to buy something right now cause they don’t even know what the price of these buildings are,” Snyder said.
Banks were already squeezing terms on commercial real estate loans before this month’s chaos. According to the Federal Reserve’s latest senior loan officer opinion survey, nearly 60 percent of banks reported tighter lending standards in January for nonresidential and multifamily property loans.
“Bank lending standards had already tightened significantly over the last few quarters to levels previously unseen outside of recessions, presumably because many bank risk divisions shared the recession fears that have been widespread in financial markets,” according to a note last week from Goldman Sachs. More tightening of lending standards expected as a result of new bank stresses could slow economic growth this year, Goldman said.
Fed chair Jerome Powell agreed with that view at a Wednesday press conference following the announcement of another rate hike. He said he also anticipates a tightening of credit conditions as banks pull back, which will help cool the economy. “We’re thinking about that as effectively doing the same things that rate hikes do,” he said.
But he said regional banks with high amounts of commercial estate loans were not likely to become the next Silicon Valley Bank.
“We’re well aware of the concentrations people have in commercial real estate,” he said. “I really don’t think it’s comparable to this. The banking system is strong. It is sound. It is resilient. It’s well-capitalized.”
The larger commercial real estate world is still absorbing the shock of the Fed’s aggressive campaign, according to Marcus & Millichap CEO Hessam Nadji. The effects may not pose a systemic risk, he added, but they will add to the industry’s many challenges.
“Commercial real estate has been through a pandemic, very rapid recovery, then massive tightening of financial conditions unlike anything we’ve seen in modern history,” he told Yahoo Finance Thursday. “The last three years have moved the industry through a significant rollercoaster.”
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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