The dangers of real estate auction sales

Editor's Note

This article was sponsored by Soloway Wright LLP.

Ottawa residents may have noticed a new way to buy and sell residential properties: online real estate auction sales. Online real estate auction sale companies aim to disrupt the traditional buying and selling process by charging less than the standard real estate agent commission and by allowing potential buyers, or “bidders”, to see what other interested buyers are offering for the property. While the option to auction may seem appealing, interested parties should be aware of the risks.

While the perceived perks of listing or bidding on a property on an auction site may be attractive, buyers and sellers should be aware that real estate auction sale sites are not currently regulated. In contrast, real estate agents and brokers are regulated under the Real Estate and Business Brokers Act (the “Act”) which is enforced by the Real Estate Council of Ontario (“RECO”). Unlike auction sale websites, prospective real estate agents must complete courses to become licensed. Once licensed, they must undertake annual continuing education and be employed by a brokerage overseen by RECO.

Further, RECO ensures that all real estate brokers and agents are insured and that they follow a Code of Ethics. RECO enforces the Act and the Code of Ethics, such that real estate agents who fail to comply are subject to disciplinary measures. These additional protections are not available when buyers and sellers engage a real estate auction sale website.

While auction sale websites may bill themselves as a transparent alternative to the traditional buying and selling process, this transparency does not extend to the auction companies themselves. As they are unregulated, buyers must trust that auction sites are being run responsibly and ethically, without being able to rely on enforcement by RECO if they are not.

Finally, buyers and sellers have limited recourse if something goes wrong. Real estate auction sales are essentially private agreements and so the primary recourse would be through the Court. However, success in Court may be limited because, often, the agreements prepared by auction sale websites contain limitation of liability and indemnity clauses which protect the website to the detriment of the buyer and seller.

Considering the foregoing, real estate auction companies evoke the timeless phrase: “buyer beware”. Buyers and sellers should always consult a real estate lawyer prior to entering into any agreement of purchase and sale. However, this step becomes even more important if you are considering engaging an auction company rather than working with a licensed agent. The members of Soloway Wright’s Real Estate and Development Group are here to answer any real estate law or real estate development questions that you may have and to help guide you through the buying and selling process.

Author Bio: Vanessa Carment is an Associate practising in Soloway Wright LLP’s Real Estate and Development, Commercial Leasing, and Condominium Law groups. Vanessa’s practice consists of all aspects of real estate transactions, including purchases, sales, and financing. She also regularly advises condominium corporation boards on a wide range of condominium matters and is involved in commercial leasing work for both landlords and tenants.

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