The Real Estate Act is clear. You need a licence to work as a mortgage broker, as a real estate broker, or as a real estate appraiser. This licensing requirement is fundamental to consumer protection.
But, what about when you have a licence for one industry – for example, you’re a licensed real estate associate – but some of your conduct crosses the line into an industry in which you are not licensed?
Obviously, a licence as a real estate associate doesn’t provide an individual with the latitude to deal in mortgages or provide appraisal services, and vice versa.
On the surface it seems like a really simple concept – but in practice, there are a couple of grey areas and we want to take this opportunity to clear them up.
Comparative Market Analysis vs. Appraisals
Prudent, competent real estate professionals, when listing a home for sale on behalf of a seller, carry out a comparative market analysis (CMA) for the property. A CMA is a method of property valuation that real estate professionals use to estimate the value of residential properties, which helps sellers set a listing price for their property. CMAs examine the prices at which similar properties in the same area have recently sold.
A CMA is not an appraisal; only licensed real estate appraisers in Alberta can provide an appraisal. An appraisal defines a value for a property. A CMA can only offer a range of values for a property. CMAs and estimates of market value are very different than appraisals, and real estate professionals have to be careful when advertising to clients that they can, “Tell you what your home is worth.” Implying you can define a value for a home could be holding yourself out as offering appraisal services.
Likewise, real estate professionals need to be careful when they’re actually providing a CMA to a client or potential client. Any CMA a real estate professional completes must clearly state the following:
- a real estate appraiser with a licence from the Real Estate Council of Alberta (RECA) did not prepare this report
- the report is not a real estate appraisal report
- no one should refer to or rely on the report as an appraisal report
- the report does not comply with RECA appraisal standards
- the report must not be used for financing, civil proceedings, income tax purposes, or financial reporting purposes
Real estate professionals can’t refer to a CMA as an “appraisal” nor can they imply that it is an appraisal. Doing so could have a licensee in breach of the licensing provisions of the Act.
Referring to a Mortgage Broker vs. Dealing in Mortgages
It’s not unusual for a real estate professional to refer their buying clients to other professionals, including mortgage brokerage licensees. Buyers need mortgages and real estate professionals know many people who can assist.
But, did you know that, if you refer a buyer to a financial institution (for example, a bank) in return for a referral fee or some other consideration, and that bank only offers their own mortgage products – your referral to that bank falls under the definition of dealing in mortgages? And, you’d need a licence for it.
Part of the definition of “dealing in mortgages” says that dealing in mortgages occurs when a person, on behalf of another person, “solicits a person to borrow or lend money secured by a mortgage.”
In 2002, the Court of Queen’s Bench dismissed an application from a major bank who sought to challenge RECA’s interpretation of the Real Estate Act with respect to the bank’s mortgage referral programs and mortgage broker licensing requirements. The Court found that section 17 of the Act provides that only an authorized mortgage broker may solicit another person to borrow money secured by a mortgage, in return for compensation. The Court found RECA was correct to conclude that in certain circumstances, when making referrals to a lender, real estate professionals might act as mortgage brokers as defined under the Real Estate Act, and would require a licence.
As in the CMA vs. Appraisal example, the real estate professional may not realize they are dealing in mortgages when they refer a client to a financial institution in this way, but they are doing so just the same, and they need a licence from RECA to do so.
Be aware of terminology in all industries
The Real Estate Act defines the major terms that show up throughout the legislation, including what constitutes a trade in real estate, a deal in mortgages, a real estate appraisal, and property management services. Knowing how the legislation defines these terms provides individuals with the information they need to avoid breaching the legislation, and can also help licensees ensure they’re not using terminology in a way that a consumer would misinterpret it.
Drawing the Lines Between Industry Sectors and What You Can Do
Being in a licensed and regulated industry brings respectability, trust, and professionalism. Holding a licence means your knowledge and skills are up to the task, and that a regulatory body will hold you accountable for your actions.
The interconnectedness of the real estate industry often means lines are blurred between the specific industries. No doubt many real estate professionals know the basics of a mortgage deal, and a real estate appraiser may have enough experience to set an appropriate listing price. But, it is important that industry professionals know where the industry lines are drawn, and to stay in their lane, in case consumers make the mistake of thinking you’re licensed in a sector in which you are not.