Trump Towers – A Clarification On Representation

I’ve been reading all the stories about Trump Towers over the past ten days, and I don’t disagree with what’s been written.

However I have to make ONE major clarification, and point out something that nobody has talked about…

Do you know what it means to “register” for a new condo development?

Think of the advertisements, be it on the radio, in print, or online; they all say, “Register Now,” and encourage interested parties to go to the developer’s website and fill out a form with their personal information.

Well in case you weren’t aware, there are two reasons for that:

1) It helps the developer to provide timely information about pricing, availability, etc.
2) It makes you the developer’s client, and cuts out any Realtor who wants to work on your behalf.

As you might assume, #2 is the point I want to talk about today.

You all know how I feel about pre-construction condos, but most of the time, my issue has to do with the insane pricing structure, the shoddy workmanship, and the delays.  But there’s something that could be more important than all of these items together: representation.

When you walk into the sales centre for a new condominium development, as soon as you sign the “Registration,” you effectively become their client.

If you want somebody to represent you, ie. an experienced, professional Realtor, that’s just too damn bad because you belong to the developer.

That’s why developers offer all this “Register Now” garbage; it’s not necessarily to give you information about upcoming projects, but rather to make you their client, and ensure they don’t have to pay a cooperating Realtor.

Then there are the developers who simply say, “We don’t cooperate with outside brokerages.”  You could physically walk through the front door handcuffed to your client, and the developer still won’t work with you.

So how does that make you feel?

As a consumer, would you be comfortable knowing that you’re not allowed to be represented by a Realtor once you’ve walked into the sales centre and “registered” with the developer?

I don’t blame the developer for not wanting to pay a cooperating agent, but I do blame the system itself, because it means that most buyers are not being represented.

You can’t possibly argue that the 23-year-old girl, six months out of university, standing in the model suite who is paid by the developer is going to accurately represent you, with your best interests at heart.  They work for the developer, and it could be considered a severe conflict of interest for them to also work on your behalf.

But the way the system is set up, sometimes you have no choice.  Unless you “cross the threshold” with your Realtor in tow, the developer cuts the Realtor out of the process.

In the case of Trump Towers, they took things to a whole new level.

Majority of the time, those people in the condo sales centres are registered real estate salespeople, with a real estate licence from the Ontario Real Estate Association.  At the very least, they are Realtors, even if they work for the developer.  The same cannot be said for the people who worked at Trump Towers in pre-sales.

I can’t divulge the name of the individual I spoke to last year, but he/she was the director of real estate sales for Trump International Hotel & Tower.

Would you believe that he/she was NOT a Registrant under the Real Estate Council of Ontario?  This means that he/she isn’t a Realtor, and isn’t governed by the Real Estate & Business Brokers Act.

If you want to look up any Realtor in Ontario, go to this link:

www.reco.on.ca

There’s a giant link at the top that says “REGISTRANT SEARCH” where you can look up anybody who is (or isn’t…) registered under RECO.

So I typed in the name of the person who handled the sales at Trump Tower, and this person is not registered.

How does that make you feel?

Do you care?  Do you think “they’re all the same” when you’re asked to decipher between a Realtor, a salesperson, or anybody handling real estate sales?

Because I can tell you that they’re not all the same, and yes – you should care.

These people are under no obligation to disclose that they work for the developer, or explain the relationship.

But we Realtors are under obligation to do so.

We have agency forms, disclosure statements, and there are rules that govern how we operate with respect to representation.

When it comes to Trump Towers, not only were they under no obligation to disclose any relationships, they also weren’t actually representing the buyers!

Anybody who walked through the front doors of the sales centre, all wide-eyed, with cash-in-hand, was scooped up by the developer’s salespeople, and never represented by a licensed Realtor.

The current issues at Trump Tower are numerous, but it seems that many buyers feel misled by lack of explanation on the “Hotel/Condo” relationship.

A cynic would say, “It’s pretty simple: they bleed the condo owners to pay for the hotel,” and that person might not be wrong.  There’s more to it than that, but I’m willing to bet that not a single buyer was accurately informed on exactly how the hotel/condominium would operate, what expenses they would share, who would pay for what, how the rental pool would work, etc.

I’ll be quite honest: I think the Trump Tower is a money pit, and I think the condo owners are going to be bled dry.

Many of these owners are at fault simply for biting off more than they could chew.  I don’t feel bad for somebody who thought of this as an “investment,” since I’ve been openly, freely lecturing about the perils of pre-construction for the past three years.  Every day in this city, buyers ignore my advice, and dive head-first into a $700/sqft condo development, with illusions of grandeur about making boatloads of cash.

So while I sympathize with these buyers/owners, I don’t feel bad for them.  Even the one “blue collar immigrant” who borrowed $175K from his relatives to finance his downpayment.  He should have known better.

Or, he should have hired a Realtor.

I’m not going to make this into a public service announcement for CREA, but I do think that anybody who purchases a condo through the developer without representation is an absolute fool, and if they are misled, or in any way disappointed, then they have nobody to blame but themselves.

You probably wouldn’t defend yourself in a court of law, would you?  No, you’d hire a lawyer to represent you; a lawyer who understands the law!

So why do people walk into a sales centre with no representation?  Why do people make massive financial decisions without their interests looked after?

A few years ago, one of my colleagues purchased a pre-construction condo, and he took the Agreement of Purchase & Sale and marked it up like a grade-nine history exam.  He changed a dozen sections, inserted a few dozen clauses, and probably spent ten hours going over the agreement with a fine-tooth comb, and altering the document to suit his needs.

This is how a Realtor buys a property through a developer.

So don’t you want that person working on your behalf?  No?  You’d rather go into the developer’s lair and buy on “Standard Builder Forms” through their in-house salesperson?

Suit yourself.

My colleague, Richard Silver, was the President of the Toronto Real Estate Board last year, and identified this issue before it blew up with respect to Trump Towers.  In 2011, he wrote on his blog:

“At any time that you work with a licensed realtor they must disclose, to all parties, on whose behalf they are working, in writing. For years I have been hoping that Ontario would make disclosure part of all sales that happen in the province. Currently only realtors who are licensed under the Real Estate and Business Brokers Act 2002 must do so. Consumers would be better protected if all parties involved in real estate transactions — including lawyers, private sellers and new construction on-site salespeople — were required to do so. It’s only fair; anyone acting on behalf of someone else should have to disclose their relationship.”

How can anyone possible disagree?

Those on-site pre-construction salespeople act as if they’re working on behalf of the buyers who walk through the door, when all the while, their only job is to protect the developer’s interests.

Representation and disclosure need to be a bigger part of our industry, or what happened at Trump Towers won’t be an isolated incident.

It will become the norm…

9 Comments

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  1. Rob says:

    You raise a lot of good points and, to be sure, a lot of people are ending up with the short end of the stick on this development (and many others).

    But do you really think that people don’t know who the staff in the sales centre are working for? Are people really that naive to think that the sales agent is representing the purchaser’s best interests?

    Inexperienced purchasers should most certainly get some good advice, whether from a realtor or otherwise. One could even argue that Trump buyers would have benefited from an investment advisor or a lawyer — this is more of an investment deal than a real estate deal. Disclosure is not the main issue here.

    1. AsianSensation says:

      I don’t think representation and disclosure were an issue here.

      1 King West ran the same deal long ago so there’s a modern case study on how the process works.

      This is simply a case of greed clouding people’s sense of good judgement.

      You can’t blame Trump for selling people what they’re WILLING to buy.

      1. Ralph Cramdown says:

        Can’t blame them if they’re selling freeze-dried dog doo-doo, labelled as such. But if they’re selling something as an investment that’ll net you $50,000 a year, there’s rules.

        I don’t think anyone in the history of mankind has ever made money as the original buyer of a timeshare or of a single unit in a rental pool, but I could be wrong. Whistler, Red Leaves, Mexico, Hawaii, Florida… All trails of tears.

        I think that’s what the OSC was saying when they granted the waiver of prospectus, basically saying you have to market the units to rich, stupid people as a bauble rather than an investment. Can one fault the OSC for baing naive, or just assume they want no part in regulating real estate deals.

        Oddly, the developers seem to have sold units to poor, stupid people who can’t get financed, even assuming the units are worth what they sold for. Now THAT’S amateurish, unless they were just planning to keep the deposits and resell the units, but that seems unlikely, too.

        1. AsianSensation says:

          These wannabe ‘Trumpsters’ would have been better off investing in a REIT if they wanted ‘guaranteed’ income.

  2. Darren says:

    I don’t give a damn about who the sales person is. They are just the to fill in forms. I’ve done the pre construction thing a few times and sorry David, there’s absolutely no reason to have a realtor during that transaction. Unless they are getting you a “vip” price they offer no value. In fact on my very first purchase I was given a $3000 rebate for not using one. Pick the suite you want, sign the paperwork and talk to your lawyer. I’ve seen countless people get screwed by bad terms and it was always because they didn’t see a lawyer within 10 days.

  3. Marina says:

    David,
    Let’s say I “pre-register” or whatever, but I still want representation and more importantly, advice. Can I choose to pay a realtor to work with me regardless of what the seller / developer wants?
    By the same token, if I’m in a dual representation situation and I’m uncomfortable, can I choose to pay a different realtor to handle the sale? (So the original guy will still get his double commission, but I bring another party to the table at my expense)?
    I think that should be allowed, and if the deal was big enough I would totally do it.
    I’m still astonished by how many people make such a big purchase on a hope and a prayer with no solid advice or help.

    1. Ralph Cramdown says:

      Where’s David?

      Of course you can hire any advice you’d like. It’s always important to remember that, as the only person (along with your friendly banker) who comes to a potential transaction with actual money (cash, dosh, readies, specie, liquidity, credit, the wherewithal), you hold all the cards right up until you submit a binding offer, and usually even after that.

      Remember three things:
      – If the seller is desperate enough to price the place low for a bidding war, you’ll have to decide whether to compete
      – The industry has lots of rules, but they don’t apply to you. You can deal with or talk to anyone directly, set your own rules for compensation, write your own contracts (maybe with legal advice?) &c. Just don’t commit fraud (i.e. lie about money) and you’ll be fine.
      – Buyer’s agents won’t be thrilled at your offer of $50/hr to negotiate for you, but remember, most of them didn’t clear $100k last year, ergo most of them don’t have anything better to do. Keep calling around.

      1. @ Ralph

        Sorry – I’m here! A bit swamped right now, but still reading all the comments.

        In fact, these comments (including all of yours) have given me a great idea for Wednesday’s blog!

        We’re only talking about representation here, but what about compensation?

        All those 6% commissions worry me. It seems as though developers are asking Realtors to screw their buyers by putting them into awful developements, all in search of those huge commissions.

  4. Ralph Cramdown says:

    I thought it was just like the rule in any other area of life; if you’re paying someone, they’re working for you. If someone else is paying, then not so much.

    Do all developers pay the same “standard” 2.5% that most resales pay? No? Then I guess some of them are paying to influence agents who are ostensibly working for buyers. Lavishly catered parties? VIP agent status? Allowing some agents first pick of units before sales to the public? Same deal. With the current commission flow structure, this is inevitable.

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