A real estate salesperson wants to charge me an “entry fee” to see presale homes. Is this allowed?

First, let’s address what an “entry fee” is. We’ve heard about salespeople charging buyers to get early access to pre-construction properties before they are available to the general public.

This practice has been the subject of recent media stories about unsuspecting buyers who are being asked to pay the fees in cash without being provided a receipt. The stories also say that it’s often not known who gets money, or if funds are being split between the real estate professional and the builder’s staff.

I’d like to answer two key questions: Are real estate professionals allowed to accept these funds? And what should consumers do to protect themselves in these situations?

The short answer is that accepting an “entry fee” can be legal — but there are several rules that come into play. A consumer should avoid situations where a broker or salesperson is:

    • refusing to provide documentation that includes what the funds are for, how they will be handled and the conditions for the return of the funds if the consumer does not decide to make a purchase;
    • refusing to provide a receipt; or
    • charging an “entry fee” without authorization from the builder.

If you pay an “entry fee” to a real estate professional and do not purchase a unit, it’s expected that the fee will be returned to you.

In addition, it should be clear whose interests the broker or salesperson is representing. Are they acting on behalf of the builder, on your behalf, or both? If they are representing you, then written disclosure requirements come into play. You should receive written documentation of the services they will provide and any commission or payment they receive from another party.

If they are representing both you and the builder, then that must be disclosed to you, as well. This is known as multiple representation.

Failure to comply with any of these rules would make the transaction subject to investigation and possibly disciplinary action.

If you are asked to pay such a fee, find out how the money is being handled and what it is being used for, and insist on written documentation.

And most importantly, don’t be afraid to say no to something that doesn’t feel right.

If you encounter a situation that could be against the rules, RECO wants to hear about it. Fill out our complaint form so that we can look into the matter, and take action if we find evidence of misconduct.

Also, if you suspect an employee of a builder is improperly requesting or accepting fees without proper disclosure, you should inform Tarion, the regulator of homebuilders in the province.

I always remind buyers to prepare for the buying process so that they can keep their emotions in check. The same advice applies to pre-construction units. Buyers can get caught up in the excitement of a new development, but it’s wise to take a breath before shelling out any money for a property.

As the saying goes: the best defence is a good offence. Being prepared and understanding your rights ahead of time will save you hassle and financial hardship in the long run.

Joseph Richer is Registrar of the Real Estate Council of Ontario (RECO). He is in charge of the administration and enforcement of all rules that govern real estate professionals in Ontario. You can find more tips at reco.on.ca, follow on Twitter @RECOhelps or on YouTube at http://www.youtube.com/RECOhelps.

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