Dozens of Calgary realtors owed more than $1M as Discover Real Estate folds
‘It’s disgusting. It’s theft’
At least 70 real estate agents in Calgary are still owed more than $1 million in commissions on the homes they sold before Discover Real Estate went bust in May, according to documents obtained by CBC News.
The company officially closed down around the end of July, leaving many of its former realtors hanging — a trend that some industry insiders say shows a gap in real estate regulation in Alberta.
- Calgary's luxury real estate market rebounds, Sotheby's report says
- Calgary home sales and prices down again in June
"It's disgusting. It's theft," said Ibrahim Elhage, a former Discover Real Estate agent who has recently refinanced his own home to stay afloat.
He says the brokerage still owes him $122,866 in unpaid commission.
The 33-year-old had been a top realtor with the company for more than a decade.
Despite the economic downturn, Elhage said 2015 was a good year for him. But when Discover kept delaying his commission payments, he knew something was wrong.
"They've always been a little bit slower to pay commissions," Elhage recalled. "It would be two weeks, three weeks, sometimes a month. But in the last year or so it got more out of hand. It got worse because you'd stay there hoping to recover some of the money."
Elhage said he tried talking to the owner of Discover, Graham Mayne — a well-known name in the Calgary real estate industry — to no avail. Three other real estate agents contacted by the CBC News reported similar futile efforts.
Largest independent brokerage in Alberta
CBC News has also tried contacting Mayne, who founded Discover Real Estate in 1995. He initially wrote back with a short reply:
"I will phone you when I have the money to pay the agents. That will be very soon," Mayne wrote in an email dated July 16. A follow-up email has since bounced back citing invalid recipient.
At its height, Discover was the largest independent real estate brokerage in Alberta, with more than 600 agents under its wings. In the spring of 2016, Mayne sent out a notice to all of his agents, informing them about Discover's impending closure.
"It is with a heavy heart that I must advise you that you need to move your licence to another brokerage," stated an email dated May 3.
No protection for realtors
Former Discover realtor Hong Wang said she tried complaining to the Real Estate Council of Alberta (RECA) — the non-government body responsible for regulating real estate professionals and brokerages in the province — only to discover commissions are not insured or protected.
"I said, 'If the company is broke, of course realtors' money is protected. We must have insurance, we pay all kinds of people all kinds of fees,'" said Wang.
"And then I realized, what happened to our money? Is our money protected? No! I was just speechless. What do you mean no?"
- Calgary real estate market continues to cool as house sales drop for 20th month in a row
- Why Calgary's real estate prices haven't been hit as hard as the rest of the economy — yet
Under Alberta law, when a home is sold the portion that goes to the seller or outgoing homeowner must be held in a trust until the deal is complete. That money is further insured so that consumers are always protected.
Agent fees, on the other hand, can go into the brokerage's general account before agents get their cut. All realtors wishing to practise in Alberta are required by law to register with a brokerage. And brokerages typically deal with agents as independent contractors.
"When a consumer is doing a transaction with a real estate professional, they are signing a written agreement saying 'I'm hiring you to list my house or to assist me in buying a house,'" explained Natalie Scollard with RECA.
"As much as they are talking to that individual real estate professional, or that team of real estate professionals, the agreement is actually with the brokerage — the parent company if you will. When that consumer is paying the services, they are actually paying to the brokerage."
In that sense, when a brokerage fails to pay its agents, Scollard said it's really no different than a construction company failing to pay for its independently contracted roofers and framers.
"So that would be a civil matter," said Scollard, adding realtors can pursue their commissions through the small claims courts.
A worrying trend in real estate
Discover Real Estate is the second major brokerage to go bust in the Calgary region within the past year.
When Royal Lepage Foothills shut down in December, many of its agents reportedly went through a similar ordeal.
Realtor Jeff Rolheiser said word travels quickly about a brokerage in trouble, which could affect home sales.
"If you had your house listed with Discover Real Estate through this period, there were realtors out there — and I can't quantify for you, I can't give you a percentage — but there were realtors out there that would not show listings by Discover Real Estate because they were concerned about possibly getting paid," he said.
Rolheiser said a similar solution would be to amend the Real Estate Act of Alberta — requiring brokerages to put agent fees into a trust. Some companies already do so voluntarily with great success, he added.
Another public issue is the fact that real estate commission includes five per cent GST.
Some former Discover agents said they've tried tipping the police and Canada Revenue Agency about it.
The problem has become serious enough that a group of industry insiders have now formed a "commissions-at-risk working group" to explore options for change.
- Calgary realtor says foreign buyers not affecting local market
- Calgary's real estate future: questions and answers
"The working group expects to have a survey out fairly soon to members — to licencees and real estate professionals in Alberta asking them what they want," said Scollard.
"I think we're hearing from a vocal minority who feel they have been wronged and they want this addressed. Yet I think if we're talking about making changes that are going to affect 12,000 people, we need to look at the biggest picture."