Real State, Exam 1 PDF

Pre-Registration Segment
REAL ESTATE
AS A PROFESSIONAL CAREER
ii
Real Estate As A Professional Career

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R E A L E S TAT E A S A P R O F E S S I O N A L C A R E E R
iii
ROLE OF THE REGISTRAR UNDER REBBA 2002 IN EDUCATION

The Registrar under the Real Estate and Business Brokers Act, 2002 (REBBA 2002) is responsible for setting the educational
requirements for individuals who wish to obtain and maintain registration as a real estate broker or salesperson. In order to
trade in real estate in Ontario, real estate brokerages, brokers and salespersons must be registered with the Real Estate Council
of Ontario (RECO) under REBBA 2002. Before beginning a career as a real estate salesperson, individuals are required to com-
plete the required pre-registration courses.
The Registrar, through an Educational Services Agreement, had designated the Ontario Real Estate Association as the
organization authorized to provide the pre-registration, articling and broker educational program. All registration-related
courses of study, including associated course content, must be approved by the Registrar prior to being offered to students.
DESIGNATE ACKNOWLEDGEMENTS
The Ontario Real Estate Association, through its OREA Real A course of this scope is only possible with the assistance
Estate College, takes great pleasure in delivering this program of many dedicated professionals committed to the advance-
on behalf of the Registrar pursuant to an Educational ment of real estate skills and knowledge. A special note of
Services Agreement between the Real Estate Council of thanks is owed to the Ontario Real Estate Association for
Ontario and the Ontario Real Estate Association. its ongoing forty-year commitment to excellence in real
The course curriculum supports the Real Estate Council estate education.
of Ontario’s mandate to protect the public interest through A further debt of gratitude is owed to various govern-
the development of skilled and educated real estate pro- ment departments and agencies who assisted with informa-
fessionals by providing students with timely, comprehensive, tion and published materials. Appropriate references are
accurate and up-to-date education that will allow them to included within text materials.
succeed in the real estate marketplace. The OREA Real The terms REALTOR® and MLS® are identified as
Estate College fulfills many of its responsibilities to the design marks in this publication. No attempt has been made
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fession by providing learning opportunities so that indivi- might exist. The inclusion, definition, or description of a
duals, either contemplating registration or currently holding word or term is provided for general information pur-
registration, can receive appropriate and timely training. poses only and is not intended to affect any legal status
The real estate profession makes a valuable contribution associated with the word or term as a trademark, service
to the economy of Canada and the welfare of its people. mark or proprietary item.
Congratulations on taking the first step towards real estate
registration in Ontario. The Real Estate Council of Ontario
and the Ontario Real Estate Association hope that the
successful completion of this Real Estate as a Professional
Career course will inspire and motivate you to pursue
advanced educational offerings throughout your new career.
iv Introduction
BEFORE YOU BEGIN…

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Introduction v
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vi Introduction
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Introduction vii
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viii Introduction
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Introduction ix
REAL ESTATE AS A
PROFESSIONAL CAREER
CONTENTS AT A GLANCE
INTRODUCTION xvii
SECTION I Introduction to the Real Estate Profession 1

Chapter 1: A Career in Real Estate 2
Chapter 2: Real Estate—A Regulated Profession 46
SECTION II Real Estate and Society 81

Chapter 3: Economics and the Real Estate Market 82
Chapter 4: Ontario Profiles, Trends and 114
Real Estate Values
SECTION III The Consumer and Marketing Fundamentals 153

Chapter 5: Consumer Behaviour and 154
Consumer Protection
Chapter 6: Marketing and Customer Service 190
SECTION IV Introduction to Math Skills 225

Chapter 7: Mathematics, Measurements and 226
Metric/Imperial Conversions
Chapter 8: Mortgage Mathematics 258
Chapter 9: Capitalization, Taxation and 286
Closing Adjustments
APPENDIX Glossary 321

Solutions 333
x Introduction
TABLE OF CONTENTS
INTRODUCTION xvii Franchise vs. Independent

Full Service vs. Limited Service
15
15
ABOUT THIS TEXT xvii Listing vs. Selling 15
Learning Features xvii Organized Real Estate vs. Non-Organized 15
Study Aids xviii Curiosity: Questions To Ask 16
Additional Resources xviii
ORGANIZED REAL ESTATE IN ONTARIO 16
Tips & Guidelines xviii
National Association 16
How To Maximize Learning xix
Provincial/Territorial Associations 17
Real Estate Boards 17
SECTION I 1 Historical Focus: Ontario Beginnings— 18
Real Estate Boards
Introduction To The Real Estate
Profession PROFESSIONAL ORGANIZATIONS 19
The Canadian Real Estate Association 19
CHAPTER 1 Ontario Real Estate Association 19
A Career in Real Estate 2 OREA Real Estate College 20
Education Update: Registration Education— 20
Introduction 2 Changes Effective April 1, 2016
Learning Outcomes 3 The Appraisal Institute of Canada 21
Real Estate Institute of Canada 21
THE IMPORTANCE OF REAL ESTATE 4 The CCIM Institute 22
A Brief Ontario Profile 4 Society of Industrial and Office REALTORS® 22
Market Memo: The Greater Golden Horseshoe 4
Market Memo: Ontario Building Activity 5 REAL ESTATE BROKERAGE: ROLES AND
AUTHORITIES 22
Housing Focus: The Ripple Effect: Real Estate 5
and the Ontario Economy Brokerage as an Agent 23
Representing Others 23
A REAL ESTATE SALES CAREER 6 Brokerages, Brokers and Salespersons 23
Necessary Skills 6 Types of Brokerages 23
Career Expectations 7 Brokers of Record and Managers 24
Time Management 7 Employees vs. Independent Contractors 24
Market Memo: A Juggling Act 8 Focus on ICI Status: Applying Common 26
Income/Budgeting 8 Law Principles
Market Memo: Time Lag 8
UNDERSTANDING THE LISTING/SELLING
Other Costs 8
PROCESS 26
Career Building 9
Listing 26
CAREER PATH CHOICES 9 Prospecting 27
Market Opportunities 10 Qualifying and Showing 27
Residential Resale 10 Offer Preparation 27
New Homes 10 Offer Presentation 28
Condominium 10 Follow-Up 28
Rural, Recreational and Agricultural Sales 11
SALESPERSON REMUNERATION 28
Commercial 12
The Commission Sales Model 29
Appraisal 13
Commission Sharing 29
Mortgage Financing 13
Commission Splits 29
Property Management 13
Commission Plans 31
CHOOSING A BROKERAGE 14
KNOWLEDGE INTEGRATION 33
Brokerage Services and Features 14
Introduction xi
TABLE OF CONTENTS (continued)
CHAPTER 2 Claims and Potential Claims 63

New Application and Renewal Processes 63
Real Estate—A Regulated Profession 46
COMPLAINTS AND ENFORCEMENT 64
Introduction 46
RCI Process 65
Learning Outcomes 46
Possible Outcomes 65
THE REAL ESTATE COUNCIL OF ONTARIO 47 Public Information 67
Role and Responsibilities 47
BROKERAGE INSPECTIONS AND INVESTIGATIONS 67
Protecting the Public Interest 48
Types of Inspections 68
Operating Structure 49
Routine Inspections 68
REGISTRATION STANDARDS 50 Complaint-Initiated Inspections 68
Obtaining Registration 50 Courtesy Inspections 68
Disclosure 51 Reconciliation Inspections 68
Fitness for Registration 51 Investigations 69
Bankruptcy 52
RESOURCES FOR CONSUMERS AND REGISTRANTS 70
Criminal Charges and Convictions 52
RECO Website 70
Work Permit 52
MyWeb 71
Education Requirements 52
Outreach 73
The Salesperson Registration Education Program 52
(Pre-Registration) KNOWLEDGE INTEGRATION 74
Pre-Registration Education Program— 54
Enrolment On Or After April 1, 2016
Ontario Labour Mobility Act 54
Processing the Application 54 SECTION II 81
Registrar’s Options: New Application and Renewals 55 Real Estate and Society
Registration Approval 55
Registration Refusal 56 CHAPTER 3
Statutory Exemptions to Registration 56
Economics and the 82
MAINTAINING REGISTRATION 57 Real Estate Market
Articling Segment—Enrolment in Pre-Registration 58
Education Program Prior to April 1, 2016 Introduction 82
Articling Segment—Enrolment in Pre-Registration 58 Learning Outcomes 83
Education Program on or after April 1, 2016
Continuing Education 58 ECONOMICS: AN OVERVIEW 84
Changes to Registration Information 59 Basic Elements and Markets 84
Registration Renewals 59 Factors of Production 84
Insurance Renewals 59
ECONOMIC PRINCIPLES AND PRIMARY
EDUCATION STANDARDS 59
INDICATORS 85
Resource Markets 85
Pre-Registration, Articling and Broker Education 60
Segments Labour 85
Course Completion 60 Capital 86
Enrolment in Pre-Registration Education Program 60 Businesses 86
Prior to April 1, 2016 National Production 86
Examinations 61 Manufacturing Activity 86
Enrolment and Pass Rates—Enrolment in 61 Utilization Rates 86
Pre-Registration Program Prior to April 1, 2016 Consumers 86
INSURANCE REQUIREMENTS 62 Retail Sales—Selected Retailers 86
Coverages 62 Consumer Confidence and Spending 87
xii Introduction
Consumer Disposable Income/Debt 87 TRACKING THE ONTARIO RESIDENTIAL 101

The Consumer Price Index (CPI) 87 MARKET
CPI Focus: Consumer Price Index 87 Market Trends 102
Perspective: The Newspaper Article 103
STATISTICAL ANALYSIS 88
Indexes 88 TRACKING THE ONTARIO COMMERCIAL 104
Seasonally Adjusted 88 MARKET
Three Month Moving Average 88 Ontario Commercial Focus: Building 104
Construction Price Index
Weighted Average 89
Perspective: The Practical Applications 105
Graphs/Charts 89
UNDERSTANDING THE MARKETPLACE 90

Supply/Demand Forces 90
Market Equilibrium 90
Market Bubbles/Corrections 91 CHAPTER 4
Business Cycles 91 Ontario Profiles, Trends and 114
Government Intervention 92 Real Estate Values
Spending Policies 92
Crown Corporations 92 Introduction 114
Taxation 92 Learning Outcomes 115
Statutes/Regulations 92
ONTARIO PROFILES 115
ANALYZING THE REAL ESTATE MARKET 93 Economic 115
Characteristics 93 Sector Overviews 115
No Standard Product 93 Growth/Prosperity 116
Local Real Estate Market 93 Workforce/Employment 116
Fixed Location 94 Other Factors/Considerations 116
Market Not Standardized 94 Demographic 117
Slow Supply/Demand Adjustment 94 Population/Immigration 117
Private Transactions 95 Growth Patterns 118
Influencing Factors 95 Age Distribution/Dependency 118
Demographic Changes 95 Geographic 118
Employment Conditions and Wage Levels 95 Size/Boundaries 118
Labour Force Focus: Labour Force Statistics 96 Climate 118
as an Influencing Factor Cities/Towns 119
Mortgage Volume and Interest Rates 96 Geographic Regions vs. Municipal Boundaries 120
Curiosity: Interest Rates and the Bank of Canada 97 Perspective: The Bigger Picture: 121
Building Activity 98 Urban Economics
Types of Markets 98
DEMOGRAPHICS AND THE REAL ESTATE
Seller’s Market 98 MARKET 124
Buyer’s Market 98 Population Size/Growth 124
Balanced Market 98 Real Estate Market Implications 126
Real Estate Market Cycles 98 Population Distribution 127
Long vs. Short Cycles 98 Real Estate Market Implications 128
Real Estate Cycle vs. Business Cycle 99 Population Composition 128
Real Estate Market Corrections 100 Real Estate Market Implications 129
Curiosity: Interest Rates and Market Corrections 101 Demographics and Value 129
Market Profile: Residential Prices and Volumes 130
Introduction xiii
UNDERSTANDING VALUE 132 Market Niches 157

Differing Perspectives 132 Market Memo: The Growing Second 157
Property Market
Value in Exchange vs. Value in Use 133
Culture 157
Housing Focus: Value in Use—A Matter 133
of Perspective Brand Loyalty 158
Subjective vs. Objective Value 134 Product Appeal 159
Market Price vs. Market Value 134 The Electronic World Beyond 159
Market Value Defined 135 Perspective: Understanding Today’s Real 160
Estate Consumer
Investment Value—Commercial Properties 135
VALUE PRINCIPLES 136

CONSUMER NEEDS AND WANTS 160
Curiosity: The Battle of Needs and Wants 160
Anticipation 136
Hierarchy of Needs 161
Balance 137
Physiological Needs 161
Change 137
Security Needs 161
Competition 138
Social Needs 162
Conformity 138
Ego Needs 162
Consistent Use 138
Self Actualization 162
Contribution 139
Real Estate and Maslow’s Hierarchy 162
External Factors 139
Application and Limitations 163
Highest and Best Use 139
Increasing and Decreasing Returns 140 CONSUMER VULNERABILITIES 163
Progression 141 Confusion Regarding Who Represents Who 164
Regression 142 Caution When Inspecting Properties 164
Substitution 142 Due Care When Signing Documents 164
Supply and Demand 143 Lack of a Cooling Off Period 165
Surplus Productivity 143 Failure to Include Conditions 165
Market Memo: Cost vs. Payback 144 Not Respecting Deadlines 166
Perspective: How “Beyond The Lot Line” 144 Not Getting Finances in Order 166
Factors Can Affect Value
Perspective: A Matter of Professionalism 167
ETHICS AND THE CONSUMER 167
Morals vs. Ethics 168
Business Ethics and Professional Standards 168
SECTION III 153 Ethics and the Law 168
The Consumer and Marketing Market Memo: The Evolution of Business Ethics 169
Ethical Dilemmas 169
Fundamentals
Caution: More Than Your Good Name Is 170
At Stake
CHAPTER 5 Market Memo: Everyday Ethical Choices 170
Consumer Behaviour and 154
CONSUMER PROTECTION LEGISLATION 171
Consumer Protection Consumer Protection Act 171
The CPA and Real Estate Transactions 171
Introduction 154
The Competition Act 172
Misleading Advertising 172
CONSUMER BEHAVIOUR BASICS 155 Ontario Human Rights Code 173
Personal Traits and Psychographics 156 Accommodation Provisions 173
What Others Think 156 Employment Provisions 174
Market Memo: Real Estate Fraud 174
xiv Introduction
PRIVACY LEGISLATION 175 MARKET RESEARCH 201

Personal Information Protection and Electronic 175 Surveys 201
Documents Act (PIPEDA) Focus Groups 202
Personal Information 175 Personal Research 203
Consumer Consent 175 Accessing Secondary Sources 203
Safeguarding Information 176
Privacy Focus: The Salesperson’s Records 176 MARKETING TO THE SELLER 203
Marketing Plan 203
PROFESSIONALS AND THE CONSUMER 177 The Commercial Marketing Proposal 204
Lawyers 177 The Residential Listing Presentation 205
Appraisers 177 Structured Presentations 206
Surveyors 178 Market Memo: Be Well Prepared For The 206
Lenders 179 Presentation
Mortgage Brokers 180
MARKETING TO THE BUYER 207
Insurance Agents and Brokers 180
Home Inspectors 181 MARKETING METHODS 208
Advertising 208
RECO Focus: Advertising Definition 209
Standards 209
Institutional Advertising 209
CHAPTER 6 Specific Advertising 210
Marketing and Customer Service 190 Market Memo: Checklist For Classified Ads 211
For Sale Signs 211
Introduction 190
Open Houses 212
Guidelines 212
MARKETING BASICS 191 Direct Marketing 213
Direct Mail 213
THE ROLE OF MARKETING 192
Curiosity: Bulk Mailings and Postal Codes 214
Marketing Products vs. Services 193
E-Mail 214
The Four P’s 193
Internet 215
SERVICE-BASED MARKETING 194 Push/Pull Technology 215
Customer Service as a Competitive Force 195 Co-ordinating Print and Electronic Marketing 215
Defining Moments and Customer Satisfaction 195 Lead Generation/Customer Contact Software 215
Market Memo: Customer Satisfaction and 196 Market Memo: Sources of Internet Leads 216
Your Career Multiple Listing Service® 216
Value Added Services 196 MLS® Rules and Regulations 216
Curiosity: The Value Added Team 197 realtor.ca 217
Best Practices 197
MARKETING STRATEGIES 197
Marketing Plan vs. Marketing Strategy 198
Selecting Target Markets 198
Creating a Market Position 199
Market Memo: Positioning The New 200
Branch Office
Broadening Competitive Advantage 200
Introduction xv
SECTION IV 225 METRIC/IMPERIAL CONVERSION FACTORS 254

Hectare/Acre Conversion 254
Introduction to Math Skills Metre/Foot Conversion 255
Square Metre/Square Foot Conversion 256
CHAPTER 7
Mathematics, Measurements and 226
Metric/Imperial Conversions CHAPTER 8
Mortgage Mathematics 258
Introduction 226
Learning Outcomes 226 Introduction 258
BASIC MATH SKILLS 227
Fractions, Decimals and Percentages 227 THE RESIDENTIAL MORTGAGE FINANCING 259
Rounding 228 PROCESS
Working with Percentages 228 Application 259
Calculating Unknowns 228 Appraisal and Credit Check 259
Percentage Change 229 Commitment 260
Curiosity: The Pre-Approved Buyer 260
USING A CALCULATOR 229
The HP 10BII 230 THE COMMERCIAL MORTGAGE FINANCING 260
PROCESS
MEASUREMENTS 231
Area Measurement 231 MORTGAGE QUALIFICATION 261
Metric/Imperial Conversions 231 Downpayment 261
Rectangular 232 Housing Focus: Affordability Index 261
Curiosity: Describing Lot Size 233 Debt Service Ratios 262
Non-Rectangular 233 Gross Debt Service (GDS) Ratio 262
Right Angle Triangle 233 GDS Ratio—Condominium 262
Irregular 234 Total Debt Service (TDS) Ratio 263
Parallelogram 234 Expanded Calculations 263
Trapezoid 234
CALCULATING MAXIMUM MORTGAGE 264
Building Volume 235
Market Memo: Interest Rates, Debt Service 264
Volume Measurements 235 Ratios and the Market
Cube or Box Shape 235 Perspective: Surfing The Net 265
BUILDING AREA MEASUREMENTS 235 MORTGAGE INTEREST 265

ACRE Guidelines Terminology—Residential 236 Calculating Simple Interest 265
ACRE Measurements Guidelines—Residential 236 Calculating Compound Interest 265
Measuring a Residential Condominium 240 Curiosity: For The Inquisitive Mathematician 267
Typical High-Rise Measurement Criteria 240 Nominal vs. Effective Interest Rate 267
Technology Focus: Laser vs. Tape 240 Effective Rates and Canadian Mortgages 267
Measuring a Commercial Building (Office) 240 Mortgage Payments 267
Usable Area 241 Mortgage Payment Factors 268
Rentable Area 241 Amortization 268
RECO Focus: Wrong Measurements Prove Costly 242 Fully vs. Partially Amortized 269
Using the HP 10BII 269
Mortgage Averaging 272
xvi Introduction
MORTGAGE PAYMENT FACTORS 282 Tax Notice 300

Weekly Payment Factors 282 Local Improvements 300
Bi-Weekly Payment Factors 283
CLOSING ADJUSTMENTS 302
Semi-Monthly Payment Factors 284
The Sale Transaction 302
Monthly Payment Factors 285
Adjustments 302
Statement of Adjustments 306
Closing Costs 307
CHAPTER 9 Caution: Let The Experts Estimate Closing Costs 307
Capitalization, Taxation and 286 The Mortgage Transaction 308
Closing Adjustments Process 308
Costs/Adjustments 308
Introduction 286 Interest Adjustment Date (IAD) 308
CAPITALIZATION 287
Direct vs. Yield Capitalization 288
Establishing an Overall Cap Rate 288
1. Investor Analysis 289
2. Market Research 289
APPENDIX
Applying the Overall Cap Rate 290
The Reconstructed Operating Statement 290 GLOSSARY 321
Working with the Cap Formula 290
Cap Focus: Trends in Anycity Rental Apartments 291
INCOME MULTIPLIERS 292 SOLUTIONS 333

Gross Income Multiplier (GIM) 292
Monthly Rental Factor (MRF) 293
Market Focus: Tread Carefully With Rules 293
of Thumb
PROVINCIAL LAND TRANSFER TAX 294

Real Property Registration 294
Disposition of Unregistered Interests 294
Exemption for Life Leases 294
Value of the Consideration 295
Tax Calculation 295
First Time Buyers Refund (New Houses) 296
First Time Buyers Refund (Resale Homes) 296
Sale of Chattels 297
Municipal Land Transfer Tax (Toronto) 297
REAL PROPERTY TAXATION 298

According to Value (Ad Valorem) 298
Municipal Tax Base 298
Tax Rate 298
Tax Ratios 299
Realty Tax Classes 299
Realty Tax Qualifiers 300
School Tax Direction Codes 300
Introduction xvii
INTRODUCTION
ABOUT THIS TEXT

Real Estate as a Professional Career is designed to give prospective registrants an apprecia-
tion of the demands involved in a real estate career along with a knowledge of the market-
place dynamics, consumer behavior, marketing fundamentals and essential math skills.
arious text features and study aids are included to make this a rewarding learning expe
rience, while building a solid foundation for subsequent courses in the pre-registration
and articling segments.
Learning Features
Chapter content summaries and learning outcomes detail the learning journey in each
chapter.
Key terms are boldfaced with the most significant glossary terms highlighted in page
margins. All glossary terms and associated definitions are found in the Appendix: Glossary.
Illustrations simplify and summarize complex topics. A picture is worth a thousand words.
Detailed subject matter often requires visual enhancements to ensure complete understanding.
Curiosities offer novel ideas or explanatory details, while satisfying the inquisitive nature
in us all. The element of discovery can expand awareness and consolidate subject matter.
Market Memos are interspersed to bring reality to the subject matter. If a topic involves
value, the memo may address new technologies that are revolutionizing the valuation
process. If the topic details economic trends, the memo may highlight a specific indicator
together with statistical data.
Perspectives bring fresh outlooks and consolidate complex topics, usually using a story
line. Everyday occurrences of registrants often complement the subject matter.
Cautions identify special concerns including situations where prudence is required and practices
that can lead to dire consequences if pursued.
Each Focus concentrates on additional details for a particular topic. These informative
descriptions bridge the gap between academic discussions and today’s realities.
xviii Introduction
Study Aids
Notables highlight key topics in each chapter to assist students with review and study
efforts, along with a summary of key glossary terms.
Strategic Thinking questions are included to assist in preparing for a new sales career.
A Chapter Mini-Review is provided with each chapter for personal review and assessment.
The mini-review is a warm up for active learning exercises.
Active Learning Exercises are included at the end of each chapter. arious testing formats
are used including multiple choice, fill-in-the-blanks, matching, short answer and form
completion exercises.
The Appendix contains the Glossary as well as all solutions (including solutions for chapter
mini-reviews and active learning exercises).
Additional Resources
Web Links are provided for general interest regarding selected chapter topics.
Knowledge of website content is not required for examination purposes.
Tips & Guidelines

Registration courses emphasize learning by doing through the mastery of practical real
estate skills and knowledge. The course combines formal instruction, self evaluation and
problem-solving with fictional characters and scenarios. Students must evaluate circum-
stances, make suggestions, correct errors and learn important lessons in preparation for
the marketplace. Questions are posed that require introspection, strategic thinking,
application of techniques and explanation of procedures.
Introduction xix
HOW TO MAXIMIZE LEARNING
Make the Text Priority One • Carefully review each chapter including every topic,
illustration and example.
Follow the Learning Path • Topics are logically sequenced by section and topics within
chapters.
• While creativity is encouraged, most students are advised
to follow the pre-set order.
Access Additional • The Web Links can be very helpful in clarifying and expanding
Resources chapter topics. These resources are not required for examination
purposes.
Study Key Terms • Clearly understand all boldfaced terms included in the
primary text. These are also summarized at the end of
each chapter and detailed in Appendix: Glossary.
Complete all Questions/ • Practice makes perfect. Complete all chapter minireviews
Exercises and exercises. Solutions are provided in the Appendix.
• Suggestion: Use a blank sheet of paper as an answer sheet
where feasible, leaving the chapter mini-reviews and
exercises blank for follow-up review.
Continuously Review • When in doubt, review. Repeat readings, minireviews

and active learning exercises as often as required.
• Don’t move forward without fully understanding all content.
• Learning has a lot in common with building blocks. Start
with a good foundation and a sound structure will emerge.
• Remember, knowledge is cumulative. Don’t skip any chapters.
Prepare for the Exam • The examination tests subject matter covered in the primary
text. No surprises…if you diligently study the materials.
• Exam questions vary, but not the underlying purpose.
Emphasis is on understanding concepts, techniques and
procedures.
• Don’t expect a mere recital of facts.
SECTION I
INTRODUCTION TO THE
REAL ESTATE PROFESSION
Section I provides an introduction to real estate and procedures to become
registered as a real estate salesperson. Chapter 1 offers an overview of required
skills, career path choices and opportunities for growth, what to expect in terms
of hours and personal commitment and professional organizations that assist in
developing a real estate career. Lastly, the chapter addresses how real estate
brokerages operate in Ontario and, more specifically, the role of brokerages,
brokers and salespersons. The distribution of
commission between brokerages, salesperson
remuneration and commission splits are also
detailed.
Chapter 2 focuses on the role and responsi-
bilities of the Real Estate Council of Ontario,
the process of becoming registered as a real
estate salesperson in Ontario, registration
requirements, exemptions, education and insur-
ance requirements and ongoing regulatory
compliance.
2
CHAPTER 1
A Career in Real Estate

Introduction
Property ownership has been a part of society for thousands of years. Real estate trans-
actions occurred as early as 3000 B.C. Property advertisements were found in the ruins of
Pompeii. Well established property ownership, taxation and legal principles are known to
have existed in ancient Greek and Roman times. However, the destruction of the Roman
Empire led to the decentralization of governments and laws concerning land usage. For
North Americans, the story begins in England where decentralization resulted in land
being divided into shires and counties, each controlled in large part by semi-autonomous
governments under a king. However, gradually a centralized legal system took form and
along with it a rise in individual property rights, including the transfer of those rights.
By the seventeenth century, English legal principles and
practices generated expanded property rights under the
now formalized common law of England. Colonies
established under the British Empire adopted these
principles and practices, as set down in English common
law. At the same time, the province of Quebec developed a
civil code that was originally based on the French civil
code. This code generally sets out similar principles to
those found under common law within other provinces.
Interestingly, civil codes originated in Roman times and, as
with common law, contained key principles relating to
property rights and procedures for the transfer of such
rights dating back to antiquity.
The development of real estate brokerage in Canada
parallels the growth of the nation. Brokers were active at
Annapolis Royal in Nova Scotia in 1604–05. The French, at
Quebec City and Montreal, were the first to apportion
land for permanent holdings in Canada. Early colonial
governments of both Upper and Lower Canada appointed
brokers to distribute land for permanent settlement. The
Hudson Bay Company employed qualified persons in
what today could be identified as truly Canadian real estate
transactions.
SECTION I I N T R O D U C T I O N T O T H E R E A L E S TAT E P R O F E S S I O N
3
As Canada grew, so did real estate ownership and the brokerage tradition. Territorial
governments of what are now the prairie provinces named brokers in the late 1800’s to
assist migrants seeking new western opportunities. Soon, real estate brokers and
salespersons were pursuing their livelihood throughout the nation. Larger urban centres
enjoyed very active real estate activity well over one hundred years ago. In Toronto, for
example, the total population in 1851 was 30,775, but mushroomed to 181,200 by 1881
amidst extensive property development and the active real estate trading.
In 1930, the Government of Ontario passed legislation to bring the Real Estate Brokers
Act into law. The post-war years witnessed the dramatic growth of real estate ownership
and the associated expansion of career opportunities for those in real estate brokerages.
By the 1970’s, total registrants exceeded 20,000 with current totals now over three times
that number. Today, as in past centuries, real estate property holdings and development
are vital to the growth and prosperity of this province. Registrants in Ontario have, and
continue to make, an important contribution in this integral and important part of
Ontario society.
Learning Outcomes
At the conclusion of this chapter, students will be able to:
• Briefly outline the importance of real estate activity in relation to broader economic
and social parameters within our society.
• Discuss the necessary skills and expectations associated with a career in real estate
sales.
• utline career path choices including major market segments, choosing a brokerage
and understanding how organized real estate operates in Ontario.
• Describe services provided by various professional organizations which contribute to
the professionalism of registrants.
• utline how real estate brokerages operate from legal and business perspectives,
including brokerage and salesperson roles/responsibilities, types of brokerages and
related factors such as pursuing independent contractor status.
• Describe types of remuneration offered to brokers and salespersons with particular
emphasis on the commission sales model and commission plans including calculations
when one or more brokerages are involved in a transaction.
I N T R O D U C T I O N T O T H E R E A L E S TAT E P R O F E S S I O N SECTION I
4 Chapter 1 A Career In Real Estate
THE IMPORTANCE OF REAL ESTATE

Land ownership is of paramount economic, social and political importance in Canadian
Real Estate society. A real estate purchase is a significant lifestyle decision that typically constitutes the
Land and any improvement
largest single component of most people’s personal wealth. From a business perspective,
located thereon. corporate acquisitions reach into the billions, as companies acquire large retail commercial
and industrial facilities, utilities consume countless miles of rights-of-way, farming
involves thousands of hectares of agricultural land, and residential developers routinely
construct thousands of homes annually.
Real estate is also integral to social and political order. Common law enshrines real
property ownership rights, while federal and provincial statutes reaffirm and regulate
such rights. Owners of real property enjoy advantages over the non-owner; e.g., credit is
often more freely granted to those who own their own property.
Most important of all, shelter is a necessity for all Canadians. How real estate is develop-
ed and what shape new communities take directly affects the very fabric of society and the
quality of life enjoyed both in Ontario and throughout Canada. Within these dynamics,
registrants prudently go about their business. Few things happen without real estate.
Little wonder that many seek the opportunity to guide others in its purchase and sale.
A Brief Ontario Profile

Real estate is big business in Ontario. New and existing housing units are needed to
accommodate the province’s expanding population that now exceeds 13 million. Industrial
lands provide much needed space for enterprises that currently boast a 40% share in
national gross domestic product and more than 50% of all manufacturing shipments in
Canada. Projected strong job creation, output forecasts and rising incomes indicate the
growth will continue with real estate as a significant factor within that expansion. Clearly, a
robust, active market exists for anyone willing to work toward a successful real estate career.
While overall national statistics of real estate sales volume are not available, The
Canadian Real Estate Association (CREA), representing a substantial portion of those
involved with residential sales across Canada, recorded more than 450,000 residential
units transacted through the Multiple Listing Service® in 2012 with approximately 41%
of that activity in Ontario. The province also has expanding commercial and industrial
markets, particularly in larger urban centres. Opportunities continuously unfold for those
who want to professionally service these active market segments.
Real estate brokerages, brokers and salespersons play a significant role in the province’s
economy. In 2014, more than 68,000 registrants were registered with the Real Estate
Council of Ontario. The diligent work of those registrants helps build vibrant communities,
advance strong economic growth and fulfill the needs of buyers and sellers as consumers
in the Ontario real estate marketplace.
The Greater Golden Horseshoe MARKET MEMO
Approximately two-thirds of Ontario’s total residents now live in the Greater Golden Horseshoe (GGH) reaching from
Oshawa to Niagara Falls, including areas north to Richmond Hill and west to Kitchener-Waterloo. By 2031, the popula-
tion in that area could swell to a projected 11.5 million, according to government planning documents.
Formal growth plans are now being put in place by the provincial government to ensure that the GGH can attract
new businesses, support a high quality of life for residents and ensure that prudent planning is introduced regarding all
real estate development.
A Career In Real Estate Chapter 1 5
Ontario Building Activity MARKET MEMO
Real estate is typically in the foreground when evaluating economic performance. Market analysts constantly track the
ups and downs of building permit volume, given its widely accepted status as a key economic/market indicator.
Rising numbers typically point to increased capital Ontario Building Permits: Total Value
$(billions)
flowing to construction, reflecting economic growth
3.5 July 2013
and business confidence. Those same numbers also ($3,476,571,000)
foretell of improving job prospects, heightened demand
3.0
for services (including real estate brokerages, brokers
and salespersons) and broad community-based
economic benefits. 2.5
The Greater Toronto Home Builders Association has
estimated that every residential single-family housing 2.0
start creates the equivalent of 2.8 jobs for a full year. But,
be careful in interpreting building permit information
1.5
in a sales career. Remember, several months may pass
before actual construction and cash flows begin. Also,
one large project may distort overall trends. Regardless, 1.0
the impact of real estate is massive particularly when

resales are added to the equation. 0.5
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Source: Statistics Canada, CANSIM II Table 026–0003
The Ripple Effect: Real Estate and the Ontario Economy HOUSING FOCUS
Salesperson Lane meets Mr. and Mrs. Smith at the open house in Windfield Crossing, scant yards from framers, plumbers
and other trades busily completing new homes. Three months ago, vacant land and neatly spaced survey stakes were
all that greeted passers-by. With a simple yes and signing on the dotted line, the Smiths have unwittingly fired the
economic engine, as so many others have done before. The ripple effect begins:
• Building tradespeople are hired to construct the home.

• Future tax revenues are generated for the municipality.
• rofits and return of capital flow to the developer.
• rofits and cash flow are created for the builder.
• Additional consumers are introduced into the local marketplace.
• ommissions are paid to the real estate brokerage and brokers/salespersons employed by the brokerage.
• Fees for lawyers, mortgagees and others involved in the sale/closing are paid.
• Fees for other experts (inspectors, appraisers and surveyors) are paid.
But the story doesn’t end there. Research suggests that the housing sector accounts for a significant component of
the economy. New home buyers typically spend an additional 20–40 cents for every dollar invested in a home. For
example, a new home selling for $300,000 could generate an additional $60,000–120,000 in needed services (landscapers,
decorating, draperies, furniture and outside improvements (e.g., patios, pools, appliances, etc.)).
The ripple extends even further. Ongoing maintenance is an economic fact of life. That same property will necessi-
tate continuing home-related services over the years, as it forms part of the resale housing stock. The most popular
include carpet cleaning, painting, plumbers, electricians, cleaning services and roof repairs.
Real estate salespersons help make the economy happen. Just a simple signature begins a ripple effect that lasts for
years and years.
A REAL ESTATE SALES CAREER

Both challenges and rewards await those who enter this profession. Personal determination
and commitment are vital in an increasingly refined and complex consumer marketplace.
Further, individual sacrifices are a reality in a business well known for long hours. Real
estate is a 24/7 event driven by consumers and the unending ebb and flow of market
negotiations.
Today’s professional is more tech-savvy than his/her counterparts of the last decade.
Sophisticated property databases, electronic transactions and the power of the Internet
have enveloped the marketplace. But, success is more than just technology. Successful real
estate salespersons are people-oriented and their impact is far reaching; i.e., assisting families
seeking the ideal neighbourhood to investors uncovering hidden cash flow opportunities.
Effort typically brings financial rewards, but caution is emphasized. Money management
is key as earnings can vary dramatically. Self discipline is a must and personal growth
essential. Learn as much as possible because information is power in today’s marketplace.
Successful salespeople keep in step with the newest ideas and techniques, the latest market
data and the most up-to-date information on changing trends, legislation, and market-
place dynamics. In Ontario, real estate is a happening that never ends.
Necessary Skills
Experience suggests that certain talents, qualities and personal traits improve the odds
of building a worthwhile career.
Math A basic grounding in math fundamentals with proficiency in multi-

plication, division, fractions, decimals and percentages is very
important. These skills are required when measuring structures and
land, as well as appraising property and arranging mortgage financing.
Research A practical knowledge of how to locate, read and understand legal

documents involving property ownership is important.
Organization and Registrants typically have an ability to organize personal affairs as

Planning well as conduct business activity in a logical, efficient manner; e.g.,
obtaining listings, showing properties, handling offers and conduct-
ing negotiations.
Confidence and A confident attitude and firm grasp of personal goals is a definite
Persistence asset. Real estate sales do not always go smoothly and registrants
must routinely deal with set-backs and disappointments, as well as
successes.
Problem-Solving An ability to address difficulties and arrive at plausible, practical

solutions given conflicting interests of parties involved can be a real
asset. This attribute is particularly useful in listing and selling
activities.
English Language This is an essential skill. Salespeople must understand, draft and
Comprehension explain real estate agreements, listings and other related forms.
and Proficiency Registrants must ensure that documents are correctly prepared and
properly reflect the wishes of the parties.
Computer A basic understanding of computer hardware and software is very

Knowledge helpful. Computers and other electronic devices are mainstays in
today's real estate brokerages.
Negotiating Skill This skill is a fundamental part of any real estate transaction. Salespeople
routinely negotiate on behalf of buyers and sellers to arrive at mutually
agreeable terms.
Interview A basic understanding of questioning methods is useful. Real estate

Techniques success often depends on asking the right question at the right time.
This skill is particularly valued when helping buyers determine their
purchasing needs.
People Skills An ability to gain the trust and respect of buyers and sellers is an asset.
Rapport comes easily to those who enjoy working with people, genuinely
take interest in their well-being, and understand needs and wants.
Self Discipline Those with the ability to work independently to get the job done
have a definite advantage. Real estate sales demands self-motivation,
discipline and personal commitment.
Career Expectations Skills For A Real Estate Career

A real estate career offers many rewards and oppor-
tunities, but personal sacrifices are also a reality. In
the heat of negotiations, most buyers and sellers have
little regard for time of day, or day of week. Critics
point to long hours, high stress levels and reduced
social life. Advocates insist that it is all a matter of
perspective and balance. No one questions that trade-
offs are necessary, but personal freedom and a fulfill-
ing and satisfying career are well worth the effort.
TIME MANAGEMENT
Anyone considering a real estate career should be
prepared to manage daily activities with a positive,
proactive mind set. A career in real estate is anything
but routine. Sales representatives are constantly in
and out of the office making contacts, procuring
listings, showing homes and negotiating agreements.
To compound matters, no two transactions or homes
are ever exactly the same. Successful salespeople make
things happen. They thrive on the opportunities and
challenges presented each day.
Expect long hours, as most buyers want to inspect
various houses prior to making a decision. Obviously,
the time spent searching for that ideal property is usually
dictated by market dynamics. Greater property
availability can translate into additional thinking time.
Conversely, seller markets with limited listings make
for motivated buyers and more hurried decisions.
A Juggling Act MARKET MEMO
Few days are typical for the active real estate salesperson. Each morning presents new situations, challenges and rewards.
Every day has its own momentum.
Morning routines involve time to organize, prepare advertisements, check out new listings and sales, tour new proper-
ties for sale and contact prospective buyers and sellers. Early risers sift through the latest details from listings that were
obtained and sales that occurred on the previous evening. Remember, the real estate market never ends and no stock
market bell announces the close of business.
Active residential and commercial salespeople have sellers and buyers in different stages of decision-making. Time
management and organizational skills are a must. How much time is needed for this afternoon’s buyer? Will the right
management person be available to sign the listing? What information is required for tonight’s appointment? What
about the out-of-town relocation prospect? Can we see three properties and still make it to a scheduled open house?
As the day unfolds, plans turn into action. Listings are prepared and offers drafted—time consuming detailed work
demanding legal accuracy. Often, buyers and sellers wrestle with decision-making well beyond the afternoon into
evening hours.
INCOME/BUDGETING
Predicting personal income is always a difficult task. Earnings are typically related to
individual sales ability and people skills. Typically, several years' experience are often
necessary before accurately predicting income. Many real estate professionals earn six-
digit incomes, while others may work for months or years with little financial success.
Prudent budgeting both now and in the future is vital. Course costs leading to initial
registration are just part of the total investment required for salespersons in Ontario.
Students are reminded that they cannot earn any commission until registered with the
Real Estate Council of Ontario (RECO). Time delays must be considered. Once students
complete the pre-registration courses, several months may elapse before commissions are
earned and subsequently received. Further, a two-year salesperson registration fee must
be paid to RECO, along with the mandatory insurance program premium. Additional
details are provided in a later chapter.
Time Lag MARKET MEMO
How long does it take to receive a commission? First the property is listed, offered at a reasonable price, shown to
interested buyers and ultimately an agreement is drafted and accepted. Typically, conditions must be fulfilled and
notifications made. The closing date is normally set 60 to 90 days in the future. From start to finish, the time lag can
be four, six, or even eight months to get paid and much longer with commercial property. lan your finances care
fully and resist the urge to spend tomorrow’s dollars today.
OTHER COSTS
Approximately 85 percent of registrants in this province (i.e., brokerages, brokers and
salespersons) in Ontario are also members of local real estate boards. Real estate board
dues vary throughout the province. Salespeople may also be responsible for other fees
based on board services being provided. Contact the local board for more information.
All Ontario boards are listed on the Ontario Real Estate Association (OREA) website. Go
to www.orea.com.
Brokerages may also hold salespeople accountable for advertising and/or other costs
associated with the real estate profession; e.g., telephone calls, paging services, administra-
tion fees relating to listings and transactions, and photocopy/fax services. Again, students
are encouraged to investigate costs and services of different real estate brokerages. Other
expenses to be considered include vehicle operation and maintenance, personal attire,
computer equipment and electronic communication devices.
CAREER BUILDING
Where do listings and sales come from? For new salespersons, a sphere of influence is key.
Research suggests that more than 50% of sellers select a salesperson given prior contact
with that individual or a personal referral to that person from a friend, acquaintance or
relative who was highly satisfied with the service provided.
Becoming known and respected are long-term goals of every successful salesperson.
Advertising is an essential component. For sale signs, newspaper advertising and the
Internet are the most widely used marketing tools. As emphasized earlier, expect long
hours as many sellers will want to carefully select the right brokerages to market their
homes and most buyers want to inspect various houses prior to making a decision.
As a final note, a real estate career has tremendous potential, but also considerable risk.
Lack of listings and available buyers and sellers translates into little or no income. Further,
even for the best salespeople, the volume of listing and sales activity is dramatically affect-
ed by market conditions. Self-discipline and good work habits are essential, but not a
guarantee. Real estate is not a structured work environment wherein activities and object-
ives are provided and assignments are given and directly supervised on a regular basis.
The brokerage and management may be capable of providing the best tools and ongoing
training, but it’s up to the salesperson to effectively organize systems for generating leads
and contacts, and then spend time productively to achieve career goals.
CAREER PATH CHOICES

While residential sales constitute the bulk of Ontario real estate activity, other market
niches provide abundant challenges and opportunities. Eight popular areas of expertise
are highlighted, but the demand for specialized knowledge extends into many other areas
such as government services/consulting (ministries, agencies and municipalities), large
corporations (banks, trust companies, insurance companies and utilities), developers with
extensive land holdings, real estate franchises, investment syndicates, real estate invest-
ment trusts and multi-residential and commercial landlords.
Registrants are free to pursue particular niches in the marketplace, however, if a bro-
kerage or a registrant claims expertise or specialization in a particular area, they should
be prepared to substantiate it, if challenged.
Market Opportunities
Resid
erty en
RESIDENTIAL RESALE op
Pr gement Resa tial
a le
Residential resales involve extensive work an
M
Ne
with consumers and their changing
Finan age
w
g
ci n
H om
g
needs and wants. Typical clients are
Mort
sellers who are selling the family home
es
CAREER
due to employment, monetary or family OPPORTUNITIES
inium
changes. Typical prospects are buyers
App
om
relocating due to the same motivating
rai
nd
sa
factors as those of sellers. In both cases,
Co
l
Co al/ al
emotional issues are involved and people mm Rur tion
e rc i a c r e a
l R e
skills become paramount.
Residential resale work also calls for
irregular hours, since most activities are dictated
by the availability of both sellers and buyers. Open
houses are routinely scheduled on weekends to maximize market exposure. Offer pres-
entations and showings often involve very late hours. Phone calls at home at all hours
are the norm for residential salespersons and very seldom is it possible to totally get
away from the job.
NEW HOMES
Unlike resale homes, salespeople selling in larger new home residential developments
typically have little direct involvement with the listing function or the offer presentation.
The function more closely resembles a retailing situation involving qualifying the buyers
and closing the sale. Usually fixed hours of floor duty time are established during which a
salesperson will be on site in a model home or other site office. Showing may consist of
furnishing information, demonstrating diagrams and plans (if no models are yet constructed),
providing specifics and answering buyers’ questions.
Salespeople qualify buyers financially, as well as in terms of needs and desires.
Prepackaged financing is usually available. Ultimately, counselling and discussions centre
on the prepara tion of an agreement of purchase and sale. Details of possession date,
financial terms, conditions and such matters as colours and upgrades must be determined
and documented.
At present, no universally accepted standard agreement exists for the purchase of new
homes. Registrants sometimes use standard agreements designed for resale homes.
However, substantial amendments and additional schedules are required, as several issues
unique to new home construction must be addressed.
CONDOMINIUM
Registrants are sometimes involved with resale condominiums. In fact, brokers and
salespersons in larger urban centres often focus their attention on this market segment.
Condominium refers to a system of land ownership where each individual owner holds
title to a specific unit as well as owning a share of common property (typically referred
to as the common elements). The common elements are owned by the unit owners as
tenants in common—a legal term referring to a type of ownership involving two or
more persons.
The legal structure of the condominium is set out in the declaration and description.
These documents, upon registration in a land registry office, create a condominium
corporation. The unit owners are personally liable for the debts of that condominium
corporation. Many types of condominium units are found in the marketplace such as
apartment suites in high rise complexes, townhouses, detached or semi-detached houses,
or even vacant lots. Leasehold, as well as freehold, condominiums can also be found in
Ontario.
The characteristic that binds these diverse forms of ownership is that, in each, the
owners of the condominium units also own an undivided interest in the common elements.
Such elements might include hallways, elevators, parking structures or lots, landscaped
areas, recreational facilities, roadways and any other property owned in common by all
unit owners within a specific condominium project.
Interestingly, even that fundamental distinction is now disappearing with the intro-
duction of common element condominiums in which projects have no units but only
common property (e.g., a golf course). The term unit under such legislation refers to the
common interest held by an individual and not a specific unit beyond the common
elements. The proportionate share of ownership is typically registered to property located
outside of the condominium project.
RURAL, RECREATIONAL AND AGRICULTURAL SALES

Focusing one’s efforts in one or more areas encompassing the broad category of rural,
recreational and agricultural sales can be an enormous challenge. Depending on local
economics and prevalent land uses, registrants may isolate their activities to listing and
selling recreational properties, or concentrate solely on farm operations. However, for
most, a mixture of rural residential, recreational and agricultural sales is required to
build a worthwhile career.
Salespeople may be involved in the sale of farmland not only for farming purposes
but also for redevelopment and hobby/recreational uses. Although most workable land is
used for agriculture, the demand for commercial, industrial and residential development
of this land is increasing, especially in heavily populated areas of the province.
Selling land for redevelopment can be lucrative, but requires considerable knowledge.
Redevelopment of agricultural land usually takes place close to, or inside, the boundaries
of urban centres. It is crucial to know the value of land and the permitted uses. To provide
good service to clients, the sales representatives must be familiar with official plans and
zoning by-laws. In addition, the sales representative must typically be aware of other
factors impacting the saleability and market demand for the product; e.g., what demand
exists for residential building lots, high-density residential uses, or commercial and
industrial purposes.
Recreational properties represent a significant portion of activity for many registrants
located in vacation areas. Detailed knowledge of zoning bylaws and restrictions is
critical for persons concentrating in this field. Cottage and recreational properties fall
under many legislative or related government requirements, ranging from regulations
regarding the installation of wells and septic systems to required permits for construction
of waterfront improvements; e.g., wharfs, docks, boathouses and shoreline alterations.
Further, many cottage properties are only accessible by private easements and a knowledge
of limitations and potential problems arising from such access must be known.
Rural specialists are commonly involved in property types ranging from single-family
residential to recreational businesses. As well, in many areas of the province, the rural
economy requires knowledge of different types of business operations. The veteran urban
salesperson can be bewildered by the unique local customs and practices required by the
rural registrant. Most have little experience in the marketing of worm farms, retreats,
marinas, horse farms and a host of other unique properties. An added difficulty is the
sparse availability of comparables when establishing value for such enterprises. Lastly,
distances are greater, access is sometimes limited and weather conditions are a consideration.
COMMERCIAL
Commercial brokerages generally involves the sale of retail, office, industrial, multi-
residential and similar types of properties. Traditionally, the term ICI (Industrial, Commercial
and Investment) referred to the sale of such properties. However, the generic term
commercial is now more frequently used. Registrants will encounter both terminologies
in the marketplace. In smaller centres, it is usual for residential real estate brokerages to
have one or two individuals focused on commercial activities. In larger urban centres,
the business is more specialized, with brokerages focusing on selected market segments
(or sub-groups of these segments) as detailed below:
Industrial Primarily involves the sale or lease of warehousing and manufacturing

Real Estate space to users. Industrial property and associated structures are generally
categorized under three main types: general purpose, special purpose
and single purpose.
Retail/Office The focus is on the sale or leasing of all forms of retail or office facilities.
Real Estate Sales of businesses, with or without ownership of land, are typically
included under this category.
Investment Investment real estate concentrates on the sale of industrial, office/retail

Real Estate or residential income producing real estate to institutional or private
investors (including syndicates), domestic or overseas. Investors are
essentially buying an income stream, with the land and building often
being a secondary consideration. Investors, although concerned about
the condition of physical property (as it will affect the stability and
longevity of the income stream), are more focused on long-term,
income-producing potential.
Since commercial registrants deal with business people, work hours are normally
matched to theirs. However, this does not preclude some degree of evening or weekend
work. Part of the commercial lure is the prestige and opportunities offered for involve-
ment with high-profile projects and correspondingly high commissions. While these
opportunities exist, transactions take longer to develop, are subject to extensive research
and negotiations, and require lengthy periods to point of closing compared with most
residential transactions. The rewards, although larger, are less frequent. Loss of an individ-
ual transaction is far more damaging both mentally and financially.
What is it that draws someone into the commercial field? Certainly potential monetary
rewards are always a driving force, but most successful industrial, commercial and
investment registrants suggest they derive their motivation from the excitement and
gratification that comes from involvement in large and important projects. Registrants
are typically individuals who thrive on challenge and the ongoing demands for more
knowledge, skill and specialized education.
APPRAISAL
While registrants routinely face the challenges of assisting sellers with the establishment
of realistic listing prices and discussing market values with buyers and sellers, formal
appraising requires detailed knowledge of techniques and procedures to be applied in
estimates of value for different property types. The process of evaluating or appraising is
complex due to many physical, political, economic and social factors that affect the value
of any parcel of real estate. A true appraisal specialist is a professional who has dedicated
years to study, has combined this knowledge with extensive practical experience and is
typically engaged full time in the practice of appraisal.
Professional appraisers are often referred to as fee appraisers who market services on
the basis of cost for time, expertise and effort required to arrive at a value estimate. Other
appraisers may work for large corporations engaged in the development of properties for
various levels of government. Unlike real estate sales, the appraisal profession involves
relatively set work hours for inspection of properties and preparation of reports. Many
professional appraisers have earned some form of designation from a creditable institution.
MORTGAGE FINANCING
Opportunities in mortgage financing have expanded significantly in recent years.
Historically, the lending business was relatively limited and rigidly structured. Banks,
trust companies, insurance companies and credit unions largely controlled the mortgage
market, with a limited variety of financing alternatives. Times have changed. More lenders
have entered the marketplace and competition has increased. With this competition has
come a myriad of financing alternatives and services. The fixed-term five-year mortgage,
with payments amortized over 25 years, which was the mainstay of residential financing,
is no longer the norm.
The complexities of today’s mortgage market has caught the interest of many seeking
a worthwhile career as a full-time mortgage professional, whether as a representative of
a lending institution or as an agent for a mortgage brokerage. Mortgage brokerages, as
well as mortgage brokers and mortgage agents working for brokerages, are registered
under provincial legislation. While the majority of mortgage brokerage activity centres on
the residential market, some specialize in arranging interim financing for large projects,
industrial or commercial lending and the sale of mortgages as investment vehicles.
PROPERTY MANAGEMENT
Property management offers worthwhile possibilities for registrants who seek a more
structured career than typically possible in residential or commercial resale activity.
Property management is often mistakenly confused with the narrow scope of activities
of rental agencies or even building superintendents. Under property management, the
manager not only acts as administrator for the owner, but typically assumes all executive
functions necessary to carry out agreed objectives on behalf of the owner, thus relieving
the owner of the burdens normally associated with the operation of an income-producing
property. Responsibilities and activities vary from contracting for labour and services
necessary for property upkeep to matters as extensive as major renovations or redevelop-
ment projects and initial renting related thereto.
The duties of a property manager basically fall into four areas:

• eeping the property leased;
• Collecting property income;
• Paying the property expenses; and
• Maintaining the physical integrity or soundness of the property.
Property management is a people-oriented business that requires better than average

people skills. Property managers are frequently required to communicate at widely differing
levels. Personnel management and the settling of disputes is a commonplace activity, as is
the negotiation of contracts. With respect to residential properties, statutory requirements
govern many aspects of landlord/tenant rights and the regulation of rents. Property
management has developed into a highly specialized branch of the real estate profession
with ample career opportunities.
CHOOSING A BROKERAGE
Salespeople in Ontario must be employed by a real estate brokerage. Compensation is
usually based on a commission structure, but other methods of remuneration are possible.
Commission plans vary and personal research is necessary within the local marketplace.
Potential earnings can also be impacted by the particular market area, average prices
within specific locales, size and type of property available, local economic conditions
and specific brokerage policies.
Differing compensation plans are found in the marketplace. Some brokerages pay an
extremely high percentage of the total commission to the salesperson. However, that
salesperson(s) typically must pay monthly fees to the brokerage regardless of whether
commissions are earned or not. Those seeking a real estate sales career are well advised
to do their homework and choose a brokerage that best supports personal career goals.
Brokerage Services and Features

Make certain that you clearly understand what features are being offered that best suit
your needs. Here’s a partial list of services/features found in various sized brokerages to
assist in your search:
• Sales and Management Training Programs
• Technology Training (e.g., Internet Marketing)
• Dynamic Websites and Salesperson Branding (Custom Personal Websites)
• Desk Top Publishing
• Strong Brokerage Support and Teamwork
• ew Salesperson Support Systems
• Mentoring Coaching
• Profit Sharing and Residuals
• Competitive Commission Plans
Franchise vs. Independent

As with most decisions about a future employer, prospective salespersons should care-
fully weigh out the matter of franchise vs. independent brokerage. This decision rests
largely with your specific needs and matching those to the brokerages under consideration.
eep in mind that a brokerage, regardless of whether it is affiliated with a franchise or
not, may have specific advantages that suit your particular career aspirations.
For example, an independent brokerage or franchise may have a strong market presence
within a particular market segment. Alternatively, a franchise or independent may offer
some specific training tools that you perceive as a key benefit when developing your sales
skills. A franchise may have wide public awareness both locally and nationally, while an
independent may have a strong local presence with a service affiliation that provides
important access to relocating sellers and buyers.
Most brokerages provide detailed information on specific features offered to salespeople.
Take the time to carefully review these from your personal perspective. Lastly, you may
discover, as many do, that the decision rests more with the management, staff and sales
force within a particular brokerage regardless of its affiliations.
Full Service vs. Limited Service

Full service brokerages dominate the Ontario marketplace at present, but a growing trend
in limited service operations warrants mention. The full service brokerage provides all
services to the buyer or seller client during the listing and selling process to the point of
closing. Limited service brokerages typically charge a reduced commission or a flat rate
to provide specified services. Certain costs may be paid by the client rather than the
brokerage. For example, the brokerage may pay for limited advertising with any additional
costs borne by the seller.
Listing vs. Selling

Brokerages can differ in terms of whether their revenue is generated primarily by internal
listings versus relying on selling properties listed by other brokerages. Brokerages with
larger market shares tend to have greater incomes generated through the sale of internal
listings. Further, individual brokerages may have a particular strength in dealing with
sellers as opposed to buyers, or vice versa.
The issue for a new salesperson is not whether one approach is better than the other,
but rather how that brokerage’s strategy aligns with personal preferences. Are you
interested primarily in working with sellers in listing property or do you feel that your
success will be with buyers seeking out appropriate properties?
Multiple Listing Service®
Organized Real Estate vs. Non-Organized (MLS®)
An arrangement among
While the vast majority of brokerages are part of organized real estate, various brokerages
brokerages who are real estate
elect not to utilize the services provided by real estate boards for a variety of reasons. For board members, whereby each
example, a brokerage may operate in a very distinct market niche that does not normally brokerage shares information
regarding listings with the other
require access to the Multiple Listing Service® (MLS®) or other benefits arising from
members, who may negotiate
real estate board affiliation. A detailed profile of organized real estate is included to assist the transaction. Multiple Listing
in assessing overall benefits and features as they relate to your new career. Service® is a trademark of The
Canadian Real Estate Association.
Questions To Ask CURIOSITY
The reality in selecting a brokerage is that making the right choice can be key to a successful career. You want to build
a solid relationship with a brokerage and other salespersons that fit with your personality and aspirations. Take a close
look at office atmosphere. Is it professional? What will my future clients think when visiting the brokerage? Is it a healthy
business where things are happening? Is there opportunity for me and does the pace of business suit my style?
Don’t rely solely on personal impressions. Get input from other salespeople. Find out what they think of your short
list of potential brokerages. Find out what they felt were the most important factors when they chose their brokerage.
When meeting with the brokerage, have specific questions ready. For example:
• o you have an office policy that I can review • ow many salespersons are employed by the brokerage
• hat market share does the brokerage have and and what are their experience levels and areas of
what are its particular market strengths? expertise?
• hat training programs are available for new sales • hat Internet presence does the brokerage have and
persons and at what cost? what software and/or products are available for sales-
people to improve productivity?
• hat is the commission split arrangement and what
expenses are paid by the brokerage and salesperson? • hat special services do you provide that are unique
from other brokerages that will help in building my
• ill I have an office, a desk in a common area or a
real estate sales career?
shared desk?
ORGANIZED REAL ESTATE IN ONTARIO

When selecting a brokerage, one possible factor to consider is whether or not to be
Organized Real Estate involved with organized real estate. Approximately 85% of all registrants in the province
Voluntary membership organiza- are currently members of organized real estate. It is important to emphasize that if the
tions consisting of local real brokerage is a member of organized real estate, then all brokers and salespersons within
estate boards, provincial associa-
tions and The Canadian Real
its employ must also be members.
Estate Association. Organized real estate is structured based on a three-way relationship involving the
Canadian Real Estate Association (CREA), provincial/territorial associations (the
Ontario Real Estate Association in the case of Ontario) and real estate boards.
National Association
CREA
The Canadian Real Estate Association (CREA), located in Ottawa, concen-
National Activities
trates on federal issues and associated lobbying, as well as international
International Activities representation. Often referred to as the voice of Canadian real estate, CREA
Trademarks
is responsible for various trade marks and certification marks associated
with member services, the most notable of which are REALTOR® and
Multiple Listing Service® (MLS®). MLS® is described in more detail
PROVINCIAL/TERRITORIAL
under real estate boards. The term REALTOR® can only be used by
10 Provincial Associations
1 Territorial Association members of The Canadian Real Estate Association. Additional
Roles Vary by Province information about CREA is provided later in this chapter. See
Professional Organizations
Organizations.
REAL ESTATE BOARDS
Over 100 Real Estate Boards
MLS® Service
Various Member Services
Provincial/Territorial Associations
The Ontario Real Estate Association is one of ten provincial associations and one
territorial association that are members of organized real estate by way of the three-way
agreement and who serve members and provide various products and services within
their applicable jurisdictions. Typically, as is the case with OREA, provincial associations
provide education and various member-related services. Additional information about
OREA is provided later in this chapter. See Professional Organizations.
Real Estate Boards

Real estate boards operate in defined jurisdictional areas within provinces or the one Real Estate Boards
territory typically offering MLS® services and other member services. Members pay A non-profit corporation
dues to be affiliated with the respective board, as well as OREA and CREA. The scope of established for the benefit of its
activities varies based on overall provincial association structure and the size of board members and forming one com-
ponent of organized real estate,
memberships. Thirty-nine real estate boards are currently operating in the province, the the others being provincial/
largest in membership being the Toronto Real Estate Board. territorial associations and The
Canadian Real Estate Association.
Ontario Regions and Boards
Bancroft and Area Association of REALTORS® NORTHERN

Barrie & District Association of REALTORS® (See Inset)
Kawartha Lakes Real Estate Association Inc.
Muskoka Haliburton Orillia—
The Lakelands Association of REALTORS®
Northumberland Hills Association of REALTORS® NORTHEASTERN
Parry Sound and Area Association of REALTORS®
Peterborough and the Kawarthas Association
of REALTORS® Inc.
Quinte & District Association of REALTORS® Inc.
Southern Georgian Bay Association of REALTORS®
EASTERN
Cornwall and District Real Estate Board
WESTERN Kingston and Area Real Estate Association
Chatham-Kent Association of REALTORS® Ottawa Real Estate Board
Huron Perth Association of REALTORS® Renfrew County Real Estate Board
London and St. Thomas Association of REALTORS® Rideau-St. Lawrence Real Estate Board
REALTORS® Association of Grey Bruce Owen Sound
Sarnia-Lambton Real Estate Board CENTRAL
Tillsonburg District Real Estate Board
Brampton Real Estate Board
Windsor-Essex County Association of REALTORS®
Durham Region Association of REALTORS®
Woodstock-Ingersoll & District Real Estate Board
Mississauga Real Estate Board
The Oakville, Milton and District Real Estate Board
Toronto Real Estate Board
SOUTHERN
Brantford Regional Real Estate Association Inc.
Cambridge Association of REALTORS® Inc.
Guelph & District Association of REALTORS®
Kitchener-Waterloo Association of REALTORS®
Niagara Association of REALTORS®
REALTORS® Association of Hamilton-Burlington
Simcoe and District Real Estate Board NORTHERN
North Bay Real Estate Board
Sault Ste. Marie Real Estate Board
Sudbury Real Estate Board
Thunder Bay Real Estate Board
Timmins, Cochrane & Timiskaming Districts
Association of REALTORS®
Individual members of organized real estate (e.g., brokers and salespersons) have most
frequent contact with the local board. Real estate boards in Ontario are non-profit cor-
porations operating in towns, cities and other administrative districts and provide services
as set out in the by-laws, rules and regulations established by that particular board. A
major attraction of board affiliation is the Multiple Listing Service®. Originally, this mar-
keting service appeared in Ontario as the CO-OP (or PHOTO CO-OP), but was renamed
the Multiple Listing Service®. MLS® has grown steadily since its inception in the 1950’s.
MLS® is best described as a system for the orderly co-operating and dissemination of
listing information to members.
The goals and objectives of real estate boards are set out by way of board by-laws and
these by-laws form the basis of all activities and actions taken by the board. All members
must abide by rules and regulations established by the board including those associated with
offering MLS® services in the marketplace. Members must also abide by the REALTOR®
Code of Ethics and Standards of Business Practice. Typically, boards offer various types
of membership classes including those for brokers and salespersons, as well as affiliate
members (e.g., persons affiliated with some aspect of real estate) and other categories
including honorary memberships for meritorious achievement.
Real estate boards are authorized by The Canadian Real Estate Association to use certain
certification marks owned by CREA for purposes of operating the Multiple Listing Service®
and related databases. CREA sets out various requirements to boards concerning how
MLS® is to be administered; e.g., type of listing information needed and required notifica-
tion to the board when properties are sold. The Ontario Real Estate Association is also
involved by providing advice and clarification on issues concerning MLS® Rules and
Regulations.
Organized real estate also extends to the international scene through an alliance network
with the National Association of REALTORS®, which is the largest trade organization in
the world. This network now spans the globe with more than 50 national and regional
co-operating associations, including The Canadian Real Estate Association.
Ontario Beginnings—Real Estate Boards HISTORICAL FOCUS
The first real estate board was formed during 1918 in Ontario. Debate continues to this day as to whether the Thunder
Bay Real Estate Board or the Windsor-Essex County Real Estate Board holds claim to that achievement. The Toronto
Real Estate Board was formed in 1920, with the Ontario Association of Real Estate Boards (OAREB) following two years
later on Dec. 7, 1922. The Association actively lobbied for the first Real Estate Brokers Act, which was passed in 1930.
In the early 1950’s, a regional structure (five regions in total) was set out as part of a major reorganization involving
both the real estate boards and OAREB. By the early 1970’s, the membership had swelled to 20,000, with OAREB
renamed as the Ontario Real Estate Association (OREA) in 1972. Ten years later, OREA welcomed the 48th real estate
board into organized real estate in Ontario. In 2006, the Association reported a total membership exceeding 40,000.
In 1997, a long-held OREA commitment to self-regulation was realized with the formation of the Real Estate Council
of Ontario (RECO). RECO oversees all regulatory matters regarding the Real Estate and Business Brokers Act, 2002 as well
as registration processes, professional standards enforcement and consumer protection programs. Another milestone
was reached in 2003 with the formation of the OREA Real Estate College. The College is the latest innovation in OREA’s
continuing education role, which began with the introduction of formal real estate education courses in 1965.
NOTE For a detailed listing of real estate boards in Ontario, go to the OREA website (www.orea.com).
PROFESSIONAL ORGANIZATIONS
Selected provincial, national and international organizations are highlighted given their
significant presence in real estate brokerage and related fields, and their notable contribu-
tion to the professional development of brokers and salespersons either through real
estate brokerage or related specialty areas. Note: The Real Estate Council of Ontario is
fully profiled, including all significant activities and programs, in Chapter 2: Real
Estate—A Regulated Profession.
The Canadian Real Estate Association

The Canadian Real Estate Association (CREA) is the national organization for REALTORS® REALTORS®
throughout Canada, with offices located in Ottawa. CREA focuses on national and A registered trademark that may
international representation of the profession with liaison to such organizations as the only be used by an active
Appraisal Institute of Canada, the National Association of REALTORS®, the Canadian member of a real estate board
affiliated with The Canadian Real
Construction Association, the Urban Development Institute and the Canada Mortgage Estate Association.
and Housing Corporation.
Founded in 1943, CREA has become a major player in the daily activities of organized
real estate. The association was born during the postwar period from the desire to have a
national voice for all real estate salespersons in the legislative process. From that purpose,
it has grown and prospered into a full-fledged national organization impacting daily on
its members’ activities.
The Canadian Real Estate Association’s mission statement outlines its primary purpose
to represent and promote the interests of the members, enhance members’ professionalism and
ability to succeed, and advocate policies that ensure real estate property rights and ownership.
CREA is administered by a board of directors consisting of regional directors, directors-
at-large and selected appointments from across Canada. CREA has responsibility for
national/international representation of the industry, various codes including the REALTOR®
Code of Ethics and Standards of Business Practice, the Privacy Code, the Pledge of
Competition and the Principles of Competition, the overseeing of certain trademarks
and certification marks (most notably REALTOR® and MLS®), assistance to real estate
boards and associations, and arbitration between provincial associations and between
members from different provinces.
CREA also operates the realtor.ca website providing consumer access to selected property
information for both residential and commercial property listings. This website is not
an MLS® system, but instead is an advertising vehicle provided by REALTORS® across
Canada to help market properties. Consumers need to contact a REALTOR® for complete
details about properties listed on this site.
WEB LINKS
CREA Websites The CREA website (www.crea.ca) provides interesting background information
concerning organized real estate in Canada and specifics about trademarks and certification marks.
See also www.realtor.ca for information about residential and commercial properties offered by
REALTORS® throughout Canada.
Ontario Real Estate Association

The Ontario Real Estate Association (OREA) represents more than 70,000 brokers and
salespeople who are members of the province’s real estate boards. The Association’s many
functions include administering pre-registration, articling and broker courses within
the registration curriculum (as designate for the Real Estate Council of Ontario), main-
taining a strong lobbying voice for REALTORS®, offering savings programs and
informing members of real estate news.
OREA continually strives to improve the image of REALTORS® by enhancing education-
al and professional standards. The Association also handles ethics and arbitration appeals
involving board members, develops, publishes and provides downloadable standard forms
and clauses, and supports educational and charitable causes through the REALTORS Care
Foundation. Every real estate professional who joins an Ontario real estate board auto-
matically becomes a member of OREA and The Canadian Real Estate Association (CREA).
OREA’s goal is to help Ontario’s REALTORS® succeed through many activities:
• Monitoring government legislation that affects real estate.
• Providing a strong lobbying voice.
• Maintaining highcalibre education and professional development programs.
• Developing a positive image of REALTORS®.
• Forming affinity partnerships to provide discount programs for members.
• Reporting and analyzing industry news and trends.
OREA REAL ESTATE COLLEGE

OREA, as designate of the Real Estate Council of Ontario, develops and administers
educational courses required for registration in ntario. In December 2002, the OREA
Board of Directors approved the creation of the OREA Real Estate College.
The College offers courses in the pre-registration segment including Real Estate as a
Professional Career, Land, Structures and Real Estate Trading, The Real Estate Transaction—
General, The Residential Real Estate Transaction (and the alternate commercial course
titled The Commercial Real Estate Transaction), the articling segment (specialized courses
within the two-year articling period), including Real Property Law, Principles of Appraisal,
Principles of Mortgage Financing, Principles of Property Management, Real Estate Investment
Analysis and The Residential or Commercial Real Estate Transaction not previously taken
during the pre-registration segment. The College also offers the Real Estate Broker Course
for the broker segment of the overall registration curriculum.
As designate for the Real Estate Council of Ontario, the College is responsible for the
development of course content and other materials to satisfy required areas of study and
other criteria as established by the Registrar, the qualifying, training and managing of
course instructors, the marketing and delivery of registration courses throughout the
province, the provision of proctored examinations and associated program administra-
tion and reporting functions.
Registration Education—Changes Effective April 1, 2016 EDUCATION UPDATE
All students enrolled in the pre-registration education program on or after April 1, 2016 are required to complete five
courses prior to registering to trade in real estate. The new education program requires both the Residential Real Estate
Transaction and the Commercial Real Estate Transaction, as well as the Real Property Law course, to be completed in addition
to the other pre-registration courses identified above. The articling segment will require one elective to be completed
within the two-year articling period. Additional information regarding education requirements is discussed in Chapter 2.
WEB LINKS
The OREA website (www.orea.com) includes detailed information about the Association, its structure,
member programs and benefits, and government relations. The website also provides important
information concerning a career in real estate and registration education.
The Appraisal Institute of Canada

The Appraisal Institute of Canada (AIC), founded in 1938, is the national society of pro-
fessional real estate appraisers. The Institute is dedicated to serving the public interest by
advancing high standards for members of the appraisal profession through the granting
of professional designations including the CRA (Canadian Residential Appraiser), AACI
(Accredited Appraiser Canadian Institute) and P. App (Professional Appraiser).
Practising members provide reasoned valuations widely respected by courts, chartered
banks, real estate corporations, trust companies, mortgage and lending institutions, as
well as all levels of government and private individuals. Members are governed by a Code
of Ethics and Uniform Standards of Professional Appraisal Practice that establish mini-
mum standards of performance in the rendering of professional services. The Institute’s
education program is available through most of its provincial associations and chapters.
Certain universities and colleges also offer the program on a full-time basis. The national
office of the Appraisal Institute of Canada is located in Ottawa. Provincial offices are
maintained in all provinces.
WEB LINKS
Appraisal Institute of Canada Go to the Institute’s website (www.aicanada.ca) for detailed
information about the organization and a career as a property appraiser.
Real Estate Institute of Canada

In 1955, the Canadian Association of Real Estate Boards formed the Canadian Institute
of REALTORS® to carry out its aims in the field of education. A three-year university
course was prepared in co-operation with the University of Toronto. Successful students
received a designation in real estate from the Institute.
In 1971, when CREA was organized, the Canadian Institute of REALTORS® became a
division of CREA. The name was subsequently changed to the Real Estate Institute of
Canada (REIC). The primary purpose of REIC was to act as the educational arm of CREA
and to co-ordinate education courses on a national basis. In the ensuing years, REIC
became an autonomous institute to serve its mission of establishing, maintaining, promot-
ing and advancing professional standards of practice among those occupations concerned
with real estate. All REIC members must fulfill ongoing professional development
requirements.
The Institute’s mission statement summarizes its primary purpose:
The Real Estate Institute of Canada exists to advance
opportunities for persons involved in real estate.
REIC grants various professional designations of which the most relevant for real
estate practitioners is the FRI (Fellow of the Real Estate Institute). However, those actively
pursuing property management activities should investigate the CPM (Certified Property
Manager), the CLO (Certified Commercial Leasing Officer) and the ARM (Accredited
Residential Manager). The Real Estate Institute of Canada is located in Etobicoke and
has chapters across Canada.
WEB LINKS
Real Estate Institute of Canada Go to Institute’s website (www.reic.ca) for detailed information
about the organization.
The CCIM Institute

The CCIM Institute is an affiliate of the National Association of REALTORS® in Chicago,
Illinois. The Institute provides education programs and services for professionals in com-
mercial and investment real estate, as well as allied industries. The Institute awards the
CCIM designation to individuals completing a series of graduate level courses based on
advanced concepts/techniques in commercial real estate. Four core courses provide the
fundamental skill sets required: financial, market, user decision and investment analysis
relating to commercial investment properties.
The Institutes’s vision statement is to be the leading edge professional association to
the commercial real estate industry. Two Canadian Chapters of the Institute have been
formed: the Western Canadian Chapter and the Central Canadian Chapter. Various
boards across Canada offer credit courses toward the CCIM designation. Contact the
National Commercial Council of The Canadian Real Estate Association for current
information.
WEB LINKS
The CCIM Institute Go to the Institute’s website (www.ccim.com) for detailed information
about the organization and the CCIM designation. Individuals interested in commercial activities
can obtain additional information from the National Commercial Council of The Canadian Real
Estate Association. Go to www.crea.ca and click on Commercial Council.
Society of Industrial and Office REALTORS®

The Society of Industrial and Office REALTORS® (SIOR) is a leading international
organization of commercial and industrial practitioners. The SIOR designation is awarded
by SIOR, an affiliate of the National Association of REALTORS® in the United States. The
Society is dedicated to the maintenance of high professional standards in the fields of
industrial and office real estate. The Society offers a candidate status that is designed to
provide entry-level real estate practitioners with a meaningful program to motivate and
encourage them to work toward obtaining the SIOR designation. The world headquarters
of SIOR is located in Washington, D.C. SIOR has three Canadian chapters: Eastern
Canada, Central Canada and Western Canada.
WEB LINKS
Society of Industrial and Office REALTORS® Go to the Society’s website (www.sior.com) for
detailed information about the organization.
REAL ESTATE BROKERAGE:

ROLES AND AUTHORITIES
Real estate brokerages in Ontario provide valuable marketplace services to consumers who
Brokerage seek professional assistance when buying, selling or otherwise acquiring or disposing of
A corporation, partnership or real property. The legal relationship between the brokerage and consumer (typically a
sole proprietorship that trades in buyer or seller) is a complex intertwining of common law and regulatory requirements.
real estate on behalf of others
for compensation or reward, or
expectation thereof.
Brokerage as an Agent
A brokerage is viewed legally as an agent under common law. Common law represents
principles, customs and procedures recognized over many years by the courts. In a legal
sense, the brokerage is an agent that enters into an agency relationship with a principal Agent
(the buyer or seller). This agency relationship is legally defined as being between two One who is authorized by a
persons, one of whom [the principal] expressly or impliedly consents that the other [the principal to represent the prin-
agent] should act on his behalf, and the other of whom similarly consents so to act or so acts. cipal in business transactions
with a third party. In the real
(Ref: Bowstead on Agency, 15th ed. (1985).) The relationship is typically documented by way estate profession the agent is
of a buyer representation agreement or seller representation agreement (commonly the brokerage.
referred to as a listing agreement).
Many types of agents operate under common law principles; e.g., agents involved with
insurance, investments and entertainment. The real estate brokerage as an agent has
various duties to the principal including general, fiduciary and regulatory obligations. In
Ontario, regulatory obligations are set out under the Real Estate and Business Brokers
Act, 2002. Intricacies of agency relationships (i.e., representing others) are fully detailed
in Land, Structures and Real Estate Trading.
REPRESENTING OTHERS
The common law term agency and related words (e.g., agency relationship) do not Agency
appear in the Real Estate and Business Brokers Act, 2002 and associated Regulations. The The relationship between prin-
legislation focuses instead on representation which is generally analogous to agency in cipal and agent, wherein an
terms of duties and responsibilities. The Act also sets out various requirements about agent is employed and authorized
by the principal to represent the
representation agreements and other trading matters, including the brokerage right to principal in business transactions
delegate authority to registered brokers and salespersons. with a third party.
Brokerages, Brokers and Salespersons

REBBA 2002 sets out definitions for brokerage, broker and salesperson. The Act clearly
states that the role of a brokerage is to trade on behalf of others. Brokers and salespersons
must be employed by a brokerage.
“brokerage” means a corporation, partnership, sole proprietor, association or other

organization or entity that, on behalf of others and for compensation or reward or the
expectation of such, trades in real estate or holds himself, herself or itself out as such;
“broker” means an individual who has the prescribed qualifications to be registered

as a broker under this Act and who is employed by a brokerage to trade in real
estate; (“courtier”)
“salesperson” means an individual who has the prescribed qualifications to be registered

as a salesperson under this Act and who is employed by a brokerage to trade in real
estate;
(REBBA, Sec. 1)
Types of Brokerages
While the definition of a brokerage includes an association or other organization, current
registration procedures only permit a brokerage to trade in real estate as a corporation,
partnership or sole proprietorship.
Corporation The real estate brokerage corporation is created by statute law and is
established through the registration of articles of incorporation.
Brokerage corporations can vary from small privately-held operations
to large offering or public companies. The corporation, unlike the
partnership and sole proprietorship, provides a distinction between
the business operation and its owner(s). As a legal entity, the corporation
is capable of merging, creating subsidiary companies and generally
operates distinct and separate from its owner(s).
Corporations are subject to various disclosure and related require-
ments when seeking registration, most notably in regard to share-
holders, officers and directors.
Partnership A partnership involves two or more individuals or entities that pool

their personal and financial resources in a joint effort. A partnership
is created by the prospective partners entering into a partnership
agreement. A change in a partnership under the Real Estate and
Business Brokers Act, 2002 is deemed to create a new partnership.
Interestingly, a surviving or remaining partner is permitted to carry
on in the partnership name if all advertising and related materials
clearly state that the surviving or remaining partner is a sole proprietor.
Sole A sole proprietorship involves a business operation owned by one

Proprietorship person who operates individually or with the assistance of employees.
The sole proprietor owns all the assets, is responsible for the debts, is
entitled to the profits and is accountable for any losses. A sole propri-
etor must operate using the name of the broker.
Brokers of Record and Managers

Broker of Record The Act requires the brokerage designate a broker of record. This individual must be a
A broker designated by a broker employed by the brokerage. This individual ensures that the brokerage complies
brokerage to ensure brokerage with REBBA 2002 and associated Regulations. Further, branch office managers may be
compliance with the Real Estate appointed and can be either a broker or a salesperson provided that they meet criteria
and Business Brokers Act, 2002
and Regulations. set out in the statute to act in a management capacity.
Employee Employees vs. Independent Contractors

A relationship in which the The Act provides that brokers and salespersons can be employed by a brokerage provided
employer directly controls and that they have met prescribed qualifications to be registered as such. For taxation pur-
supervises the work of the
employee and is responsible for poses, the relationship between the employing brokerage and brokers and/or salespersons
the employee’s actions in the can involve employee or independent contractor (IC) status.
performance of such work.
With an employee, a contract of service exists—legally referred to as a master/servant
relationship in which the master (employer) controls and supervises the work of the
Independent Contractor servant (employee). With an independent contractor , a contract for service is created.
An individual who works accord- Independent contractor agreements are generally more lengthy documents given detailed
ing to his/her own methods and contracted duties and responsibilities.
judgement. Tax-related rules An independent contractor works according to his or her own methods and judgement.
apply to independent contractors.
Brokers or salespersons seeking independent contractor status are doing so for taxation
purposes. Such an arrangement does not in any way minimize the fundamental employee/
employer relationship as established under the Real Estate and Business Brokers Act, 2002
and associated Regulations. For taxation purposes, various common law tests are applied
by the Canada Revenue Agency (CRA) to determine whether an individual is an independ-

ent contractor or not. Exact rules applied can vary based on individual circumstances
and persons contemplating IC status should seek expert advice.
A Typical Real Estate Brokerage
Corporation
BROKERAGE Partnership
Sole Proprietorship*
Branch
Managed By
Broker or
Brokers
Qualified Salesperson
BROKER OF
RECORD
Salespersons
Administrative
Staff
* The Broker of Record is the Sole Proprietor

in a Sole Proprietorship.
As a general guideline, the Canada Revenue Agency will take into consideration the
entire relationship between a brokerage and a broker or salesperson in making a determina-
tion of whether that individual is an employee or an independent contractor. A broker or
salesperson is more likely to be viewed as an independent contractor if:
• The brokerage exercises only limited control over the individual’s daytoday work
activities.
• The broker or salesperson pays for his her own tools and equipment and other costs
of doing business.
• The broker or salesperson is free to hire others to assist in daytoday work activities.
• The broker or salesperson bears financial risk as well as having the opportunity for
profit.
• The genuine intention of both the brokerage and the broker or salesperson is that
the relationship is one of an independent contractor.
As an additional note, the Canada Revenue Agency has recently confirmed that commis-
sion sharing arrangements (i.e., the broker or salesperson paying the brokerage a percent-
age of commission for overhead) does not in itself establish an employee relationship.
Uncertainty had existed on this point, as commission sharing arrangements were thought
to adversely affect independent contractor status. Once again, the CRA takes the entire
relationship into consideration.
Applying Common Law Principles FOCUS ON ICI STATUS
As further input, the Canada Revenue Agency has traditionally applied common law principles in determining
independent contractor versus employee status. Recent announcements by the CRA appear consistent with that
common law approach involving four components:
Ownership/Economic Reality Does the individual use his/her own tools or other materials to perform
contracted services?
Integration Does the individual operate his/her activities with relative independence
from the hiring brokerage?
Control Is the individual controlled by the brokerage?
Contract for Service Does supporting documentation exist to confirm independent contractor
status?
Tests Leading to Independent Contractor Status
Ownership/
Economic Reality Integration
Contract For Control

Service
Typical employee and independent contractor agreements are illustrated in workbook exercises. Go to
www.cra.gc.ca for additional information.
UNDERSTANDING THE
LISTING/SELLING PROCESS
Brokers and salespersons are actively involved in the listing and selling of real estate. Activities
can be broadly grouped under six components. To better appreciate the type of work
involved in residential resales, the progress of a typical residential transaction (if in fact any
transaction can be classified as typical) is detailed. In this example, the brokerage is repre-
senting the seller. Perspectives and duties vary based on the type of representation (e.g.,
whether or not the brokerage is representing the buyer or seller), the brokerage policies,
local practices and procedures, and the property type (e.g., residential or commercial).
Listing
The listing agreement is entered into between the seller and the real estate brokerage,
authorizing the brokerage to act as the seller’s agent in offering the property for sale. A
large portion of residential resale activity involves developing leads and converting them
into saleable listings to provide the brokerage with goods on the shelf. Skill is uppermost
as listings that are not at or close to market value or in which the confidence and co-
operation of the seller has not been obtained usually result in lost effort, money and image.
The Real Estate and Business Brokers Act, 2002 and Regulations sets out various require-
ments both regarding disclosures prior to the obtaining of a listing, the contents of such
agreements and the requirement to ensure that the party(ies) signing receive a copy of the
agreement. Once a saleable listing has been obtained, the brokerage represents the seller
and in that capacity must fulfill various regulatory and common law duties (and other
standards if the brokerage is a member of organized real estate pursuant to the CREA Code
of Ethics and Standards of Business Practice). Since the broker or salesperson involved
in the listing process is authorized to act on behalf of the brokerage, all such obligations
extend to those individuals.
Prospecting
Prospecting involves the search for qualified buyers for listed property. The public prob-
ably has the impression that this means placing an ad in the paper and a sign on the
property. Although these activities are examples of prospecting, experienced salespersons
use other methods of active prospecting that may be far more effective. There is an old
saying in the real estate profession that the property will qualify the buyer. In other words,
the property in terms of type, location and price range will provide an experienced sales-
person with a profile of a typical buyer and will target marketing activities and efforts
accordingly. As every new salesperson will discover, real estate prospecting challenges the
initiative, the imagination and the dedication of anyone actively involved in the marketplace.
Qualifying and Showing

Qualifying involves determining the buyer’s needs and wants. The scope of activity involved
in the process depends on whether the brokerage is representing the buyer (i.e., working
in the best interests of that individual) or providing limited services to the buyer as a
customer (not representing that individual, but providing information in an honest manner
and also exercising care and skill). The role being performed must be fully disclosed to
ensure that the buyer fully understands what will or will not be done during the process
of qualifying and showing property, as well as subsequent negotiations. REBBA 2002 sets
out exact requirements regarding such disclosure.
The qualifying process is typically followed by selecting a limited number of properties
to be shown. One of the purposes of qualifying is to narrow the field to avoid confusion
and wasted time and effort. Following the appropriate selection, the process of showing
and providing accurate and complete information follows.
Offer Preparation
People skills are paramount as there is no point in asking for an offer unless the property
is the right one for the buyer. Experienced salespeople know the signs to look and listen
for and also recognize that timing and positive reinforcement are important. Make no
mistake, salespersons must typically ask for the offer.
The offer itself is a complex document, involving a great deal of detail with numerous
decisions to be made by the buyer. Once again, the Real Estate and Business Brokers Act,
2002 and Regulations set out requirements concerning both the offer preparation and its
presentation. In preparing an offer, the salesperson accepts a very serious responsibility to
ensure that the document contains all terms and conditions required by the buyer, and
that the elements necessary to create a binding agreement, according to the common
law of contract, are present.
Offer Presentation
Presentation of the buyer’s offer to the seller involves an analysis of the document itself
and discussion of such matters as market conditions and circumstances that the seller
should take into consideration. The precise roles played by salespersons involved in the
presentation will depend upon whom they are representing. The seller may accept, reject,
or counter the buyer’s offer. Countering the offer means that the seller signs an offer to
sell the property to the buyer under terms differing from the buyer’s original offer to
purchase. This would then require an offer presentation to the buyer.
When faced with challenging negotiations, it is not uncommon for salespeople to
bounce back and forth between seller and buyer several times before the parties agree on
the final terms. If an offer is ultimately accepted, copies are delivered to all parties. Since
the transaction can involve one or more brokerages, copies of the accepted agreements
are also provided to the respective brokerages. The brokerage (or brokerages as the case
may be) must then prepare trade record sheets confirming sale information, outline
internal commission distribution for the sale and complete other relevant details, which
is then approved by the broker of record. Any deposit received is typically placed in the
listing brokerage’s real estate trust account.
As with other aspects of the listing and selling process, the Real Estate and Business
Brokers Act, 2002 and Regulations set out requirements concerning the offer presentation,
dealing with other registrants (i.e., other brokerages and their employed brokers and
salespersons), competing offers, agreements relating to commission, the handling of
deposits received including time limits to place them in a trust account, the completion
of supporting documents and the maintenance of business records.
Follow-Up
The brokerage and its representatives must follow through after the sale in the same
competent and conscientious manner required during the listing process and subsequent
negotiations. For example, the agreement may have one or more conditions that must
be satisfied and appropriate written notifications prepared when these conditions are
fulfilled. Also, the parties may elect to amend the agreement. Once again, the brokerages
and representatives involved must act in a diligent and timely manner to address such
changes; e.g., amendments must be signed by the parties and copies distributed. If the
conditions are not met or other circumstances occur that cause the transaction to fall
through, then mutual releases must be signed and copies distributed.
SALESPERSON REMUNERATION
Real estate sales has many benefits, not the least of which is the potential for a worthwhile
income. Most brokerages compensate brokers and salespersons by sharing amounts
Commission received. Remuneration typically involves a commission established as a percentage of the
Remuneration paid to a registrant sale price, but other options exist in the marketplace. The method of remuneration is
on the sale or lease of property. normally set out in the representation agreement (e.g., a listing agreement or buyer
It is usually expressed as a percen- representation agreement) and may be calculated as follows:
tage of the sale amount, but it
can also be an agreed amount, • A commission based on percentage of the sale price; and or
or a combination of both.
• A flat fee.
REBBA 2002 provides for either arrangement or a combination of both. A retainer fee
may also be agreed upon between the brokerage and the buyer or seller that is typically,
but need not be, credited towards any remuneration received.
Rights and responsibilities concerning remuneration involving the agent (brokerage)
and principal (buyer or seller) are addressed in greater detail in subsequent courses. Topics
include the entitlement to remuneration, the terms under which remuneration is paid
and holdover periods following expiration of a representation agreement. While commis-
sion is most commonly associated with listing and selling activity, other income can be
generated from non-selling activities including property management, opinions regarding
value or buyer/seller referrals to other brokerages. Salaries or other remuneration arrange-
ments between brokerages and their employed brokers and salespersons are possible,
but rarely found today in Ontario.
The Commission Sales Model

As most Ontario brokerages compensate brokers and salespersons by sharing commis-
sions, detailed information and examples are provided about this remuneration model,
while acknowledging that many variations exist in the marketplace.
COMMISSION SHARING
The income received by a broker or salesperson involving a particular transaction is
typically subject to the number of brokerages and salespeople involved in the transaction
and the distribution methods used. In the simplest scenario, if a salesperson lists and sells
a property, the commission is paid to the brokerage who then splits the amount with that
salesperson. Commission sharing methods can vary significantly based on circumstances. Commission Sharing
Typically, commission dollars received are allocated between listing and selling portions Methods of commission distribu-
with a subsequent split between listing and selling salespersons. When two brokerages tion involving one or more
are involved, funds are distributed between listing and selling brokerages, who then subse- brokerages and/or salespersons.
quently split commission based on the portion received (either listing or selling portion)
with their respective salespersons.
COMMISSION SPLITS
Commission splits can vary significantly in the marketplace. Some offer a yearly plan with Commission Splits
increasing salesperson splits as an incentive for higher levels of production. Others provide A method of sharing commission,
a high split (e.g., 90% or higher of total commission) but require a significant salesperson most commonly in reference to
contribution toward brokerage expenses and/or a monthly desk fee paid by the salesperson. a brokerage/salesperson split,
typically as per an agreement
Still others use a commission sharing arrangement (e.g., 50/50 or 60/40) until a stipulated between the parties as employer/
number of transactions or a specific dollar volume is attained, with the balance during a employee or two independent
contracting parties.
particular year at a higher split (in favour of the salesperson). Differing remuneration
methods may apply to different brokers or salespersons within the same brokerage.
Regardless of the arrangement, brokers and salespersons are typically responsible for
most personal expenses including automobile maintenance and related costs.
SCENARIO 1 One Brokerage Involved In A Commission

Total commission is received by the brokerage and allocated between listing and selling portions
(e.g., 50/50). The applicable portions are then split with the listing and selling salespersons
according to contractual arrangements (e.g., listing salesperson contracted for a 50/50 split;
selling salesperson for a 70/30 split).
ABC Realty Inc. 50%

$1,250
ABC Realty Inc. $2,500 To Salesperson Lee
Listing & Selling Listing Portion (Listing Salesperson)
Brokerage
$1,250
$5,000 50% Net To Brokerage
Commission Received
ABC Realty Inc. 70%

$1,750
$2,500 To Salesperson Garcia
Selling Portion (Selling Salesperson)
$750
30% Net To Brokerage
COMMISSION
ALLOCATION COMMISSION
SPLIT
SCENARIO 2 Two Brokerages Involved In A Commission

Total commission is received by the listing brokerage and distributed between the listing and
selling brokerages. (Note: The term distributed is used to differentiate from allocation within a
brokerage). The applicable portions are then split with their respective listing and selling sales-
persons according to contractual arrangements (e.g., in this instance, the listing salesperson
contracted for a 60/40 split and the selling salesperson for a 90/10 split).
ABC Realty Inc.

Listing Brokerage
$5,000 60%
$1,500
Commission Received ABC Realty Inc. To Salesperson Lee
$2,500 (Listing Salesperson)
$2,500 Listing Portion
Distributed to
Selling Brokerage $1,000
40%
Net To Brokerage
XYZ Real Estate Ltd. 90%

XYZ Real Estate Ltd. $2,250
Selling Brokerage To Salesperson Ward
$2,500
Selling Portion (Selling Salesperson)
$250
10% Net To Brokerage
COMMISSION
DISTRIBUTION COMMISSION
ALLOCATION COMMISSION
SPLIT
Commission Scenarios (Six of Many)

BROKERAGE ABC Realty Inc. XYZ Real Estate Ltd.
SALESPERSON Lee Garcia Martin Ward
Listing
SCENARIO 1
Selling
Listing
SCENARIO 2
Selling
Listing
SCENARIO 3
Selling
Listing
SCENARIO 4
Selling
Listing
SCENARIO 5
Selling
Listing
SCENARIO 6
Selling
COMMISSION PLANS
Brokerages establish commission plans outlining commission splits and related policies.
These are commonly described in policy manuals and/or attached to salesperson employ-
ment contracts. A variety of commission plans are available but most are derived from
two basic formats:
• Conventional commission plans (referred to as split plans); and
• Desk fee plans (payment of a monthly fee by the salesperson normally combined with
a higher commission split than the conventional plan).
Conventional Commission is paid to the salesperson based on gross commission

Plan income received less payment to other brokerages. The brokerage is
responsible for most expenses associated with the listing and marketing
of the property. Historically, such plans offered a 50/50 or 60/40 salesperson/
brokerage split with accrued bonuses paid at the end of the year or
progressive splits based on sales volume paid during the year. Intense
market rivalry has produced many variations on this basic concept, as
salespeople seek increased split participation and more involvement in
selling expenses incurred in the sale process.
The selection of a salesperson compensation package will depend
largely on competitive forces within the market, expenses paid by the
brokerage on behalf of the salesperson and services provided by the
brokerage. In determining an appropriate plan, the brokerage must weigh
out various factors, such as average production level of salespeople, range
of estimated sales production for individual salespeople, net cash received
by the brokerage relating to this production, brokerage expenses and
distribution of cash flow throughout the year.
Desk Fee Plan This plan has gained prominence throughout Canada, as it attracts
salespeople given the potential for high commission earnings. Under
this arrangement, the salesperson pays a desk fee to the brokerage relating
to the brokerage’s fixed expenses (e.g., premises, staff, etc.) as well as all
or most expenses relating to the listing and selling process (e.g., advertising,
promotional materials, administration fees charged by the brokerage,
etc.). Desk fee plans tend to attract experienced registrants who have an
established clientele or enter the profession with well established
personal networks.
From the brokerage’s perspective, such plans limit income that might
otherwise be obtained from upward market swings and increased pro-
duction of salespeople. Proponents quickly respond that revenues can
increase with aggressive recruiting strategies, the building of larger, more
effective sales forces and efficient brokerage management.
SCENARIO 1 SCENARIO 2
ABC Realty Inc. operates a desk fee plan and both listing In a slightly different scenario with the same commission
and selling salespeople are independent contractors, and sale price assume that:
each paying $925 per month in desk fees. The total • AB Realty Inc. is the listing brokerage and Real
commission on a specific property is 5%. Based on Estate Ltd. is the selling brokerage;
a $200,000 selling price and assuming a 95/5 split • AB Realty Inc. has a 5/5 desk fee plan and
between the brokerage and each salesperson and listing Real Estate Ltd. has a conventional plan (60/40 split)
and selling portions being split equally, the following and pays most expenses of the salespeople; and
commission calculation would apply: • he commission allocation between listing and
selling brokerages is 50/50.
Listing Selling
Brokerage Name ABC ABC Listing Selling
Commission Distribution 5% (100% of 5%) Brokerage Name ABC
Gross to Brokerage 10,000 Commission Distribution 2.5% 2.5%
Salesperson Names Miller Lane (50% of 5%) (50% of 5%)
Salesperson Commission 95/5 95/5 Gross to Brokerage 5,000 5,000

Split Salesperson Names Miller Warden
Salesperson Share 4,750 4,750 Salesperson Commission 95/5 60/40
Net to Brokerage 250 250 Split
Salesperson Share 4,750 3,000
Net to Brokerage 250 2,000
NOTE The selling salesperson receives less commission

as various expenses are paid by the brokerage.
Commission distribution arrangements can vary
significantly in the marketplace.
KNOWLEDGE
INTEGRATION
Notables
• Real estate plays a significant role in both • The listing selling process is best described
Ontario and Canadian economies. under six headings: listing, prospecting,
• Real estate development and construction qualifying and showing, offer preparation,
has a ripple effect that flows through the offer presentation and follow-up.
economy. • Salesperson remuneration is typically by
• A career in real estate can be rewarding, way of the commission sales model, but pay-
but personal determination and commitment of a flat fee is also acceptable. REBBA
ment are vital and prospective salespersons 2002 also allows remuneration that includes
should be realistic regarding career both a percentage of the selling price and a
expectations. flat fee. While salesperson income typically
arises from listing and selling activity, other
• Career path choices must be made including non-selling activities and referrals can gen-
the particular market segment in which to erate income.
focus one’s attention, the type of brokerage
to select and what benefits/services organized • Commission arrangements vary both
real estate can offer in regard to your between and within real estate brokerages.
career. • Terminologies regarding commission
• Selected professional organizations pro calculations are not standardized, but
viding services to registrants in Ontario generally involve a distribution of commis-
are included to provide a broader perspec- sion between listing and selling brokerages,
tive on career opportunities and services the allocation of listing and selling com-
in the marketplace. ponents within a brokerage, and the splitting
of commission between brokerage and
• Roles and responsibilities for brokerages, salesperson.
brokers and salespersons are clearly set out
in the The Real Estate and Business Brokers • Commission plans are typically structured
Act, 2002 and Associated Regulations. using a conventional plan or a desk fee plan,
but many variations exist in the marketplace.
• While a salesperson has the option of being
an employee or an independent contractor
for taxation purposes, all salespersons under
REBBA 2002 are deemed to be employees
for purposes of the Act.
Glossary
Agency Corporation Real Estate and Business
Agent Employee Brokers Act, 2002
Broker Independent Contractor Real Estate Board
Broker of Record Multiple Listing Service® REALTOR®
Brokerage (MLS®) Registrant
Canadian Real Estate Organized Real Estate Salesperson
Association (CREA) Ontario Real Estate Association Sole roprietorship
Commission artnership Three-Way Relationship
Commission Sharing rincipal
Commission Split Real Estate
Web Links
Web links are included for general interest regarding selected chapter topics, but are not
required for examination purposes.
Real Estate Boards For a detailed listing of real estate boards in Ontario, go to the
OREA website (www.orea.com), click on About and then click on
Ontario Real Estate Boards.
The Canadian Real Estate The CREA website (www.crea.ca) provides interesting background
Association information concerning organized real estate in Canada and specifics
about trademarks and certification marks. See also www.realtor.ca
for information about residential and commercial properties offered
by REALTORS® throughout Canada.
Ontario Real Estate Association/ The OREA website (www.orea.com) includes detailed information
OREA Real Estate College about the Association, its structure, member programs and benefits,
and government relations. The website also provides important
information concerning a career in real estate and registration
education.
Appraisal Institute of Canada Go to the Institute’s website (www.aicanada.ca) for detailed
information about the organization and a career as a property
appraiser.
Real Estate Institute of Canada Go to the Institute’s website (www.reic.ca) for detailed information
about the organization.
CCIM Institute Go to the Institute’s website (www.ccim.com) for detailed information
about the organization and the CCIM designation. Individuals
interested in commercial activities can obtain additional information
from the National Commercial Council of The Canadian Real Estate
Association. Go to www.crea.ca and click on Commercial Council.
Society of Industrial and Office Go to the Society’s website (www.sior.com) for detailed informa-
REALTORS® tion about the organization.
Canada Revenue Agency Go to the CRA website (www.cra.gc.ca) for additional information.
Strategic Thinking For Your Career

Questions are included to assist in developing your new career. No answers are provided.
1. What training will I require to 5. What advantages does organized real
become more tech-savvy for today’s estate offer that will assist me in
real estate marketplace? providing enhanced listing, marketing
and selling services and which real
2. What specific activities will assist in
estate board(s) are of particular
acquiring saleable listings, once I am interest to me?
registered as a real estate salesperson
with the Real Estate Council of Ontario? 6. Based on information provided to
this point in the course, my skills
3. Which market segments are appealing
appear best focused on listing and/or
and is there sufficient activity in those selling activities. What additional
segments to focus my efforts and activities should I undertake to
build a career in the local marketplace? improve those skills?
4. Which professional organizations are
7. What compensation plans and other
best suited to advance my career and benefits/features are available with
my intended market niche? brokerages that operate in my local
marketplace?
Chapter Mini-Review
Solutions are located in the Appendix.
1. One potential benefit of owning 9. A corporation is not required to dis-

property is that credit may be more close any information about its officers
readily available to that owner. and directors when registering as a
real estate brokerage.
True False
True False
2. The provincial government has put
in place certain long term plans for 10. All real estate brokerages registered with
anticipated growth in the Greater the Real Estate Council of Ontario must
Golden Horseshoe. designate a broker of record regardless
of whether the brokerage is a sole pro-
True False prietorship, partnership or corporation.
True False
3. Future tax revenues are part of the
ripple effect when a new house is
constructed. 11. All real estate brokers and salespersons
are viewed as independent contractors
True False for purposes of the Real Estate and
Business Brokers Act, 2002 and
4. Math and computer skills are much associated Regulations.
more important than people skills True False
when considering a career in real
estate sales.
12. A commission split typically refers to
True False the division of commission between
brokerages.
5. In residential sales, the time span True False
between when a property is listed,
subsequently sold and ultimately 13. The distribution of commission between
closed can be four, six or even eight brokerages can vary in the marketplace.
months depending on market condi-
tions and related considerations. True False
True False
14. Commission plans are usually set out in
brokerage policies and/or contractual
6. Standard condominiums are made arrangements with salespersons.
up of units and common elements.
True False
True False
15. In a typical desk fee arrangement, the
7. Mortgage brokerages can employ both brokerage generates its primary revenue
mortgage brokers and mortgage agents. from monthly fees paid by salespersons
to the brokerage.
True False
True False
8. The term ICI refers to investment,
condominium and industrial real estate.
True False
Active Learning Exercises

The following exercises are based on Chapter 1 examples. Suggestion: Take a sheet of
paper and write down the question numbers and your responses. Don’t put answers in
the workbook. If left blank, you can retry the questions later for review purposes.
Complete the following exercises by inserting the appropriate commission dollars (“$”)
earned based on the information provided. Assume that all commission allocations
(i.e., listing and selling portions) within one brokerage are 50/50. A “ ” indicates which
brokerage and salesperson(s) participates in the exercise transaction.
Example Sale Price: $279,000 Commission Rate: 6%
Brokerage Name ABC Realty Inc. XYZ Real Estate Ltd.

Listing Brokerage
Selling Brokerage
Commission 3% 3%
Distribution (50% of total) (50% of total)
Gross to Brokerage $8,370.00 $8,370.00
Salesperson Lee Garcia Martin Ward
Listing Salesperson
Selling Salesperson
Salesperson
60/40 50/50
Commission Split
Salesperson Share $5,022.00 $4,185.00
Net to Brokerage $3,348.00 $4185.00
Exercise 1 Commission Calculations—One Brokerage

Sale Price: $329,000 Commission Rate: 6%

Listing Brokerage
Selling Brokerage
Commission 6%
Distribution (100% of total)
Gross to Brokerage $________________________

Listing Salesperson
Selling Salesperson
Salesperson
60/40
Commission Split
Salesperson Share $___________
Net to Brokerage $___________
Exercise 2 Commission Calculations—One Brokerage


Listing Brokerage
Selling Brokerage
Commission 5%
Distribution (100% of total—50% listing vs. selling)
Gross to Brokerage $________________________

Listing Salesperson
Selling Salesperson
Salesperson
60/40 65/35
Commission Split
Salesperson Share $___________ $___________
Net to Brokerage $___________ $___________
Exercise 3 Commission Calculations—Two Brokerages

Sale Price: $225,000 Commission Rate: 4.5%

Listing Brokerage
Selling Brokerage
Commission 2.25% 2.25%
Distribution (50% OF 4.5%) (50% OF 4.5%)
Gross to Brokerage $________________________ $________________________

Listing Salesperson
Selling Salesperson
Salesperson
60/40 55/45
Commission Split
Net to Brokerage $___________ $___________
Exercise 4 Commission Calculations—Two Brokerages


Listing Brokerage
Selling Brokerage
Commission 2% 3%
Distribution (40% of 5%) (60% of 5%)
Gross to Brokerage $________________________ $________________________

Listing Salesperson
Selling Salesperson
Salesperson
55/45 90/10
Commission Split
Net to Brokerage $___________ $___________
Exercise 5 Multiple Choice
5.1 Which of the following statements is correct?

a. Commercial real estate can be broadly defined to include industrial, com-
mercial and investment sales, as well as leasing.
b. nowledge of land values and permitted uses is rarely required when selling
land for redevelopment within urban centres.
c. Industrial real estate typically includes the listing and sale of warehousing,
but not manufacturing facilities.
d. The CCIM designation is awarded by the Society of Office and Industrial
REALTORS®.
5.2 Who is authorized to represent the seller in a typical residential real estate listing?
a. The mortgage broker.
b. The real estate sales representative.
c. The appraiser.
d. The listing brokerage.
5.3 Which of the following is NOT a correct statement?

a. A real estate salesperson acts as an authorized representative of the brokerage.
b. The Real Estate and Business Brokers Act, 2002 is an example of legislation
that imposes duties and limitations on a real estate brokerage, as well as
brokers and salespersons.
c. A listing is taken in the name of the salesperson, who then legally represents
the seller.
d. A real estate brokerage can be registered as a corporation, partnership or
sole proprietorship.
5.4 Which of the following is a correct statement regarding independent contractor

status?
a. Salespersons, but not brokers, are considered to be employees of the brokerage
for purposes of the Real Estate and Business Brokers Act, 2002.
b. The Canada Revenue Agency does not provide guidelines to assist in determin-
ing employee versus independent contractor status.
c. All salespersons must be independent contractors in order to be registered
under the Real Estate and Business Brokers Act, 2002.
d. Various common law principles are used to determine whether a salesperson
is an employee or an independent contractor.
5.5 A broker of record, according to the Real Estate and Business Brokers Act, 2002:
a. Must be designated by the salespeople employed by the brokerage.
b. Is designated in the case of a corporation, but not in a partnership.
c. Can be either a salesperson or a broker at the time of designation.
d. Must be employed by a brokerage.
5.6 A site salesperson (not registered under REBBA 2002) employed by a builder is
typically involved in various promotional/marketing activities. Which is NOT
one of them?
a. Providing information about resale homes in the area.
b. Demonstrating homes through the use of diagrams and plans.
c. Viewing of models or fully completed houses.
d. Describing prepackaged financing packages available for the new homes.
5.7 A registered salesperson specializing in new home sales will likely find more
emphasis and time spent on which of the following activities?
a. Qualifying buyers.
b. Listing property.
c. Discussing new home plans and options.
d. Both a. and c.
5.8 Which of the following is NOT a true statement?

a. The legal structure of a condominium is set out in the declaration and
description.
b. The common elements are owned by the unit owners as tenants in common.
c. The unit owners are not personally liable for the debts of the condominium
corporation.
d. A condominium is created upon the registration of the declaration and
description.
5.9 Which of the following is usually NOT a duty of a property manager?

a. Maintaining the physical integrity of the property.
b. Paying the property expenses.
c. Acting as full-time building superintendent.
d. eeping the property leased.
5.10 Which of the following is (are) correct with respect to property management?
a. Property management requires better than average people skills.
b. Personnel management is a common activity for property managers.
c. Negotiation of contracts is a common activity for property managers.
d. All of the above are true.
5.11 Professional appraisers in Canada are usually referred to as:

a. Licensed valuators.
b. Fee appraisers.
c. Municipal assessors.
d. Home Inspectors.
5.12 Organized real estate in Canada:

a. Consists of The Canadian Real Estate Association (CREA) and the Real
Estate Institute of Canada.
b. Consists solely of the Ontario Real Estate Association (OREA) and The
Canadian Real Estate Association (CREA).
c. Is structured on a three way-relationship that involves CREA, provincial
associations and boards.
d. Is controlled by the National Association of REALTORS®.
Exercise 6 Employment Agreements

Detail four significant differences between the Brokerage/Salesperson Employment
Agreement and the Independent Contractor Salesperson’s Agreement. See subsequent
pages for reprints of both agreements.
Brokerage/Salesperson Employment
Agreement
Form 600
for use in the Province of Ontario
This Employment Agreement made this .............................. day of............................................................................, 20............................

BETWEEN:
BROKERAGE: ................................................................................................................................................................................................
AND:
SALESPERSON: .............................................................................................................................................................................................
For the purposes of this Agreement, Salesperson includes a Broker registered under the Real Estate and Business Brokers Act, 2002.
WHEREAS the Brokerage is registered as a Brokerage and the Salesperson is registered pursuant to the Real Estate and Business Brokers Act, 2002, (“the Act”);
AND WHEREAS the Brokerage wishes to employ the Salesperson on the terms and conditions contained in this Agreement;
NOW THEREFORE the Brokerage and the Salesperson agree to the employment of the Salesperson by the Brokerage in consideration of the following
mutual terms, conditions and covenants of this Agreement:
1. The Brokerage:
a) Shall supply the Salesperson with office and secretarial facilities in accordance with the Brokerage’s office policies and practices in that regard;
b) Shall advise, counsel, instruct, and assist the Salesperson in the performance of the Salesperson’s duties;
c) Shall loan, by way of advances on account of anticipated commissions, such periodic amounts as may be established from time to time by the Brokerage,
it being understood and agreed that such amount(s) so advanced shall constitute a debt due and owing to the Brokerage without notice or demand;
d) Hereby declares that any monies received or receivable on account of commission by the Brokerage from any trade in real estate conducted on
behalf of the Brokerage by the Salesperson, shall be held by the Brokerage in trust and the Brokerage shall disburse in a timely fashion, directly
from the Brokerage’s Commission Trust Account (subject to any direction pursuant to paragraph 3(a) hereof) to the Salesperson, commission due to
the Salesperson in connection with the trade, as determined in accordance with Schedule “A” hereto; (Brokerage to attach commission schedule.)
e) Shall receive any monies on behalf of or from the Salesperson, for real estate Board and association fees, dues or assessments or for personal tax
remittance, in trust and remit said monies on the Salesperson’s behalf in a timely fashion by issuing a trust cheque to the Board or association or
Revenue Canada for the entire amount collected on behalf of or from the Salesperson;
2. The Brokerage shall not:
a) Pledge any portion of a Commission Trust held on behalf of the Salesperson as collateral for any loan or use said amount for any other personal
or corporate reason without the express written consent of the Salesperson.
3. The Salesperson:
a) Hereby irrevocably directs the Brokerage to deduct from any commissions payable or termination pay due and owing to the Salesperson, whether
out of Commission Trust or otherwise, the amount of any indebtedness as outlined in Section 1(c) above;
b) Shall become and remain a member in good standing of the ....................................................................................................... Real Estate
Board(s)/Association(s) and pay to the Brokerage, when required, any fees, dues or assessments required from time to time by the Board(s)/Association(s);
c) Shall pay any registration or renewal fees imposed upon the Salesperson under any provincial legislation;
d) Shall maintain Errors and Omissions Insurance, Consumer Deposit Insurance and Commission Protection Insurance coverage in good standing at all times;
e) Shall supply and maintain at the Salesperson’s expense, a suitable automobile and keep it insured at such limits for public liability and property
damage as the brokerage may from time to time direct, and shall provide proof of such insurance to the brokerage;
f) Shall fully and faithfully serve the Brokerage and conduct himself/herself in accordance with the Brokerage’s office policies and practices, the
By-laws and Code of Ethics of the Real Estate and Business Brokers Act, 2002, the Code of Ethics and Standards of Business Practice of the
Canadian Real Estate Association, the by-laws, rules and regulations of the said real estate Board(s)/Association(s) and the Act.
4. The Salesperson shall not:
a) Reduce the amount of commission on any real estate representation agreement or customer service agreement if it is contrary to the Broker’s office
policies and practices, without the prior written authorization of the Brokerage. If the Salesperson breaches this provision, the amount by which any
such commission is reduced shall be deducted from the Salesperson’s share of the commission received;
b) Sign any document or make any representation that would be binding on the Brokerage and would be contrary to the Brokerage’s office policies
and practices, without the Brokerage’s prior written consent.
5. The Salesperson consents to the collection, use and disclosure of personal information of the Salesperson by the Brokerage for the purpose of a
transfer, sale, or financing by the Brokerage of the business, or compliance with the requirements of the Real Estate Council of Ontario, or such other
use of the personal information as the Brokerage deems appropriate in connection with managing or carrying on the affairs of the business.
6. This Agreement may be terminated without notice by either party subject to the provisions of the Employment Standards Act of Ontario. Upon the
termination of the Salesperson’s employment, the transfer or surrender of the Salesperson’s registration shall be immediately sent to the Registrar
appointed pursuant to the Act. The Salesperson agrees to immediately return all keys, signs, equipment and materials supplied by the Brokerage and
to surrender all listing books, certificates, or other materials in accordance with the rules and regulations of the said real estate Board(s)/Association(s).
7. The Salesperson agrees that he/she will not assign, transfer or convey, pledge or encumber this Agreement or any interests hereunder without the
prior written consent of the Brokerage.
8. This Agreement and all rules and regulations hereby incorporated by reference constitute the entire Agreement between the parties and there are no
oral or written conditions, warranties, promises or inducements except as referred to herein and in Schedule(s) ............................ attached hereto.
IN WITNESS WHEREOF the parties hereto have hereunto set their hands and seals, and in the case of a corporation, the corporate seal and the hands of
duly appointed officers in that behalf:
.................................................................................... ............................................................................... DATE ............................

(Witness) (Signature of Salesperson) (Seal)
.................................................................................... ............................................................................... DATE ............................
(Witness) (Signature of Authorized Signing Officer of Brokerage) (Seal)
.................................................................................... ...............................................................................................................................
(Name of Brokerage) (Title)
The trademarks REALTOR®, REALTORS® and the REALTOR® logo are controlled by The Canadian Real Estate
Association (CREA) and identify real estate professionals who are members of CREA. Used under license.
© 2017, Ontario Real Estate Association (“OREA”). All rights reserved. This form was developed by OREA for the use and reproduction
by its members and licensees only. Any other use or reproduction is prohibited except with prior written consent of OREA. Do not alter
when printing or reproducing the standard pre-set portion. OREA bears no liability for your use of this form. Form 600 Revised 2009 Page 1 of 1
Independent Contractor
Salesperson’s Agreement
Form 601
INDEPENDENT CONTRACTOR AGREEMENT:
BETWEEN: ......................................................................................................................................, hereinafter referred to as (the “Brokerage”)
AND: .................................................................................................................................................., herein referred to as (the “Salesperson”)
In this Agreement, the term “Salesperson” includes a Broker registered under the Real Estate and Business Brokers Act, 2002.
WHEREAS:
A. The Brokerage is a duly registered real estate brokerage pursuant to the Real Estate and Business Brokers Act, 2002 (Ontario) (the “Act”) and the
regulations made pursuant thereto (the “Regulations”) and owns, for the purpose thereof, all facilities and equipment required to conduct a real
estate brokerage business.
B. The Salesperson is an independent contractor desiring access to such facilities and equipment for the purpose of conducting therefrom a real estate
business.
NOW THEREFORE in consideration of the mutual covenants and agreements and for other good and valuable consideration as herein provided, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE ONE – APPOINTMENT

1.1 The Brokerage hereby retains and appoints the Salesperson as an independent contractor in accordance with this Agreement and the Salesperson
hereby accepts such appointment as an independent contractor upon and subject to the terms, conditions, covenants and provisions set forth herein.
The parties acknowledge that the Salesperson is a self-employed independent contractor and is not and shall not represent himself or herself to be
a partner or employee of the Brokerage or to have any relationship to the Brokerage other than as a self-employed independent contractor.
ARTICLE TWO – FACILITIES

2.1 The Brokerage shall make available the services, facilities and equipment provided for in Schedule “A” attached to this Agreement.
ARTICLE THREE – GENERAL CONDITIONS

3.1 The Salesperson shall govern their conduct by the Act and Regulations and the constitution, by-laws, Code of Ethics and Standards of Business
Practice of the local real estate board/association of their membership (the “Board”), and all requirements of the Real Estate Council of Ontario
(“RECO”) all as may be amended from time to time.
3.2 The Salesperson shall furnish their own automobile and pay all expenses thereon and shall carry liability and property damage insurance
satisfactory to the Brokerage. A minimum of $ .................................................... is required for liability insurance.

The Salesperson shall provide proof of such insurance to the Brokerage upon request.
3.3 The Salesperson shall during the Term of this Agreement:
a) maintain in good standing all registrations required by the Act and Regulations necessary to trade in real estate;
b) be a member in good standing of RECO; and
c) be a member in good standing of the Board.
3.4 The Salesperson shall maintain errors and omissions and such other insurance as RECO may require from time to time.
3.5 The Salesperson shall obtain and maintain HST registration as required by the Excise Tax Act (Canada) as amended from time to time.
3.6 The Salesperson shall not obligate the Brokerage for goods or services.
3.7 The Salesperson shall only use such real estate forms that have been approved by the Brokerage prior to their use.
3.8 The Salesperson has read and agrees to the office policy as outlined in the Brokerage’s office policy manual and agree to conduct themselves
accordingly and in accordance with any amendments thereto communicated to the Salesperson in writing from time to time.
3.9 The Brokerage may set-off against the Salesperson’s commission or other amounts the Brokerage may owe the Salesperson or any amount due to
the Brokerage from the Salesperson including without limitation payable to the Brokerage pursuant to Article Five of this Agreement.
ARTICLE FOUR – COMMISSIONS

4.1 The full amount of all gross commissions resulting from real estate transactions procured by the Salesperson and received by the Brokerage as
required by the Act shall be credited to the Salesperson’s account and shall remain the property of the Salesperson.
4.2 All credit balances in the Salesperson’s account shall be paid by the Brokerage to the Salesperson on a ................................................ basis,
net of fees and other amounts owed to the Brokerage by the Salesperson.
4.3 The commission to be charged for any transaction shall be determined solely by the Salesperson and shall belong to the Salesperson. The parties
acknowledge that the Act requires that commission be collected only by the Brokerage.
ARTICLE FIVE – FEES, EXPENSES AND COSTS

5.1 The Salesperson agrees to pay the Brokerage the Fees set out in Plan “A” or “B”, as applicable, which form part of this Agreement.
ARTICLE SIX – REPRESENTATION AGREEMENTS AND CUSTOMER SERVICE AGREEMENTS

6.1 All representation agreements and customer service agreements are the property of the Brokerage according to the Act during the term of this
Agreement. Upon termination of this Agreement, the Brokerage agrees to terminate any representation agreements or customer service agreements
procured by the Salesperson if the seller or buyer under the agreement approves.
ARTICLE SEVEN – ADVERTISING

7.1 All advertising to be approved by the Brokerage in advance.
INITIALS OF SALESPERSON: INITIALS OF BROKER:
ARTICLE EIGHT – TERMINATION

8.1 This Agreement may be terminated by either party at any time without cause upon 24 hours written notice that may be delivered personally
or by facsimile. Upon termination both parties agree to complete their obligations herein in order to complete an orderly conclusion of their
relationship. The Salesperson will not have any claim on real estate transactions that have not been procured from representation agreements prior
to termination, or any future commissions therefrom.
8.2 Upon termination of this Agreement, the Salesperson will return to the Brokerage all keys, listings, listing books, blueprints, signs, plans, maps,
supplies and sales literature received at any time from the Brokerage. The Salesperson agrees to pay the Brokerage for the value of such items that
were not returned upon termination of this Agreement.
8.3 If on termination the Salesperson is indebted to the Brokerage then until such debt has been paid, the amount outstanding from time to time shall
bear interest at the rate of ............................ per cent per annum calculated and payable monthly.
ARTICLE NINE – TERM
9.1 Any and all changes to this Agreement from one year to the next will be announced at a meeting of the salespeople on or about ...........................
each year. This Agreement will commence on the date hereof and run until the end of the current calendar year and subject to announced changes,
if any, and termination as provided for herein, this Agreement will automatically renew annually (the “Term”).
ARTICLE TEN – BROKERAGE’S SUPPLIES
10.1 The Salesperson shall only use supplies which conform to the Brokerage’s current specifications and standards, including signs, business cards,
stationery and other items used for communications or presentations to customers and prospective customers and all promotional and novelty items.
ARTICLE ELEVEN – LITIGATION, DISPUTE AND ARBITRATION

11.1 If any transaction in which the Salesperson is involved results in a dispute, arbitration, litigation or legal expense, the Salesperson shall co-operate
fully with the Brokerage in the resolution or prosecution of same.
11.2 The Brokerage reserves the right to determine whether or not any litigation or dispute concerning any transaction in which the Salesperson is
involved shall be prosecuted, defended or settled, or whether or not legal expense shall be incurred.
ARTICLE TWELVE – DEPOSITS
12.1 All monies, documents or property received by the Salesperson in connection with any transaction shall be delivered to the Brokerage immediately.
All cheques must be made payable to the Brokerage in accordance with the Act.
ARTICLE THIRTEEN – CORRESPONDENCE
13.1 All letters received and a copy of all letters written by the Salesperson pertaining to the business of the Brokerage shall be turned over to the
Brokerage for its records and shall be the property of the Brokerage. All letters are to be approved by the Brokerage before mailing.
ARTICLE FOURTEEN – INDEMNITY
14.1 The Salesperson hereby indemnifies the Brokerage against all liability, loss, damages, costs and expenses sustained, suffered or incurred by the
Brokerage as a result of any breach by the Salesperson of the Salesperson’s obligations under this Agreement or as a result of any claim by a third
party arising out of the Salesperson’s real estate business activities. This indemnity shall survive the termination of this Agreement.
ARTICLE FIFTEEN – USE AND DISTRIBUTION OF PERSONAL INFORMATION
15.1 The Salesperson consents to the collection, use and disclosure of personal information of the Salesperson by the Brokerage for the purpose of a
transfer, sale, or financing by the Brokerage of the business, or compliance with the requirements of the Real Estate Council of Ontario, or such
other use of the personal information as the Brokerage deems appropriate in connection with managing or carrying on the affairs of the business.
ARTICLE SIXTEEN– GENERAL AGREEMENT TERMS
16.1 Either party may waive any default of the other party under this Agreement, but, no such waiver shall affect the rights of that party in respect of any
subsequent default, whether of the same or a different nature.
16.2 This Agreement which includes Schedule(s) “A”, ................................ and Plan A or Plan B as appropriate, shall constitute the entire agreement
between the parties with respect to its subject matter and supersedes all prior agreements and understandings in any way relating to that subject
matter. This Agreement can only be changed by a writing signed by both parties. No remedy conferred on a party under this Agreement, or by
law, shall preclude the exercise by that party of any other remedy available to it in equity or in law in respect of the same default.
16.3 This Agreement is personal to the Salesperson and no right of the Salesperson under this Agreement may be assigned without the prior written
consent of the Brokerage, which consent may be arbitrarily, or unreasonably withheld. The Brokerage may, without the consent of the Salesperson,
assign any of its rights under the Agreement and, following such assignment, shall be relieved of all obligations in respect of the rights so
assigned. Subject to the foregoing, this Agreement shall enure to the benefit and be binding upon the parties and their respective heirs, executors,
administrators, successors and permitted assigns.
16.4 The use of section headings in this Agreement is for convenience of reference only and shall not affect the interpretation of this Agreement.
16.5 All notices or other communications required or permitted under this Agreement to be given by one party to the other shall be in writing and shall
be given by personal delivery (including courier), or by facsimile to the party as follows:
a) if to the Brokerage, at Attn: .................................................................................................................................................................
Fax: (......................)...........................................................
b) if to the Salesperson, at Attn: ...............................................................................................................................................................
Fax: (......................)...........................................................
Any such notice or communication shall be deemed received on the earlier of actual receipt, if delivered or on the date transmitted, if by facsimile
unless received after 5:00 p.m. on a business day (i.e. a day other than a Saturday or Sunday or statutory holiday in Ontario) in which case receipt
will be deemed to be on the next business day. Either party may change its address for service by giving notice thereof pursuant to the term of this
Section.
16.6 Each party agrees, at the request of the other party, to do, execute and give such further and other acts, documents and assurances as may be
reasonably requested in order to give full effect to this Agreement and to the transactions contemplated herein.
IN WITNESS whereof the parties have duly signed this Agreement as of the date indicated.
................................................................................ ............................................................................... DATE ...............................

(Witness) (Signature of Salesperson) (Seal)
................................................................................ .............................................................................. DATE ...............................

(Witness) (Signature of Authorized Signing Officer of Brokerage) (Seal)
Schedule “A”
Independent Contractor – Salesperson’s Agreement
Form 601
1. Secretarial services during normal office business hours.
2. Reception area.
3. Desk space as determined by the Brokerage.
4. Reasonable sales and administrative training, as determined by the Brokerage.
5. Use of telephone and fax facilities.
6. Standard office equipment as customarily provided in a real estate brokerage business.
7. Reasonable quantity of stationery.
8. Photocopying facility.
9. Sales Information Sheet (Trade Record) will be prepared by secretary.
10. A reasonable number of “For Sale” and “Open House” signs.
11. Multiple Listing Service processing fees and re-processing fees, where previously authorized.
12. Client and customer referral(s).
13. Listing fees, stand sign installation.
14. Courier facilities.
15. Business cards.
16. Office duty time.
17. Standard newspaper advertising program, as determined by the Brokerage. Salespersons may advertise over and above the Brokerage’s program,
at their own expense, provided they meet all governing provincial and local rules and regulations.
18. Brokerage to assist in all areas that are deemed essential to complete a real estate transaction if requested by the Salesperson.
19. All salespersons shall sign the inventory list.
20. Such other items and service as the Brokerage may in its sole discretion agree to provide to the Salesperson. The Brokerage has the right at any
time without notice to increase or decrease said service.
21. ............................................................................................................................................................................................................
................................................................................................................................................................................................................
............................................................................................................................................................................................................
............................................................................................................................................................................................................
PLAN “A” – FEES PAYABLE TO BROKERAGE

To compensate for administrative and operating costs incurred by the Brokerage in providing the items and services in Schedule “A” the Salesperson shall
pay the Brokerage:
1A .................... % of the Salesperson’s net commissions on the portion of total net annual commissions not exceeding $ ........................................
1B .................... % of the Salesperson’s net commissions on the portion of total net annual commissions not exceeding $ ........................................
1C .................... % of the Salesperson’s net commissions on the portion of total net annual commissions not exceeding $ ........................................
1D .................... % of the Salesperson’s net commissions on the portion of total net annual commissions not exceeding $ ........................................
1E .................... % of the Salesperson’s net commissions on the portion of total net annual commissions not exceeding $ .........................................
1F .................... % of the Salesperson’s net commissions on the portion of total net annual commissions not exceeding $ .........................................
1G .................... % of the Salesperson’s net commissions on the portion of total net annual commissions not exceeding $ ........................................
Under Plan “A” plateaus will be calculated on commissions received within the contract year. Effective, on each and every anniversary date, the plateau
level will start at the beginning and the Salesperson will be paid accordingly. Furthermore, in the event of any switch in plans at the Salesperson’s
anniversary date, they will be paid by the rules of the Plan they were on at the time the business was written.
Salesperson will be responsible to pay for:

a) Monthly and yearly dues and fees and other charges as charged by the Board, the Ontario Real Estate Association and the Canadian Real Estate
Association;
b) Registration/renewal fees, monthly and yearly fees and other fees charged to the Salesperson by RECO.
Salesperson shall pay all dues and fees and miscellaneous items outstanding at the end of each calendar year and the following year’s Board
yearly dues by cheque on or before January 1 of the following new year.
PLAN “A” AGREEMENT
I, ........................................................................................................................................................... (Salesperson) hereby agree to PLAN “A”.
....................................................................................................... .......................................................................................................
(Signature of Salesperson) (Signature of Authorized Signing Officer of Brokerage)
PLAN “B” – FEES PAYABLE TO BROKERAGE

To compensate the Brokerage for administrative and operating costs incurred by the Brokerage in providing the items and services in Schedule “A” the
Salesperson shall pay the Brokerage:
1A ..................... % of the Salesperson’s net commissions on the portion of total net annual commissions not exceeding $ ..........................................
The above compensation for the Brokerage applies to all transactions.
1B Plus ...........................................................................................................................................................................................................
Dollars ($ ............................................................. ) desk fee per month is payable on the first day of each and every month.
A .................................................... interest charge per month ( .................................................... per annum) for late payment will be charged.
The desk fee includes all the items and services as set out in Schedule “A” contained herein, except as follows:
This plan includes ................................................................. (................................................................) listing fees annually
This plan includes ................................................................. (................................................................) standard sign installations annually
Over these specific amounts, the Salesperson is responsible for, said costs and will be billed accordingly on a monthly basis. An inventory of the
Salesperson’s listings and sign installations will be taken prior to commencement of the contract period and shall be counted against his/her yearly
maximum for that contract period.
PLAN “B” AGREEMENT
I, ........................................................................................................................................................... (Salesperson) hereby agree to PLAN “B”.
........................................................................................................ .......................................................................................................
(Signature of Salesperson) (Signature of Authorized Signing Officer of Brokerage)
46
CHAPTER 2
Real Estate—
A Regulated Profession
Introduction
Real Estate is a regulated profession. When preparing for a career in real estate, it’s
important to understand both the value of professional regulation and the registrant’s
obligations. The Real Estate Council of Ontario (RECO) is responsible for regulating the
activities of real estate brokerages, brokers and salespersons in Ontario. RECO administers
the Real Estate and Business Brokers Act, 2002 and associated Regulations (referred to
collectively as REBBA 2002) on behalf of the provincial government.
Individuals anticipating salesperson registration under the Act need to understand key
responsibilities associated with that regulated status. RECO ensures that these responsi-
bilities are carried out by brokerages, brokers and salespersons through various regulatory
activities, and that all registrants uphold integrity in real estate transactions and protect
the public interest.
Learning Outcomes
• utline the RECO mandate, role and responsibilities, and
operating structure.
• Identify and discuss registration standards including dis
closure, fitness for registration, education requirements,
processing the application, Registrar’s options and stat-
utory exemptions.
• utline registrant obligations when maintaining registra
tion including the articling segment, continuing educa-
tion, changes to registration and renewals.
• Identify and discuss education standards established by
the Registrar for registration and continuing education.
• Identify and discuss insurance requirements, coverages,
claims reporting, and the new application/renewal process.
• Describe complaints and enforcement procedures
including the RCI process, possible outcomes and public
information availability.
• Discuss the role of inspections and investigations in the
regulation process.
• Detail available consumer and registrant resources with
emphasis on the RECO website and outreach programs.
47
THE REAL ESTATE COUNCIL OF ONTARIO

The Real Estate Council of Ontario (RECO) is a self-managed, not-for-profit corporation.
RECO was established in 1997 as a delegated administrative authority under the Safety
and Consumer Statutes Administration Act, as a result of the mutual desire of the govern-
ment and the real estate industry to enhance professionalism, increase consumer protec-
tion and provide an efficient, responsive regulatory framework.
RECO administers and enforces the Real Estate and Business Brokers Act, 2002 in accord-
ance with the terms of the Administrative Agreement between the provincial government
and the Council. The provincial government continues to be responsible for the Real
Estate and Business Brokers Act, 2002 and associated regulations, as well as general over-
sight of RECO. The key goals of RECO’s inaugural board of directors were to:
• establish a code of ethics and complaints process that would apply to all real estate
registrants;
• establish a continuing education program;
• establish an insurance program; and
• achieve real estate act reform.
The code, complaints process, continuing education and insurance requirements all
came into effect after RECO was established. One of the objectives was to ensure that all
real estate registrants—not just those that are members of organized real estate—were
required to adhere to the same standards. These new programs were initially put in place
through member-approved RECO by-laws. The final goal of the inaugural Board, that
being real estate act reform, was achieved when REBBA 2002 came into effect in March
2006. The programs originally put in place through by-laws are now contained in
REBBA 2002.
Role and Responsibilities

The Council’s role and responsibilities are mandated to ensure that the regulation of trad-
ing in real estate builds and sustains public trust in the real estate marketplace, thereby
creating a solid foundation for the industry’s success. RECO is responsible for interpreting,
enforcing and suggesting modification to such regulation. RECO is also committed to
working with stakeholders to maximize the value of regulation through various activities.
48 Chapter 2 Real Estate—A Regulated Profession
RECO performs a distinct role in the real estate marketplace focused on protecting
Registrar the public interest. The Council must be clearly distinguished from organizations such as
An individual appointed by the Ontario Real Estate Association (OREA) and real estate boards. These organizations
RECO to exercise powers and provide professional services to their respective memberships, but are not directly involved
perform duties imposed under
in the regulation of the real estate industry. Currently, OREA is also the designate
the Real Estate and Business
Brokers Act, 2002 and associated (appointed by the Registrar of the Council) for developing, delivering and administering
Regulations. registration courses on behalf of the Registrar.
Role/Responsibility: Real Estate Council of Ontario
CORE
PURPO
SE
To fost
confide er
n MISSION
uphold ce and
integrity
in real
est
transac ate
tions.
To regulate the activity
of trading in real estate
in the public interest.
RECO has an exclusive contract

with the government to Interpret, enforce
administer the Act and must and suggest
perform in a manner consistent modification to
with the government’s regulation.
expectations and the terms of
the Administrative Agreement.
RELATIONSHIP RESPONSIBILITY
PROTECTING THE PUBLIC INTEREST

RECO regulates the activities of registrants trading in real estate in the public interest. The
individual and collective interests of consumers and real estate registrants must always
be balanced in order to ensure that the broader public interest is served. Protecting the
public interest is achieved through many activities including:
• Enforcing standards required to obtain and maintain registration as a brokerage,
broker or salesperson and delivering the duties of the Registrar.
• Establishing minimum requirements for preregistration and continuing education
courses.
• Conducting routine inspections of brokerage offices to ensure compliance with
REBBA 2002 and educating brokers on correct procedures.
• Addressing inquiries, concerns and complaints about the conduct of registrants received
from all sources and taking appropriate action to protect the public interest.
• Establishing and administering insurance requirements which includes consumer
deposit protection.
Real Estate—A Regulated Profession Chapter 2 49
• Promoting ongoing education and competent, knowledgeable and professional

service.
RECO’s role and responsibilities for the protection of public interest are best described
under the five categories as illustrated:
Protecting the Public Interest
REGISTRATION
Enforcing standards
required to obtain and
maintain registration
under REBBA 2002.
EDUCATION INSURANCE
Establishing the minimum Establishing and administering

requirements for pre-registration, insurance requirements, which
registration-related and include consumer deposit, errors
continuing education programs. and omissions, and commission
protection coverages paid for by
RECO ROLE & real estate brokers and salespersons.
RESPONSIBILITIES
COMPLAINTS AND INSPECTIONS AND

ENFORCEMENT INVESTIGATIONS
Addressing concerns and complaints Conducting routine, compliant-
about the conduct of registrants initiated and courtesy inspections,
received from all sources regarding as well as exercising investigative
the Act, Regulations and the Code powers set out in REBBA 2002, to
of Ethics, and taking appropriate ensure that RECO’s mandate to
action. Most complaints involve protect consumers is continuously
Code of Ethics violations as these upheld.
are most prevalent in day-to-day
business operations.
Operating Structure
Board of Directors
Standing Task
Committees Forces
Office of the
President/CEO
Office of the Corporate

Registrar Services
Complaints,
Information Finance and Legal
Compliance and Education Systems Accounting Services
Discipline
Inspections and Administration

Registration Communications and Human Insurance
Investigations
Resources
Board of Directors RECO is governed by a 12-member board of directors. Nine of the

directors are registered real estate brokers or salespersons; three from each of the three
election regions. The remaining three directors are appointed by the Ministry of Small
Business and Consumer Services on behalf of the provincial government. The board of
directors establishes committees and task forces to fulfill its mandate with input from
consumers, government and registrants.
Standing Committees and Task Forces The board of directors relies on selected stand-
ing committees (e.g., audit and by-law committees), as well as task forces that focus on
specific initiatives. The board has established task forces to address various issues that
impact Ontario consumers and/or registrants. The role of each task force is to identify,
research, consult and make recommendations regarding such matters. Members of these
task forces include consumer, industry and government representatives, and may also
include subject matter experts (e.g., regulatory law) when necessary to address specific
areas of concern.
Office of the President/CEO The President and CEO reports directly to the board of
directors and is responsible for the day-to-day management of RECO and its employees.
RECO operates on a not-for-profit basis, with any excess revenue invested in improvements
to compliance matters, public information, accessibility, education and technology.
Office of the Registrar Most matters impacting real estate registrants involve the
Registrar. The Registrar is appointed pursuant to the Real Estate and Business Brokers Act,
2002. The statutory duties and functions of the Registrar are distinct and require indepen-
dent decision-making so that the provisions of the Administrative Agreement are fully
complied with. One or more deputy registrars may be appointed to carry out specific
duties under the Registrar.
The Registrar performs various duties including granting, renewing, suspending or
revoking a registration, ordering an immediate or temporary suspension of a registration,
and requiring the cessation of false advertising. The Registrar also establishes, reviews and
approves education curriculum for registration courses, as well as ongoing continuing
education for brokers and salespersons.
Corporate Services The Real Estate Council of Ontario has various departments for
day-to-day corporate operations.
REGISTRATION STANDARDS
Applicants must meet specific requirements when seeking registration under REBBA 2002.
Completion of prescribed educational courses is only one aspect of the overall process.
Registration
The regulatory process to
become a registrant pursuant to Obtaining Registration
the Real Estate and Business
Brokers Act, 2002 and associated When seeking salesperson registration, the applicant must make application to the
Regulations. Registrar using the prescribed form. Applicants should go to www.reco.on.ca to down-
load the new/reinstatement application package.
Last Name Full First Name Middle Name Birth Date Sex
YEAR MONTH DAY M F
Residence Address - (If R.R.: Give Lot, Concession No. & Township) (Street Number & Name) Apt. or Suite Residence Telephone No.
City Province Postal Code

Real Estate—A Regulated Profession
E-mail Address Fax No.
Chapter 2 51
Address for service in Ontario (If different from Residence Address. Must be a street address) Apt. or Suite Telephone No.
Disclosure
City Province Postal Code E-mail Address Fax No.
When completing the application, applicants must honestly disclose information request-
ed and submit full particulars as needed. CertainSECTION key questions
B should be reviewed in
anticipation of Provide
completing
employmentthis form
history once2 years,
for previous the including
pre-registration education
a description of any segment
period in which isemployed.
you were not
Name and Address of Employer (If applicable) Description of Activity such
successfully completed. A portion of the registration form is illustrated highlighting as Period (previous 2 years)
type of work / position / school / travel, etc From (yr/m/d) To (yr/m/d)
information that RECO takes into consideration when determining eligibility for
registration. Applicants having unique circumstances regarding any of these matters
should contact RECO directly.
SECTION C
Please review the Completion Instructions on Page 3, before answering YES or NO to the following questions. If you answer yes to any question
and have not previously disclosed in writing, you must do so now. If you have previously disclosed this information please indicate “already on
file” beneath the corresponding question. (Refer to Completion Instructions on Page 3).
1. (a) Are you a Canadian Resident who is a Canadian Citizen?  Yes  No
(b) Are you a Canadian Resident who is a Landed Immigrant? (If yes, refer to Page 3 for Completion Instructions.)  Yes  No
2. Are you, or will you be, engaged or employed in any other business, occupation or profession? (If yes, refer to Page 3 for  Yes  No
Completion Instructions.)
3. Are you a partner, officer, director or shareholder in any other registered real estate business? (If yes, refer to Page 3 for  Yes  No
Completion Instructions.)
4. Are you now or have you been involved in personal bankruptcy and/or been an officer, director or majority  Yes  No
shareholder of a corporation which has been declared bankrupt or insolvent, or is presently a party to bankruptcy or
insolvency proceedings? (If yes, refer to Page 3 for Completion Instructions.)
5. Are there any unpaid judgments and/or unpaid debts outstanding against you? (If yes, refer to Page 3 for Completion  Yes  No
Instructions.)
6. Have you had a registration and/or licence or professional status of any kind refused, suspended, revoked, or cancelled  Yes  No
and/or have you been involved in any proceeding during which you resigned a registration or licence or professional
status of any kind, or are there any proceedings pending? (If yes, refer to Page 3 for Completion Instructions.)
7. Are there currently any charges pending, or have you been found guilty, pleaded guilty to, or been convicted of an  Yes  No
offence under any law? (If yes, refer to Page 3 for Completion Instructions.)
1b If you answered yes, you must submit a copy of 5 If you answered yes, you must submit a copy of each
your Landed Immigrant Status papers. judgment and other such documents pertaining to
outstanding debts against you (example; garnishments,
2 If you answered yes, the information required
requirements to pay, writs of execution etc.). State the
includes: amount outstanding and repayment arrangements on
1. The full name of the business, as well as the a separate sheet. You must also submit full particulars
position held and the nature or description of regarding the circumstances that lead to the matter(s)
the business, occupation or profession. on a signed and dated statement.
2. If the other employment involves activity that
6 If you answered yes, you must submit full particulars
falls under the definition of “trade” found in the
on a signed and dated statement.
Act, you must provide a copy of the complete
job description supplied by the employer. 7 All applicants must submit a current, original
3 If you answered yes, you must submit full particu-

Canadian Criminal Record Check compiled by the
Canadian Police Information Centre (CPIC) (must be
lars on a signed and dated statement.
dated within 6 months of submission of application) and
4 If you answered yes, you must submit the if the response was “Yes” they must also submit full par-
assignment, list of creditors and discharge papers. ticulars on a signed and dated statement. This does not
include municipal parking violations or minor Highway
Traffic Act offences unless your driver’s license was
suspended. This includes a charge where a conditional
discharge or an absolute discharge has been granted.
Fitness for Registration

Applicants must have certain necessary qualities for registration under the Act. Personal
circumstances can impact fitness for registration. In particular, certain fitness issues will
require appropriate disclosure by the applicant and close review by the Registrar’s office.
The following is provided for example purposes only and is not exhaustive.
BANKRUPTCY
Bankruptcy must be disclosed on an application for either registration or renewal, whether
discharged or otherwise. If a filing of bankruptcy occurs at any time during the 2-year
Registration Cycle registration cycle, the Registrar’s office must be informed within five days. While this
The length of time from circumstance may not necessarily result in a denial of registration, applicants must provide
registration of a registrant to sufficient details with the application or to the Registrar’s office so that an informed
renewal of that registration.
Registration cycles in Ontario
decision can be made. Each application is assessed on an individual, case-by-case basis.
are two years in duration. A decision by the Registrar’s office is not possible without receiving certain documents
including a copy of the complete assignment of bankruptcy, the list of creditors and the
discharge papers, if applicable. Once all information is received, a registration officer
will contact the applicant if additional details are required.
CRIMINAL CHARGES AND CONVICTIONS

Criminal charges and convictions must be disclosed on the application regardless of
when these occurred or what dispositions took place. As with bankruptcy, while such
matters will not necessarily result in denial of registration, full details must accompany
the application so that an informed decision can be made. A registration officer will con-
tact the applicant if additional details are required. The applicant may also be requested to
attend a meeting to further discuss and obtain clarification on any concerns regarding
suitability for registration under the Act.
WORK PERMIT
An individual who is eligible to work in Canada on a work permit can apply for registration.
The Registrar will need to verify proof of his or her eligibility to work in Canada and
current status regarding residency. Documentation providing proof of the work permit from
Citizenship and Immigration Canada is required when submitting an application for review.
Education Requirements
THE SALESPERSON REGISTRATION EDUCATION PROGRAM (PRE-REGISTRATION)
Applicants must complete pre-registration courses, as prescribed by RECO, in order to
become a registered salesperson. The following education requirements apply to students
who enrolled in the pre-registration education program prior to April 1, 2016.
STEP 1
Real Estate as a
Professional Career
STEP 2
Land, Structures and

Real Estate Trading
STEP 3
The Real Estate

Transaction—
General STEP 4
The Residential Real

Estate Transaction
The remaining Course is OR
taken in the articling segment.
The Commercial Real
Estate Transaction
To be registered to trade in real estate in Ontario, individuals must complete the pre-
registration educational requirements leading to provisional salesperson status. The pre-
registration courses must be completed within 18 months of starting the first course,
Real Estate as a Professional Career.
Upon successful completion of the pre-registration segment, individuals may pursue pro-
visional salesperson status by seeking registration under REBBA 2002, with the Real Estate
Council of Ontario (RECO). An application for registration as a provisional salesperson,
signed by the employing brokerage, must be submitted to RECO within 12 months of
successfully completing The Residential Real Estate Transaction or The Commercial Real
Estate Transaction course examination. Once the application has been reviewed and
approved, the registrant would commence a two year registration cycle and at this point
they could commence trading in real estate. As there are no speciality designations in
Ontario, registrants are permitted to trade in residential and commercial real estate.
Students who exceed the 12 month deadline date of completion of The Residential
Real Estate Transaction or The Commercial Real Estate Transaction course examination are
no longer eligible to apply for registration with RECO. In order to qualify for registration
with RECO, they must repeat the pre-registration segment.
The Registrar, REBBA 2002, has the authority to establish the education requirements
for individuals seeking registration or renewal of registration as a broker or salesperson
under REBBA 2002. The Registrar has the authority to grant applicants course credits or
examination challenges for any course in the Salesperson Registration Education Program
or the Broker Registration Education Program on the basis of an education equivalency. The
purpose of the Educational Equivalency Assessment Process is to ensure that applicants
have demonstrated that they possess the required academic qualifications, experience,
and/or competencies in order to trade in real estate effectively and in the public interest,
as required under REBBA 2002.
Individuals may apply for an Educational Equivalency Assessment if they believe their
educational background and/or work experience warrants consideration. Each application
is assessed on an individual basis, and by virtue of the materials provided by the applicant.
The Registrar’s decision is final.
Types of Educational Equivalency Assessments considered by the Registrar include:
• completion of commensurate courses provided by other institutions that specifically
correlate to the Salesperson Registration Education Program or the Broker Registration
Education Program course learning outcomes;
• respective education programs leading to broker or salesperson status in jurisdictions
outside of Canada;
• sufficient relevant work experience obtained in fields relating to real estate such as
lawyers, mortgage agents/brokers, and persons having worked in the appraisal,
commercial and industrial fields;
• previous registration as a broker or salesperson in ntario.
Each Educational Equivalency Assessment application must include the following:

• A cover letter outlining your request, detailing your real estate related academic
background and/or work experience.
• A completed notarized affidavit form with notary seal.
• Relevant documentation to support your request. The Registrar’s decision will be
rendered based on the supporting documentation included in your application.
• A nonrefundable administrative fee of $100 (Canadian funds). Payment may be
made payable to RECO by cheque, money order, or credit card payment.
For further information on the types of educational equivalency assessments con-

sidered by the Registrar, and application documentation, visit the RECO website at:
www.reco.on.ca.
PRE-REGISTRATION EDUCATION PROGRAM—

ENROLMENT ON OR AFTER APRIL 1, 2016
Students who enrol in the pre-registration education program on or after April 1, 2016
will be required to complete the following five courses prior to registering to trade in
real estate:
• Real Estate as a Professional Career
• Land, Structures and Real Estate Trading
• The Real Estate Transaction—General and The Residential Real Estate Transaction
• The Commercial Real Estate Transaction
• Real Property Law
All courses must be completed within 18 months of starting the first course, Real Estate
as a Professional Career. An application for registration as a provisional salesperson under
REBBA 2002 must be submitted to the Real Estate Council of Ontario (RECO) within 12
months of successfully completing all five pre-registration course examinations.
ONTARIO LABOUR MOBILITY ACT

In January 2009, Canada’s premiers endorsed amendments to the Agreement on Internal
Trade (AIT) that commit all provinces and territories to improving labour mobility for
certified workers in professions and trades.
The Ontario Labour Mobility Act, which received Royal Assent Dec. 15, 2009, ensures
that workers certified to practise in one province or territory are entitled to be certified
in that occupation in Ontario without having to complete additional material training,
experience, examinations or assessments.
The AIT and the Ontario Labour Mobility Act allow for certain certification requirements
to continue, such as applications and application fees, evidence of good character and
criminal background checks, evidence of good standing, active practice, additional non-
material testing, experience, examinations or assessments for local jurisprudence or
local knowledge, and post-certification conditions.
A real estate broker or salesperson from another province or territory is required to
successfully complete the Interprovincial Challenge Examination, which tests for local
jurisprudence, before they are eligible to apply for registration with RECO in Ontario.
The Interprovincial Challenge Examination is administered by the Ontario Real Estate
Association (OREA) on behalf of the Registrar.
Please visit the RECO website (www.reco.on.ca) for further information on the quali-
fying criteria and application process to write the Interprovincial Challenge Exam.
Once you have reviewed the information, and if you are eligible to write the
Interprovincial Challenge Examination, please contact the Ontario Real Estate Association
to schedule a date and time to write the exam.
Processing the Application

When a salesperson’s application is received at the Real Estate Council of Ontario, RECO
staff complete a name search to determine if the application is a new registration, or a
reinstatement of a previous registration. An applicant may apply using his or her legal
name, including one or more legal given names in the correct order followed by surname.
A recognized short form of the given name can be used or a name by which the applicant
is commonly known. Once registered, only the registered name can be used unless the
Registrar approves a change.
The application is then checked for completeness, signatures and The Residential or
Commercial Real Estate Transaction transcript. Employer history is reviewed, as are all
answers to questions included in the application form. As discussed earlier, financial
position and past conduct warrant special emphasis, as these not only impact the applica-
tion for registration but also the renewal. RECO may request additional searches including,
but not limited to, a bankruptcy search and a Sheriff ’s search for writs.
Delays in processing applications are often due to applicant errors. The most common
include address information not completed correctly, employment history not fully detailed,
misreading of questions resulting in incomplete/incorrect answers and failure to make
full disclosure as required. The application must be fully completed and signed. The
prescribed application fee(s), the applicable course transcript, and a Canadian Criminal
Record Check or Police Clearance letter must accompany the application. Further, appli-
cants must ensure that any changes regarding information provided on his or her applica-
tion be provided to the Registrar’s office within five days of the change.
Once the initial review of the application is completed, the individual will receive an
invoice for the insurance premium. The insurance premium must be paid in full before the
registration will be approved and processed. Applicants cannot trade in real estate until
their wallet registration certificates are received. These are mailed directly to the brokerage.
SPECIAL NOTE: Salesperson applications submitted to RECO for registration where the applicant’s
enrolment date to the pre-registration education program is on or after April 1, 2016,
must include the applicable transcript indicating successful completion of all five of the
pre-registration course examinations.
Registrar’s Options: New Application and Renewals

Three options are open to the Registrar when reviewing new or renewal applications:
• Process the application and approve registration or continued registration.
• Process the application and approve the registration with voluntary conditions applied
to the registrant.
• Propose to refuse revoke the registration of the individual (15 days to appeal the pro
posal to the Licence Appeal Tribunal, upon receipt of written decision).
REGISTRATION APPROVAL
The certificate of registration, once the application is approved, is sent in duplicate to
the employing brokerage. The certificate sets out the registrant’s name, salesperson status,
the employing brokerage name, registration number and expiry date. An applicant can-
not hold him or herself out to be a salesperson or trade in real estate on behalf of a real
estate brokerage until the registration certificate is received.
Salespersons are required to carry their certificates of registration and show them to any
person upon request. The duplicate is kept at the brokerage office (or branch) to which the
registration relates. The certificate must be returned immediately to RECO if the Registrar
suspends, revokes, cancels or refuses to renew the registration. The certificate must also
be returned if the registrant terminates or transfers to another brokerage. The applicable
sections of Regulation 580 05 (Code of Ethics) are reprinted on the following page.
CERTIFICATE OF REGISTRATION: BROKER OR SALESPERSON

31. Every broker or salesperson shall carry his or her certificate of registration and, on the request
of any person, shall show it to the person. . Reg. 580 05, s. 31.
CERTIFICATE OF REGISTRATION: BROKERAGE

32. (1) A brokerage shall ensure that every certificate of registration issued to the brokerage is kept
at the office to which the certificate relates. . Reg. 580 05, s. 32 (1).
(2) A brokerage shall, on the request of any person, show to the person any certificate of
registration issued to the brokerage. . Reg. 580 05, s. 32 (2).
CERTIFICATES OF REGISTRATION FOR BROKERS AND SALESPERSONS KEPT BY

BROKERAGE
33. (1) A brokerage shall ensure that all duplicate original certificates of registration given to the
brokerage in respect of brokers and salespersons employed by the brokerage are kept in a
safe place. . Reg. 580 05, s. 33 (1).
(2) A brokerage shall, on the request of any person, show the duplicate original certificate of
registration given to the brokerage in respect of a broker or salesperson employed by the
brokerage to the person. . Reg. 580 05, s. 33 (2).
REGISTRATION REFUSAL
The Registrar may refuse to grant a registration if, in the Registrar’s opinion, the appli-
cant cannot be reasonably expected to be financially responsible in the conduct of
business, if the past conduct of the applicant affords reasonable grounds to believe that
business will not be carried on legally, honestly and with integrity, or if the applicant
makes a false statement in the application. The Registrar will notify the applicant in
writing of such refusal. If an applicant’s registration or a registrant’s renewal is refused or
revoked, the person must wait at least 12 months before re-applying and provide evidence
that material circumstances regarding the application have changed.
Statutory Exemptions to Registration

Selected exemptions to registration are set out in Section 5 of the Act. The most notable
exemptions include an auctioneer, provided that the trade is made in the course of, and as
part of, the auctioneer’s duties as an auctioneer; a full-time salaried employee of a party
to a trade if the employee is acting for or on behalf of his or her employer in respect of
land situated in Ontario (e.g., a salaried salesperson employed by a builder to sell that
builder’s homes); a solicitor of the Superior Court of Justice who is providing legal serv-
ices if the trade in real estate is itself a legal service or is incidental to and directly arising
out of the legal services; and a person who trades in real estate solely for the purpose of
arranging leases to which the Residential Tenancies Act applies.
Section 5 of the Act fully outlines exemptions to Section 4 (which addresses the pro
hibition against trading in real estate unless registered):
5. (1) Despite section 4, registration shall not be required in respect of any trade in real estate by,
(a) an assignee, custodian, liquidator, receiver, trustee or other person acting under the
Bankruptcy and Insolvency Act (Canada), the Corporations Act, the Business Corporations
Act, the Courts of Justice Act, the Winding-up and Restructuring Act (Canada), or a
person acting under the order of any court, or an executor or trustee selling under the
terms of a will, marriage settlement or deed of trust;
(b) an auctioneer if the trade is made in the course of and as part of the auctioneer’s duties
as auctioneer;
continued...
(c) a person who is registered under the Securities Act if the trade is made in the course of
and as part of the person’s business in connection with a trade in securities;
(d) a bank or authorized foreign bank within the meaning of section 2 of the Bank Act (Canada),
a credit union as defined in the Credit Unions and Caisses Populaires Act, 1994 or a loan, trust
or insurance corporation trading in real estate owned or administered by the corporation;
(e) a person in respect of any mine or mining property within the meaning of the Mining
Act or in respect of the real estate included in a Crown grant or lease, a mining claim or
mineral lands under the Mining Act or any predecessor of that Act;
(f) a full-time salaried employee of a party to a trade if the employee is acting for or on
behalf of his or her employer in respect of land situate in Ontario;
(g) a solicitor of the Superior Court of Justice who is providing legal services if the trade in
real estate is itself a legal service or is incidental to and directly arising out of the legal services;
(h) a person, on the person’s own account, in respect of the person’s interest in real estate
unless,
(i) the trade results from an offer of the person to act or a request that the person act
in connection with the trade or any other trade, for or on behalf of the other party
or one of the other parties to the trade, or
(ii) the interest of the person in the real estate was acquired after the offer or request
referred to in subclause (i) whether or not the trade is the result of the offer or request;
(i) a person in respect of the provision for another, for remuneration other than by
commission, of all consultations, undertakings and services necessary to arrange for the
routing of a right of way including the acquisition of land or interests in land for the
purpose, and the person’s employees engaged in the project;
(j) a person who trades in real estate solely for the purpose of arranging leases to which the
Residential Tenancies Act, 2006 applies; or
(k) such persons or classes of persons that are prescribed as exempt from registration in
respect of any class of trades in real estate. 2002, c. 30, Sched. C, s. 5 (1).
Independent contractor not an employee
(2) An independent contractor is not an employee for the purpose of clauses (1) (f) and (i).
2002, c. 30, Sched. C, s. 5 (2).
MAINTAINING REGISTRATION
Registrants have ongoing responsibilities to comply with various requirements in order
to maintain registration under the Act. In particular, education requirements include
the completion of the articling segment, as well as ongoing continuing education courses.
Registrants must also ensure that registration and insurance renewals are in accordance
with prescribed timelines and that any material changes in information previously com-
municated to the Registrar’s office are promptly updated.
Articling Segment—Enrolment in Pre-Registration

Education Program Prior to April 1, 2016
The articling segment, consisting of three courses, must be completed within two years
following initial registration. Registrants are required to successfully complete the follow-
ing mandatory courses:
REAL PROPERTY
LAW
The Residential Real
Estate Transaction
The remaining Course not
OR previously taken in the
pre-registration segment.
The Commercial Real
Estate Transaction
Plus one of the following electives:
ELECTIVE ELECTIVE ELECTIVE ELECTIVE
Principles of Principles of Real Estate Principles of

Appraisal Mortgage Financing Investment Analysis Property Management
Articling courses completed prior to registration do not qualify. If a registrant is unable

to complete the articling segment by the two-year renewal expiry date, his or her registra-
tion will terminate. The registrant may then file a reinstatement application (as opposed
to a renewal application) once the courses are successfully completed and applicable
transcripts are received. Registrants are not permitted to trade while unregistered and
not until such time as the reinstatement application process has been fully completed.
Articling Segment—Enrolment in Pre-Registration

Education Program on or after April 1, 2016
Students who enrol in the pre-registration education program on or after April 1, 2016
will be required to complete only one articling course within two years following initial
registration. Students may select from the following electives: Principles of Appraisal,
Principles of Mortgage Financing, Real Estate Investment Analysis and Principles of
Property Management.
Continuing Education
Continuing Education Registrants must fulfill RECO’s continuing education (CE) program requirements. These
Requirement for completion of requirements apply to all registered real estate brokers and salespersons regardless of the
mandatory and elective courses
length of time that they have been trading in real estate. The only exception involves
by registered brokers and sales-
persons, in accordance with the registrants within their first two-year registration, as they are only required to complete
RECO mandatory continuing the articling segment courses.
education policy.
Please visit the RECO website for further information on the continuing education
requirements you must complete in every two-year registration cycle after your initial
two-year registration.
Changes to Registration Information

All registrants must disclose any changes regarding the information provided to the
Registrar’s office within five days of the change. Failure to do this could result in charges
for non-disclosure being laid under the Act. Further, every brokerage must notify the
Registrar of any termination of a broker or salesperson. Required forms for such notifica-
tions to the Registrar are located on the RECO website.
Registration Renewals
Every registrant is responsible for ensuring his or her registration is renewed. As a courtesy,
RECO sends renewal reminders to registrants 60 days in advance of the expiry date of their
registration. To renew a registration, registrants must meet the education requirements
and also apply to renew their registration with RECO. If a registration renewal is delayed
in being processed, there is a provision in REBBA 2002 that, provided all requirements of
registration have been met and the renewal and fee payment are received by RECO prior
to expiry, the registration is deemed to continue should the renewal not be processed
prior to expiry.
To renew a registration, a broker, salesperson, or sole proprietor may process an online
registration renewal via RECO’s online portal, MyWeb. Upon submission of an online
renewal, a registrant’s broker of record would receive an email from RECO advising them
of the renewal application that requires their review. The broker of record would then
verify and confirm the information via MyWeb. Alternatively, an application for Renewal:
Broker/Salesperson in paper format is available via the RECO website and MyWeb, and
may be submitted to RECO via email, fax, courier, or mail. Once RECO has reviewed and
approved the renewal, online or paper, a registration certificate is mailed to the brokerage.
Insurance Renewals
Insurance coverage for brokers and salespersons is based on a 12-month policy, which is
renewed each year in mid-August. A registrant cannot trade in real estate unless he or she
is insured. Suspensions are imposed on those that do not meet the insurance requirement.
In the case of a new applicant for registration, the application will not be completed
until the insurance premium is paid.
EDUCATION STANDARDS
The Registrar establishes education requirements and associated standards for registration
courses involving salespersons (pre-registration segment), the articling requirements for
salespersons (articling segment) and educational requirements for brokers (broker
segment), as well as continuing education policies and procedures. The Registrar is also
responsible for designating one or more organizations that are authorized to provide
the required educational courses.
The goal of the registration courses is to prepare individuals for a career in real estate
as a broker or salesperson through formal education that involves a combination of self-
study and classroom education. Students are required to pass examinations at the
completion of each individual course within each of the three segments. This goal is
further defined by the following objectives:
• To develop a sustainable course curriculum that supports RECO’s mandate to protect

the interests of consumers through the development of skilled and educated registrants.
• To deliver to students a timely opportunity to train as real estate professionals.
• To provide students with comprehensive, accurate and uptodate education that
will allow them the ability to develop the necessary skills and knowledge to succeed
in the marketplace.
The Registrar has overall authority for educational programming. The registration
courses are developed, delivered and administered on the Registrar’s behalf by a designate,
which is currently the Ontario Real Estate Association. Reporting to the Registrar, the
designate is responsible for the development of the course curriculum and material, the
delivery of the courses and the day-to-day administration of the program.
Pre-Registration, Articling and Broker Education Segments

The Registrar establishes learning outcomes for all courses in the pre-registration,
articling and broker segments. The designate is then responsible for developing course
content and material necessary to satisfy the learning outcomes. The Registrar reviews
and approves all content prior to the courses being offered, while ensuring that the course
materials are accurate, comprehensive, relevant and up-to-date.
Courses are made available to students in a variety of delivery methods, including
classroom and distance education (correspondence and/or online). The designate is also
responsible for delivery of courses as demand warrants. Notwithstanding demand, the
designate must ensure reasonable access to courses for all potential students in Ontario.
COURSE COMPLETION
Students should be prepared to invest significant time and effort in completing courses
and preparing for examinations. Classroom/study hours are illustrated, but these do not
include additional time needed by individual students for further study and review.
ENROLMENT IN PRE-REGISTRATION EDUCATION PROGRAM PRIOR TO

APRIL 1, 2016
MINIMUM CLASSROOM/
SEGMENT COURSE
STUDY HOURS
Real Estate as a Professional Career 35
PRE-REGISTRATION Land, Structures and Real Estate Trading 60

SEGMENT The Real Estate Transaction—General 40
The Residential or Commercial Real Estate Transaction 40
Real Property Law 40

ARTICLING The Residential or Commercial Real Estate Transaction 40
SEGMENT
One Articling Elective 40
Real Estate Broker Course 60

BROKER SEGMENT
One Articling Elective 40
WEB LLINKS
Salesperson Registration Education Program Course Descriptions/Scheduling Go to the
Ontario Real Estate Association website (www.orea.com) for pre-registration, articling and broker
course information.
EXAMINATIONS
All examinations for pre-registration, articling and broker segments are three hours in
length. The examination constitutes 100% of the final mark and a final mark of 75%
(minimum) must be achieved to successfully complete a course. Students are permitted
two opportunities to successfully pass an examination. If a failing grade is obtained on
the second attempt, the course must be taken once again and successfully completed.
ENROLMENT AND PASS RATES—ENROLMENT IN PRE-REGISTRATION

PROGRAM PRIOR TO APRIL 1, 2016
Statistical data on enrolments shows a noticeable decline as students progress through
the three segments. This is due, in large part, to students deciding that real estate is not a
career that they wish to pursue. The decline can also be somewhat attributed to a student’s
failure to complete a course, as evidenced by the pass rates.
Course Enrolment: Number of Students
51,121 47,781 48,813 55,096

2012 2013 2014 2015
Articling Segment
Broker Segment
Course Examinations: Average Pass Rates

89%
89%
86%
85%
75%
75%
74%
69%
67%
66%
66%
61%
2012 2013 2014 2015
Articling Segment
Broker Segment
Expanding Horizons CURIOSITY
Salesperson registrants wanting to expand their knowledge should seriously consider taking the Real Estate Broker
Course. This 60-hour program not only provides detailed information on the establishment, operation and management
of a real estate brokerage, but also offers important insights into the broker of record function, leadership skills and
business planning.
WEB LLINKS
Continuing Education Policies Go to the RECO website (www.reco.on.ca) and select the
Education menu for detailed, current continuing education information and policies.
INSURANCE REQUIREMENTS
The Real Estate and Business Brokers Act, 2002 requires that all broker and salesperson
registrants participate in RECO’s insurance program as a condition of registration. The
mandatory insurance program, introduced on September 1, 2000, was intended primarily
for consumer protection, but has evolved significantly since inception.
RECO takes an ongoing active role in the insurance program by continuously review-
ing claims data, policy wordings and program administration to ensure the program is
operating effectively in the best interests of consumers and registrants. Terms and condi-
tions, including premiums, are negotiated with insurance service providers on an annual
basis.
Coverages
CONSUMER REGISTRANT
PROTECTION PROTECTION
Consumer
Deposit Errors and Commission
Protection Omissions Protection
Protection to the consumer for Protection for registrants for Protection for registrants from
loss of deposits caused by real errors and omissions committed loss of commission caused by
estate broker fraud, misappro- in the course of their professional real estate broker fraud, mis-
priation of funds or insolvency. services. appropriation of funds or
insolvency.
Policy Limits Policy Limits
• $100,000 per claim • $1,000,000 per claim Policy Limits
• $3,000,000 per occurrence • $3,000,000 annual aggregate • $100,000 per claim
• o deductible • $2,500 deductible (would • $3,000,000 per occurrence

apply to a claim settlement— • $250 deductible per claim
the deductible would increase
by $2,500 for each additional
claim settlement made on
behalf of the same registrant
within a threeyear period)
ERRORS AND OMISSION COVERAGE
Examples Of Mistakes That May Be Covered Examples of What May Not Be Covered
• Unintentionally omitting an important clause in • Fraud

an offer • Fines and penalties
• Unintentionally providing incorrect information • Appraisals (if completed for financing purposes)
on a property (e.g., property taxes)
• roperty management (if these services are
• Allegations of underpricing or overpricing a more than 35 percent of the gross revenue of
property the individual or brokerage)
• Unfounded accusations qualifying for a defence • ortgage brokering
• laims or circumstances not related to
professional services (as defined by the policy)
and usually covered by other policies (e.g.,
General iability)
NOTE: laims related to properties or businesses in which a registrant has a personal interest may be
covered if the necessary disclosures required under The Real Estate and Business Brokers Act, 2002, are
made to the buyer/seller (see Act, S. 32; ode S. 1 ( )).
Claims and Potential Claims

Policy coverage is on a claims made basis. In other words, the policy requires that the
claim made against the registrant be reported to the insurer during the policy period.
Registrants must also report a circumstance; i.e., a potential claim. A circumstance is best
described as an incident or situation that a registrant could reasonably foresee involving
actions which did or would result in a claim.
As an example, a buyer or seller may make allegations during sale negotiations that
ultimately result in a problem at closing. While a claim is not made coincident with the
allegation, the party (when making a subsequent complaint) would allege that the situa-
tion arose not at closing, but rather as a result of an act, error or omission at point of
negotiations.
Every registrant should make certain that the insurer is involved as soon as possible
after he or she becomes aware of a problem that is a claim or a potential claim. Reporting
a claim or a potential claim does not mean that the registrant is responsible or liable for
negligence, or that the registrant has done anything wrong. By making the report, the
registrant is complying with the reporting condition contained in the policy. This ensures
that the insurer can investigate the claim and determine the best way to proceed to protect
the registrant’s interests.
The policy provides continuing coverage for errors and omissions claims following a
registrant’s date of retirement or leaving the business for any reason except for disciplinary
action by RECO, at no additional cost to the registrant and subject to the terms and con-
ditions of the master policy.
New Application and Renewal Processes

The registration cycle is two years commencing from the date of approval of the registra-
tion application. However, the insurance term is based on a one-year cycle commencing
each September 1 until the following September 1. With new registrants, an invoice for
premium payment follows initial review of the registration application. The invoice reflects
cost of insurance from the date of the registration application review until the following
September 1. The registration application receives final approval upon receipt of payment
of the insurance fee, plus applicable taxes.
New and reinstating registrants joining the insurance program between September 2nd
and June of the following year must pay the pro-rated insurance fee for the remainder
of the insurance term. New and reinstating registrants joining the insurance program in
July or August are required to pay the pro-rated insurance fee for the remainder of the
insurance term, plus the annual insurance fee for the following September 1 – September 1
term. Registrants can make insurance payments by VISA or MasterCard on RECO’s web-
site by accessing their MyWeb account and clicking on Pay Insurance Now.
Non-payment will result in suspension. The Registrar will initiate the suspension
process for each registrant who has failed to make the required annual insurance payment
before the due date fixed by RECO’s board of directors. This suspension for nonpayment
takes effect on the start date of the new coverage period. Suspended registrants are not
entitled to trade in real estate.
A suspended registrant must pay the outstanding annual insurance premium. Upon
that payment, registration will be revived for the unexpired balance of the registration
cycle. The registration renewal date will not change.
WEB LLINKS
RECO Insurance Program Additional details about the RECO Insurance Program, policy
coverages, exclusions, reporting procedures and forms can be obtained on the RECO website
(www.reco.on.ca) or the Alternative Risk Services Inc. website (www.reco-claims.ca) developed
on behalf of the insuring company.
COMPLAINTS AND ENFORCEMENT

While most real estate registrants conduct properly, RECO does receive complaints from
the public and other registrants about conduct. The complaint process provides an
impartial and flexible assessment of such concerns, as they relate to the Real Estate and
Business Brokers Act, 2002. Complaints must be in writing and should include the com-
plainant’s contact information, names of registrants involved, details of the complaint
and copies (not originals) of any supporting documents.
The complainant need not determine if there has been a violation, as RECO will
review the complaint and establish whether or not the Council has authority to resolve
the matter. RECO does not have the authority to mediate monetary or contractual
disputes, or to assess and/or award damages. Such disputes are civil legal matters and
should be discussed with a lawyer.
The complaints process, while handled in a timely fashion, has no set time periods.
Steps taken vary depending on the nature of the complaint and information available to
RECO. The entire process is designed to be fair to all. The Act provides that the person
against which the complaint is lodged is entitled to be notified of the complaint, to seek
legal advice and be represented (if so desired). He or she is provided written notification
of what action is being taken by the Registrar, along with an explanation or reasons for
the action.
RCI Process
The Registrar’s Complaints and Inquiries (RCI) Process provides a uniform method of Registrar’s Complaints and
Inquiries (RCI) Process
addressing complaints, while having sufficient flexibility to acknowledge unique character-
A process established under the
istics of any particular complaint. The process sets out appropriate steps to make inquiries
Real Estate and Business Brokers
and arrive at a fair course of action. When a registrant receives a request for information Act, 2002 and associated
from the Registrar, he or she must answer/respond to it. Regulations for the handling of
all complaints and concerns
involving registrants.
RCI
PROCESS
ALL COMPLAINTS & CONCERNS

Public Other Registrants Other
Reviewed By
Registrar
Assigned To Staff
For Detailed Review
Beyond SUMMARY OF REGISTRAR’S OPTIONS Warrants No

Registrar’s (see Enforcement: Possible Outcomes below for detailed discussion)
Further Action
Jurisdiction 1. Attempt to Mediate or Resolve
2. Give Written Warning/Further Action if Activity
Continues
3. Determine if Further Education Courses are Required
4. Refer to the Discipline Committee
File Closed (Code of Ethics Violations) In some cases, the allegations
5. Take Action Under REBBA 2002 (S.13 and S.14) are not supported by the
(i.e., Refuse to Renew, Suspend, etc.) evidence and information
available. In such a case, the
Registrar may determine that
no action is required or that
there is insufficient information
to take action.
Possible Outcomes
Most complaints do not involve serious misconduct and do not require severe sanctions
or formal legal proceedings. The possible outcomes presented here identify all options
available to the Registrar. Depending on specific allegations, the Registrar will determine
what option(s) is/are appropriate.
Acknowledgement The Registrar may accept an acknowledgement and undertaking

and Undertaking by the registrant, if appropriate.
Consent to The Registrar, with the registrant’s consent, may apply voluntary
Conditions conditions to a registration. Conditions are considered on a case
by case basis and vary depending on the nature of the complaint.
Attend a Meeting The Registrar may request a meeting with the registrant to discuss
the complaint. At the meeting the registrant may receive an infor-
mal educational reminder, advice or caution.
Mediating or The Registrar may attempt to mediate or resolve the complaint.

Resolving a Complaint
Written Warning The Registrar may issue a written warning indicating that, if the
conduct that led to the complaint continues, further action may
be taken.
Educational Courses The Registrar may require a registrant to take further educational
courses.
Referral to Matters involving alleged breaches of the Code of Ethics may be

Discipline referred to a discipline committee. The chair of the discipline
Committee committee generally assigns a panel, consisting of three members of
the committee, to hold a hearing. A notice of hearing is given to the
registrant. Following the hearing, the discipline panel prepares a
final decision, including reasons. If the discipline committee makes
a determination that a registrant has failed to comply with the Code
of Ethics, it may order the registrant to take educational courses,
pay a fine of up to $50,000 and fix/impose costs. The discipline
committee is required to publish a copy of its decisions, including
reasons, on RECO’s website for a period of at least sixty months.
Immediate The Registrar has the power to order an immediate temporary sus-
Suspension pension of a registration where he or she believes it is in the public
interest. Registrants who are subject to such an order must immediately
cease all activities related to trading in real estate and return their
certificate of registration to the Office of the Registrar. A registrant
subject to such an order will also be subject to a Registrar’s proposal.
Registrar’s Proposal The Registrar may propose/recommend to revoke, suspend, refuse

to renew or apply conditions to a registration if a registrant is in
contravention of REBBA 2002 and its regulations (other than the
Code of Ethics). In this case, the Registrar issues a notice of pro-
posal, which sets out the reasons for the proposed action and
states that the registrant is entitled to appeal the proposal to the
Licence Appeal Tribunal (LAT) within 15 days after service of the
notice. If no request for an appeal is received by the LAT, the
Registrar will carry out the proposal.
Director’s Action The Director, under REBBA 2002, may appoint investigators to
conduct investigations under the Act and can also freeze the trust
accounts of brokerages where he or she believes that it is advisable
for the protection of clients and customers. The Director can take
similar action against non-registrants who are believed to be
trading while unregistered.
Provincial Offences Offences relating to REBBA 2002 and its regulations (other than
Prosecution the Code of Ethics) may be processed in accordance with the
Provincial Offences Act. The Provincial Offences Act is a procedural
law for administering and prosecuting provincial offences, including
violations of REBBA 2002. The Provincial Offences Act sets out
procedures for legal prosecution in the Ontario Court of Justice
system including serving an offence notice to an accused person,
conducting trials, sentencing and appeals. Individuals convicted
of offences are subject to fines of up to $50,000 and or prison
terms of up to two years. Corporations are subject to fines of up
to $250,000. Courts may also order convicted persons to pay
compensation and make restitution.
Public Information
Under the Act, the Registrar is required to make certain information available to the public.
RECO provides a registrant search feature on its website. Information available includes
the registration status, the current expiry date of registration, whether or not the indivi-
dual has complied with insurance requirements, and enforcement or disciplinary activi-
ties related to the brokerage, broker or salesperson. The enforcement or disciplinary
activities disclosed include:
• Registrar’s proposals to refuse, apply conditions to, suspend or revoke a registration;
• charges and convictions; and
• discipline and appeals panel decisions.
In addition, the Registrar may choose to make certain information available through
public mediums such as media advisories, alerts or statements, in instances where pro-
viding such information could assist in protecting consumers. This information can be
in regard to registrants, former registrants, officers and directors of brokerages, or any
person who is trading in real estate. For details on the types of information made avail-
able to the public, refer to ntario Regulation 567 05, Sec. 11.
Additional information is available on the RECO website. Go to Complaints &
Enforcement.
BROKERAGE INSPECTIONS
AND INVESTIGATIONS
The primary role of the inspection process is to administer the regulatory requirements
set out in the Real Estate and Business Brokers Act, 2002, which in turn increases the level
of protection that RECO is able to provide to consumers and registrants. This risk-based
program focuses efforts on significant problem areas that can jeopardize consumer pro-
tection and/or represent deviations from acceptable, regulatory-related business practices.

The Council’s inspection program also enables one-on-one contact between RECO
inspectors and brokers of record, as well as providing opportunities to educate brokers
of record about maintaining current and appropriate records.
Types of Inspections
The Council has the authority to inspect a registrant’s business premises during reason-
able hours. Inspectors have access to all documents, records, money and other valuables
relevant to the inspection. No person may obstruct an inspector in carrying out his/her
duties.
Inspectors typically focus on real estate records such as trade contracts and related
documentation, trust accounts and proper accounting procedures. Handling of trust
funds is particularly important to ensure that consumer funds are promptly deposited,
correctly handled and fully accounted for while in the brokerage’s possession.
ROUTINE INSPECTIONS
Routine inspections are conducted to ensure compliance with the Act. Typically, inspectors
randomly select brokerages for inspections. The brokerage is contacted by telephone
and a date is mutually agreed upon which is usually at least one week away. In some
instances, an inspection without notice may be conducted when circumstances warrant
this action. During the inspection, an individual trained to provide accurate information
can field registrant questions. RECO also routinely conducts inspections on brokerages
that are winding down their operations.
COMPLAINT-INITIATED INSPECTIONS
Sec. 20 of the Real Estate and Business Brokers Act, 2002 authorizes the Registrar, or any
person designated by him/her, to conduct an inspection to ensure compliance with the
Act and regulations, deal with a complaint or ensure that a registrant remains entitled to
registration. The Registrar may also investigate complaints against registrants and those
persons who are trading in real estate without benefit of registration under the Act.
COURTESY INSPECTIONS
Inspectors will conduct courtesy inspections by request. For example, the broker of record
may be concerned that internal operations are not fully aligned with regulatory require-
ments or may require assistance in implementing new procedures. Courtesy inspections
can be very effective for both the broker of record and management staff to correct
problems and improve reporting systems within the brokerage.
RECONCILIATION INSPECTIONS
In addition to on-site inspections, randomly selected brokerages are asked to submit trust
account reconciliations for a given period so that the Office of the Registrar may review
the reconciliations, ensuring compliance with the Real Estate and Business Brokers Act,
2002 and its Regulations. Along with the trust account reconciliation, brokerages must
include a copy of the bank/financial institution statement for the real estate trust account,
a list of the pending trades that make up the trust liability of the brokerage and a letter
indicating that the broker of record has reviewed the submission and can attest to its
authenticity. A sample letter of reply is included with the reconciliation request.
Number of Inspections: 2007–2013
1,200
1,000
800
600
400
200
0
2007–08 2008–09 2009–10 2010–11 2011–12 2012–13
Investigations
The Real Estate Council of Ontario conducts various investigative procedures that may
result in court action for statutory violations. Investigations can involve search warrants,
seizures, freeze orders and applications to Court. Investigators can access premises,
require persons to produce documents and then remove those documents for copying.
In these instances, RECO may pursue the violation through legal processes as set out in
the Provincial Offences Act. Matters concerning court proceedings, sentencing and appeals
go beyond the scope of this text.
Number of Investigations: 2007–2013
160
120
80
40
0
2007–08 2008–09 2009–10 2010–11 2011–12 2012–13
RESOURCES FOR
CONSUMERS AND REGISTRANTS
RECO provides timely and relevant information to consumers and registrants through
its website, newsletters and other publications. New resources are continuously being
introduced. Recent efforts have expanded online resources for registrants and consumer-
focused information when working with registered brokers and salespersons, including
topics such as representation agreements, negotiations and key market trends/issues.
RECO Website
Registrants, as well as consumers, can access important resources through the RECO web-
site (www.reco.on.ca). Current news and information is continuously updated with topics
of interest to registrants. Other primary resources are grouped under information categories.
Where applicable, helpful frequently asked questions and procedural guidelines are included.
On the consumer side of the website, information is provided on the following topics:
• About outlines RECO’s purpose, mission and values, REBBA 2002 and related
legislation.
• Home Buyers and Sellers offers helpful tips for consumers on topics involving the
listing and selling of real estate.
• Complaints & Enforcement explains how complaints against registrants are handled
and enforcement options available to RECO, including disciplinary action and
criminal charges as well as discipline decisions.
• Resources provides access to the Act, the regulations and RECO’s corporate by-laws.
• Contact provides primary contact information, as well as direct enquiry instructions
for registration, education, complaints, inspections and investigations, communications
and insurance as well as the ability to contact the Registrar with any questions or
concerns.
• Real Estate Professional Search permits consumers to find a registrant and/or confirm
the registration status of an individual or brokerage.
MYWEB
MyWeb is an extranet service for real estate registrants, which allows them to access their
personal registration information, change their address, confirm whether applications
have been received, make online insurance credit card payments, access insurance certi-
ficates and receipts, and complete online registration renewals. Signing up for MyWeb
also ensures that registrants will receive important news and updates by e-mail.
The MyWeb extranet service has proven very effective and RECO continues to expand
online services to registrants:
• nline voting procedures are in place for election of RECO directors (nine out of the
12 directors).
• Expanded email services include election results, news releases, key legislative changes
and important announcements.
• The biannual satisfaction survey is conducted online making it accessible to all
registrants who chose to participate. This survey assists RECO in identifying areas
for improvements and implementing changes in the interest of quality services and
information to registrants. The online version also facilitates enhanced reporting, as
years registered, registration category and other information can be captured for
statistical analysis while maintaining the anonymity of survey respondents.
• Insurance payments can be made and confirmed online.
MyWeb provides a wealth of information for registrants to assist them in their day-to-
day practice, such as:
• Examples of advertising guidelines.
• Latest industry news.
• Education requirements including mandatory continuing education.
• RECO publications.
• Discipline and appeals hearings and decisions.
• Registration information of employees for brokers of record.
• RECO inspection information.
This information can be accessed on the RECO website by logging onto MyWeb.
Additionally, registrants may receive important reminders and updates from RECO, such
as their registration and insurance renewal due dates.
Outreach
RECO is continuously increasing public awareness of its role and responsibilities, and
responds to inquiries from consumers, media, regulatory organizations, financial institu-
tions and law enforcement agencies. Attendance at real estate functions and consumer-
focused events is also a key component of this outreach. In a typical year, RECO represent-
atives attend more than 40 real estate board association trade shows events.
RECO also participates in regulatory-related activities involving the Canadian Real
Estate Regulators Group (CRG), which consists of senior staff representatives from the
real estate regulatory bodies in many Canadian jurisdictions. The CRG is a valuable
vehicle for the exchange of information between jurisdictions, regulatory harmonization
and co-operation on common issues. RECO representatives also attend conferences and
meetings conducted by the Association of Real Estate License Law Officials (ARELLO).
This international organization facilitates the exchange of information and co-operation
among regulators and policy makers in the area of real property.
KNOWLEDGE
INTEGRATION
Notables
• The Real Estate Council of ntario is a self • Continuing education requirements apply
managed, not-for-profit organization to all registered brokers and salespersons.
responsible for administering and enforcing • REBBA 2002 requires that all broker and
the Real Estate and Business Brokers Act, 2002. salesperson registrants participate in RECO’s
• RECO performs a distinct role focused on insurance program as a condition of
protecting the public interest. registration.
• Applicants must meet specific requirements • Registration is based on a twoyear cycle
when seeking registration under REBBA commencing from the date of approval of
2002. the registration application. The insurance
• Personal circumstances can impact fitness term is based on a one-year cycle commenc-
for registration and certain fitness issues ing each September 1st.
require appropriate disclosure by the • The complaints process provides an impartial
applicant. and flexible method to address complaints
• Applicants cannot trade in real estate about conduct from both the public and
until their wallet registration certificates other registrants.
are received. These are mailed directly to • The Council undertakes routine, complaint
the brokerage. initiated and courtesy inspections.
• Registrants must comply with various • RECO conducts various investigative
requirements to maintain registration procedures that may result in court action
under the Act. for statutory violations.
• Registrants must disclose any changes regard • RECO provides timely, relevant information
ing information provided to the Registrar’s to consumers and registrants through its
office within five days of such changes. website, newsletters and other publications.
• The Registrar has overall authority for
education programming.
Glossary
Administrative Authority Real Estate Council of Ontario (RECO)
Code of Ethics Registrar
Continuing Education (CE) Registrar’s Complaints and Inquiries (RCI)
Discipline Committee Process
Inspection Registration
Investigation Registration Cycle
Web Links
Salesperson Registration Go to the Ontario Real Estate Association website (www.orea.com) for
Education Program pre-registration, articling and broker course information.
Course Descriptions/
Scheduling
Continuing Education Go to the RECO website (www.reco.on.ca) and select the Education menu for
Policies detailed, current information and policies concerning continuing education.
RECO Insurance Program Additional details about the RECO Insurance Program, policy coverages,
exclusions, reporting procedures and forms can be obtained on the RECO
website (www.reco.on.ca) or the Alternative Risk Services Inc. website
(www.reco-claims.ca) developed on behalf of the insuring company.

1. Personal circumstances can impact 3. What guidance can my intended
fitness for registration. Do I have any employing brokerage provide to ensure
circumstances that might impact my that I fully comply with regulatory
ability to be registered under REBBA requirements discussed in this chapter?
2002?
2. Have I fully reviewed all resources on
the RECO website to better understand
the Council’s role and responsibilities,
as well as my obligations?
Chapter Mini-Review
1. The RECO board of directors is 3. The Registrar has the authority to

directly responsible for the day-to-day grant applicants course credits or
management of the Council and its examination challenges on the basis
employees. of education equivalency.
True False True False
2. Bankruptcy details must be disclosed 4. No person can trade in real estate in

by an applicant seeking registration Ontario unless registered under the
or a registrant seeking renewal of Real Estate and Business Brokers Act,
registration. 2002.
Chapter Mini-Review (continued)

5. Applicants must complete continuing 11. Insurance policy coverage is on a claims
education requirements prior to made basis, which requires that any
applying for salesperson registration. claim made against the registrant be
reported to the insurer during the
True False policy period.
6. Every broker and salesperson registrant True False

must fulfil the mandatory continuing
education requirements in each registra- 12. The RCI process is primarily designed
tion cycle following the first registration to handle complaints and concerns
renewal. regarding registrant conduct from the
public and from other registrants.
True False
True False
7. When a broker or salesperson registrant
changes his/her address, proper writ- 13. Under REBBA 2002, the Registrar is
ten notice must be made to RECO required to make certain information
within five days of the event. about registrants available to the public
including registration status and
True False current expiry date of registration.
8. A salesperson is not required to carry True False

his or her certificate of registration,
but must have it available at his or her 14. RECO inspectors have the right to
employing brokerage to show it to access all documents, records, money
any person upon request. and other valuables in a real estate
brokerage registered under the Real
True False Estate and Business Brokers Act, 2002.
9. All examinations for pre-registration, True False

articling and broker segments are three
hours in length and a final mark of
60% (minimum) must be achieved to
successfully complete each course.
True False
10. The three coverages under the RECO

insurance program are errors and
omissions, commission protection
and general liability.
True False

Exercise 1 Registration and Beyond

1.1 Which of the following is a true statement regarding registration as a real estate
salesperson in Ontario?
a. A salesperson registrant must renew his or her registration each year.
b. A salesperson must pay a two year premium for the RECO insurance program
on every registration renewal date.
c. A person registered under the Securities Act is exempt under the Real Estate
and Business Brokers Act, 2002 when that person is involved in any sale of
real estate.
d. An applicant must successfully complete the prescribed pre-registration
education and pass the applicable examinations within 18 months of
starting the first course Real Estate as a Professional Career.
1.2 Within the RECO operating structure, the board of directors relies on which of
the following to identify, research, consult and make recommendations on issues
impacting consumers and/or registrants?
a. Registrar
b. Task Force
c. President/CEO
d. Corporate Services
1.3 Which of the following is NOT an exemption under the Real Estate and Business
Brokers Act, 2002?
a. A receiver, trustee or custodian acting under selected Acts in respect of any
trades in real estate.
b. A person practicing as a solicitor who is providing legal services if the trade
itself is a legal service or is incidental to and directly arising out of a legal service.
c. A person who is employed as a salesperson for a builder, is paid a commission
for each sale made on behalf of that builder and is only selling homes offered
in the marketplace by that builder.
d. A person, on his/her own account, in respect of owned real estate (subject
to certain qualifiers).
1.4 Which of the following is NOT normally required when becoming registered as
a real estate salesperson?
a. Have a good past record of financial responsibility and conduct.
b. Include the applicable transcript with the application.
c. Fully disclose any criminal charges and convictions.
d. Provide proof that the RECO insurance has been paid in full at time of
application.
1.5 In the two-year articling segment following initial registration, which of the
following courses is NOT considered an articling elective?
a. Real Estate Investment Analysis
b. Principles of Mortgage Financing
c. Principles of Appraisal
d. Real Property Law
1.6 With regard to the RECO insurance program:

a. Registrants may select one of three coverages offered under the program.
b. Registrants may collect commission when not insured, provided a Declaration
of Non-Insurability is provided to the consumer.
c. Reporting a claim or potential claim does not mean that the registrant is
responsible or liable for negligence.
d. Registrants are not required to pay insurance premiums after the first two-
year registration cycle.
1.7 The RCI process:

a. Requires that all written complaints and concerns be referred to the disci-
pline committee.
b. Begins with all written complaints and concerns being reviewed by the Office
of the Registrar.
c. Would never involve prosecution under the Provincial Offences Act.
d. Does not provide for mediation.
1.8 Routine inspections:

a. Are always conducted without advance notice.
b. Are typically set up by randomly selecting brokerages for inspection.
c. Are conducted pursuant to requirements outlined in the Provincial Offences
Act.
d. Do not focus on brokerage real estate records, but rather involve an informal
discussion between the inspector and the broker of record.
1.9 The Registrar has various options under the Registrar’s Complaints and Inquiries
(RCI) Process. Which is NOT one of them? This question requires that the incorrect
option be identified.
a. Impose a fine not to exceed $25,000.
b. Require the registrant to take further education courses.
c. Attempt to mediate or otherwise resolve the matter.
d. Refer to the discipline committee.
Exercise 2 Regulatory Requirements/Compliance (Matching)

Match the words in the left column with the appropriate descriptions in the right
column (not all descriptions are used).
___ Registration Requirement a. Notify Registrar within five days of

the event.
___ CPIC
b. Lack of financial responsibility.
___ Address Change
c. Legal processes relating to an
___ Search Warrant and Freeze Order investigation.
___ Grounds for Refusal of Applicant
d. Pay RECO insurance when new
application review is complete.
___ Exemption
___ Mandatory Continuing Education e. A buyer or a seller who is not a client.
___ Discipline Hearing Panel f. A professional or ethical obligation

expected of RECO registrants
according to the Code of Ethics.
g. A bank or authorized foreign bank.
h. Criminal record check.
i. An agent authorized to trade in real

estate.
j. May assess fine, plus costs.
k. Completed in every two year cycle.
SECTION II
REAL ESTATE
AND SOCIETY
Section II contains two chapters, the first of which focuses on real estate within
the broader perspective of society including fundamentals of supply/demand
economics. The second concentrates on Ontario’s economic, demographic and
geographic profiles, the real estate marketplace and real estate values.
The first chapter begins with key provincial and national indicators, along
with unique qualities associated with real estate markets and the functioning of
these markets within the broader economy.
The discussion then narrows to specifics
about the real estate marketplace and
indicators commonly used by brokerages to
track trends.
The second chapter addresses key Ontario
economic and demographic trends with
particular emphasis on how the real estate
market functions, key trends for the future
and the impact of those trends on real estate
in the future. The chapter also addresses
other important profile information about
the province including its geographic make-
up, Ontario’s cities and regions and key facts
about the Ontario economy. Lastly, the chapter
highlights how various factors impact value,
discusses key value concepts and analyzes
widely accepted value principles that interact
in the marketplace.
82
CHAPTER 3
Economics and the

Real Estate Market
Introduction
Societies need economic systems in order to meet the needs of their members. Such
systems function to address these needs by establishing what must be produced and
distributed to whom, when and in what manner. Price is focal to any economic system,
as it establishes value. Consumer choice largely determines prices and associated value
within our largely market-driven Canadian economy. Of course, markets are not totally
free flowing given government involvement and monitoring. Real estate is but one of many
sectors within Canada’s economic system and any analysis of its role and importance
begins with understanding economics.
A solid grasp of economics and its impact on real estate is fundamental to value,
negotiations and the listing/selling process. Chapter 3 begins with economic principles
and then expands into how the real estate market operates. Key indicators are identified
and discussed given their importance as a backdrop to real estate trends. Little wonder
that real estate chat is typically crammed with mortgage
rates, market statistics, buyer and seller markets, list to
sale ratios, vacancy rates, construction costs and number
of days on the market.
Fortunately, information abounds. Economics and real
estate are routinely splashed across daily newspapers inclu-
ding new construction levels, resale activity, new projects
and rising prices. Overall economic trends are also readily
available. The Bank of Canada, for example, actively informs
Canadians through monetary policy reports and updates, as
well as eight fixed announcement dates regarding interest
rates and economic conditions. These rates directly impact
mortgage rates and consequently real estate market activity.
Statistics Canada publishes a free daily subscription on key
indicators (since 1932) which provides analysis ranging
from employment rates to apartment building construction.
Economic trends are within easy grasp of every Canadian.
Provincial ministries including the Ministry of Finance,
the Ministry of Economic Development and Trade and the
Ministry of Municipal Affairs and Housing also provide
extensive information about the Ontario marketplace,
including the real estate sector.
SECTION II R E A L E S TAT E A N D S O C I E T Y
83
Learning Outcomes
• utline basic economic principles and indicators underlying the Canadian and
Ontario economies.
• Describe the ntario marketplace in terms of supply demand (including the actions
of government in relation to the natural forces of supply and demand), market
equilibrium, market bubbles/corrections and business cycles.
• Analyze the ntario real estate market in terms of unique characteristics that differ
entiate this market from others including factors such as the lack of a standard
product, the local nature of the market and its fixed location.
• Analyze selected features that typically influence the ntario real estate market
including demographic, employment, interest rate and building activity changes.
• Discuss seller, buyer and balanced markets along with the impact of market cycles
and real estate market corrections.
• Explain how brokerages typically track both residential and commercial markets and
identify key trends through the use of selected market indicators including mean
(average) and median prices.
R E A L E S TAT E A N D S O C I E T Y SECTION II
84 Chapter 3 Economics and the Real Estate Market
ECONOMICS: AN OVERVIEW
Economics Economics is broadly defined as the study of how individuals and society allocate scarce
The study of how society chooses resources in satisfying their wants and needs, including the production, distribution and
resources, which have alternative consumption of goods and services to meet the needs of various economic units (e.g.,
uses, in order to produce various individuals, families, corporations and governments).
commodities over time and dis-
tribute them for consumption
now and in the future among
various people and groups in
Basic Elements and Markets
society. People utilize resources, capital, technology and expertise to create goods and services. The
creation, distribution and ultimate consumption of such goods and services is largely
dictated by the forces of supply and demand. Further, the amount of production and its
ultimate use by consumers, determines the standard of living enjoyed within a particular
society.
Embodied within the national and provincial economies are thousands of individual
markets, in which buyers and sellers meet to bargain and exchange desired commodities
and services. An important market within the broader economy picture is the real estate
market. Economics seeks to apply certain theoretical principles and axioms to explain the
shifts, trends and fluctuations within these interwoven forces.
FACTORS OF PRODUCTION
All economies require four basic elements in order to produce goods and services:
• Land;
• Labour;
• Capital; and
• Entrepreneurial skills.
Collectively, these are referred to as the

factors of production. The overall
effectiveness of the economy is dictated
by its basic philosophic orientation.
A capitalistic economy operates on
individual decisions in an open
marketplace. Command systems,
usual to socialist countries, are
based on government bureaucratic
decisions in both the selection of
priorities, and the means of
distribution of goods and services to
the society. The interplay of con-
sumers and businesses in the produc-
tion and consumption of products and
services is best illustrated by a cycle with
government playing an integral, central
role in the process.
Economics and the Real Estate Market Chapter 3 85
ECONOMIC PRINCIPLES
AND PRIMARY INDICATORS
Canada’s economy, best described as mixed economy, entails the interplay of economic
units and government in the direction of economic activity and production of goods and Mixed Economy
services. This situation frequently pits opposing forces on the same economic battlefield, An economy consisting of both
resulting in a complicated structure full of intermingling philosophies, factions and private economic units (e.g.,
individual, families and
activities, fluctuating in perpetual push/pull motions. corporations), as well as
The entire process underlying the Canadian mixed economy can be depicted as a government participation in the
cyclical mechanism commencing with consumers (such as individuals, families, house- direction of economic activity
and production of goods/
holds and companies), leading to the factors of production in the resource market, the services.
creation of goods and services by businesses utilizing entrepreneurial skills and finally
returning full circle to the consumer. The government, situated at the hub, affects the
flow variously as a user, regulator and producer of many goods and services.
Money is exchanged in countless transactions each and every day throughout the
country, in accordance with the economic current, and moves from consumer demand
through the factors of production and, lastly, to the final purchase of goods and services.
The payment of money circulates in a counter-clockwise direction to the flow on the
chart. Because most transactions involve the payment of money in return for goods and
services, the Canadian economy is considered to be a price system as opposed to a barter/
exchange system.
Today’s economist faces the complicated, if not impossible, task of weighing the relative
impact of subtle natural market forces against a myriad of vested interests intruding on
the perfect equilibrium envisaged in supply/demand economics. As a result, specialists
have increasingly relied on business statistics to provide insight and illuminate important
trends within our complex economy. A broker or salesperson, although not requiring
extensive knowledge of such information, should be aware of key indicators having a
direct bearing on real estate, as well as many other interlocking markets in the overall
economy.
Inevitably, practically all indicators utilized by economists relate directly back to factors
in the cyclical flow of the economy. These are:
• Resource Markets (land, labour, capital, entrepreneurial skills);
• Businesses (supply); and
• Consumers (demand).
Unfortunately, statistical information often mirrors the disturbing complexities found

in the marketplace. However, certain key indicators are highlighted that demonstrate a
high degree of reliability in predicting economic swings including real estate market
activity.
Resource Markets
LABOUR
Labour possesses an understandable priority with most economists. The national employ-
ment rate is the most widely publicized, but other, more finely tuned indices measure
such things as job creation and job vacancy statistics. This information, broken down by
regions throughout the country, is very meaningful when analyzing local markets.
Labour indicators not only measure the strength of the economy, but also the efficiency
with which manpower is being utilized in addressing consumer demand. Statistics
Statistics Canada Canada provides extensive research and statistical data on total employment, employment
A federal agency with the man- rates and detailed labour force statistics.
date to collect, compile, analyze,
abstract and publish statistical
information about Canada; e.g., CAPITAL
the census. Statistics Canada Statistics Canada publishes worthwhile information not only on existing capital invest-
provides key real estate indica-
tors for both residential and ment from private and public sectors but also on anticipated allocations of capital dollars
commercial marketplace activity. by large and small companies. The availability of capital and attractiveness of interest
rates charged are directly tied to economic expansion.
Businesses
NATIONAL PRODUCTION
The supply of services and goods in the marketplace is a critical measure of the economic
output. Economists have focused on two major indices:
Gross National The most widely known indicator is the Gross National Product (GNP).
Product (GNP) This indicator measures total production in the economy, and conse-
quently is considered statistically representative of overall prosperity
within the country. The GNP measures production by Canadian resi-
dents, corporations and individuals, both within and beyond Canada.
Gross Domestic This indicator gauges production located solely within the country,
Product (GDP) and is a complementary indicator for the GNP.
MANUFACTURING ACTIVITY
Statistics Canada also produces information concerning manufacturer’s new orders, ship-
ments and inventories. This information is necessary when assessing overall demand
through the depletion and replenishment of goods.
UTILIZATION RATES
Although no key indicator exists assessing the effective use of production facilities within
the country, economists do rely upon various topical reports from Statistics Canada.
These attempt to illustrate whether the economy is operating at its full potential, utilizing
the available production factors.
Consumers
RETAIL SALES—SELECTED RETAILERS
Statistics Canada tracks information concerning retail sales volume. These statistics are
normally viewed as a lead indicator foreshadowing overall trends in the economy. Swings
in retail sales will usually be reflected in the GNP.
CONSUMER CONFIDENCE AND SPENDING

The Conference Board of Canada produces a quarterly report on consumer attitudes
that has proven to be a fairly reliable indicator of future economic trends. If attitudes
are positive and consumers are aggressive in the marketplace, increased expenditures on
goods and services will normally result.
CONSUMER DISPOSABLE INCOME/DEBT

The ability of consumers to expend dollars in the marketplace relates to both the amount
of disposable income (used for acquisition of goods and services) and overall household
debt load (ability to pay for acquisitions). A rise in disposable income, coupled with high
consumer expectations and lowering debt loads, normally result in economic growth.
THE CONSUMER PRICE INDEX (CPI)

The CPI is a combined measure of both the forces of supply and demand in the marketplace.
The CPI, often incorrectly labeled as the cost of living index, measures the price of goods
and services relating to 600 items which are commonly purchased by an average family
living in a metropolitan area. This index is generally regarded as a valid measure of
purchasing power. The CPI contains a price index for new houses (labour and material
prices only; land value is not included) as well as a rental index. The Consumer Price
Index and related sub-indices are valuable indicators as they: Consumer Price Index
• uantify family expenditures; An indicator of consumer price
fluctuations, most commonly
• Provide input on price trends; and associated with comparisons of
• Reflect current inflationary trends. purchasing power and inflationary
pressures. The overall CPI tracks
600 items, but sub-indexes are
The CPI is normally published by Statistics Canada in the third week of the following also tracked for specific groupings;
month. Consumer price indexes are provided for Canada, the ten provinces, the territories e.g., shelter.
and 16 major centres across Canada.
Consumer Price Index CPI FOCUS
Consumer Price Index (CPI) 2002–2012 (Based on 2002 = 100)

130
Consumer Price Index
120
110
100
90
Jul 02 Jul 03 Jul 04 Jul 05 Jul 06 Jul 07 Jul 08 Jul 09 Jul 10 Jul 11 Jul 12
This popular indicator of inflationary pressure (loss of buying power) is closely watched. The CPI, as a cost of living
measure, tracks 600 goods and services purchased by the average family; e.g., a family spending $100 for a basket of
goods in 2002 would require $122.81 for that same purchase in 2012.
Source Statistics Canada and the Bank of Canada. The Bank of Canada provides an easy-to-use CPI calculator;
go to www.bankofcanada.ca/en/rates/inflation_calc.html.
STATISTICAL ANALYSIS
Brokers and salespersons require an awareness of statistical techniques used in economic
analysis. Unfortunately, data can be manipulated to accentuate certain facts or provide
credence to a specific point of view. Conversely, certain worthwhile measures genuinely
assist the reader in analyzing data and identifying trends.
Indexes
Economists frequently use EXAMPLE Anycity Housing Index
indexes to show the change of a BASE YEAR: 1990
particular indicator over time.
YEAR HOUSE PRICES % CHANGE
A base year is selected, and all
subsequent years are compared 1990 $100,000 0%
as a percentage of the base. A 1995 $115,000 15%
hypothetical housing index for 2000 $130,000 30%
Anycity is illustrated.
2005 $145,000 45%
2010 $195,000 95%

Seasonally Adjusted
This example is called a simple index, however, not
Occasionally economists want to every index is derived in this basic manner. Complicated
take the peaks and valleys out mathematical calculations utilizing weighted means,
of data (i.e., seasonal variations standard deviations and moving averages may be required.
in production or employment
due to time of year). By
averaging seasonal fluctuations,
it is possible to reveal underlying trends. Seasonally adjusted figures are normally used
when comparing data within one year. Unadjusted figures are more commonplace in
year-to-year analysis.
Three Month Moving Average

In order to minimize monthly fluctuations some statistical reports provide a three month
moving average, which is normally calculated as follows:
EXAMPLE Three Month Moving Average

REPORTING MONTHS INVOLVED AND 3 MONTH MOVING
MONTH HOUSING UNITS SOLD AVERAGE
March Jan. 200; Feb. 300; Mar. 400 300
April Feb. 300; Mar. 400; Apr. 500 400
May Mar. 400; Apr. 500: May 600 500
A moving average should not be confused with a quarter to quarter change (one three-
month period compared to another).
Weighted Average
Occasionally economists will work with weighted, as opposed to simple, averages.
EXAMPLE Weighted Average

Two-storey homes command $180,000, split levels $150,000 and bungalows $120,000.
Therefore, the simple average of house sale prices is $150,000. However, further investigation
reveals that these figures were derived from 100 sales (40 bungalows, 40 split levels and 20
two-storeys). The true average price should reflect the higher activity in the lower price ranges.
Therefore, the weighted factors are:
Bungalows .40 (40 out of 100) x $120,000 = $48,000
Split Levels .40 (40 out of 100) x $150,000 = $60,000
Two-Storeys .20 (20 out of 100) x $180,000 = $36,000
Combined Weighted Average $144,000
Graphs/Charts
Lastly, caution is advised when reading business statistics and studying graphs and
charts—appearances can be deceiving. Two charts portraying the same information can
appear dramatically different if the incremental values on the vertical axis are altered as
illustrated for a fictitious Ontario city.
Anycity Graph Comparison

Average Sale Prices—Anycity
2008–2014
Graph #1 Graph #2
200,000 175,000
190,000 172,500
Average Price ($)
Average Price ($)
180,000 170,000
170,000 167,500
160,000 165,000
150,000 162,500
140,000 160,000
2008 2010 2012 2014 2008 2010 2012 2014
Year Year
UNDERSTANDING THE MARKETPLACE

Supply/Demand Forces
The dynamics of the Ontario, as well as Canadian, marketplaces determine price through
the interaction of supply and demand. In a perfect world, the forces of supply and demand
dictate the most favourable price, as buyers and sellers negotiate freely in the marketplace.
Markets in this perfect world would be completely unrestricted and would allow exchanges
based solely on universal supply/demand principles. Both the Canadian and Ontario
economies are far removed from such an unencumbered structure.
Real estate is but one of numerous interconnected markets comprising the overall
Ontario economy, others include the stock market, the commodities market, the capital
market and the labour market. Demand is demonstrated in these markets by the quantity
of goods or services that buyers are capable of acquiring at various prices. Supply, repre-
senting the opposing force, embodies the quantity of goods or services that sellers are
capable and willing to produce at various prices.
Under perfect market conditions,
when the price of a product falls, the Demand Supply
Price
demand for that item will increase
and, conversely, as the price rises, the
demand is progressively weakened.
This interplay of price and quantity
Equilibrium Market
sold is diagrammatically represented Price Equilibrium
by supply and demand curves as
illustrated. The optimum point at
which supply and demand curves Equilibrium Quantity
intersect is said to be market Quantity
Market Equilibrium equilibrium. A shift in either supply Supply As price increases, the quantity increases.
The point where quantity
or demand will alter the equilibrium
Demand As quantity increases, the price decreases.
supplied equals quantity and, therefore, affect what is referred
demanded. to as the balanced price. Market The point where quantity supplied equals
Equilibrium quantity demanded. The equilibrium point
shows the equilibrium price, and the
equilibrium quantity.
Market Equilibrium
Economists have traditionally explained the economy in terms of market supply/demand
curves and creation of a perfect equilibrium, where prices paid and value received reflect
a true exchange. An underlying assumption exists that market forces constantly seek
absolute parity between production (supply) and utilization of services and goods
(demand). Traditional economic theory held that a natural tendency existed for market
mechanisms to operate efficiently, thereby ensuring optimum balance and producing
the fairest market prices. Consequently, the system would function to the best advantage
of society as a whole. This philosophic perspective has changed substantially during the
twentieth century.
The modern economy is a more complex picture of competing forces, which defy
simple interpretation through equilibrium doctrine. In fact, contemporary industrial
economies wrestle with instabilities as opposed to balance in the marketplace. This is
due, in no small part, to the intrusion of competing factions nurturing predetermined
concepts of what constitutes a just economic system. Most notably, disputes arise over
the allocation of rewards to meet certain political, social or economic aspirations. As a
consequence, simple concepts of supply, demand and equilibrium become entwined
with the potential for almost unlimited obstructions to the free flow and pricing of
goods and services.
Market Bubbles/Corrections
Economists are increasingly focused on instabilities, rather than equilibrium, in better
understanding market dynamics. For example, real estate markets have demonstrated a
tendency to overheating, giving rise to significant price swings and the Ontario market-
place is no exception. These market bubbles, typically driven by speculative zeal, take on Market Bubble
a life force of their own, as consumers rush in to acquire real estate while prices rise. The The over expansion of a market
buying frenzy creates further inflationary pressure and the bubble progressively grows due primarily to excessive buyer
larger. confidence resulting in inflated
values. Real estate bubbles, when
Real estate bubbles are particularly problematic. Consumer zeal fuels feverish con- a burst occurs, can have signifi-
struction, aggressive lending practices and the misdirection of vital economic resources. cant negative impact on the
overall economy.
The fallout from the inevitable correction can have disastrous results involving high
unemployment, substantial economic upheaval and significant losses in value. Fortunately,
governments have taken steps to carefully track such matters and investors, as well as
others involved in real estate, carefully watch for danger signs.
Business Cycles
A business cycle refers to a series of events within the business environment that take Business Cycle
place in roughly the same order and at the same approximate intervals. A business cycle A series of economic events; i.e.,
is concluded when this series of periodically recurring events brings circumstances back prosperity, recession and recovery,
more or less to overall conditions that existed when the cycle began. that takes place in the same
approximate order and time
The concept of cyclical trends in business has remained a popular theoretical basis interval.
for analyzing, explaining and forecasting long term economic trends in Ontario as well
as the overall Canadian economy. Cycles are particularly evident in real estate and are a
consequence of supply and demand factors combined with a host of intrusive elements
from both private and public sectors. No two cycles display the same time interval or
intensity. The business cycle is typically associated with three phases as illustrated:
• Prosperity (high employment, consumer
Prosperity Prosperity
confidence and intense market activity);
Peak Peak
• Recession (rising unemployment, waning
y
ver
consumer confidence and no real

very
co
growth); and
Re
Reco
• Recovery (economic corrections and Recession

improvement in key growth indicators). Trough
Economic recovery leads to prosperity

Length of Business Cycle
and the cycle begins once more.
Prolonged Recession can develop into full scale

Depression which may dramatically extend the length
of a business cycle before any recovery is realized.
Government Intervention
Government intervention represents a primary interruption to the natural forces of supply
and demand. Interference from all three levels of government (federal, provincial and
municipal) is evident from several perspectives.
SPENDING POLICIES
Governments can directly impact the market through its acquisition of goods and services,
thus directly affecting the natural forces of demand as follows:
• By the issuance of government contracts to purchase supplies;
• By intrusion in the capital markets to support federal or provincial expansion
programs; and
• By the establishment of lending policies and related monetary policies.
Similarly, in the case of supply, marketing boards may withhold products to artificially
peg the balanced equilibrium and dictate market prices. Further, government departments
may control the use of specific raw resources or limit exploration for these substances.
CROWN CORPORATIONS
The mere existence of government owned companies influences the natural supply and
demand equation in the economy. Government economic objectives and social policies
are often inextricably tied to decision-making processes. For example, the decision for a
crown-owned airline to service certain remote areas may be based on political/social
objectives, as opposed to economic reality. Therefore, the allocation of resources is direct-
ed in a manner which would not have otherwise occurred under the auspices of pure
economic principles. Similarly, in real estate, the government may decide to subsidize
housing or acquire large blocks of housing units to meet certain social objectives. The
normal allocation of resources is disrupted given the pursuit of these goals.
TAXATION
The government allocates economic benefit through its taxation policies. Certain groups
within society will pay proportionately more taxes to support social policies, which they
may neither want nor expect to utilize. Conversely, the government may introduce
incentives to promote the production or acquisition of goods and services, to the detri-
ment of other social goals.
STATUTES/REGULATIONS
Governmental policies affect practically every aspect of life in both Ontario and Canada
as a whole. Regulations and statutory laws monitor, direct and control countless trans-
actions on a daily basis through such things as production specifications, environmental
requirements, duty and export directives, and price controls.
ANALYZING THE REAL ESTATE MARKET

Real estate markets, once largely overlooked, from both provincial and national economic
perspectives, are now carefully scrutinized by economists. Current research confirms
that the real estate market is more focal to economics than originally thought. Millions of
dollars routinely flow through the buying, selling and development processes particularly
in and around major urban centres. Real estate has always intrigued researchers due, in no
small way, to its unique qualities that make analysis and predictions somewhat complex.
Characteristics
The real estate market is somewhat unique, as it lacks various characteristics of the typical
sales market. For example, no physical marketplace exists where sellers display goods and
buyers come to shop. Other distinctive qualities are grouped under six main headings.
No Standard Uniqueness of residential and commercial properties.

Product
Local Real Estate Immobile, impacted by local market forces and situations.
Market
Fixed Location Largely fixed in nature; cannot be taken to the market.
Market Not Centralized control has proven difficult; MLS provides some
Standardized form of order to trading activities.
Slow Supply/ Supply demand forces impacted by unique market variables; i.e.,
Demand time to introduce product and to deplete available inventory.
Adjustment
Private Buyer/seller transactions are generally private matters and lack

Transactions the immediacy, open bidding and widespread distribution of sale
information, such as is found in the stock market.
NO STANDARD PRODUCT
No two houses are ever exactly the same. Even in new subdivisions where builders erect
numerous houses with virtually the same plan, each property is ultimately adapted to
the needs of the owner.
Although a number of homes may be physically different, they may be exchangeable in
a monetary sense due to their utility. For example, six homes, all different in appearance,
shape and geographical site, may fall into the same price range because all are six-room
bungalows in the same general area with roughly the same square footage, having three
bedrooms and built to the same set of building regulations. The usefulness of all six homes
would be approximately the same, but subtle price variations arise due to age, upkeep,
special features and amenities, and geographic location.
LOCAL REAL ESTATE MARKET

Interprovincial and international real estate transactions do occur, but the vast majority
of Ontario real estate activity is concentrated within the province and its many sub-
markets, which remain largely local in character because the commodity cannot be moved.
Ownership may change hands outside the community, but it is generally what happens
within the community that determines supply and demand and thus price or value.
Consequently, real estate salespeople in one Ontario city are primarily concerned with,
and must have knowledge of, market conditions in that community, as opposed to other
locations across the province or the country.
This is not to ignore broader economic issues that affect markets in the province or
across the country. For example, a significant change in federal government policies con-
cerning interest rates will directly impact the real estate market throughout the country.
Similarly, provincial legislation directed at planning provisions and new construction
requirements will impact developments in many parts of Ontario. However, despite
these overriding influences, real estate retains its local character; e.g., the announcement
of a new major employer in St. Thomas would have little, if any, impact on Huntsville.
Similarly, a significant increase in Toronto commuters acquiring property in Kitchener-
Waterloo would be a localized event having no direct impact on real estate in Kingston.
FIXED LOCATION
Real estate is one commodity that cannot be taken to the consumer. The consumer must
come to the property. The marketplace is the property site and negotiations may take place
in an office, but the real sale is made at the location. To quote an often heard statement:
it’s all about location, location, location.
Residential and commercial buyers routinely differentiate seemingly identical proper-
ties by focusing on fixed location factors; e.g., access to transportation, proximity to
services, surrounding properties, travel distance, distance to market, property taxation
and compatible land uses within the area. Two similar structures in different locations
can involve significantly different prices. The same is not true for other products/services.
For example, the car dealer’s location within a city does not normally dictate automobile
price, nor does the cost of groceries align with the grocery store’s view.
To compound matters, slow adjustment and local market considerations affect price.
One location may offer similar features, but supply is limited. Immediate demand drives
up prices of existing inventory, particularly given time delays to bring new construction to
market. ther local circumstances may compound the dynamics; e.g., a freeze on building
permits due to lack of municipal services.
MARKET NOT STANDARDIZED

Although the Multiple Listing Service , offered by ntario real estate boards, provides a
degree of orderly process in marketing properties, any attempt at large-scale organization
or a central control system for the real estate market beyond the local level faces signifi-
cant challenges given the fixed location and lack of a standard commodity. Even though
MLS listings may be viewed on the Internet, marketing still remains local in nature.
SLOW SUPPLY/DEMAND ADJUSTMENT

With an oversupply of most consumer goods, production can usually be slowed or halted
quickly. Existing supply is typically used up and the market seeks balance between supply
and demand. This is seldom true of real estate. When demand is high, numerous building
projects are often commenced. If the market changes and demand drops, the projects
are completed anyway, adding to the oversupply. Because of the durability of real estate,
the supply remains. On the other hand, when a sudden surge in demand occurs, no
quick solution is available given the time required to plan, finance, develop and build.
PRIVATE TRANSACTIONS
Generally, the purchase of real estate is a private transaction between buyer and seller, the
results of which are not published for the public at large. Information regarding ownership
is, however, available through documents registered at provincial land registry offices.
Influencing Factors
A market of any kind usually functions to facilitate the exchange of goods and services.
Under normal circumstances, a market is a centre of distribution, a pricing system and a
control centre of operations; e.g., locally, regionally, provincially and nationally.
In a money economy, goods are exchanged for money and money for goods. The result
of these exchanges is a redistribution of goods and money. In the real estate market, the
process of exchange results in the production and allocation of properties according to
the preferences of users in the marketplace and their financial capabilities. Thus, the real
estate market functions to redistribute existing properties, cause an increase in the supply
of new properties, determine the use of such properties and establish the value of those
properties.
The real estate market is sensitive to changes in the balance of economic, political and
social forces within our society, which in turn influences the supply and demand for real
estate. The following are among the more important influences:
DEMOGRAPHIC CHANGES
Demographics (the study of population trends) is discussed in more detail later. However,
as an example, family composition is a significant factor impacting the real estate market.
The family is the primary housing consumer unit. For example, when a couple marries,
their marriage sets up a third family. Normally the new couple establish an independent
household and thereby absorb a unit of housing. This is known as the family formation
rate. An increase in family formations normally creates a similar increase in demand for
housing.
EMPLOYMENT CONDITIONS AND WAGE LEVELS

A strong demand for housing typically is associated with periods of prosperity and increas-
ed employment. Given strong employment opportunities and rising wages, more new
homeowners from the labour force are able to enter the market by buying their first home.
In turn, existing homeowners now have the ability to move up by acquiring larger homes.
However, the converse is also true. High unemployment over a period of time will
adversely affect the real estate market, although employment insurance programs have
cushioned, to some degree, the shock of layoffs. Also, pensions and other social security
programs, coupled with an increase in life expectancy, have enabled seniors to continue
as homeowners after retirement, although perhaps they may buy a smaller home or
condominium. Regardless, economic downturns have typically foreshadowed a weakening
of real estate markets.
An illustration is included showing labour force statistics for the Province of Ontario
over the past 37 years. The real estate market has undergone two significant market cycles
which involved real estate market downturns (one in the early 1980’s and another begin-
ning in 1989). While it is impossible to determine the exact relationship as many factors
are at play, an undeniable link exists.
Labour Force Statistics as an Influencing Factor LABOUR FORCE FOCUS
An undeniable link exists between unemployment rates and housing activity. Fewer dollars generated through jobs
impact large ticket purchases including housing.
Unemployment Rates—Ontario 1976–2013

12.3% Dec 1982
12
Unemployment Rate (%, Seasonally Adjusted)
11.6% Sep 1992
10
7.5%
Aug 2013
6
4.9% Oct 1989

4
1976 1980 1985 1990 1995 2000 2005 2010
View unemployment rates with caution. The real rate might be significantly higher due to various factors including
unreported unemployment (those discouraged in the job search) and/or those not registered with established agencies.
Source Statistics Canada. CANSIM Table 282–0087
MORTGAGE VOLUME AND INTEREST RATES

Loans are based on the lender’s confidence in the borrower and the security that the
borrower offers. Loans made on the security of real estate are no exception. Loans are only
made when lenders feel that real estate is a sound investment, that properties acquired
will retain their value and that the borrowers will earn sufficient sums to provide for
repayment of the loans. Of course, mortgage volumes can’t be looked at in isolation as
interest rates being charged is also a key factor.
If interest rates are high, the real estate market is usually adversely affected as people
tend to stay put in their existing housing accommodations. As debt is frequently a major
component in a house purchase, any significant interest increase directly impacts the
market. If interest rates are low, then mortgages become more affordable and consumers
react accordingly.
As an illustration, the Ontario marketplace has been particularly strong during the
past several years. The long-term trend of both one year and five year mortgage rates is
undoubtedly a contributing factor. The rates illustrated are a sampling of fixed rates pro-
vided by lending institutions and compiled by the Bank of Canada.
Comparison—Bank of Canada Bank Rate &

Chartered Bank Administered One-Year and Five-Year Conventional Mortgage Rates
10%
8%
6%
5-Year Mortgage Rate
4%
1-Year Mortgage Rate
2%
Bank Rate
0%
Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul
2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: Bank of Canada
WEB LINKS
For more information concerning interest rate policies and related matters, go to
www.bankofcanada.ca. Mortgage financing and interest rate issues/policies are analyzed in
greater depth in Land, Structures and Real Estate Trading.
Interest Rates and the Bank of Canada CURIOSITY
The central bank of Canada is owned by the federal government and is responsible for the overall administration of the
country's financial system including monetary policy, bank note issuance, central banking services and administration
of public debt. The specific role of the Bank of Canada is set out in the Bank of Canada Act.
Brokers and salespersons are most directly impacted by Bank of Canada policies through mortgage and other
interest rates charged to residential and commercial borrowers. Two primary goals of the bank are low/stable inflation
and financial stability. Interest rates play an important part in that process. Borrowing costs are directly tied to economic
trends, product/service costs and business activity, of which directly or indirectly affect real estate activity.
The Bank of Canada, as an independent monetary institution (all shares are held by the Ministry of Finance), can
impact interest rates through policy decisions. The Bank does not set rates, but rather influences rates by establishing
an overnight rate and an associated operating band. The overnight rate impacts short-term lending by establishing
an interest range for overnight trading activities involving major institutional lenders. The overnight rate is applied to
funds that lenders require to balance their accounts at end-of-day. An electronic large value transfer system is used to
dispense funds as needed. The overnight rate provides a clear signal to lenders of the central bank's position on
interest rates.
For example, the overnight rate might be set at 4.25%. The associated operating band would be 4.00% to 4.50%.
A maximum band spread is 0.5% between interest paid for money held (the lower limit) and interest charged for
borrowed funds (the upper limit). The mid-point in the band is known as the target rate which is the official Bank of
Canada rate. Overnight business is transacted between lenders and the Bank of Canada based on the operating band.
The operating band and overnight target rate directly influence how prime rates are established by lenders for short-
term loans, including mortgages. Longer term mortgages are more directly impacted by bond yields in the marketplace;
e.g., the five-year yield on government bonds.
BUILDING ACTIVITY
Substantial building activity normally indicates a strong real estate market. However, over-
building may depress real estate values by introducing new supply in excess of demand.
Unless the increase in supply is coupled with a corresponding increase in consumer demand,
real estate prices can experience a downward trend. Conversely, sudden increasing demand
can place upward pressure given the time frame to build additional inventory. Additional
details are provided later in this chapter when discussing real estate market cycles.
Types of Markets
Real estate markets are typically discussed in terms of three categories reflecting increasing
demand, increasing supply or balanced supply/demand characteristics.
SELLER’S MARKET
In a seller’s market, the number of buyers wanting properties exceeds the supply. This type
of market is characterized by properties that sell quickly, rising prices, many buyers looking
and a minimal inventory available for sale. These characteristics have implications for the
buyer, who has to make decisions quickly, must pay more and frequently has conditional
offers rejected as the seller can demand a firm sale for his or her property. Often, sellers
have the luxury of considering several offers and counter-offering for higher prices.
BUYER’S MARKET
In a buyer’s market, the supply of properties on the market exceeds the demand.
Characteristics of this market include longer selling periods for properties on the market,
fewer buyers compared to properties available, higher inventory and stabilized or declin-
ing prices. The implications for the buyers in this type of market are more favourable
negotiating leverage, more choice and the luxury of additional time in searching for just
the right property.
BALANCED MARKET
In a balanced market, the number of properties on the market equals the demand. The
characteristics of this market include properties selling within a reasonable period of
time, demand equalling supply, sellers accepting reasonable offers and prices generally
stabilized. The atmosphere is usually more relaxed.
Real Estate Market Cycles

The real estate market generally moves through phases similar to general business cycles.
Real Estate Cycle However, the real estate cycle may demonstrate more pronounced peaks and valleys.
A cycle which may differ from Prosperity can occasionally linger in the marketplace, buoyed by fervently optimistic con-
other business cycles due to sumers and speculators. Conversely, recessions deepen unnecessarily as developers flood
unique attributes and circum- an overheated market with new structures, only to see consumer demand evaporate before
stances associated with real
estate. their completion. On a more optimistic note, real estate markets have traditionally tended
to be on the leading edge of the recovery cycles as improved economic conditions emerge.
LONG VS. SHORT CYCLES

Economists have long debated the existence of both long-term and short-term cycles
operating in the real estate market. However, to date, both defy the regularity and consis-
tency necessary to permit accurate predictions. Many believe that the long cycle is driven
by demographics (e.g., age composition, marriage patterns, population changes and
migration), transportation patterns, macro economic growth cycles and long-term govern-
ment policies. The shorter cycle appears affected predominately by interest rates, consumer
confidence and general economic conditions, particularly within the local area or region.
Some argue that the current, long-term cycle originated in the mid-forties with the
appearance of baby boomers, post Second World War consumer confidence, substantial
immigration to Canada, favourable government regulations and an expanding easy money
policy in both public and private lending institutions. The 1945–2000 period appears as
an extended recovery/prosperity curve in a long-term cycle, following the disastrous
impact of the depression years. Others dispute the long cycle theory but acknowledge
the sustained attractiveness of real estate holdings. Despite various fluctuations, the size
and strength of real estate markets have moved in progressively upward trends.
Other industry observers contend that the real estate market has demonstrated consis-
tent short cycles. The duration seems to be approximately every six to ten years. However,
it is important to emphasize that the length and intensity of the prosperity, recession and
recovery stages may vary considerably by geographic locale. As with extended cycles,
conflicting opinions must be noted.
Some assert that the existence of short cycles is largely illusory and too simplistic to
address economic complexities in the real world. These individuals insist that unique
events in the marketplace (e.g., credit restrictions, short-term housing scarcity, govern-
ment policies and employment trends), randomly impact the market, thereby creating
unusual, often erratic activity that defies accurate cyclical prediction. Such movements
may not be recession/recovery cycles but merely statistical evidence of the constant
imbalance of supply and demand. Based on this explanation, economists may be force-
fitting market blips into neatly packaged cycles where none really exist. Obviously, the
entire topic is one of ongoing investigation.
Prosperity Prosperity
REAL ESTATE CYCLE VS. B B
BUSINESS CYCLE Peak Peak
ry
ry
ve
ve
If some form of real estate A

co
co
A
Re
Re
cycle does exist, research sug- D

gests that certain variances are Recession
present to differentiate it from
the traditional business cycle. C
Undoubtedly, such variations Trough
occur in part given unique
Length of Business Cycle
factors associated with real
estate that are not found in Business Cycle
other market sectors; e.g., fixed Real Estate Cycle
location and slow supply/
demand adjustment. A Lag in bringing units on market may delay overall
recovery.
B High consumer confidence coupled with delay in
completing houses may perpetuate prosperity for a
longer period.
C Market adjustment more pronounced due to B with
a deeper recessionary trend as a consequence.
D Sales activity resumes providing a leading indicator
of overall economic recovery.
Real Estate Market Corrections

Buyers should ultimately balance sellers in a perfect marketplace, but countless intervening
factors make real estate cycles at best difficult to predict, at worst destructive. The
amplitude of a cycle can have far reaching effects. Simply put: How high is up and how low
is down.
Economists are keenly interested in real estate ups and downs given that real estate has
displayed disturbing boom/bust cycles. The imperfect allocation of resources can have
disastrous economic impact:
• Increasing consumer confidence, a seller’s market and lack of supply can give way to
frenzied buying and market bubbles.
• The bubble of buyer excitement grows from its own momentum, with little or no
economic justification.
Market Correction • Frenzied activity in the bubble typically leads to a severe market correction.
A market readjustment, usually • Ultimately, such a market correction inflicts significant economic damage; e.g.,
occurring following a period of unemployment, large equity (value) losses, oversupply of products and services and
recession or prosperity, but typical-
ly associated with a downturn in
financial hardship including foreclosures and powers of sale.
demand and increasing supply.
EXAMPLE A Casualty of Imperfect Markets

How imperfect is the market? The consequences can be devastating, if not properly
understood and contemplated.
Activity
Market Status Forces and Factors
(Developer A)
Contemplates Landlord Market/ • o construction.
Building High Renter Demand • Adverse rental legislation being reviewed.
Arranges Interim Landlord Market/ • acancy rate lowers to less than 1%.
Financing Overheated • Government offers financial incentives.
• enders actively pursue developers.
Starts Landlord Market/Bubble • Favourable financing many starts.
Construction Grows • umerous developers enter construction
phase.
• Rents continue rising given critical shortage.
• igh migration levels fuel the shortage.
• ntry of new units slowed by red tape.
• egative publicity about the shortage
increases.
Delays in Minor Market • Government responds with rent controls.
Completion orrection/ xcess • Financing moves to other opportunities.
Construction Begins
• conomic downturn and rising interest
rates.
• ew units start appearing on the market.
Completes Severe Market • Bulk of new construction now on market.
Building Correction • acancy rate soars to doubledigit.
• Financing dries up.
Declares Recession • evelopers exit given adverse legislation
Bankruptcy and economic realities.
Interest Rates and Market Corrections CURIOSITY
Interest rates may have greater impact on market bubbles than originally contemplated. Financial experts are concerned
about zealous equity borrowing by property owners. A buoyant market produces increased property values. With mortgage
rates hovering at their lowest in decades, owners are creatively addressing other financial burdens by borrowing against
increased equity.
Mortgage funds are then used to maintain lifestyle, acquire goods and pay off high interest credit card debt. To outward
appearances, the economy is expanding. Behind the scenes, rising real estate equity is driving the momentum, with the
debt boom close behind. No real accumulation of wealth is occurring, only manipulation of mortgaged equity. A correction
could prove onerous if real estate values decline in an over-leveraged marketplace.
TRACKING THE
ONTARIO RESIDENTIAL MARKET
Most active residential real estate professionals rely upon three primary sources of
market information:
Brokerage Files Specialized data collected relating to specific market areas or niches;
e.g., residential, condominium and rural/recreational.
MLS® Statistics Real estate boards offer detailed MLS statistics to assist in estab
lishing market trends, preparing competitive market analyses for sellers and offering
guidance to buyers in the negotiating process. MLS data is typically separated into
active and historical (sold and/or expired) categories. Statistical information is also
available to assist members with marketplace trends and specialized local data for
pre-determined geographic districts.
Other Sources arious organizations provide tailormade data to target audiences;
e.g., residential or commercial specialists, builders, developers and financial institutions. Canada Mortgage and
Housing Corporation
For example, Canada Mortgage and Housing Corporation (CMHC) offers excellent
A federal agency mandated to
resources relating to housing and construction trends. The Land Registry Office is carry out various housing-related
also an important source for detailed property records and related information. activities, including participation
in the residential mortgage
Market indicators vary, but most provide sale prices, average (mean) prices, median market.
prices, average sale to listing ratios and number of days on the market.
Market Indicators
Statistical tracking systems usually
EXAMPLE Market Indicators—Typical Monthly Sale/List Report involving resource, business and
(Results for this 5-month period have been rounded to the nearest dollar and percentage.) consumer markets. In real estate,
specific indicators will vary for
AVERAGE LIST AVERAGE SALE TO LIST DAYS ON residential and commercial
MONTH markets.
PRICE SALE PRICE PRICE MARKET
JUL–2012 174,900 170,000 97% 65
JUN–2012 203,273 199,080 98% 49
MAY–2012 216,204 201,646 93% 51
APR–2012 207,991 201,018 97% 73
MAR–2012 212,156 204,747 96% 66
AVERAGES 202,905 195,298 96% 61
WEB LINKS
Canada Mortgage and Housing Corporation Go to www.cmhc-schl.gc.ca for specifics of
programs and services offered by the Canada Mortgage and Housing Corporation.
Market Trends
Statistics are often focused on measures of central tendency, most notably the mean
(average) and median. The mode, which is the third measure of central tendency, is used
for real estate appraisal statistics. Further, means and medians are spotlighted in press
reports and various media publications. While valuable, neither in isolation warrant such
status. Today’s professional registrant understands that accurate market depictions come
not from one or two measures, but rather from many distinct, but complementary, indicators.
Making snap decisions using measures of central tendency can be problematic. A
decline or increase is often taken as an indication of falling or rising prices, but appearances
can be deceiving:
• Mean and median may move due to increased sales activity in upper or lower price
ranges. The shifting distribution gives an impression of rising or falling prices.
• Mean and median may move abruptly in a particular month given lower total sales,
particularly if several very high or very low sales are included.
• Mean and median may be rising, but this may be due to selected market niches and not
representative of for all property types or areas included within the statistical report.
EXAMPLE Measures of Central Tendency

Mean (Average): Mode:
Total of figures divided by number of figures. Most frequently appearing number in an array of figures.
Five selling prices of homes are: $232,000

245,000
$245,000
245,000 $245,000 Mode
260,000
245,000
240,000
253,500
237,000
272,000
262,000
1,244,000 ÷ 5 = $248,800
Mean (Average) Price
Median: Frequency of sale prices is more typically illustrated by

Middle figure in an array of figures ordered from smallest to largest. groupings:
$237,000 $0–100,000
240,000
245,000 Median Price 100,001–200,000
260,000 200,001–300,000
262,000
300,001–400,000
Note: If no exact mid-point, average of the two sale prices
400,001–500,000
occupying the mid-point position is used:
$232,000 500,001+
237,000 0 10 20 30 40 50 60 70 80
240,000
245,000
260,000
262,000
The Newspaper Article PERSPECTIVE
Broker of record Williams was asked by the local newspaper to comment on market conditions in Anytown, Ontario.
Williams is well known for keeping his finger on the real estate pulse:
NEWSPAPER NEWSPAPER
Comment on recent market activity and what it What are the hot housing styles these days?
means for your community.
WILLIAMS Our research department tracks all new
WILLIAMS The market is strong in Anytown. We track residential sales in Anytown. Over the past
various key indicators. With sales of existing two years, two-storey houses account for
homes up 5.2% year-on-year and average nearly 70% of all new sales, with bungalows
prices hovering 11.2% higher than last year, coming in a distant second at 13%. Our
things look positive. Right now, we’re at 52 buyers tend to be young with small families.
days on average to sell a home, as opposed to The two-storey provides larger floor area for
67 days one year ago. In my opinion, activity available lots which range from 35–45 foot
will remain strong with sales high, listings frontages. It’s a matter of getting the best
at a premium, and mortgage rates stable or bang for your buck.
rising slightly. A seller’s market will remain
with buyers deciding to make the move
before prices and mortgage costs go up.
NEWSPAPER
NEWSPAPER What about residential construction? Can consumers tap into your expertise?
WILLIAMS Building starts in Anytown are up by 19% WILLIAMS Absolutely, our brokerage publishes an
from last year with building permit activity indepth market review every four months
anticipated to remain strong for the foresee- with key trends, statistics and articles of
able future. In particular, single detached interest for both buyers and sellers. Just call
starts are up 12% over last year. More impor- our office to receive a paper copy or subscribe
tantly, the absorption rate for this new to the e-bulletin.
inventory appears well balanced with starts.
Interest rates may be a factor in the next few
months, as we await any change in the over-
night rate by the Bank of Canada. Construction
of single-family homes continues to drive
the market. We have seen significant activity
in all areas with the exception of the inner
core market which focuses primarily on
new townhouses and condominiums.
TRACKING THE
ONTARIO COMMERCIAL MARKET
Commercial markets demand intense research activity. Larger brokerages typically employ
staff to track leasing and sale data concerning office, retail, industrial and other markets.
Primary sources include:
MLS® Statistics Separate commercial MLS databases are offered by larger boards.
Brokerage Files Many brokerages rely heavily on internal databases reporting on
local market conditions, trends and forecasts.
Statistics Canada Manufacturing, production, inventory, cost and building activity
indexes, along with census data and demographic analysis. For example, the illustra-
tion details one of many reports issued by Statistics Canada.
Economic Development Offices Economic, local/regional development trends and
market statistics. For Ontario community statistics and commercial searches. A
centralized information site for key Ontario economic indicators and information
of interest to commercial registrants is maintained by the Ministry of Economic
Development and Trade at www.investinontario.com.
Building Construction Price Index ONTARIO COMMERCIAL FOCUS
Commercial research often goes well beyond local Ontario markets to national/international trends.
Non-Residential Building Construction Price Index (2002=100)
2011 4th Quarter 2010 to 4th 3rd to 4th Quarter 2011

4th Quarter Quarter 2011 (% Change) (% Change)
Composite 148.3 +4.1% +0.6%
Halifax 141.7 +2.8 +0.4
Montréal 141.6 +3.0 +0.2
Ottawa 154.1 +5.4 +0.5
Toronto 150.0 +4.8 +0.7
Calgary 166.7 +3.9 +0.9
dmonton 163.5 +4.1 +0.8
Vancouver 139.5 +4.0 +0.7
Source Statistics Canada. CANSIM Table 327–0043.
WEB LINKS
Statistics Canada Go to the Statistics anada website (www.statcan.gc.ca) for detailed
information regarding key economic, demographic and related indicators along with specifics
relating to both residential and commercial construction activity.
Ontario Economic Conditions Go to www.investinontario.com for information regarding

current Ontario economic conditions and market trends impacting the commercial market.
The Practical Applications PERSPECTIVE
A recent conversation with Salesperson Lane can help put economics into perspective from a real estate point of view.
INTERVIEWER INTERVIEWER
You completed the pre-registration courses last OK, but what about market indicators, real estate
year. Did you find practical use for economic topics cycles and all that. Does it ever come into the
covered? discussion?
LANE Well, at the time, I wasn’t certain how I could LANE Absolutely. I haven’t met anyone that doesn’t
use some of the information, but reality hit know about real estate cycles. Today’s investors
actually within weeks of obtaining my registration. are savvy to market jargon. My listing presentation
package has several charts about cycles and
trends; e.g., the most active periods of the year
INTERVIEWER What do you mean? for commercial sales, how leasing markets are
performing and how mortgage rates have
LANE Let me start with trends and statistics, then work trended over the past few months. Don’t get
backwards to economic principles and forces. My me wrong. I only discuss one or two key trends.
broker of record is a stats believer. She insists I leave the balance for their review or they can
that every listing presentation include market check out detailed research provided on the
data. Given her background in commercial sales, brokerage’s website. Remember, professional
nothing is done without facts and figures. Today’s image is vital. Don’t inundate people with stats,
sellers don’t appreciate marketing fluff, they just make it available to them. It’s really competi-
want to know what’s happening. I give them the tive out there and a professional listing package
facts. My professional listing package includes makes a big difference.
comparable properties, recent trends, average
number of days to sell and so forth. Commercial
sellers know that I’m serious and have done my INTERVIEWER
homework. I want their business. After all, if Alright, I’m convinced about real estate market
you don’t list, you don’t last. indicators, but what about the discussion of the
economics and the real estate market. Does that
help with your day-to-day activities?
LANE I’ll admit that’s the toughest to apply, but per-

haps a quick story will help. Last week, I went to
see a small local developer who is mostly involved
with build-to-suit projects. He’s not a big player,
just three or four smaller buildings a year. But he’s
got the same concerns as the large developers.
Should he build on speculation and try to estimate
what commercial buyers will want? What’s going
to happen with interest rates and is the market
overheated? Now, I haven’t done any business
yet, but we had a great conversation for more
than an hour. He felt comfortable with me. After
all, we talk the same language. You know…
lease rates, building permits, key indicators,
market bubbles, business cycles and all that.
KNOWLEDGE
INTEGRATION
Notables
• Economics can be broadly defined as the • The instabilities of the economy are com
study of how individuals and society monly seen in terms of overheated markets,
allocate scarce resources in satisfying their bubbles and market corrections which
wants and needs. can significantly impact the economy as
• The Canadian economy, best described as well as labour markets, investors, home
a mixed economy, involves a cyclical owners and other stakeholders.
mechanism. • Real estate has distinctive elements com
• Economic indicators can be broadly pared with other markets; e.g., fixed loca
grouped under resource, business and tion and slow supply/demand adjustment.
consumer categories. • Many factors influence the real estate
• The dynamics of the ntario marketplace market including demographic trends,
(as with other provinces and the national employment conditions and interest rate
economy) determine price through the changes.
interaction of supply and demand forces. • Residential and commercial registrants
• Business cycles and real estate cycles, while typically use somewhat different resources
generally similar, often differ in length and to obtain real estate and related data, and
amplitude. to better understand market trends.
• Traditionally, economists explained the • Residential brokerages are typically more
economy in terms of market equilibrium; focused on MLS data, with commercial
however, the reality is that the modern registrants relying more heavily on exten-
economy wrestles with instabilities not sive brokerage research, government
equilibrium. resources and private consulting/reporting
mechanisms.
Glossary
Business Cycle Mean
Canada Mortgage and Housing Corporation Measures of Central Tendency
Consumer Price Index Median
conomics ixed conomy
Market Bubble Mode
Market Correction Overnight Rate
arket quilibrium Real state ycle
Market Indicators Statistics Canada
Web Links
Interest Rates For more information concerning interest rate policies and related matters,
go to www.bankofcanada.ca. Mortgage financing and interest rate issues/
policies are analyzed in greater depth in Land, Structures and Real Estate
Trading.
Canada Mortgage and Go to www.cmhc-schl.gc.ca for specifics of programs and services offered by
Housing Corporation the Canada Mortgage and Housing Corporation.
Statistics Canada Go to the Statistics anada website (www.statcan.gc.ca) for detailed informa-
tion regarding key economic, demographic and related indicators along with
specifics relating to both residential and commercial construction activity.
Ontario Economic Go to www.investinontario.com for information regarding current Ontario
Indicators and economic conditions and market trends impacting the commercial market.
Commercial Real
Estate Information

1. What specific local trends should I 3. At what stage in the real estate cycle
analyze and who provides the most are we now? What indicators confirm
relevant information? that fact? What impact does this
have on my new career?
2. What current supply/demand forces
are affecting the local marketplace? 4. What market statistics does my employ-
Do they favour the buyer, the seller ing brokerage (either selected or
or both? contemplated) provide that will
assist with my career?
Chapter Mini-Review
1. Economic indicators can be roughly 4. Real estate markets are typically subject
grouped into three categories: resource to slow supply/demand adjustments.
markets, businesses and consumers.
True False
True False
5. A seller’s market usually arises when
2. Consumer confidence has proven to buyers wanting homes exceed avail-
be a poor indicator of future economic able supply of homes.
trends.
True False
True False
6. The amplitude of a real estate cycle is
3. The Consumer Price Index (CPI) the distance between the high and low
measures the price of 600 goods and points in that cycle.
services.
True False
True False
7. Research appears to indicate that a 10. Demographic changes can impact the
typical business cycle contains various long term demand for houses.
components: prosperity, market
bubble, recession and recovery. True False
True False 11. The sale to list price ratio measures

the spread between listing and selling
8. A real estate cycle may have certain prices.
variances when compared to a busi-
ness cycle due in part to unique factors True False
associated with real estate such as slow
supply/demand adjustment and fixed 12. Commercial and residential brokerages
location. rely on the same indices to analyze
local market conditions and trends.
True False
True False
9. An increase in the average number of
days to sell property often indicates a 13. The mode is the middle figure in an
seller’s market. array of figures ordered from smallest
to largest.
True False
True False

Exercise 1 The Real Estate Market (Matching)
Match the phrase/word in the left column with the appropriate description in the right
column (not all descriptions will be used).
___ Consumer Price Index a. Crown Corporation
___ Bubble b. Measure of Central Tendency
___ Base Year c. Purchasing Power
___ Recovery d. Supply Equals Demand
___ Average Price e. Fixed Location
___ Market Equilibrium f. Benchmark Used for Comparative

Purposes
___ Government Intervention
g. Overheated Market
___ Real Estate Characteristic
h. Real Estate Cycle
___ Business Cycle
i. Overnight Rate
j. Recession
k. Buyer’s Market

2.1 The Gross National Product (GNP) measures:
a. Manufacturer’s new orders.
b. Production of products and services solely within Canada.
c. Total production of the Canadian economy.
d. The total investment capital in Canada from both private and public sources.
2.2 The use of a three-month moving average when providing statistical information:
a. Is designed primarily to remove seasonal variations within data.
b. Minimizes monthly fluctuations.
c. Is most commonly associated with statistics relating to the residential real
estate market.
d. Relies on a weighting system in order to produce the moving average.
2.3 Which of the following market indicators provides the best indicator of what
buyers are willing to pay for available listed properties in the residential real estate
marketplace?
a. Sale to list ratio.
b. Consumer Price Index.
c. Average price.
d. Weighted average.

a. Dynamics of the real estate market can be impacted by slow demand/supply
adjustments.
b. Demographic changes can affect real estate demand.
c. The overall (all items) Consumer Price Index involves 300 items.
d. The national employment rate is a business indicator within the national
economy.
2.5 Real estate brokerages often rely on various primary sources of local market
information. Which of the following is one of those sources?
a. Land registry offices.
b. Brokerage files.
c. Multiple Listing Service .
d. All of the above.
2.6 The real estate market is somewhat unique. Which of the following market
characteristics best describes the statement: No two houses are exactly the same?
a. No standard product.
b. Local real estate market.
c. Fixed location.
d. Slow supply/demand adjustments.
2.7 The Bank of Canada:

a. Sets interest rates for the Canadian mortgage marketplace.
b. Is responsible for the overall administration of Canada’s financial system.
c. Sets an overnight rate which can vary 0.5% from the previous day’s rate.
d. Is owned jointly by the federal and provincial governments.
Exercise 3 Measures of Central Tendency

3.1 Based on the following array of figures, select the appropriate answers concerning
the average, median and mode.
310,000 315,600 319,200 310,000 323,500 312,000
311,900 310,000 313,900 312,900 318,700
i. The mathematical average of the above figures is:

a. 312,900
b. 313,927
c. 348,777
d. 314,336
ii. The median is:

a. 313,900
b. 312,900
c. 315,600
d. 310,000
iii. The mode is:

a. 312,000
b. 310,000
c. 313,900
d. 300,000
3.2 Based on the following array of figures, select the appropriate answers
concerning the average, median and mode.
219,000 238,900 218,000 229,000 219,000
227,400 247,500 221,300 219,000 219,000
245,200 231,100 227,400 216,000 241,800
i. The mode is:

a. 215,000
b. 245,500
c. 227,400
d. 219,000
ii. The median is:

a. 247,500
b. 227,400
c. 219,000
d. 216,000
iii. The average is:

a. 227,973
b. 341,962
c. 216,000
d. 247,500
Exercise 4 Market Dynamics

Five graphs/charts are illustrated (on the following pages) for the fictitious Westville
market illustrating selective data over various periods. Assume that Ms. Jones is contem-
plating selling her residential bungalow (at the end of Year 4) currently valued in the
$200,000 range. Decide whether this is an opportune time for marketing the property
by identifying and briefly explaining four key trends that could impact the seller.
Unemployment Rates Interest Rates

January, Year 1 – December, Year 4 January, Year 1 – December, Year 4
13.0% 12%
Mortgage—5 Yr.
Ontario Westville
Mortgage—1 Yr.
12.0% 10%
Bank of Canada
11.0% 8%
10.0% 6%
9.0% 4%
2%
8.0%
7.0% 0%
Year 1 Year 2 Year 3 Year 4 Year 1 Year 2 Year 3 Year 4
Consumer Price Index—Canada Housing Starts Year 1 – Year 4

137 Including Shelter Component, 2002 = 100 Westville
136 1000
Shelter CPI
135
800
134
600
133
400
132
200
131
130 0
Year 3 Year 4 Year 1 Year 2 Year 3 Year 4
MLS® SALES: Westville Area—Major Submarkets
SALES AVERAGE PRICE
Year 2 Year 3 Year 4 Year 2 Year 3 Year 4
Riverdale 1,953 2,775 2,500 $172,640 $171,500 $172,500
Northville 3,314 4,450 4,050 $169,921 $168,000 $169,000
Westville 5,548 7,800 7,200 $180,292 $179,500 $181,000
Bonville 2,273 2,675 2,500 $223,204 $224,500 $225,000
Central 6,052 7,750 7,300 $293,545 $276,500 $278,000
astville 6,421 8,500 7,800 $168,508 $168,500 $170,000
Glenville 4,764 6,125 5,600 $178,521 $182,000 $183,000
Sunrise Acres 6,250 8,350 7,800 $243,786 $240,000 $240,000
114
CHAPTER 4
Ontario Profiles, Trends

and Real Estate Values
Introduction
The Ontario marketplace is best viewed in terms of economic and demographic forces.
These forces explain not only how today’s market operates, but also provide background
as to what trends can be expected in the future. Real estate, as one sector in the overall
provincial economy, has demonstrated significant sales volume increases and notable
price increases driven by supply/demand forces.
Real estate is a valuable commodity actively traded to meet the needs of an expanding
population. Value is central to real estate negotiations. Every day, thousands of Ontario
professionals work with property value—each with his or her own unique perspective.
Insurance brokers concentrate on replacement cost to provide adequate house/contents
coverage, tax assessors routinely establish assessed value leading to tax notices, stock
brokers analyze corporate assets including real estate values, loan officers scrutinize real
property security for a mortgage and appraisers painstakingly prepare narrative appraisals
for the courtroom. Meanwhile, brokers and salespersons
routinely address value in listing and selling property.
The focal role of value in the real estate market warrants
detailed attention. This chapter addresses key value concepts
and value principles that must be understood by anyone
assisting buyers and sellers and negotiating transactions
in the real estate marketplace.
115
Learning Outcomes
• Discuss the impact of economic and demographic factors on the development of
Ontario’s growing and dynamic marketplace.
• utline selected geographic factors about ntario and the current status of cities,
towns and regions within the province, including an outline of recent developments
regarding municipal boundaries.
• Identify and discuss three major demographic trends including population size growth,
population distribution and population composition along with their forecasted
impact on the growing Ontario real estate market.
• Describe basic real estate dynamics including an overview of price and volume stat
istics in the residential marketplace and anticipated trends for the future.
• Describe and differentiate between various value concepts including value in exchange
and value in use, subjective and objective value, and market price and market value.
• utline four assumptions underlying market value.
• Explain how various principles of value interact in the marketplace and provide an
example of each principle as it relates to real estate values.
ONTARIO PROFILES
Economic
SECTOR OVERVIEWS
Ontario has a diversified economic base with particular areas of strength centering on
manufacturing and business/financial services. The auto industry is of particular note
given its strong presence in the province, which includes feeder industries that provide
assembly components. Industry leaders including Ford, DaimlerChrysler, General Motors,
Toyota and Honda have selected Ontario as the site for manufacturer activities. However,
declining market share for the big three (Ford, DaimlerChrysler and General Motors)
will pose challenges in the future.
While internationally acknowledged for its manufacturing and business resources/
skills, many do not realize that Ontario also has the largest agriculture component of any
Canadian province with sales exceeding $8 billion (2005). In addition, forest products and
mining remain vital sectors of the provincial economy. Mining in Ontario represented a
116 Chapter 4 Ontario Profiles, Trends and Real Estate Values
$7 billion dollar economic activity in 2005. Tourism is also an important element of

Ontario’s economy. The tourism industry reported that this sector employed more than
250,000 jobs representing approximately four percent of the total provincial employment.
Interestingly, the information and communication technology components of the
Ontario economy are playing an increasingly important role, as the province gradually
moves away from goods manufacturing to services. This growing field is placing Ontario
on the leading edge of activities such as software development and wireless innovations
that complement business and financial services. Another interesting growth area involves
the entertainment and creative sectors (e.g., broadcasting and publishing).
The housing market has demonstrated continued strength through the past decade, in
fact, broadbased growth has occurred in both residential and commercial segments. ey
indicators such as high consumer confidence, job growth and low mortgage rates that
favourably impact real estate markets have not been dampened by the challenges of
increasing energy prices and a rising Canadian dollar, both of which typically negatively
impact key manufacturing sections and indirectly affect the housing market. Southern
Ontario residential markets in particular have been very strong mirroring a generally
resilient provincial economy.
GROWTH/PROSPERITY
Recent history presents a strong economic picture with the province’s real gross
Gross Domestic Product (GDP) domestic product (GDP) staying in the 2–4% range during the past twenty years. While
Gross domestic product is a these figures are somewhat less than GDP statistics from previous decades, the economy is
measure of the size of an econ- doing well with unemployment rates hovering around the 6% range, down from historical
omy representing the market levels in the 7 to 8% range.
value of all goods and services
produced within a given time ntarians have enjoyed added prosperity due to various factors including higher
period. productivity and increased returns on investment as seen through the steady rise in the
Toronto Stock Exchange 300 Composite Index over the past four years. Productivity
levels have also increased steadily during the last 15 years. The province’s residents have
experienced growth in personal income levels particularly during the last decade accom
panied by modest gains in real savings.
WORKFORCE/EMPLOYMENT
The province’s labour force, making up 4 out of every ten persons in the total Canadian
workforce, is highly skilled with over 60 percent having completed postsecondary educa
tion (age group: 25 to 64). ntario has a wellbalanced economy, which makes up 40%
of all economic activity within Canada. Employment growth has been in the 2 to 2.5%
range for most of the past twenty years. Labour market statistics have generally reflected
the buoyant economy in terms of labour income and average weekly earnings.
OTHER FACTORS/CONSIDERATIONS
The ntario economic scene has benefited from lower longterm interest rates, particu
larly in the period following 2000. The inflation rate, once demonstrating erratic swings
in the 1980’s and early 1990’s (ranging from 12% to 0%) has stabilized in the 1.5 to 2.5
range over the past decade. However, certain factors beyond provincial control can directly
impact the long term economic outlook, including the value of the Canadian dollar (a
rising value can impact exports), interest rates (an increase typically negatively affects
GDP) and the general economic climate in the United States (nearly 90% of all exports
from Ontario are destined for US markets with the European Union as a distant second).
Ontario Profiles, Trends and Real Estate Values Chapter 4 117
On an international scale, oil price fluctuations are also a key factor. An increase in
oil prices is a negative factor for Ontario given that this province must import oil and
natural gas. However, in terms of overall impact, this situation is offset by Ontario’s strong
export business with provinces that are energy exporters; i.e., Alberta.
Demographic Immigration
Immigration refers to population
POPULATION/IMMIGRATION movements from one nation to
another nation of which the
Ontario has a population of approximately 13 million people, represents the country’s individuals are not citizens, but
most populated province and boasts a cosmopolitan flair given that approximately three are seeking long-term residency.
The term migration, in a demo-
out of every ten Ontarians is foreign born. In fact, ten percent of the entire population
graphic sense, generally refers to
arrived in this province within the past fifteen years. This high level of immigration has any movement of human
been the major factor in population growth and has resulted in con siderable diversity. population.
For example, 1 in 4 ntario residents speaks another language over and above English
or French.
Foreign-Born Population (as a percentage of total population), Census 2001 Data
Fort Albany
Waskaganish
Moosonee
Chibougamau
Matagami
Armstrong
Hearst
Geraldton Kapuskasing Amos
Manitouwadge Rouyn-Noranda Val-d’Or

Timmins
Nipigon
Marathon Kirkland Lake
okan
Thunder Bay Chapleau Mont-Laurier
Wawa
Maniwaki
Greater Sudbury North Bay

Pembroke
OTTAWA
Sault Ste. Marie Espanola
Parry Sound Brockville

Bracebridge
Kingston
Orillia Belleville
Owen Sound
Oshawa
TORONTO
Hamilton
Brantford
London
Sarnia
Chatham
Windsor
Interprovincial migration (movement from Ontario to other provinces and vice

versa) does not significantly impact the overall picture, as net gains or losses are small
(immigration less emigration) in relation to total population. Historically, ntario has
enjoyed strong population growth over the years. During the past 20 years, the ntario
population has grown at approximately 1.5% per year.
GROWTH PATTERNS
Population growth is not evenly distributed throughout the province. The Greater
Toronto Area (GTA) has proven to be the most popular destination for new immigrants.
In fact, about 60% of all provincial growth took place within the GTA during the past 20
years. Further, two key trends over that same period bear special mention. First, most
growth has occurred in urban areas and second that growth (beyond the GTA) has favoured
Central ntario, Eastern ntario and Southwestern ntario. orthern ntario com
munities have grown more slowly than their southern counterparts.
AGE DISTRIBUTION/DEPENDENCY
Census In terms of age distribution, the 2001 Census reported that 54.7% of ntario residents
A census, for purposes of this were in the 25 to 64 age group with 12.5% age 65 and older. A gradual aging of the
course, is a periodic count of population has been evident over the past twenty years, but will undoubtedly accelerate as
population conducted by the the baby boomers face retirement over the next two decades. Dependency rates are the
Government of Canada. A full
census is conducted every ten best measure of this trend. In other words, demographers track the percentage of persons
years, the last being 2001. A age 65 and those 14 years and younger as compared to the core workingage group of
partial census is conducted at
15 to 64. Given the rising dependency rate, interesting challenges face us in the future.
the five-year interval; e.g., 2006.
WEB LINKS
Ontario Profiles Economic and demographic profiles are summary in nature. Students seeking
detailed information should access the following websites: Ministry of Economic Development,
Trade and Employment (www.ontario.ca/ministry-economic-development-trade-employment),
the Ministry of Finance (www.fin.gov.on.ca) and Statistics Canada (www.statcan.gc.ca).
Geographic
SIZE/BOUNDARIES
ntario is Canada’s second largest province ( uebec is the largest) and covers more than
one million square kilometers (approximately 415,000 square miles) bounded on the east
by uebec, on the west by Manitoba, on the north by James Bay and Hudson Bay with
the balance (most of Southern ntario) forming a peninsula bounded by the Great Lakes
and the United States. ntario borders three US states, namely ew ork, Michigan and
Minnesota. The southernmost point in ntario is Middle Island (near Point Pelee) which is
roughly parallel to Rome Italy. The northernmost areas are roughly parallel to Scandinavia.
CLIMATE
Southwestern and southern Ontario have moderate climates with slightly more severe
climates in Eastern ntario; i.e., shorter cooler summers and longer colder winters. Colder
temperatures with progressively shorter summer seasons occur when moving in a north
ward direction from Toronto to orthern ntario communities; e.g., orth Bay, Sudbury,
Sault Ste. Marie and Thunder Bay. Areas in the extreme northern part of ntario are
best described as subarctic with very cold winters.
The Great Lakes provide a moderating influence to adjacent areas, most noticeably to
Southwestern ntario and the Greater Toronto Area including the Golden Horseshoe
(an area along Lake ntario stretching from Port Hope Cobourg on the east to iagara
ontheLake on the southwest).
NOTE: The Ontario Government now officially refers to an Extended Golden Horseshoe which includes areas
to the north and west of Lake Ontario including Barrie and Kitchener-Waterloo.
Proximity to the lakes can also produce heavy snowfalls (referred to as lake effect snow),
particularly to areas in a generally easterly or southerly direction from the lakes. Lake
effect snow squalls occur when dry cold air (typically from the prevailing westerly winds)
passes over warm lake air. Toronto, being located on the north side of Lake Ontario,
usually avoids heavy snowfalls except when the prevailing winds arrive from the east or
southeast when disturbances move up through the eastern United States.
CITIES/TOWNS
More than 88% of all ntarians reside within major metropolitan centres. While the
Greater Toronto Area is by far the largest, other cities provide diversified business oppor
tunities and a high standard of living. As of the 2011 Census, the ten largest Census
Metropolitan Areas were:
Toronto (including Mississauga and Brampton) 5,583,064
Ottawa-Gatineau (including Clarence-Rockland 921,823

and Russell)
Hamilton (including Burlington and Grimsby) 721,053
Kitchener (including Waterloo and Cambridge) 477,160
London (including St. Thomas and Strathroy- 474,786

Caradoc)
St. Catharines (including Niagara Falls and 392,184

Welland)
Oshawa (including Whitby and Clarington) 356,177
Windsor (including Lakeshore and LaSalle) 319,246
Barrie (including Innisfil and Coldwater) 187,013
Greater Sudbury (including Whitefish Lake and 160,770

Wahnapitei Reserves)
A census metropolitan area, for purposes of this discussion, consists of one or more
adjacent municipalities situated around a major urban core.
Source Statistics Canada, 2011 Census, adapted from Population and Dwelling Counts, for Canada, Provinces
and Territories, Census Metropolitan Areas and Census Agglomerations, 2011.
WEB LINKS
Ontario Road and Satellite Maps Go to maps.google.ca for detailed Ontario road maps as
well as provincial satellite images. This user-friendly zoom mapping system allows for detailed
viewing of road systems and provides satellite photos when using the hybrid mapping option.
Note: The extent of close-up zoom imagery varies across the province based on satellite image
availability.
Province of Ontario
Hudson Bay
Fort Baie d’Hudson
Severn 
Peawanuck
A

B
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ve
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 Big Trout Baie James
Lake Attawapiskat 
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
Lake Win
Lansdowne Moosonee
 House 
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MANITOBA
 Pikangikum N
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QUE
Al
Mo
ONTARIO
BEC
Red Lake

/ QU
Sioux Armstrong
 Kapuskasing
Lookout L  Cochrane
ÉBE
 Nipigon  
Kenora
  Dryden Geraldton Iroquois Falls 
C
Timmins 
Marathon 
 Kirkland Lake
Fort Thunder
Frances Bay New 
LS
Ot
  Wawa Chapleau Liskeard
u per 
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USA / É-U d’A North R / Hawkesbury
up Grand R des O u t
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Ottawa 
 Espanola
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Little  Huntsville Brockville
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 Bancroft 
Fl awre
Current Parry 
Sound Kingston
L
LEGEND / LÉGENDE 
St
L Owen Orillia
National capital / Sound    Belleville
Capitale nationale Michigan Port   Peterborough
Elgin Barrie
L Oshawa
tario
Provincial capital /  
Huron L On
 Toronto 
Capitale provinciale
Other populated places / Goderich Kitchener
   St Catharines
Autres lieux habités  
Hamilton Welland
Trans-Canada Highway / London USA / É-U d’A
Sarnia  St Thomas
La Transcanadienne UNITED STATES  
Major road / OF AMERICA Chatham-
Route principale  Kent rié
International boundary /
ÉTATS-UNIS  Windsor LÉ
D’AMÉRIQUE ie
Frontière internationale Er
L Scale / Échelle
Provincial boundary /
Limite provinciale 100 0 100 200 300
km km
© 2002. Her Majesty the Queen in Right of Canada, Natural Resources Canada.
Sa Majesté la Reine du chef du Canada, Ressources naturelles Canada.
GEOGRAPHIC REGIONS VS. MUNICIPAL BOUNDARIES

Ontario can be roughly divided into six geographic regions, although exact geographic
boundaries are subject to interpretation and can vary based on the ministry, agency or
other organization publishing regional information. As a general guideline, Southern
ntario is made up of four regions: Southwestern ntario, Central ntario, the Toronto
area (viewed as a distinct entity) and Eastern ntario. orthern ntario is divided into
orthwestern and ortheastern ntario. These regions are not to be confused with the
municipal structure which consists of regions (regional governments), counties and
municipalities.
While most Ontarians think in terms of six geographic regions, municipal boundary
arrangements used for political and administrative purposes are more complex. Ontario
was originally divided into counties not only for administrative purposes, but also for
land registration. The counties were surveyed and then divided into townships in order
to accurately describe land for registration purposes. While the system generally proved
effective, inevitably population growth resulted in much larger urban centres that spilled
over traditional county boundaries. In general, the system introduced in the late 1700’s
lacked the dynamics needed for a growing and increasingly complex provincial economy
and demographic structure.
In the early 1950’s, the government embarked on replacing heavily populated counties
with regional municipalities. These regional municipalities generally had more authority
than counties concerning land use planning and municipal infrastructure decisions; e.g.,
roads and services/facilities. Over the next forty years, various regions were formed, in
heavily populated areas such as ttawa, Durham orthumberland, Peel, iagara and
Waterloo.
However, the transition was not easy and tracking various changes is a complex matter.
Counties were merged, split or in some instances renamed in order to accommodate the
regional concept. To compound matters, townships were sometimes transferred from
their original county into an adjacent regional government. For example, when the
Regional Municipality of Durham orthumberland was created, the Township of South
Monaghan was transferred to Peterborough County.
In the past decade, municipal structuring is now moving away from regional govern
ments as cities take on new prominence in the planning and administrative process. For
example, the Regional Municipality of HamiltonWentworth is now the City of Hamilton,
the Regional Municipality of ttawaCarleton is now the City of ttawa and ictoria
County (Lindsay and surrounding areas) is now the City of awartha Lakes. Changes
such as these in which regional governments were merged with their local municipalities
has effectively reduced the total number of municipalities in ntario by approximately 40%.
WEB LINKS
Municipal Boundaries Students should generally understand basic municipal boundary
structure, but not changes occurring that affect regional municipalities, counties and municipalities
over the past several decades. Those seeking detailed municipal profiles and information concerning
ongoing changes can access applicable websites; e.g., the Association of Municipalities of Ontario
(www.amo.on.ca) and the Ministry of Municipal Affairs and Housing (www.mah.gov.on.ca). Land
registration and related topics are discussed in more detail in Land, Structures and Real Estate
Trading.
The Bigger Picture: Urban Economics PERSPECTIVE
Urban economics exists at the crossroads of economics and geography. Economics concentrates on how individuals and
society allocate scarce resources in satisfying their needs and wants, while geography is the study of the earth, its spacial
features and the impact of these on human activity. Urban economics goes beyond questions of supply/demand and
the interplay of human activity on a geographic dimension to the broader issues of how cities are formed, what impact
various forces have on land use within regions and cities, how such factors affect locational decision-making and the
impact of such decisions on urban planning now and in the future.
continued...
CONCENTRIC CIRCLE THEORY

Urban economists have generally concentrated on what makes cities grow, what shape that growth takes and the
consequent complex interactions that give rise to land use patterns, densities, location of residential versus commercial
developments and transportation systems. Urban economics, as we know it today, began with theorists postulating on
patterns of urban growth. The most notable, based on the 1920’s work of Ernest Burgess, a respected urban sociologist
from the University of Chicago
(born in Tilbury, Ontario), described
urban growth in terms of concentric
circles emanating from a central
business core. Burgess conceived
1 Central Business District
of a model that contained five
2 Transition/Light Industrial
zones: the central business
district (CBD), transition zone, 1 2 3 4 5 3 Working Class Homes
working class homes, middle 4 Middle and Higher Income Homes
and higher income residential, 5 Suburban
and suburban.
AXIAL THEORY
Later theorists would build on this foundation to arrive at models
such as the axial theory, which essentially consisted of Burgess’
concentric plan with allowance for transportation systems. ARTERIAL ROAD
The more efficient the transportation system or systems, the
more growth that would occur along that route or routes.
The axial theory was the first to seriously consider commuting
time as a factor in how cities grew.
5
4
3
1 Central Business District 2
1
2 Transition/Light Industrial
3 Working Class Homes
4 Middle and Higher Income Homes
5 Suburban/Commuter
COMMUTER RAIL LINE
SECTOR THEORY
Homer Hoyt (a real estate broker from Chicago) provided further 2
enhancement introducing the sector theory. Hoyt noted that develop- 3
ments flowed outwards in sectors from the central business district due
to transportation and other factors. He based his work on Chicago
where high income residential areas paralleled Lake Michigan,
commercial districts were located near busy roads, middle income 3
4
residential neighbourhoods gravitated to preferred but not the best
locations and poorer areas occupied less desirable areas adjacent to
railroads. In other words, each sector grew outwards not as a 1
homogenous group envisaged by Burgess, but rather divided
3
by such factors as income and social class. 5
2 Transition/Light Industrial 4 2
3 Working Class Homes 3
5 Highest Income—Residential ARTERIAL ROAD
MULTIPLE NUCLEII THEORY

Subsequent urban economists would further refine these models by moving away from the one CBD (the monocentric
city) to address the growth of suburban core commercial areas and resulting realignment of traffic patterns, densities and
land usage to accommodate these relatively independent suburban subpoints of economic activity. Each successive
model seemed to be a refinement based on the era in which it was developed. Certainly, Burgess’ concept worked for
city growth in the early 1900’s but later models provided successively better ‘fits’ as cities became more complex and
urban economists sought further theoretical refinements. Interestingly, most modern cities typically display components
of all four models with multiple nuclei having the best fit for large centres; i.e., the Greater Toronto Area. Numerous
models have been developed based on these four primary theories but such discussion goes beyond the scope of this text.
5
ARTERIAL 5 EXPRESSWAY
ROAD 4
2 3 1
4 3 4
SUBW
AY 2
2
5 3 3
3 1
4
1
5 2 2 Transition/Light Industrial
3 Working Class Homes
5 Suburban/Commuter
Urban economists now concentrate on complex city and regional growth dynamics including the clustering of economic
activities (e.g., auto sales parks consisting of various dealers), big-box developments, regional concentrations (e.g., the
Kitchener, Waterloo, Cambridge and Guelph areas), commuting patterns extending outwards forty and fifty miles from
the city core and the decentralization of manufacturing including the rise of one-story suburban manufacturing facilities
due to improved trucking systems, better highways and the automobile. Such events in turn result in population disper-
sion (urban sprawl) beyond traditional city boundaries and the consequent increased commuter time, traffic congestion
and associated problems.
The urban planner of today is wrestling with the impact of high-occupancy vehicle lanes, exclusive busways, light
rail and other forms of mass transit, housing to address sprawl, city core intensification, balanced regional development
and a host of legislative changes to bring these to reality. Meanwhile, the urban economist is analyzing the efficiencies
and effectiveness of such decisions, identifying inefficiencies and examining alternative public policies.
DEMOGRAPHICS AND
THE REAL ESTATE MARKET
Demography Demography is the study of population with particular emphasis on changes to that
The study of population changes population in terms of its size, distribution and composition. Population trends are key
over time with particular emphasis to understanding how society and the real estate market change over time. Demographics
on the growth/size, distribution provides valuable insight far beyond its basic role of analyzing populations; e.g., variances
and composition of the
population. in birth rates, death rates, migration and aging. Demographics is invaluable when
looking into the future, as the population makeup over time is pivotal to economic and
social life within Ontario.
As an example, continued high levels of immigration involving young people foretell
of greater demands on housing as family units are formed, the type of housing that best
suits that growing segment of the population, what essential services and facilities must be
made available, what schools must be built, what preschool day care facilities are needed,
what job opportunities must exist the list goes on and on. An aging population impacts
everything from public transit and health care to retail products that will be in demand
and those that won’t. Conversely, real estate planners, developers and builders also face
older Ontarians seeking amenities such as golf courses not hockey rinks, tennis courts
not downhill skiing and aerobics not weight lifting.
Three key demographic factors are discussed that will profoundly impact the Ontario
real estate market and possibly your future career.
Population Size/Growth
Ontario is currently experiencing relatively low birth rates, which began falling during
the 1970’s. atural increase (births less deaths) only accounts for 30% of growth. The
balance is attributable to immigration from other countries. This immigration trend brings
diversity and is a significant factor that impacts social and economic dimensions, societal
infrastructure, the ongoing utilization of land and the shape and size of Ontario cities.
Assuming current patterns continue, net migration will be the most significant ongoing
factor in Ontario’s population growth. For demographic purposes, net migration is the
difference between the number of people entering versus the number of people exiting
from the Province of ntario within a specified period of time. ntario has experienced
consistent population growth due to net migration and this trend is expected to continue.
Two graphs are included reflecting total immigration numbers over 25 years and projected
population growth to 2036.
Total Immigrants—Ontario (1986–2011)

200,000
# of Immigrants
150,000
100,000
50,000
0
86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Year
Source: Statistics Canada, CANSIM Table #051-0004
Projected Ontario Population (2010–2036)

20,000
Projected Ontario Population
15,000
(thousands)
Projected Ontario Population in 2036: 17,445,300

10,000
5,000
0
2010 2015 2020 2025 2030 2035
Year
Source: Statistics Canada, CANSIM Table # 052-0004.

Population estimate used for this projection is July 1, 2009.
Projections are based on a medium growth/medium migration trend scenario.
Recent projections by the Ministry of Finance for the period up to 2025 point to a
slowing of net migration, while still remaining the key factor in population growth.
Components of Population Growth
250,000 Historical Projected
200,000
150,000
100,000 Net Migration
50,000
Natural Increase
0
1985 1995 2005 2015 2025
Source: Graphic adaptations based on the original charts in Toward 2025:

Assessing Ontario’s Long Term Outlook, Ministry of Finance, 2005
REAL ESTATE MARKET IMPLICATIONS

ntario has enjoyed a strong real estate market due to many economic and demographic
factors, none the least of which is a continuing flow of new residents into the province.
ew house construction is a major source of employment and is key in addressing pent
up demand. Fortunately home ownership is a high priority for most Canadians with two
out of three households owning their own home.
Home Ownership (percentage of population), Census 2001 Data
Fort Albany
Waskaganish
Moosonee
Chibougamau
Matagami
Armstrong
Hearst
okout
Geraldton Kapuskasing Amos
Manitouwadge Rouyn-Noranda Val-d’Or

Timmins
Nipigon
Marathon Kirkland Lake
okan
Atilokan
Thunder Bay Chapleau Mont-Laurier
Wawa
Maniwaki
Greater Sudbury North Bay

Pembroke
OTTAWA
Sault Ste. Marie Espanola
Parry Sound Brockville

Bracebridge
Kingston
Orillia Belleville
Owen Sound
Oshawa
TORONTO
Hamilton
Brantford
London
Sarnia
Chatham
Windsor
Government long range planning must be in place to ensure that adequate serviced
land is available for development. In larger urban areas, land intensification is foremost
to permit increased densities and avoid problems associated with suburban sprawl that
has occurred during the past three decades.
During the period 2001 through 2005, housing starts increased given growing demand,
but Ontario’s proportionate contribution to total housing stock (compared with other
parts of the country) had decreased over this period. A housing start refers to a dwelling
unit where full footings are in place. With multiple unit structures, the definition of a
start applies to the entire structure. Clearly, ntario faces a housing challenge if net
migration continues at current levels.
Housing Starts, Canada and Ontario (2001–2011)
250,000
200,000
Number of Housing Starts
150,000
100,000
41% 39% 37%
35% 36%
45% 32%
30% 35%
32%
50,000 34%
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Canada Ontario
Percentages shown indicate Ontario housing starts
as a percentage of total Canadian housing starts.
Source: Statistics Canada, CANSIM Table # 027-0008.

Data provided by Canada Mortgage and Housing Corporation.
Population Distribution
Population growth within the province favours urban areas and more particularly large
cities in Southern ntario. The Greater Toronto Area is forecasted to remain as the prime
destination for immigrants followed closely by the Central Region (encompassing areas
immediately surrounding the GTA). As in the past, orthern ntario will receive the
least number of immigrants.
Population of Ontario Regions

Millions
Population Shares (%)
8 2005 2015 2025
GTA 45.9 47.8 49.0
2005 2015 2025
Central 21.9 21.8 21.8
6
East 13.2 12.9 12.7
Southwest 12.6 12.1 11.7
4 Northeast 4.5 3.8 3.4

Northwest 1.9 1.7 1.5
0
GTA Central East Southwest Northeast Northwest


Population growth is now focused primarily in Southern ntario and more specifically
Central ntario, Southwestern ntario and the GTA. While many benefits accrue to
these areas, offsetting negatives include traffic congestion, deteriorating water and air
quality, and loss of natural resources. Continued growth, particularly within the GTA
and surrounding areas, necessitates broader planning initiatives to address increased
population. These plans must focus on environmentallyconscious land development,
prudent land use, energyefficient housing structures, higher densities and urban infill,
and forwardthinking infrastructure design all of which impact how real estate will be
marketed in the future.
Initial legislative steps are already underway. Greenbelt legislation now permanently
protects certain areas of the province and various restrictions are in place to contain urban
sprawl in the Greater Golden Horseshoe, but much more is needed. Conversely, more
sparsely settled northern areas require government ministries and agencies to recognize
the need to build stronger northern communities by fostering job creation and opening
new entrepreneurial opportunities to hopefully better balance growth within the province.
Population Composition
The second key demographic factor impacting ntario, as with most western industrial
ized countries and regions, is the gradual aging of the population as more and more
baby boomers enter the 65 age group. The shift to an older population brings with it
new demands for those involved in real estate.
An illustration is provided highlighting the changing age distribution of the Ontario
population. According to Ministry of Finance estimates, those in the age group 65 will
account for almost one in five residents of the province with the median age for Ontario’s
population to rise from the current 38 years to 42.1 years by 2025. At the same time, the
working force will gradually diminish proportionately as will younger age groups; i.e.,
ages 0–14 and 15–24.
Age Distribution of the Population
Percent 9.3 10.9 12.6 14.2 15.7 Population

100 (in millions)
10.5 12.1 12.9 15.3 19.4 Age 65+
80 19.9 21.0 Age 45-64
25.3
27.9 Age 25-44
26.5
60 Age 15-24
31.5 Age 0-14
33.2
30.2
40 28.0 27.3
17.5 13.4 13.5 12.8
20 10.9
20.5 20.4 18.1 16.0 15.8
0%
0
1985 1995 2005 2015 2025
* Numbers may not add due to rounding.


The aging population is already impacting the ntario real estate market. ew retire
ment communities are appearing in many Ontario cities and towns, as developers seek
the right mix of housing styles and amenities. Recent urban intensification projects in
ntario communities emphasize condominium bungalow developments, landlease
arrangements, retirement villages and extended care facilities offering independent living,
assisted living and nursing services. This demographic change affects commercial real
estate development that must address altered needs involving health care, clinics, thera
peutic and other support services, as well as retail operations catering more and more to
an older population.
Housing developments now and in the future must look at innovative structures such
as stairless entryways and homes, structural provisions for elevators, flexible configurations
(to accommodate multigeneration families and inlaw suites), wider hallways, walkin
bath enclosures, tracking for lift mechanisms, etc. Residential developments must seriously
consider security, facilities for clubs, fitness centres and social events, and various sports
activities including golf courses.
Interestingly, the aging population is not focused entirely on traditional retirement
living configurations. The baby boomers are much more cosmopolitan in their outlook
than previous generations. Downtown condominium markets have proven attractive, as
empty nesters and retirees seek the convenience of urban centres. Retirement for many
is much more than scaling down house size. It is a lifestyle choice to buy into newstyle
destination communities that are selfcontained complexes complete with recreational
and social amenities, as well as support services.
Demographics and Value

Supply and demand forces may drive the real estate market, but population dynamics
are a key underlying factor. While demographics can’t be readily isolated from economic
and social factors, population change is a significant contributor to increased prices. For
example, high net migration into the GTA has been a major factor in driving up average
prices, compared with other urban areas in the province (see subsequent discussion
titled Market Profile: Residential Prices and Volumes).
Interestingly, demographics can also impact submarkets within the province. For
example, demographics as well as economic factors were in play when cottage prices rose
significantly over the past decade, as GTA families sought out limited shoreline availability
particularly to the north and east of Toronto. Demographics was also behind forward
thinking investors building retirement facilities knowing that an expanding client base
was quietly building as baby boomers aged. Retirement communities with bungalow
style housing have flourished in many areas of the province, as growing numbers of
retirees leave expansive twostory suburban homes in the search for stairless, smaller
accommodation in outlying cities and towns. Where demand grows, so also does value.
In fact, demographics is at play everywhere whether it’s the strong downtown condo
minium market attracting young professionals or young families seeking affordable
housing within 40–50 miles of the GTA. Population growth, its distribution and composi
tion remains a key factor in establishing value.
MARKET PROFILE: RESIDENTIAL PRICES AND VOLUMES

The ntario marketplace, while enduring cyclical trends, has demonstrated longterm
strength for well over four decades. The resiliency of the real estate market is evidenced
in average price increases and overall volume figures. Price mechanisms continuously
operate to establish values as supply/demand forces play out in the real estate market. As
clearly evidenced in the graphics presented, countless exchanges of real property and
gradually rising prices have ultimately led to increased value for those owning real estate.
Real estate is viewed for value purposes as a good longterm investment, particularly
as a hedge against inflation. Real estate values are widely discussed and analyzed. Value
is typically the main topic of discussion when listing and marketing residential or com
mercial real estate. Anyone contemplating a career in real estate requires a solid grounding
in value concepts and principles, and how these operate in the real estate market.
ONTARIO
250,000 $500,000
Unit Sales Average Price
200,000 $400,000
Number of Unit Sales
Average Price
150,000 $300,000
100,000 $200,000
50,000 $100,000
0 0
88 90 92 94 96 98 00 02 04 06 08 10 12
Year
Source: CREAStats, The Canadian Real Estate Association
AVERAGE PRICE & UNIT SALES BY REGION
TORONTO HAMILTON-BURLINGTON
100,000 Unit Sales Average Price $500,000 100,000 $500,000
Unit Sales Average Price
80,000 $400,000 80,000 $400,000

Average Price
Average Price
60,000 $300,000 60,000 $300,000
40,000 $200,000 40,000 $200,000
20,000 $100,000 20,000 $100,000
0 0 0 0
88 90 92 94 96 98 00 02 04 06 08 10 12 88 90 92 94 96 98 00 02 04 06 08 10 12
Year Year
OTTAWA DURHAM REGION

100,000 $500,000 100,000 $500,000
Unit Sales Average Price Unit Sales Average Price
80,000 $400,000 80,000 $400,000

Average Price
Average Price
60,000 $300,000 60,000 $300,000
40,000 $200,000 40,000 $200,000
20,000 $100,000 20,000 $100,000
0 0 0 0
88 90 92 94 96 98 00 02 04 06 08 10 12 88 90 92 94 96 98 00 02 04 06 08 10 12
Year Year
LONDON & ST. THOMAS KITCHENER-WATERLOO

100,000 $500,000 100,000 $500,000
80,000 $400,000 80,000 $400,000

Average Price
60,000 $300,000 60,000 $300,000 Average Price
40,000 $200,000 40,000 $200,000
20,000 $100,000 20,000 $100,000
0 0 0 0
88 90 92 94 96 98 00 02 04 06 08 10 12 88 90 92 94 96 98 00 02 04 06 08 10 12
Year Year
AVERAGE PRICE & UNIT SALES BY REGION (continued)
WINDSOR-ESSEX BARRIE & DISTRICT

100,000 $500,000 100,000 $500,000
80,000 $400,000 80,000 $400,000

Average Price
Average Price
60,000 $300,000 60,000 $300,000
40,000 $200,000 40,000 $200,000
20,000 $100,000 20,000 $100,000
0 0 0 0
88 90 92 94 96 98 00 02 04 06 08 10 12 88 90 92 94 96 98 00 02 04 06 08 10 12
Year Year
ST. CATHARINES SUDBURY

100,000 $500,000 100,000 $500,000
80,000 $400,000 80,000 $400,000

Average Price
Average Price
60,000 $300,000 60,000 $300,000
40,000 $200,000 40,000 $200,000
20,000 $100,000 20,000 $100,000
0 0 0 0
88 90 92 94 96 98 00 02 04 06 08 10 12 88 90 92 94 96 98 00 02 04 06 08 10 12
Year Year
UNDERSTANDING VALUE
Value is defined as the quantity of one thing that can be obtained in exchange for another.
Money is the common denominator by which real property value is usually measured.
The utility of a commodity, such as property, is expressed in the amount of money that
would be paid for its acquisition. Value is the present worth of future benefits arising
out of ownership and depends on the need for, and availability of, that commodity; i.e.,
supply and demand forces in the marketplace.
Differing Perspectives
Value is the key word used in practically every segment of the real estate business. Its
significance and importance would imply a precisely and clearly understood meaning.
Unfortunately, this is not the case. alue is a word for which there are as many definitions
as there are types of value in everyday life. For example, the tax assessor usually thinks
of value in terms of assessed value, the insurance broker in terms of insurable value, the
accountant in terms of book value, the mortgage broker in terms of lending value, the
appraiser and the registrant in terms of market value. Further, a natural tendency exists
to attach to the word value a variety of descriptive adjectives suggesting a specific kind
of value; e.g., intrinsic value, sentimental value, salvage value, liquidation value and Objective Value
appraised value. The direct cost of creating, as
A precise meaning has been a lifelong study of many economic theorists. Most debates distinct from the perceived value
centre on objective versus subjective value. Objective value maintains that value is tied in the mind of the buyer or seller.
to the cost of reproduction. Subjective value states that value exists only in the minds of
buyers and sellers. Further, one of the most important distinctions for real estate purposes
is that value may have one value in exchange and quite a different value in use. Another Subjective Value
important distinction arises from activities of commercial registrants between market Value that exists in the mind of the
value (value based on the actions of typical buyers and sellers), and investment value buyer or seller, as distinct from
objective value based on cost.
(value of the subject property based on individual investor needs, goals and objectives).
Value in Exchange vs. Value in Use

Value in exchange is best described as the probable price at which a commodity trades in
a free, competitive and open market and is synonymous with market value (see subsequent
discussion). In other words, value in exchange looks to the widest possible marketplace
and the alternative uses for a particular property. Value in use, however, involves the
economic good to its owner/user, which is based on the productivity of the economic
good to that specific individual. This usually consists of market value plus an increment
that represents some extra value to the owner/user.
For real estate purposes, value in use is the value attributed to a property by the owner
who is using that property. The property would probably have been designed or used to
suit the particular needs and enjoyment of the owner and takes on a special significance
that translates into an additional monetary value in the owner’s opinion or in the opinion
of a potential buyer. This type of value is difficult to measure and is normally different
in every case. It may often be higher than market value, since it is looked at from the
owner’s viewpoint only (see also investment value discussed later in this chapter). While
value of use is most applicable to commercial, incomeproducing properties, the funda
mentals can also apply to residential property.
Value in Use—A Matter of Perspective HOUSING FOCUS
Value in Use—The Residential Seller

Seller Smith, at retirement age, installed an oversized lap pool in the rear yard of his new two-bedroom, 940 square
foot bungalow. As a former athlete, Smith prides himself in his physical prowess, uses the pool every day and conducts
a rigorous exercise program. He took great pains to replicate a lap pool that he once used as a young man in training
for provincial competitions.
For Smith, the value in use exceeds the $38,000 cost in terms of direct benefits in personal fitness and satisfaction.
However, from the average buyer’s standpoint, the unusual shape and size of the pool may in fact add no particular
value or, if it did, a considerably smaller amount than Smith’s perspective. If Smith elected to sell his home, undoubtedly
he would think in terms of value in use as he attaches a high value to the pool. The buyer would negotiate in terms of
value in exchange (market value) that would typically be a lower amount.
continued...
Value in Use—A Matter of Perspective HOUSING FOCUS
Value in Use—A Unique Manufacturing Operation

The value of a small plant in Barrie is worth $750,000 based on current use to the owner and the unique layout that
accommodates a specific manufacturing process. However, to a developer, this aging building and site has a market
value of $650,000 (less building demolition costs), when contemplating a new condominium project. On the one
hand, the owner is looking at the property from his unique perspective. However, the developer is concentrating on
other uses for the property given that the owner’s special value would no longer apply.
Subjective vs. Objective Value

alue has both subjective value and objective value dimensions: objective relating to the
direct cost of creating (e.g., acquiring a lot and building a home), and subjective involving
Valuation the perception of value in the minds of the buyer and seller. In subjective valuation, cost
Estimated worth or price. The
is not the primary consideration, but rather the present worth of future benefits that
act of estimating the worth of accrue from ownership. For example, a home and lot may objectively cost $225,000 to
real property. build, but the $195,000 price that the buyer is willing to offer is subjective.
Most estimates of market value rely on subjective perceptions of value. However,
appraisers who want to ensure that both dimen sions are analyzed when appraising resi
dential property apply the direct comparison (subjective) and cost (objective) approaches.
The cost approach involves analysis of actual cost, while income and direct comparison
approaches emphasize subjective values (based on sales of comparable properties in the
marketplace). ote: The income approach is the third method used with revenue
generating properties; e.g., multiunit residential and commercial operations. All three
approaches are fully detailed in Land, Structures and Real Estate Trading.
Market Price vs. Market Value

Market Price
Market price is the price paid for a specific property, while market value is an estimate
Price paid for an individual
of value arising from many sales (market prices). Consumers are often misled by market
property, as distinct from market price. For example, a sale may occur for $295,000 and neighbours assume that comparable
value which is estimated from homes will command at least that value. However, special circumstances may have been
the market prices of many sales.
present; e.g., the seller was under financial duress and sold below true market value.
Conversely, the property may have had certain distinctive features that commanded a
higher price than could be expected from other generally comparable homes in the area.
To further distinguish the terms, think of market price in terms of an accomplished
or past single event—one sale in the marketplace. Market value, on the other hand, is
estimated based on a number of past market prices. In reality, market price and market
value can be closely aligned assuming that an active, efficient marketplace is operating
which involves a reasonable number of sellers wishing to sell and a reasonable number
of buyers ready, willing and able to buy.
MARKET VALUE DEFINED

Market value (also referred to as value in exchange) is based on judgement arising Reasonable
from various sales in the marketplace. The definition, frequently found in appraisal Time
reports, is:
No Undue
The most probable price, as of a specified date, in cash, or in Pressure
terms equivalent to cash, or in other precisely revealed terms,
MARKET
for which the specified property rights should sell after reason- VALUE
able exposure in a competitive market under all conditions Prudent
requisite to a fair sale, with the buyer and seller each acting Behaviour
prudently, knowledgeably and for self-interest, and assuming
that neither is under undue duress.
Informed
Source: The Appraisal of Real Estate, 11th Edition, Appraisal Institute
Buyer & Seller
Investment Value—Commercial Properties

Investment value is defined as the value of an investment property from the perspective Investment Value
of a specific investor. Investment value must be clearly differentiated from market value. Value, closely associated with
market value, but also impacted
Market value focuses on the most probable price that a property will sell for based on a by cash flows, investment
typical buyer and seller. Many appraisers reference market value as value in the marketplace. objectives and investor-specific
Both market value and investment value flow from the present value of future anticipated criteria.
benefits. However, differing assumptions and conditions can alter the perception of such
benefits. Investment value is slanted to the individual’s objectives and unique investor
circumstances that can affect yield and the valuation estimate; for example, marginal tax
rate or distinct operating methods that may affect income and or expense projections,
which in turn impacts the income flows and the valuation process using the income
approach. In a sense, investment value closely approximates value in use discussed earlier.
Interestingly, commercial registrants work in two worlds: market value estimates and
investment value estimates. On the one hand, a salesperson may be required to estimate
market value assuming no specific buyer when working with a seller client. Conversely,
he/she may analyze prospective properties based on the needs and dictates of a specific
buyer client and arrive at a unique investment value. The difference between these values
is dependent on assumptions made. Market value and investment value can be the same
theoretically, but rarely are in practice. Salespersons may prepare both market and invest
ment value estimates, or even a range of values for each based on selected assumptions.
The client is then furnished with parameters in which to select an initial bid position, as
well as an overall negotiating range.
EXAMPLE Investment Value—The Skilled Buyer

Investor Reed is seriously considering a multi-residential property located in Anycity, Ontario. The market value of the
property has been established based on income using data from typical buildings of the similar age, construction and
general location. The market value is estimated at $875,000. Reed, however, has exceptional managerial abilities and
expertise in developing additional income sources from such properties, and can introduce specific cost saving measures
through technology that would not be available to smaller investors.
As a consequence, Reed’s buyer representative prepares a detailed forecast of cash flows based on those unique
skills to arrive at a value specific to the client. Using the income approach to value, the buyer representative estimates
the real value to the buyer (value in use) in the $975,000 to $1,050,000 range given the potential for higher return.
VALUE PRINCIPLES
Certain underlying forces are at work, despite the outward appearance that the real estate
market is randomly driven by numerous individual transactions and market prices are set
by countless negotiations. Fortunately, appraisal research has contributed significantly
by explaining and codifying certain dominant principles to explain how value is created.
Principles of Value Fifteen generallyaccepted principles of value are detailed that, in concert, provide insight
Various premises used as
to anyone delving into market value and the subtleties of real estate negotiations.
guidance in the determination
of value.
Consistent External
Anticipation Balance Change Competition Conformity Contribution
Use Factors
Increasing/
Highest and Supply and Surplus
Decreasing Progression Regression Substitution
Best Use Demand Productivity
Returns
These principles are either fundamental to understanding value or explain how various
real estate components contribute to value. They are isolated for discussion purposes but,
in fact, are typically interwoven in the marketplace.
Anticipation
A principle affirming that value is created by the anticipation of benefits, that is, money
or amenities to be derived in the future. Value may be defined as the present worth of all
future benefits. When buying a home, buyers anticipate that certain benefits will accrue in
future years, and the purchase price is based on the present worth of those anticipated
benefits.
EXAMPLE Value Principle—Anticipation

Buyer Jones is attempting to decide whether he will purchase Smith’s home for approximately $380,000 or
another property listed at $349,900. Jones evaluates the listing information for both properties. While they
are identical in many ways, the Smith property contains a family room fireplace and patio doors leading to an
oversized deck. The competing property, while containing a cozy family room, lacks the sunlight that flows
through the sliding doors. Jones can already visualize his family sitting by a blazing fire on the cold winter
nights ahead. Jones, unwittingly, is applying the principle of anticipation. He is mentally debating whether
the future benefits of Smith’s property justify the additional asking price. In other words, he is attempting to
establish value by anticipation.
Balance
A principle holding that value is created and maintained in proportion to the equilibrium
attained in the amount and location of essential uses of real estate. More simply put, the
value of a property is governed by the balance found within a particular marketplace. Loss
in value will result if there are less services or amenities than needed or more services or
amenities than can be supported. For example, where there are too many drugstores in a
community, either some will be successful at the expense of the others or none will yield
an adequate return on the investment they represent.
With an individual property, the agents or factors in production (labour, coordination,
capital and land) must be in proper balance in order to maintain maximum value. Too
much or too little of any one of the factors, in proportion to the services rendered by the
others, tends to reduce value. For example, having two building custodians where only
one is needed will result in less net income, which in turn translates into less value when
income is capitalized in the appraisal process.
EXAMPLE Value Principle—Balance

A commercial building derives its value from various contributing factors such as parking facilities provided to
tenants and guests. Inadequate parking (an imbalance in apportionment) could negatively impact the value
of the property, as essential uses and appeal of the real estate to commercial tenants are affected owing to
this deficiency. A similar situation might arise in a downtown residential condominium project. Given limited
space, too few parking spaces might be available to unit owners, along with little or no guest parking facilities.
This could negatively impact the value of the property as consumer appeal is adversely affected by this
deficiency. However, this type of situation is not a simple cause/effect relationship. Other factors would come
into play, such as adjacent parking lots, convenience/availability of public transit services, owner demographics
and size of units.
Change
A principle stating that economic and social forces are constantly at work and that changes
caused by these forces affect real property. Accordingly, the appraiser views real property
and its environment as being in transition, observing evidence of trends that may affect
the property in the future. The principle of change is fundamentally the law of cause and
effect. The principle of change illustrates the fact that a value estimate provided by an
appraiser is only valid as of a specific time. This principle is a constant consideration
when estimating value. The effective date of an appraisal is always clearly stated in the
report.
EXAMPLE Value Principle—Change

Anne Appraiser is hired to estimate the value of a property at 123 Main Street. This two-storey residence
occupied by the Smith family is zoned single-family residential. Mr. Smith requires the appraisal as he is
refinancing and placing a new first mortgage on the property. Anne completes the lender’s standard form
report and states in writing that the property is worth $380,000, as of November 30th, 20xx. One week
following the appraisal and before the bank issued a commitment letter on the mortgage, the major employer
in the community, in a totally unexpected move, files for bankruptcy leaving more than two thousand
workers (one-fifth of the total work force in the town) unemployed. Real estate inventory swells immediately
with supply far outpacing demand. Within sixty days, a noticeable downturn in prices occurs. The lender,
now more cautious, calls for a second opinion from another appraiser. The second appraisal, impacted by
change involving economic factors not present earlier, estimates the value at $345,000.
Competition
A principle, in terms of appraisal theory, stating that excessive profits will tend to create
competition that, in turn, has a negative impact on profits; or as often heard and simply
put: excess profit breeds ruinous competition.
EXAMPLE Value Principle—Competition

Smith anticipates and initially receives high returns from a You Store It (Anycity) Inc. facility. His forecasted
demand proves correct and, although lacking any market data to suggest a larger facility, he confidently starts
a second phase, effectively doubling the number of storage units. Unknown to him, various large tracts of
land are zoned for similar facilities. Within a few months three competing firms have increased the supply of
units by 500%. Smith, as well as the competitors, are subsequently drawn into a price war to capture the more
or less level demand for this type of service. The value of the real estate is negatively affected, as Smith’s
income level declines and this decline is reflected in the value estimate.
Conformity
An appraisal principle stating that land must be utilized to reasonably conform with the
existing standards of the area in order to maintain maximum value. The word reasonable
denotes the degree of conformity. Too much conformity results in monotony that could
be as detrimental to value, as not having conformity at all. In residential areas, variety in
building styles of the same quality presents a more pleasing appearance than rows of
identical houses. Zoning regulations protect a neighbourhood from conversion to or
intrusion of inharmonious uses and generally support the principle of conformity.
Consistent Use
A principle stating that when improved land is in transition to another highest and best
use, it cannot be appraised with one use allocated to the land and another to the building
or other improvements. If an appraiser is estimating the market value of a parcel of land
improved with an old house, and estimates that the highest and best use is for an office
building development, then the appraisal should not accord any value to the house over
that of the land. Adding value for the old house would be inconsistent, as its worth in
the market is overshadowed by the commercial value of the land and cannot be additive
to it. In dealing with compensation for expropriated property, this theory is referred to
as double recovery.
EXAMPLE Value Principle—Consistent Use

Smith is considering buying an older residential home that is currently zoned for commercial use. An appraiser
estimates the land to be worth $535,000 (which includes the cost of demolishing the existing structure). The
seller argues that the property is worth the land at $535,000 plus the value of the house. The appraiser is apply-
ing the principle of consistent use, as the property’s highest and best use is commercial which necessitates
removal of the structure.
Contribution
A valuation principle stating that the value of any component of a property is measured
by how much it adds to the net income (or market value if the subject property is non
income producing; e.g., a residential house), by reason of its presence, or detracts from
the net income (or market value) by reason of its absence. Therefore, the value of any
factor in production depends upon its contribution to net income or value and not upon
its cost. The principle of contribution is sometimes known as the principle of marginal
productivity.
EXAMPLE Value Principle—Contribution

Buyer Jones is attempting to justify the cost of new bathroom installation amounting to $21,000 in a town-
house valued at $269,000. While the true cost is $21,000, the market value may only be increased by $10,500.
Based on the principal of contribution, the new bathroom is said to have a contributory value of $10,500.
The addition of this bathroom would constitute an over improvement and would not normally be economically
justified.
External Factors
A principle (sometimes referred to as externalities by appraisers) involving a broad array
of situations that can impact the value of property. External factors can include circum
stances or situations near the property or more distant influences that nevertheless impact
value. In the case of adjacent factors, value may be enhanced by the existence and prox
imity of services provided to the property. On a more general perspective, overall economic
conditions within the immediate area, the region as a whole, or for that matter, the
country can impact the value of real estate. As earlier discussed, real estate is vulnerable to
economic prosperity, as well as economic slowdowns, and can also be impacted by govern
ment regulations and requirements that affect its marketability.
EXAMPLE Value Principle—External Factors

Buyer Smith acquired a residential bungalow in East Ridge, a suburb of Anycity, approximately two years ago.
At the time of acquisition, the property was valued at $359,000. Since that time, Anycity has lost three major
employers resulting in double-digit unemployment figures. To compound matters, significant improvements
to various municipal services have resulted in a dramatic increase in property taxes. These two external factors
have affected property values. Local real estate brokerages report that residential properties are being sold for
approximately 10–15% less than two years ago. Smith has had his property appraised and the market value
is currently estimated at $329,000.
Highest and Best Use

That use which, at the time of the appraisal, is most likely to produce the greatest net
return in money or amenities to the land over a given period. et return may be monetary
as with an incomeproducing property or may, in the case of a singlefamily dwelling,
take the form of amenities such as pride of ownership, comfort and convenience. In cases
where a site has existing improvements, the present use may fail to meet the criteria of
this definition. The highest and best use may very well be determined to be different from
the existing use. The present use will typically continue, however, unless and until land
value in its highest and best use meets or exceeds the total value of the property in its
existing use.
The appraiser, in estimating market value, must consider not only the current use, but
also the likely uses to which it is adapted and for which it is capable of being used in the
reasonably foreseeable future. Purely speculative future uses may not be considered. Since
owners have a natural tendency to utilize their property as advantageously as possible,
and since economic pressures usually dictate the optimum or most profitable use, the
highest and best use of a property will most often be its present use.
However, this is not always the case. Instances exist where an owner, for various reasons,
does not use his or her property at its highest and best use, at least as the term is used in
the appraisal sense. This is especially true along major new highways and rapidly expanding
areas where relatively sudden changes in demand occur and appropriate uses are neces
sitated. Also, the passage of time typically causes radical changes in optimum land usage.
EXAMPLE 1 Value Principle—Highest and Best Use

Seller Smith owns a detached, but rundown, bungalow in a rapidly expanding commercial area of Anycity.
The property was appraised two years ago at a value of $260,000 for the 40 year-old house and 90’ x 100’
lot fronting on Main St., based on residential single-family occupancy. However, just two years later, developers
are now prepared to pay approximately $4,500 per front foot for land in the area. The city has assured poten-
tial buyers that any property fronting on Main Street within the general vicinity of Smith’s property can be
rezoned to C4 (commercial retail shopping). Based on this information, Smith’s lot alone appears to be worth
$405,000 (90 x $4,500). The highest and best use has shifted from single family to retail commercial, given
rapidly changing optimum use patterns.
EXAMPLE 2 Value Principle—Highest and Best Use

Seller Jones owns a farm that now falls within the expanded municipal boundaries of Anycity. As the city
expands, the farm acreage will undoubtedly become more valuable as a residential subdivision site than as a
farm. Anne Appraiser has been retained to appraise the property and concludes that the highest and best use
of the farm property would be a site for a subdivision. Accordingly, she prepares the appraisal for purposes of
a potential subdivision site rather than as a farm. However, before basing a value estimate on a use other than
its existing farm use, she must be convinced of three things:
• he property is physically adaptable to the other use.

• Actual demand exists for the other use sufficient to enhance market value.
• he property is available for such other use and would not violate existing oning bylaws or
private deed restrictions.
The third point should be emphasized. Anne Appraiser may consider a use that is presently prohibited by
the zoning by-laws if good reason and evidence exists to believe that a change to permit this particular use is
probable and not simply possible, and that the change is imminent.
Increasing and Decreasing Returns

A valuation principle stating that when successive increments of one or more factors of
production are added to fixed amounts of the other factors, an initial enhancement of
income in dollars, benefits or amenities occurs, to a point of maximum return (the point
of diminishing returns), followed by a relative decrease in incremental value in relation
to the value of the added factor(s). This principle is also referred to as the principle of
diminishing returns or the principle of variable proportions.
EXAMPLE 1 Value Principle—Increasing and Decreasing Returns

Builder Anderson discovers an interesting fact about house construction in Anycity. While a 1,200 square foot
bungalow with a single garage commands $325,000, the same bungalow with a double garage (costing
$20,000 more) adds $35,000, bringing the value to $360,000. Several sales at this level confirm his theory.
Anderson then concludes that the addition of a third garage (at a cost of $20,000) will produce a similar
increase raising the market value to $395,000. However, after constructing a bungalow with the triple car
garage, the property remained unsold for six months and ultimately sold for $372,500. Anderson has experienced
the law of increasing and decreasing returns. While the two-car garage added value beyond its cost, the
successive addition of more garages does not incrementally increase total market value.
EXAMPLE 2 Value Principle—Increasing and Decreasing Returns

Smith operates a manufacturing plant that produces electrical appliances. Owing to an increased administrative
workload, he is unable to effectively manage the 20 employees on a daily basis. Consequently, worker efficiency
and production quality have suffered. Smith, based on the advice of a consultant, hires a full-time manager
to oversee the day-to-day operation. As a result, overall efficiency leaps 15 percent with customer returns of
defective equipment dropping by 50 percent over three months. Corporate profits rise by 10% after paying
the manager’s salary.
Seeing the impressive results, Smith reasons that two managers could achieve even better results and
hires a second person. In the next three months, no appreciable difference is evident and, in fact, profits
dipped slightly. Smith experiences the principle of increasing and decreasing returns. The addition of manage-
ment expertise is only effective to a point after which the incremental value of that additional factor of
production (in this case, labour) becomes proportionately less and less effective.
Progression
A principle, as an extension of the principle of conformity, stating that in the case of
properties that are dissimilar, the value of the poorer property will be affected positively
by the presence of the property of higher value. The principle of conformity outlines
that to maintain maximum value, land must be utilized to reasonably conform with the
existing standards of the area.
EXAMPLE Value Principle—Progression

Buyer Jones has often heard the old adage about buying the worst house on the street. However, he is now
experiencing the reality of the statement. Jones is looking for a three-bedroom home with a single-car garage
while hoping to maximize his advantage in terms of the principle of progression. He has located three properties
through a real estate brokerage that are roughly comparable in terms of size, condition and overall appearance:
ADDRESS LISTED PRICE
Property 1 42 Main Street $368,500
Property 2 233 West Street $372,000
Property 3 136 The Ridge $415,000
Properties 1 and 2 are located in single-family residential areas where the majority of homes are priced
between $355,000 and $375,000. Property 3, however, is the smallest home on The Ridge. Homes adjacent
to the property and in the immediate area sell between $410,000 and $450,000. Jones is particularly attracted
to Property 3, but doesn’t want to pay the higher price. The salesperson, while sympathizing with his client’s
position, knows that the principle of progress has relevance given the property’s proximity to higher priced homes.
Regression
An extension of the principle of conformity which states that to maintain maximum
value, land must be utilized to reasonably conform with the existing standards of the area.
The principle of regression extends that concept by stating that between dissimilar
properties, the value of the better property will be affected adversely by the presence of
the property of lesser value.
EXAMPLE Value Principle—Regression

Buyer Jones understands the advantages of acquiring the worst home on the street and benefiting from the
principle of progression; i.e., the value of the lower priced property will be positively impacted by the presence
of properties of greater value. However, he is about to experience the opposite effect, known as the principle
of regression.
Several years ago, Jones acquired an attractive bungalow without regard to adjacent older properties. The
home was obviously the best property in that particular neighbourhood. When Jones listed the property, many
buyers were impressed, but no offer was forthcoming. The listing salesperson provided three comparable sales
that were almost identical to Jones’ property in terms of size, condition and overall appearance, but located
in better neighbourhoods:
ADDRESS LISTED PRICE
Property 1 402 Main Street $314,500
Property 2 321 West Street $305,000
Property 3 136 The Ridge $315,000
Despite the listing salesperson’s recommendation to market the property at $295,900, Jones could see no
appreciable differences (except for the neighbourhood) and listed at $319,900. After two months with no offers,
he reduced the price to $299,900 and the property sold for $289,500. As the listing salesperson explained,
the value of Jones’ property was directly impacted by lower-priced properties in the immediate area.
Substitution
A principle stating that a prudent buyer will pay no more for real property than the cost
of acquiring an equally desirable substitute in the marketplace. This principle presumes
that buyers will consider the alternatives available to them, that they will act rationally
and prudently on the basis of information about those alternatives, and that time is not
a significant factor; i.e., a substitute property can be acquired without unreasonable delay.
EXAMPLE Value Principle—Substitution

Buyer Jones is seriously considering two properties: a one-year-old, resale townhome offered at $296,900 and
a new unoccupied townhome built by the same builder on an adjacent street priced at $289,500 (including
HST). After inspecting both properties, Jones discovered the following differences. The resale property, while
showing minor wear and tear, was fully decorated. In addition, all landscaping was completed and the drive-
way was paved.
Jones, in making his ultimate decision, is unwittingly using the principle of substitution. He is carefully weigh-
ing out alternatives in terms of desirability and cost. His ultimate conclusion will be rationally based on differ-
ences noted between the two properties assuming that both can be acquired for approximately the same price.
Supply and Demand

A primary valuation principle stating that market value is determined by the interaction
of supply and demand forces as of the date of the appraisal. According to this principle,
if the supply increases but the demand remains constant, prices will decrease. If the
demand increases but the supply remains constant, prices will increase. If both supply and
demand increase or decrease proportionately, prices will remain relatively stable.
EXAMPLE Value Principle—Supply and Demand

The importance of this principle is obvious. Consider the effect on house prices if a large corporation moves
its head office and employees from City A to City B. In City A, prices will fall because of oversupply, while in
City B prices will rise due to increased demand (assuming that all other factors remain the same, and supply/
demand forces were previously equal in both cities). As another example, if construction of new homes
exceeds demand, the resulting excess supply will ultimately impact prices.
Surplus Productivity
A principle relating to the net income remaining after all expenses necessary to the opera
tion have been paid and the capital invested in improvements has been satisfied. This
remaining net income is imputable to the land and tends to fix the value of the property.
As a result, the land is valuable according to the surplus productivity imputed to it.
In the operation of an incomeproducing property, three levels of return are necessary,
while the fourth (the land) can command only the residual income with no fixed or neces
sary rate of return. As previously discussed under general economic theory, the four
levels are factors in production and must be satisfied in order of labour, coordination,
capital and land. Surplus attributable to land largely determines its value. This income
approach used by appraisers is based on this principle.
EXAMPLE Value Principle—Surplus Productivity

Salesperson Jamieson is applying the principle of surplus productivity to arrive at the land value. The improve-
ments on the subject property have an estimated value of $150,000 and a forecasted net operating income
of $27,000. Market research indicates that a discount (return) rate of 10% applies and that the remaining
economic life of the building is 40 years. The income is capitalized based on the return rate (10%) plus the
recapture rate of 2.5% (100 ÷ 40 or 2.5% per year).
Net Operating Income $27,000

Income Earned by the Building (150,000 x (.10 + .025) 18,750
Residual (Surplus) Income Attributable to the Land 8,250
Value of the Land ($8,250 ÷ .10) 82,500
NOTE: Capitalization is studied in more detail in Chapter 9: Capitalization, Taxation and Closing Adjustments.
Cost vs. Payback MARKET MEMO
Heated debates between dollars spent and value received reach every corner of the marketplace. The sellers adamantly
want $200,000 for their property, because that’s what they’ve got in it. Buyers will pay only $175,000 because that’s what
it is worth. Cost vs. value goes to the heart of negotiations. New hardwood floors may cost $14,000, but their value
may only be $10,000 in the eyes of the buyer. Essentially, buyers and sellers are arguing over subjective versus objective
value. Knowing the difference and listing property based on value not cost is vital to any sales career.
The Appraisal Institute of Canada conducted a member survey about payback on renovations. In other words, the
Institute researched what payback (increase in value) would occur for every dollar spent.
Top Ten Projects With Average Potential Payback
PROJECT POTENTIAL PAYBACK

(%)
Painting and decor, interior 73
Kitchen renovation 72
Bathroom renovation 68
Painting, exterior 65
Flooring upgrades 62
Window/door replacement 57
Main Floor Family Room Addition 51
Fireplace Addition 50
Basement Renovation 49
Furnace/Heating System Replacement 48
The reader is reminded that this information is derived from a survey of Institute members and does not constitute a
formal research project.
Source: Appraisal Institute of Canada, 1999
How “Beyond The Lot Line” Factors Can Affect Value PERSPECTIVE
Value involves a complex interplay of what exists on the property, as well as what is present nearby. The principle of
external factors best highlights the challenge for anyone estimating value. Clearly anything beyond the control of the
property owner can impact value, whether it be the type of property next door, the number of competitors in a
commercial complex, or the services available within a specific neighbourhood. Recently, the environment has taken
centre stage as one more external force to be reckoned with. Both positive and negative possibilities are highlighted.
continued...
How “Beyond The Lot Line” Factors Can Affect Value PERSPECTIVE
Contamination: The Property Next Door
M any factors can affect value. Increasingly, contamination has become a hot topic in real estate marketing.
For example, in Brantford, a large underground chemical contamination from a former refrigerator
making plant was discovered. Trichloroethylene, known as TCE, is a toxic chemical used as a degreaser in
manufacturing. Initial estimates suggest that a 12block residential area in the city’s east side may be affected.
In Port Colborne, high levels of lead were discovered in the soil. Elevated levels have been linked to various
medical problems. ear Waterloo, residents voiced objection to megafarms and the potential impact of
offensive odours and possible water contamination involving farms that can house more than 2,500 pigs with
storage for 15.5 million litres or more of liquid manure.
ntario is not alone. Perhaps, the mostpublicized contamination story lies in the o Co ( orth of Coke
vens in Sydney, .S.) where a neighbourhood is caught in the aftermath of more than a century of steelmaking,
ironically the result of the governmentoperated plant and coke ovens that became a provincial crown corpora
tion in the late sixties.
This story is far from over, even with millions now spent on research and cleanup, and more funds allocated.
For years, coke oven emissions floated over adjacent residential areas and leaked into Sydney harbour. Concerns
centre on high levels of polycyclic aromatic hydrocarbons, but testing has also revealed concentrations of other
elements, such as arsenic, lead, manganese, copper and cadmium.
The difficulty from a real estate perspective involves the stigma attached to the o Co area. According to
some registrants, the demand for homes dwindled, as buyers avoided affected neighbourhoods. Others have
minimized the health risk and point to huge funds now invested in remediation (cleanup involving soil
removal). However, despite such efforts, the issue still casts a shadow on the marketplace.
While sincere efforts to cleanup the area are positive, perceptions and the linger ing memory of problems
are more difficult to erase. Time may be the only solution.
Green Value: Teeing Off
E ven those who don’t play the game are attracted to golf course communities. This niche in the residential
market provides open space, a different lifestyle, and often an opportunity to reclaim land once relegated to
dump sites, quarries and brownfields (contaminated sites). Premium prices are now associated with lots
backing onto courses. Open spaces, green vistas and rear yards that don’t butt up to neighbouring houses are in
demand.
Clearly, real estate values follow these sought after locations, as choice lots are few and supply demand forces
dominate. Presently, golf course communities are springing up in urban as well as rural settings. From a
planning perspective, such communities can pose certain challenges (e.g., water resources to keep greens and
fairways in excellent shape), but the trend is clearly growing.
Noise Pollution: Taking Off
T he sound of aircraft may cause some to daydream about travel, but not those near an airport runway. The
creation of new runways or extensions to existing ones typically evoke debates and extensive community
consultations.
Courts have awarded settlements to disgruntled neigh bours, recognizing that property values are affected.
But noise problems are becoming much more pervasive than taxiways and jet engines. Canadians are living in
closer proximity to one another. What soundproofing should be installed in condominiums, what windows
will block street level noise and what to do about noisy neighbours? uiet and privacy are increasingly in
demand…and demand usually translates into value.
KNOWLEDGE
INTEGRATION
Notables
• The ntario marketplace has demonstrated • Market price is the price for an individual
a strong economic picture over the past property, market value is an estimate of
few years particularly in manufacturing, value arising from many sales.
business/financial services and information/ • Most definitions of market value include
technology sectors. four dimensions: informed buyer and
• Population growth has been driven pri seller, prudent behaviour, no undue pres
marily by immigration with approximately sure and reasonable time.
one out of three Ontario residents being • Both market value and investment value
foreign born. flow from the present worth of future ben
• Population growth is concentrated in efits, however investment value is particu
urban areas with the largest growth in the larly sensitive to individual investor perspec
Greater Toronto Area. tives; e.g., objectives and yield requirements.
• ntario’s population has been gradually • Fifteen widelyaccepted principles impact
aging with the 65 age group growing value. Be prepared to discuss each principle
more quickly than other age groups. and support the explanation given using
• Historical trends involving total residential an example.
sales volume and average price support • Typically, the great debate in many consumer
the fact that ntario has enjoyed a strong minds has to do with the cost of some
real estate market over the past few years. thing, as opposed to its value in the
• alue can have different meanings depend marketplace.
ing on the person’s perspective. • alue is affected not only by what is located
• alue has both objective and subjective on the property, but what is adjacent to it.
perspectives. Most estimates of value rely
on subjective values (e.g., direct compari
son approach).
Glossary
Census Market Value
Demography Objective Value
Gross Domestic Product Principles of Value
Immigration Subjective Value
Investment Value Valuation
Market Price Value in Use
Web Links
Ontario Profiles Economic and demographic profiles are summary in nature.

Students seeking detailed information should access the following websites:
Ministry of Economic Development, Trade and Employment
(www.ontario.ca/ministry-economic-development-trade-employment),
the Ministry of Finance (www.fin.gov.on.ca) and Statistics Canada
(www.statcan.gc.ca).
Municipal Boundaries Students should generally understand basic municipal boundary structure,
but not changes occurring that affect regional municipalities, counties and
municipalities over the past several decades. Those seeking detailed municipal
profiles and information concerning ongoing changes can access applicable
websites; e.g., the Association of Municipalities of Ontario (www.amo.on.ca)
and the Ministry of Municipal Affairs and Housing (www.mah.gov.on.ca).
Land registration and related topics are discussed in more detail in Land,
Structures and Real Estate Trading.
Ontario Road and Go to maps.google.ca for detailed Ontario road maps as well as provincial
Satellite Maps satellite images. This user-friendly zoom mapping system allows for detailed
viewing of road systems and provides satellite photos when using the hybrid
mapping option. Note: The extent of close-up zoom imagery varies across
the province based on satellite image availability.

1. What additional information can I 4. The text includes selected examples
obtain from my local municipality to regarding value in use. What other
better understand economic, demo circumstances might I encounter that
graphic and geographic perspectives would indicate value in use rather
for my community? than market value?
2. Can I explain significant trends that 5. The principles of progression and
may impact growth in the local real regression often apply in urban
estate marketplace? environments. Do they also apply in
rural or cottage areas, particularly when
3. Am I able to confidently discuss value adjacent properties are at a distance?
concepts and discuss these with buyers
and sellers in relation to their needs
and wants?
Chapter Mini-Review
1. Interprovincial migration does not 8. A fireplace costing $15,000, but having

contribute significantly to Ontario’s a market value of $24,000 is an example
population growth when compared of the principle of contribution.
with immigration from other countries.
True False
True False
9. In the past decade, municipal structur
2. Demographic analysis using dependency ing in Ontario has increasingly moved
measures is a valid method to assess toward more regional governments.
the gradual aging of a population.
True False
True False
10. Provincial net migration can be
3. A seller, who has unwittingly under generally described as the difference
sold due to a lack of market knowledge, between the number of people enter
is nevertheless deemed to have ing and exiting the province within a
obtained market value, as the buyer specified period of time.
acted prudently and in good faith.
True False
True False
11. The difference between market value
4. Value in use arises only in commercial and actual cost can be negligible in a
transactions where a building is built reasonably efficient marketplace with
specifically to meet the needs of the no unusual intervening factors
owner. impacting values.
5. The principle of anticipation essentially 12. Value in exchange and value in use
says that a value today is only valid are synonymous when discussing real
for today. estate values.
6. The statement ‘the smallest home on the 13. Subjective value can be generally
street may be the best buy’ generally described as the perception of value
describes the principle of progression. in the mind of a seller or buyer.
7. According to the principle of surplus 14. If a property is overpriced, more

productivity, net income flows to the motivated buyers will consider the
building and other improvements on property than if it was properly
the land. priced for the marketplace.

Exercise 1 Real Estate Values (Matching)

Match the phrase/word in the left column with the appropriate description in the right
column (not all descriptions are used).
___ Demography a. Market Value
___ Market Price b. Nearby Items Affecting Value
___ External Factors c. Study of Population
___ Principle of Progression d. Price Paid in a Particular Transaction
___ Objective Value e. Southwestern Ontario
___ Value In Exchange f. Actual Cost
___ Value In Use g. Distinctive Feature Valued by Owner

___ Geographic Region h. Poorer Property Affected Positively
i. Salvage Value
j. Comparative Market Analysis

2.1 Assume that the Ontario government recently announced a new regional office
for orth Bay that will involve the hiring or transferring of 500 employees to
that community. As a consequence, housing will be in short supply for the fore
seeable future. Which principle of value best describes this situation?
a. Principle of Progression
b. Principle of Surplus Productivity
c. Principle of Supply and Demand
d. Principle of Increasing Decreasing Returns
2.2 It shouldn’t make any difference that all the other homes on this street are a lot
less expensive than mine. I say value is value; they don’t affect my property’s
value. Which principle of value might be used to dispute this statement?
a. Principle of Anticipation
b. Principle of Regression
c. Principle of Progression
d. Principle of Supply and Demand
e. Principle of Surplus Productivity
2.3 Buyer Williams bought the James residence for $359,500. The property was
originally listed at $379,900 and was subsequently reduced to $365,000, before a
successful sale was concluded. The selling price of $359,500 is best described as
the:
a. Market Value
b. bjective alue
c. alue in Use
d. Market Price
2.4 Builder Adams is determined to put a triplecar garage on the next new home
that he builds. Here’s his reasoning. The first home had a singlecar garage which
brought $15,000 more in selling price; and the second home had a doublecar
garage which increased the selling price by another $15,000. Therefore, it only
makes sense that a triplecar garage will add a further $15,000. Which principle
might be used to dispute this argument?
a. Principle of Increasing Decreasing Returns
b. Principle of Consistent Use
c. Principle of External Factors
d. Principle of Regression
2.5 Salesperson Lane prepared a CMA three months ago for Seller Jones at $489,900,
but Jones elected not to sell. Three months later, a second CMA was prepared. To
the seller’s dismay, the recommended listing price was lower due to economic
conditions in the area. What principle best explains this situation?
a. Principle of Contribution
b. Principle of Change
c. Principle of Consistent Use
d. Principle of Highest and Best Use
2.6 Which of the following is T a theory applied by urban economists to the

development of cities?
a. Concentric Circle Theory
b. Market Cycle Theory
c. Axial Theory
d. Multiple uclei Theory
2.7 Demography is the study of:

a. Municipal boundaries.
b. Physical and spatial features.
c. Market activity.
d. Population changes over time.
Exercise 3 The Neighbourhood

Broker Rashad placed a value on the Wong’s property approximately two years ago. At
that time, based on comparables available, the market value was $295,000. However,
during the two years, the general neighbourhood has suffered from noticeable decline.
While most residential areas in the westend have been stable, this particular locale has
deteriorated due to poor maintenance of properties and a number of vacant buildings.
Rashad now feels that the home, according to recent sales, will bring approximately
$265,000. Identify the main principles of value that apply along with reasons.
Exercise 4 Is Bigger Better?

Mr. and Mrs. Singh are seriously contemplating purchasing the Westheiser property.
The property has a large fieldstone fireplace dividing the kitchen and living room areas.
riginally built in 1988 for $15,500, the current cost for this fireplace would be approx
imately $40,000. Several comparable properties inspected by the Singhs are in the
$430,000–440,000 range (each containing smaller, exterior wall fireplaces). The Westheiser
property at $499,900 is remarkably similar to the others except for this unique feature.
Interestingly, the home has been on the market for over six months with no takers,
despite fairly brisk sales activity in that price range, particularly homes with fireplaces.
The Singhs are seriously debating how much to offer. What principles of value are at
work? Refer to specific principles, along with explanations for your selection(s).
SECTION III
THE CONSUMER AND
MARKETING FUNDAMENTALS
Section III highlights real estate from the consumer’s perspective including his
or her needs and wants in acquiring and disposing of property. The discussion
centres primarily on the residential market with special emphasis on consumer
decision making, vulnerabilities and recent buying trends. The balance of the
chapter is directed to consumer legislation, the role of ethics, privacy requirements
and assistance provided to consumers by other professionals in order for them
to make informed decisions.
The second chapter in this section shifts
the discussion to marketing fundamentals
including market research, planning and
developing effective real estate marketing
strategies. Marketing and consumer behavior
are inextricably tied. The success of marketing
and advertising is often measured by the
actions taken by buyers and sellers in the
marketplace. The chapter highlights typical
marketing methods used by registrants, the
importance of customer service and key
marketing strategies used in today’s real
estate marketplace.
154
CHAPTER 5
Consumer Behaviour and

Consumer Protection
Introduction
Consumer behavior can be broadly defined as the study of individuals, groups and organ-
izations regarding how they select, obtain, use and dispose of products, services, experiences
or ideas in order to satisfy their needs. The study of consumer behavior is complex with
many factors impacting the decision-making process. More simply put, consumer behaviour
is the analysis of how individuals buy, what they buy, when and why.
Chapter 5 analyzes consumer behaviour relating to the buying and selling of the tang-
ible product (i.e., real estate) with consumer services (listing a seller’s property or assisting
a buyer in locating suitable property) found in Chapter 6: Marketing Methods and
Customer Service. Needs and wants are analyzed using a well-known theory advanced by
Maslow and advocated by many marketers, followed by a discussion of consumer vulner-
abilities particularly concerning such matters as who represents whom in a real estate
transaction, the need for prudence when inspecting properties and signing agreements,
and the general lack of cooling off periods.
The chapter then addresses ethical issues and profes-
sionalism when dealing with consumers followed by con-
sumer protection legislation including the Consumer
Protection Act, the Competition Act and the Ontario Human
Rights Code. Privacy legislation is also discussed from both
brokerage and salesperson perspectives. REBBA 2002 is not
included in this chapter, as the Code of Ethics (including
all trading and related requirements) are detailed in subse-
quent courses. The final topic highlights the importance of
seeking professional advice and the type of guidance that
consumers can expect from lawyers, appraisers, surveyors,
lenders, mortgage brokers, insurance agents and brokers,
and home inspectors in the buying and selling process. The
discussion includes services provided by these professionals,
as well as ethical responsibilities and consumer complaint
procedures.
SECTION III T H E C O N S U M E R A N D M A R K E T I N G F U N D A M E N TA L S
155
Learning Outcomes
• Describe the basics of consumer behavior including such influencing factors as
personal traits, external influences, brand loyalty and the actual products.
• utline and explain consumer needs and wants in relation to the real estate
marketplace.
• Detail consumer vulnerabilities and how registrants can assist consumers in avoid
ing pitfalls when buying or selling real estate.
• utline ethical fundamentals that registrants must practice to advance consumer
protection.
• Discuss consumer protection legislation with emphasis on the Consumer Protection
Act, the Competition Act and the Ontario Human Rights Code.
• Describe privacy legislation with regard to protecting personal information, obtain
ing consumer consent and safeguarding information.
• utline the role of various professionals who provide advice and guidance to con
sumers when buying and selling real estate.
CONSUMER BEHAVIOUR BASICS

Consumer behavior is affected by both internal and external forces. To the casual observer,
consumer decisions can seemingly defy logic. Even trained marketing professionals, who
devote all their energies to understanding consumer behavior, can be baffled by unexpected
twists and turns. Why does one product sell well while another languishes on the shelf?
What drives real estate buyers to buy in one location, completely ignoring another of
seeming equal utility? Why do certain sellers receive multiple offers in a bidding war and
others are overlooked?
The challenge lies in dissecting the consumer mindset and analyzing basic underlying
motivations—the world of needs and wants. The fact is that consumers do not make
split second decisions. The process involves many factors that take place before the sale,
at the point of sale and after the sale. Consumer behaviour is best viewed as a continuum
that involves the cycling of all three, as buyers and sellers gain new experiences, gather
new input and, of course, gain additional knowledge through ongoing purchases.
T H E C O N S U M E R A N D M A R K E T I N G F U N D A M E N TA L S SECTION III
156 Chapter 5 Consumer Behaviour and Consumer Protection
To compound matters, many internal factors come into play to form the individual
mindset. Personality traits are formed over the years, as well as certain lifestyle patterns
that dictate if and when something will be purchased. Personal perceptions are also built
on many external influences, be it what others think, what specific age or ethnic group
to which the consumer belongs and, of course, what overall cultural influences are in
play. Lastly, our commitment to certain brands and our knowledge of products are also
significant determinants.
Personal Traits and Psychographics

Decisions are influenced by internal personality traits and demographic factors. The
young professional will approach a real estate purchase from a far different perspective
than a mid-thirties couple with young children. Their needs are different and purchasing
decisions are based in part on those needs. Not only do the mindsets vary, but also personal
backgrounds. The aging boomer bases house buying decisions on very different premises
than the single mother. Ironically, their decision process may ultimately point them to
the same neighbourhood and house.
However, a person’s demographic makeup and personal traits do not provide a complete
Psychographic picture. Marketing companies typically rely on psychographic studies as well to delve
Research concerning the study deeper in consumers’ lifestyles, opinions and interests. Consumers make decisions not
of consumer lifestyles based on simply based on who they are, but also what lifestyle they seek. For example, in recent
interests, opinions, actions and years, real estate developers and builders are addressing the growing non-traditional
activities.
market segments that include single women, unmarried couples with no children, baby
boomers and young professionals. Housing diversity is everywhere from high-ceiling lofts
overlooking trendy downtown Toronto to gated senior communities with walkways,
marshes and bird watching.
But psychographics goes much further. We live in a world of social activism. Many
individuals, based on personal beliefs, will gravitate to companies that address signifi-
Green Building cant lifestyle issues. Green building is an excellent example in which house building techni-
Energy efficient construction ques promote energy efficiencies, prudent use of resources and sound environmental
methods used in residential and planning. Consumers may be willing to pay more for energy-efficient home features such
commercial structures. as solar assisted or geothermal heating/cooling systems and new window technologies.
Commercial buyers may seek out reflective glass, increased thermal resistant materials,
energy efficient lighting systems and smart technologies to demonstrate sound environ-
mental values, while also acquiring a more efficient structure. Green building is a win-
win situation. It not only addresses social issues, but also makes sound economic sense
assuming a reasonable payback period for the added costs.
What Others Think

Marketers also understand that no one exists in isolation. ur opinions are formed by
what others say and do. They need not be friends or relatives. Ironically, the most trusted
advice may come from someone who is not even liked, but their opinions are respected.
Like it or not, we often make decisions based on what other people will think of our
purchases. The impressive facade of a two-story house with pillared entrance makes a
statement. Little wonder the backsplit quickly came and went in a world of consumers
seeking not just size (the backsplit offers lots of space), but street appeal.
In sociological terms, the ‘others’ are typically referred to as reference groups, which
can be either formal (a structured group such as a religious organization or a social club)
or informal (a group of neighbours or friends who meet informally). Regardless, the
Consumer Behaviour and Consumer Protection Chapter 5 157
group exercises some degree of power over its members. Many types of power can be
exerted from a respect for those in authority within a reference group: Three people in
our brokerage have bought that car and they all highly recommend it. f course, in real
estate sales, who hasn’t heard: Yes, we like the house, but my father has to see it and make
certain it’s OK.
Many people follow others for conformity, whether out of fear of being different, a
desire to belong, or both. The office worker may carefully select a certain neighbourhood
so as to not be viewed as different. Even independent thinkers can compromise their
individuality in some ways. For example, the rising entrepreneur as a renegade in business
may buy a traditional home in the right neighbourhood to confirm his social standing.
Market Niches
Birds of a feather do stick together. Consumers are social and the urge to flock with others
of similar psychographic, ethnic, age and other attributes is strong. This group dynamic
gives rise to expanding market niches. For example, the desire to group is particularly
evident in adult lifestyle developments now springing up in this province and across
Canada. The natural tendency is for aging boomers to seek out others going through the
same lifestyle passage and developers are reaping the benefits of this social reality. Humans
seemingly want to gather with those who think or act the same way as they do.
Marketing companies discovered this fact years ago in market segmentation and target Market Segmentation
market strategies. The consumer marketplace is made up of many sub-markets that can The division of a market into
be based on such factors as ethnicity, income level, lifestyle, family structure and age. f submarkets in which consumer
course, target markets can be either geographic (e.g., a specific neighbourhood or condo- needs are generally similar.
minium building) or non-geographic (e.g., individuals dispersed across the province, but
all members of the same sub-market). Marketing companies then target these specific
consumer audiences with products that align with or complement the underlying
commonality.
The Growing Second Property Market MARKET MEMO
A new market niche is opening. Buyers of second properties, such as vacation and investment properties, are taking on a focal
role in the resale market. Demographic changes (i.e., the aging population), low mortgage rates and sustained economic prosperity
over the past decade have played a significant role. No one knows how big this market is in Canada. Interestingly, in the United
States, surveys indicate that second property activity represents approximately 40% of the resale market.
Initial indications suggest that baby boomers are driving this market and plan to use this second property as a primary residence
in the future (e.g., a winterized cottage in the Kawarthas) or to build capital to offset high anticipated costs for care in older age.
US statistics suggest that most acquisitions are single-family detached homes within a one hour’s drive from the primary residence.
Further research is required to assess the extent of the second property market in Canada, but clearly opportunities exist to service
consumers not only from a real estate brokerage perspective, but also from other professional perspectives including financial,
taxation and property management dimensions.
Culture Culture
Culture and cultural values also have a strong bearing on how consumers make decisions The shared values of a society in
which socially acquired behavior
in the marketplace. ntario, as well as much of Canada, has experienced significant patterns are communicated
immigration and associated cultural diversity. Marketing experts know that products are symbolically, usually through
selected based on their alignment with cultural values, ethics, rituals and traditions. An language.
individual’s culture is much like a filter allowing through only those products and services
that align with internalized priorities and real estate is no exception.
Feng Shui is a good example. This ancient Chinese belief system centres on space
arrangement and placements in relation to philosophical, geographical and aesthetic
principles. The location of stairways, straight lines and sharp corners in sitting areas and
geographic location of houses can have a positive or negative effects in terms of feng shui.
ne home, viewed positively under western cultural standards, may be immediately
dismissed by another based on feng shui principles.
Cultural differences can also account for buyers seeking certain house plans and room
configurations given particular rituals and customs. For example, certain ethnic groups
will seek out homes with large kitchen/dining room areas for family events. Where one
buyer may dismiss a second kitchen as a needless waste of space, another might view it
as a necessity.
But culture goes well beyond traditional ethnic divisions. Canadians are avidly embrac-
ing the new electronic culture and this love affair goes well beyond cell phones and wire-
less hotspots in coffee shops. Home builders have had to address growing demands of
consumers hooked on high-speed access, modular wiring, video Internet links and wire-
less communication. Many new homes also boast the latest in computer-assisted energy-
efficient heating/cooling, zoned controls and security/surveillance systems (complete
with remote access when away from home).
Brand Loyalty
Consumer behavior is often determined not by what an individual does or what groups
to which he or she belongs, but rather by confidence personally attributed to a specific
Brand Loyalty product through brand loyalty. While such confidence can arise from personal experience
A consumer’s commitment to a or valued opinions of others, the branding process is internalized. ften, consumers
specific product or service. unconsciously dismiss countless valid alternatives, only to pick up that favourite label.
Brand names are everywhere in the marketplace from clothing to automobiles and
appliances, and real estate is no exception.
A buyer may specifically seek out a trusted builder when acquiring a new home and
sacrifice other factors (e.g., a location close to work) in order to have the builder’s name-
plate affixed in the entrance way. In fact, in some communities, it’s fashionable to mention
who built your home as well as where it’s located: Oh yes, we bought a [name of builder]
home. His workmanship is simply the best! A buyer may also insist that a newly constructed
home have specific brand products (e.g., plumbing fixtures, lighting and insulation).
Brand loyalty goes well beyond such utilitarian motivations as functionality, design
and reliability. ften, it is simply chic to have a certain brand name in the hopes that all the
marketing glitz of high fashion and image will rub off on the hopeful consumer. Perhaps,
the consumer thinks that he or she will be a better driver just by getting behind the
steering wheel of a new car, become a romantic by just sipping a certain wine, achieve
that elusive hole in one with just the right set of golf clubs or lose those excess pounds
by putting on a certain pair of running shoes.
Branding now goes well beyond products and has entered the service field. Real estate
brokerages have long identified with branding, particularly through franchise affiliations.
Brokers and salespersons are the latest converts, as they pursue personal branding in
hopes of implanting a lasting image in the buyers’ and sellers’ minds. If the range of
personal photos on bus stops, benches and billboards are any indication, the concept is
working well.
Product Appeal
Some products just make good sense to the consumer because they’re appealing. That
appeal can arise from utilitarian needs and/or attractiveness (e.g., visual appearance).
There’s an old saying in real estate that warrants emphasis: People don’t buy houses, they
buy homes. The design, layout, amenities, colours and the ambience all play out in the
decision-making process. Consumers see themselves in the home enjoying its features
and benefits. Many buyers evaluate homes not so much from a sticks and bricks perspec-
tive, but rather on a personal impression of what they want in that home.
This is not to say that structural, mechanical, electrical and insulation systems are not
very important. It’s just that buyers don’t typically rush down to the basement to inspect
the furnace. They’re too busy standing by the stone fireplace mentally placing their furni-
ture in the room. Marketers long ago realized that it’s not the steak, it’s the sizzle and
they are continuously searching for the latest features that will satisfy the ever unfolding
needs of changing consumer behaviour.
These days, the new house market is focused on energy efficiency and the needs of a
technology conscious consumer seeking a new home laden with electronic features from
automatic sensing systems to full digital access in every room. Product appeal is also alive
and well in resales. Home staging has taken centre stage as prudent sellers seek to display Home Staging
their homes to gain a marketing advantage. Homeowners have come to realize that staged Improving the appearance of a
homes can sell faster and possibly for more money. It’s a matter of playing up the strengths home to increase its attractiveness
and powering up the visual presentation. Staging has now gained such prominence that to potential buyers.
sellers of vacant property may decide to rent furniture and accessories in hopes of
transforming an empty house into a warm, inviting home.
The Electronic World Beyond

The world is just too small these days. Consumer behaviour is driven by forces well beyond
local perspectives. Consumers, including real estate buyers and sellers, are influenced by
products, happenings and opinions far and wide. The Internet is quickly obliterating
time and space limitations when it comes to product information, what to buy and how
other consumers feel about specific products. Consumers need only type in a product
name and a host of specifications, pricing and product reviews fill the web browser page.
Buyers now routinely access real estate databases to compare resale properties, prices
and amenities. But the electronic power for consumers goes well beyond basic shopping.
A residential condominium builder in ttawa may advertise the latest kitchen design inno
vations and appliances, while the seemingly innocent buyer is already aware that the condo
units are equipped with last year’s products. The commercial buyer may critically inspect
a new retail building equipped with energy-saving devices, knowing that these systems
have had problems and that improved products are readily available. All this and more
is readily available to even the casual computer user on the internet.
Understanding Today’s Real Estate Consumer PERSPECTIVE
What do the typical buyers do these days? The National Association of REALTORS® (USA) conducts periodic buyer/
seller surveys relating to the residential marketplace. Here’s a few facts to consider from their 2012 survey:
• hirtynine percent of homebuyers purchased their first home.
• ightynine percent of home buyers purchased a home through a salesperson.
• inety percent of homebuyers used the Internet to search for a home.
• ightyeight percent of sellers were assisted by a salesperson when selling their home.
• he most important reason for buying, among repeat residential buyers, was to find a larger home.
• eighbourhood quality was the most important factor when deciding on location.
Of particular note is the widespread use of the Internet to search for homes. Consumers are becoming much more
savvy and are in step with the electronic real estate marketplace.
Source The National Association of REALTORS® Profile of Home Buyers and Sellers, 2012.
CONSUMER NEEDS AND WANTS

A consumer need is an underlying biological or psychological desire to attain something
for a particular purpose. This need typically results in specific behavior to achieve the
desired goal. A want, on the other hand, is what we think we require in order to meet
the need. ur wants are usually determined based by all the internal and external forces
that underlie consumer behavior. To put it bluntly, humans live in the world of needs;
advertisers and marketing companies live in the world of wants. While needs may be
similar, how individuals attempt to satisfy these needs is a more complex matter.
The Battle of Needs and Wants CURIOSITY
Consumers commonly wrestle with needs and wants when making purchases in the marketplace. Here’s a few examples:
Two individuals need automobiles to get to work. The first person wants a high priced foreign
sports car while the second wants a sport utility vehicle. The need is the same, but the wants are
very different.
A young couple need basic shelter, but they want a new, upscale suburban home.
The young businessperson needs an office, but he or she wants an executive suite in a central
business district.
Hierarchy of Needs
Many theorists have attempted to explain needs in terms of models and classification
systems, most involving an analysis of underlying motivation. A well-known approach Motivation
involves Maslow’s hierarchy of needs. Maslow, a noted expert of human motivation, The desire to accomplish
developed this theory in the early 1940’s which culminated something, which may involve
in his book titled Motivation and Personality (1954). This either a short or long term goal.
hierarchy offers a relatively straightforward method of

understanding
standing progressive levels of need as individuals
fulfil basic physiological requirements and progress
to higher levels. This hierarchy can explain in part
SELF-
what motivates consumers in the marketplace ACTUALIZATION
when making various buying decisions. Self-Fulfillment and
Maslow is only one of many such theorists, Creativity
but his theory is well accepted and under-

EGO
stood in most marketing circles and, for
Status and Personal
purposes of this course, will provide Accomplishments
adequate background information on
consumer needs. Maslow provides five SOCIAL
levels of need. Individuals move up Companionship, Family and
Social Interaction
and down this hierarchy based on
personal circumstances.
SECURITY
Shelter and Safety
PHYSIOLOGICAL NEEDS
This level of need involves the PHYSIOLOGICAL
basic human drive for self- Basic Life Essentials
preservation including the
search for food and water. In
other words, if these needs are
not fulfilled, they take on immediate priority with the individual. In our society, basic
psychological needs are normally satisfied. These needs are not solely geared to survival,
but do include those judged as primary needs for existence. Consumers satisfying only
physiological needs give little regard beyond that. In consumer terms, the issue is not
which grocery store is suitable, but rather where can I find food. The closest real estate
analogy involves a person who has no shelter. The priority is to simply get a roof over
his or her head.
SECURITY NEEDS
Security needs can range from either physical or financial security. The average person
does not want to be concerned about the source of the next dollar, whether or not his/her
job will be there next week or if the valued home will be immediately foreclosed. In today’s
society, economic security appears to be as important as personal, physical security.
Physical security broadly refers to the safety of loved ones, security of a home and the
general well-being of the individual. Money is an issue at this level of need, along with
stability of job and income. Examples, for real estate purposes, could involve a young
couple seeking a better neighbourhood for their children or a fixed income pensioner
wanting an apartment in a safe neighbourhood.
SOCIAL NEEDS
Security needs give way to higher levels of expectation. This level in the overall hierarchy
involves love, family relationships, companionship, social ties and the person’s desire to
belong. Consumers seeking social needs want to be involved with other individuals on a
meaningful basis and be actively participating in the mainstream of community life.
Maslow emphasized that we as individuals seek out acceptance with the group. If basic
physiological and safety needs are satisfied, presumably social needs become a major
driving or motivating force within our lives. A real estate buyer acquiring a large suburban
home, complete with a large yard and inground pool, would probably involve social needs.
EGO NEEDS
The attainment of security and social acceptance leads to loftier pursuits, as individuals
Status Symbols seek out a general feeling of self satisfaction. Status symbols are ardently sought and
A tangible sign of an individual's retained. The large corporate office, the seating arrangements at the board room table, the
economic or social status. status at the golf club and the size of the suburban home are all part of the ego symbols
used to display oneself to the world.
Behind these trappings of success is a foundation of financial security and social
acceptance. The expensive car, the extended vacation and the private school for children
are signs that the consumer has arrived in terms of material success and associated recog-
nition by comrades and associates. A real estate example might involve an individual
building a custom home in the country that includes various amenities such as a triple
car garage, large entertainment/home movie room and a wine cellar.
SELF ACTUALIZATION
The final stage in Maslow’s theory involves the concept of personal fulfilment and the
ability to develop one’s potential in terms of creativity and outward expression. This lofty
need is rarely attained, but is the ultimate in personal success. Individuals attempt to reach
their fullest potential through solving problems of others, addressing grander issues facing
humanity (including philanthropy) and cultivating peak human experiences (e.g., circum-
venting the world with a hot air balloon or climbing Mount Everest).
In real estate terms, this individual may reside in a penthouse condominium with both
panoramic and waterfront views, have a winter vacation home nestled in a gated Southern
Florida community and enjoy a sprawling recreational residence on a northern lake for
those hot summer weekends, readily accessible by private float plane. At the same time, his
or her humanitarian efforts could include many hours of concerted effort in developing
subsidized housing for the less fortunate and providing funding for low income senior
housing.
Real Estate and Maslow’s Hierarchy

As with any theoretical model, practical realities don’t always align well with precisely
defined stages. Maslow has been criticized as too simplistic given the narrow theoretical
view of human needs. Further, it is almost impossible to fit individuals neatly into one
particular stage or another. Indeed, consumers may display characteristics and pursue
goals on various levels throughout their lifetimes or, in fact, within a very short period
of time. For example, a person may be expressing himself or herself by playing a musical
instrument (self actualization), but having to stop due to thirst (physiological). In fairness,
Maslow contemplated such dynamic swings, acknowledging that individual circumstances
can change, thereby affecting the need level at a particular point in time. Some people
have noted that his hierarchy also closely parallels the human life cycle from birth through
adolescence to maturity.
However, the theory provides a workable framework to better understand real estate
consumers if viewed as a continuum ranging from basic needs to lofty ideals of self
fulfilment. In fact, most consumers are seen as moving between stages. First time buyers
concentrate on the necessities of life by first acquiring real estate as basic shelter and then
moving to financial security.
Financial security is hopefully achieved which, in turn, leads to personal flexibility and
the opportunity for more functional homes. With such change come more social connec-
tions and acceptance by others at a different level. Consumers on the social level tend to
acquire properties that make a social statement well beyond basic shelter needs. Those
elevated to the ego stage delve into second homes, country estates and prime waterfront
condominiums and so forth.
With each stage comes greater real estate expectations. f course, the importance of
money tends to decrease as consumers move through higher stages. In the physiological
and security levels, money dominates while, in higher stages, money decisions are but a
single component within a much larger frame of reference.
Application and Limitations

The hierarchy of needs helps explain consumer buying behavior. Individuals on a physio-
logical level place emphasis on pricing. At this level, basic needs can only be satisfied.
While wants may exist, they are well beyond available financial resources. Conversely,
those on security and social levels have achieved a level of personal success and are willing
to pay a premium for products and services that align with achievement.
Those seeking higher levels of security are quite prepared to pay additional money for
safe neighbourhoods, security guards and monitoring systems. Further, real estate is view-
ed as an investment, much like mutual funds, that serve to protect financial security.
Buyers at the social level seek more exclusive neighbourhoods. In fact, the rapid growth of
gated communities (particularly in the United States) is testament to this drive for geo-
graphically isolated, security-oriented residential accommodation.
Maslow’s needs theory has been widely accepted despite certain limitations. For example,
cultural differences can conflict with his linear progression upwards to higher degrees of
personal satisfaction. In some societies, the pursuit of individualism (as set out in ego
and self actualization levels) may not be uppermost, while social needs and acceptance
would be more valued and pursued.
CONSUMER VULNERABILITIES
Consumers are vulnerable given the complexities and significant financial commitment
that accompanies most real estate negotiations and ensuing transactions. Brokerages
and their representatives must ensure that professional services are always provided and Vulnerable
that consumers are treated with honesty and due care, either when representing them as The potential of being open to
clients or providing services to them as customers. Seven common consumer vulner- attack or damage and being
taken advantage of in a particu-
abilities are highlighted. lar situation.
Confusion Regarding Who Represents Who

Consumers often do not understand agency law nor appreciate the subtleties involved in
representation, the duties to be performed, whose interests are being protected and why.
REBBA 2002 sets out detailed disclosure requirements, which require that buyers and
sellers are fully aware of service alternatives available through the brokerage, what obliga-
tions are owed and how to handle circumstances in which the brokerage represents both
parties in a transaction.
If forthright and complete disclosure is not provided as soon as is practically possible,
consumers may inadvertently make statements or offer confidential information that they
would not otherwise disclose. The onus rests with brokers and salespersons to ensure
that such does not occur.
SCENARIO The Open House

In a typical open house situation, the salesperson in attendance is employed by the listing brokerage and
represents the seller’s interests. This fact should be disclosed as soon as is practicably possible to any poten-
tial buyer attending the open house to avoid any confusion. Further, the buyer customer, if unaware of this
situation, might divulge confidential information to his or her detriment, as the salesperson is obligated to
convey such information to the seller as a client.
Caution When Inspecting Properties

Brokers and salespersons should ensure that buyer clients understand the importance of
carefully inspecting properties, and seeking out appropriate professional advice concerning
any property being seriously considered for purchase. Fortunately, many professionals are
available to conduct inspections and provide reports on matters such as electrical systems,
structural components, environmental concerns, municipal compliance, surveys, home
inspections and title matters. Selected professionals are profiled later in this chapter (see
subsequent topic titled Professionals and the Consumer).
SCENARIO The Home Inspection

The buyer client is contemplating making an offer on a rural property. The salesperson representing the
buyer informs his client that he should carefully inspect the property and also seriously consider obtaining
a home inspection. The client includes an appropriate condition in the offer and a subsequent inspection
reveals structural deficiencies that must be remedied.
Due Care When Signing Documents

Agreements involving real estate transactions can be complex. Consumers must always
have a clear understanding of printed clauses. Take reasonable care in explaining matters
to buyers and sellers. If doubt exists, discuss the matter further with and seek added
confirmation from the individual; e.g., ask the consumer to reiterate what main points
have been discussed. When the consumer’s understanding remains in doubt, recommend
that he or she obtain independent legal advice. The bottom line is that consumers must
read documents carefully before signing. Placing a signature on a real estate agreement
without understanding it is simply foolhardy.
SCENARIO The Dotted Line

The buyer client asks that the salesperson prepare an offer on 1328 Main Street. Once completed, the buyer
immediately takes the agreement and asks for a pen to sign. The salesperson has specific legal obligations to
the client to ensure that his best interests are protected. Accordingly, he carefully reviews all the terms and
conditions to ensure that the client fully understands what is being signed.
Lack of a Cooling Off Period

Cooling off periods do not typically apply when entering into a real estate transaction (with Cooling Off Periods
the exception of timeshare agreements under provincial consumer protection legislation). A time period, typically esta-
Consumers must fully understand what they are signing and the consequences of entering blished by legislation, that
into an agreement of purchase and sale. While certain remedies may be available (such as provides the consumer with an
opportunity to cancel whatever
rescinding the contract if an innocent party is drawn into an agreement through misrepre- action has been taken (e.g.,
sentation), signing an agreement of purchase and sale creates a firm and binding contract buying a specific product).
(subject, of course, to any conditions that may be included in that agreement).
SCENARIO The Hot Market

The buyer is anxious to acquire a newly listed commercial property. Fearing that she may lose the property
to a competing buyer, the buyer wants to immediately sign an offer with no conditions. The salesperson
is prepared to follow those instructions, but cautions her client that once the offer is accepted, there is no
backing out of the deal.
Failure to Include Conditions

Most conditions drafted for residential agreements require that some event must occur,
the occurrence of which makes the agreement legally binding. Wording variations do
exist in the marketplace and are more fully addressed in The Real Estate Transaction—
General. Conditions can be customized to address specific circumstances. Most common
conditions address such matters as mortgage financing, property inspections, the sale of
an existing home, and water well or sewage systems, but a host of other possibilities
exist.
Consumers must be particularly cautious in strong seller’s markets that can often involve
multiple offers and hectic negotiations. In some instances, buyers may not include condi-
tions that they would otherwise prudently insert knowing that the seller will probably
reject condition-laden offers out of hand in favour of all cash offers (i.e., no financing or
other conditions). While such action is legally possible, consumers must clearly understand
that their accepted no condition offers become firm and binding agreements without the
ability to cancel the deal if financing was in fact needed and could not be obtained.
SCENARIO The Well and Septic System

The salesperson is showing her buyer client an attractive recreational property that is ideal for the buyer’s
purposes. The client is generally unaware of issues concerning wells and septic tanks, and is quite prepared to
overlook such matters. However, the salesperson explains various problems that could arise and the necessity
of including an appropriate condition. Based on this advice, the buyer reconsiders and includes a properly
worded condition, as such problems after closing could represent a considerable cost to remedy.
Not Respecting Deadlines

Real estate agreements are a matter of contract law. Parties are expected to prudently
observe dates concerning removal of conditions, take any actions as agreed, forward
funds when stipulated and generally give and receive notices and do such other things as
set out in the agreement. Registrants can assist consumers by clearly explaining that
‘time is of the essence’. In other words, timing is key and the parties are expected to act
diligently in that regard. A failure to meet obligations as set out in the agreement may
result in termination of the contract and the possibility of litigation including damages.
SCENARIO Sale of Home

The buyer included a 60-day condition in an agreement regarding the successful sale of his existing property.
During the specified period, the buyer did not attempt to sell his house, ignored the time limit and didn’t
communicate further with the seller. The seller took legal action for damages against the buyer, as his property
had been effectively removed from the marketplace and would have probably sold to someone else.
Not Getting Finances in Order

Real estate transactions can involve significant cash outlays. Many consumers concen-
trate on downpayments, but don’t look at the bigger picture. Lenders are cautious and
want to see stability. Remember, they will take a close look at your credit history, seek
confirmation of employment and financial resources, want written confirmation of
available funds for the downpayment and generally scrutinize your financial stability
and capabilities.
If personal funds are limited, resist the urge to move banks, apply for new credit cards,
take on additional financial responsibility or acquire ‘big ticket’ items. Make certain that
all bills are paid promptly. Don’t start a new job near the time that you are contemplating
buying real estate unless it’s clearly a positive career move. Resist the urge to venture into
a new business, unless you have abundant reserves.
Consumers also tend to be vulnerable at closing by underestimating total costs. Have
additional cash on hand to address adjustments, legal fees, moving costs, additional things
that will be needed in the new residence and a host of incidental fees that are unique to
each transaction.
SCENARIO The Credit Report

The salesperson showed the buyer more than fifteen properties before the ideal home appeared. The buyer
immediately submitted an offer conditional on arranging a new first mortgage. The lender completed a
credit report as part of the mortgage underwriting process only to discover that the buyer only marginally
met basic criteria and could not provide written confirmation that he had the necessary downpayment.
Failure to recognize and deal with these issues proved frustrating for the buyer, the seller and the salesperson.
A Matter of Professionalism PERSPECTIVE
Registrants help people make important decisions about the largest asset they will ever own. When buying or selling
real estate, consumers are trading much of the financial worth that they have accumulated over many years. Often, an
emotional investment exists in addition to the large financial one. Most sellers are owner/occupants and have lived in, and
often improved, the property that is being sold and naturally develop a strong emotional attachment to the property.
Buyer clients also have pressures and emotional issues, as they often rely on the salesperson to seek out the best
property to meet their needs with only limited available time. Often, decisions must be made quickly by buyers having
little detailed knowledge of their new community or neighbourhood. With such large amounts of money and emotion
involved, the stakes are high. Any misconduct or unethical behaviour can be damaging to the seller, the buyer, the
public, the real estate brokerage and salesperson, and the real estate profession as a whole.
When completing a transaction, various parties to the transaction put the real estate salesperson in a position of
trust. As a client, the consumer relies on his/her professional expertise, skills, knowledge, competence and integrity.
Thousands of registrants base their business on such trust and their reputation for honesty and reliability. When a
registrant acts unethically, public confidence is eroded not just in the person involved, but in the industry as a whole.
ETHICS AND THE CONSUMER

Ethical conduct is an integral part of sound business practices. Ethics makes good sense
from both consumer and brokerage perspectives. Consumers expect to be treated with
honesty, respect, integrity and professionalism. In return, consumers give their loyalty, as
they realize that their interests will be best protected by dealing with an ethical brokerage
operation. Also, as a further benefit to brokerages, salespeople seeking employment tend
to gravitate to those brokerages that openly demonstrate a commitment to high ethical
ideals, moral standards and professional conduct.
What do terms such as morals, ethics and professional conduct really mean? Distinctions
are often blurred with philosophic battles raging over precise meanings. Some view them
as interchangeable, but subtle differences do exist. Think in terms of a continuum from
general (e.g., morals and ethics) to more precise concepts involving standards and specific
conduct.
Morals vs. Ethics

Morals are best thought of as fundamental principles of right and wrong. Typically, morals
arise from cultural and/or religious traditions and are of a personal nature. Morals provide
the mental backdrop for decisions as to what conduct is appropriate and what direction
to take when faced with various situations in society. Ethics is more specific in nature,
referring to standards adopted within a society (or other group or association) that are
deemed to be culture-specific.
Given that cultural differences exist, so too can areas of conflict between different groups in
society, particularly when dealing with personal conduct. For example, societies routinely
wrestle with moral (and ethical) issues involving abortion, drugs and assisted suicide.
Business Ethics and Professional Standards

Business ethics typically complements broader standards within society as a whole.
Interestingly, societies can differ significantly in their approach to certain business issues
based on underlying ethical perceptions. Bribery is a good example. In some societies the
practice is commonplace (even if not fully condoned) in order to get things accomplished.
In others, the practice is not only unethical, but may be subject to prosecution.
Business ethics, in turn, flows to professional standards. ver the years, professional
organizations have advanced sound ethical practices for specific business sectors, and
real estate is no exception. Codes of conduct (often referred to as professional standards)
have been developed to address specific disclosure and conduct requirements that are
enforced by consumer complaint mechanisms, disciplinary proceedings, inspections
and investigations. Selected professionals and their applicable organizations who assist
consumers are highlighted later (see Professionals and the Consumer).
Consumers are protected when working with real estate brokerages, brokers and sales-
persons. Real estate registrants in ntario must at all times abide by the REC Code of
Ethics. This Code has the force of statutory law, as it is contained within a Regulation
under the Real Estate and Business Brokers Act, 2002. Registrants may also be members
of other professional organizations and must also adhere to those applicable standards.
Ethics and the Law

Ethics must be expressed as a set of principles or values to be useful and effective. The
individual is then able to guide his/her own conduct and judge that of others by means
of a standard of conduct. Too frequently, ethics is confused with law. They are related
and some overlap exists (as in the case of the REC Code of Ethics), but they are not
identical. While the system of laws under which we live provides a substantial basis for
ethical conduct, ethics is much more comprehensive than laws or regulations. Law deals
with people as they are, setting a minimum standard of conduct. Ethics seeks to lead
people to what they ought to be and do and, consequently, establishes a higher standard.
In other words, it is possible to be legally correct, but not ethically acceptable.
Law is designed to keep us from doing wrong while ethics encourages us to do that
which is right and good. Law is thus negative while ethics is positive. The law is not con-
cerned with a person’s motives or reasons for obeying its demands and avoiding wrongful
acts, but is satisfied by compliance and obedience, whatever the reason. Not so with ethics.
The reason or motive for one’s actions as they affect others becomes important. Ethics is
an attempt to change, to improve and to elevate people’s motives, as well as actions.
The means of enforcement is also different. Law is enforced through the police and
courts (or administrative tribunals). Ethics is generally enforced by the governing bodies
of a profession. Law and ethics do overlap, but ethics is more extensive, continuing on
where the law leaves off. Thus, while all that is ethical is also lawful, the reverse is not
always true.
The Evolution of Business Ethics MARKET MEMO
Until relatively recent times, many people in business took such a limited view of ethics that they used bare legality
as the sole standard for their conduct in business affairs. The 19th century business person took the attitude that the
public be damned and the public did not seem to care. If it did, the public lacked the means to protect or correct the
situation, for at that time it was generally felt that government should not control or regulate business conduct.
Around the turn of the 20th century, the business community concluded that there was a right and wrong way of
doing things, not only in private life but also in dealings with customers, employees and competitors. For example,
many real estate boards across Canada were established during the early decades of the twentieth century and
required members to be bound by a code of professional conduct.
Over the years, business has attempted to improve both image and motives. This transition has occurred in part
because of government intervention. The development of laws and regulations have been in response to the public
demand to be protected from the uncontrolled use of economic power along with the disregard of public interest.
This change has also come about because of a change in attitude within the business community itself. Business
leaders, for the most part, now recognize that:
• he purpose and function of any business is to serve the public, not just to satisfy the personal
ambitions of those who own or run the business;
• thical conduct and financial success do go handinhand;
• Business has a responsibility to the community which supports it; and
• A failure to recogni e and exercise such responsibility could lead to greater governmental intervention
and control.
Ethical Dilemmas
Ethical dilemmas typically occur when one’s moral values are in conflict with standards
adopted in a particular society. For example, an individual may express a moral position
on abortion based on cultural and/or religious standards that conflict with ethical stan-
dards and accepted practices within society. Interestingly, this dilemma can also extend
to a conflict with the law. n a business level, the conflict typically arises between personal
values/needs and business ethics (including professional standards established by a par-
ticular organization to which an individual is a member). However, once again, the
conflict may extend to legal considerations.
ften, the conflict involves a pragmatic circumstance and the individual takes some
action based on personal beliefs knowing that such is in conflict with established standards.
Typically, most people caught in such circumstances seek ways to resolve the conflict by
rationalizing their position, in some way arguing that the end justifies the means, or
convincing themselves and others that the decision was an exception to normal ethical
behaviour, as it involved unique circumstances warranting immediate action.
SCENARIO Money Pressures

A salesperson might be under personal financial pressure and anxious to receive a commission. The buyer
client, when asking about the condition of the well and septic, receives a misleading response from the
salesperson which suggests that everything is okay when such is not the case. The buyer, relying on this
misrepresentation, proceeds to acquire the property. The salesperson has placed his or her own interests and
anticipated personal gain above that of the consumer. While moral and ethical principles demanded honesty,
the conflicting pragmatic financial needs triumphed.
SCENARIO The Gift

A salesperson is given a $500 gift certificate by the buyer customer for a job well done in acquiring the
property listed by that salesperson. The salesperson accepts the gift without telling anyone which, to outward
appearance, has no immediate ethical consequences and is simply a pragmatic decision. However, the
salesperson is a RECO registrant and must fully disclose this monetary gift to his client (the seller of the
property). His obligation to disclose is also a matter of agency law. As an added consideration, a salesperson
is not authorized under REBBA 2002 to receive remuneration from anyone other than his or her employing
brokerage.
More Than Your Good Name Is At Stake CAUTION
Ethics is focal to every registrant. REBBA 2002 contains numerous provisions addressing required ethical procedures
and practices as set out in Regulation 580/05. Failure to comply can lead to disciplinary action and revocation of
registration. Registrants may also face litigation should buyers and sellers be adversely affected by your conduct.
Everyday Ethical Choices MARKET MEMO
Lights…Action
Ad calls are lighting up the switchboard, and you are helping out since no other salespeople are present. Two
callers asking for other salespeople are momentarily distracted by your friendly conversation. A few well-placed
words and they could be your clients. Would anyone be the wiser?
The Rest of the Story

The seller tells the buyer in your presence that all drafty main floor windows have been replaced. Do you say
nothing or ask the obvious? What about the rest of the windows? How far should you pursue the topic? Does
the type of relationship that you have with the buyer and/or the seller dictate how you will act?
How Far Away?

A little positive spin on a negative feature…that's all. The house is three blocks from the public school (but,
the school bus route actually takes 30 minutes). If the ad states: “School Just Three Blocks Away”…is it really
distorting the truth or just favouring the positive?
The Accomplice
Another salesperson does something unethical, what's your obligation? If nothing is said, are you an accessory
to the fact? Ethical choices are everywhere.
CONSUMER PROTECTION LEGISLATION

Today’s consumer can rely on a host of legislative requirements that regulate businesses
and individuals offering services and products to the buying and selling public. Three
are highlighted here with many others addressed under applicable topics in this and
subsequent courses. f course, the primary legislation involving real estate trading is the
Real Estate and Business Brokers Act, 2002 and associated Regulations. Legislative require-
ments for registration were detailed in an earlier chapter. Detailed trading regulations
are included in Land, Structures and Real Estate Trading.
Consumer Protection Act

The Consumer Protection Act (CPA) is the focal provincial legislation concerning consumer
protection in ntario. This Act came into force on July 30, 2005 with expanded rights
and remedies for consumers and businesses. The Act consolidated six existing consumer
protection laws and broadened consumer rights, disclosure requirements by suppliers
and remedies for unfair business practices including dishonest activities. At the same
time, the legislation set out stiffer penalties including a maximum sentence of two years
less a day with individual fines up to $50,000 and $250,000 for corporations.
THE CPA AND REAL ESTATE TRANSACTIONS

This legislation typically applies if at least one party to a consumer transaction is located
in ntario. A consumer transaction involves any act or instance of conducting business or
other dealings with a consumer, including a consumer agreement. A consumer agreement
is an agreement between a supplier and a consumer in which the supplier agrees to supply
goods or services for payment. However, Sec. 2(2) of the Act sets out important exceptions
relating to real estate transactions:
Exceptions (Relevant Exceptions Bolded for Emphasis)
(2) This Act does not apply in respect of,

(a) consumer transactions regulated under the Securities Act;
(b) financial services related to investment products or income securities;
(c) financial products or services regulated under the Insurance Act, the Credit
Unions and Caisses Populaires Act, 1994, the Mortgage Brokers Act or the
Loan and Trust Corporations Act;
(d) consumer transactions regulated under the Commodity Futures Act;
(e) prescribed professional services that are regulated under a statute of
Ontario;
(f) consumer transactions for the purchase, sale or lease of real property,
except transactions with respect to time share agreements as defined in
section 20; and
(g) consumer transactions regulated under the Residential Tenancies Act, 2006.
Further, other general provisions are also limited in their relevance to real estate,
most notably those concerning future performance contracts (Sec. 22, 23 and 26), as
well as Internet, direct and remote agreements:
Agreements Subject to Other Acts (Relevant Exemption Bolded for Emphasis)
9.(1) The supply of goods or services pursuant to an agreement that is subject to

any of the following Acts is exempt from the application of sections 22, 23,
26 and 37 to 47 of the Act:
1. The Motor Vehicle Dealers Act or the Motor Vehicle Dealers Act, 2002.
2. The Real Estate and Business Brokers Act or the Real Estate and
Business Brokers Act, 2002.
3. The Travel Industry Act or the Travel Industry Act, 2002.
4. The Cemeteries Act (Revised), the Funeral Directors and Establishments
Act or the Funeral, Burial and Cremation Services Act, 2002. O. Reg.
17/05, s. 9 (1).
(2) The exemption from the application of sections 22, 23 and 26 of the Act is
effective even if section 21 of the Act states that sections 22 to 26 of the Act
do apply in the circumstances. O. Reg. 17/05, s. 9 (2).
However, these exemptions do not address agreements in which services are offered to
consumers, as differentiated from agreements for the transaction of real estate. Certain
registrant activities involving service agreements (e.g., seller and buyer representation
agreements) can fall under the Consumer Protection Act, but such analysis goes well beyond
the scope of this course. As a general guideline, however, the Ministry responsible for the
Act would typically refer such matters to REC , as it has direct oversight of registrants.
Interestingly, the Council’s investigative staff are authorized to lay charges under the CPA.
The Competition Act

The Competition Act (formerly the Combines Investigation Act) is a federal statute
addressing many forms of competition in the interest of promoting a fair and efficient
Canadian marketplace. This legislation seeks to protect consumers by regulating selected
business conduct throughout Canada. The Competition Act applies, with few exceptions,
to all business enterprises including real estate brokerages.
As background, the Act covers criminal as well as civil law matters. Criminal offences
relate to price-fixing, bid-rigging and misleading advertising. Civil law issues include
mergers, abuse of dominant position (activities to substantially lessen competition in
the marketplace), exclusive dealing (hindering or preventing consumers from dealing
with other suppliers) and refusal to deal (obstructing adequate supply of products to
persons carrying on businesses). The Director of Investigation and Research (head of
the Competition Bureau) is responsible for administration and enforcement of the Act.
The Bureau falls under the responsibility of Industry Canada.
MISLEADING ADVERTISING
The Competition Act prohibits misleading advertising and deceptive business practices
in the promotion of a service or the supply/use of a product. Section 52 of the Act is of
direct relevance to registrants.
False and Misleading Advertising—Competition Act

The Competition Act, although dictating procedures on a number of trading activities, is
particularly broad in its approach to false or deceptive advertising practices. In particular,
Section 52 of the Competition Act should be noted:
52 (1) “No person shall, for the purpose of promoting, directly or indirectly, the
supply or use of a product or for the purpose of promoting, directly or
indirectly, any business interest, by any means whatever, knowingly or
recklessly make a representation to the public that is false or misleading
in a material respect.”
The following are three important factors involving offences under this statute.
• he term material refers to any information which could affect a purchasing
decision. In other words, any representation that might influence a consumer
in the marketplace can fall under the Act. Consequently, the Competition Act
touches upon practically every activity involving the day-to-day trading of real
estate and related purchasing decisions.
• roof of intention to deceive is not necessarily a prerequisite for charges under
this statute. In fact, it is not a proper defence to argue that the misrepresentation
was never intended. However, Subsection 60 (2) does state that a proper defence
can be due diligence to correct the error.
• he definition of misleading is deliberately expanded to include nonliteral
impressions given by the advertisements. This is commonly referred to as the
general impression test.
52 (4) “In any prosecution for a contravention of this section, the general
impression conveyed by the representation as well as the literal meaning
thereof shall be taken into account in determining whether or not the
representation is false or misleading in a material respect.”
The actual wording of an advertisement may be technically correct, but the general
impression can still be false.
Ontario Human Rights Code

This provincial statute outlines the rights and opportunities without discrimination that Discrimination
exist for all persons in ntario. The Ontario Human Rights Code is essentially an anti- The unfair treatment of an
discrimination law, but applies to various matters impacting consumers including real individual or group due to
estate accommodation . This legislation provides a remedy by placing the complainant prejudice.
in a position that he/she would have had if the discrimination had not occurred.
The focus of this Code is on preventive or corrective measures and any person can file
a complaint if that individual believes that his her rights have been violated. The ntario
Human Rights Commission, as an independent body representing the public interest,
advocates for human rights and educates the public on human rights issues. The role of
the Commission is to research, analyze and promote human rights issues. A Human
Rights Legal Support Centre has also been established to assist complainants. The Code
complements provisions set out in the Canadian Human Rights Act and the Canadian
Charter of Rights and Freedoms.
ACCOMMODATION PROVISIONS
Registrants require a general awareness of the Code, particularly in regard to accommoda-
tion and providing services. As background, the ntario Human Rights Code involves
four basic areas of personal rights: general rights for all persons, rights of persons less
than 18 years of age, rights regarding employment and harassment because of gender.
Every person has a right to:
• Equal treatment with respect to services, goods and facilities without discrimination.
• Equal treatment with respect to the occupancy of accommodation without
discrimination.
• A right to freedom from harassment by the landlord or agent of the landlord or by
an occupant of the same building.
• A right for persons with legal capacity to contract on equal terms, without discrimi
nation because of race, ancestry, place of origin, colour, ethnic origin, citizenship,
creed, sex, sexual orientation, age, marital status, family status or disability.
In terms of accommodation, the Code also states that persons aged 16 and 17, when
not under parental control, shall have the right to equal treatment with respect to occu-
pancy and contracting for accommodation. At the same time, these individuals can be
held accountable for contracts made relating to such occupancy.
While the Code protects rights, it also prohibits specific forms of discrimination on
the following grounds: race, ancestry, colour, citizenship, place of origin, disability, sex,
ethnic origin, creed, age (subject to certain qualifiers), marital status (includes cohabita-
tion, widowhood and separation), family status (parent-child relationship), the receipt
of public assistance (accommodation only) and record of offences (provincial offences
and pardoned offences—in employment only).
EMPLOYMENT PROVISIONS
The Code requires that every person has a right to equal treatment with respect to employ-
ment without discrimination, that employees have a right to freedom from harassment in
the workplace and that every person has a right to equal treatment with respect to member-
ship in any trade union, trade, occupational association or self-governing profession.
Fraud WEB LINKS

Ontario Human Rights Commission For detailed information concerning current activities, go to
An intentional deception with
the Commission’s website at www.ohrc.on.ca.
the intent of gaining advantage
to another's detriment.
Real Estate Fraud MARKET MEMO
Consumer protection legislation is currently focused on the growing problem of real estate fraud, involving either
mortgage or title fraud. Mortgage fraud typically involves a fraudster acquiring a property, inflating its value and then
securing financing based on the inflated value. While such fraud most commonly affects mortgage lenders, innocent
owners have been caught up in the deception to their detriment.
Title fraud often involves a fraudster using a stolen identity and forged documents to transfer title and sell the
property without the property owner’s knowledge (or arrange financing and then disappear with the advanced funds).
With the recent passage of the Consumer Protection and Services Modernization Act, the ownership of a property cannot
be lost due to the registration of a falsified mortgage, fraudulent sale or a counterfeit power of attorney.
PRIVACY LEGISLATION
Privacy has several dimensions including the right to make decisions about one’s own
body, the ability to determine what personal behaviour and preferences are appropriate Privacy
for oneself, the ability to freely communicate with others without intrusion, and the right The legal right to be left alone
and free of interference from
to ensure that personal data and information is respected and properly safeguarded. The others.
latter is most relevant for purposes of this course.
Privacy involving the collection, use and disclosure of personal information is a
federal priority. Recent initiatives protecting the dissemination of personal information
is due in no small part to the flourishing electronic marketplace unfolding in Canada.
Presently, most provincial governments have statutory requirements relating to govern-
ment use of personal information, but such procedures have not traditionally extended
to the private sector until recently.
Personal Information Protection and Electronic

Documents Act (PIPEDA)
This federal statute is focused on privacy matters involving business activities. The Act
provides that personal information cannot be collected, used or disclosed in Canadian
commercial activities without the informed consent of individuals providing such
information. The Privacy Commissioner of Canada was established under PIPEDA as
the ombudsman for complaints. The Commissioner is also responsible for similar duties
under the Privacy Act, which covers the federal public sector. The Commissioner not only
investigates complaints, but also conducts audits, undertakes research and generally
promotes privacy awareness.
Individuals also have the right to access and, if necessary, to challenge personal informa-
tion stored by an organization. Further, information can only be used specifically for the
intended purpose for which it was collected. Lastly, the legislation puts in place various
safeguarding procedures to ensure that such information is protected. PIPEDA was intro
duced in three sequential stages beginning on January 1, 2001. The legislation applied to
the real estate profession in ntario effective January 1, 2004.
PERSONAL INFORMATION
Personal information, as defined by the Privacy Commission, includes any factual or
subjective information, recorded or not, about an identifiable individual. This includes
information in any form, such as:
• age, name, ID numbers, income, ethnic origin or blood type;
• opinions, evaluations, comments, social status or disciplinary actions; and
• employee files, credit records, loan records, medical records, existence of a dispute
between a consumer and a merchant and intentions (for example, to acquire goods
or services, or change jobs).
Personal information does not include the name, title or business address or telephone
number of an employee of an organization.
CONSUMER CONSENT
This Act has far reaching impact as registrants are frequent users of personal information
during the listing and selling process (e.g., mailing lists, information concerning buyers
and sellers and dissemination of listing information). Brokerages are expected to develop
privacy policies concerning the collection, use and disclosure of personal information.
Such policies should be readily available for distribution to consumers and others.
Essentially, the legislation requires that registrants must identify to the consumer the
intended uses for personal information being collected about that consumer, collect only
the information that was requested, disclose such information only in relation to the uses
as identified and obtain the consumer’s consent for the collection and usage. Informed
consent must once again be obtained from the consumer if the personal information
obtained is used for a purpose other than identified.
While various methods of consent are possible, the best strategy involves a specific
permission such as inserting an appropriate clause in representation agreements with
clients, service agreements with customers and agreements of purchase and sale.
SAFEGUARDING INFORMATION
Registrants must also take adequate measures to safeguard information. Sensitive personal
information should be properly secured either by way of locked cabinets for print materials
or password-protected electronic files. The accuracy and integrity of information is also
key. Brokerages should have a designated person who is responsible for privacy issues to
ensure compliance with federal requirements.
NOTE: Privacy legislation impacts many activities undertaken by salespeople when working with buyers and
sellers. Key provisions and examples are highlighted in subsequent courses, most notably in The Real
Estate Transaction—General, when discussing seller and buyer representation, service agreements
with customers and agreements of purchase and sale.
The Salesperson’s Records PRIVACY FOCUS
Privacy legislation impacts everyone. Salespersons, as well as brokerages, must fully comply with PIPEDA regarding
personal information being collected from buyers and sellers. Make certain that:
• ersonal information stored on computers and/or filed in home offices is properly secured.
• Fully review privacy policies of your intended employing brokerage.
• ake certain buyers and sellers clearly understand what you intend to do with their personal information.
• btain only the requested personal information and use it only for the purposes as disclosed.
• ever assume that buyers and sellers understand privacy matters. ake the time to fully explain your
obligations. Have a brochure outlining your privacy policy.
• ever share personal information with anyone without the express consent of the applicable buyers and
sellers; e.g., sharing a mailing list.
WEB LINKS
Privacy Legislation The Privacy Commission of Canada provides excellent resource materials
that assist in establishing proper procedures when collecting and using personal information. Go
to www.privcom.gc.ca to access two publications of particular interest: Privacy Questionnaire: Is
Your Business Ready? and Your Privacy Responsibilities: A Guide for Businesses and Organizations.
Members of organized real estate also have access to the Privacy Code of The Canadian Real Estate
Association along with related guidelines to assist in establishing privacy policies.
PROFESSIONALS AND THE CONSUMER

Many professionals provide expert advice and guidance to buyers and sellers. A select
number are highlighted by describing general roles performed in regard to real estate
transactions and consumer protection measures that exist through applicable professional
organizations to advance competence and integrity.
Lawyers
Lawyers provide legal advice and assistance to consumers in legal matters, including the
buying and selling of real estate. While most legal involvement is focused on the closing
process, legal opinion and guidance can be vital in matters relating to the listing process,
the drafting of agreements and real estate negotiations, particularly those involving
complex residential and commercial properties.
Consumers should be aware that lawyers in ntario are governed by the Law Society of
Upper Canada (LSUC). The Law Society is also authorized, pursuant to the Law Society
Act, to license ntario lawyers and regulate their activities. Ethical obligations are set out
in the Society’s by-laws and in the Rules of Professional Conduct.
In terms of consumer protection, the Law Society will assist regarding complaints
involving services provided by a lawyer, investigate those complaints and take appropriate
disciplinary action if professional misconduct has occurred. Issues addressed by the Society
include such matters as misleading information, improper communication, failure to cor-
rectly handle funds and not reporting fully regarding such funds. The Law Society provides
guidance on completing complaint forms. A Lawyer’s Fund for Client Compensation is
also available to consumers who have lost money due to a lawyer’s dishonesty.
WEB LINKS
Law Society of Upper Canada (LSUC) The Law Society of Upper Canada, founded in 1797,
has continuously pursued its mandate of overseeing and regulating lawyers in the province for
over 200 years. For more information, go to www.lsuc.on.ca.
Appraisers
APPRAISERS
An appraiser is a professional who estimates value and
possesses the necessary qualifications, ability and experience
to execute or direct the appraisal of real property. An
appraisal is the act or process of estimating value and
providing an opinion concerning that value. The opinion
can be verbal or written. Written reports can range from
a lengthy document (a narrative report) or a summary Real Estate
report (commonly called a form report). Consumers Brokers, Real Estate
Consumers Loans Officers, Appraisers
should be aware that appraisal is not just relegated to Tax Assessors,
professionals, thousands of buyers and sellers perform etc.
the function everyday. What differentiates those indivi-

duals and professional appraisers is knowledge and
Determine value Routinely Typically receive
sophistication in performing valuations. and act on that establish value of extensive training,
are designated
Appraisals are important from a consumer perspective opinion of value,
e.g., buying a
properties during
day-to-day through institutes,
to establish value, most commonly when arranging home or car, activities and (i.e., The Appraisal
bargaining at a develop special Institute of Canada)
financing at point of purchase. To ensure a consistent flea market and expertise through and/or meet certifi-
acquiring a piece experience and cation or licensing
approach to valuation, the appraisal process has been of art. training. requirements.
formalized over the years through the use of sequential steps leading to an opinion of
value. In a detailed narrative report, eight steps are fully detailed to enable the reader to
follow the logical analysis leading to an estimate of value:
STEP 1 Define the Problem
STEP 2 Preliminary Inspection and Planning the Work
STEP 3 Data Collection and Analysis
STEP 4 Apply the Cost Approach
STEP 5 Apply the Direct Comparison Approach
STEP 6 Apply the Income Approach
STEP 7 Reconciliation and Final Estimate
STEP 8 Write the Appraisal Report
In a form report, the same eight steps are taken, however the written document
summarizes details in a systematic and precise fashion. Form reports are most commonly
associated with appraisals relating to mortgage financing etc., in which individuals receiving
the report have experience and training in the field.
During recent years, automated valuation systems have been introduced into the
appraisal process in which computer databases estimate value, using subject property
attributes in relation to recent comparable sales and various trends compiled for the
applicable area. A more detailed discussion of appraisals is found in Land, Structures
and Real Estate Trading.
The Appraisal Institute of Canada is viewed as the prominent national professional
association for appraisers, although other organizations exist in the marketplace. The
Institute, as a self-regulated designating body, requires its members to adhere to exacting
appraisal standards. Professional liability insurance is mandatory for ntario members.
Consumers seeking the services of an appraiser should carefully review credentials and
professional affiliations.
WEB LINKS
Appraisal Institute of Canada (AIC) The Institute was profiled in Chapter 1: A Career in Real
Estate. Go to www.aicanada.ca.
Surveyors
Land surveyors in ntario are licensed by the Association of ntario Land Surveyors
(A LS) in accordance with the Surveyors Act. The Surveys Act sets out requirements for
the establishment and/or reestablishment of survey components including lines, boundaries
and corners. Surveys are important from a consumer perspective, as they serve to legally
define what is being purchased or, in the case of a seller, verify the size and extent of current
land ownership. Surveys may also be required when building an addition to a house or
making some other improvement that could potentially encroach on another’s property.
Surveyors prepare a Surveyor’s Real Property Report that sets out all visible improve-
ments in relation to the property’s boundaries. The report is accompanied by a written
document setting out any issues arising from the survey and the surveyor’s opinions on
such matters. A more detailed discussion of surveys is provided when discussing land
ownership in Land, Structures and Real Estate Trading. Surveyors must adhere to a Code
of Ethics and Standards of Practice established by Regulation under the Surveyors Act.
Surveyors are also required to carry professional liability insurance and are subject to
periodic audits by the A LS in regard to work performed.
Consumers having complaints regarding the services of a surveyor should contact the
Association. Procedures are in place for lodging and handling complaints.
WEB LINKS
The Association of Ontario Land Surveyors (AOLS) Go to www.aols.org for full discussion of
the Association’s activities along with the basics of survey techniques.
Lenders
A lender can include chartered banks, trust companies, credit unions, pension funds, life
insurance companies, loan companies, mortgage investment companies, government
agencies and individuals. Consumers should carefully review individual lender policies
when seeking real estate financing. Currently, lenders under selected federal legislation
are required to provide cost of borrowing disclosures to consumers.
Disclosure requirements set out in federal legislation involve credit agreements (e.g.,
mortgages, lines of credit and credit cards) in which the consumer must be provided
written disclosure as set out in applicable Regulations. Federal Acts containing cost of
borrowing Regulations include the Bank Act, the Insurance Companies Act, and the Trust
and Loan Companies Act.
Consumers should be aware that cost of borrowing disclosures apply to arranging a
new mortgage, switching a mortgage (transfer of outstanding mortgage balance to a new
lender) or an equity takeout/refinancing (borrowing against existing equity). Regulations
under the above-cited Acts set out both the timing and content of such disclosures. As
an example, Cost of Borrowing (Banks) Regulations under the Bank Act provide that
disclosure applies to credit agreements for non-business borrowing.
The disclosure may be a separate document or included in a credit agreement or an
application for credit. If the borrower consents, the disclosure may be provided by elec-
tronic means. The Regulations set out required content for both fixed interest and variable
interest loans including pertinent loan details such as principal amount, amount of any
advances (e.g., new construction), total of all payments, cost of borrowing, term and
amortization (if different than the term).
The Financial Consumer Agency of Canada is responsible for overseeing and monitoring
lender compliance with federally-legislated disclosure requirements including all banks,
federally-incorporated insurance and trust and loan companies, and co-operative credit
associations.
WEB LINKS
Financial Consumer Agency of Canada (FCAC) Go to www.fcac.gc.ca concerning this
agency’s mandate to educate consumers regarding financial services.
Mortgage Brokers
A mortgage broker can assist consumers in various areas of mortgage financing including
the buying, selling or arranging of a mortgage for a particular property. Mortgage brokers
have become a popular consumer choice given the wide range of mortgage products in
the marketplace and the need for guidance. Traditionally, the mortgage broker was called
when unusual properties were involved, financing packages were complex and unique
circumstances surrounded particular transactions. While their role in such circumstances
remains valued, mortgage brokers have significantly expanded activity into the prime
residential marketplace by offering valued services to consumers.
Additionally, many specialty areas have arisen as the mortgage market becomes more
complex. Some brokers specialize in interim financing for large projects or the sale of
mortgages in the secondary market. Mortgage brokers have undoubtedly gained promi-
nence given their financial contacts, the ability to arrange tailor-made financing packages
and direct electronic links to lenders that speed up the financing process.
Mortgage brokers have become particularly advantageous to consumers when ‘shopping
the market’ and finding the best mortgage. Brokers typically seek out financing from the
same institutions (e.g., the banks and other lenders) that consumers would normally
approach. However, their financial contacts also include broker-only financing sources
and private money. Further, mortgage brokers can assist consumers throughout the
financing process by helping to obtain approvals, ensuring that mortgage instructions
are carried through and making certain that funds are available for closing transactions.
The Financial Services Commission of ntario (FSC ) regulates mortgage brokers as
well as other groups including pensions, insurance companies, trust companies and credit
unions. Consumers having a complaint against a mortgage broker (or agent employed
by a mortgage broker) should write to FSC . Complaint forms and procedures are
outlined on the FSC website.
Mortgage brokers may also be members of the provincial Independent Mortgage Brokers
Association of ntario (IMBA) and/or the national Canadian Association of Accredited
Mortgage Professionals (CAAMP). Both organizations offer education programs to their
respective memberships and require adherence to a code of ethics.
WEB LINKS
Financial Services Commission of Ontario (FSCO) Go to www.fsco.ca and search under
Mortgage Broker for additional particulars and consumer complaint procedures.
Independent Mortgage Brokers Association of Ontario (IMBA) Go to www.imba.ca and

search under Consumer for additional information.
Canadian Association of Accredited Mortgage Professionals (CAAMP) Go to www.caamp.org

for information about the organization and the Accredited Mortgage Professional designation.
Insurance Agents and Brokers

Consumers seek protection against property loss by obtaining insurance through insu-
rance agents and brokers. Insurance agents represent a specific insurance company and
sell that company’s products. Alternatively, insurance brokers (typically referred to as
independent insurance brokers) have relationships with several insurance companies in
order to tailor-make insurance packages to meet the consumers’ specific needs. Consumers
should clearly understand what relationship the broker or agent has with the insurance
company and actively seek out competitive quotes to ensure the best combination of
price, coverage and service.
An individual seeking to be an insurance broker must meet requirements mandated

by the Registered Insurance Brokers of ntario (RIB ). RIB regulates the licensing,
professional competence, ethical conduct and insurance-related financial obligations of
all independent general insurance brokers in the province. Insurance brokers, for purposes
of the legislation, sell general insurance relating to the home, business and vehicles. RIB
has a Complaints and Investigation Department to assist consumers with inquiries and
complaints. Brokers may also be members of the Insurance Brokers Association of ntario
(IBA ). IBA offers members various services including government lobbying, education
programs, professional designations and, most important from the consumer’s perspective,
requires adherence to an ethical code of conduct.
Consumers should be aware that insurance underwriting policies may exclude coverage,
limit coverages or increase premiums based on location, age, construction-related matters
and unique circumstances (e.g., underground storage tanks) relating to a specific property.
Consumers should carefully consider home insurance in their real estate decision-making
process and obtain a pre-approval of coverage (as is commonly done when seeking
financing) as well as including a condition in the offer. Detailed information concerning
insurance underwriting rules and coverages for residential and commercial properties
are addressed in The Real Estate Transaction—General.
WEB LINKS
Insurance Brokers Association of Ontario (IBAO) Go to www.ibao.org for detailed informa-
tion concerning the role of independent brokers and specifics about general, home and auto
insurance as well as commercial policies.
Registered Insurance Brokers of Ontario (RIBO) Go to www.ribo.com for information about

consumer protection relating to insurance brokers and licensing procedures.
Home Inspectors
Home inspections are commonplace when purchasing a home in ntario. A home inspection
typically includes the physical structure and mechanical systems within a residential
structure and, more specifically, the roof, attic, walls, floors, ceiling, windows, doors,
insulation and all other visible components of the structure, along with the condition of
heating, central air conditioning, electrical, plumbing and related systems.
Home inspections are typically requested by buyers seeking to know about the condition
of property prior to a planned purchase. A written report is provided by the home inspec-
tor that identifies both positive and negative aspects of the home under consideration.
Home inspections are also sometimes requested by owners in contemplation of offering
property for sale. The report can assist in determining needed repairs and generally
placing the house in a better condition for marketing purposes.
The home inspector is concerned with the overall condition of the structure and the
identification of items that may need repair or replacement. A home inspection should
not be confused with a municipal inspection involving compliance with local codes. In
the latter, a municipal building inspector is concerned with whether or not structural and
mechanical components meet minimum specifications as set out in the ntario Building
Code ( BC) and related municipal requirements. Lack of compliance can result in sanc
tions pursuant to the BC.
WEB LINKS
Ontario Association of Home Inspectors (OAHI) Go to www.oahi.com. A site link is also
provided to the Canadian Association of Home & Property Inspectors.
KNOWLEDGE
INTEGRATION
Notables
• Consumer behavior is a complex topic, as • Today’s consumers can rely on various
many internal and external forces shape legislative requirements pertaining to
what decisions we make, when and why. business and individuals offering services
• External forces impacting consumers and products in the marketplace.
include opinions of others, group interaction
• The Consumer Protection Act, the
and culture. Competition Act and the Ontario Human
• Brand loyalty and product features are key Rights Code provide important consumer
considerations in consumer purchases. protection provisions.
• The Internet has significant influence on • Provincial legislation has been passed
consumers who can readily seek out protecting property owners from loss of
product choices, compare prices and ownership due to mortgage fraud.
obtain critical reviews. • The Personal Information Protection and
• Access to the Internet has become a key Electronic Documents Act (PIPEDA) affects
factor for consumers seeking residential how registrants handle personal
real estate. information.
• Maslow’s hierarchy of needs provides a • Make certain that the storing of personal
useful model to better understand con- information at business premises (as well
sumer needs and wants. as home offices) meets all PIPEDA
requirements.
• Consumers can be vulnerable given
complexities in real estate transactions if • Many professionals are available to assist
they are not well informed or do not act consumers by offering expert advice or
prudently. Registrants can assist in mini- otherwise providing guidance in the
mizing that vulnerability. purchase of real estate.
• Consumers are most vulnerable when not
fully inspecting properties, failing to include
conditions that protect their interests and
not carefully reading agreements before
signing.
Glossary
Brand Loyalty Market Segmentation
Cooling Off Period Motivation
Culture Privacy
Discrimination Psychographic
Fraud Status Symbol
Green Building Vulnerable
Home Staging
Web Links
Ontario Human Rights For detailed information concerning current activities, go to the
Commission Commission’s website at www.ohrc.on.ca.
Privacy Legislation The Privacy Commission of Canada provides excellent resource materials
that assist in establishing proper procedures when collecting and using
personal information. Go to www.privcom.gc.ca. Two online publica-
tions should be of particular interest: Privacy Questionnaire: Is Your
Business Ready? and Your Privacy Responsibilities: A Guide for Businesses
and Organizations. Members of organized real estate also have access
to the Privacy Code of The Canadian Real Estate Association along
with related guidelines to assist in establishing privacy policies.
Law Society of Upper Canada The Law Society of Upper Canada, founded in 1797, has continuously
(LSUC) pursued its mandate of overseeing and regulating lawyers in the province
for over 200 years. For more information, go to www.lsuc.on.ca.
Appraisal Institute of Canada The Institute was profiled in Chapter 1: A Career in Real Estate. Go to
(AIC) www.aicanada.ca.
The Association of Ontario Go to www.aols.org for full discussion of the Association’s activities
Land Surveyors along with the basics of survey techniques.
Financial Consumer Agency of Go to www.fcac.gc.ca concerning this agency’s mandate to educate
Canada (FCAC) consumers regarding financial services.
Financial Services Commission Go to www.fsco.ca and search under Mortgage Broker for additional
of Ontario (FSCO) particulars and consumer complaint procedures.
Independent Mortgage Go to www.imba.ca and search under Consumer for additional
Brokers Association of Ontario information.
(IMBA)
Canadian Association of Go to www.caamp.org for information about the organization and
Accredited Mortgage the Accredited Mortgage Professional designation.
Professionals (CAAMP)
Insurance Brokers Association Go to www.ibao.org for detailed information concerning the role of
of Ontario (IBAO) independent brokers and specifics about general, home and auto
insurance as well as commercial policies.
Registered Insurance Brokers Go to www.ribo.com for information about consumer protection
of Ontario (RIBO) relating to insurance brokers and licensing procedures.
Ontario Association of Home Go to www.oahi.com. A site link is also provided to the Canadian
Inspectors (OAHI) Association of Home & Property Inspectors.

1. What market niches do I want to 5. Do I have my financial affairs in
focus on in my real estate sale career? order both as a consumer and as a
prospective real estate salesperson?
2. Which ethnic groups represent a
significant component of my local 6. What privacy policies does my intended
marketplace and what are their employing brokerage provide upon
specific needs and wants in terms of request and what procedures should
housing types, layouts and features? I establish to ensure that personal
information is always safeguarded
3. When looking at my friends and when in my possession?
relatives, can I place them on specific
levels according to Maslow’s hierarchy 7. Do I fully understand the roles played
of needs? by the seven professionals outlined in
this course? What additional expertise
4. What additional steps can I take in is needed for my particular market-
my career to ensure that buyer and place or intended market niche?
seller clients are well informed as
consumers prior to making an offer?
Chapter Mini-Review
1. Consumer behavior is best under- 5. A need, in terms of consumer

stood in terms of the impact of behavior, is an underlying biological
internal as well as external forces on an or psychological desire to attain
individual’s decision-making process. something for a specific purpose.
2. The term market segmentation is only 6. Status symbols are often associated
used when discussing the grouping of with ego needs, as described in
individuals accordingly to either their Maslow’s hierarchy of needs.
age, ethnicity or income level.
True False
True False
7. Consumers can be vulnerable given
3. Feng shui is best described as an that cooling off periods do not
example of brand loyalty based on typically apply in the case of real
personal experience and the opinions estate transactions.
of others.
True False
True False
8. The Consumer Protection Act (CPA)
4. According to recent consumer contains numerous provisions that
surveys, access to the Internet has apply directly to real estate
made the task of finding property transactions.
more difficult.
True False
True False

9. A complaint lodged by a consumer 12. Business ethics does not normally
under the Consumer Protection Act (CPA) complement broader ethical stan-
would probably be referred to the Real dards within a society.
Estate Council of ntario given its
direct regulation of real estate brokerages, True False
brokers and salespersons.
13. Personal information, according to
True False PIPEDA, includes age, name and
income particulars.
10. The ntario Human Rights
Commission oversees the administra- True False
tion and enforcement of the Ontario
Human Rights Code. 14. Appraisers in this province must be
registered with the Appraisal Services
True False Commission of ntario.
11. Real estate fraud is commonly divided True False

into two subcategories: mortgage
fraud and title fraud.
True False

1.1 Psychographic studies are used in marketing research to:
a. Delve deeper into consumer lifestyles beyond basic demographic makeup
and personal traits.
b. Provide detailed psychological information about individual consumers.
c. Explain consumer vulnerabilities when acquiring real estate.
d. Determine the impact of reference groups on consumer decisions.
1.2 The second property market is:

a. Diminishing in size due to economic circumstances in today’s market.
b. Driven primarily by younger consumers.
c. An expanding market niche involving recreational and investment properties.
d. Isolated to large urban centres.

a. Ethnic groups rarely buy homes in the same geographic area.
b. A reference group is always a formal, structured organization.
c. Social activism as a concept does not apply to real estate purchases.
d. Cultural values have a strong bearing on how consumers make decisions.
1.4 Brand loyalty as a factor in consumer behavior:

a. nly applies to small consumer purchases not large ticket items.
b. nly applies to products and not services.
c. Can go beyond basic utilitarian considerations such as functionality, design
and reliability.
d. Is dictated solely by personality traits and not influenced by reference groups.
1.5 Home staging, as a marketing strategy, is best grouped under which of the
following factors impacting consumer behaviour?:
a. Brand Loyalty
b. Product Appeal
c. What thers Think
d. Personal Traits and Psychographics
1.6 The basic need for self preservation best describes which of the following needs
from Maslow’s hierarchy of needs?
a. Ego Needs
b. Security Needs
c. Social Needs
d. Physiological Needs
1.7 The Consumer Protection Act provides that:

a. Real estate transactions are exempt as consumer transactions, except those
involving timeshares.
b. All real estate transactions are exempt as consumer transactions.
c. For real estate purposes, only negotiations involving seller representation
agreements (listing agreements) are exempt under the Act.
d. Fines for violations under the Act cannot exceed $100,000.
1.8 Which of the following statements is correct in regard to the Competition Act?
a. Real estate brokerages are exempt from provisions of the Act, as they are
regulated under the Real Estate and Business Brokers Act, 2002.
b. A material fact refers to any information which could affect a purchasing
decision.
c. Criminal offences such as price-fixing are not addressed in the Competition Act.
d. The Act is a provincial statute administered by the Ministry of the Attorney
General.
1.9 Fundamental principles of right and wrong are most commonly described as:
a. Ethical principles.
b. Moral principles.
c. Professional principles.
d. Business ethics.
1.10 Which of the following statements is correct regarding personal information of

a buyer or seller being collected by a real estate brokerage, as set out under
federal privacy legislation?
a. The buyer or seller does not have the right to access and challenge personal
information stored by the brokerage, but can lodge a complaint with the
Privacy Commissioner.
b. The buyer or seller need not give consent if such personal information was
confined to details collected regarding a representation agreement (e.g., details
required when listing a property).
c. The brokerage need only be concerned with personal information of a buyer
or seller that is collected and stored at the brokerage and not information
about that individual which is stored by brokers and salespersons at their
respective residences.
d. The scope of personal information that falls under the privacy legislation
can include the buyer’s or seller’s name, ID numbers, blood type and credit
records.
Exercise 2 Matching
Based on your knowledge of consumer behaviour and consumer protection, match the
phrase/word in the left column with the appropriate description in the right column (not
all descriptions are used).
___ Ethnic Origin a. Registered Insurance Brokers of

Ontario (RIBO)
___ Lenders
b. Shared Values of a Society
___ Insurance Broker
c. Personal Information
___ Brand Loyalty
d. Financial Consumer Agency of Canada
___ Culture
e. Physical Structure and Mechanical
___ Competition Act
Systems
___ Home Inspector
f. Financial Services Commission of
Ontario
g. Commitment to a Certain Product or

Service
h. Deceptive Business Practices
Exercise 3 Short Answer Questions

3.1 Briefly explain the difference between a need and a want when analyzing
consumer behaviour.
3.2 Why are one or more conditions in an agreement of purchase and sale important
in minimizing a consumer’s vulnerability?
3.3 Briefly describe three rights that every person in ntario is entitled to under the
ntario Human Rights Code.
3.4 Distinguish between morals and business ethics.
3.5 How does a home inspection differ from an inspection conducted by a municipal
inspector?
190
CHAPTER 6
Marketing and
Customer Service
Introduction
This chapter focuses on marketing fundamentals and the opportunities for registrants
to meet consumer needs through superior customer service. Marketing, for purposes of
this text, is best viewed in descending levels beginning with the macro perspective in
which marketers assist in determining what products and services are needed within the
economy down to micro levels of brokerage marketing and ultimately analysis of individual
salespersons offering marketing services to specific buyers and sellers.
Chapter 6 begins with an overview of marketing including its pivotal role in modern
business dynamics. While marketing is typically viewed as product-related, the emphasis
in this text is on service-based marketing and the importance of customer service, value-
added services and customer satisfaction. A discussion of marketing strategies and market-
ing plans is provided, followed by techniques to gain a competitive advantage and useful
guidelines when conducting market research.
The chapter then narrows to specifics about salesperson
marketing services for sellers and buyers. Both commercial
and residential perspectives are included. Commercial
discussions centre on marketing proposals with residential
focused on listing presentations. Lastly, marketing methods
commonly used by registrants are highlighted. These
include advertising (institutional and specific), traditional
techniques involving signage and open houses, the use of
direct marketing and current e-marketing methods,
website strategies and features/benefits relating to the
Multiple Listing Service®.
191
Learning Outcomes
• Discuss marketing basics and the three stages of marketing: research, analysis
feasibility and strategy/plan.
• Describe the role of marketing and the importance of a marketing mix in developing
overall strategies and marketing plans.
• Identify and discuss customer service with emphasis on providing superior service,
the impact of defining moments, the demand for value added services and the unfold-
ing world of best practices.
• Describe how marketing strategies are developed by brokerages with particular
regard to target markets, market positioning and other possibilities to broaden the
brokerage’s competitive stance.
• utline four market research activities that can be undertaken by brokerages or sales
persons including surveys, focus groups, personal research and secondary sources.
• Detail presentation methods that residential and commercial registrants use when
offering services to buyers and sellers.
• Identify and discuss six marketing methods used by brokerages including advertising,
for sale signs, open houses, direct marketing, Internet marketing and the Multiple
Listing Service®.
MARKETING BASICS
Marketing can be defined as the satisfying of consumer needs and wants by providing
desired products and/or services including the promoting of those products/services using
various marketing methods, such as print and electronic advertising. Marketing performs
an important role within the economic system by assisting suppliers in determining what
products and services should be created, evaluating what consumer demand exists in the
marketplace and where specifically that demand can be found.
Effective marketing should begin with determining what customers want. In the case
of real estate brokerages, knowing and understanding these needs provides direction to
the brokerage, as well as its employed brokers and salespersons. Traditional marketing
involves three basic stages:
192 Chapter 6 Marketing and Customer Service
Research Study customers needs, current market conditions and what

similar products/services the competition are offering including
supporting data.
Analysis/Feasibility Analyze the research materials and supporting data to determine

the viability of offering a product or service, the size of a particular
market niche and the potential to maximize that niche.
Strategy/Plan Develop a marketing strategy and associated plans that set out
procedures and costs associated with delivering the product or
service to its intended audience. The plan’s complexity and cost
vary with project size. A salesperson’s plan to market services
might be a single page compared to a large new home builder
contemplating detailed marketing plans involving a residential
development with 2,000 homes.
In recent years, marketing has taken a far more focal role than simply developing a
plan. Marketing has become integral to the entire business enterprise, as knowledge of
consumer needs and wants is essential for anyone seeking to build and sustain a solid
customer base. Brokerages, as with all businesses, must concentrate on satisfying customer
needs and retaining those customers. High retention rates just make good sense, particu-
larly from cost and operating efficiency perspectives.
Historically, organizations were typically either production or sales driven. The expand-
ing range of products and services and the resulting explosion in consumer choice has
changed all that. Heightened competition has fueled the need to not only analyze existing
customer needs and satisfaction, but also seek methods to locate unsatisfied customers
from others and offer them superior products and services. This highly competitive
situation demands sound marketing strategies.
THE ROLE OF MARKETING

The central role of marketing is focusing one’s efforts on satisfying consumer needs. This
role, sometimes referred to as the marketing concept, must be central to business opera-
tions, not ancillary to them. Real estate brokerages, for example, need to fully embrace
this concept and ensure that everyone including the broker of record, managers, administra-
tive staff, and brokers and salespersons concentrate their efforts on fulfilling consumer
needs.
Marketing must be internalized within the brokerage, forming part of the business
goals, values and the mission statement. Modern companies have moved away from
business models that relied on distinct production, sales and marketing departments that
were so prevalent in previous decades. Today’s trend is to view marketing and consumer
needs as fundamental dimensions of the business operation.
Customer satisfaction is also an integral aspect of the marketing function. Interestingly,
for real estate brokerages, not only does the brokerage have to establish marketing priorities
to meet consumer needs, but also the salespeople who are a building a career within the
brokerage structure. For expediency, various topics within this text address the brokerage
as a single entity, but principles discussed apply equally to brokers and salespersons in their
quest to be competitive and offer valued customer services.
Marketing and Customer Service Chapter 6 193
Marketing Products vs. Services

Do real estate brokerages sell a product or a service? In reality, they sell both. The broker
age and its representatives provide intangible services to the seller client when marketing
his or her property and yet offer tangible products (sellers’ homes) to buyers. The broker-
age also offers intangible services to the buyer client when locating property. Brokerages
are first and foremost service businesses and understandably focused on their image/
reputation, the value that they add in the selling and buying process, and having sufficient
available properties, including the means to effectively sell those properties or locate
suitable properties (in the case of buyer representation).
The Four P’s

Marketing is best understood using the four P’s. These activity areas were originally
proposed by E. Jerome McCarthy, a well known marketing consultant and professor at
Michigan State University. The four P’s form the marketing mix necessary to establish a Marketing Mix
workable marketing plan for any organization. Some minor modifications are required The combining of activity
in applying these activities to a real estate brokerage and its brokers and salespersons. elements or tactics in various
For real estate purposes, the four P’s (Product, Price, Promotion and Place) are ways when marketing a
particular product or service.
adapted to emphasize the dual marketing roles performed by brokerages, one directed
towards attracting clients and customers to the brokerage and the other to promoting
listed property. ther theorists have added a fifth P’ to address certain theoretical limita
tions (e.g., people or process) but most marketing texts retain the original grouping.
PRODUCT PROMOTION
Brokerage Listed Property Brokerage Listed Property
Detailing specifications for the Obtaining all the necessary Outlining institutional and Establishing a specific
goods or services being devel- details about the property, targeted advertising, local/ marketing plan for the
oped and offered to meet the along with features and national promotional strategies, seller’s property based on
end user’s needs and wants. benefits (e.g., location, size, MLS®, direct marketing, brokerage and individual
For brokerage services, this number of principal rooms, website content and print broker/salesperson marketing
would include guarantees, brand name equipment being media options. efforts; e.g., advertising
advantages of dealing with a included, styling, room config- media, direct marketing,
particular brokerage, quality of urations and amenities). Internet marketing, open
service, market niches served, houses and signage.
brand name (e.g., franchise
affiliation) and additional
services (financing, appraisal,
relocation, etc.)
PRICE PLACE*
Brokerage Listed Property Brokerage Listed Property
Establishing what commission Determining listing price Determining methods to get Identifying appropriate distri-
(a percentage of the selling strategy for optimum market- the message out to target bution channels to attract
price, an agreed amount, or a ability based on competing groups including channelling buyers.
combination of both) will be properties, sold properties, services to consumers; e.g.,
charged to represent sellers expired listings (those listed, direct contact by salespeople.
and buyers, bundled services but removed unsold from the
for the fee, fee flexibility and market) and overall market * E.channels,
Jerome McCarthy outlined Place as activities involving distribution
inventory management, distribution centres, etc. This concept
special incentives trends. has been modified to address service-related brokerage activities.
The marketing mix is developed by weighting the four components. The exact mix
will vary depending on local market circumstances, the amount of competition and the
particular brokerage strategy being implemented.
EXAMPLE 1 Developing A Promotional Marketing Mix

ABC Realty Inc. is acquiring a franchise image that is distinctive for the Anycity marketplace. While not well
known, this growing national franchise provides certain unique benefits to sellers and buyers. The marketing
mix for the planned promotional campaign announcing this new affiliation is heavily weighted to Product
and Promotion with the least weight given to Price and Place.
EXAMPLE 2 Putting Price First

XYZ Real Estate Inc. is planning to offer a flat fee service in Anycity and wants to ensure that its benefits are
clearly known in the local marketplace. XYZ selects a marketing mix weighted heavily to Price with all print
and e-marketing materials clearly identifying cost benefits to the consumer and setting the brokerage apart
from its competitors. The brokerage also wants to ensure that this message is focused toward cost-conscious
lower and middle income target groups. Accordingly, Place is given a higher weighting in the marketing mix
to ensure that the desired target group is successfully reached.
SERVICE-BASED MARKETING
Marketing services poses certain challenges not found with product-based businesses.
First, the seller or buyer can’t see the listing or selling service before they agree to purchase.
As a consequence, brokerages must alter the marketing mix in relation to the Product
perspective; e.g., personal satisfaction, promised activities and continuous communication/
follow-up until the property is sold or a suitable property is located.
Second, the service is typically customized to fit an individual’s need, while most
product-based businesses build more or less standard product lines for marketplace
consumption. Brokerages attempt to standardize certain service features (e.g., uniform
wordings in buyer and seller representation agreements, guarantees of service and
institutional advertising of brokerage services), but a significant part of the service is
always individualized, such as customized ads for sellers, media used to promote property,
specific activity when locating property for buyers and unique situations involving offers
and negotiations.
Third, often the service is directly linked to a specific individual’s credibility. The
consumer seeks out a particular individual owing to his or her reputation. The service
can’t be replicated by someone else (or at least not in the consumer’s mind). This factor
is particularly relevant to real estate brokerages, as brokers and salespersons rely on the
brokerage’s overall corporate image (including franchise affiliation, if applicable), but
emphasize personal skills and marketing expertise when advertising to the consumer
marketplace.
Fourth, consumers find it difficult to compare services offered and tend to rely on
information about brokerages obtained from others. In fact, personal referrals from
previous satisfied clients and customers remains a key source of future business both for
the brokerage and its representatives.
Customer Service as a Competitive Force

Customer service is a driving force in today’s marketplace and focal to a brokerage’s com-
petitive stance. The economy has gradually evolved from a manufacturing-based to a
service-based system. While consumers will always focus on product features and
benefits, they are increasingly scrutinizing how services are delivered and the level of
customer satisfaction. In real estate brokerage, ongoing success relies heavily on high
quality service to buyers and sellers, and associated reputation in the marketplace. In fact,
success in business generation (i.e., obtaining new clients and customers) is closely associated
with referral clients and repeat business. Buyers and sellers who receive top level service
are more apt to seek out the same brokerage again and are more willing to share their
positive experiences with others.
Interestingly, service has become so central to business operations that some experts
think we should consider of service and customer satisfaction as commodities rather
than as abstract concepts. rganizations have discovered that a focused drive toward
customer satisfaction can reduce costs, improve image, retain a solid customer base and
generate bottom line profits. In fact, many sectors of the economy actively track customer
satisfaction indicators as a measure of business performance.
Defining Moments and Customer Satisfaction

Customer service is more than delivering the service itself. The concept should envelope
every department, every person and every point of contact with the customer. For real
estate brokerages, a customer contact could involve the broker of record, administrative
staff, answering service personnel, the specific salesperson working with the client or
customer, or other salespersons in that person’s absence. Service consultants refer to these
contact points as defining moments or moments of truth.
Consumers keep track of their experiences, tally them either consciously or uncon-
sciously and make future decisions based on the tally sheet of these defining moments.
They evaluate their experience with the brokerage based on these defining moments.
Interestingly, research has long confirmed that most businesses do not hear from the vast
majority of their displeased customers. A seller may dislike the services provided and
merely elect to list with another brokerage. No reasons are given, the customer link is
broken and the brokerage’s reputation is adversely affected. If brokerages are not prepared
to ask the question about whether or not the service met the consumer’s expectations,
they will never get the real answer. More troubling from a business perspective is the
fact that the average customer who has a problem with a company typically tells eight or
more people about the bad experience.
n a more positive note, customers who have had their complaints heard and resolved
are highly likely to do business again with the brokerage. Even those who did not receive
a proper resolution are usually predisposed to try the brokerage once more if the complaint
was at least promptly addressed. Further, consumers who have their problems resolved
are likely to tell others of their positive experience.
Customer Satisfaction and Your Career MARKET MEMO
Customer service is vital to a successful real estate career. A recent survey of REALTORS® in the United States revealed
that an average of 50% of their business comes from referral clients followed closely by repeat business. Here’s how
practising salespeople in that survey rated the importance of various factors in generating leads for new business
(rating of 1 being least important and 4 being most important):
Referrals
Repeat Business
Internet
Social Networking Sites
Personal Advertising
Community Involvement
Open Houses
Floor Time
Direct Mail Campaigns
Blogs
Telemarketing
1.0 1.5 2.0 2.5 3.0 3.5 4.0
Least Most
Average Rating
Important Important
Source 2012 REALTOR® Technology Survey, Center for REALTOR® Technology, National Association of REALTORS®, 2012.
Value Added Services

Value Added Services This term value added service first appeared in the telecommunications industry. A
Additional features added to a value added service can typically be added to a basic service and sold at a premium
basic product or service, initially price. The add-on may make the consumer’s task easier, more efficient, speedier or more
sold at a premium. enjoyable. Telephone companies have long offered basic services with various add-ons.
The first add-ons forty years ago were colour phones rather than black to match room
decor and touch tone to speed up the dialing process. From there, the add-on business
moved into caller ID, speaker phone, redial features, messaging and so on. The concept
then migrated to other business enterprises, as entrepreneurs discovered the merits of
attracting existing customers to new features and reaping the associated profits.
However, the concept of value added services is dynamic and not static. While such
services are typically first sold at a premium, these add-ons usually migrate (when in
common usage) to become part of the basic service. Brokerages with value-added,
specialized skills may command higher commission rates, but most full service brokerages
typically augment existing services with new added features to remain competitive. Limited
service brokerages may offer these added services as additional costs to the basic package.
nce again, the decision of whether to charge or not is a function of circumstances in
the local marketplace.
Value added services concerning real estate advertising, for example, might include
additional online distribution channels to promote the seller’s property; e.g., local MLS®
as well as brokerage, personal, newspaper, specialized magazine and national franchise
websites. Further, ongoing communication when representing buyers and sellers might
involve additional services beyond typical follow-ups including e-mails, online market
updates and newsletters. For commercial operations, add-ons might involve in-house
market research capabilities, exclusive databases tracking industrial, retail, multi-family
or other market sectors, and cash flow analysis software for investment comparisons of
available properties.
The Value Added Team CURIOSITY
Enterprising real estate brokers and salespersons have formed teams in the search for improved service and competitive
advantage. The concept originally began with husband/wife teams, but has expanded into businesses within businesses;
i.e., business teams within brokerages where several individuals work together and provide 24/7 services to clients that
could not otherwise be achieved by a single salesperson. Teams can consist of several registered salespeople or one or
more salespeople with assistants (registered and unregistered) that assist in various aspects of the selling process.
NOTE: Unregistered assistants are limited in the scope of activities permitted and must not perform any task that
generally falls under the definition of a trade (Reference: REBBA, Sec. 30(b)).
Best Practices
Service-based businesses are now taking a much closer look at best practices. The concept
of best practices, long established in product-related marketing, refers to a particular
method or technique that consistently produces a better outcome. Best practices have
become a mainstay for all types of endeavours such as improving manufacturing processes,
refining teaching procedures, designing and programming software, and providing
speedier financial transactions in the marketplace.
Service-related industries are now involved in developing best practices to heighten
the quality of services and achieve higher consumer satisfaction levels. In the case of real
estate brokerages, technological innovations have been a major force in fostering improved
service practices offered to consumers. For example, buyers are now able to access selected
property information at any time through online databases, design customized searches
and receive e-mail alerts when desired properties appear on the market. Transaction
management software enables brokerages to closely track all matters involving real estate
trades from point of offer to closing and generally promote more efficiency and improved
service when dealing with clients and customers. Salespeople have benefited from new
electronic communication breakthroughs such as cell phones, personal digital assistants
(PDA’s), portable computers, CD presentations, digital satellite pictures of neighbourhoods
and properties, and global positioning systems to readily locate properties for buyers.
The real estate brokerage business has yet to formalize best practices on a province-
wide or national basis, but many brokerages and franchise organizations are making
significant contributions in documenting such practices. Further, the recent passage of
REBBA 2002 puts in place important consumer protection and professional trading
practices. Best practices will continue to be a significant factor in the evolution of real
estate brokerage within this province.
MARKETING STRATEGIES
A marketing strategy for a real estate brokerage sets out specific target markets and the
applicable marketing mix to effectively address the needs of these markets. For example,
a brokerage may decide to gain a market presence in the local condominium resale market.
The actual scope of this target market could involve all condominiums within a smaller
urban area or specific niches (e.g., downtown highrise and townhouse condominiums)
within a large metropolitan centre. The company would then set up a marketing mix to
properly focus on the identified market or markets. A marketing plan is then established
based on the selected (target) markets and the marketing mix.
EXAMPLE The High-Tech Strategy

ABC Realty Inc. is establishing a marketing strategy. The broker/owner has a strong background in computers,
software development and information systems. The marketing mix includes developing a customer relationship
management (CRM) system, a dynamic website that includes both push and pull technologies, PDA facilities
for all employed brokers and salespersons, sophisticated lead generation and customer contact software,
automated transaction tracking and unique personalized client services. His defined target market includes
residential subdivisions on the eastern and northern edges of Anycity. Once established as a strategy, the
management team builds specific marketing plans to carry out that strategy.
Marketing Plan vs. Marketing Strategy

A marketing plan focuses on efforts and establishes the blueprint for action plans based
on an overall strategy. The plan must be built on a clear vision of what key services will
Core Competencies be provided, how the overall marketing mix will be developed and the core competencies
Skills, assets and techniques that that can be effectively deployed. In reality, the lines between a marketing strategy and
form the basis of an the plan itself can be somewhat blurred. Some prefer to drill down to specifics within
organization’s or individual’s the overall strategy, while others concentrate on strategic levels leaving operational
competitive capacity.
aspects to the marketing plan.
As a general guideline, a marketing strategy focuses on the overall strategic directions
of an organization, while plans put specifics into place to pursue those directions; e.g.,
selected services, major messages to be conveyed in advertising, media to be used and
the mix of electronic technologies to reach consumers. The plan can be rudimentary or
highly detailed. Typically, the complexity depends on the size of the organization. For
example, large brokerages would probably develop a strategy that fully describes what is
to be accomplished by the marketing program, corporate strengths and weaknesses, and
broad strategic initiatives that provide a framework for the plan along with measurable
goals or objectives. This detailed foundation would provide others in the organization
with sufficient detail to develop specifics within the marketing plan. A small brokerage
might require only limited documentation, as the strategy and marketing plan are direct-
ed by one or two persons.
Selecting Target Markets

An effective marketing strategy typically focuses on a particular segment (or segments)
of the market. A target market involves a specific group or area to which an organization
directs its marketing efforts. For example, a real estate brokerage might concentrate on
certain geographic areas to gain market share and benefit from the synergistic impact of
having a high visual presence (i.e., for sale and sold signs). Alternatively, if the target
market involves a geographically-dispersed group (e.g., investors seeking specific types
of property), then the task shifts to the targeting of print and e-marketing efforts toward
that group.
Brokerages often have several target markets in which they focus their attention. For
example, a brokerage in a smaller urban centre may deal with several target markets given
diversity within the single community and surrounding areas. A brokerage in a larger
urban may concentrate on certain residential and/or commercial areas. Target markets
are not limited by size, but rather by degree of homogeneity; e.g., similarities regarding
demographics, lifestyle, ethnicity, etc.
This is not to say that target marketing is always used. In many promotions, brokerages
appeal to broader audiences. However, such an approach may be unavoidable. For example,
certain geographic areas in which a brokerage is located may include several smaller sub-
markets. The brokerage must then identify these smaller clusters of common needs and
assess whether they are of sufficient size to warrant focused attention. If not, a more
generalized marketing strategy is appropriate.
However, to suggest that strategy is always driven by the brokerage does not align with
market reality. In many instances, target markets are developed by salespeople who
independently gravitate to particular niches, usually due to personal connections and/or
familiarity. The brokerage gains a market presence through those individual efforts, which
is then sustained by the organization using targeted advertising and related promotions.
Further, brokerages typically attempt to recruit individuals that will complement their
existing market presence and break new ground in areas not yet penetrated. For example,
a residential brokerage may approach a commercial registrant who is dissatisfied with
conditions in his or her existing brokerage. The recruited individual begins making in-
roads into otherwise uncharted areas for the new brokerage. His or her reputation and
image may attract other salespeople who also join the brokerage and a new market niche
is established.
Creating a Market Position

Positioning involves the creation of an identity in the consumer’s mind. Today’s marketers
seek to provide a specific service, offer a unique product and/or generally promote a
distinctive image to consumers that will be remembered and stored in the consumer’s
mind for future reference. Positioning is both a marketing concept and a competitive
strategy. In fact, brand loyalty (corporate or personal) is an outcropping of successful
market positioning. In other words, the consumer immediately thinks of a specific brand
when searching out a product or a particular person for a specific service. As such, the
branding has been positioned in the prospect’s mind.
Market positioning also addresses how competitors are stacked in the prospect’s mind.
Think of positioning as a horse race. In practical terms, consumers gain familiarity with
a limited number of contenders within a specific product or service range. The leaders
occupy a win, place or show position. Smaller, less visible competitors are often referred to
as also rans. The concept of market position has been particularly popular with automobile
rental companies, fast-food chains and large retail operations that require high visibility
in the public’s mind.
This is not to say that only major players can occupy niches and that brand names
always dominate. n the contrary, entrepreneurs may find specific market niches by special
izing, geographically limiting their area or identifying a unique stance that is readily
understood by the buying and selling public.
Market positions can be very effective if carefully analyzed from a competitive stance
perspective. Some brokerages, for example, acquire franchise rights to assure exclusivity
and promote national or international image awareness within specific territories, other
brokerages promote independent status and reputation, and still others concentrate on
specialty markets such as condominiums and new houses. In deter mining a position, it
is vital to assess the competition carefully and determine what market niches are currently
available, what target markets are not properly serviced, what brokerages are vulnerable to
direct competition and what market positioning strategies can address those opportunities.
Positioning The New Branch Office MARKET MEMO
Broker/Owner Johnson, of ABC Realty Inc., is considering a new branch office within a highly competitive trading area.
MLS® statistics indicate a steady growth in inventory and sales activity, as the area is undergoing dramatic expansion.
Johnson wants to analyze the marketplace with the intent of occupying a particular market position. Key questions to
address include:
• hat are the unique services provided by our brokerage and how do they compare with the competition
• ill the new location complement the brokerage s existing image and are the surrounding residential
areas consistent with types of property usually marketed by the brokerage
• o the residents know our image and if not, what will it cost to gain market awareness
• Are there new marketing opportunities (i.e., a specific niche not occupied by the competition) that
might provide market share within the area
• hat types of services are offered by the competi tion and how will they impact our planned marketing
strategy
• ave there been brokerage failures or significant losses in market share by other new companies entering
the market
• an AB Realty Inc. bring a unique approach to marketing real estate that is not already being done in
that particular area
Broadening Competitive Advantage

Brokerages are continuously searching for competitive advantages in an ever changing
marketplace. While target marketing and market position theory can be very effective in
differentiating the brokerage from its competitors, other strategies are often necessary to
build and maintain brokerage presence. The challenge often rests in finding a competitive
advantage that is sustainable; i.e., not easily replicated by a competitor. Competitive
advantages can be divided into two categories:
• Cost advantages that are obtained through increased efficiency.
• Differentiation advantages that involve offering unique services.
f the two, differentiation advantages are more highly desired. Having a unique advan
tage permits the brokerage to charge more for its services, particularly if the service
advantage offered is exclusive. n the other hand, cost advantages are typically gained
through increased efficiency using new procedures and technologies. Most advances
these days in brokerages involves technology, which is often readily available to the
competition. Consequently, within weeks or months, the competition also achieves the
same level. The advantage is not sustainable, loses its impact as a competitive factor in
the marketplace and becomes part of the standard services offered by most competitors
in the market area.
The most effective starting point in seeking a differentiation advantage is a competitor
analysis that takes into consideration competitors’ areas of expertise, market positions,
extent of brand loyalty, geographic locations and spheres of influence (e.g., proximity and
impact on target markets), commission rates charged and unique brokerage services
offered. Fortunately, helpful information is readily available through primary and secondary
sources, as brokerages often openly promote their distinctive service advantages through
advertising materials to consumers and targeted messages to prospective salespeople.
What possibilities exist that can broaden competitive advantage? Following are three
common options considered by brokerages in today’s marketplace, but many others exist.
Strategic Alliances Aligning with another organization that provides unique services
or complements a market position through heightened brand
loyalty can prove very advantageous. The most popular choice to
achieve both objectives is a franchise, but other affiliations may
prove worthwhile including an alliance with a national relocation
organization or more informal associations with other companies
involved with the real estate market; e.g., movers and utility/service
providers.
Concierge Services Deciding to offer concierge services (a term coined in the United
States) that provide buyers and sellers with access to additional
services over and above those involved with buying and selling
property can be advantageous. For example, consumer discounts
may be made available for after-market services once the transaction
is closed; e.g., home renovations, lawn care, security systems, etc.
Market Synergism Tapping into several complementary market activities may be

effective to maximize contact with buyers and sellers. For example,
a brokerage may target the resale residential market, but also diver-
sify into small and large residential tenancies, appraisal and property
management within that same geographic area to maximize
contact with existing and prospective clients and customers.
MARKET RESEARCH
As with marketing in general, the road to superior customer service begins with research.
Effective research is designed to gather opinions typically for the purposes of better
understanding customer needs and wants, assessing the impact of a specific product or
service in the marketplace and/or evaluating company performance in providing products
or services. Market research is important not only for the brokerage itself, but also for
Personal Branding
brokers and salespeople attempting to evaluate their services, image awareness (e.g.,
The image or mental picture
personal branding) and overall impact on the marketplace. that comes to mind when an
individual’s name is mentioned.
Surveys
Few brokerages undertake extensive quantitative research available through market Quantitative Research
surveys given associated costs. Informal studies, while not statistically significant, can A formal research method using
assist in gaining an overall impression of public perceptions, quality of service provided, structured techniques to obtain
brokerage image, satisfaction levels and confirmation of market position. An example is specific, objective information
usually reported in tabular or
provided that is brief, easy to administer, readily usable for targeted mailing or online statistical format.
completion, and can produce interesting results. Brokerages may also consider telephone
surveys, but in recent years, negative consumer reaction to what many view as an intrusive
method may generate more negative reaction that positive survey results.
Brokerages may discover interesting

MARKET SURVEY
facts about the brokerage operation;
e.g., that significant advertising dollars 1. verall, how would you rate ABC Realty Inc.?
may have little impact, that people Excellent Good Fair Poor
misunderstand the brokerage’s speci- 2. Please rate the sales representative involved in your
fic services or that customers select particular transaction: (check appropriate column)
the brokerage for entirely different Excellent Good Fair Poor
reasons than originally thought. The Technical Knowledge
survey can be carried out with minimal eeping ou Informed
verall Attitude
cost. Simply ensure that the sample is
sufficiently broad to provide a reason- 3. Would you recommend ABC Realty Inc. to others?
able cross-section of the target audience. Yes No
Professional interviewers can be
Would you recommend the sales representative to
used, however, assuming limited bud-
others?
gets and informal results, alternate ❏ Yes ❏ No
approaches may be best (e.g., use of
students). If the desired results require 4. What originally prompted you to contact our
brokerage? (check any or all)
statistical significance and proper
❏ An advertisement in the newspaper
random sampling, be prepared for a ❏ A lawn sign on a property
more substantial cash outlay. Regardless, ❏ Referred by a friend/acquaintance/relative
keep the initial questionnaire short ❏ Dealt with ABC Realty Inc. in the past
and to the point. Four or five questions ❏ Personally knew a salesperson with ABC Realty Inc.
❏ ther
will usually suffice. If productive infor
mation is obtained, plan a more aggres-
sive survey strategy the next time.
Focus Groups
A growing trend in marketing research involves the use of focus groups consisting of six
to 12 individuals. Participants are asked various open-ended questions, which are designed
to stimulate thinking, rather than specific responses. A well-run focus group can deliver
Qualitative Research relevant qualitative research. A skilled interviewer can move beyond the immediate
A less structured approach than question and response to delve deeper and determine what the person is thinking when
quantitative research that seeks making a particular response.
insights into information such as For real estate purposes, a focus group might involve ways to better service listings.
consumer motivation, behaviour
and attitudes. The brokerage could assemble a group of sellers for an informal onehour session. ne
question that might be posed would be: What was the primary reason that you selected
our brokerage? ne seller might respond that his previous dealings with the firm was the
reason. The researcher can then probe further to find out the positives and negatives
about the previous experience. Another participant may state that she was drawn to the
brokerage website. The research can again probe further to determine what attracted her
interest, what other brokerages were considered, etc.
Information gathered is more subjective than that obtained through quantitative
methods (i.e., a formal survey) but the results can give valuable insight. The danger with
focus groups is taking information gained as fact, rather than viewing the input as subjective
opinions that may or may not be representative of the larger target group. Researchers
typically use this approach as a preliminary step to refine their thinking about a specific
strategy and then follow-up with a more formalized survey.
Personal Research
Management consultants discovered years ago that managing by wandering around can
produce real results. Broker/owners, brokers of record, managers, brokers and salespersons
can all learn a tremendous amount about customer needs by simply wandering, asking
and listening. Most consumers are more than happy to relay their experiences—if you
simply ask them.
Don’t set up a formal set of questions, but be prepared to discuss the same topics with
each individual; e.g., How would you rate our service? What did you like most about our
company and what least? How can we improve our service? In research terms, this approach
is best described as a personal interview in which both the setting and the approach taken
can be quite informal. The risk with personal research lies in the fact that respondents
may not provide honest opinions, but rather tell the interviewer what they want to hear
or attempt to impress that individual with their knowledge. Also, some respondents
contribute far more than others when, in fact, the relative value of their contribution is
small in comparison to the bulk of information provided.
Accessing Secondary Sources

While larger brokerages may hire professional marketing research firms to obtain primary
data, many secondary sources (i.e., information already published by others) are avail-
able through organizations involved with real estate, government ministries/agencies and
private research companies focusing on the real estate industry. Don’t ignore US research,
as real estate markets in the United States are generally similar to those in Canada when
it comes to overall trends. Internet search engines are often the most expedient method
to narrow the search and uncover the best secondary sources.
MARKETING TO THE SELLER

The success of any real estate brokerage ultimately lies in how it meets the needs of specific
buyers and sellers. n a micro level, the individual salesperson is the vital marketing link.
Salespeople address marketing challenges from a narrower perspective than the brokerage,
as their needs relate to building a personal image and servicing individual clients and
customers. Successful salespeople have learned the importance of marketing strategies
to effectively compete, most notably relating to listing practices and marketing efforts to
secure saleable listings.
The most sophisticated strategies typically involve commercial registrants given com-
plexities associated with retail, office and industrial real estate. Commercial brokers and
salespeople develop marketing plans and proposals to secure a competitive advantage
with prospective sellers. Their residential counterparts concentrate on structured listing
presentations based on factual market data and benefits/features of working with the
brokerage and the individual broker or salesperson.
Marketing Plan
Presentations to sellers and buyers can be formal or informal. A formal marketing plan
developed by a salesperson for a seller normally includes an outline of promotional
materials to be used, intended target markets, signage, types of media selected, schedule
of contacts with identified target markets, brokerage and salesperson promotional
activities, and any special publicity or advertising associated with an individual project.
Associated costs may be detailed and tracked, particularly if both the brokerage and the
client are participating in related expenses.
Marketing plans are an essential component of any presentation to a client. In the
case of residential real estate, plans are normally outlined during a listing presentation.
In the case of commercial registrants, the amount of advance preparation and scope of
presentation are often far more extensive. The commercial marketing plan is usually
conveyed to the prospective seller client by way of a marketing proposal.
The Commercial Marketing Proposal

The following proposal guidelines are provided for information purposes only, as speci-
fics will vary by brokerage, market area and specific property. Additional details concerning
marketing proposals are included in The Commercial Real Estate Transaction.
Proposal This segment details goals concerning the marketing of the property
Objectives and and the tasks/responsibilities of both the client and the commercial
Scope of Work brokerage—in other words, the who, what, when and at what cost
details. Customarily, a timetable is included to point of anticipated
sale or lease including costing considerations (e.g., survey, engineering
services, legal/accounting, environmental assessment, mortgage
cancellation fees and marketing costs). A detailed roll-out or schedule
Marketing Period of activities within the marketing period is also included. The
The length of time taken to
proposal normally details expenses, as applicable, borne by the
market a property beginning client and brokerage respectively.
with the listing of the property
and ending at the point of sale. Site, Building and ften referred to as the technical review, this segment outlines
Market Analysis several levels of analysis starting with the site (e.g., soil conditions,
zoning, access/egress, land size and environmental conditions), the
building (e.g., size, ceiling heights, office finishes, utilities, HVAC,
sprinkler systems, loading docks, security and building construction),
related matters affecting both site and building (e.g., taxes and
financing) and the market analysis including community profile
information, demographics and supply/demand analysis.
The location of market analysis data within a marketing pro-
posal is a matter of individual preference. Sometimes, statistical
information is included within the Marketing Plan Development
(see below).
Marketing Plan In most proposals, this segment is best described as a preliminary

Development discussion only. Having set out market indicators, the proposal
identifies the selected target market along with a description of
planned marketing tools (e.g., brochures, flyers and target mailing
lists). The degree of detail varies from registrant to registrant. At
minimum, the plan should set out activities including brokerage
co-operation, signage, marketing items, promotional material (also
referred to as the offering statement) and targeted mailing lists.
Property Valuation Commercial registrants rely on all three approaches to value: cost,
direct comparison and income. Normally, the proposal details the
strengths/weaknesses underlying each approach, market or other
information (e.g., costing considerations) in support of the
approach(es) taken and indicated values using each approach. At
the proposal stage, a range of values is customarily indicated under
each approach, together with a recommendation concerning the
possible range of offered price.
Listing Process and This segment details the listing process and schedule for marketing
Marketing Plan implementation. The amount of detail will vary based on individual
Implementation brokerages. Brokerages may provide summary details at the proposal
stage, while others furnish the client with marketing prototypes
and plan specifics. Given the introduction of user-friendly databases,
Internet links and desktop publishing facilities in recent years, many
brokerages have pre-designed templates (referred to as boilerplates)
for such items as marketing brochures, target letters, primary/
secondary market analysis and local statistical reports.
Negotiations and For proposal purposes, registrants usually detail types of services
Drafting the commonly provided to clients during negotiations; e.g., drafting
Agreement offers to meet the specific needs of the client, presenting offers,
preparation and submission of counter offers, creation of amend-
ing and condition removal forms and such other activities as appro-
priate to the furtherance of the real estate transaction.
Closing the Commercial brokerages realize the value of providing services to point
Transaction of and beyond closing. The sale or lease of a property opens other
opportunities that brokerages can capitalize on to expand market
share. This concluding segment of the proposal also provides an
opportunity to include a detailed resume for the salesperson along
with specifics concerning the brokerage.
The Residential Listing Presentation

A key part of marketing brokerage services to residential sellers involves the use of a list-
ing presentation. Most owners realize that selling a home is a complicated matter and
seek professional, knowledgeable service. A salesperson should be prepared to demon-
strate how he/she will meet the seller’s needs and explain how many complications can
be minimized through the use of a brokerage.
Salespersons can be better prepared to answer questions and provide a well-researched
presentation if they establish a proper marketing plan. While every presentation is unique,
key considerations include:
• Do I know the owner’s motivation for • Do I have ready, motivated prospects?
selling? • Did I advise the owner to gather all
• Do I know the neighbourhood and site? legal documents?
• Do I know financing alternatives? • Will I require one or two appointments?
• Do I know when they purchased and • Do I have my listing presentation
for how much? planned?
• Do I have comparable properties ready?
STRUCTURED PRESENTATIONS
Most listing presentation manuals (or their electronic equivalent) contain information
about the brokerage, sales force and services provided to buyer and seller needs. The
manual is often customized to suit a salesperson’s individual requirements. The majority
of listing presentation manuals focus on answering three fundamental questions.
• Why list through a brokerage?
• Why use this particular brokerage?
• Why select this specific broker salesperson?
A listing presentation manual could include some combination of the following:
• Brokerage history. • Success statistics, awards and consumer testimonials.
• Franchise affiliation (if applicable). • Pictures of brokerage office and salespeople.
• Print marketing pieces including property cards, • Examples of

virtual or slideshow tours that can
flyers, newsletters and other mailers. make a home stand out against the competition.
• E-marketing strategies including website, e-mail • Complimentary services and strategic alliances.
and related activities.
• Examples of custom CD presentations for listed • Forms.

property.
The listing presentation can be used to direct and guide conversation during the
listing interview, to reinforce the sales representative’s case for listing the property and
explain to the owner how the property will be marketed with that brokerage. Current
technology now allows salespeople to make the full presentation using a personal com-
puter with direct access to brokerage and personal websites. However, nothing replaces
the power of touch and feel. Bring print examples to improve the presentation and leave
a lasting impression.
Be Well Prepared For The Presentation MARKET MEMO
Marketing listing services effectively is critical to your career. Do your homework, always make a full and complete
presentation and fully discuss market realities with the seller.
• ake the same amount of time in listing a property as • xplain to the sellers how they can easily lose the right
you would if you were presenting an offer. buyer for their home. Overpricing may discourage
• Research all recent comparable sales in the immediate genuine buyers.
area. • emonstrate the difference between senti mental value
• now the financial status of the average buyer who and market value.
will be looking for a home in that area. • Be fair with sellers about marketing their home. Accentuate
• Be informed about mortgage options and discuss how the selling features of the home and, at the same time,
sellers may participate in seller take back financing (if point out all the features that may impede the sale of
applicable). the property.
• Get accurate and complete information regarding the • oint out to sellers what they should do to make their
listing; e.g., lot size, taxes and mortgages. properties show better without additional costs; e.g.,
tidying up and general appearance.
• iscuss with sellers the harm that is done by listing
property too high and that overpriced listings help sell
other houses.
MARKETING TO THE BUYER

Many services provided to sellers actually perform a duplicate marketing function as
primary channels to reach potential buyers. Detailed discussion of these marketing
methods are included later in the chapter. In recent years, brokerages have placed increased
emphasis on marketing services directed solely to buyers’ needs. With the rapid growth
of buyer representation in the 1990’s, brokerages now work with buyers as clients (i.e.,
representing their interests) and competition for the buyer’s attention has increased
dramatically. Interestingly, some brokerages in the United States focus totally on buyer
clients and do not list property, but this practice is rare in the current ntario marketplace.
Service-based marketing for the buyer centres on locating acceptable properties, nego-
tiating price and terms, and generally promoting the buyer’s interests. Brokerage websites
often provide detailed information regarding what to look for in a new home, first time
buyer tips and guidelines, home buying checklists and negotiating advice to get the best
price. However, brokerages are increasingly formalizing services offered and, hopefully,
this activity will lead to well documented practices and procedures for the future.
Specific marketing services typically provided regarding property search and offer/
negotiation processes include:
Establish a Buyer Conduct a detailed interview with the buyer to establish property
Profile specifications and special needs/requirements.
Provide Market Equip the buyer with market facts including topics such as school
Information information, neighbourhood details for desired search areas,
community profiles, transportation services, etc.
Identify Target Search for and identify properties that meet buyer preferences
Properties relating to price range, location, property type, age and floor plans.
View Properties Identify properties that meet the buyer’s profile and specifica
tions, and arrange viewings.
Compare Properties Provide guidance in the selection process by comparing features/

benefits of viewed properties, discussing price issues and identifying
key trends that impact the buying decision. Property comparisons
include details of comparable homes currently listed, those that have
recently sold and listings that have recently expired and not sold.
Discuss Professional Assist the buyer in determining what inspections and property
Assistance reports best align with a selected property (or properties) and the
buyer’s profile.
Disclose Material While buyers must take due care when inspecting property, a buyer
Latent Defects brokerage and its representatives must disclose material latent
defects; i.e., physical deficiencies or defects not readily observable
to the typical buyer. Brokerages in their professional capacity are
expected to be aware of circumstances that may indicate hidden
or, at least, not readily apparent defects in a property.
Prepare an Offer Draft an offer and include relevant conditions and other wordings
in accordance with the circumstances at time of offering, the
specific property and particular buyer’s needs.
Negotiate Acceptable Provide guidance in all stages of negotiations, ensure that the
Terms buyer’s interests are at all times protected and that the buyer is
well informed regarding relevant facts in the decision-making
process.
Assist from Sale to Maintain contact with the buyer client, assist where necessary in
Closing fulfilling conditions, preparing appropriate notices, amendments
and other forms as necessary in the furtherance of the transaction,
and providing incidental information as requested by the client
in relation to the transaction.
MARKETING METHODS
Brokerages, brokers and salespersons use various methods to market their services to
buyers and sellers, to promote sellers’ properties and to advance image and reputation
in the marketplace. Certain widely used techniques are included, but this discussion is
by no means exhaustive. Brokerages and their representatives are always seeking better
marketing tools and improved marketing mixes to gain the competitive edge.
Advertising
Advertising Advertising includes any verbal, written or graphic representation in a newspaper, maga-
Any message that influences zine, flyer, handbill, billboard, sign or electronic media such as brokerage and personal
people and generally consists of websites. Unfortunately, many individuals speak of advertising when they are actually
words, illustrations and design referring to promotion and the attainment of specific goals (as opposed to day-to-day
elements in print, electronic or
other media format. advertising tools and techniques) involving an idea, support of a product or reinforce-
ment of a certain image.
Promotion can entail such activities as personal publicity, institutional material to
Promotion
bolster an image and advancement of a particular marketing plan. In turn, promotion is
Promotion is the sum of
marketing-related communica-
tied to marketing strategies that embody the marketing mix necessary to achieve pre-
tion delivered by specific determined organizational or personal goals. A product-based marketing strategy will take
advertising tools. into account consumer wants and needs, pricing, supply and demand, research expenditures,
product development and distribution factors in the marketplace. A service-based strategy
will place appropriate emphasis on elements such as consumer wants and needs, pricing
and supply/demand factors, but then divert focus to promotional materials that
complement the intangible nature of the service; e.g., unique marketing services, print
handout materials, virtual tours, CD presentations, testimonials, guarantees and so on.
Advertising Definition RECO FOCUS
Advertising is very broadly defined as:
“Advertising” means any notice, announcement or representation directed at the public that is authorized,
made by or on behalf of a registrant and that is intended to promote a registrant or the business, services or
real estate trades of a registrant in any medium including, but not limited to, print, radio, television,
electronic media or publication on the internet (including websites and social media sites). Business cards,
letterhead or fax cover sheets that contain promotional statements may be considered as “advertising”.
Source: Real state ouncil of ntario, Advertising Guidelines
Detailed advertising requirements and guidelines are detailed in both Land, Structures and Real Estate Trading and The
Real Estate Transaction—General.
STANDARDS
Advertising standards for real estate brokerages, brokers and salespeople arise from four
primary sources:
• Regulatory requirements as set out in REBBA 2002 and enforced by the Real Estate
Council of ntario.
• Federal statutes (in particular, the Competition Act).
• ffice policy manuals setting out specific internal advertising standards applying to
brokers and salespersons employed by the brokerage.
• Ethical standards established by the professional organization of which the registrant
is a member (e.g., members of organized real estate must abide by the CREA Code
of Ethics and Standards of Business Practice).
WEB LINKS
Advertising Standards Advertising Standards Canada administers the Code of Advertising
Standards which provides useful guidelines about acceptable advertising. While not mandatory, code
provisions are helpful as a selfcheck when developing real estate ads. Go to www.adstandards.com.
RECO Advertising Guidelines Registrants should access the RECO website at www.reco.on.ca
for required advertising standards applicable to all registrants.
INSTITUTIONAL ADVERTISING
Institutional advertising is directed toward the advancement of a specific person or
organization. This advertising is designed to promote goodwill and instill a predetermined
impression in the public’s mind through the use of logos, slogans and specific themes to
advance a market or niche position.
For real estate purposes, institutional advertising is best described as print or electronic
messages that are not directed to the sale of a particular property, but rather the promo-
tion of services to the general public. Institutional advertising by registrants falls under
the general regulatory requirements set out for all advertising under REBBA 2002.
SPECIFIC ADVERTISING
Specific advertising is focused on individual products and services. Specific advertising,
such as the classified ad, outlines property features and benefits (with registrant image
being secondary). The term classified advertising should not be narrowly construed to
print ads alone, given the scope of electronic media available to registrants.
Classified advertising performs various functions including reaching a specific target
market, satisfying the needs of seller clients, promoting sales staff and indirectly building
company image. The majority of readers who respond, in all probability, will not be
qualified prospects and this fact should be kept in mind when constructing an ad for a
property. Frequently, the property does not sell as a direct result of that advertising. Rather,
classified advertising is primarily designed to generate interest.
The ability to create that interest requires word strategy. ne of the most effective
means of developing a good ad is the AIDA formula.
• Get the prospect’s Attention by creating a unique and interesting heading and
related lead line(s).
• Continue to create Interest by outlining the property’s features and benefits.
• Build Desire for the prospect to live in that property or community by describing
a way of life.
• Prompt the reader to take Action by calling the office.
Heading The heading must have instant reader appeal. The best headings
seem to appeal to reader self-interest, introduce new ideas or
features, and arouse curiosity. Most studies agree that the number
one item of interest is location of the property. Ranking close
behind are price and financial terms. Always write the heading
so that readers are persuaded to examine the rest of the ad.
Body Copy nce interest is gained, body copy should comple ment the
heading and induce the reader to look for additional facts. The
real objective of body copy is to get the reader from desire to
point of action.
• Use active words and phrases that cut sharply, register
quickly and are easily grasped by the reader.
• Be truthful and vivid, but don’t exaggerate.
• Avoid abbreviations that can cause confusion.
• Resist long body copy to avoid losing the reader’s attention.
• Always include the price and or financial terms.
• Use fresh words and avoid tired adjectives (e.g., nice, big
and beautiful).
• eep language direct and informative.
As with any form of selling, some type of close is required—
a request for action is necessary. Make certain the reader is
asked to take some action.
All classified advertising undertaken by brokerages, brokers and salespersons in ntario

is subject to requirements as set out in REBBA 2002.
Checklist For Classified Ads MARKET MEMO
ut more power in your advertising once you are registered as a salesperson. Go through the following checklist after
the first draft of an ad is completed.
• oes the ad start with an attention getter • oes the ad provide a clear picture of the
• Is the ad written from the prospect s property
viewpoint • as the ad been properly edited
• ere the strongest appeals selected • oes the ad make it easy for prospects to
• Are secondary appeals fully utili ed inquire
• oes the ad select and qualify prospects • oes the ad ask the reader to take action
Example: Getting the Words Right!

A man was recently moving from Vancouver to Toronto and had two cars and wanted one driven to Toronto, so he
ran an advertisement in the local newspaper:
Dependable individual wanted to drive my car to Toronto—expenses paid.
After a week, only a few replies were received and these proved unsatisfactory. He decided to run the ad one more
time and changed just two words. The new ad generated a flood of calls:
Responsible individual wanted to drive my Jaguar to Toronto—expenses paid.
For Sale Signs

The for sale sign has been the mainstay in most real estate marketing mixes for decades.
While technically part of an overall advertising strategy, it’s importance to the marketing
process cannot be underestimated. A sign is on duty 24 hours a day. The lack of signage
can seriously limit market exposure, as many prospective buyers often drive around
areas looking for signs.
The for sale sign informs all the neighbours that the home is for sale. Neighbours are a
good source of referrals regarding their friends and relatives. Some may even be potential
buyers. Sellers may occasionally object, saying that they do not wish the neighbours to
know. In reality, the neigh bours will know given all the marketing activity planned, not
to mention frequent visits by salespeople. Many factors should be considered when using
a for sale sign.
• In a high traffic area, the sheer volume of people walking or driving by the property
is very effective.
• The sign allows the property to speak for itself. Many registrants now provide wire
less technology along with the sign allowing prospective buyers to tune their car
radio to a designated frequency and obtain details of the listed property.
• Website references on signs are helpful to direct the buyer to additional details, video
tours, etc.
• For the real estate brokerage and salesperson, the sign is a form of institutional adver
tising that enhances personal as well as brokerage image, and the sold sticker is an
excellent success advertisement for the neighbourhood.
• The for sale sign is an extremely cost effective advertising tool that can produce results.
• Don’t forget, a sign placed too long can negatively impact the brokerage and the
broker or salesperson. ther sellers fearing similar fates may not use your services.
• Signs should be regularly inspected and maintained. Lack of attention to the sign
can seriously affect the relationship with the seller. Consider the impression left if
the seller has to report that the sign has been down or damaged for a week or more.
Municipalities often control the size and placement of signs on properties. Certain
locations require permission to erect a sign (e.g., adjacent to a public highway or thorough-
fare), including areas where signs are not permitted (e.g., obstructing the view at an
intersection). Further, specific land lease developments, mobile home parks and gated
communities may restrict signage.
Open Houses
As with signs, the open house has proven to be an effective marketing tool from three
perspectives:
• Exposes the listed property to available buyers;
• Helps in building a portfolio of potential buyers; and
• Demonstrates to the sellers that the best efforts are being used to market and sell the
property.
The success of any open house hinges on both seller and salesperson preparation.
The salesperson should discuss the brokerage’s policies concerning the holding of open
houses. The protection of the sellers’ personal property is particularly important. Valuables
such as jewelry, knick knacks and fragile decorative items should be removed and stored
away from view. Risk of theft or damage should be minimized. Not all homes are ideally
suited to open houses and frank discussion about such matters is essential. For example,
expensive homes are better suited to inspection by appointment only.
GUIDELINES
• Brokerage policies should clearly set out • Make certain that open house provisions
seller and salesperson responsibilities set out in the listing agreement are
when offering an open house. carefully reviewed with sellers.
• Provide a feature sheet regarding the • pen house control rests with the
property. Make certain it is accurate and sales person. If too large a crowd is causing
up-to-date. a problem, admit new visitors only as
others leave.
• Have a marketing strategy to attract • When the open house is over, each room
traffic; e.g., classified ads, flyers, advising should be checked carefully and left in
neighbours and calls/faxes to other the same condition as before the event.
brokerages.
• Use directional signs on the day of the • Brokerages typically have specific
open house. policies concerning lock-up/closing
procedures.
• The salesperson must be present • wners should be thanked and provided

throughout the scheduled time period. immediate feedback.
• Have a registration system (name, • Follow up with registered open house

address and telephone number) for guests is acceptable provided that
persons visiting the property and ensure appropriate consent by the consumer
that the system complies with privacy has been given pursuant to privacy
legislation, as personal information is legislation.
being collected.
Direct Marketing
Direct marketing is undertaken to establish communication links directly with consumers Direct Marketing
in the hopes of developing a long term relationship, typically without any person-to- Marketing methods that convey
person contact. While direct marketing was traditionally associated with mailing pieces, messages directly to consumers
the electronic world has dramatically expanded effective channels of distribution. Currently, and seek to communicate with
those consumers.
direct marketers aggressively pursue online transactions involving everything from books
to vacations. In a very technical sense, real estate brokerages do not get involved in direct
marketing, so much as direct mailings. They are not attempting to transact business on
a non-personal basis, but rather promoting their services and trying to initiate one-on-
one communication with buyers and sellers.
DIRECT MAIL
Direct mail can be very effective when targeting specific geographic areas and groups
(including existing customers and clients), particularly if personalized mailing pieces are
used. However, direct mail (often referred to as bulk mail) can send the wrong message Bulk Mail
to those concerned with paper waste and those not wanting unsolicited advertisements. Promotional or advertising
Notwithstanding such complaints, direct mail remains a viable marketing strategy if the mailings (other than first class)
audience is correctly targeted and response rates warrant the costs. subject to bulk postage rates
that must meet various Canada
Post requirements (e.g., pre-
Addressed vs. Non Addressed sorting).
Direct mail methods used by brokerages typically involve promotional post cards, just
listed cards, mailers including coupons, envelope mailers with customized letters and
flyers (singlefolded promotional sheets). Direct mail can be grouped into addressed, non
name addressed (e.g., business mailings to a title or function at a particular address) or
unaddressed (e.g., bulk mail distributed by carrier route or postal code). Unaddressed
bulk circulars, catalogues and other promotional pieces are also delivered by private
companies. Direct mail can help achieve four objectives:
• Brokerage and salesperson direct mailings can generate new buyer and seller leads.
• Mailings keep the brokerage image in the forefront within specific geographic areas
while complementing that brokerage’s for sale/sold signage within that area.
• Promotional pieces can be used as a followup to other contacts with clients and
customers as a means of maintaining a relationship.
• Mailings can be used to offer special services to consumers; e.g., coupons for a market
evaluation at no cost.
Cost and Related Considerations
Direct mailings can be very cost effective assuming a reasonable response rate (known
in the industry as the cost per inquiry rate—total cost divided by number of inquiries
received). Bulk mailers are able to lower costs by presorting mailing pieces destined to
specific post offices or carrier routes. The lowest postal rates are those involving non-
addressed mailings. Lastly, anyone contemplating a direct mail campaign should carefully
review minimum/maximum size, weight, bulk postage rates and addressing requirements
for different services offered by Canada Post.
Bulk Mailings and Postal Codes CURIOSITY
Registrants contemplating bulk mailings should understand how postal codes work. The first three digits represent the
Forward Sortation Area (FSA). An FSA can include 20 to 25 individual carrier routes in dense urban areas with proportionately
fewer in less populated regions. The second three digits represent the Local Delivery Unit (LDU). LDU’s involve a very
small portion of the FSA and can focus mailings to specific geographic areas such as a portion of a city block or a
single office tower. For additional information, contact Canada Post Corporation.
WEB LINKS
Canada Post Corporation The Canada Post website sets out complete product rates, prices
and mailing specifications for various postal services. Go to www.canadapost.ca.
E-MAIL
Direct mail has made a smooth transition into the electronic world using the power of
e-mail delivery. This method of communication is effective not only in promoting services,
but also maintaining ongoing contact (commonly referred to as customer relationship
management). A significant factor in the growth of e-mail direct marketing is the PDF
(Portable Document Format). The PDF allows for the conversion of print advertising
materials into e-mail attachments that can be readily used for online advertising. E-mail
promotions can be easily developed and virtually any direct mailing print strategy can be
readily converted into an e-mail campaign. Further, new advances in HTML (Hypertext
Markup Language) allow for web pages within an e-mail that permit various
functionalities including clickable buttons and forms completion.
Marketing Challenges
E-mail marketing is not without challenges that await the uninitiated. Effective e-mail
strategies require technology beyond what most personal or small business e-mail systems
can provide. Fortunately, e-mail service providers are available to assist. E-mail marketing
Opt In/Opt Out requires continuous updating of lists, handling opt in/opt out consumer requests usual
Permission-based electronic to permission-based distribution systems, processing customer requests and generally
communication in which the monitoring activity generated through e-mail promotions.
consumer agrees to receive
e-mail and related promotional
Regardless, this marketing option offers significant opportunities for brokerages, not
materials (opt-in) typically by to mention noteworthy cost savings over traditional mailing strategies. Automatic tracking
registering personal contact of results is much easier than manually-oriented direct mail campaigns and distribution
information on a website, or
providing an instruction to is almost instantaneous. Lastly, e-mail campaigns are much easier to customize for specific
terminate such an arrangement target markets. However, as with all forms of advertising, success lies in the content.
(opt-out). Brokerages have to ensure that e-mail materials are timely, informative and provide true
value to the consumer. In the electronic world, as with print media, content is king.
Permission-Based
Spam
Recipients specifically consent to As a final cautionary note, the very qualities that make e-mail promotions attractive also
receiving promotions, typically
associated with e-marketing. fuel its misuse. Inbox clutter from thousands of junk mail spammers has taken its toll.
Consumers have moved from the delete key as the weapon of choice to spam filters that
automatically reject spam mailings allowing only legitimate messages to enter. What began
as a wide open communication system is now increasingly restricted. Success these days
lies in building and maintaining a powerful consumer database of willing e-mail recipients
who are truly interested in the registrant’s specific services.
Internet
Today’s brokerage websites boast property searches, interior video tours of listed properties,
mortgage calculators, home evaluations, relocation services and various offers through
linked service providers (e.g., movers and home inspectors). Not only can websites provide
valued services to existing clients and customers, but they also serve as a powerful lead
generating source for brokerage websites, as well as broker and salesperson personal web-
sites (see Market Memo: Sources of Internet Leads).
PUSH/PULL TECHNOLOGY
Internetbased marketing is essentially a pull technology. In other words, customers are
drawn to the site given benefits, features and value-added services, as opposed to e-mail
which is typically viewed as a push technology. With push technologies, information must
be sent outwards in hopes of gaining interest, receiving opt-ins, developing a business
relationship and ultimately retaining consumer loyalty. In reality, any welldesigned
e-marketing strategy includes both pull and push technologies.
Effective pull features involve brokerage or personal websites that link to searchable
databases (e.g., realtor.ca), open house schedules, real estate market data, demographics,
schools, local interests (attractions, parks and events) and other information relevant to
buyers and sellers. E-mail features complement the process with push e-mail alerts for
new listings that meet the buyer’s property search criteria. Such systems also typically
generate follow-up reminders for salespersons concerning buyer requests to locate property
and seller requests for market evaluations.
CO-ORDINATING PRINT AND ELECTRONIC MARKETING

Brokerages initially viewed websites and e-mail marketing as distinct activities apart from
their mainstream advertising and promotion activities, but are discovering that the most
effective marketing programs include all channels of communication with consumers. In
fact, cross linking those channels has proven very effective. For example, website addresses
should be actively promoted on everything from business cards to envelopes and billboards.
When property information or newsletters are sent by regular mail, don’t forget to provide
an e-mail announcement to those customers as well and include PDFs.
LEAD GENERATION/CUSTOMER CONTACT SOFTWARE

Brokerages, brokers and salespersons are now acquiring structured lead generation and
customer contact software to ensure ongoing communication with clients and customers.
E-marketing companies provide the software, graphics and customized content for use
in creating print materials and e-mailing attachments. These systems co-ordinate the
orderly, periodic distribution of information to target groups. Current marketing lingo
refers to such methods as drip marketing (taken from the world of irrigation systems)
that involves direct marketing strategies to periodically distribute various promotional
materials over time, which are intended to nurture an ongoing relationship.
Sources of Internet Leads MARKET MEMO
The 2006 REALTOR® Technology Survey (USA) produced some interesting findings regarding lead generation on the
Internet. While personal referrals and repeat customers are the mainstay, Internet generated leads are increasingly focal.
Twenty-eight percent of survey respondents indicated that Internet leads accounted for between 11% and 40% of leads
received, with 14% stating that more than 60% of leads were generated through that source. Further, according to
survey results, the two top sources for Internet leads were the brokerage website and the personal website.
Source 2006 REALTOR® Technology Survey, Center for REALTOR® Technology, National Association of REALTORS®, 2006.
Multiple Listing Service®

The Multiple Listing Service® is best described as a system for the orderly co-ordination
and dissemination of listing information to members. Wide spread use of MLS® by
brokerages is testament to its effectiveness. The advantages of MLS® are noteworthy:
• Buyers and sellers receive the benefit of wider exposure in the marketplace, as
opposed to limited, individual brokerage promotion.
• Sellers gain greater marketing access.
• Buyers enjoy expanded market selection.
• The needs of both buyer and seller are more easily addressed through the larger
marketing system.
• Procedures are subject to rules and regulations as established and enforced by the
boards.
• A central source for inventory, trends and general market information assists both
registrants and consumers.
MLS® RULES AND REGULATIONS

The strength of the MLS® system over the years is due in no small way to effective control
by real estate boards. Board by-laws require that members comply with the MLS® rules
and regulations and the CREA Code of Ethics and Standards of Business Practice. The
MLS® rules and regulations can be very detailed, depending upon the size and scope of
board operations.
The ntario Real Estate Association recommends a standard wording for MLS® rules
and regulations, but variations do exist in the province. Typically, the rules and regulations
address:
• General rules;
• Agency disclosure;
• Listing agreements;
• Advertising and appointments;
• Commissions and deposits;
• pen houses;
• Submission of offers;
• Reporting of sales; and
• Computer services.
In addition, real estate boards typically set out policies (approved by the board of
directors as is the case with the MLS® rules and regulations) which provide detailed informa-
tion on the operational aspects of the MLS® system; e.g., instructions concerning listing
forms, data information sheets, sale and price information and use of photographs.
REALTOR.CA
Technology has continued to increase consumer access to selected MLS® information.
The Canadian Real Estate Association provides a public website which is the national
gateway for both residential and commercial properties. This website puts consumers in
touch with REALT RS regarding MLS® property advertisements. In addition to the
website, consumers can access property advertisements and other relevant real estate
information and tools using their iPhone, iPad or Android phone.
The Information Exchange etwork (I ), an extension of the national website,
permits the sharing of confidential information (e.g., legal description, municipal identi-
fication and commission arrangements, etc.) between members of organized real estate.
I facilitates the uploading of data by boards in a similar manner to the MLS® national
website.
WEB LINKS
Residential and Commercial MLS® Properties Go to www.realtor.ca.
KNOWLEDGE
INTEGRATION
Notables
• Marketing is directly involved in the • Market position involves the creation of
satisfying of consumer needs and wants, an identity in the minds of consumers.
and has become an integral part of most Brand loyalty is often a result of effective
successful business enterprises. positioning.
• Real estate brokerages and their represen • Brokerages are continuously seeking to
tatives provide intangible services, but broaden competitive advantages. Three of
also offer tangible products on behalf of many possibilities are included: strategic
sellers. alliances, concierge services and market
• A marketing mix based on Product, Price, synergism.
Promotion and Place provides a sound basis • Primary marketing research tools for real
upon which to build a marketing plan for estate brokerages include surveys, focus
either a product-based or serviced-based groups, personal research and accessing
organization. secondary sources.
• Customer service is a driving force within • Salespeople develop specific marketing
the marketplace and focal to a brokerage’s strategies for sellers. Commercial
competitive stance. registrants frequently use marketing pro-
• Defining moments represent consumer posals, while their residential counterparts
contacts with an organization. Every work with listing presentations.
point of contact can be either favourable • Buyerspecific marketing services are
or unfavourable and consumers mentally evolving in the marketplace. Ten services
keep track. are outlined that focus on the property
• alue added services are important in search and the offer/negotiation process.
developing a strategy for superior customer • Advertising can be broadly classified as
service. institutional or specific. A good example
• A marketing strategy typically focuses on of specific advertising is the classified ad.
overall directions for an organization. A • Both direct mail and email have proven
marketing plan puts specifics in place to to be effective marketing methods.
pursue those directions. • Sound brokerage marketing strategies for
• Two key aspects in marketing strategies the Internet should include both push and
and plans involve selecting target markets pull technologies.
and creating a market position. • The widespread use of MLS is testament
to its effectiveness in co-ordinating and
disseminating listing information.
Glossary
Advertising Direct Marketing Personal Branding
Bulk Mail Marketing Mix Promotion
Bulk Postage Rate Marketing Period Qualitative Research
Core Competencies Marketing Proposal Quantitative Research
Customer Relationship Opt In/Opt Out Value Added Services
Management Permission-Based
Web Links
Advertising Standards Advertising Standards Canada administers the Code of Advertising Standards
which provides useful guidelines about acceptable advertising. While not
mandatory, code provisions are helpful as a self-check when developing
real estate ads. Go to www.adstandards.com.
RECO Advertising Guidelines Registrants should access the RECO website at www.reco.on.ca for
required advertising standards applicable to all registrants.
Canada Post Corporation This website sets out product rates, prices and mailing specifications for
various postal services. Go to www.canadapost.ca.
Residential and Commercial Go to www.realtor.ca.
MLS® Properties

1. What value added services can I 4. What best practices can I undertake to
introduce that will improve my com- set me apart from others and achieve
petitive stance once I am registered higher levels of customer service?
as a salesperson?
5. Can my intended employing brokerage
2. What marketing strategies and market- help me in locating additional informa-
ing plans does my intended employing tion regarding direct mail and e-mail
brokerage currently have and how can strategies that will advance my career,
I use those to my advantage in build once I am registered as a salesperson?
ing a career?
6. Do salespeople that I currently know
3. What marketing innovations, particu- use specific lead generation and cus-
larly those involving new technology, tomer contact software or other pro-
will make my marketing proposals or grams that will assist in providing
listing presentations more effective? improved service to clients and
customers?
Chapter Mini-Review
1. The four P’s that make up a marketing 3. A valued added service, as originally
mix are Product, Price, Promotion used in the telecommunications
and Process. industry, referred to a service that could
be added to a basic service and usually
True False sold at a premium.
2. A defining moment for purposes of True False

customer service in a real estate bro-
kerage refers to a contact point between 4. The term target market refers to a
a consumer and someone in the specific group, but not a geographic
brokerage. area.
5. Positioning involves the creation of 10. The AIDA formula in adver tising stands
an identity within the consumer’s for Attention, Information, Decision
mind. and Action.
6. Finding a unique service can be an 11. Municipalities may control the size and
important consideration in placement of for sale signs.
establishing a market position.
True False
True False
12. Direct mail can be effective, but may
7. Focus groups can be effective because send the wrong message to those
they provide important quantitative concerned about paper waste and the
data to assist organizations in deve- environment.
loping marketing strategies.
True False
True False
13. An opt-in for e-marketing purposes
8. A listing presentation manual or its refers to a consumer agreeing to receive
electronic counterpart addresses three e-mail by providing personal contact
questions, one of which is: Why use information on a website.
this particular brokerage?
True False
True False
14. MLS® Rules and Regulations are esta-
9. A good example of institutional adver- blished and enforced by brokerages,
tising is a classified ad setting out the not real estate boards.
main features of a specific listed
property. True False
True False


1.1 When developing a marketing mix using the four P’s, detailing specifications for
specific goods or services falls under:
a. Price
b. Promotion
c. Product
d. Place
1.2 The term defining moment is most closely associated with:

a. Customer service.
b. Focus groups.
c. Market position.
d. Strategic alliances.

a. Marketing strategies in a brokerage are always established solely by management.
b. Property valuation is one of several components that may be included in a
commercial marketing proposal prepared for a seller.
c. Service-based and product-based marketing strategies are essentially the same,
as both deal solely with tangible items.
d. Marketing research using the survey method is most appropriate when delving
into individual responses to better understand underlying motivations.
1.4 In marketing terms, the competitive advantage gained by a brokerage that secures
and offers a unique, valued service in the marketplace is commonly referred to
as:
a. A differentiation advantage.
b. A cost advantage.
c. A target market advantage.
d. A best practices advantage.
1.5 Core competencies:

a. Are useful in analyzing the competitive capacity of most business enterprises,
but do not apply to real estate brokerages.
b. Are useful when discussing marketing research, but are not relevant when
developing a market strategy.
c. Refer to skills, assets and techniques that form the basis of an organization’s
competitive capacity.
d. None of the above.
1.6 Various services are typically provided to buyers in the property search, offer and
negotiations process. Which of the following is T one of them?
a. Establishing a buyer profile.
b. Comparing properties.
c. Marketing the property.
d. Negotiating acceptable terms.
1.7 Specific advertising involving real estate brokerages typically focuses on:
a. Advertising that promotes the brokerage’s image in the marketplace.
b. Advertising property features and benefits.
c. Advertising that promotes personal branding and brand loyalty.
d. Advertising that provides information on services provided to consumers.
1.8 Which of the following statements is most correct regarding open houses?
a. An open house is always the best marketing approach when selling expensive
homes.
b. A registered broker or salesperson need not be in attendance, as long as someone
is there to greet the open house guests.
c. A registration system for open house guests is not permitted under privacy
legislation.
d. Brokerage policies regarding open houses should be fully reviewed with sellers,
prior to the open house.
1.9 Direct marketing:

a. Is limited to mailing pieces that can be sent using bulk postage rates.
b. Is best defined as direct persontoperson communication between the con
sumer and the person providing the service or product.
c. Includes both traditional direct mailings and email marketing strategies.
d. Is not widely used in Canada given inherent limitations.
1.10 A pull technology, when discussing the Internet, refers to:

a. Website features such as searchable databases that draw consumers to a
particular site.
b. Information that is sent outwards via email to the consumer in hopes of
initiating communication.
c. Personal information that is pulled from purchased electronic mailing lists
in order to initiate communication with consumers.
d. None of the above.
Exercise 2 Matching
Based on your knowledge of marketing and customer service, match the phrase/word
in the left column with the appropriate description in the right column (not all phrases
are used).
___ realtor.ca a. Unique Service
___ Drip Marketing b. Promotion of a Person or

Organization
___ Differentiation
c. Win, Place or Show
___ Scope of Work
d. Lead Generation/Customer Contact
___ Positioning
Software
___ Institutional Advertising
e. AIDA Formula
___ For Sale Sign
f. Municipal Limitations/Restrictions
g. The Canadian Real Estate Association
h. Commercial Marketing Proposal
Exercise 3 Short Answer Questions

3.1 Briefly explain the difference between a marketing strategy and a marketing plan.
3.2 Identify three reasons why open houses have proven to be effective marketing
tools from both the salesperson’s and the seller’s perspectives.
3.3 What four primary sources of advertising standards apply to brokerages, brokers
and salespersons?
3.4 Distinguish between cost and differentiation advantages and explain why cost
advantages are often not sustainable.
SECTION IV
INTRODUCTION TO
MATH SKILLS
Section IV contains three chapters focusing on math and related skills required
in a real estate career. Chapter 7 highlights basic calculation skills involving
fractions, decimals and percentages including the use of a calculator followed
by area, volume and building measurements. Chapter 8 concentrates on
mortgage mathematics with particular emphasis on mortgage financing
fundamentals including mortgage qualifications and interest rate calculations.
The final chapter highlights calculations that
arise at various points in the negotiating and
closing processes including using capital-
ization rates, taxation (land transfer tax and real
property tax) and adjustments made at closing.
226
CHAPTER 7
Mathematics,
Measurements and
Metric/Imperial
Conversions
Introduction
Measurements are key to real estate negotiations and drafting offers. Raw land prices
are often based on value per acre/hectare. In new house construction, lot dimensions
and total area are focal to building permit applications and zoning by-laws. Residential
living area and commercial rentable/usable area are used in rental/sale negotiations and
when comparing properties. Volume measurements come into play with warehousing
and other industrial uses.
To compound matters, real estate straddles both metric and imperial worlds. Most
discussions still centre on square footage and acres, but
metric is gradually expanding; e.g., new home construction.
Knowledge of both systems, including conversion
formulae, is essential.
Learning Outcomes
• Complete calculations involving fractions, decimals
and percentages.
• Detail and apply metric imperial conversions to typical
real estate measurement situations.
• Complete calculations involving regular and irregular
areas, and related linear measurements.
• Calculate selected volume measurements.
• Apply living area measurements criteria to residential
property.
• Discuss briefly the fundamentals of rentable and
usable measurements of commercial space.
SECTION IV I N T R O D U C T I O N T O M AT H S K I L L S
227
BASIC MATH SKILLS

Registrants frequently are involved in math skills requiring fractions, decimals and
percentages. A reference table is provided showing conversions for each along with
detailed information when working with percentages. Instructions are summary in
nature and presume a reasonable knowledge of math skills involving addition,
subtraction, multiplication and division.
Fractions, Decimals and Percentages

Each represents the same number expressed in a different way.
FRACTIONS DECIMALS PERCENTAGES

• ost commonly used in • ommonly used in real estate • Rate or proportion in relation
general measurements. calculations. to 100.
• ecimals are actually fractions • ommonly used with real
with the denominator estate price/trend analysis.
expressed as a power of 10.
Fraction to Decimal Conversion Decimal to Percentage Conversion

Divide the numerator by the denominator Multiply the decimal by 100
SCENARIO 5 numerator
(part of the group) 62.5%
You have shown 5 properties .625
8 denominator
from a total of 8. (the whole group)
Ten of the total sales force, 10

consisting of 24 salespeople, .416 41.6%
received sales awards. 24
On Wednesday, the salesperson 6

received 12 calls and converted 6 .50 50%
to appointments. 12
On Thursday, you expect to 12

visit 12 homes out of 40 on a .30 30%
particular street. 40
Smith's lot has 24,500 square 3,000

feet and his house occupies .12 12%
3,000 square feet of that space. 24,500
A house is sold for $109,000 109,000

but the original listing price .96 96%
was $113,500. 113,500
I N T R O D U C T I O N T O M AT H S K I L L S SECTION IV
228 Chapter 7 Mathematics, Measurements and Metric/Imperial Conversions
Rounding
• Real estate calculations are typically EXAMPLE Rounding
rounded to one or two digits.
6.33842 rounded to:
• Most calculations in this text are rounded
four decimals is 6.3384
to two digits. Dollars are typically round
ed to the nearest dollar. three decimals is 6.338
two decimals is 6.34
• o rounding is done in sequential calc
ulations. Examination marks are not one decimal is 6.3
deducted for minor answer differences

due to rounding.
• If digit being rounded is 5 or higher, add one; if digit being rounded is 4 or lower,
add nothing.
Working with Percentages

A percentage is a portion or part of the whole. Every percentage consists of three
components:
• Whole
• Rate
• Part
CALCULATING UNKNOWNS
$100,000
$400,000 $100,000 $400,000
Mathematics, Measurements and Metric/Imperial Conversions Chapter 7 229
PERCENTAGE CHANGE
USING A CALCULATOR
Most calculators use algebraic logic for basic math ematical calculations. While students
are free to use any calculator, the HP 10BII is highly recommended.
EXAMPLE Basic Calculation
FUNCTION KEYSTROKES ANSWER
Addition 4 + 8 = 12
Subtraction 8 – 4 = 4
Division 4 ÷ 8 = 0.5
Multiplication 4 x 8 = 32
EXAMPLE Sequential Calculation

Calculate items within parenthesis first, then perform multiplication and division from left to
right. Finally, perform remaining addition and subtraction from left to right.
PROBLEM SOLUTION
(4 – 1) ÷ 3 3÷3=1
6 + (4 x 3) 6 + 12 = 18
(4 x 6) – (12 ÷ 3) 24 – 4 = 20
EXAMPLE Percentage Calculation

A house was sold for $280,000 and the commission was 4%:
*Some calculators may not require the key
Additional Scenarios
Addition: The house was resold for 10% more than its original sale price:
Subtraction: The house was resold for 10% less than its original sale price:
Multiplication: The 10% increase/decrease amounted to a change of:
Division: The house sold for 80% of what it is expected to sell for next year:
The HP 10BII
Financial calculations in pre-registration and articling segment courses are illustrated
using HP 10BII keystrokes. Students are free to use other calculators, but no assistance or
support will be provided. Calculations are based on seven decimal places.
Topics covered in this course provide the foundation for more advanced study in
subsequent courses.
WEB LINKS
HP 10BII Additional information about using the HP 10BII business calculator can be found at
www.hp.ca.
MEASUREMENTS
Real estate is slowly converting from imperial to metric. Registrants face the everyday
reality of working with both systems, particularly for distance (linear) and area
measurements. Exercises are included for metric/imperial and imperial/metric conversions.
Area Measurement
Registrants are involved most frequently with three measurements:
Feet/Metres e.g., room measurements and lot sizes.
Square Feet/Square Metres e.g., square footage of house, condominium and

commercial premises.
Acres/Hectares e.g., total and workable farm acreage and rural/

recreational vacant land and building lots.
Metric/Imperial Conversions
Registrants are expected to be conversant in both metric and imperial. A reference chart
is provided at the end of this chapter.
Metric/Imperial Equivalencies
DISTANCE IMPERIAL METRIC AREA IMPERIAL METRIC

1 inch = 2.540 centimetres 1 sq. inch = 6.452 sq. centimetres
1 foot = 0.3048 metres 1 sq. foot = 0.093 sq. metres
1 yard = 0.9144 metres 1 sq. yard = 0.836 sq. metres
1 rod = 5.029 metres 1 acre = 0.405 hectares
1 mile = 1.609 kilometres 1 sq. mile = 2.590 sq. kilometres
METRIC IMPERIAL METRIC IMPERIAL

1 centimetre = 0.3937 inches 1 sq. centimetre = 0.155 sq. inches
1 metre = 3.281 feet 1 sq. metre = 10.76 sq. feet
= 1.094 yards 1 sq. metre = 1.196 sq. yards
1 kilometre = 0.6214 miles 1 hectare = 2.471 acres
1 sq. kilometre = 0.386 sq. miles
OTHER 1 hectare = 1 sq. hectometre
1 link = 7.9 inches = 20.1 centimetres
1 chain= 100 links = 66 feet = 4 rods = 20.1 metres OTHER
1 rod = 1 perch = 1 pole = 16.5 feet = 5.0 metres 1 acre = 43,560 sq. feet = 10 sq. chains = .4 hectares
1 mile = 80 chains = 320 rods = 5,280 feet 1 sq. foot = 0.000023 acres
= 1,760 yards = 1.6 kilometres 1 sq. mile = 640 acres = 258.1 hectares
WEB LINKS
Metric/Imperial Conversion Online and downloadable conversion calculators are available on
many web sites; e.g., www.metric-conversions.org/conversion-calculators.htm.
Rectangular
Area measurement may involve a single rectangular shape or a combination forming an
irregular pattern. For irregular rectangular shapes, calculate the total area as if a rectangle
and subtract the non-building areas. This approach can be used for both buildings and land.
Describing Lot Size CURIOSITY
More or less standardized lot size descriptions are found in the marketplace when providing dimensions for vacant
land and building lots. Fortunately, most real estate boards present lot dimensions in a consistent fashion, but local
practices can differ and registrants should inquire further. The dimensions of a site are typically described as follows:
• Frontage is that side of a site that abuts a public street or highway. Frontage is basic to value and is an
important factor in determining accessibility and prominence.
• epth is the distance between the front and rear lot lines.
• idth is the distance between the side lines of a lot. he depth and width of a lot may be consistent, or
they may vary, depending upon its shape.
• Shape of a site is its form, determined by the frontage, depth and width.
Lot Size
• Area is the si e of the site, measured in square metres, square
7,500 sq. ft.
feet, hectares and acres.
As a matter of consistency when making reference to the frontage
and depth of sites, the frontage measurement should always be shown
100 feet
Depth
first. Registrants should clearly set out lot size so that prospective buyers
are not confused and the appropriate frontage is identified. The seller
Frontage
may provide an existing survey pending the buyer’s full investigation of 75 feet
the property.
In the case of waterfront cottage properties, frontage commonly refers
to the side that abuts the body of water.
Measured frontage (i.e., by the front foot or front metre) can be key
to value; e.g., waterfront property or prime commercial location.
EXAMPLE Comparing Cottage Lots

Buyer Gannon is considering two lakefront lots on a distant Ontario lake:
• ot 1 measures 100 x 230 isted at $1 ,500
• ot 2 measures 125 x 1 0 isted at $1 ,500
he salesperson advises that lots sell for approximately $1,500 per front foot. hile both are roughly equivalent
in si e (total square footage), ot 1 is priced at $1, 5 per front foot ($1 ,500 100 feet) and ot 2 is priced at
$1,35 per front foot ($1 ,500 125 feet). Assuming no other significant differences and also assuming that added
depth has no significant value (i.e., unusable area), ot 2 appears as the better priced lot.
Non-Rectangular
RIGHT ANGLE TRIANGLE
ne of the angles is 90 . Where the two perpen
dicular lines meet, one is considered the base
and the other the height.
Total Area ½ x (Base x Height)

½ x 50’ x 110’ = 2,750 sq. ft. 110'
50'
IRREGULAR
Draw an imaginary line to create two areas.
Calculate Area #1 as a triangle (½ x (base x
60'
height)) and Area #2 as a rectangle.
Area #1 1/2 x (40’ x 100’) = 2,000 sq. ft.

Area
#2 100'
Area #2 60’ x 100’ = 6,000 sq. ft.
Total Area Area #1 + Area #2 Area
2,000 + 6,000 = 8,000 sq. ft. #1
40'
PARALLELOGRAM
Four-sided figure with parallel opposite sides.
Total Area Length x Perpendicular Height

50’ x 40’ = 2,000 sq. ft.
perpendicular
45' 40'
height
50'
TRAPEZOID
Four-sided figure with two sides parallel.
Total Area Sum of Parallel Sides x 1/2 45'

Perpendicular Height
(45’ + 65’) x (1/2 x 24) = 1,320 sq.
ft. 27' perpendicular 24'
height
65'
Ridge
BUILDING VOLUME
A flat roof is typically, but not always,
measured from 6 inches below the floor
surface to the roof top. In the case of gable 5' 6"
Eave
roofs, the measurement is normally from
6 inches below the floor surface to half-
way between the eaves and the ridge. 18'
When calculating cubic volume,
exterior measurements are used. While
it’s relatively easy to determine the length Floor Surface
and width of a building the height is not 6" Below Floor Surface
as obvious. The height measurement is (not to scale)
taken from the underside of the basement
floor or slab. Since there’s typically no way of knowing the thickness of the basement
floor, a generally accepted principle is to allow 6 inches (0.5 feet) for the thickness.
Volume Measurements
Volume measurements are frequently encountered in development/construction; e.g.,
cubic yards/metres of fill required, volume of basement excavation and concrete drive-
way requirements.
CUBE OR BOX SHAPE

• olume = Length (L) x Width (W) x Height (H)
• 1 cubic foot = 12 x 12 x 12
• 1 cubic yard = 3 x 3 x 3
• To convert cubic feet to cubic yards, divide by 27
• To convert cubic yards to cubic feet, multiply by 27
BUILDING AREA MEASUREMENTS

o standardized system of residential living area measurements is used across Canada.
Generally, such measurements include the total area of all habitable rooms, but differences
Living Area Measurements
exist in how below grade rooms, stairwells and other unique features are measured. To
A measurement method,
compound matters, terminology used and definitions provided can also vary across the endorsed by the Alliance for
country. Registrants must fully investigate local practices. Additional cautions include: Canadian Real Estate Education
(ACRE), setting out living area
• All external measurements necessitate measuring tape with a hook at the zero end. calculations for various styles of
• Use internal measurements, allow for wall thickness and include appropriate notes houses; e.g., one-storey, 1½
storey, bi-level and 2-storey.
if unable to secure outside measurement.
The Alliance for Canadian Real Estate Education (ACRE) provides a recommended
measurement procedure, which has been included for information and descriptive
purposes only. ACRE is a partnership of provincial and territorial real estate associations
working together to develop and provide high quality education materials.
ACRE Guidelines Terminology—Residential

Above Grade Total floor area situated above grade.
Differing Living Sum of total floor area for each above-grade floor.
Levels
Miscellaneous Includes utility rooms, storage areas and cupboard areas within main
Areas living areas.
Excluded Areas Porches, decks, patios (whether closedin or screenedin or otherwise),

garages, carports, recreational or cold rooms in basements, or other
areas situated below grade that do not have (at least) crawl space below.
Separately itemized and described in listing details.
Exterior Detached
Measurement Outside surface of exterior walls.
Row Houses – End Unit
From centre line of party wall(s) and outside surface of exterior walls.
Row Houses – Interior Unit
From centre line of party wall(s) to centre line of party wall(s).
Semi-Detached and Row House End Units
From centre line of party wall and outside surface of exterior walls.
ACRE Measurements Guidelines—Residential

Reprinted With Permission. Copyright: Alliance for Canadian Real Estate Education
Example 1 One-Storey Example 2 One and One-Half Storey
40
Area B 26 26
Area A
26 Area A 2nd
Main Floor
32 32
Area A Floor
Area B 2 Area
Area A B
16
14
Area A—Main Floor 26 x 40 = 1,040 sq ft Area A—Main Floor 26 x 32 = 832 sq ft

Area B—Main Floor 2 x 16 = 32 sq ft Area B—Second Floor 32 x 14 = 448 sq ft
House area based on guidelines 1,072 sq ft House area based on guidelines 1,280 sq ft
Measurement Method Measurement Method

Measure exterior dimensions. Measure exterior dimensions, except for 1/2 storey.
Calculation Calculation
ength x idth of xterior / Jogs ength x idth (see Areas A B above)
Exterior Dimensions Exterior Dimensions

Show length and width of exterior dimensions and show length Show length and width of exterior dimensions and show length
and width of jogs. and width of any jogs.
Note: The length of the 2nd floor area will usually be the same as
the length of the main floor but the width between vertical interior
walls of the 2nd floor can only be obtained by measurement.
ACRE Measurements Guidelines—Residential (continued)

Example 3 One and One-Half Storey (With Dormers) Example 4 Bi-Levels
Dormer— 5 x 7
36
Area B C& 26 26
D Area A
Area A
30
2nd C Upper Level Only
32
Main Floor
Area A Floor 32 For Bi-Levels
Area
Area A B D
14
Dormer— 5 x 7
Area A—Main Floor 26 x 32 = 832 sq ft Area A Upper evel 3 x 30 1,0 0 sq ft

Area B—Second Floor 32 x 14 = 448 sq ft House area based on guidelines 1,080 sq ft
Area Second Floor 2 x (5 x ) 0 sq ft
House area based on guidelines 1,350 sq ft Measurement Method
Use exterior dimensions only.
Measurement Method Calculation
Use exterior dimensions only, except for 1/2 storey. ength x idth of xterior / Jogs of ne evel nly
Calculation Exterior Dimensions
ength x idth (see Areas A, B, above) Show length and width of exterior dimensions and show length
Exterior Dimensions and width of any jogs.
Show length and width of exterior dimensions and show length
and width of jogs.
Example 5 Three Level Split Example 6 Four Level Split

Upper Level
Bedrooms
40
Main Fl. Upper
Area A Area B Level and
26 Area A Lower 28
Living Lower Levels
Level Areas
40 B&C
Area C
24
B.R.'s Bsmt.
Area A Crawl Space 16
26 Area A 28
Living
Bsmt.
Crawl Space 24 Area B 2
16 Area A
Area A—Main Floor 26 x 24 = 624 sq ft

Area A ain Upper Floor 2 x 0 1,0 0 sq ft Area B and Area C 2 x (16 x 28) = 896 sq ft
Area B—Upper Overhang 2 x 16 = 32 sq ft House area based on guidelines 1,520 sq ft
House area based on guidelines 1,072 sq ft
Measurement Method
Use exterior dimensions.
Measurement Method
Use exterior dimensions. Calculation
ength x idth of xterior For ach evel otally Above Grade /
Calculation
Jogs
ength x idth of xterior / Jogs of ne evel nly
Exterior Dimensions
Exterior Dimensions
and width of any jogs.
and width of jogs.

Example 7 Four Level Split With Built-In Garage Example 8 Basic Two-Storey
Main Floor Family Room

Beside Garage and Below
Bedrooms
28
Area A
B.R.'s 40
Area B
Area A 12
Main & 2nd
Area B Floors
Blt-In Garage Living
With Fam Rm 14 28
(B) Beside It 26 Area A
Bsmt.
Area A Areas A & B
Area A ain Floor Bedrooms 2 x 0 1,0 0 sq ft

Area B—Family Room 12 x 14 = 168 sq ft Area A—Main Floor 28 x 28 = 784 sq. ft
House area based on guidelines 1,208 sq ft Area B—Second Floor 28 x 28 = 784 sq ft
House area based on guidelines 1,568 sq ft
Measurement Method
Use exterior dimensions. Measurement Method
Use exterior dimensions.
Calculation
ength x idth of xterior For ach evel otally Above Grade / Calculation
Jogs Garage ength x idth of xterior x 2 / Jogs

and width of jogs. and width of jogs.
Example 9 Two-Storey With Built-In Garage Example 10 Two and One-Half Storey
40 24
2nd Floor Bedrooms

30 1st and 2nd
Bedrooms Area C Floors
Area B 24
Area B Areas A & B
26 Area B
Living
Garage Main Floor
Area A Living Area
30
Bsmt.
Area A
Area A 3rd Floor
24
Built-In Area C
Garage
13
Area A ain Floor ithout Garage 2 x 30 0 sq ft Area A B 1st 2nd Floor 2 x (24 x 24) = 1,152 sq ft
Area B—Bedrooms 30 x 40 = 1,200 sq ft Area C—Third Floor 13 x 24 = 312 sq ft
House area based on guidelines 1,980 sq ft House area based on guidelines 1,464 sq ft
Measurement Method Measurement Method

Use exterior dimensions. Use exterior dimensions, except for 1/2 storey.
Calculation Calculation
ength x idth of xterior x 2 / Jogs Garage ength x idth (see Areas A, B above)

and width of jogs. and width of any jogs.

Example 11 Two-Storey Example 12 Two-Storey With Vault/Slope
(Open Two-Storey Foyer/Other, From Main)
26 26
28 Area B
Area B Main Floor
Main & 2nd 32 2nd Floor

Floors
28 Area A Area A Area B
Area A Areas A & B
The standard to use when measuring a home with an open area here the twostorey walls are full height on one side, the area
for the full two storeys, is to measure the exterior dimensions and should be measured as two floors. The area beneath the slope on
double for the two storeys, minus the interior open area measurement. the opposite side would be measured as one floor. The vaulted
ceiling area should not cause a doubling of the area. Any lofts or
catwalks should be measured separately and added to the living area.
Example 13 Walkout Basement Example 14 A Frame
28
Area B
Area B Main & 2nd
Floors
Area A
28
Area A Areas A & B
Not C
Ground
Area C Level
Ground Level
A walkout basement occurs when a home is built on a sloped area A frame construction with no knee walls should be measured from
so that the main entry is at ground level at the front of the house point to point on both main and second floors.
and the level below that (basement) opens out on the opposite side
of the house at the lower ground level. The square footage of this
lower basement area is not included in the living area measurement
for listing purposes.
Caution These residential measurement guidelines are provided for information purposes only by the Alliance for Canadian Real Estate
Education. At the present time, no standard procedures have been approved throughout Canada. Registrants should fully
investigate local practices.
Measuring a Residential Condominium

Unit ownership must be clearly differentiated from common elements. The following
information is provided for illustrative purposes only. Registrants should be aware that
measurement criteria can vary based on procedures detailed in the condominium
declaration and description, and the type of condominium (e.g., highrise, townhouse,
semi-detached or detached).
TYPICAL HIGH-RISE MEASUREMENT CRITERIA
Vertical (Walls) Inner-most unfinished surface of the exterior wall or shared wall.
Upper Boundary Lowest unfinished surface of the (ceiling) upper slab.
Lower Boundary Highest unfinished surface of the (floor) lower slab.
Windows/Doors Inner unfinished surface of window frames and exterior doors.
Excluded Areas Unfinished inner surface of any excluded walls or columns within
the unit.
Registrants should also note that while measurement criteria precisely define the
scope of ownership, responsibility for repairs and maintenance may extend beyond that
defined limit. For example, condominium ownership may only extend to the unfinished
inner surface of exterior glass, but the unit owner may be responsible for cleaning both
internal and external surfaces and replacing the entire window when damaged.
Registrants actively involved in the listing and selling of residential condominiums
require a thorough knowledge of provisions set out in the respective condominium
documentation.
Laser vs. Tape TECHNOLOGY FOCUS
Registrants are reluctant to discard traditional tape measures in favour of laser measurement devices. Presently, high end
digital models deliver impressive results, boasting accuracy to within 3 millimetres with measurement range up to 200
metres. Most products are light-weight, reliable and can offer 10,000 or more measurements from a single battery pack.
Critics point to problems with bright light and reduced range (the laser works best at dusk or in darkness), errors or
missed readings due to rough or angled surfaces and problems involving transparent materials (i.e., mirrors). Proponents
are quick to emphasize efficiency, arguing that problems are typically user-inflicted (not following instructions). Sighting
challenges are easily remedied with a target sighting plate. The latest versions boast calculator capabilities for area and
volume calculations, metric conversions, etc.
Measuring a Commercial Building (Office)

BOMA Standard Practices vary in the marketplace, however, the Building wners and Managers Association
Standards of measurement
(B MA) measurement method is widely used in Canada to calculate office building
methods and calculations widely measurements. B MA developed the Standard Method of Floor Measurement for Office
used with commercial properties Buildings to ensure consistency and promote an industry standard. The BOMA Standard
in Canada. BOMA is an acronym
for Building Owners and Managers has undergone successive revisions and the most recent is a building-wide method to
Association. ensure that measurement is applied on a consistent floor-by-floor basis. This method
also sets out procedures to measure the gross building area and common areas, as well
as usable area and rentable area. The Standard is used extensively to measure space in
Usable Area
both existing and new office buildings, but caution is advised given variances in the
Total area enclosed by the finished
marketplace. Wordings for usable and rentable areas are normally provided in the surfaces of a tenanted space
commercial lease agreement. within a commercial building, as
more specifically defined by
generally-accepted measurement/
calculation methods; e.g., the
USABLE AREA
BOMA standard for measurement.
Usable area is generally described as the area of the interior office space. More specif
ically, the usable area of an office is computed using the B MA method by measuring
the total area enclosed by the finished surfaces of the office side of corridor walls and Rentable Area
other permanent walls, the centre line of partitions separating individual tenanted areas, The usable area of a tenanted
and the domi nant portion of the vertical perimeter wall. o deduction is made for any space plus an allocation for
supporting columns or projections necessary to the overall building structure. common areas; e.g., common
lobby, maintenance rooms and
B MA provides precise guidelines regarding such measurements, particularly when washrooms.
considering the perimeter walls that may have unique glass/masonry/steel configurations.
The sum of all usable areas on an individual floor represents the total usable area of that
floor.
RENTABLE AREA
Rental area is generally described as usable area plus an additional allocation for the pro-
portionate share of common areas (e.g., lobby, janitorial areas, washrooms and electrical
room). Rentable area is typically used for calculation of rent. For example, a leased space
for a tenant on a multitenant floor may have a usable area of 2,795 square feet with a
rentable area of 3,035 square feet. The additional 240 square feet represents the proportion
ate allocation of common areas on that particular floor. The rentable area is normally
used as the basis for determining base and additional rents. In the above instance, if the
base rent is $7.50 per square foot, then the base annual rent would be $22,762.50 ($7.50
x 3,035 square feet).
Following is an example of a commercial lease wording for rentable area:
Rentable area is computed by multiplying the usable area by a fraction, the numerator
being the aggregate floor area of the floor on which the leased premises is located
(calculated from the inside surface of the exterior glass, including washrooms, tele-
phone, electrical and janitorial closets, columns, projections and elevator lobbies, but
excluding any elevation shafts, stairs, flues, stacks, pipe shafts and vertical ducts with
their own enclosing walls used in common), and the denominator being the aggregate
usable area of all leaseable premises on such floor, all according to established meas-
urement in use for the building. The rentable area of the building shall be equal to
the aggregate of the rentable area of all leaseable premises in the building calculated
on the foregoing basis.
Measurement Methods
Three methods of measuring rentable area in office buildings that are generally used in
Canada and the United States are:
• Association of Building wners and Managers (B MA) International;
• General Services Administration; and
• The ew ork Method.
The B MA standard is most frequently found in the Canadian marketplace. B MA

describes the total rentable area of a commercial office floor as the gross floor area, less
any columns or projections necessary to the building. Such items on an upper floor of a
modern office building would include the elevator shafts, stairways and ventilation shafts.
The relationship between rentable and usable areas on a particular floor is often referred
to as the R U Ratio (also referred to as the add-on factor).
The R/U Factor

This mathematical relationship between rentable and usable areas is often referred to as
an efficiency factor, which can be expressed as a decimal or a percentage. For example, if
the rentable area of a leased office is 1,650 square feet and its usable area is 1,450 square
feet, the efficiency or R U factor is 1,650 1,450 = 1.1379. Consequently, to determine
the amount of rentable space when the usable space is known, the usable space is
multiplied by the R U factor. In some instances, the R U factor is merely expressed as an
additive figure, in other words 0.1379 or 13.79% as opposed to the true R U factor that
is 1.1379. In multilevel buildings with multiple tenants on each floor, the landlord
normally computes R U factors and exact usable and rentable areas of all suites for the
information of prospective tenants.
As a matter of practical importance, not all rental buildings are accurately measured
for usable and rentable areas. The factor referenced by the landlord may not precisely
reflect rentable usable areas, but merely represent an approximation. Depending on the
strength of the local market, the add-on could be smaller or larger than a true measure-
ment would reveal.
WEB LINKS
BOMA For additional information concerning products and services provided by the Building
Owners and Managers Association, go to www.bomacanada.ca.
Wrong Measurements Prove Costly RECO FOCUS
Two commercial representatives provided an incorrect building size in promotional materials. A subsequent written
complaint to R by the buyer resulted in fines totalling $ ,000 along with $1,500 in costs for breach of the R
Code of Ethics regarding advertising and misrepresentation. The building was described as 7,700 square feet, but the
structure consisted of approximately 6,300 square feet.
In another R earing, promotional material for a residential property incorrectly described the lot as 50 x 00 ,
but the true dimension was 50 x 30 . he earing anel found that sufficient materials in existence at time of listing
indicated some confusion about the size and as such the buyers should have been notified. Further, the salesperson
should have ensured that all advertising materials were not false, misleading or deceptive. This circumstance, along
with other issues, resulted in a fine of $ ,000 and $2, 50 in costs.
Abstracted from published decisions. Go to www.reco.on.ca and click on Complaints & Enforcement.
KNOWLEDGE
INTEGRATION
Notables
• Fractions, decimals and percentages repre • The Alliance for Canadian Real Estate
sent the same number in a different way. Education (ACRE) provides residential
• Rounding often affects final answers, guidelines, but caution is once again
particularly with sequential calculations. advised as local practices may vary.
• Every percentage calculation consists of • Fourteen examples are provided for various
three parts: the whole, the rate and the housing styles.
part. • As with residential, no uniform standard
• Double check that the correct numerator exists when measuring commercial (office)
and denominator are used when calculat- buildings, however, the B MA measure-
ing percentage increases/decreases. ment method is widely used in Canada.
• Required keystrokes vary based on the • Rentable area in a multistory commercial
calculator; HP 10BII is used for all work- building is best described as the usable
book illustrations. area plus an allocation of floor common
areas (e.g., lobby, janitorial areas, wash-
• Be proactive for subsequent courses rooms and electrical room).
study the HP 10BII Owner’s Manual in
detail. • The R U factor represents a mathematical
relationship between the rentable and
• Real estate remains largely focused on usable areas.
imperial measurements, but increasingly
metric equivalents are used.
• o standardized method exists for living
area (residential) measurements. Caution
is advised.
Glossary
ACRE Front Foot ot Si e escription

Acre Frontage Rentable Area
Area Measurement Hectare Usable Area
BOMA Standard iving Area easurement Volume Measurement
Web Links
HP 10BII Additional information about using the HP 10BII business calculator can be
found at www.hp.ca.
Metric/Imperial Online and downloadable conversion calculators are available on many web
Conversion sites; e.g., www.metric-conversions.org/conversion-calculators.htm.
BOMA For additional information concerning products and services provided by the
Building Owners and Managers Association, go to www.bomacanada.ca.

1. Which types of calculations and 3. How are residential and or commer
measurements will I most frequently cial measurements shown on listing
encounter in the local marketplace? information and advertised in the
media?
2. What preventative measures should I
take to ensure that all mathematical 4. To what extent are metric measure-
calculations and measurements are ments used in the local marketplace?
accurate to avoid legal or other
problems in the future?
Solution Strategies
TASK STRATEGY EXAMPLE CONVERSION SOLUTION
Convert Numerator (part of the group) 1 1÷4 .25

fraction to
decimal Denominator (whole of the group) 4
Convert Multiply the decimal by 100 .42 .42 X 100 42%

decimal to
percentage
Convert Divide the percentage by 100 42% 42 ÷ 100 .42

percentage
to decimal
For problem-solving, normally convert fractions and percentages to decimals.
Chapter Mini-Review
1. Convert to decimals and percentages: 4. Subtraction: (convert and round to

3 decimals).
PROBLEM DECIMAL PERCENTAGE
PROBLEM DECIMAL
1/4
12,247 – 12¼
3/8
100 – 81.5
9/16
12¼ – 10 1/8
23/64
1,094 – 369
123/144
4.9 – .0029
2. Convert to decimals:
5. Multiplication: (convert and round
PROBLEM DECIMAL to 3 decimals).
9% PROBLEM DECIMAL
11.5% 27 x 12.5
23½% 29 x 8¼
216% 11/19 x 3/4
¼ of 1% 379 x .86
½ of 1% 5/7 x 8.2
3. Convert and add (round to 3 decimals): 6. Division: (convert and round to 3

decimals).
PROBLEM DECIMAL
PROBLEM DECIMAL
12.5
31 ÷ 9
13.5
.1 ÷ .27
18¼
2/3 ÷ 1/4
16 3/41
39 3/4 ÷ 5.5
2 3/9
.05 ÷ .03
Total

Exercise 1 Percentage Calculations

Solution Strategies
• When solving problems involving percentages, always read the problem carefully.
• Solve the problem in decimals and then convert to required answer; e.g., percentage,
dollar amount, etc.
• Decide which amounts represent the whole, part and or rate.
• Use the three rules concerning whole, part and rate as required.
hen whole and rate known: Whole x Rate = Part
hen whole and part are known: Part ÷ Whole = Rate
hen part and rate are known: Part ÷ Rate = Whole
1.1 Mr. Jones purchased a new house for the original listed price of $320,000 plus
various upgrades. As a result of the upgrades, the original list price represented
only 94% of the final selling price. What was the final selling price (round to the
nearest dollar)?
1.2 Salesperson Garcia of ABC Realty Inc. is calculating commission based on a 6%

rate and a sale price of $129,000 for a vacant lot. Her portion will be 50% of
that amount. What is Garcia’s commission (round to the nearest dollar)?
1.3 Broker wner Brown’s real estate brokerage completed 240 transactions last year
of which Salesperson Martin was involved in 32. What percentage involvement
does that represent (round to two decimal points)?
1.4 Salesperson Garcia sold a property for $387,000. The commission was 5.5% plus
13% HST. Calculate the HST.
1.5 Buyer Jones’ estimated monthly mortgage payment is $1,796.55 including taxes.
To qualify for this mortgage, the lender allows a maximum of 30% of Jones’
monthly income applied to the mortgage payments and taxes. What minimum
income per month must Jones have in order to qualify?
1.6 Builder Anderson is debating the purchase of a one acre parcel of land (43,560
square feet), which according to municipal officials can be severed into three
equal parcels following a 10% allocation for a pedestrian foot path required by
the city. What will be the square footage for each parcel?
1.7 If 25% of the 1,300 homes in Westville have 4 bedrooms and 63% have 3 bedrooms,
what number of homes have 4 and 3 bedrooms respectively?
1.8 A house has an assessed value of $286,000 but this figure represents only 80% of
its current market value. What is the current market value?
1.9 Seller Smith sold his property for $199,500. The original listing price was $209,900.
What percentage does the selling price represent in relation to the original
listing price (sale to list price ratio)?
1.10 Salesperson Garcia is preparing for a listing presentation and is comparing two
recent sales. House A, listed at $149,900, sold for $10,000 less. House B, listed at
$241,000 sold for $229,900. Which house had the higher sale to list ratio
(percentage)?
1.11 The commission on a recent transaction was $7,876 and the commission rate
was 4.5%. Based on this informa tion, what was the selling price of the property?
1.12 A lot was listed for $225,000 and sold for 94.5% of the listing price. What was
the sale price?
1.13 Investor Thompson is considering office premises for his new company. The
current rent per square foot per year is $8.75. Last year, the same premises
rented at $8.55. The landlord has informed Thompson of next year’s rent, being
$9.05. What are the respective percentage increases from last year to this year,
and from this year to next (rounded to two decimal points)? How much rent
will be paid next year if Thompson leases this 3,500 square foot office premises?
Exercise 2 Metric/Imperial Conversions

2.1 Using metric conversion formulae, match the following:
IMPERIAL METRIC
___ 15 acres a. 123.09 square metres
___ 9 ½ acres b. 2.90 metres
___ 22.5 feet c. 6.07 hectares
___ 9.75 acres d. 112.43 square metres
___ 1,325 square feet e. 0.20 hectares
___ 0.50 acres f. 2.91 hectares
___ 940 square feet g. 3.84 hectares

___ 9 feet, 6 inches h. 6.86 metres
___ 7.20 acres i. 87.33 square metres
___ 1,210.25 square feet j. 3.95 hectares
2.2 A distance of 50.5 feet equals:

a. 154 metres
b. 1.53 metres
c. 15.39 metres
d. .153 metres
2.3 A living room is rectangular with dimensions of 3.4 metres by 6.2 metres. The
imperial equivalent is:
a. 11.17 feet x 20.43 feet.
b. 56.1 feet x 102.3 feet
c. 10.88 feet x 17.36 feet
d. 11.15 feet x 20.34 feet
2.4 A small hobby farm contains 20 acres. The equivalent in hectares is:
a. 8.07
b. 8.09
c. 1.32
d. 8.90
2.5 A small brick bungalow contains 960 square feet. The equivalent in square
metres is:
a. 89.18
b. 89.17
c. 90.33
d. 90.34
2.6 A lot contains 43,560 square feet. The equivalent in square metres is:
a. 404.67
b. 4,036.72
c. 40,467.24
d. 4,046.72
Exercise 3 Multiple Choice/Measurement Calculations

3.1 Calculate the area, in square metres, of the following diagram.
1.5 m
9.8 m
1.1 m
9.8 m
4.3 m
1.8 m
4.8 m 4.8 m
15.7 m
a. 1198.80 square metres

b. 126.21 square metres
c. 122.13 square metres
d. 153.86 square metres
2.7 m 11.8 m
1m
4.4 m
1.5 m
7.9 m
3.1 m
2m
a. 104.20 square metres

c. 1,136.50 square metres
3.3 Calculate the area, in square metres, of the following right angle triangle.
40.2 m
30.6 m
a. 1,230.12 square metres

3.4 Calculate the area, in square metres, of the following trapezoid.

64 m
28 m 23 m
85 m

b. 1,713.50 square metres
c. 2,086.00 square metres
3.5 Calculate the area, in square metres, of the following parallelogram.
35 m 26 m
75 m

d. 1,950.00 square metres
3.6 Seller Smith owns a flat-roofed commercial building measuring (based on outside
wall measurements) 34 feet long, 24 feet wide and 14 feet high. The height is
measured from 6 inches below the basement floor surface to the roof top. The
volume in cubic feet is:
a. 11,424
b. 11,242
c. 1,142.40
d. one of the above.
3.7 Broker Johnson of ABC Realty Inc. is measuring a single-storey, detached home
that has an external measurement of 12.40 metres by 8.33 metres with a small
addition measuring 2.34 metres by 4.88 metres. The structure has no other above
grade finished areas. What is the total living area (round to the nearest square
metre)?
3.8 Salesperson Garcia is estimating the total living area for a 1½ storey home with
dormers. The building closely approximates the shape as illustrated in the text
(see ACRE Measurement Guidelines—Residential, Example 3, ne and neHalf
Storey (With Dormers)). The main floor area measures 8.38m by 10.25m, the
upper area on the second floor is 4.27m by 10.25m together with two dormers
each measuring 1.9m x 2.4m. What is the total living area (round to the nearest
square metre)?
3.9 A two storey building has a square footage of 960 square feet per floor. What
would the construction cost of this structure be, if a builder estimates a cost of
$4.50 per cubic foot to construct and the height of the structure measured from
the surface of the basement floor to halfway between the eaves and the ridge of
the roof is 25.5 feet?
a. $11,016.00
b. $11,232.00
c. $100,360.00
d. $112,320.00
3.10 Builder Anderson is attempting to estimate the cost of pouring concrete driveways
for three new houses under construction. Each driveway will measure 24 feet
wide, 40 feet long and 3 inches thick. If a contractor quotes $167.50 per cubic yard
(including forms and finishing costs), how much will Anderson have to pay the
contractor (round to the nearest $100)?
3.11 A warehouse structure is estimated to cost $337.00 per cubic yard to construct.
If the external measurements of the planned building are 60 feet long by 24 feet
wide with a floor to top of roof distance of 14 feet, what will be the cost (round
to the nearest $100)?
3.12 The Jones family has purchased a one and one-half storey home with external
measurements of 36 feet by 24 feet. The main floor is 9 feet high, measured
from the surface of the floor and there is no basement. The upper storey has the
same external measurements as the main floor but has a sloping roof and a
height of 8 feet 6 inches to the top of the roof. What is the approximate cubic
(foot) content of the home?
3.13 Builder Anderson is considering filling a level rear area behind a new condominium
complex to permit additional parking and outside recreational areas. The area
in question measures 196 feet x 327 feet and the fill depth required is 9 feet, 6
inches. Approximately how many cubic yards are required (round to the nearest
cubic yard)?
METRIC/IMPERIAL CONVERSION FACTORS

Hectare/Acre Conversion
HECTARES TO ACRES ACRES TO HECTARES
1 Hectare = 2.471 Acres 1 Acre = 0.404686 Hectares
# Hectares x 2.471 = # of Acres # Acres x 0.404686 = # of Hectares
Hectares Acres Hectares Acres Acres Hectares Acres Hectares

1 2.471 60 148.260 1 0.404686 60 24.281160
2 4.942 61 150.731 2 0.809372 61 24.685846
3 7.413 62 153.202 3 1.214058 62 25.090532
4 9.884 63 155.673 4 1.618744 63 25.495218
5 12.355 64 158.144 5 2.023430 64 25.899904
6 14.826 65 160.615 6 2.428116 65 26.304590
7 17.297 66 163.086 7 2.832802 66 26.709276
8 19.768 67 165.557 8 3.237488 67 27.113962
9 22.239 68 168.028 9 3.642174 68 27.518648
10 24.710 69 170.499 10 4.046860 69 27.923334
11 27.181 70 172.970 11 4.451546 70 28.328020
12 29.652 71 175.441 12 4.856232 71 28.732706
13 32.123 72 177.912 13 5.260918 72 29.137392
14 34.594 73 180.383 14 5.665604 73 29.542078
15 37.065 74 182.854 15 6.070290 74 29.946764
16 39.536 75 185.325 16 6.474976 75 30.351450
17 42.007 76 187.796 17 6.879662 76 30.756136
18 44.478 77 190.267 18 7.284348 77 31.160822
19 46.949 78 192.738 19 7.689034 78 31.565508
20 49.420 79 195.209 20 8.093720 79 31.970194
21 51.891 80 197.680 21 8.498406 80 32.374880
22 54.362 81 200.151 22 8.903092 81 32.779566
23 56.833 82 202.622 23 9.307778 82 33.184252
24 59.304 83 205.093 24 9.712464 83 33.588938
25 61.775 84 207.564 25 10.117150 84 33.993624
26 64.246 85 210.035 26 10.521836 85 34.398310
27 66.717 86 212.506 27 10.926522 86 34.802996
28 69.188 87 214.977 28 11.331208 87 35.207682
29 71.659 88 217.448 29 11.735894 88 35.612368
30 74.130 89 219.919 30 12.140580 89 36.017054
31 76.601 90 222.390 31 12.545266 90 36.421740
32 79.072 91 224.861 32 12.949952 91 36.826426
33 81.543 92 227.332 33 13.354638 92 37.231112
34 84.014 93 229.803 34 13.759324 93 37.635798
35 86.485 94 232.274 35 14.164010 94 38.040484
36 88.956 95 234.745 36 14.568696 95 38.445170
37 91.427 96 237.216 37 14.973382 96 38.849856
38 93.898 97 239.687 38 15.378068 97 39.254542
39 96.369 98 242.158 39 15.782754 98 39.659228
40 98.840 99 244.629 40 16.187440 99 40.063914
41 101.311 100 247.100 41 16.592126 100 40.468600
42 103.782 200 494.200 42 16.996812 200 80.937200
43 106.253 300 741.300 43 17.401498 300 121.405800
44 108.724 400 988.400 44 17.806184 400 161.874400
45 111.195 500 1,235.500 45 18.210870 500 202.343000
46 113.666 600 1,482.600 46 18.615556 600 242.811600
47 116.137 700 1,729.700 47 19.020242 700 283.280200
48 118.608 800 1,976.800 48 19.424928 800 323.748800
49 121.079 900 2,223.900 49 19.829614 900 364.217400
50 123.550 1000 2,471.000 50 20.234300 1000 404.686000
51 126.021 2000 4,942.000 51 20.638986 2000 809.372000
52 128.492 3000 7,413.000 52 21.043672 3000 1,214.058000
53 130.963 4000 9,884.000 53 21.448358 4000 1,618.744000
54 133.434 5000 12,355.000 54 21.853044 5000 2,023.430000
55 135.905 6000 14,826.000 55 22.257730 6000 2,428.116000
56 138.376 7000 17,297.000 56 22.662416 7000 2,832.802000
57 140.847 8000 19,768.000 57 23.067102 8000 3,237.488000
58 143.318 9000 22,239.000 58 23.471788 9000 3,642.174000
59 145.789 10000 24,710.000 59 23.876474 10000 4,046.860000

Metre/Foot Conversion
METRES TO FEET FEET TO METRES
1 Metre = 3.281 Feet 1 Foot = 0.3048 Metres
# Metres x 3.281 = # of Feet # Feet x 0.3048 = # of Metres
Metres Feet Metres Feet Feet Metres Feet Metres

1 3.281 60 196.860 1 0.3048 60 18.2880
2 6.562 61 200.141 2 0.6096 61 18.5928
3 9.843 62 203.422 3 0.9144 62 18.8976
4 13.124 63 206.703 4 1.2192 63 19.2024
5 16.405 64 209.984 5 1.5240 64 19.5072
6 19.686 65 213.265 6 1.8288 65 19.8120
7 22.967 66 216.546 7 2.1336 66 20.1168
8 26.248 67 219.827 8 2.4384 67 20.4216
9 29.529 68 223.108 9 2.7432 68 20.7264
10 32.810 69 226.389 10 3.0480 69 21.0312
11 36.091 70 229.670 11 3.3528 70 21.3360
12 39.372 71 232.951 12 3.6576 71 21.6408
13 42.653 72 236.232 13 3.9624 72 21.9456
14 45.934 73 239.513 14 4.2672 73 22.2504
15 49.215 74 242.794 15 4.5720 74 22.5552
16 52.496 75 246.075 16 4.8768 75 22.8600
17 55.777 76 249.356 17 5.1816 76 23.1648
18 59.058 77 252.637 18 5.4864 77 23.4696
19 62.339 78 255.918 19 5.7912 78 23.7744
20 65.620 79 259.199 20 6.0960 79 24.0792
21 68.901 80 262.480 21 6.4008 80 24.3840
22 72.182 81 265.761 22 6.7056 81 24.6888
23 75.463 82 269.042 23 7.0104 82 24.9936
24 78.744 83 272.323 24 7.3152 83 25.2984
25 82.025 84 275.604 25 7.6200 84 25.6032
26 85.306 85 278.885 26 7.9248 85 25.9080
27 88.587 86 282.166 27 8.2296 86 26.2128
28 91.868 87 285.447 28 8.5344 87 26.5176
29 95.149 88 288.728 29 8.8392 88 26.8224
30 98.430 89 292.009 30 9.1440 89 27.1272
31 101.711 90 295.290 31 9.4488 90 27.4320
32 104.992 91 298.571 32 9.7536 91 27.7368
33 108.273 92 301.852 33 10.0584 92 28.0416
34 111.554 93 305.133 34 10.3632 93 28.3464
35 114.835 94 308.414 35 10.6680 94 28.6512
36 118.116 95 311.695 36 10.9728 95 28.9560
37 121.397 96 314.976 37 11.2776 96 29.2608
38 124.678 97 318.257 38 11.5824 97 29.5656
39 127.959 98 321.538 39 11.8872 98 29.8704
40 131.240 99 324.819 40 12.1920 99 30.1752
41 134.521 100 328.100 41 12.4968 100 30.4800
42 137.802 200 656.200 42 12.8016 200 60.9600
43 141.083 300 984.300 43 13.1064 300 91.4400
44 144.364 400 1,312.400 44 13.4112 400 121.9200
45 147.645 500 1,640.500 45 13.7160 500 152.4000
46 150.926 600 1,968.600 46 14.0208 600 182.8800
47 154.207 700 2,296.700 47 14.3256 700 213.3600
48 157.488 800 2,624.800 48 14.6304 800 243.8400
49 160.769 900 2,952.900 49 14.9352 900 274.3200
50 164.050 1000 3,281.000 50 15.2400 1000 304.8000
51 167.331 2000 6,562.000 51 15.5448 2000 609.6000
52 170.612 3000 9,843.000 52 15.8496 3000 914.4000
53 173.893 4000 13,124.000 53 16.1544 4000 1,219.2000
54 177.174 5000 16,405.000 54 16.4592 5000 1,524.0000
55 180.455 6000 19,686.000 55 16.7640 6000 1,828.8000
56 183.736 7000 22,967.000 56 17.0688 7000 2,133.6000
57 187.017 8000 26,248.000 57 17.3736 8000 2,438.4000
58 190.298 9000 29,529.000 58 17.6784 9000 2,743.2000
59 193.579 10000 32,810.000 59 17.9832 10000 3,048.0000

Square Metre/Square Foot Conversion
SQUARE METRES TO SQUARE FEET SQUARE FEET TO SQUARE METRES
1 Square Metre = 10.76 Square Feet 1 Square Foot = 0.09290304 Square Metres
# Square Metres x 10.76 = # of Square Feet # Square Feet x 0.09290304 = # of Square Metres
Sq. Metres Sq. Feet Sq. Metres Sq. Feet Sq. Feet Sq. Metres Sq. Feet Sq. Metres
1 10.76 60 645.60 1 0.0929030 60 5.5741824
2 21.52 61 656.36 2 0.1858061 61 5.6670854
3 32.28 62 667.12 3 0.2787091 62 5.7599885
4 43.04 63 677.88 4 0.3716122 63 5.8528915
5 53.80 64 688.64 5 0.4645152 64 5.9457946
6 64.56 65 699.40 6 0.5574182 65 6.0386976
7 75.32 66 710.16 7 0.6503213 66 6.1316006
8 86.08 67 720.92 8 0.7432243 67 6.2245037
9 96.84 68 731.68 9 0.8361274 68 6.3174067
10 107.60 69 742.44 10 0.9290304 69 6.4103098
11 118.36 70 753.20 11 1.0219334 70 6.5032128
12 129.12 71 763.96 12 1.1148365 71 6.5961158
13 139.88 72 774.72 13 1.2077395 72 6.6890189
14 150.64 73 785.48 14 1.3006426 73 6.7819219
15 161.40 74 796.24 15 1.3935456 74 6.8748250
16 172.16 75 807.00 16 1.4864486 75 6.9677280
17 182.92 76 817.76 17 1.5793517 76 7.0606310
18 193.68 77 828.52 18 1.6722547 77 7.1535341
19 204.44 78 839.28 19 1.7651578 78 7.2464371
20 215.20 79 850.04 20 1.8580608 79 7.3393402
21 225.96 80 860.80 21 1.9509638 80 7.4322432
22 236.72 81 871.56 22 2.0438669 81 7.5251462
23 247.48 82 882.32 23 2.1367699 82 7.6180493
24 258.24 83 893.08 24 2.2296730 83 7.7109523
25 269.00 84 903.84 25 2.3225760 84 7.8038554
26 279.76 85 914.60 26 2.4154790 85 7.8967584
27 290.52 86 925.36 27 2.5083821 86 7.9896614
28 301.28 87 936.12 28 2.6012851 87 8.0825645
29 312.04 88 946.88 29 2.6941882 88 8.1754675
30 322.80 89 957.64 30 2.7870912 89 8.2683706
31 333.56 90 968.40 31 2.8799942 90 8.3612736
32 344.32 91 979.16 32 2.9728973 91 8.4541766
33 355.08 92 989.92 33 3.0658003 92 8.5470797
34 365.84 93 1,000.68 34 3.1587034 93 8.6399827
35 376.60 94 1,011.44 35 3.2516064 94 8.7328858
36 387.36 95 1,022.20 36 3.3445094 95 8.8257888
37 398.12 96 1,032.96 37 3.4374125 96 8.9186918
38 408.88 97 1,043.72 38 3.5303155 97 9.0115949
39 419.64 98 1,054.48 39 3.6232186 98 9.1044979
40 430.40 99 1,065.24 40 3.7161216 99 9.1974010
41 441.16 100 1,076.00 41 3.8090246 100 9.2903040
42 451.92 200 2,152.00 42 3.9019277 200 18.5806080
43 462.68 300 3,228.00 43 3.9948309 300 27.8709120
44 473.44 400 4,304.00 44 4.0877338 400 37.1612160
45 484.20 500 5,380.00 45 4.1806368 500 46.4515200
46 494.96 600 6,456.00 46 4.2735398 600 55.7418240
47 505.72 700 7,532.00 47 4.3664429 700 65.0321280
48 516.48 800 8,608.00 48 4.4593459 800 74.3224320
49 527.24 900 9,684.00 49 4.5522490 900 83.6127360
50 538.00 1000 10,760.00 50 4.6451520 1000 92.9030400
51 548.76 2000 21,520.00 51 4.7380550 2000 185.8060800
52 559.52 3000 32,280.00 52 4.8309581 3000 278.7091200
53 570.28 4000 43,040.00 53 4.9238611 4000 371.6121600
54 581.04 5000 53,800.00 54 5.0167642 5000 464.5152000
55 591.80 6000 64,560.00 55 5.1096672 6000 557.4182400
56 602.56 7000 75,320.00 56 5.2025702 7000 650.3212800
57 613.32 8000 86,080.00 57 5.2954733 8000 743.2243200
58 624.08 9000 96,840.00 58 5.3883763 9000 836.1273600
59 634.84 10000 107,600.00 59 5.4812794 10000 929.0304000
258
CHAPTER 8
Mortgage
Mathematics
Introduction
Mortgage math is focal to buyer and seller negotiations and affordability is vital to the
marketplace. Improved affordability translates into more buyers capable of buying and,
consequently, increasing demand. Little wonder that qualifying buyers is focal to the sale
process.
A working knowledge of the mortgage market underlies the entire qualification process.
That process begins with downpayments, available buyer resources, how lenders qualify
prospects and how interest is calculated. Subsequent courses will build on this foundation
by addressing mortgage products, typical features and options, payment plans, privileges,
legal priorities, documentation and advanced mortgage math; e.g., penalties and
prepayments.
Learning Outcomes
• utline steps involved in assessing buyer resources, deter
mining mortgage requirements and analyzing basic lender
criteria for residential purchases.
• Briefly discuss unique characteristics and requirements
that apply to commercial mortgage qualifying.
• Perform selected calculations involving gross debt service
(GDS) and total debt service (TDS) ratios.
• Calculate simple and compound interest.
• Differentiate between nominal and effective interest rates,
and unique requirements that apply to Canadian mortgages.
• Perform keystrokes for the HP 10BII (or alternate
calculator) in regard to interest calculations and blended
mortgage payments.
• Perform calculations using the formula for mortgage
averaging and identify significant limitations.
259
THE RESIDENTIAL
MORTGAGE FINANCING PROCESS
Financing methods vary based on circumstance, but certain common patterns emerge
in most residential transactions. At point of listing, the maximum amount, interest rate
and even the source of funds for a new mortgage will be partially dictated by the type,
location and value of the property. The financial circumstances of the buyer must also be
assessed. The downpayment provides an indication of probable financing requirements,
and information as to the buyer’s income, obligations, stability and future prospects of
income stream will assist in determining the payments that the buyer can afford. Many
sales representatives prefer that the buyer complete mortgage application forms before
viewing property.
Application
A mortgage application is the central document in the financing process. Most applica
tions are designed to elicit information about the financial ability of the applicant and
the property’s value/marketability. The lending institution may ask for a standby or
processing fee. Standby fees are commonly related to nonresidential transactions with
application fees more commonly associated with residential mortgages. Whether or not
the fee is refundable and under what circumstances will vary by the lender.
The application is typically prepared and forwarded electronically either by a mort
gage broker or by a representative of the lender for review by the applicable lender’s
underwriting department. Several confirming items are usually forwarded under separate
cover including proof of income, a copy of the agreement, copy of the listing, payment
for processing costs (processing fee), confirmation of downpayment and any other docu
mentation that will support information included on the mortgage application. These
documents requested by the lender may, in some instances, be faxed and stored electronic
ally under the applicable client number at the lender’s location.
Appraisal and Credit Check

The lender reviews the application, applies loan qualification ratios (GDS and TDS ratios
are discussed later in this chapter) and considers the stability and future prospects regard
ing the income stream, as well as personal/financial information of the applicant. An
appraiser or bank representative may inspect the property to ensure that it meets lender
criteria and determines lending value. Increasingly, automated valuation systems (with
no physical visit to the property) are used to establish value. When required, residential
appraisal reports prepared by an appraiser normally include both direct comparison
and cost approaches.
A credit check is usually performed to verify financial stability of the applicant. The
credit report is requested by the lender, and the credit bureau providing such information
must comply with provincial legislation concerning the gathering and reporting of this
information.
260 Chapter 8 Mortgage Mathematics
Commitment
The mortgage commitment is a letter from the lender agreeing to make the loan subject
to satisfactory title and other conditions specified in that commitment. Unfortunately,
instances have occurred where individuals have mistakenly believed that a letter from a
lender simply quoting the loan amount they would consider, if a property was purchased,
was a commitment. This is not so, as most institutions financing a property would require
a formal signed application and other supporting materials. Such a letter is merely a letter
of intent and has little, if any, legal stature and should never form the basis for removal
of a mortgage condition in an agreement, or be the basis for a buyer not requiring an
appropriate condition when an offer is drafted.
The Pre-Approved Buyer CURIOSITY
The buyer may contact a mortgage broker or lending institution and, after discussion/disclosure of financial position,
receive a pre-approval certificate outlining the maximum amount that can be borrowed, the interest rate to be charged
and the monthly payments. The approval is subject to a satisfactory appraisal of any house being purchased and
confirmation of taxes. The interest rate is normally guaranteed for a 60–90 day period and the monthly payment is
based on an estimate of taxes. In condominiums, common expenses are also estimated.
THE COMMERCIAL
MORTGAGE FINANCING PROCESS
The sale of large incomeproducing properties and major commercial operations requires
special expertise. A salesperson could become involved in assisting a buyer in arranging
financing for a project. Most lenders require:
Feasibility Report This can range from a brief letter to a fully detailed report on the
economic, market and physical characteristics of the venture.
Construction and Complete documentation regarding the property, architectural

Site Analysis drawings, detailed construction plans, utilities, landscaping, parking,
buffer zones, adjacent zoning and zoning amendments required.
Borrower Past projects with addresses, financial statements for the past two
Information to three years, credit check and background of the company/
individual with supporting documents.
Estimated Income/ Full details of estimated gross income, vacancy rates expected,
Operating Expenses expenses (excluding debt service) and net operating income.
As a rule, more information is better than less. The lender must be comfortable with
both borrower and project, as project financing can represent a significant commitment
by a lender. Commercial lending can be complex. Additional information is provided in
subsequent courses.
Mortgage Mathematics Chapter 8 261
MORTGAGE QUALIFICATION
Mortgage qualifying involves two primary factors:
Mortgage
• Downpayment Required cash resources from the borrower (mortgagor). A conveyance of property to a
• Mortgage Qualification Lender (mortgagee) requirements including gross debt creditor as security for payment
of a debt with a right of redemp-
service ratio and total debt service ratio for approval of the mortgage principal. tion upon payment of the debt.
Downpayment
Borrower cash resources for the downpayment typically represent total liquid assets less
purchasing costs, most notably adjustments required at closing. Lenders will seek
confirmation of downpayment.
EXAMPLE Liquid Assets Less Purchasing Costs

Assume that the buyer has liquid assets of $80,000 for the purchase of a $200,000 home.
Total liquid assets: $80,000

Less: purchasing costs* Land transfer tax $1,725
Legal fees 2,000
Mortgage fees 800
Adjustments (charged to buyer) 900
Moving expenses 800
Fund for major purchases 3,500
Total purchasing costs –9,725
Amount remaining for downpayment $70,275
*For illustration purposes only. Actual costs will vary.
Affordability Index HOUSING FOCUS
Affordability is a primary consideration in the residential housing market. RBC Financial Group produces a Housing
Affordability Index that measures the cost of home ownership. The index is based on pre-tax household income
required to service mortgage payments (P&I), property taxes and utilities on a typical target home for first-time buyers.
The index assumes a 25% downpayment and a 5-year loan amortized over 25 years. Go to www.rbc.com and search
Housing Affordability Index.
Housing Affordability in Canada
60
Taken Up By Ownership Costs
% of Household Income
Two-storey
40 Bungalow
Condo
20
0
86 88 90 92 94 96 98 00 02 04 06 08 10 12
Year
Source: Statistics Canada, Royal LePage, RBC Economics Research
Debt Service Ratios

GROSS DEBT SERVICE (GDS) RATIO
The GDS represents the maximum percentage of borrower’s gross income to be allocated
to principal, interest and tax payments (PIT). The gross debt service ratio may include
heating costs (PITH). For example, Canada Mortgage and Housing Corporation is based
on a 35% GDS ratio for PITH. The GDS ratio can vary between existing lenders in the
marketplace, but slightly increased limits may apply under certain lending situations if
the borrower has a high credit rating.
The following example illus
trates a typical calculation based EXAMPLE Using The GDS Ratio
on the prospective borrower’s Buyer Johnson’s Income $50,000
income. Mortgage payment tables
Lender Inc. GDS Ratio 30%
are used to arrive at the mortgage
amount for which the borrower Maximum PIT Payment (50,000 x .30) $15,000
qualifies. Mortgage payment Annual Taxes (T) on Property –1,500
tables include payment factors Remaining PI Payment Available $13,500
per $1,000 of principal amount Maximum Monthly PI Payment Available $1,125
for selected interest rates based ($13,500 ÷ 12)
on weekly, biweekly, semi
If Johnson requires a $140,000 mortgage at 6.5% with a
monthly and monthly payments 25 year amortization, the payment is:
(see tables included at the end of 6.698238* x $140(000) = $937.75
this chapter). Johnson meets Lender Inc.’s GDS requirement.
*See Mortgage Payment Factors included at the end of this chapter.
GDS RATIO—CONDOMINIUM
In condominium purchases, the
ratio typically includes a portion of the common expenses, which is normally 50% of
those expenses, but lender policies may vary.
EXAMPLE GDS—Condominium
Buyer Johnson has a gross income of $58,000, a $50,000 downpayment and is considering a
$170,000 condominium purchase. Taxes are $4,120 and maintenance fees amount to $325
per month ($3,900 per year). Johnston requires a $120,000 conventional mortgage, amortized
over 25 years, with a five-year term. Current rates are 7.5% and the monthly payment factor
per $1,000 outstanding is 7.315549*.
Monthly Mortgage Payment

$120,000 ÷ $1,000 x 7.315549 = $877.87
Annual Mortgage Payment

$877.87 x 12 = $10,534.44
Annual mortgage payment, taxes and maintenance fees

$10,534.44 + $4,120.00 +($3,900 x .5) = $16,604.44
Jones’ GDS ratio is calculated as follows:

GDS = (Principal and Interest + Taxes + Maintenance (50%)) ÷ Gross Income
= $16,604.44 ÷ $58,000 = 28.63%
Johnston meets the maximum 30% limit for this particular lender.
Total Debt Service (TDS) Ratio

The total debt service (TDS) ratio includes charges for princi
pal, interest and taxes, plus other debts including personal loans EXAMPLE Using The TDS Ratio
(e.g., auto loans, credit card debt, etc.) and should be clearly Buyer Johnson’s Income $50,000
differentiated from the GDS ratio. TDS ratios typically vary Lender Inc. TDS Ratio 37%
between 37% and 42%, but higher limits may apply in certain Maximum PIT & Other Debt Payment
lender situations based on high consumer credit scores. (50,000 x .37) $18,500
The TDS ratio has become increasingly important with the Annual Taxes (T) on Property –1,500
rise in consumer borrowing. Lenders are concerned that financial Other Debts (annual payments) –4,500
commitments, over and above the mortgage payment, may Remaining PI Payment Available $12,500
result in a future default. Consequently, they seek added assur Maximum Monthly PI Payment Available $1,042
ances by considering the applicant’s total financial picture. ($12,500 ÷ 12)
If Johnson requires a $140,000 mortgage at 6.5% with a

25 year amortization, the payment is:
6.698238* x $140(000) = $937.75
Johnson meets Lender Inc.’s TDS requirement.
Expanded Calculations
Both GDS and TDS formulas can assist in various circum
stances as the following GDS examples illustrate.
SCENARIO 1 SCENARIO 2 SCENARIO 3

Calculating Loan Payments Calculating GDS Calculating Required Income
• Buyer Jones income is $55,000. • Buyer Jones income is $ 5,000. • Annual I payments are $2 ,000.
• ender Inc. requires a 30% G S. • early principal, interest and tax • ender Inc. requires a 30% G S.
payments estimated at $20,960.
Loan Payments (PIT) GDS Buyer Income

= GDS x Buyer Income = Loan Payments (PIT) ÷ Buyer Income = Loan Payments (PIT) ÷ GDS
= $55,000 x .30 = $20,960 ÷ $65,000 = $29,000 ÷ .30
= $16,500 = .32246 or 32.25% = $96,700
(rounded to the nearest $100)
Note This algebraic variation of the basic GDS

formula is only valid if exact costs are
known.
NOTE GDS/TDS ratios are not the sole determinants of buyer qualification. Other factors include type of
property, buyer credit check and specific lending policies, which are addressed in subsequent
courses.
Mortgage Stress Test

Beginning in 2018, all Canadians must undergo a mortgage stress test regardless of
whether the downpayment is more or less than 20%. The stress test applies to obtaining
or refinancing a mortgage from a federally-regulated lender (i.e., the large banks). This
test does not apply if renewing a mortgage with the same lender, but obviously restricts
the borrower who wants to shop the mortgage market. The stress test does not apply to
provincially-regulated lenders such as credit unions and private investment corporations,
but some voluntarily comply.
This test was devised as a way to address certain risky lending practices in a time of
rising household debt. It has a direct impact on how large a mortgage can be secured
and, consequently, what value of home can be purchased. The rules are straightforward.
Uninsured home buyers (down payments of 20% or more) must qualify using the Bank
of Canada’s five-year benchmark rate (this rate varies; it was 5.34% at time of printing)
OR the rate offered by your lender plus 2%, whichever is the greater. For those seeking
an insured mortgage (buyers having a downpayment of less than 20%), the qualifying
rate is the five-year benchmark rate or the rate offered by your lender (without adding
the 2%).
EXAMPLE Uninsured Home Buyer

Current Income: $85,000
Downpayment: 20%
Gross Debt Service: 32%
Bank of Canada (BOC) Five-Year Rate: 5.50%
Lender Offered Rate: 3.25%
Mortgage: 5-Year Term, 25-Year Amortization
Stress Test:
Maximum Monthly Mortgage Payment: ($
($85,000
($85,
($8
= $2,267 (rounded)
Maximum Mortgage @ BOC 5-Year Rate: $2,267 ÷ 6.103915 (mortgage payment factor per $1000)
= $371,400 (rounded)
Note If the mandatory stress test did not exist, the 3.25% lender rate could have been used and the
maximum mortgage would be $2,267 ÷ 4.861660 = $466,300 (rounded).
WEB LINKS
Canada Mortgage and Housing Corporation CMHC loan qualification criteria are detailed at
www.cmhc-schl.gc.ca.
CALCULATING MAXIMUM MORTGAGE

PROCEDURE EXAMPLE
STEP 1 Establish Buyer Income $60,000
STEP 2 Determine Lender GDS Ratio 30%
STEP 3 Calculate Available PIT Payment $60,000 x 30% $18,000
STEP 4 Establish Annual Property Taxes (T) $2,000
STEP 5 Calculate Remaining Amount for PI

$18,000 – $2,000 $16,000
Payments
STEP 6 Calculate Monthly PI Payment $16,000 ÷ 12 months $1,333.33
STEP 7 Insert Current Mortgage Rate 6.5%
STEP 8 Insert Amortization Period 25 Years
STEP 9 Obtain Mortgage Payment Factor 6.698238

Monthly for this Example
STEP 10 Calculate Mortgage Principal 1,333.33

Divide the Monthly Payment by the Mortgage x 1,000 $199,056.83
Payment Factor, then Multiply by 1,000 6.698238
The buyer can afford a maximum mortgage of approximately $199,000.
Interest Rates, Debt Service Ratios and the Market MARKET MEMO
Mortgage interest rates impact both GDS and TDS ratios. The lower the interest rate, the higher the number of people
who can afford to own— assuming all other factors remain the same. For example, every time interest rates drop (and
assuming house prices, wages and other relevant factors remain stable) more consumers potentially enter the real estate
market. Further, progressively more expensive homes can be bought for the same monthly mortgage payment.
Consumer-friendly low mortgage rates can even help offset rising house prices. The real estate market has tradition-
ally responded favourably when the mortgage market becomes more competitive and lower rate short term money is
available. Strong seller markets are particularly driven when low rates are combined with high consumer confidence.
But, what happens if a downturn occurs and both short and long term rates start to rise? Thousands then seek to
lock in longer term financing to reduce personal risk. Does the pendulum swing the other way by dampening markets,
eroding consumer confidence and impacting real estate prices? Canadian consumers have enjoyed low interest rates
for a number of years, but past memories of high rates linger in many minds and volatility is an ever present factor in
the real estate market.
Surfing The Net PERSPECTIVE
These days sharp buyers don’t trudge from one lender to the next and you shouldn’t either. The Internet provides
numerous sites offering helpful information ranging from basic mortgage terms to creative financing products, interest
rate trends and handy calculators. Some sites even come with downloadable shareware to custom design payment
arrangements.
Mortgage products have also been revolutionized. Lenders have abandoned strategies once dominated by one
mortgage fits all marketing. An explosion of options and incentives face prospective borrowers. The shrewd consumer
can collect reward miles, while negotiating cash-backs. Flexibility is also mainstream. Want to gamble on rate fluctuations?
Look at short term open with lock-in provisions. Just read the fine print carefully…flexibility often comes with a price
tag.
These days, professional salespersons know that the right mortgage financing package is a curious mixture of risk
and cost. Some buyers want to gamble, some don’t. Some need cash up front, others want the best long term money.
Keep in step with the mortgage market. It’s fast-paced, competitive and changes daily. Looking for more details, just go
to your favourite search engine and type in Canadian mortgages.
MORTGAGE INTEREST
Calculating Simple Interest
Simple interest is interest payable for i = P x R x T
a specified period of time at a given
rate with no compounding. Short Interest = Principal x Rate of x Length
Payable on Amount Interest of Time*
term financing may involve simple Principal Owing
interest in which the interest is due Amount
and payable coincident with the
term, such as with a small personal EXAMPLE Calculating Simple Interest
loan secured from a private investor.
Seller Smith has a $10,000 loan for exactly one year at
Established investors rarely offer 12% per annum. To calculate the amount owing at the
simple interest products, prefer end of Year 1:
ring the higher return associated $10,000 x 12% x 1 Year
with compounding.
Interest for Year 1 = $1,200
• Charged at specific time
periods, usually expressed as Balance Owing
$10,000 + $1,200 = $11,200
at End of Year 1
an annual rate.
• Simple interest is calculated
based solely on principal
outstanding.
Calculating Compound Interest

• Interest charged at specific intervals; e.g., daily, weekly, monthly and quarterly.
• Compound interest earned during each period is reinvested and continues to earn
interest.
• Interest calculated on a combination of outstanding principal and interest for each
compounding period.
EXAMPLE Calculating Compound Interest

Seller Smith has a loan of $10,000 with an interest rate of 1% per month (instead of 12% per annum).
Today Receives
$10,000
Month 1 Principal: $10,000

Interest: Balance:
= P x R x T = 10,000 + 100
= 10,000 x .12 x 1/12 = $10,100
= $100

New Balance: $10,100
Interest: Balance:
= P x R x T = 10,100 + 101
= 10,100 x .12 x 1/12 = $10,201
= $101

New Balance: $10,201
Interest: Balance:
= P x R x T = 10,201 + 102
= 10,201 x .12 x 1/12 = $10,303
= $102
If the remaining months were calculated, by the end of Month 12, the amount owing would be $11,268.25. The
compounding has generated a higher return for the lender in this example:
$11,268.25 – $10,000 = $1,268.25 or 12.68%
EXAMPLE Calculating Compound Interest—Using the HP 10BII

Seller Smith has a loan of $10,000 with an interest rate of 1% per month (instead of 12% per annum).
Using the HP 10BII calculator, solve for the balance owing after 3 months.
Set the calculator at 12 payments per year as interest is compounded monthly:
P/YR
Input the information for the time period of the loan, the interest rate being charged, the loan
amount, and solve for future value. Note that in this calculation, the payment is 0.
N I/YR PV PMT FV
our display will show 10,303 for the balance due at the end of three months, including interest. If
the balance owing at the end of 12 months were to be calculated, replace the first input of 3 with 12,
and then follow the remaining keystrokes. See the HP 10BII Owner’s Manual for additional information.
For The Inquisitive Mathematician CURIOSITY
The formula underlying compounding interest calculations is:
A = P (1 + i)n, where: A = Compounded Amount

P = Principal (original) Amount
1 = A Unit of Value (the number one)
i = Interest Rate Per Period
n = Number of Periods–Expressed as a Power
Using the previous example:

A = $10,000 (1 + .01)12
= $10,000 (1.126825)
= $11,268.25 (principal and interest)
Note: If the number 1 is subtracted from the compounded interest factor and then multiplied with the principal, the formula
calculates the interest only.
Nominal vs. Effective Interest Rate

The nominal interest rate is the stated (named or face) rate; i.e., 12%. The effective interest
rate takes into account any compounding; i.e., 12.6825 or 12.68% (see previous example
for a loan based on monthly compounding).
EFFECTIVE RATES AND CANADIAN MORTGAGES

The federal Interest Act states that mortgage interest, when blended payments are
involved, must be calculated (calculated is synonymous with compounded)
annually or semiannually, not in advance. Practically all lenders use semi STATED ANNUAL
annual. The statute sets out various requirements. RATE
• The semiannual effective rate cannot be more than one half of the 8%
stated annual rate.
• Interest must be calculated as owing at the end of the compounding
period.
SIX MONTHS SIX MONTHS
• The two interest periods for the year must have equivalent
interest rates. 4% 4%
Maximum Maximum
• Mortgage payment factors at the end of this chapter reflect
requirements of the Interest Act.
Mortgage Payments
• Most mortgages involve blended payments of principal and interest.
• The longer the amortization, the lower the payment, the more interest paid—all
other things being equal.
• Mortgage term and amortization are rarely identical for residential mortgages.
Typically the term is five years or less with the amortization being five years or
longer (normally 20 to 25 years).
EXAMPLE Calculating Blended

Monthly Mortgage Payments
For example, a $150,000 mortgage, with 25-year
amortization, at an interest rate of 6.5% will require a
monthly mortgage payment of $1,004.74.
MORTGAGE PAYMENT FACTORS

Monthly, semimonthly, biweekly and weekly mortgage payments can be calculated
using mortgage payment factors (located at the end of this chapter).
Amortization
Amortization refers to the gradual retirement of a debt by means of periodic partial pay
ments of principal and interest. Amortized loans are commonplace both for residential
and commercial properties. Detailed printouts assist in explaining the gradual retirement
of the debt through periodic payments of principal and interest.
The amortized mortgage provides for a blended payment (weekly, biweekly, monthly,
semimonthly or other periodic installments during the loan term). Amortized loans
provide a steadily declining interest portion along with an increasing principal portion
for each successive payment. In combination, these blended payments result in the gradual
reduction in the mortgage balance over the amortization period.
The amortization period represents the time period required to completely retire the
debt through scheduled payments of principal and interest. Mortgage payment tables
provided in the text detail payment factors for mortgages amortized over 5, 10, 15, 20 and
25 year periods, but other amortizations may be offered by selected lenders.
EXAMPLE Amortization
PAYMENT TOTAL
NUMBER PAYMENT INTEREST PRINCIPAL BALANCE
Buyer Wong has agreed to a mortgage
based on an initial sum of $50,000 01 586.94 567.01 19.93 49,980.07
02 586.94 566.79 20.15 49,959.92
amortized over 25 years with blended 03 586.94 566.56 20.38 49,939.54
principal and interest monthly payments 04 586.94 566.33 20.61 49,918.93
of $586.94. Wong requires a report 05 586.94 566.09 20.85 49,898.08
06 586.94 565.86 21.08 49,877.00
detailing the principal and interest 07 586.94 565.62 21.32 49,855.68
portions of each payment along with 08 586.94 565.38 21.56 49,834.12
09 586.94 565.13 21.81 49,812.31
the balance for the first two years.
10 586.94 564.88 22.06 49,790.25
Salesperson Lane of ABC Realty Inc., 11 586.94 564.63 22.31 49,767.94
obtains a computer printout of the 12 586.94 564.38 22.56 49,745.38
13 586.94 564.13 22.81 49,722.57
amortization schedule. The printout 14 586.94 563.87 23.07 49,699.50
shows the gradual reduction of princi- 15 586.94 563.61 23.33 49,676.17
16 586.94 563.34 23.60 49,652.57
pal through successive payments.
17 586.94 563.07 23.87 49,628.70
Wong can analyze the interest and 18 586.94 562.80 24.14 49,604.56
principal portions of each payment 19 586.94 562.53 24.41 49,580.15
20 586.94 562.25 24.69 49,555.46
and successive balances during the 21 586.94 561.97 24.97 49,530.49
24-month period. If all payments were 22 586.94 561.69 25.25 49,505.24
made for the full amortization period, 23 586.94 561.40 25.54 49,479.70
24 586.94 561.11 25.82 49,453.87
the debt would be completely paid.
FULLY VS. PARTIALLY AMORTIZED

Fully Amortized Loan
A fully amortized loan is a mortgage
EXAMPLE
loan wherein the stipulated payments
repay the loan in full by its maturity date. Seller Smith is renovating his mortgage-free
Amortization periods for most residential home, but he requires approximately $40,000
mortgages range between 15 and 25 years. to complete certain renovations. The lender
If, for example, a mortgage of $100,000 and Smith agree to the following terms:
has a 25year amortization at 8.5%, all Principal Amount $40,000
principal and interest would be paid Interest Rate 8%
after 300 (25 x 12) monthly payments of Amortization Period 10 Years
$795.36. While registrants commonly
Using the mortgage payment factors (monthly),
think in terms of monthly mortgage pay
Smith will make a monthly payment of:
ments, fully amortized loans are fre
quently written on a weekly, biweekly Monthly Payment Factor 12.064090
(per $1,000 at 8% for 10 years)
or semimonthly basis.
Monthly P&I Payment $482.56
(12.064090 x $40(000))
Over the duration of 10 years (120 payments),

Smith will completely retire the debt.
Partially Amortized Mortgage

A mortgage in which the amortization
EXAMPLE
period exceeds the term, leaving a balloon
payment at the end of the term. Most Buyer Smith arranges a new first mortgage
Canadian residential mortgages are for $150,000 at 6.50% with a 25-year
partially amortized. amortization and a five-year term. Smith
makes monthly mortgage payments through-
out the five-year term of $1,004.74. The
balance outstanding at the end of the term is
$135,683.34, which is due and payable as a
balloon payment.
USING THE HP 10BII

The HP 10BII’s time value of money (TVM) functions can be used to calculate blended
mortgage and amortization details. This section provides a summary of functions
involved in mortgage payment calculations. Review Chapter 5 of the HP 10BII User’s
Guide for detailed TVM information and stepbystep examples.
To Store a Value
Key in the number and select the appropriate variable key. For example, if the present
value (P ) of the mortgage (the amount being loaned) is $100,000, then pressing
100000 PV stores the value $100,000 as the present value of the mortgage or loan. To
store a negative value, key in the number and press the change sign button +/– . nce
stored, the number is not removed until it is replaced with another value or cleared by
pressing C ALL . Press RCL followed by the appropriate variable to review a stored
number.
To Calculate a Value
For TVM calculations, at least four of the following five variables must be stored in order
to perform a TVM calculation:
N I/YR PV PMT FV
If no future value (FV) or present value (P ) is stored, the amount is automatically deemed
to be zero. The number of payments per year only needs to be changed as required, and
defaults to 12 payments per year. Store all known amounts in the appropriate variables,
and press the button of the variable that you want to calculate.
For example, to calculate a mortgage payment:
• Store N , I/YR and PV ( FV is assumed to be zero unless you change it).
• Press PMT to calculate the mortgage payment.
HP 10BII Time Value of Money Functions
N Total number of payments, expressed in years, months or days.
I/YR Nominal annual interest rate as a percentage.
PV The initial cash inflow (loan/mortgage amount) or outflow (initial

investment).
PMT Amount of each periodic payment. The payments are the same and no
payments are skipped.
FV Amount of the final cash flow/compounded value of the series of previous

cash flows. For a fully amortized mortgage the FV is zero (i.e., no amounts
remain outstanding).
This orange button is the shift button which is used to access functions
that are displayed on the calculator in orange. To use an orange coloured
function, press before pressing the appropriate orange function
button. For example, to clear all stored values, press C ALL . Pressing
C only clears the display and does not clear any stored numbers.
P/YR Stores the number of periods per year (the default is 12). The setting
for number of payments per year is shown each time C ALL is
pressed.
x P/YR ptional shortcut for storing the number in the display is multi
plied by the value in P/YR , the result is stored in N . For a 25year
mortgage with monthly payments, pressing 25 x P/YR stores the
value 300 in N .
BEG/END Toggles between BEGI and E D mode. Set to BEGI mode if pay
ments occur at the beginning of each period, otherwise choose END
mode. Canadian mortgages are calculated using E D mode.
AMORT Accesses the amortization functions to determine outstanding principal,

interest and mortgage balance at any point through the term of the
loan.
Canadian Mortgages
Canadian mortgages are unique in that the interest in the blended monthly payments is
compounded semiannually, not in advance. Since payments are made monthly, yet
interest is com pounded semiannually, an interest rate conversion is required prior to
using the time value of money functions of the calculator. The following example out
lines all steps necessary to calculate blended monthly mortgage payments.
EXAMPLE HP 10BII Canadian Mortgage Calculations

Calculate the monthly payment required to fully amortize a $150,000 mortgage with 25-year
amortization and an interest rate of 6.5% compounded semi-annually, not in advance.
TASK 1 CLEAR ALL VARIABLES & CHECK MODE KEYSTROKES DISPLAY

Clear all previously stored variables. C ALL 0.00
Check display for mode. If BEGIN is shown, press

BEG/END to switch to END mode. All Canadian
mortgages are calculated using END mode
(calculator default, indicated by blank display).
TASK 2 ADJUST THE INTEREST RATE FOR KEYSTROKES DISPLAY

SEMI-ANNUAL COMPOUNDING
Enter the nominal rate and press NOM% . 6.5 NOM% 6.50
Enter the number of compounding periods in a year 2 P/YR 2.00

and press P/YR .
Solve for the effective rate by pressing EFF% . EFF% 6.61
Enter the number of payment periods in a year 12 P/YR 12.00

and press P/YR .
Solve for the adjusted nominal rate by pressing NOM% NOM% 6.41
This last step automatically stores the adjusted nominal rate (6.41) as I/YR
TASK 3 IDENTIFY KNOWN VARIABLES

N = 25 years x 12 payments/year = 300
PV = $150,000
I/ R . 1
FV = 0
TASK 4 STORE VALUES & CALCULATE PAYMENT KEYSTROKES DISPLAY

Store the value for the amortization period of the mortgage. 300 N 300.00
Store the present value of the mortgage. 150000 PV 150,000.00
Calculate the monthly payment. PMT –1,004.74
The monthly payment for this mortgage is $1,004.74.

• he calculator shows a negative payment amount because a payment is considered a cash
outflow.
• he future value is automatically stored as ero unless changed. he interest rate was already
stored in I/ R from ask 2.
• he value for could have been entered by pressing 25 x P/YR .
• At this point any variable could be changed and the terms recalculated or an amorti ation
schedule produced.
Mortgage Averaging
Averaging is a process of determining the average interest paid on two or more mortgages,
ideally having the same term and amortization. By averaging the interest rates, better com
parisons of financing alternatives are possible.
Registrants, when applying mortgage averaging, must be aware of its limitations.
Basing a decision solely on the averaged interest rate, without considering other variables,
can be misleading. Consider the following:
• The term of each mortgage may be different, with no means of accurately determining
the rate of interest that may be applied when one has to be renewed.
• The mortgages may not have the same amortization periods or payment frequencies.
• Special privileges can affect the true rate of interest; e.g., bonus payments and pre
payment penalties.
• The actual cost of arranging mortgages may differ substantially, thereby nullifying
or reversing advantages seen through the averaging formula.
Mortgage averaging is best described by example, as buyers may debate whether to

assume existing or arrange new financing.
EXAMPLE Mortgage Averaging

Buyer Jones needs $80,000 in financing and has two alternatives:
Option A Arranging new financing at 7%

OR
Option B Assuming existing $50,000 mortgage at 6% and arranging a new second

mortgage for $30,000 at 9%. In order to determine a single comparable, the
rates are averaged:
(Principal Amount of First x Interest Rate) + (Principal Amount of Second x Interest Rate)
Total Amount Financed
(50,000 x .06) + (30,000 x .09) 5,700

= = 7.125%
80,000 80,000
Option A appears better, however caution is advised:

• he formula assumes constant interest rates for a oneyear period only; interest
rate changes beyond that point can seriously impact findings.
• iffering payment schedules and amorti ation periods are not included.
• Upfront arranging costs for new financing are not considered.
• ischarge fees concerning existing financing are not taken into consideration.
KNOWLEDGE
INTEGRATION
Notables
• Residential mortgage financing typically • A nominal rate is the stated rate; an effec
involves submitting an application, com tive rate takes into account the impact of
pleting an appraisal (with or without an compounding.
inspection of the property), obtaining a • Special requirements of the Interest Act
credit check and finally receiving a mort apply to blended payments as found in
gage commitment. Preapprovals are most Canadian mortgages.
commonplace in today’s market.
• Amortization is the time required to com
• Commercial requirements usually involve pletely retire a mortgage debt through
additional information; e.g., feasibility scheduled principal and interest payments,
reports and income/expense analysis. while term is the length of time that money
• GDS and TDS ratios vary by lender. GDS is borrowed.
ranges are normally from 27 to 32% with • A partially amortized mortgage is a mort
TDS from 37 to 40%, but slightly higher gage in which the amortization period
limits may apply in certain lending situa exceeds the mortgage term.
tions with consumers who have high credit
scores. Heating costs and condominium • Mortgage averaging can assist in evaluating
fees may be included in the calculation. the average interest rate paid on two or
more mortgages, but caution is advised
• Simple interest is calculated solely on the given various limitations with this
principal outstanding. technique.
• Compound interest is charged at specific
intervals, interest earned is reinvested and
the calculation includes both outstanding
principal and interest for each compound
ing period.
Glossary
Affordability Index Mortgage Payment Factor
Amortization Mortgagee
Blended Payment Mortgagor
Compound Interest Nominal Interest Rate
Effective Interest Rate Principal Amount
Gross Debt Service (GDS) Ratio Simple Interest
Mortgage Term
Mortgage Averaging Total Debt Service (TDS) Ratio
Web Links
Housing Affordability Go to www.rbc.com.

Index—Royal Bank of
Canada
GDS/TDS Ratios— CMHC loan qualification criteria are detailed at www.cmhc-schl.gc.ca.

Canada Mortgage and Differing ratios can apply with various lenders. Additional details are provided
Housing Corporation in Land, Structures and Real Estate Trading.

1. How long does it take to obtain a 4. What GDS and TDS ratios are used
mortgage commitment and what by lenders within the local market
procedures must be followed with area?
various lenders?
5. Can I easily and quickly perform
2. What type of information is avail mortgage payment calculations using
able from local lenders that would the HP 10BII (or another selected
be useful as handout information calculator)?
to potential buyers?
6. Can I explain in simple terms to a
3. How does affordability affect the buyer or seller how Canadian
local marketplace and what current blended payment mortgages are
trends are developing? calculated?
Solution Strategies
Downpayment and GDS/TDS

Price Range = Downpayment + Loan
Downpayment = Liquid Assets – Costs of Purchasing
Liquid Assets = (Purchase Price + Cost of Purchasing) – Outstanding Mortgage
Loan Payments (PIT) = GDS x Buyer Income

GDS = Loan Payments (PIT) ÷ Buyer Income
TDS = (Loan Payments + Other Debt Payments) ÷ Buyer Income
Buyer Income = Loan Payments (PIT) ÷ GDS
Simple Interest
Interest Payable = Principal x Rate x Time
Solution Strategies (continued)
Calculating Compound Interest

A = Compounded Amount
P = Principal (original) Amount
i = Interest Rate per period
n = Number of periods—expressed as a power
1 = Represents a unit of value
A = P (1 + i) n
Mortgage Averaging
(Amount of First x Interest Rate) + (Amount of Second x Interest Rate)
Total Amount Being Financed
Chapter Mini-Review
1. A stated annual rate of 6.75% on a 5. The process whereby interest earned

first mortgage compounded semi during each period is reinvested and
annually not in advance is also continues to earn interest is called
referred to as the effective rate. compounding.
2. In accordance with the Interest Act, 6. In the formula for simple interest, T
Canadian mortgages with blended refers to total.
payments must be calculated semi
annually, not in advance. True False
True False 7. If Buyer Jones has an 6% mortgage,

amortized over 20 years and paid on
3. The gradual retirement of a mortgage a monthly basis, the payment factor
debt by means of payments of principal is 7.632135.
and interest at regular intervals is
called the amortization. True False
True False 8. Mortgage averaging is an accurate

method to compare various types of
4. If a lender has a GDS ratio of 28% financing alternatives.
and the borrower’s GDS ratio is 23.7%,
the borrower does not qualify for the True False
mortgage.
9. A fully amortized loan is one in which
True False the stipulated payments repay the loan
in full by its maturity.
True False

Exercise 1 Multiple Choice (GDS, TDS and Mortgage Averaging)

1.1 A buyer has a yearly gross income of $60,000. What is the buyer’s GDS if P & I
annual mortgage payments are $13,500 with annual taxes of $2,000?
a. 22.50%
b. 23.50%
c. 25.83%
d. 25.38%
1.2 A buyer has a yearly gross income of $50,000. What is the buyer’s GDS ratio with
monthly P & I payments of $723.46 and annual taxes amounting to $1,800?
a. 7.23%
b. 20.96%
c. 52.41%
d. 18.77%
1.3 A buyer, with a yearly gross income of $45,000, is considering a property with
annual taxes of $1,450. What is the maximum monthly principal and interest
payment permitted with a GDS ratio of 30%?
a. $1,004.17
b. $1,125.00
c. $1,237.92
d. $12,345.83
1.4 If a buyer will face $14,700 in annual payments for principal, interest and taxes,
what annual income would the buyer need in order to qualify for the loan if a
GDS ratio of 28% is used?
a. $51,160
b. $41,160
c. $53,500
d. $52,500
1.5 If a buyer is carrying $678.25 per month in principal and interest payments,
$1,350 in annual property taxes and carries $435 per month on a car loan, what
is the buyer’s TDS ratio if she earns $38,000 per year?
a. 26.12%
b. 17.85%
c. 38.71%
d. 21.42%
1.6 If a buyer is facing $967.80 per month for principal and interest payments on
her mortgage and also pays $458.35 per month on a demand loan, what is the
minimum amount of annual income she must earn in order to qualify for the
mortgage if the property taxes are $1,870 per year and a 42% TDS ratio is being
used by the lending institution?
a. $45,199.52
b. $78,479.76
c. $36,294.76
d. $79,731.96
1.7 If a buyer earns $66,000 and is facing tax payments of $2,450 per year on a prop
erty he wishes to purchase, what is the maximum he can afford to put towards
principal and interest payments per month if a TDS ratio of 40% applies and he
has additional monthly obligations of $520?
a. $2,172.50
b. $1,995.83
c. $586.67
d. $1,475.83
1.8 Using the formula for mortgage averaging and assuming that both mortgages
have a oneyear term with identical amortization periods, what is the average
overall rate of interest if a first mortgage of $43,000 has an interest rate of 11%
and the second mortgage of $22,000 bears an interest rate of 16%?
a. 8.79%
b. 11.62%
c. 12.69%
d. 14.44%
1.9 A buyer assumes an existing first mortgage with an outstanding balance of

$67,300, interest rate of 10.25% and arranges a new second mortgage for $15,800,
with an interest rate of 14.25%. What is the average overall interest rate on the
total debt? (Both mortgages have identical oneyear terms and the same
amortization.)
a. 11.01%
b. 8.33%
c. 8.57%
d. 9.01%
1.10 Mr. and Mrs. Jones make an offer of $395,000 on a property and want to assume
an existing mortgage of $191,000. If the mortgage can be assumed by Mr. and
Mrs. Jones, what is the cash to mortgage amount required?
a. $204,000
b. $191,000
c. $395,000
d. $200,055
1.11 The buyer is considering a $220,000 purchase and has the following costs:
Land transfer tax and legal fees $3,440
Adjustments 875
Moving Expenses 1,125
Fund for Major Purchases 2,190
A current mortgage on the house of $140,000 will be discharged and she will
pay all cash for the house. What liquid assets are required?
a. $212,370
b. $80,000
c. $227,630
d. $220,000
1.12 The buyer is acquiring a $180,000 house with the following costs:
Adjustments 1,265
Moving expenses 1,425
If the buyer was assuming existing financing of $100,000, what liquid assets are
required?
a. $87,357
b. $88,120
c. $180,000
d. $171,800
Exercise 2 Interest and Mortgage Calculations

2.1 Buyer Jones is considering different terms for his $125,000 mortgage. Calculate
the applicable monthly payments for these options.
TERMS MONTHLY PAYMENT
Option 1: 7.25% amortized over 20 years ____________________________
Which is the lowest payment and why?
2.2 Buyer Jones is considering a mortgage at 10% per annum, calculated semi
annually not in advance. According to the Interest Act, what is the maximum
effective rate that can be charged per annum?
2.3 Buyer Jones requires $5,000 in additional funds for closing expenses. His bank
has agreed to loan this amount, based on a 9% annual rate compounded monthly,
for three months. Jones does not have to pay the interest until the loan comes
due at the end of the three months. How much principal and interest will he
owe at that time?
2.4 Seller Smith, after reading an article concerning the benefits of having a weekly
payment mortgage in lieu of a traditional monthly arrangement, decides to
investigate further.
a. If Smith has a $75,000 mortgage at 7.5%, what will his weekly payments be
if the loan is amortized over 15, 20 or 25 years?
15 Years: _____________
20 Years: _____________
25 Years: _____________
b. If the interest rate were 8.0%, what payment differences would result?
15 Years: _____________
20 Years: _____________
25 Years: _____________
2.5 Buyer Jones is debating whether to make semimonthly or monthly payments

on the $125,000 mortgage for her new home. The interest rate is 8% and the
amortization is 25 years. What is the difference paid per month when comparing
these two arrangements and why?
2.6 Select the correct monthly payment:

i. Amount: $55,000; interest rate: 11%; amortization: 25 years.
a. $539.01
b. $529.39
ii. Amount: $55,000; interest rate: 14%; amortization: 25 years.

a. $657.37
b. $645.63
iii. Amount: $95,000; interest rate: 14%; amortization: 25 years.

a. $1,115.18
b. $972.64
2.7 Select the correct weekly payment for the following:

i. Amount: $150,000; interest rate: 6%; amortization: 20 years.
a. $243.63
b. $246.06
ii. Amount: $95,000; interest rate: 7.5%; amortization: 25 years.

a. $160.00
b. $173.32
iii. Amount: $65,000; interest rate: 8.25%; amortization: 10 years.

a. $180.36
b. $182.40
2.8 Select the correct biweekly payment for the following:

i. Amount: $73,530; interest rate: 7.25%; amortization: 20 years.
a. $265.61
b. $278.83

a. $309.16
b. $331.49

a. $391.05
b. $393.71
MORTGAGE PAYMENT FACTORS (per $1,000 of Loan Amount)

Weekly Payment Factors
Int. Amortization Period Int. Amortization Period
Rate 5 10 15 20 25 Rate 5 10 15 20 25
1.00 3.943244 2.020779 1.380489 1.060742 .869211 13.00 5.189768 3.385972 2.856979 2.637467 2.533757
1.25 3.967692 2.045628 1.405768 1.086459 .895367 13.25 5.217193 3.417718 2.892446 2.675911 2.574437
1.50 3.992209 2.070645 1.431313 1.112538 .921982 13.50 5.244671 3.449578 2.928059 2.714501 2.615243
1.75 4.016796 2.095828 1.457122 1.138977 .949052 13.75 5.272203 3.481550 2.963814 2.753233 2.656169
2.00 4.041452 2.121178 1.483194 1.165774 .976572 14.00 5.299788 3.513634 2.999707 2.792102 2.697209
2.25 4.066177 2.146693 1.509426 1.192925 1.004538 14.25 5.327426 3.545829 3.035738 2.831104 2.738358
2.50 4.090971 2.172373 1.536117 1.220428 1.032945 14.50 5.355116 3.578132 3.071901 2.870233 2.779610
2.75 4.115832 2.198216 1.562966 1.248279 1.061789 14.75 5.382858 3.610543 3.108195 2.909487 2.820960
3.00 4.140761 2.224222 1.590070 1.276476 1.091063 15.00 5.410651 3.643060 3.144617 2.948860 2.862404
3.25 4.165758 2.250390 1.617428 1.305015 1.120762 15.25 5.438496 3.675683 3.181165 2.988348 2.903935
3.50 4.190821 2.276719 1.645038 1.333891 1.150881 15.50 5.466392 3.708408 3.217834 3.027948 2.945549
3.75 4.215952 2.303208 1.672897 1.363103 1.181413 15.75 5.494338 3.741237 3.254623 3.067655 2.987241
4.00 4.241149 2.329856 1.701005 1.392645 1.212352 16.00 5.522335 3.774166 3.291529 3.107465 3.029007
4.25 4.266412 2.356662 1.729358 1.422515 1.243691 16.25 5.550381 3.807195 3.328548 3.147374 3.070843
4.50 4.291742 2.383625 1.757955 1.452707 1.275424 16.50 5.578477 3.840322 3.365680 3.187379 3.112743
4.75 4.317136 2.410745 1.786793 1.483218 1.307543 16.75 5.606623 3.873546 3.402919 3.227475 3.154704
5.00 4.342596 2.438019 1.815869 1.514043 1.340042 17.00 5.634817 3.906867 3.440265 3.267659 3.196722
5.25 4.368121 2.465448 1.845183 1.545178 1.372912 17.25 5.663059 3.940281 3.477715 3.307927 3.238793
5.50 4.393711 2.493030 1.874731 1.576619 1.406147 17.50 5.691350 3.973789 3.515265 3.348277 3.280912
5.75 4.419364 2.520764 1.904511 1.608361 1.439739 17.75 5.719689 4.007389 3.552914 3.388703 3.323077
6.00 4.445082 2.548648 1.934520 1.640399 1.473680 18.00 5.748075 4.041079 3.590658 3.429203 3.365284
6.25 4.470863 2.576683 1.964756 1.672729 1.507963 18.25 5.776508 4.074859 3.628495 3.469774 3.407529
6.50 4.496708 2.604866 1.995217 1.705345 1.542580 18.50 5.804988 4.108726 3.666424 3.510412 3.449809
6.75 4.522615 2.633197 2.025900 1.738244 1.577522 18.75 5.833514 4.142681 3.704440 3.551115 3.492122
7.00 4.548585 2.661674 2.056801 1.771419 1.612781 19.00 5.862087 4.176721 3.742543 3.591878 3.534462
7.25 4.574617 2.690297 2.087920 1.804867 1.648351 19.25 5.890705 4.210845 3.780729 3.632699 3.576829
7.50 4.600712 2.719064 2.119252 1.838581 1.684222 19.50 5.919368 4.245051 3.818996 3.673575 3.619219
7.75 4.626867 2.747974 2.150796 1.872558 1.720386 19.75 5.948077 4.279340 3.857342 3.714503 3.661629
8.00 4.653084 2.777025 2.182547 1.906791 1.756836 20.00 5.976830 4.313709 3.895764 3.755480 3.704057
8.25 4.679362 2.806218 2.214505 1.941276 1.793564 20.25 6.005628 4.348157 3.934260 3.796504 3.746499
8.50 4.705701 2.835550 2.246666 1.976008 1.830560 20.50 6.034469 4.382682 3.972829 3.837572 3.788954
8.75 4.732100 2.865020 2.279026 2.010981 1.867818 20.75 6.063354 4.417285 4.011467 3.878681 3.831420
9.00 4.758559 2.894628 2.311584 2.046190 1.905329 21.00 6.092283 4.451962 4.050172 3.919828 3.873893
9.25 4.785077 2.924371 2.344336 2.081630 1.943086 21.25 6.121254 4.486714 4.088943 3.961011 3.916372
9.50 4.811654 2.954249 2.377280 2.117296 1.981080 21.50 6.150269 4.521539 4.127777 4.002229 3.958855
9.75 4.838291 2.984260 2.410413 2.153183 2.019304 21.75 6.179325 4.556436 4.166672 4.043477 4.001339
10.00 4.864986 3.014404 2.443731 2.189285 2.057750 22.00 6.208423 4.591403 4.205627 4.084755 4.043823
10.25 4.891739 3.044678 2.477232 2.225598 2.096411 22.25 6.237563 4.626439 4.244638 4.126059 4.086305
10.50 4.918550 3.075082 2.510913 2.262115 2.135278 22.50 6.266745 4.661543 4.283704 4.167388 4.128783
10.75 4.945419 3.105614 2.544771 2.298833 2.174345 22.75 6.295967 4.696714 4.322823 4.208739 4.171255
11.00 4.972345 3.136274 2.578803 2.335746 2.213604 23.00 6.325229 4.731951 4.361994 4.250111 4.213720
11.25 4.999327 3.167059 2.613007 2.372849 2.253048 23.25 6.354532 4.767253 4.401213 4.291502 4.256176
11.50 5.026366 3.197969 2.647379 2.410136 2.292670 23.50 6.383875 4.802617 4.440480 4.332908 4.298622
11.75 5.053461 3.229002 2.681916 2.447604 2.332463 23.75 6.413258 4.838044 4.479793 4.374330 4.341056
12.00 5.080613 3.260158 2.716615 2.485246 2.372420 24.00 6.442679 4.873532 4.519149 4.415764 4.383477
12.25 5.107819 3.291433 2.751474 2.523058 2.412534 24.25 6.472140 4.909080 4.558547 4.457210 4.425883
12.50 5.135081 3.322829 2.786490 2.561036 2.452800 24.50 6.501639 4.944687 4.597985 4.498664 4.468273
12.75 5.162397 3.354342 2.821659 2.599174 2.493209 24.75 6.531176 4.980351 4.637461 4.540127 4.510647

Bi-Weekly Payment Factors
Rate 5 10 15 20 25 Rate 5 10 15 20 25
1.00 7.887244 4.041946 2.761243 2.121687 1.738588 13.00 10.392121 6.780155 5.720886 5.281330 5.073659
1.25 7.936334 4.091746 2.811874 2.173178 1.790949 13.25 10.447273 6.843878 5.792038 5.358432 5.155233
1.50 7.985566 4.141884 2.863038 2.225396 1.844230 13.50 10.502535 6.907832 5.863483 5.435831 5.237064
1.75 8.034939 4.192359 2.914733 2.278337 1.898422 13.75 10.557906 6.972015 5.935216 5.513516 5.319138
2.00 8.084452 4.243168 2.966955 2.331994 1.953518 14.00 10.613385 7.036424 6.007231 5.591480 5.401445
2.25 8.134105 4.294310 3.019701 2.386364 2.009508 14.25 10.668972 7.101057 6.079522 5.669712 5.483974
2.50 8.183896 4.345783 3.072968 2.441440 2.066384 14.50 10.724667 7.165910 6.152083 5.748204 5.566713
2.75 8.233826 4.397587 3.126752 2.497215 2.124135 14.75 10.780467 7.230981 6.224909 5.826947 5.649652
3.00 8.283894 4.449718 3.181051 2.553683 2.182751 15.00 10.836373 7.296268 6.297994 5.905934 5.732780
3.25 8.334099 4.502175 3.235859 2.610839 2.242220 15.25 10.892384 7.361768 6.371333 5.985155 5.816088
3.50 8.384440 4.554957 3.291174 2.668673 2.302531 15.50 10.948500 7.427479 6.444919 6.064601 5.899566
3.75 8.434917 4.608062 3.346991 2.727180 2.363671 15.75 11.004718 7.493397 6.518749 6.144266 5.983205
4.00 8.485530 4.661487 3.403306 2.786352 2.425628 16.00 11.061040 7.559520 6.592815 6.224141 6.066994
4.25 8.536276 4.715231 3.460115 2.846180 2.488389 16.25 11.117464 7.625845 6.667113 6.304219 6.150926
4.50 8.587157 4.769291 3.517414 2.906657 2.551940 16.50 11.173989 7.692371 6.741637 6.384490 6.234992
4.75 8.638172 4.823667 3.575199 2.967775 2.616267 16.75 11.230615 7.759094 6.816382 6.464949 6.319182
5.00 8.689319 4.878355 3.633464 3.029524 2.681357 17.00 11.287342 7.826011 6.891342 6.545587 6.403490
5.25 8.740598 4.933354 3.692206 3.091897 2.747193 17.25 11.344167 7.893121 6.966513 6.626397 6.487908
5.50 8.792008 4.988662 3.751419 3.154884 2.813762 17.50 11.401092 7.960419 7.041889 6.707373 6.572427
5.75 8.843549 5.044277 3.811099 3.218476 2.881049 17.75 11.458114 8.027905 7.117466 6.788507 6.657040
6.00 8.895220 5.100196 3.871241 3.282664 2.949037 18.00 11.515233 8.095575 7.193237 6.869792 6.741741
6.25 8.947021 5.156417 3.931840 3.347438 3.017712 18.25 11.572450 8.163427 7.269188 6.951222 6.826522
6.50 8.998950 5.212938 3.992890 3.412790 3.087058 18.50 11.629762 8.231457 7.345344 7.032790 6.911377
6.75 9.051007 5.269757 4.054387 3.478708 3.157059 18.75 11.687169 8.299665 7.421671 7.114490 6.996300
7.00 9.103192 5.326872 4.116326 3.545184 3.227698 19.00 11.744671 8.368046 7.498172 7.196315 7.081284
7.25 9.155504 5.384281 4.178701 3.612207 3.298961 19.25 11.802267 8.436598 7.574844 7.278260 7.166323
7.50 9.207942 5.441980 4.241507 3.679768 3.370830 19.50 11.859956 8.505320 7.651682 7.360318 7.251412
7.75 9.260505 5.499968 4.304738 3.747856 3.443290 19.75 11.917736 8.574208 7.728680 7.442885 7.336545
8.00 9.313193 5.558243 4.368390 3.816461 3.516325 20.00 11.975610 8.643259 7.805835 7.524753 7.421716
8.25 9.366005 5.616802 4.432456 3.885572 3.589918 20.25 12.033574 8.712472 7.883142 7.607118 7.506922
8.50 9.418941 5.675643 4.496930 3.955181 3.664053 20.50 12.091629 8.781844 7.960596 7.689573 7.592156
8.75 9.472000 5.734763 4.561809 4.025276 3.738715 20.75 12.149773 8.851372 8.038193 7.772115 7.677414
9.00 9.525180 5.794160 4.627085 4.095847 3.813887 21.00 12.208066 8.921054 8.115928 7.854738 7.762691
9.25 9.578482 5.853832 4.692753 4.166883 3.889554 21.25 12.266328 8.990888 8.193797 7.937436 7.847984
9.50 9.631905 5.913775 4.758807 4.238375 3.965699 21.50 12.324738 9.060870 8.271797 8.020205 7.933287
9.75 9.685448 5.973989 4.825242 4.310311 4.042308 21.75 12.383234 9.130999 8.349921 8.103041 8.018597
10.00 9.739110 6.034469 4.892052 4.382682 4.119365 22.00 12.441816 9.201271 8.428168 8.185938 8.103910
10.25 9.792891 6.095214 4.959230 4.455478 4.196855 22.25 12.500485 9.271686 8.506532 8.268892 8.189222
10.50 9.846790 6.156222 5.026772 4.528687 4.274762 22.50 12.559238 9.342240 8.585009 8.351899 8.274530
10.75 9.900806 6.217489 5.094672 4.602300 4.353072 22.75 12.618075 9.412930 8.663596 8.434954 8.359830
11.00 9.954939 6.279013 5.162923 4.676307 4.431771 23.00 12.676996 9.483755 8.742288 8.518054 8.445119
11.25 10.009188 6.340792 5.231520 4.750697 4.510843 23.25 12.736000 9.554713 8.821083 8.601194 8.530393
11.50 10.063552 6.402822 5.300456 4.825461 4.590275 23.50 12.795086 9.625800 8.899975 8.684370 8.615651
11.75 10.118031 6.465103 5.369727 4.900588 4.670053 23.75 12.854254 9.697014 8.978961 8.767580 8.700888
12.00 10.172624 6.527630 5.439326 4.976068 4.750162 24.00 12.913502 9.768354 9.058039 8.850818 8.786102
12.25 10.227330 6.590401 5.509247 5.051892 4.830591 24.25 12.972831 9.839816 9.137203 8.934082 8.871290
12.50 10.282149 6.653414 5.579484 5.128050 4.911325 24.50 13.032239 9.911399 9.216451 9.017368 8.956450
12.75 10.337079 6.716667 5.650033 5.204533 4.992352 24.75 13.091726 9.983100 9.295779 9.100672 9.041580

Semi-Monthly Payment Factors
Rate 5 10 15 20 25 Rate 5 10 15 20 25
1.00 8.544651 4.378845 2.991394 2.298530 1.883501 13.00 11.260405 7.346652 6.198878 5.722597 5.497574
1.25 8.597867 4.432814 3.046258 2.354323 1.940234 13.25 11.320208 7.415727 6.275999 5.806163 5.585986
1.50 8.651237 4.487149 3.101699 2.410903 1.997963 13.50 11.380130 7.485053 6.353438 5.890051 5.674675
1.75 8.704760 4.541849 3.157715 2.468267 2.056681 13.75 11.440171 7.554628 6.431189 5.974250 5.763629
2.00 8.758436 4.596912 3.214304 2.526408 2.116378 14.00 11.500330 7.624448 6.509246 6.058751 5.852836
2.25 8.812263 4.652336 3.271460 2.585320 2.177045 14.25 11.560606 7.694510 6.587603 6.143544 5.942284
2.50 8.866241 4.708119 3.329181 2.644998 2.238672 14.50 11.620998 7.764812 6.666253 6.228619 6.031960
2.75 8.920369 4.764261 3.387463 2.705434 2.301247 14.75 11.681506 7.835351 6.745191 6.313968 6.121853
3.00 8.974647 4.820758 3.446303 2.766622 2.364760 15.00 11.742128 7.906125 6.824410 6.399580 6.211953
3.25 9.029073 4.877609 3.505695 2.828555 2.429197 15.25 11.802865 7.977129 6.903905 6.485446 6.302248
3.50 9.083648 4.934811 3.565636 2.891224 2.494547 15.50 11.863715 8.048362 6.983668 6.571559 6.392728
3.75 9.138371 4.992364 3.626123 2.954621 2.560796 15.75 11.924678 8.119821 7.063695 6.657908 6.483382
4.00 9.193241 5.050265 3.687149 3.018739 2.627931 16.00 11.985753 8.191502 7.143980 6.744485 6.574200
4.25 9.248256 5.108511 3.748711 3.083570 2.695937 16.25 12.046938 8.263403 7.224516 6.831282 6.665174
4.50 9.303418 5.167101 3.810804 3.149104 2.764799 16.50 12.108235 8.335522 7.305297 6.918291 6.756292
4.75 9.358724 5.226032 3.873424 3.215332 2.834503 16.75 12.169640 8.407854 7.386319 7.005502 6.847548
5.00 9.414174 5.285303 3.936565 3.282245 2.905033 17.00 12.231155 8.480398 7.467575 7.092909 6.938931
5.25 9.469767 5.344911 4.000222 3.349834 2.976373 17.25 12.292777 8.553151 7.549060 7.180503 7.030433
5.50 9.525504 5.404854 4.064391 3.418088 3.048508 17.50 12.354507 8.626109 7.630767 7.268277 7.122046
5.75 9.581382 5.465130 4.129066 3.486999 3.121420 17.75 12.416344 8.699270 7.712692 7.356222 7.213761
6.00 9.637402 5.526736 4.194242 3.557556 3.195033 18.00 12.478286 8.772632 7.794828 7.444333 7.305573
6.25 9.693562 5.586669 4.259913 3.626749 3.269511 18.25 12.540334 8.846191 7.877171 7.532601 7.397472
6.50 9.749862 5.647929 4.326075 3.697568 3.344656 18.50 12.602486 8.919944 7.959716 7.621019 7.489451
6.75 9.806302 5.709512 4.392721 3.769002 3.420511 18.75 12.664741 8.993889 8.042455 7.709580 7.581505
7.00 9.862880 5.771415 4.459845 3.841040 3.497059 19.00 12.727099 9.068023 8.125386 7.798279 7.673625
7.25 9.919595 5.833637 4.527443 3.913671 3.574282 19.25 12.789560 9.142344 8.208501 7.887107 7.765806
7.50 9.976448 5.896175 4.595508 3.986886 3.652164 19.50 12.852122 9.216848 8.291797 7.976059 7.858042
7.75 10.033437 5.959026 4.664035 4.060672 3.730686 19.75 12.914784 9.291533 8.375268 8.065129 7.950326
8.00 10.090562 6.022188 4.733017 4.135019 3.809831 20.00 12.977546 9.366395 8.458908 8.154309 8.042652
8.25 10.147821 6.085658 4.802449 4.209916 3.889582 20.25 13.040408 9.441434 8.542714 8.243595 8.135016
8.50 10.205215 6.149343 4.872325 4.285351 3.969921 20.50 13.103367 9.516644 8.626680 8.332980 8.227411
8.75 10.262742 6.213513 4.942638 4.361314 4.050831 20.75 13.166425 9.592025 8.710801 8.422459 8.319833
9.00 10.320402 6.277893 5.013383 4.437793 4.132294 21.00 13.229579 9.667573 8.795073 8.512026 8.412277
9.25 10.378194 6.342571 5.084553 4.514778 4.214294 21.25 13.292829 9.743285 8.879491 8.601676 8.504738
9.50 10.436117 6.407544 5.156142 4.592256 4.296814 21.50 13.356175 9.819160 8.964050 8.691403 8.597211
9.75 10.494170 6.472809 5.228143 4.670217 4.379836 21.75 13.419616 9.895193 9.048746 8.781203 8.689692
10.00 10.552353 6.538365 5.300552 4.748649 4.463344 22.00 13.483150 9.971383 9.133574 8.871070 8.782177
10.25 10.610666 6.604207 5.373361 4.827541 4.547322 22.25 13.546777 10.047728 9.218530 8.960999 8.874662
10.50 10.669106 6.670335 5.446564 4.906883 4.631752 22.50 13.610497 10.124223 9.303610 9.050987 8.967142
10.75 10.727674 6.736744 5.520155 4.986663 4.716620 22.75 13.674309 10.200868 9.388808 9.141027 9.059615
11.00 10.786369 6.803432 5.594127 5.066869 4.801910 23.00 13.738212 10.277659 9.474122 9.231116 9.152076
11.25 10.845190 6.870397 5.668474 5.147492 4.887604 23.25 13.802205 10.354593 9.559547 9.321250 9.244522
11.50 10.904137 6.937635 5.743191 5.228520 4.973690 23.50 13.866287 10.431669 9.645078 9.411423 9.336950
11.75 10.963208 7.005144 5.818269 5.309942 5.060150 23.75 13.930458 10.508883 9.730712 9.501633 9.429357
12.00 11.022403 7.072921 5.893704 5.391748 5.146971 24.00 13.994717 10.586234 9.816446 9.591875 9.521740
12.25 11.081721 7.140963 5.969489 5.473927 5.234138 24.25 14.059064 10.663718 9.902273 9.682145 9.614095
12.50 11.141161 7.209267 6.045617 5.556468 5.321637 24.50 14.123497 10.741333 9.988193 9.772439 9.706421
12.75 11.200723 7.277831 6.122082 5.639362 5.409453 24.75 14.188016 10.819077 10.074199 9.862755 9.798714

Monthly Payment Factors
Rate 5 10 15 20 25 Rate 5 10 15 20 25
1.00 17.092853 8.759511 5.984032 4.598017 3.767784 13.00 22.580060 14.731961 12.430373 11.475304 11.024075
1.25 17.200199 8.867930 6.094097 4.709868 3.881475 13.25 22.701092 14.871203 12.585637 11.643447 11.201912
1.50 17.307863 8.977093 6.205330 4.823308 3.997171 13.50 22.822375 15.010961 12.741554 11.812250 11.380323
1.75 17.415843 9.086996 6.317724 4.938326 4.114856 13.75 22.943906 15.151230 12.898111 11.981694 11.559282
2.00 17.524137 9.197636 6.431274 5.054912 4.234512 14.00 23.065685 15.292005 13.055297 12.151759 11.738765
2.25 17.632745 9.309011 6.545972 5.173052 4.356121 14.25 23.187708 15.433279 13.213098 12.322426 11.918747
2.50 17.741664 9.421115 6.661811 5.292736 4.479662 14.50 23.309976 15.575047 13.371503 12.493674 12.099205
2.75 17.850895 9.533946 6.778784 5.413950 4.605115 14.75 23.432486 15.717303 13.530498 12.665487 12.280116
3.00 17.960435 9.647500 6.896884 5.536680 4.732455 15.00 23.555237 15.860041 13.690073 12.837844 12.461457
3.25 18.070284 9.761774 7.016102 5.660911 4.861660 15.25 23.678228 16.003257 13.850215 13.010728 12.643207
3.50 18.180439 9.876762 7.136432 5.786630 4.992703 15.50 23.801457 16.146944 14.010912 13.184121 12.825344
3.75 18.290900 9.992462 7.257863 5.913820 5.125560 15.75 23.924922 16.291096 14.171253 13.358006 13.007848
4.00 18.401665 10.108870 7.380387 6.042465 5.260202 16.00 24.048622 16.435709 14.333924 13.532364 13.190699
4.25 18.512732 10.225981 7.503996 6.172548 5.396602 16.25 24.172556 16.580776 14.496215 13.707180 13.373878
4.50 18.624102 10.343792 7.628681 6.304052 5.534730 16.50 24.296722 16.726291 14.659014 13.882435 13.557365
4.75 18.735771 10.462297 7.754431 6.436959 5.674556 16.75 24.421119 16.872250 14.822310 14.058115 13.741144
5.00 18.847739 10.581483 7.881238 6.571250 5.816050 17.00 24.545744 17.018645 14.986090 14.234202 13.925195
5.25 18.960005 10.701376 8.009091 6.706908 5.959180 17.25 24.670597 17.165473 15.150344 14.410682 14.109502
5.50 19.072566 10.821941 8.137981 6.843913 6.103915 17.50 24.795677 17.312727 15.315061 14.587538 14.294049
5.75 19.185423 10.943184 8.267897 6.982245 6.250221 17.75 24.920981 17.460401 15.480229 14.764755 14.478820
6.00 19.298572 11.065099 8.398828 7.121884 6.398066 18.00 25.046508 17.608491 15.645837 14.942319 14.663799
6.25 19.412013 11.187683 8.530764 7.262811 6.547416 18.25 25.172256 17.756990 15.811874 15.120216 14.848971
6.50 19.525745 11.310931 8.663695 7.405004 6.698238 18.50 25.298225 17.905892 15.978330 15.298430 15.034322
6.75 19.639766 11.434838 8.797609 7.548443 6.850496 18.75 25.424413 18.055193 16.145194 15.476949 15.219837
7.00 19.754075 11.559399 8.932494 7.693106 7.004158 19.00 25.550817 18.204887 16.312456 15.655759 15.405505
7.25 19.868670 11.684610 9.068341 7.838973 7.159187 19.25 25.677437 18.354968 16.480104 15.834845 15.591311
7.50 19.983549 11.810465 9.205137 7.986021 7.315549 19.50 25.804272 18.505431 16.648129 16.014197 15.777243
7.75 20.098712 11.936960 9.342870 8.134229 7.473210 19.75 25.931319 18.656270 16.816521 16.193800 15.963289
8.00 20.214157 12.064090 9.481529 8.283575 7.632135 20.00 26.058577 18.807480 16.985269 16.373642 16.149438
8.25 20.329883 12.191850 9.621103 8.434037 7.792288 20.25 26.186046 18.959055 17.154364 16.553712 16.335678
8.50 20.445888 12.320234 9.761579 8.585592 7.953635 20.50 26.313722 19.110990 17.323795 16.733998 16.521998
8.75 20.562170 12.449238 9.902945 8.738219 8.116142 20.75 26.441605 19.263280 17.493554 16.914489 16.708389
9.00 20.678729 12.578856 10.045189 8.891895 8.279774 21.00 26.569693 19.415920 17.663630 17.095172 16.894840
9.25 20.795563 12.709083 10.188298 9.046598 8.444497 21.25 26.697985 19.568903 17.834015 17.276038 17.081342
9.50 20.912670 12.839914 10.332261 9.202305 8.610276 21.50 26.826480 19.722225 18.004698 17.457076 17.267886
9.75 21.030049 12.971344 10.477066 9.358995 8.777079 21.75 26.955175 19.875880 18.175672 17.638275 17.454462
10.00 21.147698 13.103367 10.622699 9.516644 8.944872 22.00 27.084070 20.029863 18.346926 17.819625 17.641063
10.25 21.262617 13.235979 10.769149 9.675231 9.113622 22.25 27.213162 20.184169 18.518453 18.001117 17.827679
10.50 21.383803 13.369173 10.916402 9.834734 9.283297 22.50 27.342451 20.338793 18.690242 18.182742 18.014304
10.75 21.502255 13.502944 11.064446 9.995129 9.453864 22.75 27.471935 20.493729 18.862286 18.364489 12.200930
11.00 21.620972 13.637287 11.213269 10.156396 9.625292 23.00 27.601613 20.648972 19.034577 18.546351 18.387550
11.25 21.739952 13.772197 11.362858 10.318512 9.797549 23.25 27.731482 20.804518 19.207105 18.728317 18.574156
11.50 21.859194 13.907667 11.513201 10.481456 9.970606 23.50 27.861542 20.960361 19.379864 18.910381 18.760742
11.75 21.978696 14.043693 11.664285 10.645206 10.144431 23.75 27.991791 21.116496 19.552844 19.092533 18.947302
12.00 22.098457 14.180269 11.816096 10.809741 10.318996 24.00 28.122228 21.272918 19.726037 19.274765 19.133830
12.25 22.218476 14.317389 11.968624 10.975039 10.494270 24.25 28.252851 21.429622 19.899437 19.457070 19.320319
12.50 22.338750 14.455048 12.121854 11.141079 10.670227 24.50 28.383658 21.586603 20.073035 19.639441 19.506765
12.75 22.459278 14.593241 12.275775 11.307841 10.846838 24.75 28.514649 21.743856 20.246823 19.821869 19.693162
286
CHAPTER 9
Capitalization,
Taxation and
Closing Adjustments
Introduction
Registrants encounter mathematical complexities at various points in negotiations and
the sale process. Selected calculations pose special challenges given their uniqueness to
the real estate marketplace. Three key areas are addressed:
• Capitalization and the use of cap rates in the appraisal process.
• Land transfer tax and ongoing real property tax calculations.
• Adjustments at point of sale closing.
These topics set the stage for detailed analysis of appraisal, taxation and title ownership
in subsequent courses.
287
Learning Outcomes
• Discuss the fundamental differences between direct capitalization and yield
capitalization.
• Briefly outline steps in establishing an overall capitaliza tion (cap) rate and its
application in estimating value using the appraisal process.
• Perform selected calculations using the cap formula.
• Discuss how income multipliers are used in property valuation.
• Calculate land transfer tax including surcharges that apply to singlefamily and
duplex residences.
• Describe the basics of taxation including selected tax calculations.
• utline the closing process and calculate selected adjust ments for residential
properties.
CAPITALIZATION
The appraisal process consists of three approaches to value: direct comparison, cost and
income approaches. Direct comparison and cost approaches rely on basic real estate math
skills; e.g., plus minus adjustments and area measurements. The income approach
involves capitalization; i.e., net income earned by the property is capitalized into an
indication of value.
Capitalization is the process of converting the income of a property into a capital
value and, more specifically, the estimating of the present worth of a series of anticipated
future periodic cash flows through the application of an appropriate rate or factor,
refer red to as a capitalization (cap) rate. More than one rate may be embodied in the
overall cap rate:
• a rate providing for interest on the investment (referred to as the discount rate). Discount Rate
• a rate providing for the recapture of the capital (the recapture rate). A rate representing the cost of a
lost opportunity. In other words,
an investor seeks a rate of return
Two types of capitalization are found in the commercial marketplace: direct that represents what could have
capitalization and yield capitalization. been obtained had another
investment been selected.
288 Chapter 9 Capitalization, Taxation and Closing Adjustments
Direct vs. Yield Capitalization

Direct and yield capitalization establish the present value of a future income stream for
purposes of estimating value and also provide a basis for comparison of investment
grade properties. Direct capitalization is clearly distinguished from yield capitalization
as it is based on a single year’s projected income and expenses in arriving at value. This
method involves the straightforward division of net operating income by an appropriate
capitalization rate. The more complex yield capitalization requires forecasted income
and expenses over a projected investment period (typically based on three to five years),
and involves four steps:
• Determination of a specified holding period;
• Projected income and expenses over that period;
• Selection of an appropriate discount rate; and
• Estimating present value based on that discount rate.
Direct capitalization is used for estimating market value and is generally preferred by
appraisers (assuming sufficient market data to establish a capitalization rate), as it is
marketdriven and has limited assumptions. ield capitalization involving discounted cash
flows is more complex, but favoured by commercial registrants in addressing individual
investor goals and objectives in relation to detailed cash flow analysis. The direct method
is most frequently associated with small income investment properties. The yield capital
ization method applies more commonly to larger investmentgrade commercial projects
and properties. This course focuses on the direct method with the more complex yield
method addressed in a subsequent commercial course.
Establishing an Overall Cap Rate

As stated earlier, the overall capitalization rate used in direct capitalization is made up
of two rates:
• The rate of return on the investment (discount rate).
• The rate of return of the investment (recapture rate).
Every investor seeks a return on and of invested capital. When a capitalization rate for
an improved property is 10% or 12%, the rate is said to be blended:
• The rate of return on the money invested in both the land and the building (discount
rate); and
• A rate of return of the money invested in the building which is a wasting asset
(recapture rate).
The overall capitalization rate (sometimes referred to as a blended rate):

• Expresses the relationship between the current year’s income and value; and
• Represents a blend of the rate of return on the investment and the rate of return of
the investment.
The equation for the overall capitalization rate is:

Value of Property = Net Operating Income ÷ Overall Capitalization Rate
V = I ÷ R
Two methods are used to determine the overall capitalization rate: investor analysis
and market research.
Capitalization, Taxation and Closing Adjustments Chapter 9 289
1. INVESTOR ANALYSIS
The analysis of expected return of the investment and a return on the investment.
EXAMPLE Investor Analysis

An investor analyzes a small investment property available for $150,000 cash. She estimates
land allocation at 20% (i.e., $30,000) with the building being 80% ($120,000).
STEP 1 Establish Return on Investment

The investor requires a 10% return (referred to as a discount rate), as other
investment opportunities would realize that return.
STEP 2 Establish Return of Investment

The building has a remaining economic life of 40 years. Funds invested
should be returned over that time period.
STEP 3 Calculate Recapture Rate

Divide the remaining economic life into 100% (100% represents return of all
investment in the building).
100 ÷ 40 = 2.5%
STEP 4 Determine Overall Capitalization Rate

Add the discount rate (weighted average) applicable to the land value to the
discount rate and recapture rate applicable to the building.
Weighted Average (Land) (WAL)

20% land value at 10%
.20 x .10 .02
PLUS
Weighted Average (Building) (WAB)
80% building value at 12.5% (10 + 2.5)
.80 x .125 .10
Overall Rate (WAL + WAB) .12 or 12%
Based on criteria (Steps 1 and 2) the property meets the investor requirement of a 12% cap rate.
2. MARKET RESEARCH
Cap rates can be obtained from the marketplace, often to confirm investor analysis. et
operating incomes are established (based on reconstructed operating statements for the
properties involved) and a cap rate is calculated.
EXAMPLE Market Research

SALE # SALE PRICE NET OPERATING OVERALL CAP RATE
INCOME (NOI)
1 336,100 40,500 .1205 OR 12%
2 390,000 46,840 .1201 or 12%
3 358,000 43,000 .1201 or 12%
Indicated overall cap rate is 12%.
Applying the Overall Cap Rate

Financial statements are reconstructed (stabilized) to establish potential income and
typical expenses, as opposed to what actually is earned and spent on the property. A
typical format is provided:
Estimate of potential gross income (full occupancy) $40,000
Less allowance for vacancy and bad debts –2,000
(estimated at 5% for local market)
Calculate effective gross income 38,000
Less annual operating expenses –20,000
Net Operating Income (before depreciation) $18,000
Capitalize net operating income (NOI) with the Income

formula (IRV) for an overall capitalization rate: = Value
Rate
Exercise care when applying cap rates. Advanced courses and experience are essential. Small
changes in cap rates can make substantial differences in value:
CAP RATE NOI ESTIMATE OF

VALUE
10.1% $47,300 $468,317
10.9% $47,300 $433,945
Note: As cap rates rise, values go down.
The Reconstructed Operating Statement

The reconstructed operating statement typically involves a oneyear analysis of actual
income and expenses according to the owner’s statement for an investment property and
then adjusted to properly reflect typical income and expenses for that type of commercial
property. Adjustments are made based on research involving comparable properties.
The reconstructed operating statement can also provide the basis of extended cash flow
forecasts typically for a fiveyear to tenyear period. neyear reconstructed statements
lead to estimates of value based on direct capitalization. Longer cash flow forecasts are
applied when estimating value by means of yield capitalization.
The reconstructed operating statement is adjusted on a linebyline basis for all income
and expenses. The individual making the adjustments must reconstruct actual operating
statements by first adjusting income to reflect market rental rates (subject to vacancy and
collection losses), and then reconstruct expenses in relation to reasonable ranges found
in the marketplace. This activity will include stabilizing certain fluctuating expense items,
properly amortizing selected costs and making adjustments for other items based on
prevailing ranges within comparable properties.
Working with the Cap Formula

OPTION 1 Income
Estimating Value = Value
Rate
Investor Thompson is considering a rental property with an NOI of $45,000. Research
indicates an 11% cap rate is reasonable for valuation purposes.
I ÷ R = V
$45,000 ÷ .11 = $409,000 (rounded)
OPTION 2 Income
Estimating The Cap Rate = Rate
Value
Salesperson Lee locates three comparable properties to the subject property being appraised.
ADDRESS SALE PRICE NET OPERATING I ÷ V = R (Rate)

INCOME
138 Main 389,500 37,780 37,780 ÷ 389,500 = 9.70%
138 East 387,000 37,115 37,115 ÷ 387,000 = 9.59%
129 Eastview 362,600 35,355 35,355 ÷ 362,600 = 9.75%
Lee determines that 138 Main is most comparable to the subject property, selects 9.70%
cap rate and estimates value based on a net operating income of $38,200.
I ÷ R = V
$38,200 ÷ .097 = $393,800 (rounded)
OPTION 3
Estimating Net Operating Income Value x Rate = Income
Salesperson Ward is estimating net operating incomes for selected buildings based on an 11.5%
cap rate. While detailed analysis (reconstructing operating statements) is required, this informa-
tion provides a rough guideline.
ADDRESS SALE PRICE CAPITALIZATION RATE VxR=I (Net Operating Income)
456 Main 349,500 11.5% or .115 349,500 x .115 = $40,193

138 West 348,000 11.5% or .115 348,000 x .115 = $40,020
129 Westview 352,600 11.5% or .115 352,600 x .115 = $40,549
Trends in Anycity Rental Apartments CAP FOCUS
ANYCITY—DOWNTOWN ANYCITY—SUBURBAN
YEAR Price Per Price Per
No. of Sales Suite ($’s) Cap. Rate (%) No. of Sales Suite ($’s) Cap. Rate (%)
2013 12 67,997 7.6 58 66,228 7.7
2012 19 76,540 8.2 66 64,773 8.1
2011 41 71,569 7.3 90 61,836 8.3
2010 33 54,206 8.2 92 54,437 8.5
2009 22 51,935 8.0 89 48,000 9.3
2008 25 41,195 9.0 87 41,133 9.9
2007 31 40,833 9.3 88 39,060 9.8
2006 29 44,910 9.1 83 40,541 9.6
2005 13 36,190 9.8 42 39,643 9.8
INCOME MULTIPLIERS
A number representing the relationship between the rent that can be obtained from a
property and its selling price. Two income multipliers are found in the commercial
marketplace: the monthly rental factor (MRF) and the gross income multiplier (GIM).
These multipliers are used in the valuation of properties, when the rents from such
properties are known.
The MRF and GIM are generally grouped under the income approach to value, but
are more appropriately categorized as rules of thumb. Care must be taken to ensure that
the properties have similar characteristics before multipliers can be used. If the appraisal
involves an apartment building, then comparable properties must be in the same price
range and of similar size and location. If the subject property is an office building, then
similar types of properties with comparable operating expense ratios and remaining
economic lives must be used. The importance of using truly comparable properties is
evident because multipliers are arrived at from actual income earned at the time of sale.
The advantage of such multipliers is their speed and ease of application. The disadvan
tages are that they do not provide for differences in properties and usually lack precision
as many factors are not considered in the calculation. Registrants should exercise prudence
in applying multipliers and seek corroborating evidence through other techniques.
Gross Income Multiplier (GIM)

The gross income multiplier represents the relationship (ratio) between sale price (value)
and income. Traditionally referred to as the gross rental multiplier (GRM), the GIM was
introduced to emphasize that gross income frequently involves more than rental revenues
in commercial property (e.g., additional revenues from rental equipment, parking, com
munication towers located on the building, etc.). Further, gross rental multipliers typically
involved unadjusted rental amounts, but gross income multipliers now rely more heavily
on adjusted figures (see earlier discussion regarding reconstructed operating statements).
The decision to use the GIM rests largely on the availability and scope of data on com
parable sales. This procedure does not take into account variations in expenses and mort
gage financing in properties being used for comparative purposes and, consequently, has
significant limitations. Typically, buyers of a relatively small investment property will
arrive at values using the GIM, since it is easy to understand and calculate, and relevant
data is normally readily available.
For descriptive purposes, the GIM is discussed based on effective gross income. The
term effective gross income (EGI), used primarily by appraisers, is not universally found in
the marketplace. ften, commercial registrants refer to gross operating income. Regardless,
the calculation is the same: gross income from the property less an allowance for vacancy
and bad debt plus any other incidental income. The formula commonly used to calculate
the GIM is:
GIM = Sale Price ÷ Effective Gross Income
The first step in calculating a GIM is to select a number of comparable properties from
which sufficient information can be developed. Comparable properties should be similar
in terms of size, price, location, financing, expense ratios and rents. The appraiser should
also look at the gross rents of the comparable properties to ensure that rents are collected
on the same basis as the subject property. In other words, the registrant should always seek
a high degree of comparability to ensure accuracy in using the gross income multiplier.
EXAMPLE Gross Income Multiplier

The subject property has an effective gross income of $50,000. A comparable sale with an
effective gross income of $56,000 and a selling price of $392,000 is found (in actual practice,
several comparables would be located and analyzed).
GIM = Sale Price ÷ Effective Gross Income
= $392,000 ÷ 56,000
=7
The comparable sold for seven times its effective gross income. This multiplier can be used with
the subject property to arrive at a capital value:
V = Gross Income Multiplier x Effective Gross Income
= GIM x EGI
= 7 x $50,000
= $350,000
Monthly Rental Factor (MRF)

The MRF is the ratio of value to gross monthly rent. For example, if the value is $60,000
and the monthly rent is $600, then:
MRF = 60,000 ÷ 600
= 100
This calculation demonstrates that the property sold for 100 times its monthly rent. In
calculating the MRF, the sale price of the property and the monthly rent are used without
adjustments. This factor is applicable to the valuation of small income properties and
singlefamily rented residences but, as with the GIM, significant limitations exist and
caution is advised.
The MRF is applicable if the monthly rent is known and an MRF can be determined
from similar properties to the subject property. See the Market Focus: Tread Carefully
with Rules of Thumb for guidelines and cautions when using the MRF to estimate value.
Tread Carefully With Rules of Thumb MARKET FOCUS
The income multiplier, a distant cousin of capitalization, often crops up in value discussions. The monthly rental factor
(MRF), as with all multipliers, is a numeric value that represents the relationship between rent paid and property value.
Here’s how it works:
Salesperson Lee is estimating the value of a tenanted single-family detached property rented at $1,450 per month.
Four recent Anycity sales reveal the following:
ADDRESS SALE PRICE MONTHLY RENT MRF (Sale Price ÷ Monthly Rent)
123 Lake 229,000 1,500 153
131 Eastside Drive 236,000 1,700 139
682 East Court 232,000 1,600 145
232 Eastview 231,000 1,500 154
Lee, based on personal judgement, establishes an MRF of 155. The subject property’s value estimate is:
155 x 1,450 = $224,750
Be careful—rules of thumb can be misleading:
• Gross rents may not be comparable (some include utilities; others do not).
• Structural deterioration and repair requirements can vary significantly.
• Rental control legislation has varying impact on different properties.
PROVINCIAL LAND TRANSFER TAX

Provincial land transfer tax is assessed on real property when a deed is registered transferring
ownership of the property from one party to another. The tax uses a sliding scale of per
centages based on property value.
Real Property Registration

Registrants most commonly encounter the imposition of land transfer tax at the point of
registration of real property. A purchaser, when entering into an agreement of purchase
and sale, is obtaining an interest in land. A taxable event occurs, pursuant to the Land
Transfer Tax Act (LTTA), when an interest in land is conveyed. More specifically, tax is
payable based on three conditions: a registration is made under either the Registry Act or
the Land Titles Act, the document being registered is a conveyance and the convey ance
involves land.
The term land is precisely defined under the LTTA to include any estate, right or interest
in lands including a leasehold interest, interest of an optionee and interest of a purchaser
under an agreement to sell land. The definition encompasses a broad range of real estate
transactions, but exceptions do exist; e.g., the transfer of a share in a company that owns
real estate. As a general comment, the issue of whether or not land transfer tax applies to
specific situations is best left to legal experts.
DISPOSITION OF UNREGISTERED INTERESTS

While registrants most frequently associate land transfer tax with land registration, a
second dimension of land transfer taxation was introduced in 1989 concerning dispositions.
The LTTA, since 1989, has imposed land transfer tax on the disposition of a beneficial
interest. The complexities of this system go beyond the current text, but a general under
standing of the process is warranted. Essentially, the amendment encompasses the disposi
tion of unregistered interests in which no registration of documents occurred; e.g., co
operatives and the use of trusts.
The legislative definition addresses any sale, transfer or assignment, however effected,
involving any part of a beneficial interest. As with the registration provisions, the disposition
definition includes a range of possibilities. The designers of the amendment excluded
situations that were not intended to fall within the legislative scope; e.g., a transfer due
to the death of an owner or the securing of a mortgage (including a discharge). Further,
other dispositions of a beneficial interest were identified as attracting a nil tax rate; e.g.,
transfers to a spouse pursuant to a separation agreement and certain family transfers for
natural love and affection.
The matter of taxing beneficial interests has caused some confusion. In 2002, the Ministry
of Finance issued a notice pointing out specific rights to occupy that constitute a beneficial
interest, including life lease, life tenure, equity lease or life tenancy. The Ministry views
such rights as not being leasehold, but rather freehold interests and subject to the Land
Transfer Tax Act. ne exclusion is noteworthy, namely, a building built on leased land in
which the unexpired term at point of disposition is less than 50 years, including any
renewals or extensions.
EXEMPTION FOR LIFE LEASES

In April 2004, the government clarified matters concerning life leases by regulating an
exemption concerning land transfer tax involving certain life lease developments. A life
lease development is defined as land with selfcontained units, organized as what is com
monly known as a life lease project, where the right to occupy a unit is solely for the life
time of an individual or for a term of at least 20 years.
Under the regulation, if the owner of the life lease development is a nonprofit organ
ization or a registered charity, and each individual who acquired the life lease interest in
order to use the unit as his or her principal residence or as the principal residence of the
individual’s parent or spouse, they are exempt from the land transfer tax upon acquisition
of the life lease interest. This regulation was passed retroactively and would entitle anyone
who entered into a life lease arrangement under the above circumstances after July 18,
1989, but before March 28, 2003, to apply for a refund of land transfer tax paid.
WEB LINKS
Life Leases Those contemplating being involved with life leases should access
www.e-laws.gov.on.ca, go to Statutes and Associated Regulations and follow instructions to look
up Regulations under the Land Transfer Tax Act. Expert advice is required on all matters involving
land transfer tax and exemptions relating thereto.
Value of the Consideration

The value of the consideration is also a matter of legislative interpretation. Most land
conveyances involving registrants are based on cash or its equivalent in an arm’s length
transaction. Accordingly, the tax is computed based on the sale price. However, the LTTA
must address more complex situations, for example, the disposition of property for natural
love and affection that also involves the assump tion of debt. Special rules also apply in
the case of a mort gage foreclosure. Further, determinations must be made when the
value is not readily apparent; e.g., market value associated with a longterm (50 years )
lease or the con tribution of land to the capital structure of a corporation in exchange
for shares. Expert advice is required.
Tax Calculation
Effective January 1, 2017, the land transfer tax in ntario is as follows:
.5% on the first $55,000
1.0% on portion between $55,000–$250,000
1.5% on portion between $250,000–$400,000
2.0% on balance over $400,000
Where the land contains one or two single family residences, a 2.5% rate applies to
consideration over $2,000,000.
EXAMPLE Land Transfer Tax

LAND TRANSFER TAX RATE EXAMPLE: Sale Price of $495,000
VALUE ($’s) TAX RATE CALCULATION TAX PAYABLE
0 – 55,000 0.5% $ 55,000 x 0.005 275
55,001 – 250,000 1.0% 195,000 x 0.010 +1,950
250,001 – 400,000 1.5% 150,000 x 0.015 +2,250
400,001 – 2,000,000 2.0% 95,000 x 0.020 +1,900
$495,000 $6,375
• Above $2,000,000, a 2.5% rate applies to one or two single family residences.
• First time buyers refund applies to eligible newly constructed and resale homes.
• Real property including beneficial interests (e.g., life lease, life tenure, equity
lease or life tenancy) are subject to tax.
First Time Buyers Refund (New Houses)

Effective May 8, 1996, first time purchasers of newlyconstructed homes became eligible
for a refund of land transfer tax, until March 31, 1997. The deadline was subsequently
extended through successive years and, as of the year 2000, was extended indefinitely.
Persons qualifying include individuals 18 years of age or older, who are Canadian
citizens or permanent residents of Canada (as defined in the Immigration and Refugee
Protection Act (Canada)), or within 18 months following registration, become Canadian
citizens or permanent residents, who have not owned an interest in a home anywhere in
the world and whose spouse (as defined in Section 29 of the Family Law Act) has not owned
an interest in a home anywhere in the world while he she was a spouse of the individual.
An interest in a home can be obtained in any method, including a purchase, gift, or an
inheritance. (Home means an eligible home as defined by the Land Transfer Tax Act.)
In order to qualify for a refund, the first time buyer must be purchasing a newly con
structed home or an interest therein. A newly constructed home is one which the first
time purchaser is entitled to a warranty under Section 13 of the Ontario New Homes
Warranties Plan Act and which is sold to the first time purchaser by a vendor as defined
in that Act. This newly constructed home must be occupied by the buyer as a principal
residence within nine months of the conveyance.
The refund is based on the amount of interest the individual owns in the newly con
structed home. If the individual owns 100% of the new home and paid $400,000, the
amount of land transfer tax payable is $4,475. The buyer will receive a refund based on
the maximum of $4,000. If, however, the buyer owns 50% interest in the home, the
amount will be $2,000 (50% of the maximum refund).
The refund is not available if the first time purchaser has received an ntario Home
wnership Savings Plan ( H SP) based refund of land transfer tax under Section 9 of
the Land Transfer Tax Act and vice versa. If an individual qualifies for this refund, as well
as the H SP based refund, the first time buyer must decide which to claim. He or she
can claim either but not both.
If the sale is registered using the electronic land registration system, the refund can be
claimed immediately by selecting the appropriate statements within the land transfer
tax section. Where registration is completed by paper at the Land Registry ffice, the
applicant can receive a sameday refund by filing the appropriate affidavit along with
the Transfer Deed and Land Transfer Tax Affidavit. If the applicant does not apply for a
refund at the time of registration, he or she can apply for the refund within 18 months
following registration by contacting the Ministry of Finance.
First Time Buyers Refund (Resale Homes)

Eligible first time homebuyers of resale homes may also claim a refund of up to $4,000.
Procedures and eligibility requirements parallel those under the program originally
established for newly constructed homes. An eligible home includes: a detached house,
semidetached house, townhouse, shares in a cooperative corporation, a mobile home
meeting certain standards, a condominium unit, a residential dwelling that is a duplex,
triplex, or fourplex, a partial ownership interest as a tenant in common (subject to
certain stipulations), and a manufactured home meeting certain standards.
WEB LINKS
Provincial Land Transfer Tax First Time Buyers Refund For up-to-date information about
this refund program including bulletins published by the Ministry of Revenue, go to
www.rev.gov.on.ca.
Sale of Chattels
If the transaction includes chattels (e.g., moveable possessions and personal property),
the total purchase price must be broken down with land transfer tax payable on the real
property.
Municipal Land Transfer Tax (Toronto)

The municipal land transfer tax (MLTT) is charged on properties purchased in the City
of Toronto. This tax involves the disposition of all beneficial interests effective for closing
dates on or after February 1, 2008. The MLTT is charged in addition to the provincial land
transfer tax. As with provincial land transfer tax, the MLTT is typically collected at time
of registration. The tax payable effective March 1, 2017 is based on the following rates:
For property containing at least one, and

not more than two, single family residences: For all other property:
VALUE OF CONSIDERATION MLTT RATE VALUE OF CONSIDERATION MLTT RATE

Up to and including $55,000 0.5% Up to and including $55,000 0.5%
Over $55,000 to $250,000 1.0% Over $55,000 to $250,000 1.0%
Over $250,000 to $400,000 1.5% Over $250,000 to $400,000 1.5%
Over $400,000 to $2,000,000 2.0% Over $400,000 2.0%
Over $2,000,000 2.5%
EXAMPLE Municipal Land Transfer Tax (Toronto)

The MLTT due and payable on a single family home with a $700,000 value of consideration is:
MLTT RATE EXAMPLE: Sale Price of $700,000

VALUE ($’s) TAX RATE CALCULATION TAX PAYABLE
0 – 55,000 0.5% $ 55,000 x 0.005 275
55,001 – 250,000 1.0% 195,000 x 0.010 +1,950
250,001 – 400,000 1.5% 150,000 x 0.015 +2,250
400,001 – 2,000,000 2.0% 300,000 x 0.020 +6,000
$700,000 $10,475
First time purchasers of newly constructed or resale residential property which

contains one, and not more than two, singlefamily residences are eligible for a rebate
up to a maximum of $4,475.
WEB LINKS
Municipal Land Transfer Tax For additional details regarding tax calculations and rebates, go
to the City of Toronto website at www.toronto.ca/taxes/mltt.htm.
REAL PROPERTY TAXATION

Municipalities in ntario generate revenue by charging a tax to property owners based
on the value of property. The requirement that property tax be paid is one of the basic
limitations on the ownership rights and an understanding of the present system of taxing
real property is fundamental to the listing and selling process. Each municipality in
ntario generates most of its operating revenue through the taxation of real property
within its boundaries.
According to Value (Ad Valorem)

The basis of the real property taxation is the ad valorem or according to value system. In
ntario, the term current value refers to the market value of property. The amount of
property tax to be paid by a homeowner is simply a percentage of the value of the real
property. It follows that a homeowner with more valuable property will pay higher taxes
and vice versa. Although this appears as a straightforward concept, practical
implementa tion is another matter. To apply the system to any individual property, a
municipality must be capable of determining two factors: (1) the value of the property
(assessment) and (2) the percentage of value to be paid (tax rate). Assessment
procedures are fully detailed in Land, Structures and Real Estate Trading.
Municipal Tax Base EXAMPLE The Tax Base and Municipal

The tax base of a municipality is Taxation
the total assessment (also referred Assume that the total assessment (tax base) for a
to as the assessment base) for municipality is $10,000,000 and the estimated
properties within its boundaries, expenditures based on the budget for the coming year
subject to certain exceptions; are $200,000, then $200,000 ÷ $10,000,000 equals
0.02 or 2% (expressed in dollars and cents as $0.02).
e.g., hospitals, churches and
The municipality, by charging two cents for every
educational property.
dollar of assessment, will gain the necessary revenue.
Tax Rate
The tax rate is established by dividing the projected annual budget by the tax base. In
actual fact, the budget is composed of two parts: municipal and education costs. The
former is calculated by the local municipality, while the latter is set by the provincial
government. Depending on municipal structure, taxpayers may see a third component,
as the municipal portion can be divided into the local municipality and the regional
government.
Tax rates were traditionally quoted in mills (a mill is onetenth of a cent), however
recent assessment reform has altered this practice in an attempt to simplify the taxation
calculation process from the property owner’s perspective. The tax rate is now simply
expressed as a decimal; e.g., a residential farm rate of .015220 or 1.522%. The formula
for tax calculation based on the tax rate is:
Estimated Current Value x Tax Rate = Property Tax
Continuing the example, if the assessed value of a property was $256,000, the property
tax would be:
$256,000 x .015220 = $3,896.32
The tax notice for a specific property provides a total tax levy and also details the
appropriate component for municipal and education allocation. If the property has a
total tax levy of $3,896.32 and the property is located in a twotiered municipal struc
ture (city and region), the total tax levy would be broken into three components: city,
region and education.
Tax Ratios
Tax ratios are established for the seven basic assessment classifications. These ratios are
applied in relation to the residential tax rate to arrive at specific tax rates for other types
of property. A hypothetical example is provided detailing the seven classifications.
EXAMPLE Tax Ratios

The following tax ratios have been established for the City of Anycity:
Residential/Farm 1.00 Multi-Residential 3.2146
Commercial 2.0148 Industrial 3.2175
Pipeline 1.1613 Farmland 0.2500
Managed Forests 0.2500
Therefore, if the residential/farm tax rate is .015220, then the commercial rate is .015220 x
2.0148 = .030665. If a commercial property is assessed at $256,000, the total tax levy based
on a tax rate of 0.030665 is: $256,000 x .030665 = $7,850.24
Realty Tax Classes

Tax notices include classes that represent further refinements of the seven basic assess
ment classifications. The number of realty tax classes can vary from year to year. As an
example, the general classification of Commercial under the assessment classification
system might be expanded as follows:
Realty Property Class Realty Tax Class (RTC)
Commercial C
Office Buildings D
Shopping Centre S
The realty tax class for residential is R. The class is referred to in the tax notice to
identify the specific type of property being taxed. This arrangement provides a separate
classification for differing uses and offers a method for distinct tax treatment given
economic or political considerations. The realty tax class is combined with the realty tax
qualifier to indicate the exact tax class for individual properties. A full description of
class codes is provided with the tax notice.
Realty Tax Qualifiers

Realty tax qualifiers (RT s) are used to denote special tax treatment for specific property
types. For example, the realty tax qualifier T indicates the property is taxable at the full
rate. Therefore, if the tax class on a tax notice is RT, the property is residential (R) and is
taxed at the full rate (T). With vacant commercial property, the realty property class is C
and the RT for taxable at the vacant land rate is X. Therefore, the tax class is CX. A full
listing of RT s is provided with the tax notice.
School Tax Direction Codes

Real property taxes are divided into municipal and education components. Tax notices
set out school tax direction codes to identify how individual property taxes are directed
for purposes of education. Four direction codes are used in the province.
EP English-Public EXAMPLE School Tax Direction

City $1,311.23
ES English-Separate
Region 1,525.25
FP French-Public Education (EP) 1,059.84
Total Taxes $3,896.32
FS French-Separate
Therefore, $1,059.84 would be directed in
support of education costs for English public schools.
Tax Notice
Tax notices are printed and distributed by the tax department of the appropriate
municipality. The tax notice sets out information from the assessment role, tax class
(realty tax class realty tax qualifier), the assessed value (current value), total tax levy,
distribution of tax between municipal and education and details regarding interim billing
and remaining taxes payable either in full or by installment. A typical tax notice illustrat
ing city, region and education components amounting to a total tax levy of $3,896.32 is
illustrated.
Local Improvements
When special services (e.g., sidewalks and sewers) are added to a neighbourhood, the
owners of properties affected are levied a special tax. This local improvement tax is often
amortized over several years to avoid a large, single capital cost to individual homeowners.
Registrants should be sensitive to local improvement tax when listing a property for
sale. If a local improvement tax has been levied, determine the amount of the levy, when
it will be paid off and what the tax would be on the property if this local improvement
was not included.
Sample Tax Notice
CLOSING ADJUSTMENTS
The Sale Transaction
The sale transaction date is established in the agreement of purchase and sale and is
Date of Completion commonly referred to as the date of completion. n that date, solicitors for the buyer and
The date specified in the agree- seller either meet at the registry office to exchange documents or communicate
ment of purchase and sale, when electronically in jurisdictions now
the buyer is to deliver the balance using eregistration. Detailed pro
of money due and the seller is Closing Process—Paper Based
to deliver a duly executed deed cedures involving the closing process
and vacant possession of the are found in Land, Structures and Accepted agreement of purchase
property (unless otherwise
Real Estate Trading. and sale forwarded to lawyers
agreed).
arious items; e.g., mortgage
interest, realty tax and unmetered
utility fuel costs must be appor
BUYER'S LAWYER SELLER'S LAWYER
tioned appropriately between the
buyer and seller. A closing statement Checks title and completes
related searches/activities,
(statement of adjustments) sets e.g., zoning and taxes.
out the financial history of the trans
action including all adjustments.
Adjustments Adjustments are normally made by Submits requisitions to Prepares draft deed,
seller's lawyer concerning answers requisitions and
The apportionment or other the seller’s lawyer based on the any objections. reviews documents
division of costs between buyer closing day (date of completion), submitted by buyer's
and seller as of the closing date. lawyer.
with the day of completion charged
to the buyer.
Lawyer or their Lawyer or their
representative attends at representative attends at
ADJUSTMENTS the Registry Office for the Registry Office for
Adjustments involve those items exchange of documents. exchange of documents.
requiring apportionment as of the
date of closing a transaction. Such
Buyer's lawyer or
adjustments include rent, mortgage representative completes
interest, realty tax, local improve sub-search verifying title
to point of closing.
ment rates, unmetered public or
private utility charges and non
metered cost of fuel. Adjustments
Assuming no difficulties, documents
are apportioned and allowed to the are presented for registration and
day of completion. Standard agree funds exchanged.
ments contain a clause concerning
adjustments as of the date of
closing. A typical wording is included relating to a residential transaction.
ADJUSTMENTS: Any rents, mortgage interest, realty taxes including local improve-
ment rates and unmetered public or private utility charges and unmetered cost of
fuel, as applicable, shall be apportioned and allowed to the day of completion, the
day of completion itself to be apportioned to Buyer.
(Source: OREA Form 100, Agreement of Purchase and Sale)
Closing Adjustments—Calculations
Fuel If metered and a reading is taken on closing, no adjustment is required.

In the case of tanks, the seller fills the tank and the buyer pays for a full
tank at closing.
Insurance The buyer arranges new coverage and no adjustment is required as per
the agreement. The Agreement of Purchase and Sale for residential
property states:
No insurance shall be transferred on completion.

(Source: OREA Form 100, Agreement of Purchase and Sale)
Note: Special insurance provisions apply in the case of a condominium resale.
Interest on The seller makes regular payments until closing, as mortgages are paid
Assumed in arrears. The principal balance is determined after the last payment is
Mortgages made by the seller. Interest is calculated on a per diem basis and credited
to the buyer, and he she makes the next regular payment. Interest due
on the mortgage for the actual closing day is the responsibility of the
buyer.
EXAMPLE
A buyer is assuming a mortgage with a balance of $46,593.34 as
of closing December 18th. The seller paid the mortgage payment
for December 1st of $546.31. The interest portion of the payment
that will be paid by the buyer on January 1st is $493.21. The buyer
is responsible for the period December 18th through the 31st. The
daily interest payable is $15.91.
= 17 days x $15.91
= $270.47
This amount is owed by the seller and the buyer will be credited
for $270.47 on the statement of adjustments.
Rent The buyer should be given credit for prepaid rent accruing from the
closing date to the next rent due date.
EXAMPLE
If rent of $900 is paid on the first day of the month, the buyer
gets credit for one day if the deal closes on June 30th; i.e., 1/30th
of $900 or $30. The adjustment includes, where applicable, a
credit of any deposit paid by the tenant for the last month’s rent
along with interest on that amount. If this residential tenant took
possession on January 1st and paid a deposit of $900, there will be
a credit to the buyer of $900 plus interest. The amount of interest
that a landlord must pay is the same as the rent increase guideline
that is in effect when the interest payment is due.
Taxes/Local As a general statement, the adjustment is calculated on the proportionate

Improvements share of taxes borne by the buyer and seller in relation to the closing date.
However, fluctuations in payments to the municipality during the year
can result in more complex calculations. The situation is also compounded
by the municipal budgeting processes. Municipalities must determine
in advance what the anticipated taxes will be for the upcoming year.
As councils are frequently elected in the fall, the final budget is not
determined until the spring. Consequently, municipalities must estimate
taxes and distribute interim tax bills. Sellers remit taxes based on these
interim bills with adjustments made coincident with the final tax notice.
Further, all taxes for the year are usually paid in advance of the year end.
Consequently, the seller’s position in regard to taxes paid can vary signifi
cantly depending on when the sale occurs during the year.
EXAMPLE 1
Seller's Share Buyer's Share
142 Days 223 Days
J F M A M J J A S O N D
Jan. 1 Dec. 31
May 23
Closing
If yearly taxes were $839.50, the adjustment would be:

Seller’s Share (142 ÷ 365 x 839.50) $326.60
Buyer’s Share (839.50 – 326.60) $512.90
The calculations might also be accomplished using this method:
Taxes per day (839.50 ÷ 365) $2.30 per day
Seller’s Share (142 x 2.30) $326.60
Buyer’s Share (223 x 2.30) $512.90
EXAMPLE 2
The tax year in Anycity is the same as the calendar year, but municipal taxes
are payable in full by June 30th of each year. When a house is sold during the
tax year, an adjustment is made between the seller and the buyer.
Scenario 1 Assume that a sale in Anycity is completed July 15th and

annual realty taxes of $839.50 were paid by the seller on June 30th. The
seller is responsible for the taxes from January 1st to July 14th, or 195 days
inclusive, and the buyer is responsible for the balance; i.e., from July 15th
to December 31st. The seller’s portion of the taxes is:
195 ÷ 365 x $839.50 = $448.50
The buyer’s portion is the remainder or $391.00 and this amount will
be credited to the seller at closing.
Scenario 2 Assume that the sale is completed May 1st and taxes of
$839.50 have not been paid. The buyer will pay the taxes when due in
June; however, the seller owes the buyer taxes for the period January 1st to
April 30th, or 120 days. The seller’s portion of the taxes is:
120 ÷ 365 x $839.50 = $276.00
This amount will be credited to the buyer at closing as it is money that
the seller owes the buyer. The buyer then pays the taxes in full on June 30th.
Taxes/Local When property is sold, the tax apportionment is relatively straightforward.

Improvements If the sale is completed on May 23rd, the seller will pay the taxes for 142 days
(New and the buyer will pay taxes for 223 days (including day of completion
Mortgage)
the day the buyer takes legal responsibility for the property). However,
if a new mortgage is placed on the property, the mortgage lender wants
to ensure that enough monies are collected to pay taxes for the full year.
EXAMPLE
Assume that the lender must forward the full tax payment of $839.50 by
June 30th. Seller's Share Buyer's Share
142 Days (owed to lender on possession date)
223 Days
J F M A M J J A S O N D
Step 1 Step 2
Jan. 1 Dec. 31
May 23
Closing
June 30
Tax Payment
Step One: Taxes to June 30
Taxes collected by PIT (principal, interest and taxes) payment:
9 days in May plus 30 days in June = 39 days.
Amount of Taxes Collected (39 ÷ 365 x 839.50) $89.70
Step Two: Taxes for Balance of Year

Obviously, the lender will be short 184 days (July—December) on June
30th. Therefore, the buyer must pay the lender on completion day.
Taxes for Balance of Year (184÷ 365 x 839.50) $423.20
Some lenders demand payment at completion date, while others will

increase the monthly tax payment due in order to recover the deficiency
over the next year.
Taxes When assuming a PIT (principal, interest and taxes) mortgage, monies
(Assuming a accumulated in the tax account remain with the mortgage, since the
PIT Mortgage) lender will not return the funds to the seller. The buyer will reimburse
the seller through an adjustment on the statement of adjustments.
EXAMPLE
Using the preceding example with a completion date of May 23rd, the
lender collects an estimated amount for taxes from the seller since July 1st
of the previous year. Assume the seller paid $70 per month tax, the account
would be:
July (previous year) up to and including
May (current year) (11 months x 70) $770.00
The lender would have paid July to December (previous year) taxes
during the prior year. Therefore, the seller owes taxes for the period
January 1st to May 22nd (buyer pays for the completion date). Therefore,
the seller’s share of taxes is:
MONTH DAYS MONTH DAYS

January 31 April 30
February 28 May 22
March 31 Total 142
Seller’s Share (142 ÷ 365 x 839.50) = $326.60 (continued)
Taxes Since the tax account totals $770.00, the buyer owes the seller $770.00 –
(Assuming a 326.60 = $443.40. This money is credited to the seller on closing. The
PIT Mortgage) tax account with the mortgage lender stays intact and the lender has
(continued)
adequate funds to pay taxes on June 30th as the buyer’s taxes are, in
effect, paid to December 31st.
Water/Utilities Typically, the seller will order a meter reading to coincide with the date
of closing. Consequently no adjustment is required. Some areas within
ntario may have bulk charges for services provided to residents. An
example is provided concerning an adjustment for this type of situation.
EXAMPLE
If a seller paid $100 on January 1st as a flat charge for water usage during
the calendar year, the credit allowed to the seller is $50.68 (185 ÷ 365
days x $100) for a June 30th completion date. If the amount has not been
prepaid by the seller, the buyer will receive a credit for the seller’s share
(on the statement of adjustments) and the buyer will pay the full amount
when billed.
STATEMENT OF ADJUSTMENTS
A statement, usually prepared by the solicitor for the seller, setting out in balance sheet
form, all credits to the seller (e.g., purchase price, prepaid taxes and prepaid utilities), all
credits to the buyer (e.g., deposits and arrears in taxes prior to the date of closing) and
the balance due on closing. The statement of adjustments provides all parties to the
transaction with a financial breakdown as of the closing date.
STATEMENT OF ADJUSTMENTS
SELLER James Earl Jones and Judy Wilma Jones PROPERTY 123 Main Street, Anycity
BUYER Mary Rose Smith and John Michael Smith ADJUSTED AS OF June 30, 20xx
PURCHASE PRICE $238,000.00
DEPOSIT $20,000.00
REALTY TAXES
Realty taxes for 20xx: $2,428.46
Amount paid by Seller 2,428.46
Less Sellers’ share –1,197.60
Allow Sellers $1,230.86 $1,230.86
FUEL OIL
Full Tank 909 (gallons/litres)
Allow Seller 909 x $0.943 per unit $857.19 $857.19
UTILITIES
Meters to be read on closing. No adjustment.
INSURANCE
Buyer to arrange new insurance. No adjustment.
BALANCE DUE ON CLOSING $220,088.05

Payable by Certified Cheque(s)
TOTALS $240,088.05 $240,088.05
E. & O. E.
CLOSING COSTS
The total cost of buying a home involves not only the purchase price of the property, but
also closing costs that arise on completion of the transaction. These expenses, incurred Closing Costs
by the buyer, are necessary to complete the purchase but are outside of the purchase Various expenses associated with
price for the property. The following list is provided for illustration purposes and is not the completion of a sale trans-
exhaustive in nature. action; e.g., real property taxes,
legal expenses and insurance
• Adjustments for realty taxes and fuel. coverage.
• Legal expenses and disbursements, lawyers’ services and expenses (items paid on
behalf of the buyer).
• Title search and registration of appropriate documents in the land registry or land
titles office.
• Title insurance (assuming that the buyer wants title insurance coverage).
• Mortgage expenses including interest on assumed mortgages (calculated as part of
the adjustments), any arranging costs and registration of a new mortgage in the land
registry or land titles office.
• Cost of survey, zoning memorandum, tax certificate and other related matters based
on provincial requirements.
• House insurance for fire and other hazards, typically including liability coverage.
• HST: Most purchases of new housing require the payment of HST on the purchase
price, although a partial rebate is available. Most purchases of resale homes do not
require the payment of HST, however, confirmation of this fact should be obtained. As
a guideline, HST is payable on properties other than resale residential property, sub
ject to certain exceptions. HST is also payable on lawyer’s fees and most disbursements.
• Land transfer tax.
• Personal expenses; e.g., moving costs and purchase of household goods.
nce a total is calculated, the closing cost can be substantially higher than the buyer
anticipated. All buyers should be aware of these extra costs before finding themselves
legally bound to an agreement and possibly unable to fulfill the financial terms. arious
costs apply when selling a home, however, the seller has the proceeds of the sale from
which to pay them.
Let The Experts Estimate Closing Costs CAUTION
Real estate salespersons should only discuss the range of closing costs with both buyers and sellers, not specifics.
Prudence in such matters is strongly encouraged. Limit information given to general estimates only. Leave precise
details to appropriate experts.
Closing costs can vary significantly. For example, mortgage discharge penalties may be higher than anticipated,
survey costs can exceed expectations due to property size and/or unique circumstances encountered, and legal fees/
disbursements may exceed estimates given problems in securing marketable title, discharging encumbrances, etc.
Unexpected charges can also occur; e.g., additional closing costs in new homes may be borne by the buyer, pursu
ant to provisions set out in the new home agreement/schedules.
The Mortgage Transaction

PROCESS
The mortgage closing typically occurs coincident with the sale closing to permit funds
disbursement on the same date. The closing statement of adjustments includes associated
costs.
COSTS/ADJUSTMENTS
• The title to the property must be satisfactory to the lender’s solicitor (usually the same
as the buyer’s solicitor for the transaction).
• Lender instructions to the lawyer are typically forwarded following the mortgage
Mortgage Commitment commitment.
A formal indication by a lending • Legal expenses are the responsibility of the borrower.
institution that it will grant a • Most costs (e.g., application, appraisal fee, etc.) are deducted from the loan amount.
mortgage loan on a property,
for a certain specified amount • Interest adjustment is required to allow for interest accruing to first mortgage pay
and on certain specified terms. ment date.
INTEREST ADJUSTMENT DATE (IAD)

Interest Adjustment Date The interest adjustment date is a date set one month prior to the start of monthly pay
Date that the mortgage officially ments in a blended mortgage. As interest is paid in arrears on mortgages pursuant to the
begins. Interest Act, interest begins accruing as of that date and is remitted the following regularly
scheduled mortgage payment date. For example, if the IAD is May 15th and the sale closes
on that date, no adjustment is required. The first payment would be on June 15th for the
previous month.
However, if the interest adjustment date is May 15th and the sale closes on May 5th, the
lender will require payment on the amount advanced (May 5th–May 15th), prior to the
commencement of regular payments in arrears; i.e., May 16th to June 15th. Lenders must
then either invoice the mortgagor or deduct the amount from funds advanced.
As a consequence, many lenders circumvent an IAD adjustment by setting the payment
date to coincide with the closing date. The first monthly payment is aligned with the IAD
and no adjustment is required. However, weekly and biweekly payment arrangements
can compound matters. For example, the property closes on May 5th and the IAD is set for
that date. However, the borrower wants to pay the mortgage biweekly by preauthorized
payments and his pay dates are May 8th and 22nd. The first payment is due on May 22nd
(in arrears for the period May 8th through May 22nd). However, an IAD is still required
for the period May 5th through May 8th.
EXAMPLE Interest Adjustment Date

Closing Date August 15, 20xx
Mortgage $100,000
Interest Rate 5%
One Month Interest (($100,000 x .05) ÷ 12) $416.67

Daily Amount ($416.67 ÷ 31) $13.44
Balance of Days Remaining 17
Interest Adjustment ($13.44 x 17) $228.48
• Buyer will have approximately six weeks from closing until the first mortgage payment is made on
October 1st.
• Interest adjustment will be deducted from mortgage funds.
• Buyer will have to make up cash shortfall on closing.
KNOWLEDGE
INTEGRATION
Notables
• Capitalization is the conversion of income • The provincial land transfer tax refund
into capital value. applies to eligible buyers of both newly
• Direct capitalization is one of two methods constructed homes and resale homes, or
used to establish the present value of a an interest therein.
future income stream, the other being yield • Both provincial and municipal land
capitalization (not required for Real Estate transfer taxes apply to property in the
as a Professional Career). City of Toronto.
• The direct capitalization method involves • Property assessment in ntario is based
a single year’s projected income, while the on current value assessment (C A).
yield method typically analyzes cash flows • Tax payable by property owners is estab
over a multiyear period. lished by multiplying the property’s assessed
• Cap rates are typically developed through value by the tax rate.
investor analysis and or market research. • Residential closings typically involve two
• The overall capitalization rate consists of processes: the sale transaction and the
a return of the investment (recapture) and mortgage transaction.
the return on the investment. • Adjustments at closing are normally appor
• et operating income ( I) is used in tioned, but exceptions do apply.
the capitalization process. I is deter • The day of completion is charged to the
mined through a reconstructing of buyer when making adjustments.
income and expenses.
• The statement of adjustments is usually
• Income multipliers are best described as prepared by the seller’s solicitor and
rules of thumb that can assist in establish provides a financial breakdown as of the
ing value. Two multipliers are discussed: closing date.
the gross income multiplier and the
monthly rental factor. • Closing costs involve fees and services
relating to the completion of a transaction.
• Land transfer tax applies to all property
ownership transfers including beneficial • Discuss the range of closing costs only;
interests. leave specifics to other professionals.
Remember that every real estate transaction
• The provincial land transfer tax rate of is unique.
2.5% applies over $2,000,000, where the
land contains one or two single family
residences.
Glossary
Adjustments Direct Capitalization Mortgage Commitment

Assessed Value Discount Rate Overall Capitalization Rate
Assessment Base Income Multiplier Recapture
Closing Costs Interest Adjustment Date Statement of Adjustments
Date of Completion Land Transfer Tax Tax Rate
Yield Capitalization
Web Links
Life Leases Those contemplating being involved with life leases access www.e-laws.gov.on.ca,
go to Statutes and Associated Regulations and follow instructions to access
Regulations under the Land Transfer Tax Act. Expert advice is required on all
matters involving land transfer tax and exemptions relating thereto.
Provincial Land For up-to-date information about this refund program including bulletins
Transfer Tax First published by the Ministry of Revenue, go to www.rev.gov.on.ca.
Time Buyers Refund
Municipal Land For additional details regarding tax calculations and rebates, go to the City of
Transfer Tax Toronto website at www.toronto.ca/taxes/mltt.htm.
Solution Strategies
To estimate capitalization rate

I÷V=R Net Operating Income ÷ Value = Rate
To estimate value
I÷R=V Net Income ÷ Rate (capitalization) = Value
To estimate net operating income

VxR=I Value x Rate (capitalization) = Net Operating Income
To determine net operating income from effective gross income

Effective Gross Income – Annual Expenses = Net Operating Income

1. Which topics in this chapter are key 4. What proactive steps can I take to
to my career and what additional make certain that taxrelated inform
reading would further my knowledge? ation in listing and sale documentation
is complete and accurate?
2. What local organizations provide
information on cap rates for the 5. What typical expenses are incurred
commercial marketplace? in closing residential transactions in
the local market?
3. What tax information can I obtain
from the local municipality to dis
cuss with buyers and sellers?
Chapter Mini-Review
1. The lower the capitalization rate, 8. If the tax rate is .0183928 and the
the higher the value. assessed value is $298,000, the taxes
would be $5,481.05.
True False
True False
2. If the cap rate is .1205 or 12.05%
and the net operating income is 9. In a sale transaction, the seller’s lawyer
$15,500, the estimate of value is typically submits any requisitions to
$127,532. the buyer’s lawyer regarding objec
tions to title.
True False
True False
3. Investors typically determine an
accept able capitalization rate through 10. The day of closing is the responsi
analy sis of expected return of their bility of the seller for purposes of
investment and return on their apportioning costs between buyer
investment. and seller.
4. An income multiplier is very accu 11. A meter reading for water and
rate in establishing value. utilities is often taken to coincide
with the closing date to avoid
True False adjustments at closing.
5. An overall capitalization rate is some True False

times referred to as a blended rate.
12. Registrants are expected to provide
True False precise closing costs to their buyer
and seller clients.
6. The income approach is one of four
methods used in the appraisal True False
process, the others being the direct
comparison, cost and capitalization 13. Local improvement taxes can signifi
approaches. cantly affect property taxes for a
specified period of time.
True False
True False
7. The provincial land transfer tax on
the transfer of ownership for a 14. The tax rate for a municipality is
vacant lot selling for $55,000 would determined by dividing the munici
be $275.00. pal tax base by the realty tax classes.

Exercise 1 Capitalization
1.1 Broker wner Johnson of ABC Realty Inc. may purchase a small commercial
plaza for his real estate brokerage. The brokerage, as a tenant would pay market
rent (as would other tenants), Johnson anticipates a net operating income of
$38,500.
a. What is the estimate of value based on an 11.5% cap rate?
b. If a 12% cap rate was selected, what is the revised value?
c. What cap rate will produce a value of $300,000?
1.2 Which of the following sales most closely approximates a cap rate of 10.2%?
NET OPERATING
ADDRESS SALE PRICE CAP RATE
INCOME
136 East River $187,500 $16,225 _____________________
131 Riverside $172,500 $16,920 _____________________
122 River $189,500 $18,390 _____________________
823 River Road $193,200 $19,935 _____________________
a. 136 East River

b. 131 Riverside
c. 122 River
d. 823 River Road
1.3 Salesperson Garcia is determining to what extent incremental rises of 1% in

capitalization rate affect the estimated value of a property when the net operating
income is $34,500. Complete the following:
NET OPERATING
CAP RATE VALUE
INCOME
$34,500 8.0% _____________________
$34,500 9.0% _____________________
$34,500 10.0% _____________________
$34,500 11.0% _____________________
1.4 Investor Thompson is contemplating a commercial property with an effective gross

income of $342,000 and annual expenses of $283,500. The structure contains
12,350 square feet. How much should he pay per square foot and per square
metre based on a capitalization rate of 10.5%?
1.5 If the net operating income before depreciation of a building is $42,000 annually
and the overall capitalization rate which is expected of this type of property is
13%, what is the value of the property?
a. $546,000
b. $5,460,000
c. $323,077
d. $3,230,770
1.6 If an income producing property sells for $450,000 and the net operating income
before depreciation attrib utable to this property is known to be $40,000 annually,
what overall capitalization rate is indicated?
a. 18.50%
b. 9.25%
c. 112.5%
d. 8.89%
Exercise 2 Taxation
2.1 Select the correct provincial land transfer tax for each of the following purchase
prices.
i. Purchase price: $2,150,000
a. $35,000
b. $53,750
c. $40,225
d. $43,000
ii. Purchase price: $140,000

a. $1,125
b. $1,400
c. $700
d. $1,475
iii. Purchase price: $350,000

a. $4,700
b. $4,975
c. $5,250
d. $3,725
iv. Purchase price: $975,000; vacant land.

a. $9,475
b. $13,100
c. $15,975
d. $19,500
2.2 If the tax base of a municipality is $60,000,000 and required taxes amount to
$1,850,000, what is the tax rate necessary to raise these taxes?
a. 3.24%
b. 32.43%
c. .0308%
d. 3.08%
2.3 With a tax rate of 3.08%, what would be the tax on a home assessed at $85,600?
a. $2,779.22
b. $2,664.20
c. $2,636.48
d. $263.65
2.4 A rural lot is assessed at $21,000 for tax purposes. The tax rate used in the munici
pality is 4%. The tax on this property is:
a. $84.00
b. $840.00
c. $525.00
d. $52.50
2.5 The budget established for a municipality is $2,650,000 and the total tax base
for that community is $90,000,000. What tax rate is required to meet the budget?
a. 3.40%
b. 33.96%
c. 29.44%
d. 2.94%
2.6 If Mr. Smith’s house is assessed for tax purposes at $369,500 and the tax rate is
2.94%, what taxes would be levied against this property?
a. $1,086.33
b. $10,863.30
c. $11,827.30
d. $1,182.73
Exercise 3 Adjustments
3.1 The seller is selling a home containing an oilfired heating system and a 200
gallon oil tank. The sale will close on January 15. n the day prior to closing,
the tank is filled. The amount required to fill the tank was 127.5 gallons $5.37
per gallon. n the statement of adjustments, what will be credited to the seller?
a. A credit of $1,074.00.
b. A credit of $882.68.
c. A credit of $384.70.
d. A credit of $693.85.
3.2 Seller Smith has for years collected rent from the tenant in arrears rather than in
advance. In the current year, the rent is $975.00 per month. If the property sells
on January 15th and the tenant pays the January rent as usual on January 31st,
what credit will the seller receive?
a. $375.00
b. $975.00
c. $220.32
d. $440.32
3.3 The seller is responsible for costs to operate the property for the actual day of
closing.
a. True.
b. False.
3.4 The closing date of a transaction is June 14, 20xx. Taxes for the year are $1,425
and have not been paid. The buyer will pay this amount. n the statement of
adjustments, who gets credit and for what amount?
a. Buyer–$644.18
b. Buyer–$640.27
c. Seller–$780.82
d. Seller–$784.73
3.5 The closing date of a transaction is January 29, 20xx. The property is oil heated
and has a 200gallon tank. Heating oil is $6.45 a gallon. Who receives credit on
the statement of adjustments and in what amount?
a. Seller–$1290.00
b. Seller–$129.00
c. Buyer –$645.00
d. Buyer–$1290.00
3.6 Based on the adjustment clause in the REA Agreement of Purchase and Sale
(Form 100), which of the following is not apportioned at closing?
a. Unmetered Fuel
b. Rents
c. Local Improvements
d. Insurance
3.7 A tenant provided payment of the first and last month’s rent to a landlord in the
amount of $1,200 at the beginning of the tenancy agreement. If the rented proper
ty is sold in the middle of the tenancy, $600 would be shown on the statement
of adjustments as credit to the seller.
a. True.
b. False.
3.8 The closing date of a transaction is ovember 1, 20xx. Taxes in the amount of
$2,380 for the year were paid by the seller. The statement of adjustments would
show:
a. A credit to the seller in the amount of $391.23.
b. A credit to the seller in the amount of $397.75.
c. A credit to the buyer in the amount of $1,982.08.
d. A credit to the buyer in the amount of $1,988.60.
3.9 The sale price of a property would be shown on the statement of adjustments as
a credit to the seller.
a. True.
b. False.
APPENDIX
GLOSSARY
322 Glossary
KEYWORD DESCRIPTION
ACRE Acronym for Alliance for Canadian Real Estate Education.
Acre An imperial measurement of land area equaling 43,560 square

feet.
Adjustments The apportionment or other division of costs between buyer

and seller as of the closing date.
Administrative The Real Estate Council of Ontario is the administrative

Authority authority designated by the Ministry of Government Services
to administer the Real Estate and Business Brokers Act, 2002
and associated Regulations.
Advertising Any message that influences people and generally consists of

words, illustrations and design elements in print, electronic or
other media format.
Affordability An index typically measuring the cost of home ownership in

Index relation to required income to service mortgage payments,
property taxes and utilities.
Agency The legal relationship between principal and agent, wherein an

agent is employed and authorized by the principal to represent
the principal in business transactions with a third party.
Agent One who is authorized by a principal to represent the principal

in business transactions with a third party. In the real estate
profession, the agent is the brokerage.
Amortization The gradual retirement of a debt by means of partial payments

of the principal at regular intervals.
Area The measurement of an area by its length (L) and width (W);
Measurement e.g., a rectangular building 40' (12.19 m) x 33' (10.06 m) =
1,320 square feet (122.63 sq. metres). Area measurements can
be complex given irregular sizes.
Assessed Value A current market value placed on a property as a basis for

municipal taxation.
Assessment Base The total assessment of a municipality as set out in the assess-
ment role.
Blended Payment A mortgage payment in which the payment amount remains

constant, but interest and principal components may vary.
APPENDIX
Glossary 323
KEYWORD DESCRIPTION
BOMA Standard Standards of measurement methods and calculations widely

used with commercial properties in Canada. BOMA is an
acronym for Building Owners and Managers Association.
Brand Loyalty A consumer’s commitment to a specific product or service.
Broker An individual who has the prescribed qualifications to be

registered as a broker under the Real Estate and Business
Brokers Act, 2002 and Regulations.
Broker of Record A broker designated by a brokerage to ensure brokerage com-

pliance with the Real Estate and Business Brokers Act, 2002 and
Regulations.
Brokerage A corporation, partnership or sole proprietorship that trades

in real estate on behalf of others for compensation or reward,
or expectation thereof.
Bulk Mail Promotional or advertising mailings (other than first class)

subject to bulk postage rates that must meet various Canada
Post requirements (e.g., pre-sorting).
Bulk Postage A reduced postage rate offered by Canada Post to mailers who
Rate can accept less than first class delivery speed, but special pro-
cessing by the mailer is required (e.g., pre-sorting).
Business Cycle A series of economic events (i.e., prosperity, recession and

recovery) that take place in the same approximate order and
time interval.
Canada A federal agency mandated to carry out various housing-

Mortgage & related activities, including participation in the residential
Housing
mortgage market.
Corporation
Canadian Real A national organization formed in 1943 representing organized

Estate Association real estate in Canada.
(CREA)
Census A census, for purposes of this course, is a periodic count of

population conducted by the Government of Canada. A full
census is conducted every ten years, the last being 2001. A
partial census is conducted at the five-year interval; e.g., 2006.
Closing Costs Various expenses associated with the completion of a sale trans-
action; e.g., real property taxes, legal expenses and insurance
coverage.
APPENDIX
324 Glossary
KEYWORD DESCRIPTION
Code of Ethics Regulation 580/05 (Code of Ethics) under the Real Estate and
Business Brokers Act, 2002 which sets minimum standards for
registrants when conducting business in the marketplace;
commonly referred to as the RECO Code of Ethics.
Commission Remuneration paid to a registrant on the sale or lease of property.

It is usually expressed as a percentage of the sale amount, but it
can also be an agreed amount, or a combination of both.
Commission Methods of commission distribution involving one or more

Sharing brokerages and/or salespersons.
Commission Split A method of sharing commission, most commonly in reference

to a brokerage/salesperson split, typically as per an agreement
between the parties.
Compound Interest charged at specific intervals during the loan term with
Interest earned interest being reinvested.
Consumer Price An indicator of consumer price fluctuations, most commonly

Index (CPI) associated with comparisons of purchasing power and infla-
tionary pressures. The overall CPI tracks 600 items, but sub-
indexes are also tracked for specific groupings; e.g., shelter.
Continuing Requirement for completion of mandatory and elective courses

Education (CE) by registered brokers and salespersons, in accordance with the
RECO mandatory continuing education policy.
Cooling Off A time period, typically established by legislation, that provides

Period the consumer with an opportunity to cancel whatever action
has been taken (e.g., buying a specific product).
Core Skills, assets and techniques that form the basis of an organiza-
Competencies tion’s or individual’s competitive capacity.
Corporation One of three entities that may be permitted to act as a real

estate brokerage. The others are partnership and sole
proprietorship.
Culture The shared values of a society in which socially acquired

behavior patterns are communicated symbolically, usually
through language.
Customer All aspects of communication and interaction between an

Relationship organization and its customers.
Management
APPENDIX
Glossary 325
KEYWORD DESCRIPTION
Date of The date specified in the agreement of purchase and sale, when
Completion the buyer is to deliver the balance of money due and the seller
is to deliver a duly executed deed and vacant possession of the
property (unless otherwise agreed).
Demography The study of population changes over time with particular

emphasis on the growth/size, distribution and composition of
the population.
Direct The process of converting the income generated by a property

Capitalization into capital value by means of a capitalization rate, as opposed
to discounting future cash flows through yield capitalization.
Direct Marketing Marketing methods that convey messages directly to

consumers and seek to communicate with those consumers.
Discipline A committee established under the Real Estate and Business

Committee Brokers Act, 2002 and Regulations to determine whether a
registrant has failed to comply with the Code of Ethics.
Discount Rate A rate representing the cost of a lost opportunity. In other words,
an investor seeks a rate of return that represents what could
have been obtained had another investment been selected.
Discrimination The unfair treatment of an individual or group due to prejudice.
Economics The study of how society chooses resources in order to produce

various commodities over time and distribute them for consump-
tion now and in the future among individuals and groups in
society.
Effective Interest Rate of interest on a loan which includes compounding, as

Rate opposed to the stated rate. For example, a loan rate might be
published at 10%, but with compounding the true (effective)
rate is somewhat higher based on the number of compounding
periods.
Employee A relationship in which the employer directly controls and

supervises the work of the employee and is responsible for the
employee’s actions in the performance of such work. Brokers
and salespersons are viewed as employees of a real estate broker-
age for purposes of REBBA 2002.
Fraud An intentional deception with the intent of gaining advantage

to another's detriment.
APPENDIX
326 Glossary
KEYWORD DESCRIPTION
Front Foot A term referring to frontage value, typically regarding recrea-

tional property; e.g., the property sold for $2,000 a front foot.
Frontage Linear distance along a public road or, in the case of waterfront
recreational property, the linear distance on the lake side of the
lot.
Green Building Energy efficient construction methods used in residential and

commercial structures.
Gross Debt Lender’s allowable ratio of principal, interest and tax (PIT)
Service (GDS) payment to gross monthly income of the mortgage applicant.
Ratio
Gross Domestic Gross domestic product is a measure of the size of an economy

Product representing the market value of all goods and services produced
within a given time period.
Hectare A metric measurement of land area equivalent to 2.4711 acres.
Home Staging Improving the appearance of a home to increase its attractive-

ness to potential buyers.
Immigration Immigration refers to population movements from one nation

to another nation of which the individuals are not citizens, but
are seeking long-term residency. The term migration, in a demo-
graphic sense, generally refers to any movement of human
population.
Income A number representing the relationship between rent obtained

Multiplier from a property and the sale price of that property that is used
to estimate the value of a comparable property.
Independent An individual who works according to his/her own methods and

Contractor judgement. Brokers and salespersons are viewed as employees
of a brokerage for purposes of REBBA 2002, but may have
independent contractor status for tax-related matters.
Inspection The right of the Registrar, or duly authorized representatives

(i.e., inspectors), to review real estate brokerage records pursuant
to authority granted under the Real Estate and Business Brokers
Act, 2002 and associated Regulations.
Interest Date that the mortgage officially begins.

Adjustment Date
APPENDIX
Glossary 327
KEYWORD DESCRIPTION
Investigation Investigative powers and procedures set out in the Real Estate
and Business Brokers Act, 2002 and associated Regulations.
Investment Value Value, closely associated with market value, but also impacted by
cash flows, investment objectives and investor-specific criteria.
Land Transfer Tax A sliding scale tax that applies to real estate ownership
transfers including beneficial interests.
Living Area A measurement method, endorsed by the Alliance for Canadian

Measurement Real Estate Education (ACRE), setting out living area calcula-
tions for various styles of houses; e.g., one-storey, 1½ storey,
bi-level and 2-storey.
Lot Size A more or less standardized procedure when describing lot

Description dimensions for listing and advertising purposes.
Market Bubble The over expansion of a market due primarily to excessive buyer
confidence resulting in inflated values. Real estate bubbles,
when a burst occurs, can have significant negative impact on
the overall economy.
Market A market readjustment, typically occurring following a period

Correction of recession or prosperity, but typically associated with a down-
turn in demand and increasing supply.
Market The point where quantity supplied equals quantity demanded.

Equilibrium
Market Indicators Statistical tracking systems usually involving resource, business

and consumer markets. In real estate, specific indicators vary
for residential and commercial markets.
Market Price Price paid for an individual property, as distinct from market
value which is estimated from the market prices of many sales.
Market The division of a market into submarkets in which consumer

Segmentation needs are generally similar.
Market Value Broadly defined as the highest price in terms of money which
the property will bring to a willing seller if exposed for sale on
the open market allowing a reasonable time to find a willing
buyer, buying with the knowledge of all the uses to which it is
adapted and for which it is legally capable of being used, and
with neither buyer or seller acting under necessity, compul-
sion, or peculiar and special circumstances.
APPENDIX
328 Glossary
KEYWORD DESCRIPTION
Marketing Mix The combining of activity elements or tactics in various ways

when marketing a particular product or service.
Marketing Period The length of time taken to market a property beginning with
the listing of the property and ending at the point of sale.
Marketing A proposal typically made to a commercial seller that sets out

Proposal objectives, strategy and scope of activities for the marketing of
a specific property.
Mean A mathematical average representing the totalling of figures,

divided by the number of figures; e.g., $250,000 + $275,000 +
$300,000; mean is $275,000 ($825,000 ÷ 3).
Measures of Describe the middle or centre of a numeric distribution

Central Tendency including the mean (average), median and mode.
Median The mid-point in an array of figures; e.g., $250,000, 252,000,

260,000, 265,000, 270,000; median is 260,000.
Mixed Economy An economy consisting of both private economic units (e.g.,

individual, families and corporations), as well as government
participation in the direction of economic activity and
production of goods/services.
Mode The most frequently appearing figure in an array of figures; e.g.,

2, 7, 3, 8, 7, 9, 7, 8, 4. The mode is 7.
Mortgage A conveyance of property to a creditor as security for payment

of a debt with a right of redemption upon payment of the debt.
Mortgage A calculation to determine the average interest paid on two or

Averaging more mortgages.
Mortgage A formal indication, by a lending institution that it will grant a

Commitment mortgage loan on a property, for a certain amount and on other
specified terms, subject to conditions as set out in the commit-
ment document.
Mortgage A factor, typically expressed as weekly, bi-weekly, semi-monthly

Payment Factor or monthly, that is used to calculate mortgage payments.
Mortgagee The one to whom property is conveyed as security for the

payment of a debt; i.e., the lender or creditor.
Mortgagor The one who gives the mortgage; i.e., the borrower or debtor.
APPENDIX
Glossary 329
KEYWORD DESCRIPTION
Motivation The desire to accomplish something, which may involve either

a short or long term goal.
Multiple Listing A formal arrangement involving brokerages who are real estate
Service® (MLS®) board members, whereby each brokerage shares information
regarding listings with other members. The Multiple Listing
Service® co-ordinates and disseminates this information for
the benefit of organized real estate in Canada. Multiple Listing
Service® is a trademark of The Canadian Real Estate Association.
Nominal Interest The stated rate on a loan.

Rate
Objective Value The direct cost of creating, as distinct from the perceived value
in the mind of the buyer or seller.
Ontario Real The largest provincial real estate association, formed in 1922,
Estate Association making up one of 11 provincial/territorial associations within
(OREA)
organized real estate in Canada.
Opt In/Opt Out Permission-based electronic communication in which the

consumer agrees to receive e-mail and related promotional
materials (opt-in) typically by registering personal contact
information on a website, or providing an instruction to
terminate such an arrangement (opt-out).
Organized Real Voluntary membership organizations consisting of local real

Estate estate boards, provincial associations (including the Ontario Real
Estate Association) and The Canadian Real Estate Association.
Overall A rate used to convert net operating income into an estimate

Capitalization of value. The overall capitalization rate consists of two compo-
Rate
nents: rate of return of the investment and rate of return on
the investment.
Overnight Rate A daily rate that banks charge each other for large cash transfers,
typically accomplished in the overnight period. The Bank of
Canada uses the overnight rate when setting monetary policy.
Overnight rates, together with the bond market, have a signifi-
cant impact on mortgage rates.
Partnership One of three entities that may be permitted to act as a real estate
brokerage. The others are corporation and sole proprietorship.
Permission-Based Recipients specifically consent to receiving promotions, typically

associated with e-marketing.
APPENDIX
330 Glossary
KEYWORD DESCRIPTION
Personal The image or mental picture that comes to mind when an

Branding individual’s name is mentioned.
Principal The client of a brokerage (the agent under common law), who
(Agency) gives the brokerage the authority to represent him or her.
Principal Amount The debt owed; i.e., principal amount of a mortgage, as distinct
(Mortgage) from interest.
Principles of Value Various premises used as guidance in the determination of value.
Privacy The legal right to be left alone and free of interference from others.
Promotion Promotion is the sum of marketing-related communication

delivered by specific advertising tools.
Psychographic Research concerning the study of consumer lifestyles based on

interests, opinions, actions and activities.
Qualitative A less structured approach than quantitative research that

Research seeks insights into information such as consumer motivation,
behaviour and attitudes.
Quantitative A formal research method using structured techniques to obtain

Research specific, objective information usually reported in tabular or
statistical format.
Real Estate Land and any improvement located thereon.
Real Estate and Statute governing real estate brokerages, brokers and sales-
Business Brokers persons in Ontario.
Act, 2002
Real Estate Board A non-profit corporation established for the benefit of its
members and forming one component of organized real
estate, the others being provincial/territorial associations and
The Canadian Real Estate Association.
Real Estate The regulatory organization, formed in 1997 and formally

Council of referred to as the administrative authority, that is responsible
Ontario (RECO)
for registration, consumer protection, compliance requirements
and other regulatory issues impacting salespersons, brokers
and brokerages registered under the Real Estate and Business
Brokers Act, 2002.
Real Estate Cycle A cycle which may differ from other business cycles due to
unique attributes and circumstances associated with real estate.
APPENDIX
Glossary 331
KEYWORD DESCRIPTION
REALTOR® A registered trademark that may only be used by an active

member of a real estate board affiliated with The Canadian
Real Estate Association.
Recapture The recovery of funds invested; i.e., the return of an investment

as opposed to a return on an investment. Applies to capitalization
rates and also tax considerations and capital cost allowance.
Registrant A brokerage, broker or salesperson registered under REBBA 2002.
Registrar An individual appointed by RECO to exercise powers and

carry out duties imposed under the Real Estate and Business
Brokers Act, 2002 and associated Regulations.
Registrar’s A process established under the Real Estate and Business

Complaints and Brokers Act, 2002 and associated Regulations for the handling
Inquiries (RCI)
of all complaints and concerns involving registrants.
Process
Registration The regulatory process to become a registrant pursuant to the

Real Estate and Business Brokers Act, 2002 and associated
Regulations.
Registration The length of time from registration of a registrant to renewal

Cycle of that registration. Registration cycles in Ontario are two
years in duration.
Rentable Area The usable area of a tenanted space plus an allocation for
common areas; e.g., common lobby, maintenance rooms and
washrooms.
Salesperson An individual meeting prescribed qualifications to be registered

as such pursuant to the Real Estate and Business Brokers Act,
2002 and associated Regulations, and who is employed by a
brokerage to trade in real estate.
Simple Interest Interest charged for a specific period with no compounding.
Sole One of three entities that may be permitted to act as a real

Proprietorship estate brokerage. The others are corporation and partnership.
Statement of A statement prepared by the solicitor for the seller setting out,
Adjustments in balance sheet form, a record at the date of closing of the
financial breakdown of the transaction.
APPENDIX
332 Glossary
KEYWORD DESCRIPTION
Statistics Canada A federal agency with the mandate to collect, compile, analyze,
abstract and publish statistical information about Canada; e.g.,
the census. Statistics Canada provides key real estate indicators
for both residential and commercial marketplace activity.
Status Symbol A tangible sign of an individual's economic or social status.
Subjective Value Value that exists in the mind of the buyer or seller, as distinct
from objective value based on cost.
Tax Rate The rate of tax applied to the assessed value of a property
calculated by dividing the budget of the municipality by the
tax base.
Term The actual length of time for which money is loaned; i.e., the
term of a mortgage.
Three-Way A legal relationship between real estate boards, provincial/

Relationship territorial associations and The Canadian Real Estate Association.
Total Debt Lender’s allowable ratio of principal, interest and tax (PIT)
Service (TDS) payment plus other personal debt to gross monthly income of
Ratio
the mortgage applicant.
Usable Area Total area enclosed by the finished surfaces of a tenanted space
within a commercial building, as more specifically defined by
generally-accepted measurement/calculation methods; e.g., the
BOMA standard for measurement.
Valuation Estimated worth or price. The act of estimating the worth of

real property.
Value Added Additional features added to a basic product or service, initially

Services sold at a premium.
Value in Use The value of an economic good to the owner, typically over
and above market value.
Volume A measurement of cubic content consisting of the length x

Measurement width x height.
Vulnerable The potential of being open to attack or damage and being

taken advantage of in a particular situation.
Yield The conversion of a projected income stream into an estimate

Capitalization of value by analyzing forecasted operations and sale proceeds
over a specified holding period.
APPENDIX
SOLUTIONS
Chapter 1 A Career in Real Estate 334

Chapter 2 Real Estate—A Regulated Profession 343
Chapter 3 Economics and the Real Estate Market 349
Chapter 4 Ontario Profiles, Trends and Real Estate Values 356
Chapter 5 Consumer Behavior and Consumer Protection 361
Chapter 6 Marketing and Customer Service 368
Chapter 7 Mathematics, Measurements and Metric/Imperial Conversions 375
Chapter 8 Mortgage Mathematics 383
Chapter 9 Capitalization, Taxation and Closing Adjustments 390
334 Solutions Chapter 1
CH1 MINI CHAPTER 1

A CAREER IN REAL ESTATE
Chapter Mini-Review
1. One potential benefit of owning prop- 5. In residential sales, the time span
erty is that credit may be more readily between when a property is listed, sub-
available to that owner. sequently sold and ultimately closed
can be four, six or even eight months
✔ True False depending on market conditions and
related considerations.
Credit is usually more readily available
to an owner assuming that he or she has ✔ True False
reasonable equity in an owned property.
The time period can vary significantly
2. The provincial government has put in depending on market conditions, but
place certain long term plans for anti- four, six or even eight months is not
cipated growth in the Greater Golden unusual. Plan your finances carefully.
Horseshoe.
6. Standard condominiums are made up
✔ True False of units and common elements.
Current and anticipated planning activi- ✔ True False

ties encompass areas stretching from
Oshawa to Niagara Falls. Each individual owner in a standard
condominium holds title to a specific
3. Future tax revenues are part of the unit, while owning a share of the com-
ripple effect when a new house is mon property (known as the common
constructed. elements).
✔ True False 7. Mortgage brokerages can employ both

mortgage brokers and mortgage agents.
Future tax revenues are generated for
the municipality when a new house is ✔ True False
constructed. Further, many tradespeople
and professionals are involved in the rip- Under provincial legislation, mortgage
ple effect which translates into incomes brokerages are permitted to employ both
and associated taxes at the provincial mortgage brokers and mortgage agents.
and federal levels.
8. The term ICI refers to investment, con-
4. Math and computer skills are much more dominium and industrial real estate.
important than people skills when con-
sidering a career in real estate sales. True ✔ False
True ✔ False The term ICI refers to industrial, com-

mercial and investment.
While today’s real estate professional is
more tech-savvy than in the past, peo-
ple skills are still essential in gaining the
trust and respect of buyers and sellers.
APPENDIX
Chapter 1 Solutions 335
CH1 MINI
9. A corporation is not required to dis- 12. A commission split typically refers to

close any information about its officers the division of commission between
and directors when registering as a brokerages.
real estate brokerage.
True ✔ False
True ✔ False
A commission split usually refers to the
Corporations are subject to various dis- division of commission between the
closure and related requirements pursuant brokerage and a broker and salesperson
to the Real Estate and Business Brokers employed by that brokerage.
Act, 2002 when seeking registration as a
real estate brokerage. 13. The distribution of commission
between brokerages can vary in the
10. All real estate brokerages registered with marketplace.
the Real Estate Council of Ontario must
designate a broker of record regardless ✔ True False
of whether the brokerage is a sole pro-
prietorship, partnership or corporation. Distribution arrangements between list-
ing and selling brokerages can vary in
✔ True False the marketplace.
A broker of record must be designated in 14. Commission plans are usually set out
all three instances. The broker of record in brokerage policies and/or contractual
ensures that the brokerage complies with arrangements with salespersons.
requirements set out in the Real Estate
and Business Brokers Act, 2002 and asso- ✔ True False
ciated Regulations.
Commission plans are typically detailed
11. All real estate brokers and salespersons in the brokerage policy manual and also
are viewed as independent contractors commonly attached to the salesperson’s
for purposes of the Real Estate and employment contract.
Business Brokers Act, 2002 and associated
Regulations. 15. In a typical desk fee arrangement, the
brokerage generates its primary revenue
True ✔ False from monthly fees paid by salespersons
to the brokerage.
A fundamental employee/employer rela-
tionship exists between salespersons/ ✔ True False
brokers and the real estate brokerage.
Independent contractor status is a taxation Brokerages operating desk fee plans
issue only from the perspective of the usually generate their primary revenue
Real Estate and Business Brokers Act, 2002. based on monthly fees paid by salespeople.
Keep in mind that many commission
plan variations exist in the marketplace.
APPENDIX
CH1 EX1 Exercise 1 Commission Calculations—One Brokerage


Listing Brokerage
Selling Brokerage
Commission 6%
Distribution (100% of total)
Gross to Brokerage $19,740

Listing Salesperson
Selling Salesperson
Salesperson
60/40
Commission Split
Salesperson Share $11,844
Net to Brokerage $7,896
CH1 EX2 Exercise 2 Commission Calculations—One Brokerage


Listing Brokerage
Selling Brokerage
Commission 5%
Distribution (100% of total—50% listing vs. selling)
Gross to Brokerage $12,800

Listing Salesperson
Selling Salesperson
Salesperson
60/40 65/35
Commission Split
Net to Brokerage $2,560.00 $2,240.00
APPENDIX
Exercise 3 Commission Calculations—Two Brokerages CH1 EX3
Sale Price: $225,000 Commission Rate: 4.5%

Listing Brokerage
Selling Brokerage
Commission 2.25% 2.25%
Distribution (50% OF 4.5%) (50% OF 4.5%)
Gross to Brokerage $5,062.50 $5,062.50

Listing Salesperson
Selling Salesperson
Salesperson
60/40 55/45
Commission Split
Net to Brokerage $2,025.00 $2,278.12
Exercise 4 Commission Calculations—Two Brokerages CH1 EX4

Listing Brokerage
Selling Brokerage
Commission 2% 3%
Distribution (40% of 5%) (60% of 5%)
Gross to Brokerage $6,020 $9,030

Listing Salesperson
Selling Salesperson
Salesperson
55/45 90/10
Commission Split
Net to Brokerage $2,709.00 $903.00
APPENDIX
CH1 EX5 Exercise 5 Multiple Choice
a. Commercial real estate can be broadly defined ✔ CORRECT. Commercial brokerages in smaller com-
to include industrial, commercial and invest- munities may handle various types of properties,
ment sales, as well as leasing. while those in larger communities tend to specialize.
b. Knowledge of land values and permitted uses Incorrect. Land values and permitted uses are vital
is rarely required when selling land for redevelop- considerations when selling redevelopment land.
ment within urban centres.
c. Industrial real estate typically includes the Incorrect. Industrial real estate generally includes
listing and sale of warehousing, but not warehousing, manufacturing and related facilities.
manufacturing facilities.
d. The CCIM designation is awarded by the Incorrect. The CCIM Designation is awarded by
Society of Office and Industrial REALTORS®. the CCIM Institute.
5.2 Who is authorized to represent the seller in a typical residential real estate listing?
a. The mortgage broker. Incorrect. A mortgage broker is not involved with

the listing of property.
b. The real estate sales representative. Incorrect. The seller authorizes the real estate
brokerage, not the real estate sales representative.
c. The appraiser. Incorrect. An appraiser is not involved with the

listing of property.
d. The listing brokerage. ✔ CORRECT. The term listing brokerage generally

refers to the brokerage representing the seller.
5.3 Which of the following is NOT a correct statement?

This question requires that the incorrect option be identified.
a. A real estate salesperson acts as an authorized This option is correct. A real estate salesperson is
representative of the brokerage. authorized to act on behalf of the brokerage.
b. The Real Estate and Business Brokers Act, 2002 is This option is correct. REBBA 2002 does impose
an example of legislation that imposes duties duties and limitations on brokerages, brokers and
and limitations on a real estate brokerage, as salespersons.
well as brokers and salespersons.
c. A listing is taken in the name of the salesperson, ✔ THIS IS THE INCORRECT OPTION. The brokerage
who then legally represents the seller. legally represents the seller, not the salesperson.
d. A real estate brokerage can be registered as a This option is correct. While REBBA 2002 does
corporation, partnership or sole proprietorship. contemplate other associations or organizations,
current registration procedures only permit a
corporation, partnership or sole proprietorship.
APPENDIX
5.4 Which of the following is a correct statement regarding independent contractor status? CH1 EX5
a. Salespersons, but not brokers, are considered Incorrect. Both brokers and salespersons employed
to be employees of the brokerage for purposes by a brokerage are considered to be employees
of the Real Estate and Business Brokers Act, 2002. for purposes of REBBA 2002.
b. The Canada Revenue Agency does not provide Incorrect. The Canada Revenue Agency does
guidelines to assist in determining employee provide various guidelines. Exact rules applied
versus independent contractor status. can vary based on individual circumstances.
c. All salespersons must be independent contractors Incorrect. All salespersons are viewed as employees
in order to be registered under the Real Estate under REBBA 2002.
and Business Brokers Act, 2002.
d. Various common law principles are used to ✔ CORRECT. The Canada Revenue Agency applies
determine whether a salesperson is an certain common law principles in determining
employee or an independent contractor. independent contractor status.
5.5 A broker of record, according to the Real Estate and Business Brokers Act, 2002:
a. Must be designated by the salespeople employed Incorrect. The broker of record is designated by
by the brokerage. the brokerage.
b. Is designated in the case of a corporation, but Incorrect. The designation is required in a corpora-
not in a partnership. tion, partnership or sole proprietorship.
c. Can be either a salesperson or a broker at the Incorrect. A salesperson cannot be designated as

time of designation. the broker of record.
d. Must be employed by a brokerage. ✔ CORRECT. The designated broker must be

employed by the brokerage.
5.6 A site salesperson (not registered under REBBA 2002) employed by a builder is typically involved in
various promotional/marketing activities. Which is NOT one of them?
a. Providing information about resale homes in ✔ THIS IS THE INCORRECT OPTION. A site sales-
the area. person would not get involved with any informa-
tion concerning resale homes in the area.
b. Demonstrating homes through the use of This option is correct. Demonstrating homes
diagrams and plans. through the use of diagrams and plans is a common
activity for site salespeople.
c. Viewing of models or fully completed houses. This option is correct. Site salespeople are frequently
involved with models or fully completed houses.
d. Describing pre-packaged financing packages This option is correct. Site salespeople will describe
available for the new homes. pre-packaged financing packages available for the
new homes.
APPENDIX
CH1 EX5 5.7 A registered salesperson specializing in new home sales will likely find more emphasis and time
spent on which of the following activities?
a. Qualifying buyers. Incorrect. Qualifying buyers is important, but

another option is more appropriate.
b. Listing property. Incorrect. Persons specializing in new homes general-

ly spend less time and effort on listing property.
c. Discussing new home plans and options. Incorrect. Discussing new home plans is important,
but another option is more appropriate.
d. Both a. and c. ✔ CORRECT. Both a. and c. options are correct.

a. The legal structure of a condominium is set This option is correct. The declaration and descrip-
out in the declaration and description. tion are used to set out the legal structure.
b. The common elements are owned by the unit This option is correct. Tenants in common refers to
owners as tenants in common. a type of ownership involving two or more persons.
c. The unit owners are not personally liable for ✔ THIS IS THE INCORRECT OPTION. The unit
the debts of the condominium corporation. owners are personally liable for the debts of the
condominium corporation.
d. A condominium is created upon the registra- This option is correct. Condominiums must be
tion of the declaration and description. registered pursuant to the applicable legislation
(i.e., the Condominium Act).
5.9 Which of the following is usually NOT a duty of a property manager?

a. Maintaining the physical integrity of the This option is correct. Overall maintenance common-
property. ly is overseen by the property manager.
b. Paying the property expenses. This option is correct. Property managers often
handle matters relating to property expenses on
behalf of the owner.
c. Acting as full-time building superintendent. ✔ THIS IS THE INCORRECT OPTION. A property

manager does not normally act as a full-time
building superintendent, but usually hires someone
to carry out that function.
d. Keeping the property leased. This option is correct. A property manager seeks
high occupancy levels to maintain cash flows for
the owner.
APPENDIX
5.10 Which of the following is (are) correct with respect to property management? CH1 EX5
a. Property management requires better than People skills are important, but another option is
average people skills. more appropriate.
b. Personnel management is a common activity Personnel management is important, but another

for property managers. option is more appropriate.
c. Negotiation of contracts is a common activity Contract negotiations are important, but another
for property managers. option is more appropriate.
d. All of the above are true. ✔ CORRECT. All of the above are true.
5.11 Professional appraisers in Canada are usually referred to as:
a. Licensed valuators. Incorrect. This term is not commonly associated

with professional appraisers in Canada.
b. Fee appraisers. ✔ CORRECT. The term fee appraiser is most commonly

used when referring to real estate appraisers.
c. Municipal assessors. Incorrect. Municipal assessors provide assessment-

related services involving municipal tax rolls.
d. Home Inspectors. Incorrect. Home inspectors are not involved with

appraisal activity.
5.12 Organized real estate in Canada:
a. Consists of The Canadian Real Estate Incorrect. The Real Estate Institute of Canada is an
Association (CREA) and the Real Estate autonomous organization and not directly involved
Institute of Canada. with organized real estate.
b. Consists solely of the Ontario Real Estate Incorrect. OREA and CREA are only two of various
Association (OREA) and The Canadian Real organizations involved in organized real estate.
Estate Association (CREA).
c. Is structured on a three way-relationship ✔ CORRECT. The three-way relationship provides

that involves CREA, provincial associations the structural framework for organized real estate.
and boards.
d. Is controlled by the National Association of Incorrect. Organized real estate in Canada is part
REALTORS®. of an alliance network involving the National
Association of REALTORS®, but is not controlled by
that organization.
APPENDIX
CH1 EX6 Exercise 6 Employment Agreements

A number of differences exist between the two documents. Some of the most notable
include:
• The brokerage agrees, in the employment agreement, to advise, counsel, instruct
and assist the salesperson. A similar provision is not included in the independent
contractor agreement.
• The salesperson agrees to maintain harmonized sales tax registration in the indepen
dent contractor agreement. No such reference is found in the employment agreement.
• The independent contractor agreement sets out detailed schedules concerning
services and fees. This information is not included in the employment agreement.
• Termination procedure in the independent contractor agreement is provided on 24
hour notice. In the employment agreement, termination is pursuant to the Employment
Standards Act for the Province of Ontario.
APPENDIX
CHAPTER 2 CH2 MINI
REAL ESTATE—A REGULATED PROFESSION
Chapter Mini-Review
1. The RECO board of directors is directly 4. No person can trade in real estate in
responsible for the day-to-day manage- Ontario unless registered under the
ment of the Council and its employees. Real Estate and Business Brokers Act, 2002.
True ✔ False True ✔ False
The President and CEO, who reports Various exemptions to registration are
directly to the board of directors, is set out in Sec. 5 of the Real Estate and
responsible for day-to-day management. Business Brokers Act, 2002; e.g., a person
The board of directors establishes overall registered under the Securities Act.
policies.
5. Applicants must complete continuing
2. Bankruptcy details must be disclosed education requirements prior to apply-
by an applicant seeking registration or ing for salesperson registration.
a registrant seeking renewal of
registration. True ✔ False
✔ True False Continuing education requirements must

be met by each broker and salesperson
Applicants must disclose sufficient details registrant in every 2-year registration
regarding bankruptcy matters so that an cycle. The only exception involves regis-
informed decision can be made. Each trants within their first two-year registra-
application is assessed on an individual, tion period, as they have requirements
case-by-case basis. under the articling segment.
3. The Registrar has the authority to 6. Every broker and salesperson registrant
grant applicants course credits or must fulfil the mandatory continuing
examination challenges on the basis of education requirements in each registra-
education equivalency. tion cycle following the first registra-
tion renewal.
✔ True False
✔ True False
The Registrar has authority to provide
exemptions and credits to applicants The registrant must complete a manda-
who possess the required academic tory online RECO Real Estate Update
qualifications, experience and/or com- course and two elective courses.
petencies to trade in real estate.
7. When a broker or salesperson registrant
changes his/her address, proper written
notice must be made to RECO within
five days of the event.
✔ True False
Proper written notice must be made

within the five day period. Required
forms are located on the RECO web site.
APPENDIX
CH2 MINI 8. A salesperson is not required to carry 12. The RCI process is primarily designed
his or her certificate of registration, to handle complaints and concerns
but must have it available at his or her regarding registrant conduct from the
employing brokerage to show it to any public and from other registrants.
person upon request.
✔ True False
True ✔ False
The RCI process provides a uniform, yet
Every broker and salesperson must carry flexible method for handling complaints
his or her certificate of registration and and concerns.
show it upon request.
13. Under REBBA 2002, the Registrar is
9. All examinations for pre-registration, required to make certain information
articling and broker segments are about registrants available to the public
three hours in length and a final mark including registration status and
of 60% (minimum) must be achieved current expiry date of registration.
to successfully complete each course.
✔ True False
True ✔ False
Other available information includes
A minimum mark of 75% must be whether the registrant has complied
achieved to successfully complete a with insurance requirements and if any
course. enforcement and/or disciplinary activi-
ties have been taken.
10. The three coverages under the RECO
insurance program are errors and 14. RECO inspectors have the right to
omissions, commission protection and access all documents, records, money
general liability. and other valuables in a real estate
brokerage registered under the Real
True ✔ False Estate and Business Brokers Act, 2002.
The third coverage involves consumer ✔ True False

deposits, not general liability. The three
coverages involve errors and omissions, Inspectors have such rights, but access
commission protection and consumer to the registrant’s business premises
deposit. must be during reasonable hours.
11. Insurance policy coverage is on a claims

made basis, which requires that any
claim made against the registrant be
reported to the insurer during the
policy period.
✔ True False
Registrants must not only report an

actual claim being made, but also a cir-
cumstance that could lead to a claim;
i.e., a potential claim.
APPENDIX
Exercise 1 Registration and Beyond CH2 EX1
1.1 Which of the following is a true statement regarding registration as a real estate salesperson in Ontario?
a. A salesperson registrant must renew his or Incorrect. Broker and salesperson registrants must
her registration each year. renew at the end of each two-year cycle.
b. A salesperson must pay a two year premium Incorrect. The insurance term is based on a one
for the RECO insurance program on every year cycle commencing on September 1st each
registration renewal date. year.
c. A person registered under the Securities Act is Incorrect. A person registered under the Securities
exempt under the Real Estate and Business Act is only exempt if the trade is made in the
Brokers Act, 2002 when that person is course of, and as part of, the person’s business in
involved in any sale of real estate. connection with a trade in securities.
d. An applicant must successfully complete the ✔ CORRECT. An applicant must successfully complete
prescribed pre-registration education and the pre-registration education within 18 months
pass the applicable examinations within 18 and apply to RECO for registration under REBBA
months of starting the first course Real 2002 within 12 months of successfully completing
Estate as a Professional Career. the final pre-registration course examination.
1.2 Within the RECO operating structure, the board of directors relies on which of the following to identify,
research, consult and make recommendations on issues impacting consumers and/or registrants?
a. Registrar Incorrect. The Registrar performs various duties as

set out in REBBA 2002, but is not normally
involved in such matters.
b. Task Force ✔ CORRECT. The board establishes one or more task

forces to address issues impacting consumer and/
or registrants.
c. President/CEO Incorrect. The President/CEO is responsible for

day-to-day management of RECO.
d. Corporate Services Incorrect. Corporate services consists of

departments focused on day-to-day corporate
operations.
APPENDIX
CH2 EX1 1.3 Which of the following is NOT an exemption under the Real Estate and Business Brokers Act,
2002? This question requires that the incorrect option be identified.
a. A receiver, trustee or custodian acting under This option is correct. A receiver, trustee and
selected Acts in respect of any trades in real custodian acting under selected Acts are exempted
estate. under REBBA 2002.
b. A person practicing as a solicitor who is This option is correct. A person practicing as a

providing legal services if the trade itself is a solicitor who is providing legal services, as described
legal service or is incidental to and directly in the Act, is exempted.
arising out of a legal service.
c. A person who is employed as a salesperson ✔ THIS IS THE INCORRECT OPTION. The exemption
for a builder, is paid a commission for each is limited to a full-time, salaried employee acting
sale made on behalf of that builder and is on behalf of his or her employer.
only selling homes offered in the marketplace
by that builder.
d. A person, on his/her own account, in respect of This option is correct. A person, involved with his or
owned real estate (subject to certain qualifiers). her own account, is exempt regarding owned real
estate. For example, a person selling his or her own
home (i.e., a for sale by owner) would be exempt.
1.4 Which of the following is NOT normally required when becoming registered as a real estate
salesperson? This question requires that the incorrect option be identified.
a. Have a good past record of financial responsi- This option is correct. Applicants must have a good
bility and conduct. past record of financial responsibility and conduct.
b. Include the applicable transcript with the This option is correct. Proof of successful completion
application. of the prescribed courses in the pre-registration
education program is required (i.e., the transcript).
c. Fully disclose any criminal charges and This option is correct. All applicants must disclose any
convictions. criminal charges or convictions regardless of when
these occurred or what dispositions took place.
d. Provide proof that the RECO insurance has ✔ THIS IS THE INCORRECT OPTION. The insurance
been paid in full at time of application. premium must be paid once the initial review of
the application is completed. It is not required at
point of application.
1.5 In the two-year articling segment following initial registration, which of the following courses is
NOT considered an articling elective?
a. Real Estate Investment Analysis Incorrect. Real Estate Investment Analysis is an elective course.
b. Principles of Mortgage Financing Incorrect. Principles of Mortgage Financing is an elective course.
c. Principles of Appraisal Incorrect. Principles of Appraisal is an elective course.
d. Real Property Law ✔ CORRECT. Real Property Law is a mandatory course to be

taken by all students.
APPENDIX
1.6 With regard to the RECO insurance program: CH2 EX1
a. Registrants may select one of three coverages Incorrect. Registrants must have all coverages
offered under the program. provided under this mandatory program.
b. Registrants may collect commission when not Incorrect. If no insurance, registration is immediately
insured, provided a Declaration of Non- suspended and commission cannot be paid to an
Insurability is provided to the consumer. unregistered person. Further, no such declaration
exists.
c. Reporting a claim or potential claim does ✔ CORRECT. The registrant is merely complying with
not mean that the registrant is responsible or reporting requirements contained in the policy.
liable for negligence. As such, the insurer can determine the best way
to proceed in protecting the registrant’s interests.
d. Registrants are not required to pay insurance Incorrect. Registrants must pay insurance
premiums after the first two-year registration premiums on an ongoing, annual basis.
cycle.
1.7 The RCI process:
a. Requires that all written complaints and Incorrect. Referral to the discipline committee is
concerns be referred to the discipline only one of several possible outcomes under the
committee. RCI process.
b. Begins with all written complaints and concerns ✔ CORRECT. Complaints and concerns, once
being reviewed by the Office of the Registrar. reviewed, are assigned to staff for detailed review.
c. Would never involve prosecution under the Incorrect. This is one of several possible outcomes
Provincial Offences Act. flowing from the RCI process.
d. Does not provide for mediation. Incorrect. The Registrar may attempt to mediate a
situation if such action is deemed appropriate
under the circumstances.
1.8 Routine inspections:
a. Are always conducted without advance Incorrect. While some inspections do occur without notice,
notice. most routine inspections are set up in advance with the
broker of record and a mutually agreeable time is selected.
b. Are typically set up by randomly ✔ CORRECT. The randomly selected brokerage is contacted
selecting brokerages for inspection. by telephone and a mutually agreeable time is set.
c. Are conducted pursuant to Incorrect. Inspections are carried out pursuant to REBBA
requirements outlined in the Provincial 2002. The Provincial Offences Act is a procedural law
Offences Act. involving prosecution in the Ontario Court of Justice system.
d. Do not focus on brokerage real estate Incorrect. Routine inspections focus on real estate
records, but rather involve an informal records such as trade contracts and related
discussion between the inspector and documentation, trust accounts and proper accounting
the broker of record. procedures.
APPENDIX
CH2 EX1 1.9 The Registrar has various options under the Registrar’s Complaints and Inquiries (RCI) Process.
Which is NOT one of them? This question requires that the incorrect option be identified.
a. Impose a fine not to exceed $25,000. ✔ CORRECT. The Discipline Committee could impose a
fine under the RCI process, not the Registrar.
b. Require the registrant to take further Incorrect. The Registrar can require a registrant to take
education courses. further education courses.
c. Attempt to mediate or otherwise Incorrect. The Registrar can attempt to mediate or

resolve the matter. otherwise resolve the matter.
d. Refer to the discipline committee. Incorrect. The Registrar can make a referral to the
discipline committee.
CH2 EX2 Exercise 2 Regulatory Requirements/Compliance (Matching)
d. Registration Requirement . . . . . . . . . . . . . Pay RECO insurance when new application review is complete.
h. CPIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Criminal record check.
a. Address Change . . . . . . . . . . . . . . . . . . . . Notify Registrar within five days of the event.
c. Search Warrant and Freeze Order . . . . . . Legal processes relating to an investigation.
b. Grounds for Refusal of Applicant . . . . . . . Lack of financial responsibility.
g. Exemption . . . . . . . . . . . . . . . . . . . . . . . . A bank or authorized foreign bank.
k. Mandatory Continuing Education . . . . . . Completed in every two year cycle.
j. Discipline Hearing Panel . . . . . . . . . . . . . May assess fine, plus costs.
Not Used: e., f. and i.
APPENDIX
CHAPTER 3 CH3 MINI
ECONOMICS AND THE REAL ESTATE MARKET
Chapter Mini-Review
1. Economic indicators can be roughly 5. A seller’s market usually arises when
grouped into three categories: resource buyers wanting homes exceed available
markets, businesses and consumers. supply of homes.
✔ True False ✔ True False
These three categories are useful when A seller’s market exists when demand
analyzing the many statistical indicators exceeds supply and is often character-
discussed in the marketplace. ized by quickly rising prices.
2. Consumer confidence has proven to be 6. The amplitude of a real estate cycle is

a poor indicator of future economic the distance between the high and low
trends. points in that cycle.
True ✔ False ✔ True False
Consumer confidence has proven to be The amplitude is the distance between

a very effective indicator. Positive atti- the high and low points. It should be
tudes normally translate into increased differentiated from the length of a busi-
consumer expenditures. ness cycle, which is the distance from
one peak (high point in the cycle) to
3. The Consumer Price Index (CPI) the next peak.
measures the price of 600 goods and
services. 7. Research appears to indicate that a
typical business cycle contains various
✔ True False components: prosperity, market bubble,
recession and recovery.
The 600 items represent goods and ser-
vices commonly purchased by an aver- True ✔ False
age family living in a metropolitan area.
A typical business cycle contains the fol-
4. Real estate markets are typically subject lowing components: prosperity (peak),
to slow supply/demand adjustments. recession (trough), and recovery.
✔ True False 8. A real estate cycle may have certain

variances when compared to a busi-
Slow adjustments are primarily due to ness cycle due in part to unique factors
the delay time in responding to market associated with real estate such as slow
conditions; e.g., large real estate devel- supply/demand adjustment and fixed
opments cannot be quickly started location.
when demand increases nor immediate-
ly stopped when demand decreases. ✔ True False
Real estate cycles appear to have more

prolonged peaks followed by more pro-
nounced recessions.
APPENDIX
CH3 MINI 9. An increase in the average number of 12. Commercial and residential brokerages
days to sell property often indicates a rely on the same indices to analyze
seller’s market. local market conditions and trends.
True ✔ False True ✔ False
An increase in the average number of Commercial and residential brokerages

days to sell indicates a buyer’s market, use certain common indices, but com-
not a seller’s market. mercial brokerages typically are involved
in more detailed statistical measures and
10. Demographic changes can impact the economic indicators.
long term demand for houses.
13. The mode is the middle figure in an
✔ True False array of figures ordered from smallest
to largest.
Demographic changes can significantly
affect not only the long term demand True ✔ False
for houses, but also the styles, sizes and
features of such houses. The median is the middle figure in an
array of figures ordered from smallest to
11. The sale to list price ratio measures largest. The mode is the most frequently
the spread between listing and selling appearing number in an array of figures.
prices.
✔ True False
The spread is expressed as a percentage;

e.g., if a home is listed at $174,900 and
sells for $170,000, the sale to list price
ratio is 97%.

CH3 EX1 Exercise 1 The Real Estate Market (Matching)
c. Consumer Price Index. . . . . . . . . . Purchasing Power
g. Bubble . . . . . . . . . . . . . . . . . . . . . Overheated Market
f. Base Year . . . . . . . . . . . . . . . . . . . Benchmark Used for Comparative Purposes
h. Recovery . . . . . . . . . . . . . . . . . . . . Real Estate Cycle
b. Average Price . . . . . . . . . . . . . . . . Measure of Central Tendency
d. Market Equilibrium . . . . . . . . . . . Supply Equals Demand
a. Government Intervention . . . . . . . Crown Corporation
e. Real Estate Characteristic. . . . . . . Fixed Location
j. Business Cycle . . . . . . . . . . . . . . . Recession
Not Used: i. and k.
APPENDIX
Exercise 2 Multiple Choice CH3 EX2
2.1 The Gross National Product (GNP) measures:
a. Manufacturer’s new orders. Incorrect. Manufacturer’s new orders are just a

part of the overall GNP.
b. Production of products and services solely Incorrect. The GNP is a wider measure than just
within Canada. the production of products and services solely
within Canada.
c. Total production of the Canadian economy. ✔ CORRECT. The GNP measures total production of
the Canadian economy.
d. The total investment capital in Canada from Incorrect. The GNP is associated with total produc-
both private and public sources. tion, as opposed to total investment capital.
2.2 The use of a three-month moving average when providing statistical information:
a. Is designed primarily to remove seasonal Incorrect. The removal of seasonal variations is

variations within data. not the primary purpose of the three-month
moving average.
b. Minimizes monthly fluctuations. ✔ CORRECT. The three-month moving average

minimizes monthly fluctuations.
c. Is most commonly associated with statistics Incorrect. The three-month moving average is used
relating to the residential real estate market. in various statistical analyses and is not limited to
residential real estate.
d. Relies on a weighting system in order to Incorrect. The weighting system (e.g., weighted
produce the moving average. average) is a separate method of statistical analysis.
2.3 Which of the following market indicators provides the best indicator of what buyers are willing to
pay for available listed properties in the residential real estate marketplace?
a. Sale to list ratio. ✔ CORRECT. This ratio shows sale price as a ratio
(percentage) of list price.
b. Consumer Price Index. Incorrect. The Consumer Price Index does not
apply to this situation.
c. Average price. Incorrect. The average price is a useful indicator,

but does not accurately address the difference
between what buyers are willing to pay and sellers
are willing to accept.
d. Weighted average. Incorrect. Weighted average does not apply to this

situation.
APPENDIX
CH3 EX2 2.4 Which of the following is NOT a true statement?

a. Dynamics of the real estate market can be This option is correct. Slow demand/supply adjust-
impacted by slow demand/supply adjustments. ments impact real estate market dynamics.
b. Demographic changes can affect real estate This option is correct. Demographic changes do
demand. affect real estate demand.
c. The overall (all items) Consumer Price Index ✔ THIS IS THE INCORRECT OPTION. The CPI is a
involves 300 items. combined measure based on 600 items.
d. The national employment rate is a business This option is correct. The national employment
indicator within the national economy. rate is a business indicator within the national
economy.
2.5 Real estate brokerages often rely on various primary sources of local market information. Which
of the following is one of those sources?
a. Land registry offices. Land registry offices are a source, but another
option is more appropriate.
b. Brokerage files. Brokerage files are a source, but another option is

more appropriate.
c. Multiple Listing Service®. Multiple Listing Service® is a source, but another

d. All of the above. ✔ CORRECT. All options are correct.
2.6 The real estate market is somewhat unique. Which of the following market characteristics best
describes the statement: No two houses are exactly the same ?
a. No standard product. ✔ CORRECT. Even with very similar homes,

structures are adapted to meet specific owner
needs.
b. Local real estate market. Incorrect. The localized market is a characteristic

of real estate markets, but another option is more
appropriate.
c. Fixed location. Incorrect. One of the features contributing to real

estate market uniqueness is fixed location, but
another option is more appropriate.
d. Slow supply/demand adjustments. Incorrect. Slow supply/demand adjustments are

typical of real estate markets, but another option
is more appropriate.
APPENDIX
2.7 The Bank of Canada: CH3 EX2
a. Sets interest rates for the Canadian Incorrect. The Bank of Canada influences, but does not
mortgage marketplace. set interest rates.
b. Is responsible for the overall administra- ✔ CORRECT. The Bank of Canada is responsible for the
tion of Canada’s financial system. overall administration of Canada’s financial system.
Specific roles are set out in the Bank of Canada Act.
c. Sets an overnight rate which can vary Incorrect. The Bank of Canada does set an overnight
0.5% from the previous day’s rate. rate, but no requirement exists that it cannot vary more
than 0.5% from the previous day’s rate.
d. Is owned jointly by the federal and Incorrect. The Bank of Canada is owned by the federal
provincial governments. government.
Exercise 3 Measures of Central Tendency CH3 EX3
3.1 Based on the following array of figures, select the appropriate answers concerning the average,
median and mode.
310,000 315,600 319,200 310,000 323,500 312,000
311,900 310,000 313,900 312,900 318,700
i. The mathematical average of the above figures is:
a. 312,900 Incorrect. Ensure that all figures have been included, then divide by the total number of figures.
b. 313,927 Incorrect. Ensure that all figures have been included, then divide by the total number of figures.
c. 348,777 Incorrect. Ensure that all figures have been included, then divide by the total number of figures.
d. 314,336 ✔ CORRECT. All figures have been added together and then divided by 11.
ii. The median is:
a. 313,900 Incorrect. Ensure that you have ordered the figures correctly and selected the mid-point.
b. 312,900 ✔ CORRECT. The figures have been ordered correctly and the mid-point has been chosen.
c. 315,600 Incorrect. Ensure that you have ordered the figures correctly and selected the mid-point.
d. 310,000 Incorrect. Ensure that you have ordered the figures correctly and selected the mid-point.
iii. The mode is:
a. 312,000 Incorrect. Make certain that the most frequently occurring number is identified.
b. 310,000 ✔ CORRECT. The most frequently occurring number has been chosen.
c. 313,900 Incorrect. Make certain that the most frequently occurring number is identified.
d. 300,000 Incorrect. Make certain that the most frequently occurring number is identified.
APPENDIX
CH3 EX3 3.2 Based on the following array of figures, select the appropriate answers concerning the average,
median and mode.
219,000 238,900 218,000 229,000 219,000
227,400 247,500 221,300 219,000 219,000
245,200 231,100 227,400 216,000 241,800
i. The mode is:
a. 215,000 Incorrect. Make certain that the most frequently occurring number is identified.
b. 245,500 Incorrect. Make certain that the most frequently occurring number is identified.
c. 227,400 Incorrect. Make certain that the most frequently occurring number is identified.
d. 219,000 ✔ CORRECT. The most frequently occurring number has been chosen.
ii. The median is:
a. 247,500 Incorrect. Ensure that you have ordered the figures correctly and selected the mid-point.
b. 227,400 ✔ CORRECT. The figures have been ordered correctly and the mid-point has been chosen.
c. 219,000 Incorrect. Ensure that you have ordered the figures correctly and selected the mid-point.
d. 216,000 Incorrect. Ensure that you have ordered the figures correctly and selected the mid-point.
iii. The average is:
a. 227,973 ✔ CORRECT. All figures have been added together and then divided by 15.
b. 341,962 Incorrect. Ensure that all figures have been included, then divide by the total number of figures.
c. 216,000 Incorrect. Ensure that all figures have been included, then divide by the total number of figures.
d. 247,500 Incorrect. Ensure that all figures have been included, then divide by the total number of figures.
APPENDIX
Exercise 4 Market Dynamics CH3 EX4
No single correct answer for the fictitious Westville market exists. A valid response,
however, might include:
• The long term decline in interest rates has the net effect of lower borrowing costs
that, in turn, normally increases resale activity. It should be noted that the noticeable
decline has occurred both in short and longer term mortgage rates.
• The Consumer Price Index is rising and may indicate some movement toward higher
prices. The shelter component has been rising steadily. Interpretations will vary on
the impact of this indicator. However, Ms. Jones need not be concerned with this in
the short term when marketing her property.
• Unemployment rates rose during the summer period, but have fallen. Increases in
employed persons normally translates into market strength. Housing starts have risen
in the past year and have remained more or less consistent in this particular market,
undoubtedly indicating more builder confidence in the market due to increased
sales.
• Even without a full understanding of market trends in Westville, it should be evident
that prices have more or less stabilized according to the graphs and MLS® sales have
decreased over the past year. Generally, Ms. Jones would be entering a relatively stable
market with purchasers enjoying low mortgage interest rates.
APPENDIX
CH4 MINI CHAPTER 4

ONTARIO PROFILES, TRENDS AND
REAL ESTATE VALUES
Chapter Mini-Review
1. Interprovincial migration does not 5. The principle of anticipation essentially
contribute significantly to Ontario’s says that a value today is only valid for
population growth when compared today.
with immigration from other countries.
True ✔ False
✔ True False
The principle of anticipation affirms that
Interprovincial migration is not a signifi- value is created by the anticipation of
cant contributor compared with high benefits arising out of ownership.
immigration involving other countries.
6. The statement ‘the smallest home on
2. Demographic analysis using dependency the street may be the best buy’ generally
measures is a valid method to assess describes the principle of progression.
the gradual aging of a population.
✔ True False
✔ True False
The smaller home is positively affected
Dependency measures are key, particu- by the proximity of a higher priced
larly in evaluating the impact of an home.
aging population.
7. According to the principle of surplus
3. A seller, who has unwittingly under- productivity, net income flows to the
sold due to a lack of market knowledge, building and other improvements on
is nevertheless deemed to have obtained the land.
market value, as the buyer acted pru-
dently and in good faith. True ✔ False
True ✔ False This principle states that net income

flows to the land not the building and
A seller making a decision with lack of other improvements.
market knowledge is not deemed to be
well informed. Market value assumes an 8. A fireplace costing $15,000, but having
informed buyer and seller. a market value of $24,000 is an example
of the principle of contribution.
4. Value in use arises only in commercial
transactions where a building is built ✔ True False
specifically to meet the needs of the
owner. The principle of contribution, as stated
above, addresses differences between
True ✔ False the cost of an improvement and its mar-
ket value.
Value in use can arise both in residential
and commercial transactions.
APPENDIX
CH4 MINI
9. In the past decade, municipal structur- 13. Subjective value can be generally
ing in Ontario has increasingly moved described as the perception of value in
toward more regional governments. the mind of a seller or buyer.
The province is moving towards fewer Subjective value is determined largely by

regional governments, as cities take on perception, as differentiated from objec-
increased prominence. tive value.
10. Provincial net migration can be 14. If a property is overpriced, more moti-
generally described as the difference vated buyers will consider the property
between the number of people entering than if it was properly priced for the
and exiting the province within a speci- marketplace.
fied period of time.
True ✔ False
✔ True False
The reality is that fewer buyers look at
Net migration represents the ‘net’ differ- overpriced properties. Properly priced
ence between people entering and exit- properties are most attractive to moti-
ing a specific geographic area. vated buyers.
11. The difference between market value

and actual cost can be negligible in a
reasonably efficient marketplace with no
unusual intervening factors impacting
values.
✔ True False
Market value and actual cost can closely

approximate one another assuming an
active, efficient marketplace.
12. Value in exchange and value in use are

synonymous when discussing real
estate values.
True ✔ False
Value in use differs from market value in

that the former takes into account the
economic good to the owner/user and a
higher value is attributed.
APPENDIX

CH4 EX1 Exercise 1 Real Estate Values (Matching)
c. Demography . . . . . . . . . . . . . . . . . . Study of Population
d. Market Price . . . . . . . . . . . . . . . . . . . Price Paid in a Particular Transaction
b. External Factors . . . . . . . . . . . . . . . . Nearby Items Affecting Value
h. Principle of Progression . . . . . . . . . . Poorer Property Affected Positively
f. Objective Value . . . . . . . . . . . . . . . . Actual Cost
a. Value In Exchange . . . . . . . . . . . . . . Market Value
g. Value In Use . . . . . . . . . . . . . . . . . . . Distinctive Feature Valued by Owner
e. Geographic Region . . . . . . . . . . . . . Southwestern Ontario
CH4 EX2 Exercise 2 Multiple Choice

2.1 Assume that the Ontario government recently announced a new regional office for North Bay that
will involve the hiring or transferring of 500 employees to that community. As a consequence, housing
will be in short supply for the foreseeable future. Which principle of value best describes this situation?
a. Principle of Progression Incorrect. The principle of progression relates to dissimilar

property values.
b. Principle of Surplus Productivity Incorrect. The principle of surplus productivity relates to net
income and value attributable to the land.
c. Principle of Supply and Demand ✔ CORRECT. The principle of supply and demand applies given
increased demand.
d. Principle of Increasing/ Incorrect. The principle of increasing/decreasing returns does

Decreasing Returns not apply to this situation.
2.2 It shouldn’t make any difference that all the other homes on this street are a lot less expensive than
mine. I say value is value; they don’t affect my property’s value. Which principle of value might
be used to dispute this statement?
a. Principle of Anticipation Incorrect. The principle of anticipation relates to value arising

from the anticipation of future benefits; i.e., the present worth
of future benefits.
b. Principle of Regression ✔ CORRECT. The principle of regression states that the better
property will be adversely affected by the poorer property.
c. Principle of Progression Incorrect. The principle of progression states that the poorer
property will be positively affected by the better property.
d. Principle of Supply and Demand Incorrect. The principle of supply and demand relates to supply/
demand forces.
APPENDIX
2.3 Buyer Williams bought the James residence for $359,500. The property was originally listed at CH4 EX2
$379,900 and was subsequently reduced to $365,000, before a successful sale was concluded. The
selling price of $359,500 is best described as the:
a. Market Value Incorrect. Market value is an estimate of value arising from

many sales, not one specific sale.
b. Objective Value Incorrect. Objective value is based on cost and does not apply
in this situation.
c. Value in Use Incorrect. Value in use is not involved in this particular situation.
d. Market Price ✔ CORRECT. Market price is the price paid for a specific property.
2.4 Builder Adams is determined to put a triple-car garage on the next new home that he builds. Here’s
his reasoning. The first home had a single-car garage which brought $15,000 more in selling price;
and the second home had a double-car garage which increased the selling price by another $15,000.
Therefore, it only makes sense that a triple-car garage will add a further $15,000. Which principle
might be used to dispute this argument?
a. Principle of Increasing/ ✔ CORRECT. The principle of increasing/decreasing returns

Decreasing Returns applies to this situation.
b. Principle of Consistent Use Incorrect. The principle of consistent use involves the inability
to allocate one value to the use of the land and another to the
use of the buildings/structures.
c. Principle of External Factors Incorrect. The principle of external factors relates to external
items (beyond the property) that can affect that property’s value.
d. Principle of Regression Incorrect. The principle of regression relates to a better property

being adversely affected by a poorer property.
2.5 Salesperson Lane prepared a CMA three months ago for Seller Jones at $489,900, but Jones elected
not to sell. Three months later, a second CMA was prepared. To the seller’s dismay, the recommended
listing price was lower due to economic conditions in the area. What principle best explains this
situation?
a. Principle of Contribution Incorrect. The principle of contribution involves how the value of
any component adds to or detracts from the value of a property.
b. Principle of Change ✔ CORRECT. The principle of change provides that a valuation

provided is only valid as of a specific time, given that market
forces are always changing.
c. Principle of Consistent Use Incorrect. The principle of consistent use involves the inability
to allocate one value to the use of the land and another to the
use of the buildings/structures.
d. Principle of Highest and Best Incorrect. The principle of highest and best use might come into
Use play when establishing a value, but a more appropriate option
is available.
APPENDIX
CH4 EX2 2.6 Which of the following is NOT a theory applied by urban economists to the development of cities?
a. Concentric Circle Theory This option is correct. Concentric circle theory is used by urban
economists.
b. Market Cycle Theory ✔ THIS IS THE INCORRECT OPTION. No such theory is used by urban
economists.
c. Axial Theory This option is correct. Axial theory is used by urban economists.
d. Multiple Nuclei Theory This option is correct. Multiple nuclei theory is used by urban economists.
2.7 Demography is the study of:
a. Municipal boundaries. Incorrect. Demography is not directly related to municipal boundaries.
b. Physical and spatial Incorrect. This is more aptly described as geography.

features.
c. Market activity. Incorrect. Demography is not involved with market activity analysis.
d. Population changes over ✔ CORRECT. Demography is the study of population with particular
time. emphasis on the growth/size, distribution and composition.
CH4 EX3 Exercise 3 The Neighbourhood
Principle of Change Value changes over time. The neighbourhood is going through a declining
cycle which impacts Wong’s property.
Principle of External Factors beyond the control of the property owner are influencing value.
Factors
CH4 EX4 Exercise 4 Is Bigger Better?
Principle of Contribution What is the real value of a large fireplace in the eyes of the buyer versus the cost
of building the fireplace?
Principle of Conformity The fireplace is an overimprovement that has increased the asking price beyond
the values in the area.
Principle of Anticipation Perhaps buyers cannot see the benefits accruing from this massive fireplace but
instead perceive problems; i.e., dominates the room, difficult to decorate area,
awkward placement of furniture.
Principle of Substitution Buyers are selecting other homes because they are quite similar to the Westheiser
property and also include fireplaces. Westheiser’s price is apparently too high
and being passed over for equally desirable property at a lesser price.
APPENDIX
CHAPTER 5 CH5 MINI
CONSUMER BEHAVIOUR AND

CONSUMER PROTECTION
Chapter Mini-Review
1. Consumer behavior is best understood 5. A need, in terms of consumer
in terms of the impact of internal as behavior, is an underlying biological
well as external forces on an individual’s or psychological desire to attain
decision-making process. something for a specific purpose.
Consumer behaviour is typically analyzed The need, as an underlying desire, typi-

based on internal (e.g., personal traits) cally results in specific behaviour to
and external (e.g., brand loyalty) forces achieve a desired goal.
affecting consumers in the marketplace.
6. Status symbols are often associated
2. The term market segmentation is only with ego needs, as described in Maslow’s
used when discussing the grouping of hierarchy of needs.
individuals accordingly to either their
age, ethnicity or income level. ✔ True False
True ✔ False Status symbols generally fall under

Maslow’s fourth highest level of needs;
Market segmentation can apply to many i.e., ego needs.
different groupings given that the market-
place is made up of numerous sub-markets. 7. Consumers can be vulnerable given
that cooling off periods do not typical-
3. Feng shui is best described as an example ly apply in the case of real estate
of brand loyalty based on personal transactions.
experience and the opinions of others.
✔ True False
True ✔ False
Cooling periods are not commonly
Feng shui is an ancient Chinese belief found in relation to real estate transac-
system that focuses on space arrange- tions (with some exceptions) and con-
ments. sumers must carefully read and under-
stand what they are signing.
4. According to recent consumer surveys,
access to the Internet has made the task 8. The Consumer Protection Act (CPA)
of finding property more difficult. contains numerous provisions that apply
directly to real estate transactions.
True ✔ False
True ✔ False
The Internet has generally simplified the
property search process. The CPA does not directly apply to real
estate transactions, but can come into
play regarding services (e.g., listing
agreements).
APPENDIX
CH5 MINI 9. A complaint lodged by a consumer 12. Business ethics does not normally
under the Consumer Protection Act complement broader ethical standards
(CPA) would probably be referred to within a society.
the Real Estate Council of Ontario
given its direct regulation of real estate True ✔ False
brokerages, brokers and salespersons.
Business ethics are typically consistent
✔ True False with overall ethical standards within a
society.
While the CPA contains provisions relat-
ing to services provided by real estate 13. Personal information, according to
registrants, the Ministry responsible for PIPEDA, includes age, name and
the legislation would generally refer income particulars.
such matters to RECO.
✔ True False
10. The Ontario Human Rights Commission
oversees the administration and enforce- Personal information includes any factu-
ment of the Ontario Human Rights al or subjective information (recorded or
Code. not) about an identifiable individual.
✔ True False 14. Appraisers in this province must be

registered with the Appraisal Services
The Commission in overseeing the Ontario Commission of Ontario.
Human Rights Code focuses on preven-
tive or corrective measures to ensure True ✔ False
that rights and opportunities exist with-
out discrimination for all persons in No such organization exists. Many
Ontario. appraisers are members of the Appraisal
Institute of Canada.
11. Real estate fraud is commonly divided
into two subcategories: mortgage
fraud and title fraud.
✔ True False
Mortgage fraud and title fraud have

become a focal issue in recent years.
APPENDIX
Active Learning Exercises CH5 EX1
1.1 Psychographic studies are used in marketing research to:
a. Delve deeper into consumer lifestyles ✔ CORRECT. Psychographic studies delve into
beyond basic demographic makeup and consumer lifestyles, opinions and interests.
personal traits.
b. Provide detailed psychological information Incorrect. Psychographic studies do not focus on

about individual consumers. detailed psychological information about
individual consumers.
c. Explain consumer vulnerabilities when Incorrect. Psychographic studies do not specifically

acquiring real estate. address consumer vulnerabilities.
d. Determine the impact of reference groups on Incorrect. Psychographic studies focus specifically
consumer decisions. on lifestyle issues and consumer options/interests.
1.2 The second property market is:
a. Diminishing in size due to economic Incorrect. The second property market has been
circumstances in today’s market. growing, not diminishing, in size.
b. Driven primarily by younger consumers. Incorrect. The second property market is primarily
driven by older consumers; e.g., baby boomers.
c. An expanding market niche involving ✔ CORRECT. The secondary market is primarily centred
recreational and investment properties. on recreational and investment properties.
d. Isolated to large urban centres. Incorrect. The secondary market is found in small
and large urban centres as well as rural/
recreational areas.
a. Ethnic groups rarely buy homes in the same Incorrect. Ethnic groups commonly buy in the same
geographic area. geographic area.
b. A reference group is always a formal, Incorrect. Reference groups can either be formal
structured organization. or informal.
c. Social activism as a concept does not apply to Incorrect. Social activism does apply to real estate
real estate purchases. purchases; e.g., energy-efficient homes.
d. Cultural values have a strong bearing on how ✔ CORRECT. Cultural values do have a strong
consumers make decisions. influence. Marketing experts acknowledge the
role of cultural values, ethics, ritual and traditions
in the buying process.
APPENDIX
CH5 EX1 1.4 Brand loyalty as a factor in consumer behavior:
a. Only applies to small consumer purchases Incorrect. Brand loyalty is an important factor in
not large ticket items. both small and large purchases.
b. Only applies to products and not services. Incorrect. Brand loyalty has proven successful in
marketing both products and services.
c. Can go beyond basic utilitarian considera- ✔ CORRECT. Consumers may ignore utilitarian con-
tions such as functionality, design and siderations in order to have a chic product.
reliability.
d. Is dictated solely by personality traits and not Incorrect. Both personality traits and reference
influenced by reference groups. groups are a factor when analyzing brand loyalty.
1.5 Home staging, as a marketing strategy, is best grouped under which of the following factors
impacting consumer behaviour?
a. Brand Loyalty Incorrect. Brand loyalty relates to awareness of

and confidence in a specific product or service.
b. Product Appeal ✔ CORRECT. Home staging relates to product appeal,

as it involves attractiveness and visual appeal.
c. What Others Think Incorrect. ‘What others think’ relates most directly
to the influence of reference groups.
d. Personal Traits and Psychographics Incorrect. Personal traits and psychographics

relates to consumer interests and opinions.
1.6 The basic need for self preservation best describes which of the following needs from Maslow’s
hierarchy of needs?
a. Ego Needs Incorrect. Ego needs involve status and personal

accomplishments.
b. Security Needs Incorrect. Security needs involve shelter and safety.
c. Social Needs Incorrect. Social needs involve companionship,

family and social interaction.
d. Physiological Needs ✔ CORRECT. Physiological needs involve basic life

essentials.
APPENDIX
1.7 The Consumer Protection Act provides that: CH5 EX1
a. Real estate transactions are exempt as ✔ CORRECT. Real estate transactions are exempt as
consumer transactions, except those consumer transactions, as outlined in Sec. 2(2) of
involving timeshares. the Act.
b. All real estate transactions are exempt as Incorrect. Timeshare transactions are not exempt.
consumer transactions.
c. For real estate purposes, only negotiations Incorrect. Negotiations involving buyer representa-
involving seller representation agreements tion agreements are also exempt under the Act.
(listing agreements) are exempt under the
Act.
d. Fines for violations under the Act cannot Incorrect. Individual fines can be levied up to
exceed $100,000. $50,000. The limit for corporations is $250,000.
1.8 Which of the following statements is correct in regard to the Competition Act?
a. Real estate brokerages are exempt from Incorrect. Real estate brokerages are not exempt
provisions of the Act, as they are regulated from selected provisions of the Act, but matters
under the Real Estate and Business Brokers concerning violations would undoubtedly be
Act, 2002. referred to the Real Estate Council of Ontario.
b. A material fact refers to any information ✔ CORRECT. A material fact is defined in the Act as
which could affect a purchasing decision. any information which could affect a purchasing
decision.
c. Criminal offences such as price-fixing are not Incorrect. Price fixing is addressed in the
addressed in the Competition Act. Competition Act.
d. The Act is a provincial statute administered Incorrect. The Competition Act is a federal statute.
by the Ministry of the Attorney General.
1.9 Fundamental principles of right and wrong are most commonly described as:
a. Ethical principles. Incorrect. Ethical principles relate more to stand-

ards within a society.
b. Moral principles. ✔ CORRECT. Moral principles are beliefs founded on

principles of right and wrong, typically religious
or culturally based.
c. Professional principles. Incorrect. Professional principles tend to focus on

specific rules/guidelines established by professional
and/or regulatory organizations.
d. Business ethics. Incorrect. Business ethics focus on rules/guidelines

specific to business enterprises.
APPENDIX
CH5 EX1 1.10 Which of the following statements is correct regarding personal information of a buyer or seller
being collected by a real estate brokerage, as set out under federal privacy legislation?
a. The buyer or seller does not have the right to Incorrect. Buyers and sellers have the right to access
access and challenge personal information and challenge information stored by a brokerage.
stored by the brokerage, but can lodge a com-
plaint with the Privacy Commissioner.
b. The buyer or seller need not give consent if Incorrect. The buyer’s or seller’s consent is required
such personal information was confined to in regard to the collecting of any personal
details collected regarding a representation information.
agreement (e.g., details required when listing
a property).
c. The brokerage need only be concerned with Incorrect. Personal information stored at personal
personal information of a buyer or seller that residences of brokers and salespersons fall under
is collected and stored at the brokerage and PIPEDA. Full compliance is required.
not information about that individual which
is stored by brokers and salespersons at their
respective residences.
d. The scope of personal information that falls ✔ CORRECT. Personal information includes such
under the privacy legislation can include the items as the buyer’s or seller’s name, ID numbers,
buyer’s or seller’s name, ID numbers, blood blood type and credit records.
type and credit records.
CH5 EX2 Exercise 2 Matching
c. Ethnic Origin . . . . . . . . . . . . . . Personal Information
d. Lenders. . . . . . . . . . . . . . . . . . . Financial Consumer Agency of Canada
a. Insurance Broker . . . . . . . . . . . Registered Insurance Brokers of Ontario (RIBO)
g. Brand Loyalty. . . . . . . . . . . . . . Commitment to a Certain Product or Service
b. Culture . . . . . . . . . . . . . . . . . . . Shared Values of a Society
h. Competition Act . . . . . . . . . . . . Deceptive Business Practices
e. Home Inspector . . . . . . . . . . . . Physical Structure and Mechanical Systems
Not Used: f.
CH5 EX3 Exercise 3 Short Answer Questions
3.1 A need is an underlying biological or physiological desire to attain something for a specific purpose;
e.g., a car to get work. A want is what a consumer thinks he or she requires to fill that need; e.g., a
basic four door car or an expensive imported sports coupe.
APPENDIX
3.2 A condition in an agreement of purchase and sale typically provides the consumer CH5 EX3
with an opportunity to investigate matters for a specified period of time; e.g.,
obtain a satisfactory home inspection, arrange specific financing for the property
or sell an existing property. Such a condition can also be drafted to seek a legal or
other opinion before making the agreement firm and binding; e.g., consult with a
lawyer regarding provisions contained within the agreement.
3.3 Various rights are outlined in the course materials including equal treatment with
respect to services, goods and facilities without discrimination, equal treatment
with respect to the occupancy of accommodation without discrimination, and
freedom from harassment by the landlord or agent of the landlord or by an
occupant of the same building.
3.4 Morals are fundamental principles of right and wrong. Business ethics are best
described as a subset of broader ethical standards within a society. Business ethics
are generally complementary to and consistent with those overall ethical standards.
3.5 A home inspection focuses on the physical structure and mechanical systems in a
home, including the identification of items that may need repair or replacement. A
municipal building inspection is focused on whether or not such components meet
minimum Ontario Building Code standards and related municipal requirements.
APPENDIX
CH6 MINI CHAPTER 6

MARKETING AND CUSTOMER SERVICE
Chapter Mini-Review
1. The four P’s that make up a marketing 5. Positioning involves the creation of an
mix are Product, Price, Promotion identity within the consumer’s mind.
and Process.
✔ True False
True ✔ False
Positioning involves creating an identity
The four P’s are product, promotion, in the consumer’s mind and has proven
price and place. very effective as both a marketing con-
cept and a competitive strategy.
2. A defining moment for purposes of
customer service in a real estate bro- 6. Finding a unique service can be an
kerage refers to a contact point between important consideration in establishing
a consumer and someone in the a market position.
brokerage.
✔ True False
✔ True False
A unique service is very important in
Such defining moments are sometimes establishing both a market position and
referred to as moments of truth in mar- a competitive advantage.
keting literature.
7. Focus groups can be effective because
3. A valued added service, as originally they provide important quantitative
used in the telecommunications data to assist organizations in deve-
industry, referred to a service that loping marketing strategies.
could be added to a basic service and
usually sold at a premium. True ✔ False
✔ True False Focus groups provide qualitative

research, not quantitative research.
Value added services are added to a
basic service to make the consumer’s 8. A listing presentation manual or its
task easier, more efficient, speedier or electronic counterpart addresses three
more enjoyable. questions, one of which is: Why use
this particular brokerage?
4. The term target market refers to a
specific group, but not a geographic ✔ True False
area.
The other questions are: Why list through
True ✔ False a brokerage? and Why select this specific
salesperson?
Target markets can be contained within
a geographic area (e.g., a particular
neighbourhood) or widely dispersed
(e.g., investors).
APPENDIX
CH6 MINI
9. A good example of institutional 13. An opt-in for e-marketing purposes

advertising is a classified ad setting refers to a consumer agreeing to
out the main features of a specific receive e-mail by providing personal
listed property. contact information on a website.
Institutional advertising focuses on pro- The opt-in provision is now being wide-
motion of services to the general public, ly used as part of permission-based mar-
as distinct from classifieds which are keting.
viewed as specific forms of advertising.
14. MLS® Rules and Regulations are esta-
10. The AIDA formula in advertising blished and enforced by brokerages,
stands for Attention, Information, not real estate boards.
Decision and Action.
True ✔ False
True ✔ False
MLS® Rules and Regulations are estab-
The AIDA formula stands for Attention, lished and enforced by real estate boards
Interest, Desire and Action. not brokerages. The Ontario Real Estate
Association and The Canadian Real
11. Municipalities may control the size Estate Association are also involved in
and placement of for sale signs. both establishing and enforcing such
requirements.
✔ True False
Often municipalities control both size

and placement, and may require specific
permission when adjacent to a public
highway or thoroughfare.
12. Direct mail can be effective, but may

send the wrong message to those
concerned about paper waste and the
environment.
✔ True False
Direct mail advertising can send the

wrong message not only to those con-
cerned about paper waste, but also to
those not wanting unsolicited advertise-
ments.
APPENDIX
CH6 EX1 Active Learning Exercises
1.1 When developing a marketing mix using the four P’s, detailing specifications for specific goods or
services falls under:
a. Price Incorrect. Price involves establishing fees and related

matters.
b. Promotion Incorrect. Promotion involves outlining institutional

and targeted advertising.
c. Product ✔ CORRECT. Product involves detailing specifica-

tions for products and services being offered.
d. Place Incorrect. Place involves determining methods to

get the message out to a target audience.
1.2 The term defining moment is most closely associated with:
a. Customer service. ✔ CORRECT. Defining moments relate specifically to

customer service and related contacts with
consumers.
b. Focus groups. Incorrect. Focus groups are part of market research.
c. Market position. Incorrect. Market position is a marketing concept.
d. Strategic alliances. Incorrect. Strategic alliances are part of an overall

business strategy.
a. Marketing strategies in a brokerage are always Incorrect. Marketing strategies often involve both
established solely by management. input and contribution from the brokerage and
the salespeople.
b. Property valuation is one of several compon- ✔ CORRECT. Property valuation is a component that
ents that may be included in a commercial can be included in a commercial marketing
marketing proposal prepared for a seller. proposal.
c. Service-based and product-based marketing Incorrect. Service-based marketing strategies are

strategies are essentially the same, as both typically different than product-based strategies
deal solely with tangible items. given certain unique challenges involving service
organizations.
d. Marketing research using the survey method Incorrect. Marketing research is not an effective
is most appropriate when delving into method to gather individual responses, but is
individual responses to better understand effective when collecting quantitative data.
underlying motivations.
APPENDIX
1.4 In marketing terms, the competitive advantage gained by a brokerage that secures and offers a CH6 EX1
unique, valued service in the marketplace is commonly referred to as:
a. A differentiation advantage. ✔ CORRECT. A unique, valued service in the market-

place is commonly referred to as a differentiation
advantage.
b. A cost advantage. Incorrect. A cost advantage is viewed as a different

type of advantage than one associated with a
unique, valued service.
c. A target market advantage. Incorrect. While a target market advantage might

arise from a unique, valued service, another
d. A best practices advantage. Incorrect. The term best practices relates to height-
ening levels of service. Another option is more
appropriate.
1.5 Core competencies:
a. Are useful in analyzing the competitive capacity Incorrect. Core competencies have direct relevance
of most business enterprises, but do not apply to real estate brokerages, as with most business
to real estate brokerages. enterprises.
b. Are useful when discussing marketing research, Incorrect. Core competencies are useful when
but are not relevant when developing a discussing marketing research, but are not
market strategy. relevant when developing a market strategy.
c. Refer to skills, assets and techniques that ✔ CORRECT. Core competencies are skills, assets
form the basis of an organization’s and techniques that form the basis of an
competitive capacity. organization’s or individual’s competitive capacity.
d. None of the above. Incorrect. One of the options is correct.
1.6 Various services are typically provided to buyers in the property search, offer and negotiations
process. Which of the following is NOT one of them? This question requires that the incorrect
option be identified.
a. Establishing a buyer profile. This option is correct. Establishing a buyer profile

is one of several services provided to buyers.
b. Comparing properties. This option is correct. Comparing properties is

one of several services provided to buyers.
c. Marketing the property. ✔ THIS IS THE INCORRECT OPTION. Marketing the

property involves services provided to the seller,
not the buyer.
d. Negotiating acceptable terms. This option is correct. Negotiating acceptable terms

is one of several services provided to buyers.
APPENDIX
CH6 EX1 1.7 Specific advertising involving real estate brokerages typically focuses on:
a. Advertising that promotes the brokerage’s Incorrect. This form of advertising is best described
image in the marketplace. as institutional advertising.
b. Advertising property features and benefits. ✔ CORRECT. Advertising property features and
benefits is viewed as specific because it focuses
on individual properties.
c. Advertising that promotes personal branding Incorrect. This form of advertising is best described
and brand loyalty. as institutional.
d. Advertising that provides information on Incorrect. This form of advertising is best described
services provided to consumers. as institutional.
1.8 Which of the following statements is most correct regarding open houses?
a. An open house is always the best marketing Incorrect. Expensive homes are often more effect-
approach when selling expensive homes. ively marketed by appointment only.
b. A registered broker or salesperson need not Incorrect. A registered broker or salesperson must
be in attendance, as long as someone is there be in attendance.
to greet the open house guests.
c. A registration system for open house guests is Incorrect. A registration system for open house
not permitted under privacy legislation. guests is permitted, but consent to gather personal
information must be obtained.
d. Brokerage policies regarding open houses ✔ CORRECT. Brokerage open house policies should
should be fully reviewed with sellers, prior to be fully reviewed with the seller, so that he or she
the open house. fully understands the opportunities and risks
involved.
1.9 Direct marketing:
a. Is limited to mailing pieces that can be sent Incorrect. Direct marketing can involve various
using bulk postage rates. types of mailings and associated postage rates.
b. Is best defined as direct person-to-person Incorrect. Direct marketing seeks to establish

communication between the consumer and communication links by other than direct person-
the person providing the service or product. to-person communication.
c. Includes both traditional direct mailings and ✔ CORRECT. Direct marketing includes traditional
e-mail marketing strategies. direct mailings and e-mail marketing strategies.
d. Is not widely used in Canada given inherent Incorrect. Direct marketing is very popular within
limitations. Canada.
APPENDIX
1.10 A pull technology, when discussing the Internet, refers to: CH6 EX1
a. Website features such as searchable databases ✔ CORRECT. The objective of a pull technology is to
that draw consumers to a particular site. draw (pull) consumers to a specific site.
b. Information that is sent outwards via e-mail Incorrect. Information sent outwards is best described
to the consumer in hopes of initiating as a push technology.
communication.
c. Personal information that is pulled from Incorrect. This reference to personal information
purchased electronic mailing lists in order to and mailing lists is not descriptive of an Internet
initiate communication with consumers. pull technology.
d. None of the above. Incorrect. One of the options provided is correct.
Exercise 2 Matching CH6 EX2
g. realtor.ca . . . . . . . . . . . . . . . . . The Canadian Real Estate Association
d. Drip Marketing . . . . . . . . . . . . Lead Generation/Customer Contact Software
a. Differentiation . . . . . . . . . . . . . Unique Service
h. Scope of Work . . . . . . . . . . . . . Commercial Marketing Proposal
c. Positioning . . . . . . . . . . . . . . . . Win, Place or Show
b. Institutional Advertising. . . . . . Promotion of a Person or Organization
f. For Sale Sign . . . . . . . . . . . . . . Municipal Limitations/Restrictions
Not Used: e.
Exercise 3 Short Answer Questions CH6 EX3
3.1 A marketing strategy focuses on broad goals and objectives that flow from the overall vision,
mission statement and strategic directions of an organization. A marketing plan establishes the
blueprint for action plans based on those goals and objectives.
3.2 The open house has proven effective because it:

• Exposes the listed property to available buyers;
• Helps in building a portfolio of potential buyers; and
• Demonstrates to the sellers that the best efforts are being used to market and sell the property.
3.3 The four primary sources of advertising standards are:

• Provincial regulatory requirements as set out in REBBA 2002.
• Federal statutes (in particular, the Competition Act).
• Brokerage office policies.
• Ethical standards established by the professional organization of which the registrant is a
member.
APPENDIX
CH6 EX3 3.4 A cost advantage is typically obtained through increased efficiencies, while a
differentiation advantage involves offering a unique service or services in the
marketplace. Cost advantages are often vulnerable to attack, as the competition may
have the expertise to introduce similar innovations, particularly if the same or
similar technology is available for purchase. Conversely, unique services are usually
acquired on an exclusive basis and are not readily replicated. Organizations with
differentiation advantages are much more likely to have a sustainable competitive
stance.
APPENDIX
CHAPTER 7 CH7 MINI
MATHEMATICS, MEASUREMENTS AND

METRIC/IMPERIAL CONVERSIONS
Chapter Mini-Review
1. Convert to decimals and percentages: 4. Subtraction: (convert and round to
3 decimals).
PROBLEM DECIMAL PERCENTAGE PROBLEM DECIMAL
1/4 .25 25% 12,247 – 12¼ 12,234.75
3/8 .38 38% 100 – 81.5 18.5
9/16 .56 56% 12¼ – 10 1/8 2.125
23/64 .36 36% 1,094 – 369 725.0
123/144 .85 85% 4.9 – .0029 4.897
2. Convert to decimals: 5. Multiplication: (convert and round

to 3 decimals).
PROBLEM DECIMAL PROBLEM DECIMAL
9% .09 27 x 12.5 337.5
11.5% .115 29 x 8¼ 239.25
23½% .235 11/19 x 3/4 .434
216% 2.16 379 x .86 325.94
¼ of 1% .0025 5/7 x 8.2 5.857
½ of 1% .005
3. Convert and add (round to 3 decimals): 6. Division: (convert and round to 3

decimals).
PROBLEM DECIMAL
PROBLEM DECIMAL
12.5 12.5
31 ÷ 9 3.444
13.5 13.5
.1 ÷ .27 .370
18¼ 18.25
2/3 ÷ 1/4 2.667
16 3/41 16.073
39 3/4 ÷ 5.5 7.227
2 3/9 2.333
.05 ÷ .03 1.667
Total 62.656
APPENDIX
Exercise 1 Percentage Calculations
1.1 $340,426 $320,000 ÷ 94 x 100 = $340,426
1.2 $3,870 $129,000 x .06 = 7,740 (total commission) x .50 =

$3,870
1.3 13.33% 32 ÷ 240 = .133333 x 100 = 13.33%
1.4 HST: $2,767.05 $387,000 x .055 = 21,285 (total commission) x .13

= $2,767.05
1.5 $5,988.50 $1,796.55 ÷ .30 = $5,988.50
1.6 13,068 square feet 43,560 – (43,560 x .10) = 39,204 ÷ 3 = 13,068
1.7 325 homes have 4 bedrooms 1300 x .25 = 325

819 homes have 3 bedrooms 1300 x .63 = 819
1.8 $357,500 $286,000 ÷ .80 = 357,500
1.9 95.05% $199,500 ÷ 209,900 = .9504526 x 100 = 95.05%
1.10 House B House A: ($149,900 – 10,000) ÷ 149,900

= .9332889 x 100 = 93%
House B: $229,900 ÷ 241,000
= .9539419 x 100 = 95%
1.11 $175,022 $7,876 ÷ .045 = $175,022.22
1.12 $212,625 $225,000 x .945 (94.5%) = $212,625
1.13 2.34% Last Year to This Year $8.75 – 8.55 = .20 ÷ 8.55 x 100 = 2.339%
3.43% This Year to Next Year $9.05 – 8.75 = .30 ÷ 8.75 x 100 = 3.429%
$31,675 Total Rent Next Year 3,500 x $9.05 = $31,675
APPENDIX
Exercise 2 Metric/Imperial Conversions CH7 EX2
2.1
c. 15 acres . . . . . . . . . . . . . . . . . . . 6.07 hectares
g. 9 ½ acres . . . . . . . . . . . . . . . . . . 3.84 hectares
h. 22.5 feet . . . . . . . . . . . . . . . . . . . 6.86 metres
j. 9.75 acres . . . . . . . . . . . . . . . . . 3.95 hectares
a. 1,325 square feet . . . . . . . . . . . . 123.09 square metres
e. 0.50 acres . . . . . . . . . . . . . . . . . 0.20 hectares
i. 940 square feet . . . . . . . . . . . . . 87.33 square metres
b. 9 feet, 6 inches . . . . . . . . . . . . . . 2.90 metres
f. 7.20 acres . . . . . . . . . . . . . . . . . 2.91 hectares
d. 1,210.25 square feet . . . . . . . . . 112.43 square metres
2.2 A distance of 50.5 feet equals:
a. 154 metres Incorrect. Check decimal point placement.
b. 1.53 metres Incorrect. Check decimal point placement and rounding.
c. 15.39 metres ✔ CORRECT
d. .153 metres Incorrect. Check decimal point placement and rounding.
2.3 A living room is rectangular with dimensions of 3.4 metres by 6.2 metres. The
imperial equivalent is:
a. 11.17 feet x 20.43 feet Incorrect. Check rounding and transposition of figures in the second
dimension.
b. 56.1 feet x 102.3 feet Incorrect. Check conversion calculation.
c. 10.88 feet x 17.36 feet Incorrect. Check conversion calculation.
d. 11.15 feet x 20.34 feet ✔ CORRECT
2.4 A small hobby farm contains 20 acres. The equivalent in hectares is:
a. 8.07 Incorrect. Check calculation; minor difference only.
b. 8.09 ✔ CORRECT
c. 1.32 Incorrect. Check conversion calculation.
d. 8.90 Incorrect. Check conversion; minor difference may be due to transposing

the two figures after the decimal.
APPENDIX
CH7 EX2 2.5 A small brick bungalow contains 960 square feet. The equivalent in square metres is:
a. 89.18 ✔ CORRECT
b. 89.17 Incorrect. Check conversion calculation and rounding.
c. 90.33 Incorrect. Check conversion calculation.
d. 90.34 Incorrect. Check conversion calculation.
2.6 A lot contains 43,560 square feet. The equivalent in square metres is:
a. 404.67 Incorrect. Recalculate and check decimal point placement.
b. 4,036.72 Incorrect. Recalculate; minor difference only.
c. 40,467.24 Incorrect. Recalculate and check decimal point placement.
d. 4,046.72 ✔ CORRECT
CH7 EX3 Exercise 3 Multiple Choice/Measurement Calculations

1.5 m
9.8 m
1.1 m
9.8 m
4.3 m
1.8 m
4.8 m 4.8 m
15.7 m
a. 1198.80 square metres Incorrect. Recalculate and check decimal point placement.
b. 126.21 square metres Incorrect. Recalculate; minor difference only.
c. 122.13 square metres ✔ CORRECT
d. 153.86 square metres Incorrect. Recalculate.
APPENDIX
3.2 Calculate the area, in square metres, of the following diagram. CH7 EX3
2.7 m 11.8 m
1m
4.4 m
1.5 m
7.9 m
3.1 m
2m
a. 104.20 square metres ✔ CORRECT
b. 129.05 square metres Incorrect. Recalculate. Review method to calculate an irregular,

rectangular shape.
c. 1,136.50 square metres Incorrect. Recalculate; also check decimal point placement.
d. 113.7 square metres Incorrect. Recalculate. Review method to calculate an irregular,

rectangular shape.
3.3 Calculate the area, in square metres, of the following right angle triangle.
40.2 m
30.6 m
a. 1,230.12 square metres Incorrect. Recalculate. The formula is: 1/2 (base x height).
b. 842.20 square metres Incorrect. Recalculate. The formula is: 1/2 (base x height).
c. 615.06 square metres ✔ CORRECT
d. 307.53 square metres Incorrect. Recalculate. The formula is: 1/2 (base x height).
APPENDIX
CH7 EX3 3.4 Calculate the area, in square metres, of the following trapezoid.
64 m
28 m 23 m
85 m
a. 1,792.00 square metres Incorrect. Recalculate. Review formula

provided in the text.
b. 1,713.50 square metres ✔ CORRECT
c. 2,086.00 square metres Incorrect. Recalculate. Review formula

d. 208.60 square metres Incorrect. Recalculate. Review formula

3.5 Calculate the area, in square metres, of the following parallelogram.
35 m 26 m
75 m
a. 2,625.00 square metres Incorrect. Recalculate. Remember to use the

perpendicular height when completing the
calculation.
b. 910.00 square metres Incorrect. Recalculate. Formula is: length x

perpendicular height.
c. 975.00 square metres Incorrect. Recalculate. Formula is: length x

perpendicular height.
d. 1,950.00 square metres ✔ CORRECT
APPENDIX
3.6 Seller Smith owns a flat-roofed commercial building measuring (based on outside CH7 EX3
wall measurements) 34 feet long, 24 feet wide and 14 feet high. The height is
measured from 6 inches below the basement floor surface to the roof top. The
volume in cubic feet is:
a. 11,424 ✔ CORRECT
b. 11,242 Incorrect. Recalculate; minor difference from correct

answer may be due to transposing figures.
c. 1,142.40 Incorrect. Recalculate and check decimal point

placement.
d. None of the above. Incorrect. One of the above choices is correct.
3.7 115 square metres (rounded) (12.40 x 8.33) + (2.34 x 4.88)

= 114.71 square metres
3.8 139 square metres (rounded) (8.38m x 10.25m) + (4.27m x 10.25m) +

[2 x (1.9m x 2.4m)]
= 138.79 square metres
3.9 A two storey building has a square footage of 960 square feet per floor. What would
the construction cost of this structure be, if a builder estimates a cost of $4.50 per
cubic foot to construct and the height of the structure measured from the surface
of the basement floor to halfway between the eaves and the ridge of the roof is
25.5 feet?
a. $11,016.00 Incorrect. Recalculate.
b. $11,232.00 Incorrect. Check decimal point placement.
c. $100,360.00 Incorrect. Recalculate.
d. $112,320.00 ✔ CORRECT
3.10 Builder Anderson is attempting to estimate the cost of pouring concrete driveways
for three new houses under construction. Each driveway will measure 24 feet wide,
40 feet long and 3 inches thick. If a contractor quotes $167.50 per cubic yard
(including forms and finishing costs), how much will Anderson have to pay the
contractor (round to the nearest $100)?
$4,500 (rounded)
24 x 40 x .25 = 240 (cubic feet) ÷ 27 = 8.89 (cubic yards)
8.89 x 3 (houses) = 26.67 cubic yards x $167.50 = $4,467.23 (rounded to $4,500).
APPENDIX
CH7 EX3 3.11 A warehouse structure is estimated to cost $337.00 per cubic yard to construct. If
the external measurements of the planned building are 60 feet long by 24 feet
wide with a floor to top of roof distance of 14 feet, what will be the cost (round
to the nearest $100)?
$260,600
60 x 24 x 14.5 = 20,880 cubic feet (6” must be added to the height measurement).
20,880 ÷ 27 = 773.33 (cubic yards) x $337.00 = $260,613.33 (rounded to $260,600).
3.12 The Jones family has purchased a one and one-half storey home with external
measurements of 36 feet by 24 feet. The main floor is 9 feet high, measured from
the surface of the floor, and there is no basement. The upper storey has the same
external measurements as the main floor but has a sloping roof and a height of 8
feet 6 inches to the top of the roof. What is the approximate cubic (foot) content
of the home?
11,880 cubic feet

Main Level 8,208 36 x 24 x 9.5 = 8,208 cubic feet
Upper Level 3,672 (36 x 24 x 8.5) ÷ 2 = 3,672 cubic feet
Total 11,880
3.13 Builder Anderson is considering filling a level rear area behind a new condominium
complex to permit additional parking and outside recreational areas. The area in
question measures 196 feet x 327 feet and the fill depth required is 9 feet, 6 inches.
Approximately how many cubic yards are required (round to the nearest cubic yard)?
22,551 cubic yards

196 x 327 x 9.5 = 608,874 cubic feet
608,874 ÷ 27 = 22,550.89 cubic yards (rounded to 22,551 cubic yard)
APPENDIX
CHAPTER 8 CH8 MINI
MORTGAGE MATHEMATICS
Chapter Mini-Review
1. A stated annual rate of 6.75% on a 5. The process whereby interest earned
first mortgage compounded semi- during each period is reinvested and
annually not in advance is also referred continues to earn interest is called
to as the effective rate. compounding.
The stated rate and the effective rate Compounding is achieved by charging
differ due to compounding. The effec- interest at specific intervals; e.g., daily,
tive rate is higher. weekly, monthly, etc.
2. In accordance with the Interest Act, 6. In the formula for simple interest, T
Canadian mortgages with blended refers to total.
payments must be calculated semi-
annually, not in advance. True ✔ False
True ✔ False The T refers to the length of time that

the funds are borrowed.
The Act provides that such mortgages
can be calculated either annually or 7. If Buyer Jones has a 6% mortgage,
semi-annually, not in advance. Practically amortized over 20 years and paid on a
all lenders use semi-annual calculations. monthly basis, the payment factor is
7.632135.
3. The gradual retirement of a mortgage
debt by means of payments of principal True ✔ False
and interest at regular intervals is called
The payment factor is 7.121884. See
the amortization.
Monthly Payment Factors for 6.00%
✔ True False and a 20-year amortization.
Amortization is the gradual retirement 8. Mortgage averaging is an accurate

of a debt in which the interest portion method to compare various types of
decreases over successive payments and financing alternatives.
the principal portion increases.
True ✔ False
4. If a lender has a GDS ratio of 28% and
Mortgage averaging has several limita-
the borrower’s GDS ratio is 23.7%, the
tions; e.g., differing payment schedules
borrower does not qualify for the
and amortization periods are not taken
mortgage.
into account.
True ✔ False
9. A fully amortized loan is one in which
The borrower would qualify as his or her the stipulated payments repay the loan
GDS is lower than the required ratio. If in full by its maturity.
the ratio were higher than 28%, the
borrower would not qualify. ✔ True False
Fully amortized loans are fully repaid at

maturity, as distinct from partially amor-
tized loans in which a balance (balloon
payment) is due at the end of the term.
APPENDIX
Exercise 1 Multiple Choice (GDS, TDS and Mortgage Averaging)
1.1 A buyer has a yearly gross income of $60,000. What is the buyer’s GDS if P & I
annual mortgage payments are $13,500 with annual taxes of $2,000?
a. 22.50% Incorrect. Recalculate using GDS formula.
b. 23.50% Incorrect. Recalculate using GDS formula.
c. 25.83% ✔ CORRECT
d. 25.38% Incorrect. Check for transposition of figures after the decimal.
1.2 A buyer has a yearly gross income of $50,000. What is the buyer’s GDS ratio with
monthly P & I payments of $723.46 and annual taxes amounting to $1,800?
a. 7.23% Incorrect. Recalculate using GDS formula. Don’t forget to

annualize the P & I payment.
b. 20.96% ✔ CORRECT
c. 52.41% Incorrect. Recalculate using GDS formula.
d. 18.77% Incorrect. Recalculate using GDS formula.
1.3 A buyer, with a yearly gross income of $45,000, is considering a property with
annual taxes of $1,450. What is the maximum monthly principal and interest
payment permitted with a GDS ratio of 30%?
a. $1,004.17 ✔ CORRECT
b. $1,125.00 Incorrect. Recalculate and make certain that the proper

formula is used.
c. $1,237.92 Incorrect. Recalculate and make certain that the proper

formula is used.
d. $12,345.83 Incorrect. Recalculate and check decimal point placement.
1.4 If a buyer will face $14,700 in annual payments for principal, interest and taxes,
what annual income would the buyer need in order to qualify for the loan if a
GDS ratio of 28% is used?
a. $51,160 Incorrect. Recalculate.
b. $41,160 Incorrect. Recalculate.
c. $53,500 Incorrect. Recalculate. One digit in answer is wrong.
d. $52,500 ✔ CORRECT
APPENDIX
1.5 If a buyer is carrying $678.25 per month in principal and interest payments, CH8 EX1
$1,350 in annual property taxes and carries $435 per month on a car loan, what is
the buyer’s TDS ratio if she earns $38,000 per year?
a. 26.12% Incorrect. When recalculating, make certain that all

payments are included.
b. 17.85% Incorrect. When recalculating, ensure that all payments are

annualized.
d. 21.42% Incorrect. When recalculating, make certain that all

payments are annualized.
1.6 If a buyer is facing $967.80 per month for principal and interest payments on her
mortgage and also pays $458.35 per month on a demand loan, what is the minimum
amount of annual income she must earn in order to qualify for the mortgage if
the property taxes are $1,870 per year and a 42% TDS ratio is being used by the
lending institution?
a. $45,199.52 ✔ CORRECT
b. $78,479.76 Incorrect. When recalculating, make certain that amounts

are annualized.
c. $36,294.76 Incorrect. When recalculating, make certain that amounts

are annualized.
d. $79,731.96 Incorrect. When recalculating, make certain that amounts

are annualized.
1.7 If a buyer earns $66,000 and is facing tax payments of $2,450 per year on a proper ty
he wishes to purchase, what is the maximum he can afford to put towards principal
and interest payments per month if a TDS ratio of 40% applies and he has addition
al monthly obligations of $520?
a. $2,172.50 Incorrect. Recalculate and check that the correct formula is

being used.
b. $1,995.83 Incorrect. Recalculate and check that the correct formula is

being used.
c. $586.67 Incorrect. Recalculate and check that the correct formula is

being used.
d. $1,475.83 ✔ CORRECT
APPENDIX
CH8 EX1 1.8 Using the formula for mortgage averaging and assuming that both mortgages
have a one-year term with identical amortization periods, what is the average
overall rate of interest if a first mortgage of $43,000 has an interest rate of 11%
and the second mortgage of $22,000 bears an interest rate of 16%?
a. 8.79% Incorrect. Make certain that the correct formula is being used.
b. 11.62% Incorrect. Make certain that the correct formula is being used.
d. 14.44% Incorrect. Make certain that the correct formula is being used.
1.9 A buyer assumes an existing first mortgage with an outstanding balance of $67,300,
interest rate of 10.25% and arranges a new second mortgage for $15,800, with an
interest rate of 14.25%. What is the average overall interest rate on the total debt?
(Both mortgages have identical one-year terms and the same amortization.)
a. 11.01% ✔ CORRECT
b. 8.33% Incorrect. Make certain that the correct formula is being used.
c. 8.57% Incorrect. Make certain that the correct formula is being used.
d. 9.01% Incorrect. Make certain that the correct formula is being used.
1.10 Mr. and Mrs. Jones make an offer of $395,000 on a property and want to assume
an existing mortgage of $191,000. If the mortgage can be assumed by Mr. and
Mrs. Jones, what is the cash to mortgage amount required?
a. $204,000 ✔ CORRECT
b. $191,000 Incorrect. Check math and recalculate. Cash to mortgage

amount equals offer less mortgage to be assumed.
c. $395,000 Incorrect. Check math and recalculate. Cash to mortgage

d. $200,055 Incorrect. Check math and recalculate. Cash to mortgage

1.11 The buyer is considering a $220,000 purchase and has the following costs:
Adjustments 875
Moving Expenses 1,125
Fund for Major Purchases 2,190
APPENDIX
A current mortgage on the house of $140,000 will be discharged and she will pay CH8 EX1
all cash for the house. What liquid assets are required?
a. $212,370 Incorrect. Check calculation; i.e., (house price plus costs) less
mortgage being assumed.
b. $80,000 Incorrect. Check calculation; i.e., (house price plus costs) less
c. $227,630 ✔ CORRECT
d. $220,000 Incorrect. Check calculation; i.e., (house price plus costs) less
1.12 The buyer is acquiring a $180,000 house with the following costs:
Adjustments 1,265
Moving expenses 1,425
If the buyer was assuming existing financing of $100,000, what liquid assets are
required?
a. $87,357 Incorrect. Check calculation; i.e., (house price plus costs)

less mortgage being assumed.
b. $88,120 ✔ CORRECT
c. $180,000 Incorrect. Check calculation; i.e., (house price plus costs)

d. $171,800 Incorrect. Check calculation; i.e., (house price plus costs)

Exercise 2 Interest and Mortgage Calculations CH8 EX2
2.1 TERMS MONTHLY PAYMENT
Option 1: 7.25% amortized over 20 years $979.87

7.838973 x $125
Option 2: 7.75% amortized over 25 years $934.15

7.473210 x 125
Option 3: 6.75% amortized over 15 years $1,099.70

8.797609 x 125
When using payment factors, don’t forget to move the decimal point three spaces
to the left (factor is per thousand of loan amount). Often, registrants simply
multiply by the number of $1,000’s in the mortgage;
e.g., 7.838972 x 125 (000’s) = $979.87.
APPENDIX
CH8 EX2 Option 2 has the lowest payment. Don’t jump to any sudden conclusions; this
option also requires more payments than Options 1 or 3. Option 2 has the lowest
payment due to the longest amortization.
2.2 10.25% (1 + i)n = (1.05)2 = 1.1025 – 1 = .1025 = 10.25%
2.3 $5,113.35 $5,000 ( 1 + .09

___ )3
12
$5,000 ( 1.0075)3
$5,000 ( 1.0226691) = $5,113.35
2.4 a. 15 Years: $158.94

20 Years: $137.89
25 Years: $126.32
b. 15 Years: $163.69 – $158.94 = $4.75

20 Years: $143.01 – $137.89 = $5.12
25 Years: $131.76 – $126.32 = $5.44
2.5 Monthly payment is $954.02; semimonthly is $476.23 x 2 = $952.46; difference:

$1.56. (The semi-monthly payment is less as the principal amount is reduced with
24 payments instead of 12, thereby reducing slightly the principal amount on which
interest is calculated in each successive period.)
2.6 i. Amount: $55,000; interest rate: 11%; amortization: 25 years.

a. $539.01
✔ b. $529.39
ii. Amount: $55,000; interest rate: 14%; amortization: 25 years.

a. $657.37
✔ b. $645.63
iii. Amount: $95,000; interest rate: 14%; amortization: 25 years.

✔ a. $1,115.18
b. $972.64
2.7 i. Amount: $150,000; interest rate: 6%; amortization: 20 years.

a. $243.63
✔ b. $246.06

✔ a. $160.00
b. $173.32
APPENDIX
iii. Amount: $65,000; interest rate: 8.25%; amortization: 10 years. CH8 EX2
a. $180.36
✔ b. $182.40
2.8 i. Amount: $73,530; interest rate: 7.25%; amortization: 20 years.

✔ a. $265.61
b. $278.83

a. $309.16
✔ b. $331.49

✔ a. $391.05
b. $393.71
APPENDIX
CH9 MINI CHAPTER 9

CAPITALIZATION, TAXATION AND
CLOSING ADJUSTMENTS
Chapter Mini-Review
1. The lower the capitalization rate, the 5. An overall capitalization rate is some-
higher the value. times referred to as a blended rate.
The value rises as the capitalization falls. The overall cap rate is a blended rate
For example, a net income of $25,000 consisting of the discount rate and the
at a cap rate of 9.0% produces a value recapture rate.
of $277,778. The same income at 8.5%
cap rate produces a value of $294,118. 6. The income approach is one of four
methods used in the appraisal process,
2. If the cap rate is .1205 or 12.05% and the others being the direct comparison,
the net operating income is $15,500, cost and capitalization approaches.
the estimate of value is $127,532.
True ✔ False
True ✔ False
The income approach is one of three
The estimate of value would be methods used, the others being the
$128,630 ($15,500 ÷ .1205). direct comparison approach and the
cost approach.
3. Investors typically determine an accept-
able capitalization rate through analy- 7. The provincial land transfer tax on the
sis of expected return of their invest- transfer of ownership for a vacant lot
ment and return on their investment. selling for $55,000 would be $275.00.
The cap rate is made up of two compo- The provincial land transfer tax for $0 –
nents: the discount rate and the recap- $55,000 is at the rate of 0.5%. The tax
ture rate. payable is $275.00.
4. An income multiplier is very accurate 8. If the tax rate is .0183928 and the
in establishing value. assessed value is $298,000, the taxes
would be $5,481.05.
True ✔ False
✔ True False
An income multiplier is best described
as a rule of thumb as it lacks precision. The taxes are calculated by multiplying
the assessed value by the tax rate.
APPENDIX
CH9 MINI
9. In a sale transaction, the seller’s lawyer 13. Local improvement taxes can signifi-
typically submits any requisitions to cantly affect property taxes for a spec-
the buyer’s lawyer regarding objec- ified period of time.
tions to title.
✔ True False
True ✔ False
Local improvement taxes might involve
The buyer’s lawyer typically submits any improvements such as installation of
requisitions to the seller’s lawyer regard- sidewalks/curbing, municipal services to
ing objections to title. previously unserviced areas, etc. The costs
are amortized over a period of years and
10. The day of closing is the responsibility included with the property taxes for
of the seller for purposes of apportion- specific property owners directly bene-
ing costs between buyer and seller. fiting from such improvements.
True ✔ False 14. The tax rate for a municipality is deter-

mined by dividing the municipal tax
The day of closing is the buyer’s respon- base by the realty tax classes.
sibility.
True ✔ False
11. A meter reading for water and utilities
is often taken to coincide with the The tax rate for a municipality is deter-
closing date to avoid adjustments at mined by dividing the annual municipal
closing. budget by the tax base.
✔ True False
Fewer adjustments are needed at the

closing date if such a strategy is imple-
mented.
12. Registrants are expected to provide

precise closing costs to their buyer and
seller clients.
True ✔ False
Salespersons should only discuss the

range of closing costs, not specifics.
APPENDIX
Exercise 1 Capitalization
1.1 a. $334,783 ($38,500 ÷ .115)

b. $320,833 ($38,500 ÷ .12)
c. 12.83% ($38,500 ÷ $300,000)
1.2 Which of the following sales most closely approximates a cap rate of 10.2%?
NET OPERATING
ADDRESS SALE PRICE CAP RATE
INCOME
136 East River $187,500 $16,225 8.65
131 Riverside $172,500 $16,920 9.81
122 River $189,500 $18,390 9.70
823 River Road $193,200 $19,935 10.32
a. 136 East River

b. 131 Riverside
c. 122 River
✔ d. 823 River Road
1.3 Salesperson Garcia is determining to what extent incremental rises of 1% in

capitalization rate affect the estimated value of a property when the net operating
income is $34,500. Complete the following:
NET OPERATING
CAP RATE VALUE
INCOME
$34,500 8.0% $431,250
$34,500 9.0% $383,333
$34,500 10.0% $345,000
$34,500 11.0% $313,636
1.4 $45.11 per square foot 58,500 ÷ .105 = 557,143 557,143 ÷ 12,350
= $45.11
$485.60 per square metre 58,500 ÷ .105 = 557,143 557,143 ÷ (12,350 x
.0929) = $485.60
APPENDIX
1.5 If the net operating income before depreciation of a building is $42,000 annually CH9 EX1
and the overall capitalization rate which is expected of this type of property is
13%, what is the value of the property?
a. $546,000 Incorrect. Make certain that the correct formula is used.
b. $5,460,000 Incorrect. Make certain that the correct formula is used

and check decimal point placement.
c. $323,077 ✔ CORRECT
d. $3,230,770 Incorrect. Check decimal point placement.
1.6 If an income producing property sells for $450,000 and the net operating income
before depreciation attrib utable to this property is known to be $40,000 annually,
what overall capitalization rate is indicated?
a. 18.50% Incorrect. Recalculate. Check that the correct formula is

being used; divide income by value.
b. 9.25% Incorrect. Recalculate.
c. 112.5% Incorrect. Recalculate. Check that the correct formula is

being used; divide income by value.
d. 8.89% ✔ CORRECT
Exercise 2 Taxation CH9 EX2
2.1 Select the correct provincial land transfer tax for each of the following purchase
prices.
i. Purchase price: $2,150,000
a. $35,000 Incorrect. Check math and percentage rates being used.
b. $53,750 Incorrect. Check math and percentage rates being used.
c. $40,225 ✔ CORRECT
d. $43,000 Incorrect. Check math and percentage rates being used.
ii. Purchase price: $140,000
a. $1,125 ✔ CORRECT
c. $14,750 Incorrect. Check math and percentage rates being used.
APPENDIX
CH9 EX2 iii. Purchase price: $350,000
c. $5,250 Incorrect. Check math and percentage rates being used.
d. $3,725 ✔ CORRECT
iv. Purchase price: $975,000; vacant land.
b. $15,975 ✔ CORRECT
2.2 If the tax base of a municipality is $60,000,000 and required taxes amount to
$1,850,000, what is the tax rate necessary to raise these taxes?
a. 3.24% Incorrect. Divide the required taxes by the tax base.
b. 32.43% Incorrect. Divide the required taxes by the tax base.

Check decimal point placement as well.
c. .0308% Incorrect. Check decimal point placement.
2.3 With a tax rate of 3.08%, what would be the tax on a home assessed at $85,600?
a. $2,779.22 Incorrect. Multiply tax rate by assessed value.
b. $2,664.20 Incorrect. Multiple tax rate by assessed value.
c. $2,636.48 ✔ CORRECT
d. $263.65 Incorrect. Check decimal point placement.
2.4 A rural lot is assessed at $21,000 for tax purposes. The tax rate used in the
munici pality is 4%. The tax on this property is:
a. $84.00 Incorrect. Check decimal point placement.
b. $840.00 ✔ CORRECT
c. $525.00 Incorrect. Check math.
d. $52.50 Incorrect. Check math and decimal point placement.
APPENDIX
2.5 The budget established for a municipality is $2,650,000 and the total tax base for CH9 EX2
that community is $90,000,000. What tax rate is required to meet the budget?
a. 3.40% Incorrect. Divide budget by tax base.
b. 33.96% Incorrect. Divide budget by tax base and check decimal

point placement.
c. 29.44% Incorrect. Check decimal point placement.
2.6 If Mr. Smith’s house is assessed for tax purposes at $369,500 and the tax rate is
2.94%, what taxes would be levied against this property?
a. $1,086.33 Incorrect. Check decimal point placement.
b. $10,863.30 ✔ CORRECT
c. $11,827.30 Incorrect. Check math.
d. $1,182.73 Incorrect. Check math and decimal point placement.
Exercise 3 Adjustments CH9 EX3
3.1 The seller is selling a home containing an oil-fired heating system and a 200 gallon
oil tank. The sale will close on January 15. On the day prior to closing, the tank is
filled. The amount required to fill the tank was 127.5 gallons @ $5.37 per gallon.
On the statement of adjustments, what will be credited to the seller?
a. A credit of ✔ CORRECT
$1,074.00.
b. A credit of Incorrect. Check math. Multiply 200 gallons by cost per

$882.68. gallon.
c. A credit of Incorrect. Check math. Multiply 200 gallons by cost per

$384.70. gallon.
d. A credit of Incorrect. Check math. Multiply 200 gallons by cost per

$693.85. gallon.
APPENDIX
CH9 EX3 3.2 Seller Smith has for years collected rent from the tenant in arrears rather than in
advance. In the current year, the rent is $975.00 per month. If the property sells
on January 15th and the tenant pays the January rent as usual on January 31st,
what credit will the seller receive?
a. $375.00 Incorrect. Check adjustment calculation. Allow 14 days credit.
b. $975.00 Incorrect. An adjustment must be made to the total January rent.
c. $220.32 Incorrect. Check adjustment calculation. Allow 14 days credit.
d. $440.32 ✔ CORRECT
3.3 The seller is responsible for costs to operate the property for the actual day of
closing.
a. True. Incorrect. The buyer is responsible for the actual day of closing.
b. False. ✔ CORRECT
3.4 The closing date of a transaction is June 14, 20xx. Taxes for the year are $1,425
and have not been paid. The buyer will pay this amount. On the statement of
adjustments, who gets credit and for what amount?
a. Buyer–$644.18 Incorrect. Adjustment should be for 164 days.
b. Buyer–$640.27 ✔ CORRECT
c. Seller–$780.82 Incorrect. The buyer gets the credit. Recalculate based

on a 164-day adjustment.
d. Seller–$784.73 Incorrect. The buyer gets the credit. Recalculate based

on a 164-day adjustment.
3.5 The closing date of a transaction is January 29, 20xx. The property is oil heated
and has a 200gallon tank. Heating oil is $6.45 a gallon. Who receives credit on
the statement of adjustments and in what amount?
a. Seller–$1290.00 ✔ CORRECT. The seller will be given credit for a full tank.
b. Seller–$129.00 Incorrect. Check math. Seller credit should be given

credit for full tank.
c. Buyer –$645.00 Incorrect. Buyer does not receive credit.
d. Buyer–$1290.00 Incorrect. Buyer does not receive credit.
APPENDIX
3.6 Based on the adjustment clause in the OREA Agreement of Purchase and Sale CH9 EX3
(Form 100), which of the following is not apportioned at closing?
a. Unmetered Fuel This option is correct. Unmetered fuel is subject

to apportionment at closing.
b. Rents This option is correct. Rents are typically appor-

tioned at closing.
c. Local Improvements This option is correct. Local Improvements are

typically apportioned at closing.
d. Insurance ✔ THIS IS THE INCORRECT OPTION. Insurance is

not apportioned at closing.
3.7 A tenant provided payment of the first and last month’s rent to a landlord in the
amount of $1,200 at the beginning of the tenancy agreement. If the rented property
is sold in the middle of the tenancy, $600 would be shown on the statement of
adjustments as credit to the seller.
a. True. Incorrect. A credit to the buyer would be shown,

as the $600.00 would be applied against the
last month’s rent.
b. False. ✔ CORRECT
3.8 The closing date of a transaction is November 1, 20xx. Taxes in the amount of
$2,380 for the year were paid by the seller. The statement of adjustments would
show:
a. A credit to the seller in Incorrect. Allow 61 days, as the closing date is

the amount of $391.23. the buyer’s responsibility.
b. A credit to the seller in ✔ CORRECT. A credit based on 61 days would be

the amount of $397.75. given to the seller.
c. A credit to the buyer in Incorrect. The buyer does not receive a credit.
the amount of $1,982.08.
d. A credit to the buyer in Incorrect. The buyer does not receive a credit.
the amount of $1,988.60.
3.9 The sale price of a property would be shown on the statement of adjustments as a
credit to the seller.
a. True. ✔ CORRECT
b. False. Incorrect. The statement of adjustments sets

out the purchase price and then itemizes all
required adjustments.
APPENDIX

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Pre-Registration Segment

Real Estate As A Professional Career

Real Estate Council of Ontario

International Standard Book Number: 978-0-9780344-1-2

Printing and Binding: MediaLinx Printing Group Reprint: June, 2017

ROLE OF THE REGISTRAR UNDER REBBA 2002 IN EDUCATION

BEFORE YOU BEGIN…

CORRESPONDENCE CLASSROOM ONLINE

The Hewlett Packard 10BII

HOW Do I Access My Portfolio?

ENTER YOUR OREA STUDENT ID NUMBER

WHAT Can I Do in My Portfolio?

Official documents will be in your My Portfolio Document Centre, permanently—

My Timeline Keeps track of the timeline for completion of your Pre-Registration

Course Upon enrolment in a course, students are provided access to an eBook,

Course Updates Course curriculum is updated on an ongoing basis to ensure students

MY OREA COMMUNITY (DISCUSSION FORUM FOR COURSES)

WHEN Should I Check My Portfolio?

WHERE Can I Get Help With Course Content?

INSTRUCTOR SUPPORT LINE (866) 444-5557

Course Administration Services

SECTION I Introduction to the Real Estate Profession 1

SECTION II Real Estate and Society 81

SECTION III The Consumer and Marketing Fundamentals 153

SECTION IV Introduction to Math Skills 225

APPENDIX Glossary 321

INTRODUCTION xvii Franchise vs. Independent

TABLE OF CONTENTS (continued)

CHAPTER 2 Claims and Potential Claims 63

TABLE OF CONTENTS (continued)

Consumer Disposable Income/Debt 87 TRACKING THE ONTARIO RESIDENTIAL 101

UNDERSTANDING THE MARKETPLACE 90

TABLE OF CONTENTS (continued)

UNDERSTANDING VALUE 132 Market Niches 157

VALUE PRINCIPLES 136

TABLE OF CONTENTS (continued)

PRIVACY LEGISLATION 175 MARKET RESEARCH 201

TABLE OF CONTENTS (continued)

SECTION IV 225 METRIC/IMPERIAL CONVERSION FACTORS 254

BUILDING AREA MEASUREMENTS 235 MORTGAGE INTEREST 265

KNOWLEDGE INTEGRATION 273

TABLE OF CONTENTS (continued)

MORTGAGE PAYMENT FACTORS 282 Tax Notice 300

INCOME MULTIPLIERS 292 SOLUTIONS 333

PROVINCIAL LAND TRANSFER TAX 294

REAL PROPERTY TAXATION 298

ABOUT THIS TEXT

Tips & Guidelines

HOW TO MAXIMIZE LEARNING

Continuously Review • When in doubt, review. Repeat readings, mini­reviews

A Career in Real Estate

THE IMPORTANCE OF REAL ESTATE

A Brief Ontario Profile

The Greater Golden Horseshoe MARKET MEMO

Ontario Building Activity MARKET MEMO

the impact of real estate is massive particularly when

• Building tradespeople are hired to construct the home.

A REAL ESTATE SALES CAREER

Math A basic grounding in math fundamentals with proficiency in multi-

Research A practical knowledge of how to locate, read and understand legal

Organization and Registrants typically have an ability to organize personal affairs as

Problem-Solving An ability to address difficulties and arrive at plausible, practical

Computer A basic understanding of computer hardware and software is very

Continuously Review • When in doubt, review. Repeat readings, minireviews