Tuesday, December 14, 2021

Double Dipping should be Illegal and Broker Fees Capped at 5%

For those that don't know, Double Dipping refers to a real estate broker practice where they end up representing both the home owner selling a property, and the home buyer who is seeking to purchase the same property. Normally they only get 5% of the sale value, but double dipping on the commission gives them 10%.

It really should be illegal.

And it is super unethical.


#1. Because it ends up favouring the home owner and unfairly raising the price of the property (and consequently contributing to housing bubbles).

#2. Because the broker ends up wanting a higher price so they can collect 10% of the total value (instead of the usual 5%), they're going to be biased towards hiding anything wrong with the property.

Eg. Hiding whether the property is on a flood plain, has a history of mold problems, and the roof is leaking. The double dipping broker, who wants the house to sell for more, isn't going to want to mention anything that is wrong with the house that the home buyers really should be aware of before making a purchase.

#3. Normally what you are supposed to do is have one broker representing the buyer and one broker representing the seller, and they're meant to be separate and each of them have a fiduciary duty to represent their client's interests, but when the broker represents both they are invariably biased towards the homeowner and will ignore the seller's best interests in order to get a higher sale price.

So in the example cited above, let's say someone owns a house that is on a flood plain (thanks to clay stratification), and the roof is leaking and the house has a history of mold problems... If the real estate broker is unethical and double dipping, they're not going to want to mention these three problems to any potential home buyers.

#4. Real estate brokers who are double dipping actively encourage bidding wars, knowing that if a property goes for a lot more they get 10% of that. This in turn adds to the real estate bubble, and ultimately hurts the buyer.

In Ontario double dipping is currently legal and unregulated.

If any politicians are reading this and they want to get more votes for their political party, listen well.

Make double dipping illegal and cap individual broker fees at 5%.

Then... Make it retroactive for the last 5 years and force real estate brokers who sold any houses using double dipping to issue a refund for 5% of the value of all properties they sold during that time period, giving the money back to the home buyers who got ripped off.

Politically this will lead to lots of votes for the political party who hammers this home. All the home buyers will definitely think about voting for the party that gives them an extra $50,000 or more if the house was worth $1,000,000 or more. And even if the property was $500,000, they're not going to complain about getting an extra $25,000.

That amount of money getting pumped back towards home owners will boost the economy, punish the unethical brokers, and help to soften Ontario's real estate bubble which could burst if too many things happen that hurts the market.

Who will complain?

Only the rotten real estate brokers who were doing something unethical and something that really should have been illegal in the first place. The ethical brokers won't complain. Only unethical ones will complain.

This is really something that should have been made illegal a long time ago.

Having separate brokers for the seller and buyer is a necessity, just like having separate lawyers in a divorce. Without that separation the middle man will always favour the person which is going to end up giving them more money, and that bias will lead to them hiding things.

Moral of the Story:

Buyer Beware. Double Dipping Real Estate Brokers are way worse than used car dealers. They're absolute snakes.

They make politicians look decent in comparison.

Friday, December 10, 2021

Our House is on a Floodplain. Why? Clay Stratification

Our house in North York/Toronto is on a floodplain.

I learned this recently thanks to a helpful neighbour. I was walking home from dropping off my son at school, and one of our neighbours was doing the same after dropping off his son, and we were both looking at the new construction of a building near the school.

The new building has a giant basement. Two stories. Something similar to an "iceberg home" where most of the house is actually below ground.

My neighbour was laughing at it however and predicted that it was going to get flooded...

And that was when I learned our entire neighbourhood was on a floodplain.

It wasn't something we were told about when we leased the property, but it is definitely an issue.

Now you might think, like I did: "Wait, isn't our house on a hill? How can it be on a floodplain?"

The problem is the soil.

Clay Stratification

Most drainage issues are caused by clay soil. A minor issue will be that you have standing water after a heavy rainfall for less than a day, and it will be more noticeable in your front yard and backyard. Clay soil is more dense than sandy or loamy soil, and therefore, is slower to allow rainwater to filter through it.

Clay Stratification is when you have multiple layers of dense clay, the result of millions of years of rainfall, rivers and flooding, etc. When one layer of clay stratification becomes flooded it acts like a barrier, so that water above it just sits there and can only move sideways, but not down.

Get too much water all at once, and the next thing you know your basement is flooded because it acts like a well where the water can collect. Many basements aren't designed to withstand that much water trying to get in. This is a big problem for many parts of Toronto because clay stratification is actually surprisingly common.

Why does Toronto have so much clay stratification?

Go back 12,000 years ago and all of Toronto, the GTA and the Great Lakes region was under a big inland sea. As time went by the water levels receded and it left behind layers of clay bits and loamy bits, resulting in many layers of clay and loam.

Factor in that Toronto is also effectively an ancient river delta, and yeah... That's a lot of clay.

So what can you do about it?

Knowledge is key.

#1. You need to ask "Is this property on a floodplain?"

And make a note of how the owners respond.

#2. Get it in writing.

Because people do lie about floodplains and it can lead to lawsuits when people later find out that they bought property on a flood plain. (Or bought a house with mold problems. Or bought a house with termites. The previous owners need to be disclosing these problems.)

#3. Ask "What steps have been taken to prevent flooding?"

Because chances are likely if your property is in Toronto, then it is probably on a flood plain. Even if it is on top of a hill.

#4. Get home owners insurance.

But you might also get other types of insurance too. Eg. Buyer's Title Insurance for example. Or Mortgage Insurance if you are getting a mortgage.

And flood insurance if you are in a high risk location.

Basement Flooding on the Rise thanks to Climate Change

Yeah... So this isn't a problem that is just going to go away. Places that aren't traditionally thought as being flood prone these days are getting flooded anyway. Climate Change means that Toronto now has a rainy season from April to May.

And we can still get large deluges of water thanks to freak rainstorms like that one on July 8th 2013.

I was outside when that flood happened. Toronto got 126 mm of rain in only a few hours. And while that doesn't seem like much, remember that water flows downhill and will flood basements, parking garages, subway stations, floodplains, lower streets, etc along the way.

Here's some video of what happened on July 8th 2013:

Popular Posts