Turf war heats up between real estate disruptor and industry establishment

·10 min read
Turf war heats up between real estate disruptor and industry establishment

An Ottawa entrepreneur who pleaded guilty to fraud charges over fudged car loans in 2009 is back in court — this time as a plaintiff accusing three trade associations of trying to damage the reputation of his latest venture and exile the self-styled disruptor from the real estate industry's established turf.

Michael Ryan O'Connor, who'd previously run into legal trouble as the owner of a chain of used car dealerships in Ontario and Quebec, is currently the founder and CEO of Unreserved, an online real estate auction platform that allows people to buy and sell homes like an outsized eBay.

In a civil suit filed mid-July, O'Connor's company alleges the Ottawa Real Estate Board (OREB), Ontario Real Estate Association (OREA) and Canadian Real Estate Association (CREA) made defamatory statements about Unreserved in an attempt to scare consumers away from the outfit's novel approach to selling homes.

It also alleges the three organizations — which together represent and oversee every registered real estate agent and broker in the nation's capital and run the exclusive central listing network for properties known as the Multiple Listing Service (MLS) — unfairly lobbied regulators to close a decades-old legal exemption essential to Unreserved's operations.

OREB, OREA, and CREA have all stated they believe Unreserved's claim is without merit.

None of the allegations have been proven in court.

Richard Buchan/The Canadian Press
Richard Buchan/The Canadian Press

Meanwhile, CBC has uncovered court documents dating back more than a decade, detailing how the province once revoked O'Connor's licence as a motor vehicle salesperson, after he pleaded guilty to two counts of fraud related to inflating buyers' incomes to help them qualify for used car loans they couldn't afford. The RCMP raided one of O'Connor's Find-A-Car dealerships and built a case against him after hundreds of customers complained about unmanageable debt in 2007.

"I paid the price. I lost everything," said O'Connor, who performed community service and served six months' house arrest as part of his conditional sentence.

O'Connor said he believes he has since rebuilt his credibility — first by pivoting to an online dealer-to-dealer vehicle auction platform, and now a similar model for real estate.

As the new legal battle brews, real estate law experts say the current case reveals several competing interests — consumers' desire for greater price transparency in an era of sky-high home prices and blind bidding; the billions of dollars of commissions and fees at stake for real estate agents; and the limits of regulation when it comes to protecting consumers and enforcing a code of ethics within the industry.

As a result, observers say the legal fight could be pricey and protracted.

Alexander Behne/CBC
Alexander Behne/CBC

Online real estate bidding draws industry ire

Founded in 2021, Unreserved bills itself as a disruptor in the real estate industry.

The tech startup raked in nearly $34 million in venture capital in early 2022, and has purportedly auctioned more than 250 properties in Ottawa and a handful of other cities in Ontario using an unconventional method that has sparked a backlash from the traditional real estate establishment.

On the company's website, listings ranging from $250,000 condos to million-dollar detached homes are bid on and bought in real-time auctions "with the click of a mouse," O'Connor explained.

Prospective buyers can register bids in increments as low as $2,500, after submitting a mortgage pre-approval from a bank.

Alexander Behne/CBC
Alexander Behne/CBC

While traditional realtors are prohibited by law from sharing the contents of competing bids for a home, Unreserved allows participants to see the entire bid history.

The site is able to do this by exploiting an exemption in Ontario's Real Estate and Business Brokers Act (REBBA) that allows auctioneers to buy and sell real estate outside of typical regulations for brokers.

The broad exemption dates back to the 1950s and was originally intended to be used to auction family farms.

OREA, one of the largest lobby groups in Canada with more than 90,000 members across dozens of real estate boards, called the auctioneers' exemption "a loophole with frightening implications for unsuspecting consumers trying to buy a home" on its website in June.

OREA also commissioned a survey, citing "70 per cent of Ontarians support the regulation of auctioneers who would sell homes in an open bidding process."

The association declined to grant an interview to CBC, but CEO Tim Hudak said in a statement that auctioneers trading in real estate has "serious negative consequences" for consumers.

"OREA won't be intimidated from standing up to protect Ontario home buyers and sellers," the statement read.

CBC
CBC

The other two groups named in Unreserved's lawsuit — OREB and CREA — have also warned consumers about using an online auction platform to buy and sell homes.

"We feel it was a collaborative effort on all fronts to pressure the government to get rid of [this exemption]," said O'Connor.

"They're doing it all in the name of consumer protection … and when you peel the layers back, it's just false."

Instagram/Unreserved
Instagram/Unreserved

The civil claim alleges that OREB, OREA, and CREA contacted the Real Estate Council of Ontario (RECO), the province's real estate regulator, and later the minister of government and consumer services to lobby for Unreserved's business to be shut down.

OREB and CREA both declined an interview with CBC.

Billions of dollars at stake

Mark Morris, a real estate lawyer and a former instructor at the Ontario Real Estate College who is uninvolved in the case, said a court battle over the auctioneers' exemption is inevitable because "there's money in it."

"If this starts disrupting the tens of billions of dollars that is real estate," said Morris, "people will try every avenue because the cost of attempting this pales in comparison to the pot of gold at the end of the rainbow."

Submitted/Mark Morris
Submitted/Mark Morris

Morris added that real estate associations are naturally protective of their control on the industry like any other regulated profession, such as law and medicine.

"In fact that's kind of their job," he said. "They are representing a bunch of people who derive great benefit through exclusivity."

Founder charged with fraud

This latest lawsuit is not O'Connor's first run-in with consumer protection laws.

In the early 2000s, he ran a small chain of used car dealerships registered under the name Find-A-Car Auto Sales & Brokering Inc.

In 2007, the RCMP obtained a search warrant for the Kingston location of Find-A-Car and seized items from the premises.

O'Connor was later charged with 11 counts of fraud over $5,000, forging documents and global fraud over $5,000 following complaints from hundreds of customers who alleged they faced financial ruin after signing car loans with Find-A-Car.

Graeme Roy/The Canadian Press
Graeme Roy/The Canadian Press

The charges stated that O'Connor's business had "knowingly [obtained] credit for people who would not qualify nor be able to repay their liability, using false statements in writing to financial institutions."

In December 2009, O'Connor pleaded guilty to two counts of fraud over $5,000. He received a conditional sentence of two years less a day, the first six months of which were served under house arrest.

Find-A-Car ceased operations and O'Connor testified that he liquidated his inventory to pay down bank loans related to the business.

In 2011, the License Appeal Tribunal of the Ontario Motor Vehicle Industry Council (OMVIC), which regulates all motor vehicle sales in the province, revoked O'Connor's registration, effectively stripping him of the right to sell cars.

"His past conduct gives reasonable grounds to believe he will not carry on business in accordance with law and with integrity and honesty," wrote the tribunal in its decision.

O'Connor now says he "took full ownership of everything that happened in that business."

"Twenty years ago I made some mistakes," he said. "I surrounded myself with some of the wrong people."

In 2016, O'Connor founded EBlock, an online dealer-to-dealer vehicle auction platform, and has since re-registered to sell cars.

"I was able to get a second chance and … pivot towards tech," he said.

Wholesale auctions are exempt from the Motor Vehicle Dealers Act and do not need to be registered.

The business saw rapid growth and its parent company, E Automotive Inc., launched an initial public offering on the Toronto Stock Exchange in 2021 valued at more than $1 billion.

O'Connor said he sold most of his position in the company and has resigned from its board.

He would not share how much he made from EBlock, but called the profits "life changing."

His latest business venture, Unreserved, applies a similar online auction philosophy to real estate.

WATCH | Lawsuit puts real estate auctions in the spotlight

Consumer protection core issue for industry

At the centre of the legal fight as disruptors like Unreserved attempt to take a share of the real estate market is consumer protection, observed another industry legal expert.

The Real Estate and Business Brokers Act — which auctioneers can bypass — is fundamentally a consumer protection law, explained David Carter, who teaches at York University's Osgoode Hall Law School.

Operating as a broker comes with licensing, insurance and training requirements.

"The real purpose here is to make sure anyone purporting to help the public buy and sell real estate knows what they're doing," said Carter, "and there's accountability when they don't."

Similar to OMVIC's role in the world of auto sales, the Real Estate Council of Ontario has the power to levy severe penalties on realtors or brokers that violate its code of ethics or break the law. This can include fines of up to $50,000 and jail time up to two years less a day.

Carter adds that the auctioneer loophole is a "very broad, carte-blanche exemption."

"So if you can fall under that global exemption, you can almost do whatever you want."

Alexander Behne/CBC
Alexander Behne/CBC

'At your own risk'

The legal section of Unreserved's website includes numerous disclaimers.

"Your use of the website is at your own risk," states the site's terms and conditions.

Unreserved's purchase agreement states that properties are sold "as-is" and "with all faults." The buyer is responsible for verifying property boundaries and for retaining their own lawyer if they are not represented by a real estate agent.

Unreserved advertises its homes as being inspected prior to the auction and includes a brief inspection report as part of each listing on its website.

In traditional home sales, buyers often include an inspection clause in their purchase offer and pay for an independent inspection themselves. Unreserved's terms state that buyers must accept any so-called patent defects which would have been discoverable by the buyer during an inspection of the home.

"They don't want to be tied into any representations, any warranties … anything that they can get sued on in a transaction," said Carter.

Unreserved offers a one-year, $100,000 limited warranty for the properties sold on its site.

Alexander Behne/CBC
Alexander Behne/CBC

When asked about the consumer protection measures Unreserved has in place, O'Connor said that deposits from winning bidders are stored in the trust account of a co-operating brokerage.

After that, he said, the risk is low because "the lawyers are the ones that do all the work."

"When that hammer drops, everyone washes our hands and the paperwork's gone to the lawyers.… The lawyers are the ones that are really protecting the buyer, protecting the seller, making sure the transaction goes smoothly," O'Connor said.

Alexander Behne/CBC
Alexander Behne/CBC