The B.C. government will examine questionable activities in the real estate industry and the effectiveness of its regulator, as a result of a Globe and Mail investigation into how real estate agents are profiting from speculation in Vancouver’s hot housing market.
“We are trying to ensure that agencies like the Real Estate Council representing the people in the industry will regulate themselves and bring forward any changes that they feel will ensure that people are looked after,” cabinet minister Peter Fassbender said.
The Real Estate Council of B.C. (REC) is the self-governing body that oversees real estate agents and brokerage firms. The government is sending in the Superintendent of Real Estate, part of the Financial Institutions Commission (FICOM), a provincial agency, which has a mandate to protect the public.
“If changes are necessary, they can move quickly to identify options and implement measures to address these issues,” British Columbia’s Ministry of Finance said in a statement Monday.
The Globe investigation found real estate agents and speculators making significant profit, flipping Vancouver-area homes, by finding buyers willing to pay more for properties before deals close. The technique is called contract assignment. In the end, the last buyer to take over the contract pays more than the original seller receives. Real estate agents and other speculators are making millions of dollars in fees and profits, The Globe found, as middlemen in these deals.
In the finance ministry statement, the province names the reporter who did the investigation.
“Kathy Tomlinson’s story raises important questions that government will consider as we work to address concerns with housing prices.”
The REC now says it is appointing an independent advisory group to investigate – calling it an “urgent matter.”
“Discussions have already begun between the Council and the Superintendent of Real Estate to identify possible measures that may strengthen the public protections available to real estate buyers and sellers,” it said in a statement.
“The Council will be reminding all licensed real estate professionals, in the strongest possible terms, of their legislated duty to act in the best interests of their clients. Whenever we become aware of a licensee who fails in this duty, by putting their own financial gain ahead of their clients’ interests, that licensee can expect to have their actions investigated and may face disciplinary action.”
Assigning contracts is legal, but controversial. Speculators who profit this way also don’t pay property transfer taxes, because technically the property doesn’t change hands until the deal closes. In some cases, properties are flipped multiple times, before closing. The Globe found cases where real estate agents charged extra fees of up to $50,000 for facilitating the deals. In other cases, agents jumped in as investors themselves, profiting much more.
The Globe and Mail report caused a public uproar. Vancouver MLA David Eby called for an independent inquiry Sunday. He now credits The Globe investigation for pushing the government into doing something concrete about Vancouver’s real estate woes.
“This action is a huge reversal from what they’ve done to date, which is literally nothing,” Mr. Eby said. “This is considerable backtracking by government who just weeks ago said there were no issues to be addressed.”
As part of its research, The Globe looked into 13 recent cases, where the REC disciplined Realtors for not disclosing their vested interest to clients. Some of the wrongdoing involved contract assignments. An agent can lose their licence for misconduct. However, in 10 of the cases, those found guilty were given a 90-day suspension or less.
Aaron Jasper, a Realtor with Klein Group, Royal LePage and a former Vancouver park board commissioner, said he would support harsher penalties for Realtors who are found to have conducted themselves unprofessionally.
Mr. Jasper said such Realtors are undermining confidence in the industry.
“That we’re always putting the interests of our clients ahead of our own interests is paramount,” he said in an interview. “I think there needs to be stiffer penalties for those who are tempted to stray from that core mandate.”
The council now says it expects the advisory group to report back on its investigation in 60 days.
“We are deeply concerned by these matters and we invite members of the public who have been directly affected by any improper business practices of licensees to contact us.”
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