A Vancouver MLA is demanding that the B.C. government appoint an independent investigator to hold an inquiry into how the real estate industry is regulated after a Globe and Mail report outlined a technique in which Vancouver-area properties flip one or more times before a deal closes.
The technique, which brings profits for speculators but higher prices for buyers, has sparked a torrent of criticism in the province. “The investigation needs to be independent because the government has already said it doesn’t think there is a problem,” said MLA David Eby.
Vancouver Mayor Gregor Robertson said after Saturday’s report that the province should impose a tax on speculators.
The Globe investigation, which includes a review of hundreds of public records and interviews with dozens of sources, details how real estate agents and speculators are making millions of dollars in extra fees and profits.
The probe reveals that homes are being flipped by assigning – selling – sales contracts before closing, for higher prices than what the original seller homeowner receives in the end. Assigning contracts like this 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.
Mr. Eby said he is hearing from upset constituents in his Point Grey riding, where many homes are demolished to make way for new investor-owned houses that sit empty, some resold several times.
“It's no longer a market connected to basic fundamentals. It’s speculative – driven by investors,” said Mr. Eby, who added he’s heard more alarming information about industry practices, which he will outline at a media conference Monday.
Vancouver’s mayor reacted to the controversy Sunday: “The Globe and Mail’s reporting on many forms of ‘flipping’ homes builds on the strong concerns I’ve had about rampant speculation impacting our real estate market, and there is an urgent need for the B.C. government to take action,” he said in a statement.
The province did not address the issue of contract assignments in a statement on Sunday, but said “this type of activity reflects a symptom of a high-demand, low-supply market.”
There is a lot of money at stake, for those set to profit from that activity.
In one example before the courts, a West Vancouver homeowner alleges that a real estate agent and a buyer devised a scheme to buy his home for $5-million, then sold that contract to other speculators – during the six-month closing period – until an end buyer agreed to pay $7-million for the property. The $2-million “lift” would be shared between the middlemen.
Real estate agents who say they aren’t involved in speculation said they are appalled at what they consider unethical activity by others.
“There is a lot of speculation in this market – but lack of government intervention is as responsible as the speculators themselves,” said Vancouver real estate agent Allyson Brooke of Macdonald Realty.
Ms. Brooke said Vancouver homeowners should reverse the saying “buyer beware” to “seller beware.” She said agents should not be allowed to act for both sellers and buyers, as was the case with some of the deals in question.
“Lawyers and notaries do not act for a buyer and seller in the same transaction; neither should realtors. The scenario is fraught with potential for unprofessional behaviour, I am very sorry to say.”
The public reaction to The Globe’s investigation has been visceral and widespread.
Several people indicated they are writing to elected officials. Long-time resident Darlene Mercer wrote to the Real Estate Council of B.C., which regulates licensed agents. Like many others, she said she wants the “loophole” of using contract assignment for tax-free profits closed.
“If the board [REC] wishes to maintain any credibility, it will move swiftly to stop this practice and deal with those who are using it to drive the already overheated housing market,” Ms. Mercer wrote in her letter Saturday.
The REC did not respond to The Globe’s requests for comment Sunday. B.C.’s ministry of finance advised the public to take complaints about real estate agents to the regulator.
“The council’s mandate is to protect the public interest by enforcing the licensing and licensee conduct requirements of the Real Estate Services Act.”
Mr. Eby wrote to the REC in recent weeks, expressing concerns over contract assignment, but said the council was dismissive.
“They blew me off,” Mr. Eby said. “The idea of agents insider trading with their pals without any oversight from the regulator is incredibly corrosive to the reputation of hard-working realtors in our communities.”
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