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B.C. promises action on ‘shadow flipping’ by province’s realtors

This West Vancouver property is the focus of a real estate dispute about contract assignment.

DARRYL DYCK/The Globe and Mail

Premier Christy Clark wants quick action to stem unscrupulous practices in Vancouver's real estate market, saying the provincial government is prepared to step in if required.

Ms. Clark was responding to a Globe and Mail investigation that found some real estate agents are making windfall profits through a practice known as contract assignment – essentially, arranging a sale and then finding a new buyer willing to pay more for a given property before the deal closes.

"So what we've said to the [Real Estate Council of B.C.] is, 'we're going to give you some time to try to solve this,' because that's their job – they are a self-regulating profession, to go out there and make sure their members are observing the rules," Ms. Clark told reporters in Victoria after Tuesday's Throne Speech.

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"If they don't fix it, we're going to fix it for them. And we'll do it in short order because what is happening in the housing market in the Lower Mainland, and in a lot of communities, it's crazy. And that is fuelling part of the problem."

The Premier added: "I don't have a lot of patience on this one."

Contract assignment is legal, but controversial. However, it can become contentious when real estate agents flip properties without disclosing they have a stake in the outcome. With house prices soaring out of reach in Vancouver, revelations about contract assignment have added to the public outcry for governments and regulators to intervene.

The Real Estate Council of B.C., the self-governing body that oversees real estate agents and brokerage firms, on Monday said it would appoint an independent advisory group to look into dubious practices. That advisory group, to be headed by B.C. Superintendent of Real Estate Carolyn Rogers, is expected to report in 60 days.

B.C.'s Superintendent of Real Estate is part of the Financial Institutions Commission, or FICOM, a provincial agency with a mandate to protect the public.

The RECBC said licensees found to have put their own interests ahead of clients could face investigation and penalties.

But it is not clear whether such disciplinary actions do much to stem a practice that's been dubbed "shadow flipping." The council's disciplinary process is primarily complaint-driven. In some cases, buyers or sellers of a given property may be unaware a property has been "assigned" to another party during the process – or unaware of what that means if and when they are informed – making it unlikely the transaction would result in a complaint.

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In a review of RECBC disciplinary cases between 2011 and 2015, The Globe and Mail found only 13 cases that concerned failure to disclose interest in a property or transaction. Penalties in those cases ranged from three 14-day suspensions to a single instance of a licence being surrendered.

One older disciplinary case, from 2008, involved Amarjit Singh Gill, at the time a Realtor with United Realty RCK and Associates. According to the judgment in his case, Mr. Gill was the listing agent for a couple in Langley who wanted to sell their home. He brought the couple an offer for $425,000 through a numbered company – without disclosing that his spouse was the sole director and shareholder of the numbered company.

Mr. Gill then assigned the contract to other buyers, David and Sharon Preston, for $550,000, again without disclosing his interest.

Mr. Gill was suspended for 180 days for professional misconduct and fined $5,000. During that process, it was determined Mr. Gill lied to the council to hide his family's role in the deal.

David Preston filed the complaint to the RECBC that resulted in the disciplinary action for Mr. Gill and spoke to The Globe and Mail about the case.

"I got screwed," Mr. Preston said.

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"If I had gone directly to the homeowner, I would have paid $425,000 … after I found out it was a numbered company that bought it, we just casually thought, 'that doesn't sound right' – then we saw it was his wife's name.

Mr. Preston calls a $5,000 fine a "slap on the wrist," noting that Mr. Gill made $125,000 by flipping the property within a couple of months.

Council spokeswoman Marilee Peters defended the group's regulatory approach, saying it includes audits of brokerage firms as well as complaint-driven investigations.

"We have one of the strongest regulatory frameworks for real estate of any jurisdiction across the country," Ms. Peters said. "The penalties assessed are consistent with penalties assessed across the country."

Darcy McLeod, president of the 11,000-member Real Estate Board of Greater Vancouver, said his group has not received complaints about contract assignments and supports moves by the government and the council to look into any misuse of the technique.

"There are many cases where assignment of a contract is perfectly legitimate and being done correctly," Mr. McLeod said. "Where it becomes interesting, is if a real estate licensee is a party to a transaction, and they are not disclosing that to the general public – then that's a problem."

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About the Authors

Kathy Tomlinson lives in Vancouver and joined the Globe’s national investigative team in August, 2015. Prior to that, she hosted CBC’s ‘Go Public’ segment. Kathy’s been an investigative reporter for the better part of three decades and has worked in Washington, D.C., Toronto, Vancouver and Edmonton. More

National correspondent

Based in Vancouver, Wendy Stueck has covered technology and business and now reports on British Columbia issues including natural resources, aboriginal issues and urban affairs. More

B.C. politics reporter

Based in the press gallery of the B.C. Legislature in Victoria, Justine has followed the ups and downs of B.C. premiers since 1988. She has also worked as a business reporter and on Parliament Hill covering national politics. More

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