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B.C. government moves to end shadow flipping

British Columbia Premier Christy Clark speaks about shadow flipping in the real estate industry, in Vancouver, B.C., on Friday March 18, 2016.


The B.C. government is moving to outlaw what the Premier calls the "greedy' and "shady" practice of so-called shadow flipping in residential real estate.

The move comes after a Globe and Mail investigation exposed how sales contracts for single family homes are being legally assigned – flipped quickly – to new buyers for a higher price, before an initial deal closes. Typically, the profits go to speculators and real estate agents involved, not sellers.

"In contract law, you can assign almost any contract, but it's created a loophole that some shady operators have found their way through," said Premier Christy Clark, who calls it "Greed. Pure naked greed. And the way to end that shady practice for greedy people is to take away the profit."

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Ms. Clark says contract assignment itself can't and won't be stopped. However, she says that because it's being misused in Vancouver's hot market, the government will soon make it illegal without the seller's informed consent. She says it will also be mandatory that any profits from the flip go back to the vendor.

"We have to make sure there's no room for shady operators to take advantage of people," said Ms. Clark, who expects to have the new regulations in place within weeks.

The news is a pleasant surprise to retiree Don Stutt, who is packing up his Richmond house after a stressful sale involving contract assignment.

"I think it's fantastic – stepping up to the plate and recognizing that citizens need to be protected," said Mr. Stutt.

In Mr. Stutt's deal, the initial buyer's real estate agent tried to have an open house for new buyers while he and his wife were still in it – to assign the contract – but they refused to allow that. At closing, a new buyer's name was indeed on the final documents.

"My wife lost sleep over this," said Mr. Stutt. "We didn't know if the money was going to be there, what games were being played. You couldn't relax because you figure something is haywire when you have something happening that is untoward."

It's not clear how the province will enforce the new rules, however. Ms. Clark says those details are still being worked out. She indicated much of the oversight will be left to the Real Estate Council of B.C., the self-governing body that regulates real estate licensees.

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"We are going to work with the real estate council to make sure there are really good strong prohibitions. Ultimately, anybody who breaks the rules on this – I hope – will lose their real estate licence and not be able to practise."

B.C.'s opposition housing critic says he has no faith those tough penalties will materialize if left up to the regulator, though, because it typically doesn't revoke licences – even for serious misconduct.

"The responsibility that [the government] has handed to the [real estate council] has not been honoured," said David Eby. "It's allowed realtors to get way with conduct that is reprehensible, including fraud, lying to clients and personally profiting from that."

Several real estate agents have told The Globe they also think the council is too soft on rule breakers.

Agent Audry Chua of Vista Realty thinks the worst abusers are some agents who "double end" deals, by representing both the seller and the buyer. She says that is where tougher penalties and restrictions should apply.

"If you can stop abuses, that is what is needed," said Ms. Chua, who sees agents talk sellers into quickly accepting less money than what their home is worth, only to have the buyer – represented by the same agent – then flip the property for a profit.

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"I think the most important thing in my opinion is double-ending deals," she said. "If one party is taken advantage of, that is the problem."

Even under the proposed new rules, buyers could still profit from those transactions by flipping the property after closing, which doesn't involve assigning the contract.

Ms. Clark acknowledged double-end deals are also a concern her government may address, but says she wants to hear from the regulator first. Before today's announcement, the Premier was leaving it up to the council and a new advisory group to come up with ways to rein in unscrupulous agents.

The advisory group was appointed immediately after The Globe's initial investigation. It's expected to come out with a report on how to address a list of questionable practices in the industry later this spring.

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About the Author

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


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