Ontario’s real estate regulator says it is considering warning agents to play by the rules when it comes to flipping houses, after British Columbia’s move to clamp down on the controversial, but legal, practice of selling assignments.
The Real Estate Council of Ontario, the self-governing body that regulates the province’s real estate industry, says it doesn’t believe the practice of assignment flipping is widespread in Ontario. However, it is closely watching developments in B.C., where regulators have promised an investigation into concerns some agents are not properly disclosing their financial interests in a sale.
“The reporting out of B.C. certainly has been pushed to the front burner of our attention and we’re certainly monitoring what’s going on,” said Kelvin Kucey, deputy registrar of regulatory compliance for Ontario’s real estate council.
Ontario’s regulator is considering issuing a registrar’s bulletin, a formal notice to industry members, reminding them that agents must disclose their interests in a prospective sale to everyone involved in the transaction, along with disclosing any information that could potentially affect the value of the property.
Mr. Kucey said the council also wanted to encourage sellers to do their due diligence if they’re approached by an agent offering to buy their home, which includes making sure they’re getting the best price.
“If this is a concern as a seller that somebody may be buying the property at a lower price than what you think, maybe you need to ask some more questions with regards to what the basis of the market analysis is and then don’t stop at the first analysis that you get,” he said.
The Ontario industry’s reaction comes after a Globe and Mail investigation revealed some agents in B.C. have reaped massive profits through a practice known as a contract assignment, which involves arranging a sale and then finding a new buyer willing to pay more before the deal closes, in essence “assign-ing.”
The revelations triggered a swift reaction from B.C. Premier Christy Clark, who said the province was prepared to take more control over the real estate brokerage sector if it did not immediately move to discourage the technique.
In Ontario, as in B.C., there are no reliable data on assignments. The practice is legal and some argue it is an important element of the housing industry that allows buyers to get out of a costly deal if their personal circumstances suddenly change.
However, several provinces require Realtors to get the consent of the seller in advance before assigning a deal to a new buyer.
Ontario’s real estate council received 11 complaints last year about improper disclosure by Realtors, but said most involved minor paper-work issues, not “malicious intent.”
“The assignment aspect really hasn’t crystallized in Ontario on a complaint basis,” Mr. Kucey said. “But obviously we’re monitoring what’s going on in British Columbia and if we have complaints where this is actually taking place in Ontario, we will investigate. And if the evidence is there, we’ll certainly prosecute any Realtor who is not abiding by the rules and regulations.”
Assignments were never a major issue in Alberta even during the province’s real estate-boom years and have become less of a concern in the current soft market, said Natalie Scollard of the Real Estate Council of Alberta. “This is the type of thing you would be more likely to see in a rising, escalating market, which Alberta is not right now,” she said.
The province banned so called “dual agency,” where Realtors can represent both a seller and a buyer, in 2008. It was replaced with something called a transaction brokerage, where a realtor can help both sides do a deal, but can’t act on behalf of either party and must keep details of both confidential.
In Toronto, where fierce bidding wars have broken out for detached homes and prices of some properties have soared at double-digit annual rates, Realtors say they have yet to see widespread evidence of the issues facing Vancouver’s market, where Realtors have been able to flip properties in a matter of days or weeks at a massive markup. The Toronto Real Estate Board issued a statement saying it was “not aware of any concerns” about assignment flipping.
“We haven’t come across it a lot yet in the city,” said Adam Brind, broker at Core Assets Inc. in downtown Toronto. “But that doesn’t mean that maybe we won’t start to see it if prices and demand keep growing in Toronto.”
In some cases, prospective buyers have lost out on a bidding war and have approached the winning buyer about reselling the property at a higher price. Mr. Brind saw one deal in which a losing bidder offered the successful buyers an extra $100,000 to purchase a property only days after they had bought it.
Toronto was once home to an active assignment market for preconstruction condos, in which investors bought units at a discount years before a building was constructed and then sold the assignment rights to speculators hoping to cash in on future price increases, often paying fees to a developer for the privilege. The practice has slowed in recent years as developers realized they could price their preconstruction units higher and keep those profits for themselves.Report Typo/Error