This West Vancouver property is the focus of a real estate dispute about contract assignment.DARRYL DYCK/The Globe and Mail
When the Vancouver region's real estate market heats up, so, too, does so-called shadow flipping.
And despite the pledge from the province to take action and the regulator's insistence it is only now hearing complaints about the practice, this isn't the first time the region has faced this issue.
Contract assigning – essentially, arranging a sale and then finding a new buyer willing to pay more for a given property before the deal closes – has been under scrutiny this week after a Globe and Mail investigation that detailed its use in the Vancouver housing market. In response, the Real Estate Council of B.C., the self-regulating body for the real estate industry, has launched a review.
In the mid-2000s, during a condo boom, such assignments were so common that some developers put in clauses to forbid them.
"The market was in a similar state to what it is now," Darcy McLeod, president of the Real Estate Board of Greater Vancouver, said in an interview.
"It was escalating quickly, and at that time there were a lot of condos available and a lot of speculative investors were jumping in and buying condos that were expected to be completed one or two years in the future and speculating that they could probably enter into the contract and sell the contract prior to completion for a profit."
Mr. McLeod said it seemed like a great idea "until the market started to turn and some of them were forced to purchase condos that they had no intention of living in."
Mr. McLeod said his organization first noticed assignments were again on the rise last year. In response, on its website it posted 10 steps for sellers to take before entering into an assignment deal, such as working with real estate agent and seeking legal advice.
"If somebody knocks on your door and offers to buy your home for a certain price, it would be in your best interest to get some independent advice on what the real value of your home is," he said Wednesday.
Tim Lack, a Vancouver lawyer whose specialties include real estate, said last decade's condo boom – when "condos were like tulips" – prompted some developers to make changes.
"That's why you will find clauses that forbid assignments in the standard forms that the developers use," he said in an interview. "They create their own contract of purchase and sale for their individual projects."
David Eby, the housing critic for B.C.'s Opposition New Democrats, said issues around assigning contracts appear to have been known for some time. He pointed to a May, 2008, consumer alert from the provincial office of the superintendent of real estate that warned of the risks associated with the assignment of contracts.
Mr. Eby said with the problem re-emerging, the province does not appear to have taken adequate action.
Carolyn Rogers, who took over as superintendent of real estate nearly six years ago, said the conditions around the time of the alert were similar to the conditions now, with prices increasing rapidly.
"That seems to be when these kinds of things rear their head," she said in an interview.
Ms. Rogers denied the superintendent's office has been slow to act, saying it's taking action now because concerns have only just arisen in the media and through two letters from Mr. Eby.
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.
B.C. Finance Minister Mike de Jong, in a letter to the chair of the Real Estate Council of B.C. released Wednesday, said he is concerned about reports of questionable business practices, particularly around disclosure.
"My expectation is that you will be examining both the adherence of realtors to existing rules, and to the rules themselves to ensure they are adequate," he wrote. "A focus on the spirit and intent of the law, rather than a narrow interpretation of regulatory requirements, is more likely to provide the public with the confidence it has a right to expect."
He has asked for a preliminary report from the council by April 8, and a follow-up meeting by April 15.
With a report from Kathy Tomlinson