The provincial government will be taking steps over the coming weeks to end the shady practice of shadow flipping of real estate in British Columbia. Premier Christy Clark made the announcement today in response to growing concerns over Metro Vancouver’s out-of-control real estate market.
Shadow flipping occurs when realtors sell a contract for a property at higher prices before a sale is fully closed. Throughout the process, the realtors receive a commission for each time the property is resold, and this can occur multiple times without the knowledge of the seller.
These extra commissions can reach tens of thousands of dollars for a single property, and it forces the final buyer to pay for inflated prices while the seller receives less. Shadow flipping is formally known as the Real Estate Contract Assignment Clause, and this is legal in B.C. and contributes to the local housing affordability crisis.
“Shadow flipping in Vancouver, we all know, has been driven by greed… pure, naked greed,” said Clark during a press conference. “And the way to end that shady practice for greedy people, is to take the profit out of it.”
She said that forthcoming changes will require sellers to provide consent before any contracts can be reassigned to new buyers. In addition, any profits from assignments must be returned to the home owner.
These policy changes are regulatory and can be adopted quickly as it will not require new legislation.
Enforcement of the new regulations will be through the Real Estate Council of British Columbia, which has already established an Independent Advisory Group to examine the impact and prevalence of shadow flipping. The Advisory Group is also investigating licensee conduct and potential conflict of interest, such as dual agency representation where one licensee acts as both the seller and buyer.
The provincial government will consult with the Council to establish penalties for those who do not follow the regulations.
But in all likelihood, the abolishment of shadow flipping is unlikely to make a significant impact on the housing market given that only a small fraction of realtors are believed to practice it for the purpose of profit. While it might regulate the practices of real estate transactions, it only addresses a relatively minuscule symptom of the entire crisis, which is largely fuelled by speculation and a low demand in housing stock.
Clark also noted that both Finance Minister Michael de Jong and Deputy Premier Rich Coleman will meet with Vancouver Mayor Gregor Robertson to collaborate on the next steps that their levels of government can take to tackle the housing crisis.
“The provincial government’s move to prevent ‘shadow flipping’ is a good first step to reduce the unhealthy speculation that is taking place in our housing market,” said Robertson in a statement.
“As Vancouver’s economy grows, we need to make sure that our housing is first and foremost for homes, not to be treated as a commodity. Vancouver City Hall will continue to seek out every option to both protect and increase affordable housing, and I look forward to meeting with the ministers to discuss new tools for both the Province and cities to do so.”
Over the last five years, prices for single-family homes have risen between 45% and 70% while multi-family homes have increased between 14% and 40%. The strong provincial economy, foreign investment, speculation, population growth, and a low supply of homes entering the market have been commonly deemed as the main causes for the escalating cost of housing, particularly in the Metro Vancouver region.
The unaffordable housing market is forcing young talent to leave Metro Vancouver, which makes it difficult for well-paying companies to establish a presence in the city. A recent poll by Ipsos Reid found that a generation of more than 150,000 families are considering leaving the region because they are being priced out real estate market.