The Real Estate Council of BC will appoint an independent committee to look into allegations Vancouver realtors have been using “assignment clauses” to flip properties and lift prices.
That, according to Minister Peter Fassbender, speaking on behalf of the province today, who says the provincial Superintendent of Real Estate will be meeting with the council to discuss the issue.
“I believe the Council is going to appoint an independent advisory group to investigate whether the assignment clauses are being used appropriately. And then I think they will be working to develop recommendations to increase the council’s enforcement capabilities and oversight of the non disclosure licensees investing in properties.”
The Real Estate Council of BC issued a statement late this afternoon saying it is “deeply concerned” by the allegations.
It says it recognizes this as an “urgent matter,” and that it plans to announce members of the advisory group within two weeks.
The council says it regularly audits firms to ensure they are complying with regulations, but says anyone who feels they have been the victim of improper business practices should contact them.
The move comes in response to an investigation by the Globe and Mail which found rampant use of so-called “shadow flipping” by realtors in the Vancouver market.
The controversial practice allows agents to use assignment clauses, a mechanism originally designed to allow buyers to get out of a sale in the case of illness or financial hardship, to flip houses and re-sell them at much higher prices before the original deal closes.
The move leaves the original seller with a lower sell price and the final buyer with a higher buy price, while producing cash benefits to realtors and investors who act as middle men.
The tactic also allows buyers to evade property taxes before the final sale.
Listen: David Eby alleges tax evasion and money laundering as part of shadow flipping
Calls for investigation
The revelation has prompted calls from the opposition for the province to launch its own independent investigation into questionable practices, including potential money laundering and tax evasion, from real estate agents in Metro Vancouver.
“This is a very serious matter. It’s a major part of our economy. It’s most peoples’ biggest investment. We can’t continue to pretend there’s not an issue here.”
NDP housing critic David Eby says agents who use assignment clauses are intentionally deceiving their clients.
“It’s completely improper, it’s probably illegal, it’s certainly contrary to professional ethics. This isn’t a simple assignment that was intended by the clauses in these contracts.”
Eby says it’s unclear how many real estate agents are exploiting the clause, which is why he wants the province to investigate.
“This isn’t a simple matter of somebody assigning a contract because they’re not able to fulfill the terms because they lost a job or got sick. These stories are about realtors who intentionally deceive their clients about the value of their homes, and purchase it themselves in order to profit themselves from the lift of the assignment.”
UBC real estate professor Tsur Somerville says the pressure is on both the government and the Real Estate Council of BC to look into it.
“The first place to look at is ethical codes of conduct and putting more responsibility on realtors and liability on the realtors to act in the best interests of their client.”
Somerville says assignment clauses themselves aren’t necessarily the problem — it’s the more recent abuse of it.
The causes underlying Vancouver’s hot housing market, and how to address them, have been both hotly contested and debated.
Mayor Gregor Robertson has called for a speculation tax as a way to try and curb the out of control inflation of land prices.
Premier Christy Clark has so far resisted any measures that she says would put homeowners equity at risk.
READ: Full statement from Real Estate Council of BC