With files from Janet Brown
Finance Minister Mike de Jong has announced new rules for the real estate industry surrounding the practice of shadow flipping.
The rules require sellers to give permission to assign a contract and have any subsequent profits.
Finance Minister de Jong says the new rules will increase transparency and make sure sellers’ interests are protected.
“The contract must not be assigned without the seller’s written consent and the seller is entitled to any profit resulting from assignment of the contract by the buyer or any subsequent assignee.”
He says if a buyer wants to remove those requirements, the seller has right to reject the offer.
The new rules requiring seller permission for shadow flipping and for rights to any profits will apply as of May 16th.
Minister de Jong says the property transfer tax return form will now include citizenship disclosure beginning June 10th.
“We will be requiring individuals to provide their principle residential address.”
Regulator to implement
The Real Estate Council of B.C. issued a statement today saying it is reviewing the new rules and taking steps to make sure licensees implement them.
“As the regulatory body responsible for administering the Real Estate Services Act, we will be working on many fronts to make sure the requirements are well understood, that licensees comply with their new obligations, and that comprehensive monitoring and enforcement programs are put into place.”
The Council says it will be rolling out measures in the coming weeks to ensure all realtors know the rules.
It says it is also developing a new standard standard disclosure form that realtors must include with offers that don’t contain the new basic assignment terms, along with rules around submitting those forms to managing brokers and including them in its brokerage inspection program.
“You can’t just flip it right away without my consent”
A Richmond man who says he was the victim of a shadow flipping scheme is applauding the provincial government for finally tightening rules to protect the seller in Vancouver’s hot housing market.
60 year old Jim Davis says he fell victim to a shadow flipping scam while the executor of the estate for his deceased mother in 2011.
“So now they have to have my consent which I think is a good idea. You can’t just flip it right away without my consent.”
Davis has filed a lawsuit in B.C. Supreme Court against the agent, his brokerage firm and the buyer.
A statement of defence has not yet been filed.
While not illegal, shadow flipping has drawn widespread criticism since the technique was revealed earlier this year.
The technique allows a buyer to “assign” their sales contract to a second buyer before the deal closes, pocketing the profit.
However many sellers were unaware their home was being instantly flipped. Critics also note provincial government is being cut out of any property transfer tax on the flip because the property itself isn’t actually changing hands, just the contract.
The revelation also put the spotlight on a variety of unsavoury practices in the real estate industry, including unethical high-pressure sales tactics
Earlier this spring, the province announced an Independent Advisory Group, headed by the Superintendent of Real estate, and partially drawn from the Real Estate Council of BC to probe the practice of shadow flipping, as well as look at reforms to regulations around the real estate industry.
That group provided an early look at its investigation and possible recommendations last month, and is due to provide a final report by the end of May.
Listen: UBC economist Tom Davidoff on Shadow Flipping rules:
But not everyone is convinced the move will solve the real estate crisis. Vancouver realtor Aaron Jasper warns the changes won’t do much to cool down Vancouver’s real estate market.
“I don’t think it’s going to address the overall affordability crisis that we’re talking about here in Metro Vancouver.”
That’s an opinion shared by UBC economist Tom Davidoff, who has previously pitched an empty home tax and affordable housing fund, and describes today’s announcement as a “side show.”
Davidoff says shadow flipping is a symptom of a hot market, fueled by international demand, low tax rates, and not enough construction.
“This might cure shadow flipping, but it won’t do anything to address the underlying problem of a very hot and very volatile housing market.”
Davidoff says if the province is serious about solving the crisis it should take aim at foreign investors by tying property tax rates to whether or not owners are paying income tax.
And he says zoning should be changed to allow for more housing density rather than single-family luxury mansions.
“You’re taking the market solution which would be plenty of housing for millennials, and you’re putting those millennials out in the suburbs and just handing a lovely neighbourhood to a handful of very rich people.”