Following a series of high-profile articles, the BC government announced new rules May 10 on contract assignments, also known as “shadow flipping.”
Under the new rules, as of May 16, real estate agents will be required to get written consent from the seller before assigning a home purchase contract, and any profit resulting from an assignment contract transfer would have to be returned to the seller.
The legal practice of contract assignment has come under scrutiny over the past few months following a Globe & Mail investigation into a number of real estate agents applying the method in unscrupulous ways to make additional profits.
“Government will not tolerate unethical or predatory conduct in the real estate market,” Premier Christy Clark said May 10. “These rules will increase transparency and make sure that sellers' best interests are protected. Real estate licensees must act in the best interests of the client – not themselves.”
Finance Minister Michael de Jong pointed out that assigning a contract is a legal – and often essential – practice that was put in place to protect buyers and sellers.
“Contract assignment fulfils a legitimate role in real estate transactions, and in certain situations can protect consumers if their circumstances change during a transaction. The changes we have made empower sellers by providing for full disclosure, informed consent and the opportunity for sellers to insist they receive any resulting financial benefit.”
He added, “When people decide to sell their homes – potentially one of their biggest assets – we need to make sure they have all of the information they need to make a decision about what is best for themselves and their families.”
If the prospective buyer wants to remove the new terms from the offer, the buyer’s agent must notify the seller that the terms have been removed from the offer. The seller has the power to reject the offer and insist on one or both of the terms. Sellers’ agents are also required to discuss with their clients whether the proposed contract would be assignable and whether there would be any conditions on assignment, including whether the seller is entitled to any profit.
The BC Real Estate Association welcomed the new rules.
“Real estate consumers now have a tool to help them decide whether they want their contracts to be assignable,” said Deanna Horn, BCREA president.
“Like many other provisions in the contract, buyers and sellers have the option of keeping the new paragraph, changing it or striking it out completely – but at least the conversation is more likely to happen now.”
The government also plans to start collecting data from June regarding the citizenship of buyersviathe Property Transfer Tax form, and will make the information public, likely at the end of the year, said de Jong.
BCREA CEO Robert Laing responded, "BCREA is pleased that the government will collect this information, in which there is obviously a lot of public interest.
"Strong policy is based on solid information, and we look forward to learning more about this aspect of the real estate market."
But de Jong make it clear at the May 10 press conference that he was not committing to taxing foreign investors in Vancouver real estate, and that he remained unconvinced that this would be a good solution.
“We work awfully hard to attract people to Canada who come here to invest here, to create jobs here,” said de Jong.
“There’s a large group from a large province in China who are here signing deals to invest. Before we are going to single out one aspect of foreign investment, we’d better have a clear sense of what the impact actually is on the market.”
