Editorial: New Shadow Flipping Rules Won’t Help Struggling Buyers

Joannah Connolly
May 11, 2016

News that the BC government is introducing rules to prevent the unethical application of contract assignments, AKA “shadow flipping,” was largely well-received by the public, media and real estate industry this week.

For anybody that missed the announcement yesterday, the new rules will ensure that sale contracts included clauses saying that the home purchase cannot be assigned, or flipped, to a new buyer without the express consent of the seller, and that any profit made from an uplift in price will be returned to the original seller.

These changes are certainly a good idea, as they will hopefully ensure that the small number of local agents who were manipulating the (perfectly legal) practice of contract assignment for their own personal gain can no longer do so. We can also hope that it will restore some faith in the real estate industry, which has had its reputation tarnished by a few bad seeds.

The BC Real Estate Association agrees, stating May 10, “Real estate consumers now have a tool to help them decide whether they want their contracts to be assignable. 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.”

Of course, not everyone was happy – this is Vancouver, after all. Some took to social media to bemoan that no criminal prosecution rules for unscruplous agents were introduced. Others suggested the whole thing was a money-grab, pointing out that Victoria may be hoping that the new rules will ensure a home sale is closed and Property Transfer Tax paid before the home is then instantly flipped, as the new rules would do nothing to prevent that. (I wonder if those are the same people who grumbled about agents and middlemen not paying said tax, under the previous shadow flipping practices?)

Whatever the case, if anybody is hoping that the rule changes on shadow flipping will help make housing more affordable in Vancouver, they need to think again.

I don’t always agree with the NDP, but leader John Horgan was right when he told the CBC Early Edition that the new measures are merely treating a symptom, not the underlying problem. He said, “Shadow flipping is a symptom of a market out of control. That’s a narrow band, in my opinion, of rogue REALTORS® who are taking advantage of a hot market.”

It’s a symptom that probably needs treating, so I won’t criticize the Liberals for doing so. But, as Professor Tom Davidoff described it on CKNW’s Lynda Steele show, it’s a “Band-Aid solution.”

For one thing, as far as we know, it’s only happening in a relatively small fraction of home sales. So even if you eliminate the problem completely, it won’t have much effect when you consider the many thousands of homes trading hands in Metro Vancouver every month. It’s certainly not what is driving up overall home prices in our region.

What’s more, the new rules won’t eliminate the practice completely – real estate agents will still be able to assign contracts, as long as they get permission from the seller. The seller will likely grant that permission, as they’ll now receive the extra boost in the sale price, and the real estate agent will enjoy a fatter commission for their trouble. So there’s nothing to suggest the practice will stop – it will simply be more transparent, and more of a win-win. (Which is what contract assignments were always supposed to be for, of course – and sometimes they’re essential to protect both seller and buyer, such as if the buyer’s circumstances change.)

No, these rule changes will have virtually zero effect on the soaring trajectory of house prices in our city. To find ways to calm that and enter into the hoped-for soft-landing scenario, we will need to look elsewhere – and REW.ca is committed to publishing progressive articles and opinion pieces on how our city can do just that.

Take a look at some of them in "Related to this story" below, please keep following us, and we invite you to join the debate.

Joannah Connolly
Joannah Connolly is editorial director of Glacier Real Estate, Glacier Media's real estate division. Joannah writes and curates real estate news for Glacier Media's local newspaper websites, including the Vancouver Courier, North Shore News, Burnaby Now, Tri-City News and others. She also oversees editorial content in Real Estate Weekly Homes, West Coast Condo, Western Investor and Glacier's special real estate publications. A dual Canadian-British citizen, Joannah has 22 years of journalism and editing experience in Vancouver and London, with a background in construction, architecture, healthcare and business media. Joannah has appeared on major local TV outlets as a real estate commentator, has moderated and spoken on various industry panels, and spent two years hosting the Real Estate Therapist radio show on Roundhouse Radio.