The rampant house flipping that is occurring in the BC real estate market has the Real Estate Counsel of Ontario on guard. I am basing this blog post on the article found in today’s Globe and Mail by Tasmin McMahon
B.C.’s house-flipping practices setting off alarm bells in Ontario
REAL ESTATE REPORTER — The Globe and Mail
Published Wednesday, Feb. 10, 2016 10:00PM EST
Last updated Thursday, Feb. 11, 2016 2:23PM EST
“Ontario’s real estate regulator says it is considering warning agents to play by the rules when it comes to flipping houses, after British Columbia’s move to clamp down on the controversial, but legal, practice of selling assignments.
The Real Estate Council of Ontario, the self-governing body that regulates the province’s real estate industry, says it doesn’t believe the practice of assignment flipping is widespread in Ontario. However, it is closely watching developments in B.C., where regulators have promised an investigation into concerns some agents are not properly disclosing their financial interests in a sale.” (1)
In a nutshell, the market is so hot in Vancouver that offers are being sold on top of other offers for progressively more money. Let me give an example: Seller “A” sells their property for $100,000 to buyer “B” and pays a commission of 5% to the agent or agents. “B” then offers the property for sale prior to the closing date for more money and sells it to “C” for $130,000 and pays a commission to someone, possibly the same agent that facilitated the first sale. In some cases byer “D” and “E” are becoming involved. Some agents are making several commissions in these scenarios. What a mess… Here is my take on the issue.
The first is that the original sellers are becoming very upset that they were not able to attain fair market value on the original sale. In some instances, assignments are being sold for hundreds of thousands of dollars more than the original sale price. While legal, sellers are wondering why they were not able to attain the new and improved sale prices in the first place. A valid concern in my books. The most important key factor is in the proper disclosure of all sale details to all that are involved. Agents are being accused of double and triple dipping on commissions. While questioningly ethical, it is perfectly legal. As long as the Sales Rep or Broker properly discloses his interests in the transaction, there can be little fallout legally.
I have sat on the professional standards committee at the Niagara Association of Realtors for a number of years. The number one reason agents and reps are getting themselves in trouble is in multiple offer situations. I can only imagine what is going on in some of these questionable flipping scenarios. I’ve always been first and foremost concerned with my reputation as a Realtor. While there is little chance of this “Multiple flipping happening in Niagara on the lake, I could see where an interest, or an offer could be sold to a higher bidder once. I would want to make sure that all of my I’s were dotted and my T’s were crossed and everyone knew what was transpiring.
A lot of the flipping is occurring in the ramped up condo markets in the two biggest Canadian cities. I truly fear what will happen when this condo bubble bursts. I don’t think that it will directly kill the resale market, I do however think that it is propping it up. Resales in Toronto are becoming harder to find, and equally so in Niagara on the lake. Not everyone wants a condo and the lack of resale product and it’s relatively lower price point is slowly driving up that market.
In Niagara on the Lake, we are experiencing very low levels of resale product. It is a great time to sell. I have several clients looking for property and we flat out can’t find anything to buy. While I doubt it will happen, the scenario is being set for the higher probability of “contract flipping”. What if the original agent has the second set of buyers? This would be unethical in my books. Even if it is legal, word would fly around this small town faster than you could imagine. Let’s see what will happen in the next few months or year. I for one will be handling it with care should I find myself in that situation.
Chris Bowron – Broker of Record – Niagara on the Lake Realty