B.C. government introduces new housing market rules on shadow flipping and foreign data collection.
The new regulation under the Real Estate Services Act will require real estate agents and licencees to include, in every contract, a prohibition on the assignment of the contract by the purchaser unless the seller consents to such assignment and a provision that requires that any profit obtained from an assignment to a third-party purchaser to be returned to the property’s original seller.
Shadow flipping has recently become a focus of the hot real estate market in B.C. and involves a purchaser entering into a contract of purchase and sale (usually for residential property) and then assigning that contract to a third party for a fee, sometimes several times, driving property price up to the benefit of the middle men. The seller does not benefit from the higher price and is often shocked to learn of the final selling price. Real estate agents or “licencees” under the Real Estate Services Act, often obtain commissions for each of the shadow transactions as well, which has given rise to public discontent. This process is possible because the standard forms of purchase and sale agreements used in most residential transactions do not prohibit assignment of the agreements and do not require notice or consent of the seller for the purchaser to assign.
British Columbia Finance Minister Michael de Jong closes shadow flipping loophole and says new forms to track foreign ownership will tell how much it’s affecting Vancouver home prices. The new regulations come into effect on May 16, 2016 but do not apply to contracts made before that date. The regulations apply to the presentations of offers and agreements to purchase by licencees under the Real Estate Services Act and affect both residential and commercial transactions. However, in many commercial transactions the licensee is not presenting the offer to the seller because the parties will involve their legal counsel, who are not governed by the new regulations.
Starting June 10, non-Canadian homebuyers will have to list their citizenship on property transfer tax forms. De Jong said the simple measure will allow government to collect data on foreign ownership for the first time and he promised to share the findings with the public.