The concept of “flipping” — where someone purchases a home, renovates it, and sells it for a profit — has been commonplace for decades. Flipping has traditionally been a process where investors put in a significant amount of effort to make a profit and the eventual buyer purchases a newly renovated home to live in.
Because of the high demand for single family housing in Vancouver, a new type of flipping called “shadow flipping” has become more frequent in the resale market. This is when a property is purchased and then resold at a higher price, all before the first deal is closed and unbeknownst to the original seller. The first buyer pockets the price difference and the realtor earns a second commission fee. This secondary, “shadow” exchange of ownership is done without paying property transfer taxes.
With recent media attention and some real estate brokerages even promoting this practice to their licensees, sellers, government officials and the Real Estate Council of B.C. have caught on. As of May 16th, 2016 Finance Minister Mike de Jong brought in a new rule whereby realtors must have written consent from the seller to assign a contract, and if the contract is assigned, the seller is entitled to any resulting profit. This new rule applies to resale properties and not new homes where the seller is the developer.
On February 9, 2016, the Real Estate Council of BC initiated the creation of the Independent Advisory Group to review the new rules and take steps to make sure realtors are implementing them. On June 28th, 2016 the council released the Final Report of Independent Advisory Group.
“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.”
This new rule increases transparency to help make sure your interests are protected whether you are buying or selling your most valuable asset.
