Shadow Flipping Explained
What is shadow flipping? This is a term that has been used to describe the legitimate practice of assigning a contract.
According to the Real Estate Council of British Columbia Professional Standards Manual:
“Licensees, from time to time, will be involved in situations where buyers wish to assign their rights in a Contract of Purchase and Sale to other parties…The general rule, in the absence of wording in the contract to the contrary, is that buyers may assign their rights under the contract as long as they do not prejudice the rights of the sellers.”
Certain wording is recommended within the contract if the buyer wishes to maintain the opportunity to assign the contract, or if the seller does not wish the contract to be assignable they can put in a clause that the buyer agrees not to assign.
The Realtor must undertake various steps of due diligence if the contract is to be assigned, such as ensuring that a proper assignment is drafted, the parties are clear and verified with proper identification, that the seller is given notice in writing etc..
A clause that can assist the Seller is to make the Assignment subject to the Sellers approval giving the Seller’s REALTOR® the opportunity to conduct due diligence on the suggested assignment.
This practice has hit the news recently after a Globe and Mail article Feb 6th highlighted the increasing volume of assignments in the heated Vancouver real estate market. According to the article “As part of an ongoing investigation into the phenomenon, The Globe and Mail examined scores of transactions and hundreds of records, and spoke with more than a dozen real estate agents and observers to understand the role of assignments in the Vancouver market.
The findings shed light on an opaque and speculative realm of the housing market, in which properties are traded one or more times before a deal closes – legal but controversial flipping that creates opportunities for agents to make multiple commissions and investors to profit tax-free from houses that are not yet technically in their possession.”
At a press conference on Tuesday the Premier Christy Clark promised action. “We’re giving them the chance to fix it. if they don’t, we’re going to fix it for them,” she told reporters Tuesday in Victoria. In response the Real Estate Council of BC has said it’s appointing an independent advisory group to investigate the allegations.
It is an interesting story that we are sure to follow. The opportunity to assign a contract can be useful and legitimate, but an industry that is allowed to self regulate needs to maintain high ethical standards in order to keep the trust of its clients. So how do you find a realtor that will represent your best interests in this high tech day and age. Why not try that age old technique of word of mouth.