The self-regulating body that oversees the real estate business in British Columbia has to get tougher on Realtors who contravene regulations, says Tony Joe, president of the Vancouver chapter of the Asian Real Estate Association of America.
“It takes a lot for someone to lose their real estate license in the province of B.C. I can’t help but wonder if that needs to shift somewhat,” says Joe, who in addition to leading the 100-member association, runs Tony Joe and Associates, a Re/Max brokerage in the Victoria area.
He was one of the Realtors interviewed by REM about the media storm unleashed in February by The Globe and Mail about unethical and possibly fraudulent real estate dealings in Vancouver.
The Globe stories alleged real estate agents and speculators are making millions of dollars in extra fees and profits by assigning contracts before closing, for prices that are higher than what the original seller receives in the end. The practice, also known as shadow flipping, is legal but controversial.
“I guess one of the questions is: Are we hard enough on licensees who contravene our laws? Personally, I don’t think so,” Joe says.
The Real Estate Council of B.C. with oversight from the Superintendent of Real Estate has been tasked with striking an advisory committee to investigate allegations of fraud and insider trading in the Vancouver real estate market.
Asks Joe: “Will it result in anything? I don’t know. I for one, and others I’m sure too, would hope that anything they do would improve the standards.”
He notes that there’s a feeling from people in the industry who conduct themselves on a professional basis that “people who contravene rules get off far too easily.”
Joe says a media revelation about an agent who allegedly did a flip and ended up becoming party to a second flip brings up a number of questions, including whether proper disclosure was made. Such agents may “profit for a moment” but are committing “career suicide,” Joe says.
Jonathan Cooper, vice-president, operations of Macdonald Realty in Vancouver, says the issue is really one of a lack of professionalism. “In this case, if someone’s acting for the buyer and then turns around and is assigning it and then reassigning it several times, that’s where it’s a legal grey area.”
As a result of the controversy, if the question of an assignment now arises, even for perfectly valid reasons, “it’s going to raise question marks in the mind of the client, even if everything is completely above board,” says Cooper.
“What you see here, in some of these examples, (is that) the interests of the clients are secondary to the Realtor and/or co-operating parties trying to line their own pockets.”
Cooper says the industry has “definitely been tainted by this ongoing media storm. In Vancouver, it has almost become like seller beware.”
He notes that if a buyer knocks on a homeowner’s door and offers a cash offer, some people might be tempted to accept the offer and avoid Realtor fees. But with prices having risen so much in the last two years, his advice would be to find a good Realtor. “Values have moved so significantly that even sophisticated members of the public may not know exactly what their home’s worth. If you’re properly represented, you get market value for your home (and) then the possibility for these shadow assignments is greatly diminished.”
Until the recent spate of news stories, the public was generally unfamiliar with assignments and unaware that they’re legal, says Polly Cordwell, Vancouver managing broker of Sotheby’s International Realty Canada. Because of the media coverage, the perception of the practice has been negative, Cordwell says.
Last year, when Sotheby’s started to see assignments were taking place in Vancouver, it made sure agents understood what they were about and passed on the information to clients about how they work and the potential risks associated with them, she says.
“We’ve taken to communicating further with our agents in light of all the media to ensure that they are doing that.”
She notes assignments become popular when the market rises rapidly, as has been the case in Vancouver since 2015, and were last used regularly in 2006 and 2007. If the closing on a property is a week away it can potentially be assigned to someone else prior to completion for an increased price if the market has gone up. But “the market has to be going up pretty rapidly to be able to justify doing that.”
Cordwell notes that inventory has been very low in the city of late – Sotheby’s had just 87 active listings in Vancouver in late February – which has pushed up demand and prices.
She says Sotheby’s has been contacted by concerned clients who read the articles, “but once they spoke to our Realtors and had them walk through the process, they’ve been okay and they’ve felt comfortable with the situation.”
Kevin Lynch, CEO of Metro Edge Realty, says his firm has adopted a policy that does not allow shadow flipping.
“We can’t control what others do, but we can always do the right thing,” he says. “Every company should ensure their agents are always well educated so they can and will do the very best for their clients.”
Joe adds that none of the agents he’s spoken to have had first-hand dealings with irate consumers about the news stories.
The good news is the issue has been in the news so much “that it should really cause someone to think twice if they’re thinking of doing this.”
However, the situation has been bad for the industry, he says. “When the general public and consumers have this feeling of us, it’s never good.”