Opinion: Real estate regulation report had hits and misses


Published on: July 15, 2016 | Last Updated: July 15, 2016 4:33 PM PDT


The only thing hotter than B.C. housing prices is the debate over them and what can be done.

The recent independent report on the state of the real estate industry’s self-regulation was largely good in my opinion. A number of their recommendations absolutely should be implemented, but some aspects I disagree with wholeheartedly.

As an industry insider, I want to respond. I especially want to explain why the limited dual agency — where one real estate agent acts for both the buyer and seller — is not getting full and fair treatment. The argument of the Christy Clark administration, which is endlessly recycled by often-sensationalist media, is that dual agencies and so-called “shadow flipping” are at the root of agency misconduct and that banning them will help ease housing cost inflation. This is a flawed notion and reflects a limited understanding of how things work on the ground.

Essentially, “shadow flipping” is when a property is sold under value because it was not properly marketed, which allows the buyer (and presumably the seller’s unscrupulous real estate agent) to maximize profit by immediately turning around and selling it at a fair market value plus inflation. The inflation part is really the key issue here. The fact is, a sale price that was fair at the time of confirmation is already under market value by the time of closing, an average time span of two to four months. This is a reality of our market and does not represent a malicious underselling of the property.

However, the rapid rise in prices (20 per cent in a few months!) and the staggeringly high prices in the Vancouver market mean a couple of months of inflation can reflect enormous sums of money, which draw the attention of the media and the ire of the public. The high prices and their effect on cost of living contribute to widespread public anger that easily finds focus on the notion of bad actors.

However, many of the apparent incidents of “underselling” aren’t cases of misconduct, but instead are examples of the effects of our wild inflation. Banning limited dual agency transactions can do very little to address unscrupulous intent, nor will it slow down housing cost inflation; instead it introduces its own issues into the real estate transaction process.

Limited dual agency has received a lot of negative, sensationalist press propelling the popular misconception that this is at the heart of the problems with agent misconduct. It’s easy to make an argument against such transactions when you don’t understand the realities on the ground, but once you start walking it through, the reasoning falls apart.

Consider: it is suggested that if my buyer is interested in one of my listings, I should hand them off to another Realtor, who is presumed to be impartial. Many clients don’t appreciate this or feel comfortable with an agent they didn’t select. And crucially, the new stand-in agent is not truly impartial because the only way they get paid is by ensuring this particular transaction goes through, even if it turns out not to be in the best interest of the clients.

Furthermore, this arrangement does nothing to protect the buyer if I had an unethical intent to use my prior knowledge of their needs to unfairly disadvantage them in the transaction. There certainly are some cases of agents taking advantage of sellers through underselling — the most problematic are Vancouver properties sold sight unseen to offshore investors that are then flipped to other absentee investors.

The independent report’s recommendations to raise the industry’s low bar of entry and increase the requirements for agents’ continuing education go a long was to addressing both of these central issues. Responsible, accountable, and transparent limited dual agencies are possible and this is the model we as an industry should strive for.

The recent actions taken by the provincial government, however, give me no confidence at all. A new law was introduced to address shadow flipping that restricts the assignment of property contracts to a new buyer before close. Additionally, when contracts are assigned at a higher price, the extra profit must be funnelled back to the original seller rather than to the first buyer/shadow flipper, purportedly eliminating both the profit margin and the incentive for this practice. On the surface, this appears to be a common-sense remedy to shadow flipping because the central issue and injustice lies with the underselling of the property for the original homeowner.

However, Clark’s new law merely forces the unscrupulous first buyer/would-be flipper to complete the transaction before flipping the property at a higher price the very next day. Indeed, this law is more about the government profiting off of flipping, and less about stopping it, because every time a property transaction is completed, property transfer tax is payable to the provincial government, potentially tens of thousands of dollars.

In fact, this is government’s largest single source of revenue and they’re now raking in record profits, as reported recently in The Vancouver Sun. An enormous governmental conflict of interest has been created, as government stands to become the largest single profiter from new flipping rules.

None of Christy Clark’s actions address the real problems of affordable housing, including the latest move to end industry self-regulation. Realtors merely bring buyers and sellers together, they do not determine market values any more than stock brokers control the price of stocks. The cause of housing inflation is not unscrupulous Realtors, but the basic law of supply and demand. The province permits offshore investors to purchase our property almost unabated, dramatically increasing demand, while they restrict the supply of property with Agricultural Land Reserves and other development restrictions. This keeps prices high and the property transfer tax dollars flowing into the provincial coffers.

Transparency and accountability are crucial for taming housing cost inflation and restoring the public trust, but it is needed from our government as much as it is needed from the real estate industry.

Jonathan Gelderman is a RE/MAX agent in the Fraser Valley.