Assignment Sales: Trusting your Realtor to work for you

There's been a lot of buzz about real estate assignments in the media this week. If you're confused about the details, the fuss or even unsure what an assignment is, you’re not alone, as this may be the first that many people have heard on the subject!

Assignments, explained:

To put it simply, an assignment is the action of selling a previously agreed to contract of sale between a seller and the original buyer to a new buyer. To break it down:

  • A property purchase is negotiated between a seller and a buyer, resulting in a contract of sale.
  • The contract of sale is assigned through a second sale from the first buyer (or their representative) to a new buyer.
  • The new buyer is made aware of the original price and agrees to pay the purchase price plus a lift (an additional increase in value).
  • Nothing changes for the seller.
  • The first buyer gets their deposit back, as well as any additional gains on the property.
  • The new buyer is now the owner of the contract of sale (and effectively the property).

Why the fuss?

Most of the current story on the subject is focused on how assignment sales can contribute to artificially inflating the local real estate market.

Barbara Yaffe, in a recent piece in the Vancouver Sun, states, “With prices escalating so quickly in Vancouver’s market, there is a clear incentive for a buyer, be it a realtor or third-party speculator, to try to achieve an even higher price before he or she has to close on the deal and pay out any taxes to government or monies to the original seller. The practice is not illegal. But whether it is ethical is another matter. Housing is extremely costly and in short supply in this region and thus ideally reserved for those wishing to acquire housing units as places to live. Flipping, as it is carried out in contract assignments, further inflames an already overheated market.”

As stated, assignments are perfectly legal, and there can be many reasons why such a transaction may be an advantageous strategy. The shady side of the process, having it’s moment in the form of the media-ready term shadow flipping, has to do with the unscrupulous manipulation of this mechanism for personal gain by realtors and others with ulterior motives, pocketing or profiting from the difference between sales.

The biggest and most personal underlying issue that assignments bring up for individuals is that of trust. Negotiating the purchase of a property, as either a seller or buyer, requires a significant amount of trust placed in the hands of a real estate professional. 

Timothy Lack (a lawyer with Lunny Atmore, the law firm I use for my own transactions) confirms that the main factor to consider in assignment sales is trust. ”The kerfuffle over shadow flipping really boils down to how much a seller trusts their realtor, because assignment clauses are perfectly legal."

Lack says it's up sellers to take steps to ensure that unscrupulous realtors don't use assignment clauses to jack up the price of homes they have dealings with, because once the buyer and seller have agreed to a price, there's very little recourse. 

"Your sellers agreed on the price. They agreed on a completion date, and they agreed on lots of other terms, and they should be happy with their price," Lack told On The Coast guest host Gloria Macarenko. "Quite often when they see an assignment, they think they've left money on the table because someone else has taken that contract and sold it for perhaps a higher amount to someone else.” (Source: CBC.ca)

Lack’s professional advice is to choose an agent that you trust. I couldn't agree more and I would go one level further and suggest that you hire someone who is competent, experienced and who genuinely is committed to the profession. 

David Eby, Vancouver MLA for Point Grey, has demanded an inquiry into shadow flipping of Vancouver homes. He says that for a prospective seller, it really comes down to how much they trust their realtor. "A seller has to think: who is my realtor going to be? Is it someone that I know? Someone whose signs I see in my neighbourhood? Someone who's going to have lots of open houses and present my property to the market, so that I know I'm going to get the best possible price," he said.

Like in any profession, there are corrupt and dishonest people and you should take proper steps to ensure that you are being protected. One of the top priorities and responsibilities of a realtor is to protect the public from unscrupulous behaviour related to their property transaction. 

Hiring a trusted professional

Selling your home and marketing it correctly are important and a good realtor can help achieve top dollar for your property. Often this is first and foremost on the minds of sellers when recruiting a professional, however negotiating protective terms of sale that ensure the deal both closes smoothly and without future litigation is equally or even more vital. 

Often when selecting a realtor people choose to support a friend who’s just started out and may not be that experienced in the industry, or they choose someone unfamiliar but with name recognition after having received cheap promo material in their mailbox or seeing their brand plastered on transit advertisements. Real estate is often the single most valuable financial transaction a person can make, and hiring the right professional to facilitate the process should be taken seriously. 

Hire your realtor in the same way you'd hire a new employee: 

  • Interview more than one candidate
  • Get solid references
  • Select the most qualified, experienced and trustworthy person 
  • Demand effective and open communication throughout the process

I'm actually quite happy to see the conversation over issues with assignments highlight the subject of trust in the client-realtor relationship. For many years Vancouver’s hot market has encouraged a steady stream of dilettantes to take the real estate course and position themselves as professionals without the experience and strategy to backup the bravado. There was a time when realtors were more heavily regulated and the standard for the profession and requirements were actually more rigid. 

My advice is to select a professional realtor that you can trust, who is highly experienced, credible and who works in your best interest at all times.

What’s next for assignments?

The recent expose on the subject of assignments has prompted the call for a number of investigations. 

 

The Real Estate Council of BC has reacted by hiring an independent investigatory body, with investigators set to examine assignment deals going back several years, digging deep into the transactions at hundreds of brokerages. The Canadian Revenue Agency will also be getting involved, investigating those who have not reported income through assignment gains. The federal government will be looking closely at any of these deals in order to establish if there's been some money laundering going on (surely that has to have been). I expect the Province will move to set more regulations so that they can more easily charge property transfer tax on an assignment of a contract - the money grab, it's coming.

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