Premier Christy Clark is promising action to address shadow flipping by realtors.

Province to take profit out of real estate shadow flipping

Predatory practice saw some realtors profit as intermediaries

The B.C. government is vowing to thwart predatory ‘shadow flipping’ where some realtors profit tax-free from rapidly rising real estate prices by inserting themselves or their allies as intermediaries between an initial seller and final buyer.

The problem of contract assignment flipping surfaced earlier this year, fueling public outrage and prompting the province to order the Real Estate Council of B.C. to strike an advisory group to investigate licensee conduct and potential conflicts of interest.

Premier Christy Clark said new rules will prevent the abuse of assignment clauses by returning any profits of middlemen to the original home seller, whose informed consent would be required for any use of contract assignments.

“The shady practice that we’ve seen around shadow flipping in Vancouver we all know has been driven by greed – pure, naked greed,” Clark told reporters Friday.

“The way to end that shady practice for greedy people is take the profit out of it.”

RELATED: Read more on shadow flipping and how it works

In some cases that had come to light previously, the sellers were unaware that their home had not been sold to the initial buyer, but had instead been flipped a number of times before a final offshore buyer paid a much higher price.

It’s unclear how widespread shadow flipping has been.

But the province has also lost revenue from it because it only charges property transfer tax when title actually changes hands to the final buyer, not on the profits extracted by intermediaries using assigned contracts.

Realtors make extra commissions when a home is shadow flipped – sometimes multiple times during a long closing period – between the seller and final buyer.

The resulting price inflation has been blamed for further overheating the real estate market in Vancouver and some suburbs.

More recommendations are expected from the Real Estate Council group, which includes the province’s Superintendent of Real Estate.

Clark noted there are legitimate reasons for assignments – such as transferring a condo pre-sale contract to a different buyer when the original one can no longer close – but said they should now happen only for the right reasons under the promised rules.

She also said not all anti-speculation and housing supply measures coming will necessarily be enforced B.C.-wide – some of them will let individual municipalities opt in or out.

Clark said most realtors want reform because a few bad apples can otherwise sully the entire profession.

Vancouver Mayor Gregor Robertson called Clark’s pledge “a good first step to reduce unhealthy to reduce the unhealthy speculation that is taking place in our housing market” and block those who would treat homes as an investment commodity.

NDP tax proposal

Clark’s announcement came a day after the NDP introduced a bill in the legislature to deter real estate speculation and accused the government of failing to close loopholes.

The Opposition proposal, patterned after one from a group of business professors,  would create a new two per cent levy on the value of homes when the owners don’t pay income tax, with the proceeds going to a housing affordability fund.

NDP leader John Horgan said that because investor owners who rent out their units would be exempt, that would encourage more rentals and increase the affordable housing supply.

The new provincial budget created a third luxury tier of the property transfer tax that charges more when homes worth more than $2 million change hands, while exempting more new homes up to a value of $750,000.

The province is also under pressure to close another loophole that allows property held by a corporate trust to be sold without triggering property transfer tax because only the company shares change hands, not the actual title.