This is the most incredible real estate story I think I’ve ever seen.
And by “story,” I don’t mean the investigative journalism piece that Globe & Mail reporter, Kathy Tomlinson, put together last month – which was incredibly impressive in its own right!
But rather I’m referring to the story that is only just beginning, since the article that Ms. Tomlinson wrote has, within a single month, motivated the Premier of British Columbia, Christy Clark, to enact legislation to change the way properties are bought and sold in the province.
Yes, that story. Absolutely, positively, incredible…
Did you guys see the movie “Spotlight?”
I didn’t see all the other movies nominated for the “Best Picture” Oscar, so while I can say that I thought the movie was fantastic, I don’t know if it was the best film of the year.
But I do know all the stories from the films that were awarded, even without having seen the films, and I think the story contained within “Spotlight” is epic.
Imagine a group of investigative journalists, uncovering something as massive as the sins of the Catholic church, and fighting for years to bring the story to light. Think of not only what they had to uncover, and the roadblocks they had to cross to bring the story into the public eye, but also the affect that their story had, and the change that they helped bring about.
Say what you want about the media, but when something needs to be brought to the attention of everybody in society, they remain the best outlet.
And as technology advances, it’s easier to bring issues to light.
Look at what’s happened over the last few years with law enforcement across North America. For a century, police have been beating suspects for sport, and only in the past couple years, thanks to the fact that everybody has a video camera on their cell phone, we’re actually seeing what’s going on, and holding the accused accountable.
I suppose as with anything else in life, the media can be as dangerous as they can be helpful.
There’s two sides to every story, and there’s the truth, the “truth,” and then many things in between.
But every so often, a story breaks that warrants action, and eventually gets it.
The Globe & Mail journalist, Kathy Tomlinson, broke such a story last month, and now we’re seeing the real estate landscape in British Columbia change as a result.
For those of you that aren’t familiar with the story, let me provide a refresher.
The story, called, “The Real Estate Technique Fueling Vancouver’s Housing Market” appeared online and in print via the Globe & Mail on Saturday, February 6th.
But this wasn’t just any “story” in a newspaper. It wasn’t a “report” so much as it was an investigation, and reading the story, you have to think Ms. Tomlinson spent several months, and thousands of hours looking into this.
The story was 4,000 words, multiple pages, and contained a dozen photos of the people involved, and graphics and illustrations of how “shadow flipping” takes place in the Vancouver real estate market.
In short, and that’s easier said than done when you’re talking about such a complex topic, “shadow flipping” occurs when the sale of a property can be assigned to another buyer – not the original buyer, who was named in the Agreement of Purchase & Sale.
And as the Tomlinson story explains, many of the assignees in the Vancouver market place are the very listing agents who are hired by the sellers to handle the listing and sale in the first place.
Now the entire problem, in my opinion, stems from the fact that the Agreement of Purchase & Sale contains an “assignment clause” that makes this perfectly legal.
So while it’s easy to blame the listing agents, it’s also easy to blame the sellers. We simply need shout in their face, “Hey buddy, you signed the contract! Didn’t you know what you were signing?”
But therein lies the problem – who was responsible for explaining to the seller what they were signing?
Well, the listing agent, of course! The same listing agent that wants to become the new owner/assignee in a few days, weeks, or months down the road!
Conflict of interest? Yes, absolutely.
Illegal? Nope. Not even close.
After this story broke in February, I had a dozen calls from every Toronto outlet, all asking the same question: “Does this happen in Toronto?”
The answer, in short, is “no,” but that simply caused an immediate follow-up question: “Could this happen in Toronto?”
The answer, without question, is “yes.”
Sorry, I should say the answer was yes, but that was before this story, and the subsequent provincial legislation change, took place.
One reporter asked me, “How do you think this happened?” and I told him it was very simple, and it started out like every other trend, that becomes accepted practice: one person started it, and everybody else followed.
At some point, a year, five years, or ten years ago, somebody in B.C. had the bright idea to put an “assignment clause” in the Agreement of Purchase & Sale. After that, somebody else did the same, and then somebody after them, and so on, and so on, until it became universally accepted.
But it would seem, from the content of Ms. Tomlinson’s article, that it then went from accepted to expected, and just about every APS written included this clause.
Read the article, if you have time for 4,000 words.
Read it twice, in fact. Then again.
The takeaways are absolutely shocking, and in some ways, appalling.
In the days that followed the story, we heard the rhetoric about “a few bad apples spoiling the whole bunch,” and while statistically that might be true, it seems as though these assignment clauses created a huge underground market for properties – a secondary market, and with an unregulated, lucrative market on the horizon, it seems to reason that human nature is to take advantage.
So from my perspective, I have to ask what is stopping a listing agent from screwing their client before the sign ever goes up on the lawn?
If a listing agent suspects a house is worth $1.5 Million, with the way the contracts are written, and with the secret, underground, unregulated, lucrative secondary market for assignments looming at arm’s reach, could the listing agent tell the seller the house is worth $1.4 Million, and then have a buyer waiting on the other end?
Yes, he or she could.
I really, really, really don’t like arguing this side, since it sickens me to think there are people that would do this, but real estate is no better or worse than any other industry out there, where the “bad apples” seek to take advantage of the unsuspecting.
And it seems from Ms. Tomlinson’s story, which contained many references to actual people, properties, and prices, that this “shadow flipping” wasn’t a few isolated cases, but rather an established pattern among a group of Realtors in the Vancouver area.
I can tell you that I have never, not once, ever, seen that “assignment clause” in an offer here in Toronto, and if I did see it – even before this story broke, I would question it, and ultimately advise my seller to remove it.
I don’t want to conclude with something as simple as “It doesn’t happen here, we’re safe in Toronto, and Vancouver is a mess,” but I do want readers to know that what was written about in Ms. Tomlinson’s article does not take place in Toronto.
And please don’t confuse the shadow flipping via “assignment clauses” with condominium assignments that we have here in Toronto. They are two totally different things.
Now, as for the reaction to Ms. Tomlinson’s epic piece in The Globe & Mail, suffice it to say, it got the public’s attention!
Everybody in Toronto was talking about it – in my office, at my dinner table, over email – it was all the rage for days.
And it had an immediate impact, as Ms. Tomlinson wrote a follow-up story on February 7th, titled, “Vancouver Area Home-Flipping Leads To Inquiry.”
The story died down here in Toronto after a week or so, but not in B.C.!
In fact, it only took a few more weeks before the government finally acted, and the Premier of British Columbia, Christy Clark, called the practice of shadow flipping “greedy” and “shady,” and announced that legislation is on its way to close the “loophole” that allows the practice.
The article: “B.C. Government Moves To End Shadow Flipping.”
Premier Clark noted that the practice would soon become illegal without the “seller’s informed consent.”
But amazingly, she also said that “any profits from a subsequent flip would go back to the seller,” which I find shocking.
We’re entering a very interesting legal grey-area here, and I have no idea how this is going to play out.
One concern I do have, however is that there is a difference between:
a) allowing the practice, with the seller’s informed consent
b) outlawing the practice
I had a buyer come to me once that fired his old agent, and wanted to work with me. After some time and some investigation, we realized that he was “looped into” a ridiculous 18-month “Buyer Representation Agreement” with his old agent.
There is a very small box on the Buyer Representation Agreement form that specifies it must be initialed “for any contracts longer than six months.”
Was that explained to the buyer? Or was it just highlighted to sign?
Same goes for the “Consent To Multiple Representation” that’s detailed in the “Confirmation of Cooperation” that the buyer, seller, buyer’s agent, and seller’s agent all sign.
If the idea here is to allow the practice, with consent, then all agents have to do is trick clients into providing consent.
Informed or not, once it’s signed, it’s tough to argue out of it.
But all that will come out in the wash, eventually, we hope.
I certainly hope that this announcement from the B.C. Premier is not just lip-service in response to a well-publicized scandal, but rather an actual call to action that will be followed up on.
And all this, of course, is as a result of an investigative journalist from the Globe & Mail, who broke a story that was so shocking, so detailed, and so indisputable that it forced those with the powers to enact change, to take action.
Kathy Tomlinson’s February 6th article changed Vancouver real estate forever, and I wonder if she ever realized what an impact it would have.
Make no mistake – there is no benefit to the practice of assigning the Agreement of Purchase & Sale to a listing agent who is supposed to represent the best interest of the seller. I don’t think this is in dispute, whatsoever.
So I applaud Ms. Tomlinson for putting together this incredible piece of journalism, and as a result, improving the B.C. real estate landscape, which many residents feel has been harmed irreparably.