Assignment of Contracts: What consumers should know
| February 17, 2016
Recent media reports in British Columbia have brought property assignment, also called “shadow flipping,” into the public conversation.
At its most basic, contract assignment is when a property buyer assigns their interest in the purchase to a second buyer before the original sale to the first buyer closes. The original seller thinks they are selling to the first buyer, but a second buyer has already agreed to buy the property from the first buyer, usually for a higher price. This means the seller doesn’t get as much money as they could for their property.
Property assignment is not illegal, but we understand consumers may be concerned about these activities because of the media reports.
The situation is different in Alberta. Property assignment is typically more common in rising markets and where there is a significant influx of foreign money; such as in B.C. Alberta is experiencing a different economic situation. RECA has not received any complaints about assignments/shadow flipping as being reported in B.C. right now.
Assignment of Contracts: What should consumers know?
1. Property assignment is not illegal, nor is flipping a property.
While we don’t have all the facts about the B.C. cases, it sounds like real estate professionals themselves are involved in the transactions and are financially benefiting from assignments. They are buying properties from unrepresented sellers and re-selling the properties through an assignment to a second buyer for a higher price before the first deal closes.
This is technically legal, but the real estate professional must disclose the assignment to the original seller.
2. Alberta has robust rules in place relating to personal trades in real estate, disclosure, and fulfilment of fiduciary duties. When real estate professionals have a direct or indirect interest in a real estate transaction, they are required to disclose it, in writing, to an unrepresented buyer or seller. They also need to disclose the complete details of any negotiations for a further trade to another person or of the professional’s interest in the property.
For example, if you are an unrepresented seller and a real estate professional is buying your home, and that real estate professional has already negotiated the sale of your property to another buyer in the future, the real estate professional must disclose the details of that transaction in writing to the original seller, you.
Alberta real estate professionals owe their clients fiduciary duties, including undivided loyalty to their client, acting in the best interest of their client at all times, and avoiding and disclosing all conflicts of interest.
It is inappropriate for an industry professional to approach you as a potential seller and ask you to sign a Seller Representation Agreement for the purpose of enabling one of their buyer clients to buy your property. In these cases, industry professionals should use a Seller Customer Acknowledgement and Fee Agreement form. This form outlines their role, including the fact they are not representing you or your best interests; they are representing the buyer.
Not only do Alberta real estate professionals have to disclose the conflict of interest, they also have a fiduciary duty to avoid conflicts of interest from the outset.
3.Know the value of your home. RECA encourages consumers to do their due diligence before putting their property on the market, and hire a:
- licensed real estate licensee to represent your interests. They can prepare a comparative market analysis that provides you with sold prices for similar properties, not just the asking prices. They will also work in your best interests.
We believe a well-informed consumer is a protected consumer. RECA and Alberta licensed licensee offer a number of resources that can help.
For more information, check out RECA’s additional Consumer Information:
Real Estate Consumer Information
Unrepresented Sellers – What You Need to Know
Real Estate Professionals Buying Your House or Selling You Theirs
