For a very long time, real estate agents have enjoyed the benefits of the rather controversial “shadow flipping”. However, the NDP provincial government has put forth two bills whose clauses include going after this practice that, even when it is not illegal, it gave space for speculation and soaring property prices.
Shadow flipping is a practice where real estate brokers include an “assignment clause” in the sales contract to allow the property to change hands and increase the price each time. This of course, makes prices and commissions increase. The practice has increased the price of properties in Metro Vancouver’s hot housing market. Houses and apartments are practically out of the reach of most locals.
The practice has been mostly used to protect buyers in case they pull back due to a change in their financial circumstances. Basically, shadow flipping means that a client agrees to sell a property at $1 million to a buyer. The agent then assigns a price of $1.4 to a second buyer before assigning a price of $1.8 to a third buyer. The agent gets a commission for each sale but since the transaction is only registered once, taxes will be paid by the buyer who bought the property for $1.8 million, allowing the first two sales to not have to pay any transaction tax.
As you can see, this can easily lead to illegal practices in which prices are increased in the detriment to potential buyers.
The new bill, introduced two months ago by opposition leader John Horgan, would force speculators who do not pay income tax and do not live in the home to pay a levy of two percent of the property value.
“The proceeds of this levy would be used to establish a Housing Affordability Fund to benefit the entire community,” Horgan said to the legislature.
“Put the burden on absentee owners to pay a little bit more so the people who want to work and live in Vancouver can afford to do so.”
The law would not affect those who rent or seniors who rent or buy.