The fast rising housing market in the Vancouver area has facilitated a practice known as shadow flipping whereby a realtor will arrange to assign a house sale contract, sometimes more than once, prior to the closing date. While realtors can earn commissions on each assigned sale, and profit personally if they are a party to the transaction, the original seller receives no benefit.
The practice of shadow flipping is problematic as it creates a significant incentive for a realtor to act in a way contrary to the interest of the people they are supposed to represent. Realtors have a fiduciary duty to the individuals they represent. That means they should be acting in their best interest.
Because realtors are currently permitted to earn additional commission by assigning a contract they have a financial incentive to encourage a person selling a house to accept a lower price so as to make it easier to assign the contract and earn more money. This incentive is even more pronounced where a realtor is assigning the contract to themselves or a family member.
In order to reduce the risk of realtors acting in a way that it contrary to their client’s interest three changes to the rules governing realtors are proposed:
- Prohibiting realtors from acting for both the buyer and seller on the same transaction.
- Prohibiting realtors from acting in a transaction where they have a personal financial interest.
- Prohibiting realtors from receiving an additional commission for assigning a contract without the permission of the original seller.
If these rules were implemented by either the Real Estate Council or, failing that, the provincial government, it would address the shadow flipping problem and allow the public to have greater confidence that the advice they are receiving from their realtor is in their best interest.
The legal philosophy of Antonin Scalia and the political implications of his death are also discussed along with the circumstances of a man sent to jail for repeatedly pretending to be a lawyer.
Michael Mulligan is a lawyer at Mulligan Tam Pearson in Victoria. Legally Speaking is live on CFAX 1070 Thursdays at 11:00am.