A duty of confidentially to their clients may trump disclosure by a real estate agent of a home being flipped under an assignment sale, a topic that has drawn the attention of the B.C. Premier and the Real Estate Council of BC (RECBC).
A Globe and Mail investigation found that some Vancouver area real estate agents and investors are making windfall properties through assignment sales, a legal method that allows a home to be resold before the original sales agreement closes.
The practice was widespread in Vancouver a decade ago, preceding the 2008 crash in the pre-sale condominium market.
The watchdog RECBC, which enforces the licensing and conduct of B.C. real estate agents, is appointing an independent advisory group to investigate whether assignments are being used inappropriately.
“Whenever we become aware of a licensee who fails in this duty byputting their own financial gain ahead of their clients’ interests, that licensee can expect to have their actionsinvestigated and may face disciplinary action from the Council,” according to the REABC statement.
Premier Christy Clark said the province would act if the RECBC did not find a solution.
"We're giving them the chance to fix it. If they don't, we're going to fix it for them," Clark said
But real estate agents also have fiduciary duty to their clients not to release details of sales agreements, realtors note.
For example, if an agent’s client is buying a property to flip it, no disclosure has to be made to the original seller, said Neil Hamilton, a veteran Vancouver real estate agent. “In fact, the realtor has a duty of confidentially not to disclose his client’s intentions.
“Similarly, a separate realtor representing the buyer has no responsibility whatever to disclose to the listing realtor what his or her client is doing and in fact isn't supposed to.”
However, a real estate agent who is actively part of the transaction must disclose that fact.
“He/she may not have to say that they're flipping it, but they at least have to disclose that they are in fact an active part of the sale in some way and a smart seller can draw their own conclusions and decide on their course of action,” Hamilton said.
Real estate lawyer Wesley McMillan noted that there are risks involved in flipping assignments if the housing market suddenly cools.
“Assignments come with significant risks for all of the parties involved, particularly assignors. Unless the assignment agreement expressly states the assignor is free from future liability – and the vendor agrees to it – the assignor remains exposed. If the assignee does not complete the purchase, the assignor can be sued for the damages suffered by the vendor. In a declining market, these damages can be significant,” McMillan explained.
A vendor can insert a no assignment clause in a sales contract, noted Vancouver real estate consultant Ozzie Jurock, but he added that such a clause could reduce the demand, and the potential sale price, for a property.
