Shadow flipping in Vancouver – BC has become headline news across Canadian media. The problem with shadow flipping is number one the original home owner who has no idea. The second major issue is invasion of taxes.

In Vancouver real estate transactions, a contract provision called an assignment clause is included in the transaction for the benefit of the buyer. This provision allows a buyer to resell or transfer property to another buyer before the deal’s closing date.

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The intended purpose of assignment clause was to give buyers a legal way of getting out of a purchase if for some reason their circumstances change after having made a offer on the property without having to surrender their deposit. The clause was also meant to protect sellers, ensuring a sale would still proceed as long as another buyer could be found. But the assignment clause has been abused by few realtors in Vancouver-BC. The selling agent have sold the same property to multiple buyers for their own benefit and collecting commission several times on the same deal.

Since there are multiple buyers involve who are making huge profit by flipping the contract, the Canada Revenue Agency (CRA) has no clue if the buyers were Canadian or foreigners.

This shadow flipping in Vancouver – BC enables real estate agents to sell a contract for a single property many times at increasingly higher prices as they make commission on each transfer. Buyers in the middle also benefit as they make a profit from the difference between what they paid and resale value. This shadow flipping in Vancouver – BC has left original home owner to receive less than what the property is worth and the last buyer paying an inflated price for the home, with the difference in value going to the real estate agent and the buyers in the middle.

Shadow flipping in Vancouver – BC may be controversial, but it’s completely legal in the rest of Canada. The assignment clause entitles the buyer to pass on the home to another buyer, and there’s no law preventing the listing realtor from facilitating these sales.

It is possible, though, that the practice violates Real Estate Council of British Columbia regulations. According to the organization’s Professional Standards Manual:

“The general rule, in the absence of wording in the contract to the contrary, is that buyers may assign their rights under the contract as long as they do not prejudice the rights of the sellers.”

When a home owner decides to sell their home, the buyer has the right to “assign” or “flip” the contract that is, to sell it, to anyone they want between when the contract is signed and the deal closes. This can happen even before any money has exchanged. The legal loophole means even if the Realtor do represent the seller, they can get in without telling them if they invest after the original deal is inked. The realtors only have an obligation to tell sellers they have an interest in the deal if the Realtor is representing the seller, not the buyer.

Shadow flipping in Vancouver – BC is not illegal. The home owners are unaware of how often it’s happening, because there are no records. These are all private contracts which are taking place once the home owner has sold their property.

Professional real estate investors who do flip real estate before closing declare as income instead of capital gains.