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Sellers should seek multiple opinions to avoid ‘shadow flipping,’ experts say

Realtor Allyson Brooke said if a salesperson shows up on your doorstep with an unsolicited ‘drop-dead’ offer that seems too good to be true, there is no harm in telling them to wait for separate appraisals from other professionals.

Ben Nelms/The Globe and Mail

Getting a second or third opinion from real estate agents who work for you – and only you – is one of the best ways for sellers and buyers in the Vancouver region's heated market to avoid the controversial practice of shadow flipping, experts say.

"The tough question to ask is: 'Are you working just for me?'" said Ron Usher, a lawyer for the organization representing 340 B.C. notaries public, who handle routine sale contracts in the province, similar to real estate lawyers.

A Globe and Mail investigation into a practice that's become known as shadow flipping – in which a real estate agent makes multiple commissions from properties whose contracts are traded one or more times before the original sale closes – has raised questions about the role of some agents. In these cases, they act for both the buyer and seller. Though there is no official data on the extent of the phenomenon.

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An agent can act for both parties as long as the seller gives their consent and the salesperson doesn't divulge confidential information about one party to another party, according to the Real Estate Council of B.C., the industry's self-regulating body in the province.

While the real estate council has promised to investigate the practice and crack down on agents who are breaking the rules, experts say one simple way sellers can sidestep problems is to make sure their sales representative works only for them.

"Again, there's no shortage of excellent realtors who are very sensitive to questions of loyalty and fiduciary duty, that's the key when you have a trusted adviser," Mr. Usher said.

Thomas Davidoff, a professor at the University of B.C.'s Sauder School of Business, recommends sellers seek out several different agents to come to their home and offer the best estimate of its value.

"It's a competitive process, realtors really want listings," Prof. Davidoff said. "So if some guy offers you $1-million and a bunch of guys are telling you $1.5-million, you probably ought to tell the guy to take a hike."

Prof. Davidoff said there's nothing inherently wrong with an agent working for both seller and buyer if that salesperson has an extensive network of contacts and can reach a fair market value without the costs of open houses or listings. He added that sellers can hedge against shadow flipping by adding a clause that states the selling agent can't be party to any subsequent flipping of the property.

Mr. Usher said another alternative for sellers of single-family homes is to act like real estate developers that use assignment clauses to sell condo units at a discount years before they are built. The assignment rights to those condos can be sold to speculators betting on future price increases, but they must pay fees to the developer for the privilege.

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Allyson Brooke, a Vancouver agent licensed for 32 years, said if a salesperson shows up on your doorstep with an unsolicited "drop-dead" offer that seems too good to be true, there is no harm in telling them to wait until separate appraisals from other professionals.

"It's not a bad thing to go out and get your own agent, because you know they're going to take care of you," Ms. Brooke said. "The best way to protect themselves is to work with somebody that has come through personal referrals."

Keith Lancastle, chief executive officer of the Appraisal Institute of Canada, said that across the industry licensed appraisers – not agents – offer the most well-founded and unbiased opinion of the value of one's home.

For a fee of several hundred dollars, an appraiser can offer a more detailed market evaluation than most agents can and isn't influenced by whether the house sells or for how much, he said.

"Appraisers are somewhat unique in that they're the only real estate professionals that have no vested interest in the outcome of the transaction," said Mr. Lancastle, whose organization has 5,000 members across the country.

In the wake of The Globe's findings, RECBC, which regulates 22,000 licensed agents across the province, appointed an independent advisory group to look into these questionable practices and report back to the body in 60 days. The RECBC's disciplinary actions are usually driven by complaints, but the body said licensees found to have put their own interests ahead of clients could face investigation and penalties.

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Earlier this week, Premier Christy Clark said if the RECBC doesn't end the practice of shadow flipping, the provincial government is "going to fix it for them."

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About the Author
News reporter

Mike Hager is a general assignment reporter at the newspaper’s B.C. bureau. He grew up in Vancouver and graduated from the University of Western Ontario’s Huron College and Langara College. Before joining The Globe and Mail, he spent three years working for The Vancouver Sun. More


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