I know that the skyrocketing price of real estate in Vancouver must be frustrating for anyone trying to get in to the market, and that when people get frustrated they sometimes look for an object for that frustration. In my experience the Globe and Mail almost never misses an opportunity to set up Realtors as the causal factor in any bad real estate market experience. I don’t think they do this because they hate Realtors, I think they do it because stories that malign our industry get clicks.
However this week’s expose on Shadow Flipping is kind of a new low. Largely bereft of meaningful analysis, it claims to have uncovered what fuels Vancouver’s real estate market, and guess what? It’s the unethical behavior of Realtors.
The article provides several examples. The following is my favorite:
“Nan Zhang
, of Royal Pacific Realty, was in the process of getting her real estate licence in 2014, when she bought an older house in Vancouver for $2.8-million. She had it knocked down, then rebuilt. Nineteen months later, she sold her property for $5.6-million – netting an estimated $2-million profit, after substantial effort of her own.
“The original seller, Hong Shen, said she was shocked when The Globe informed her how the broker had profitted (sic). “I’m very angry,” she said, acknowledging there was not much she could do after the fact. “The buyer would buy the house with no conditions, so I said yes.”
“By law, brokers must tell buyers and sellers, in writing, if they have a personal interest in a deal before the offer to purchase is accepted. They’re also required to inform sellers if they plan to resell.
“When she purchased Ms. Shen’s house, however, Ms. Zhang was not yet a licensed real estate broker, so she had no obligation to disclose her intention to resell or rebuild the property. She did nothing wrong.
““It was my husband’s deal,” Ms. Zhang told The Globe by telephone. She considered it an unremarkable transaction in a market such as Vancouver’s. “There are lots of successful investments,” she said, questioning why one like hers was drawing attention.”
From the Globe and Mail’s hard-hitting investigative piece entitled “The real estate technique fuelling (sic) Vancouver’s housing market”, BY KATHY TOMLINSON.
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As a thought experiment I’d like to change a few words to recast this wildly unethical behavior in a different light:
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“Nan Zhang, of the Common Grounds Coffee and Bakeshop, was in the process of getting her bakers license in 2014, when she bought small quantity of flour for $1. She then baked a muffin and sold it for $4 – netting an estimated $3 profit, after substantial effort of her own.
The flour’s original seller, Hong Shen, said she was shocked when The Globe informed her how the baker had profitted (sic). “I’m very angry,” she said, acknowledging there was not much she could do after the fact. “The buyer would buy the flour with no conditions, so I said yes.”
By law, bakers must tell muffin buyers and sellers, in writing, if they have a personal interest in a deal before the offer to purchase is accepted. They’re also required to inform sellers if they plan to resell.
When she purchased Ms. Shen’s flour, however, Ms. Zhang was not yet a baker, so she had no obligation to disclose her intention to resell or bake with the flour. She did nothing wrong.
“It was my husband’s deal,” Ms. Zhang told The Globe by telephone. She considered it an unremarkable transaction in a market such as Vancouver’s. “There are lots of successful investments,” she said, questioning why one like hers was drawing attention.”
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Will we be seeing the Globe write articles about “insider” mechanics buying cars, fixing them up and selling them at a profit? Or plumbers who “mark up” their supplies, or any of the hundred if not thousands of sectors in the economy where buy-low, sell-high is generally considered to be an ethical object of business? This reads like an article in Pravda in 1982.
The article never clarifies agency for the reader, or the fact that the original sellers in every example it sites are not the Realtors’ clients. In every case the Realtor represented the buyers (even if they represented themselves) and in every case the buyer benefited. So, is it unethical for a Realtor to use their understanding of a market to benefit their clients?
Answer: No. It is, in fact, our value proposition.
Assignment clauses are perfectly legal where agreed to by a seller. Those clauses are actually a good idea on almost every level. Disclosure of Realtor involvement (as a purchaser or co-purchaser, seller or co-seller) in transactions is required by law in BC, as is disclosure about our remuneration (a standard that no one else in our economy seems to be held to, but whatever) and those requirements are likely followed by 99.9% of agents. Those caught breaking those rules are disciplined. The enforcement of those rules is complaint driven. And in fact, as this witch hunt goes on, one not started by a complaint they will surely find lots of assignment sales where the interest disclosure was immediate and the sellers still wanted to sell.
I’m somewhat ashamed our industry didn’t confront the slanderous implications of this article more effectively. My advice to real estate buyers in Vancouver is that you track down the agents maligned in this article and use them to help you buy your property. They’re obviously doing something right. And to the sellers, maybe get your own agent next time.