The British Columbia government has announced new rules aimed at
ending the recently decried practice of shadow flipping of real
Shadow flipping has recently become a focus of the hot real
estate market in B.C. and involves a purchaser entering into a
contract of purchase and sale (usually for residential property)
and then assigning that contract to a third party for a fee,
sometimes several times, driving property price up to the benefit
of the middle men. The seller does not benefit from the higher
price and is often shocked to learn of the final selling price.
Real estate agents or "licencees" under the Real
Estate Services Act, often obtain commissions for each of the
shadow transactions as well, which has given rise to public
discontent. This process is possible because the standard forms of
purchase and sale agreements used in most residential transactions
do not prohibit assignment of the agreements and do not require
notice or consent of the seller for the purchaser to assign.
The provincial government introduced regulations under the
Real Estate Services Act that will require real estate
agents and licencees to include, in every contract, a prohibition
on the assignment of the contract by the purchaser unless the
seller consents to such assignment and a provision that requires
that any profit obtained from an assignment to a third-party
purchaser to be returned to the property's original seller. The
new regulations come into effect on May 16, 2016.
If the purchaser wishes to remove these two provisions from the
purchase and sale agreement, the licensee presenting the offer must
provide the seller with a notice form advising the seller these
provisions are missing from the agreement and what the potential
These new regulations apply to offers and agreements to purchase
made on or after May 16, 2016, but do not apply to contracts made
before that date. The regulations apply to the presentations of
offers and agreements to purchase by licencees under the Real
Estate Services Act and affect both residential and commercial
transactions. However, in many commercial transactions the licensee
is not presenting the offer to the seller because the parties will
involve their legal counsel, who are not governed by the new
The Real Estate Council of British Columbia, which is the
regulatory body responsible for administering the Real Estate
Services Act and regulations through its rules governing
licencees, will draft new rules to impose requirements on the
licencees and provide a form of disclosure to be used to notify
sellers regarding these requirements.
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