Unethical and dubious real estate practices as reported recently in the Globe and Mail are causing waves of consternation in the real estate industry. My colleagues and I who pride our integrity above all else are, needless to say, not happy.
Assignment of sales contracts before the sales completion date is not uncommon in a rising real estate market. Assignments are legal, and usually don't tend to have ethical consequences. However, what’s troubling in the cases we’re hearing about now are the huge mark-ups made as the sales contract is transferred (“assigned”) from one buyer to the next, and the shadowy role some Realtors may be playing as undeclared buyers.
With these types of assigned contracts, the original home owner is, quite frankly, being duped. If a contract is transferred from the original buyer to a new buyer at a substantial premium in a short period of time, the original sale was undervalued. The home owner, in effect, was cheated out of the true value of his or her property.
It appears that some number of these assignments relate to sales that were exposed to just one or very few buyers. A Realtor may have entered into a contract to sell the property with the promise of buyers in his pocket, brought a buyer by immediately, and sold the house to his contact within just a few days – with no or limited exposure to the wider market.
While this may be legal, it is highly unethical. These Realtors are not working in the best interests of their home seller client. They are clearly breaking the Realtors’ professional Code of Ethics. I along with my Realtor colleagues want these bad apples firmly dealt with.
What to do?
Don’t sell your home to someone standing at your door offering to buy it right then and there!
If you’re selling your home – whether single-family home, townhouse, or condo – you owe it to yourself to ensure it’s as widely exposed to the marketplace as possible. List it with an experienced Realtor who will do everything in their power to present the home to the widest audience possible; make it available to all who want to see it; allow some time to pass for build-up of interest and buyer due diligence; and then conduct what is essentially an "auction" of the property some eight to ten days after it is initially listed. This process will achieve the maximum, market-tested sales price for your home.
Eight to ten days seems to be the magic window of time to maximize sales price in our current market. A sale in less time may result in missed potential buyers; more than that and potential buyers may start to drift away, frustrated at the long wait and tempted by other properties. (See my February e-newsletter for details on how this 8-10 day marketing and selling process works.)
A possible solution? Not really.
Some industry people recommend that a home seller include a “no-assignment” clause in the sales contract. In my mind this can limit the opportunity to maximize the sales price for the seller.
Let's look at a hypothetical example: You list your home for sale. One potential buyer may be a speculator, hoping to flip the sales contract. Another may be, for example, a young family. Both will be competing for your home. In this example the speculator is a buyer and the young family are buyers and perhaps we have three others making offers. The speculator wants upside. He might offer a higher price knowing he may have the option to make a profit assigning/selling the contract to another buyer before completion. The participation of the speculator – and just the fact that you have five buyers competing – may encourage all parties to offer more than they otherwise would have. The energy generated amongst all five buyers in this "auction" will likely drive the price higher than if there were just one or two offers. If you include a "no-assignment" clause in the sales contract, the speculator(s) may drop out of the bidding, potentially resulting in a lower sales price. As hard as it may be to accept, investors or speculators are helping you achieve top market value for your home. Speculator participation – and its distorting effect on our market – may be a difficult pill to swallow. As a home seller, however, it is in your own best interest. That’s the reality of today’s marketplace.
That being said, an assignment provision in the sales contract can be written in such a way to give a seller more control over the process. Ask me for details.
Frustration and dismay for local buyers
The current single-family-home buying frenzy in Metro Vancouver is heavily distorting and inflating the market.
If you’re looking for a home in this market, competing buyers perhaps planning to assign the sales contract are just part of today's reality. Until there is sufficient public pressure and subsequent change to provide more protection for local buyers, it’s going to be a wild and often frustrating ride. That means ever increasing sales prices for single-family homes in all areas (and a corresponding trickle-down to townhouses and condos), and at times intense competition for any worthy property.
Participating in our current property market can be fraught with frustration and anxiety – for both buyers and sellers. Feel free to contact me anytime for help.
Warm regards, as well as a big "thank you" to all my clients who helped me achieve REBGV's Medallion Club status for 2015 – Top 10% of all Lower Mainland Realtors. Much appreciated!
(Note: This article was originally published in my monthly e-newsletter. Drop me a line if you'd like to subscribe.)