A Word on "Flipping" Real Estate and the Recent Controvesry

Blog by Arnold Shuchat | February 13th, 2016

A couple of thoughts on "flipping" and those that do it (from a Realtor).

1. Anybody should have the right to do whatever they want with their property.

2.If you don't want to have your property "flipped" as a seller, ask your "expert Realtor" who I am assuming works for you, to include a clause eliminating the right of assignment prior to completion without the consent of the seller, which consent may be unreasonably withheld.

3. I am not convinced, articles in the Globe and Mail notwithstanding, that it is the Realtors that are principally flipping property. What I think is happening is that Realtors are bringing to their buyers other buyers who are prepared to pay them a profit before their first buyer even completes. That is good real estate work. Wouldn't you be thrilled if your Realtor told you you could make a quick few hundred thousand dollars without even completing? Even more so if he had recommended the property in the first place.

4. The part of the Globe story which bothers me is the alleged practice of some Realtors hiring employees who are supposedly outside of the Real Estate Services Act to solicit houses for sale "for their own" use; i.e. "I like your home.... will you sell it to me?" These Realtors should be determined and the employees and the Realtors themselves should be severely sanctioned. I believe that the deceived sellers should in those cases launch suits before the courts to recover fraudulently obtained profits. The remedies are mostly private in nature and the government regulator's impact will mostly be felt in the discipline and licensing sanctions;

5. Property owners should undertake a more refined process of selecting their Realtors. Too many are just too gleeful at the prospect of saving a few commission dollars, or believing that they lucked out because someone just came to their door and told them the familiar BS story that "they have many Asian buyers looking for houses like yours".... without ever investigating the reputation of the Realtor through 3rd party reviews, friends, past clients etc. That is their mistake. 

If someone came to my door trying to sell me that line, (and they have!) I tell them, "How can you possibly represent me if you are going to bring me YOUR Asian client?... Go represent them."

Your home is probably the most important asset in your portfolio. If your freedom was at stake and you were facing very serious criminal charges, you wouldn't select a lawyer from the Yellow Pages or from a door to door flyer. Why then would you fall for the services of another professional, whose ability to communicate in the language of the courts is obviously questionable or limited and who you know nothing about?

6. As for the lack of reporting regarding the flipping of the right to purchase prior to completion:

     1. The industry could adapt to that by requiring brokers to maintain reporting documents for each flip transaction prior to completion. The PTT can be amended by attracting PTT on the flip at a higher rate than the usual one. This would in fact impose a speculation tax and would do us all some good.

     2. The profits on the flip would have to be reported on a CRA form and Conveyancers might be required to secure a holdback in their trust accounts pending release by the CRA... just like what happens with Estates.

7. Without a reporting regime in place (although Realtors are required by their brokers to submit transaction sheets with every legally binding contract signed), it will be difficult for the CRA to enforce or determine profits made on assignment. Secondly, if the "flipper" is an offshore buyer, good luck on finding him with a 3 letter last name on Canada411. He is gone. So we need a far more efficient enforcement and collections mechanism. As it stands, the amount is not exempt from being fully taxed as income....it is simply hard to catch. But those having flipped who reside here can be on the hook for large penalties and interest on the undeclared taxes, and even Tax Evasion, criminial proceedings.