Some days it’s easy to encapsulate dumb. This is one of them. Behold Christy Clarke.
The BC preem on Friday banned assignment clauses in real estate deals. Unbelievable. The only winner here is the Globe and Mail, which managed to take a routine aspect of real estate transactions and turn it into something evil. Mistakenly, many poor souls in Vancouver think legions of realtors are madly flipping houses for obscene and hidden gain, when there’s zero evidence this is doing anything to fluff prices.
What’s an assignment clause? Simple. You sell a house and receive the agreed-upon amount of money on the day of closing. You also agree to allow the buyer to resell the place (at his own risk) prior to closing if he thinks he can do better. Whether an offer has one of these clauses in it or not is irrelevant to being paid what you expect. But in a rising market a buyer may be willing to take the bet that in a month or two he can sell for more, pocketing the difference when the deals close simultaneously.
This isn’t illegal. Or unconventional. Certainly not new.
In the 1980s boom, Toronto houses routinely closed six or more times on the day of closing. Today there are real estate offices, brokers and agents who do nothing but deal in assignment clauses. In the GTA it provides one of the main means for people to buy condos – shopping among assignment sales from those investors/speculators who snapped up new units from pre-build plans.
Every real estate board and provincial regulatory body in the country is cool with assignment clauses. They fill a market niche. They recognize that cheap rates and house lust have turned real estate into an investment commodity. For Vancouverites to recoil in horror (and the premier to pander to them) because a few ballsy buyers are making money this way – when the whole city is a cauldron of amateur speculation – is pure hypocrisy.
But Christy knows that. She’s being a drama queen. Yuck. The worst of politics.
Why did so-called ‘shadow flipping’ lodge so deeply in Vancouver’s collective craw? Because some sellers whose offers included assignment clauses were horrified they could have been even greedier if they’d waited to sell, or been more aggressive. Of course they received the full, inflated contracted amount, but were convinced of being ‘cheated’ out of still-greater windfall profits. The premier was even heard to utter that her government would have a role in ‘restoring’ that loot to the vendors. Sheesh. The whole province is on drugs.
Shadowy, flippy realtors are the latest shiny thing diverting BCers’ attention from themselves. Last year it was Chinese dudes. When our dollar cratered, there was worry about Americans stealing houses. Meanwhile ridiculously low mortgage rates and a local culture of house fetish, where real estate’s the single topic of discussion, are making the region uninhabitable. Look at sad, sleepy little Victoria – where Asian buyers account of less than 1% of buyers and realtors are choirboys. Sales last month were up 42% and the benchmark price swelled almost 15%. As Vancouveritis spreads it becomes clear who the true enemy is. Look in the mirror.
Of course, Christy (I thought she was fetching when I used to be on her radio show) could address runaway house prices with a simple speculation tax. No, not on the rich, Asians or realtors. Everybody. Regular people would pay capital gains on properties held for less than a year or two. And a great way to help dim the fires is to stop stoking them. The recent BC budget wiping away land transfer tax for most first-time buyers was a case in point. You don’t make housing more affordable by subsidizing people to buy in. Duh.
The main culprit remains money so cheap that people without personal discipline (that would be most of Vancouver) can’t help gorging themselves in order to chase inflated assets higher. They think real estate has intrinsic worth, instead of seeing the correlation between low rates and high prices. In time this will change. Meanwhile two great cities and a stunning province turn into financial war zones that sane people avoid. Like politics.