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REALTOR® To Blame for Assignment Flips?

An article on Saturday Feb 6 in the Globe and Mail caught attention across the country. Kathy Tomlinson found records of hundreds of real estate agents and speculators that have made significant profit by flipping Vancouver-area homes, by finding buyers willing to pay more for properties before deals close.

The crux of the issue is that the technique used to facilitate such flips are completely legal. The graphic below explains how a particular home can be sold 3X before the deal actually closes.

Assignment Infographic

All this is thanks to common law that allows for Assignment, even if the initial listing contract omits language about assignments. Contract assignment was intended to benefit sellers and buyers if the buyers circumstances changed. Like if the deal was binding then the buyers financing fell through or they lost their job etc before closing. Assigning is a way for them to get out of the deal without ending up in court over breach of contract and its a way for the sellers deal to be still go through albeit with a new buyer.

Assignments have been around for a long time. This is nothing new. What is new is the fact that assignments are being utilized for incredible profit in a heated market environment. Assignment flipping is only viable if there is rapid appreciation. Vancouver RE appreciates greatly from month to month, giving market participants incentive to re-sell before the buyer was initially planning to close.

It’s important to know that even if there is no clause allowing assignment in the contract it is still legal for it to be assigned under contract/common law. The ONLY way for sellers to make sure this doesn’t happen is by insisting on a “no assignment” clause.

Your REALTOR® is unlikely being unethical, just the Vancouver market is totally nuts. It is not uncommon that your listing agent recommends a price, and you receive a full price offer the first 48 hours + a backup offer. This doesn’t mean your agent purposely undervalued the property. In fact, the best way to maximize value is to start a bidding war.

That is why on Vancouver listings everyone is now delaying offers 3-4 day. There is a large risk of underpricing and that 3-4 delay brings it up to market price by allowing potential buyers to view the property and drive the price up via bidding war.

I think part of what is going on with these assignments is the market is out of control, not just ethics or lack of.

What happens in the Spring?

When the topic of real estate comes up with people I meet, it is widely thought that spring is the best time to buy. The theory is that more listings will come on the market in the spring, and you won’t be fighting over the scraps that are left over by the winter.

It’s undeniably true that the spring brings more listings, as we can see by looking at the last 5 years of data from the Greater Vancouver Real Estate Board.

Avg Monthly Inventory

Sure enough, inventory usually increases by some 70% from the beginning of the new year to the peak in June.   So the widely known theory proves to be true. If you’re a buyer, you will have more to choose from as the dreary Vancouver weather improves.

But does more inventory actually mean the market will be more relaxed?  Well looking back at the past 5 years, the answer is no, and in fact quite the opposite is the case.   January is usually when the market is slowest.   There isn’t much inventory but there are even fewer sales, so the months of inventory reach a high point for the year.   Every month after that rapidly shows the market getting more active, and tilted more towards sellers than buyers.

Avg Monthly MOI

On average, the market drops from 8 months of inventory in January to only 5 in the spring.   In other words, it goes from the high end of a balanced market to the edge of a sellers market.  So unless this year is an exception the market should heat up even further in the coming months.   And given the absolute insanity of this past January, that is not going to be good for those looking to buy. Spring will bring more choice but probably even more competition.

All this madness is not going unnoticed by the provincial government.   The finance minister is promising a “double-barrelled” response to overheated housing markets in the budget coming February 16th.   That is likely to come in the form of increased property transfer tax, because the best kind of crisis is one that can serve as an excuse for more taxes.   And I’m sure that the people buying those $2.5 million dollar Vancouver tear downs will suddenly back off at the prospect of an extra couple bills in tax.

 

Red Hot Seller Market – January 2016

The law of supply and demand certainly applies to Vancouver’s residential housing market.

Today it was announced the average home price in Vancouver hit $1.82-million. This is attributed to the critically low amount of available inventory.

The total number of properties, listed for sale on the REBGV MLS system in January was 6,635, a 38.6% decline compared to January 2015 when 10,811 homes were listed.

House Hunt Vancouver created the MOI vs. SFH Median Price graph below. We are currently sitting in a RED HOT seller’s market with about 2.0 months of inventory in Jan 2016. This continues to rapidly escalate the median home price to over $1.3M for Greater Vancouver. Think of the red line as the supply function, and green line as demand function.

Single Family Months of Inventory vs Median Price

Contributing to ultra-low number of single family homes for sale, is the rapid increase of sales. Every month of 2015 experienced record setting number of transactions since 2010.

YTD Sales Greater Vancouver

Do you think property owners are strategically holding out on the market, restricting supply?

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