Assignment of Contracts: What You Should Know
Recent media reports in British Columbia have brought property assignment, also called “shadow flipping,” into the public conversation. We understand real estate professionals and consumers may be concerned about these activities because of the media reports, but the situation is different in Alberta. Property assignment is typically a more common practice in rising markets and where there is a significant influx of foreign money; such as in B.C.. Alberta is experiencing a different economic situation. RECA hasn’t received complaints about assignments, even during the booming market of 2007.
Assignment of Contracts: What should Alberta industry professionals know?
- Property assignment is not illegal, nor is flipping a property. At its most basic, contract assignment is when a property buyer assigns his or her interest in the purchase to a second buyer before the original sale to the first buyer closes. The original seller thinks they are selling to the first buyer, but a second buyer has already agreed to buy the property from the first buyer, usually for a higher price. This means the seller doesn’t get as much money as they could for their property. Property assignment is not illegal, but, read on….
- Alberta has robust rules in place relating to personal trades in real estate, disclosure, and fulfilment of fiduciary duties. When real estate professionals have a direct or indirect interest in a real estate transaction, they are required to disclose it, in writing, to an unrepresented buyer or seller, the complete details of any negotiations for a further trade to another person or of the professional’s interest in the property (s.62 of the Real Estate Act Rules).
For example, if a real estate professional is buying a home from an unrepresented seller, and the real estate professional has already negotiated the sale of that property to another buyer in the future, the real estate professional must disclose the details of that transaction to the original seller, in writing.
For more information on personal trades in real estate, read the information bulletin, here.
- Alberta real estate professionals owe their clients fiduciary duties, including undivided loyalty, acting in the best interest of their client at all times, and avoiding and disclosing all conflicts of interest.
If you’re representing a buyer client, it is inappropriate for you to approach a potential seller and ask them to sign a Seller Representation Agreement for the purpose of enabling your buyer client to buy their property and then collect a commission for the transaction. In these cases, you should use a Seller Customer Acknowledgement and Fee Agreement form with the potential seller. Using a Seller Representation Agreement will lead the seller to believe you’re representing their best interests.
Real estate professionals have a fiduciary duty with clients to avoid conflicts of interest from the outset. In the above example the buyer is the client and you should treat the seller as a customer.
For more information on dealing with unrepresented sellers, read the information bulletin, here.
- RECA is required to investigate all written complaints. If RECA receives a complaint about an industry professional not undertaking the proper disclosures or not fulfilling their fiduciary duties, we investigate, but assignments and property flipping are not themselves a breach of the Real Estate Act or Rules