Sep 12, 2023
In the world of real estate, there’s a term you may have heard buzzing around: “Assignment of Contracts.” This practice has gained notoriety, especially in British Columbia, where it’s often referred to as “shadow flipping.” However, the situation in Alberta is quite distinct, and it’s important for consumers to understand the key aspects of contract assignment in their province.
Recent media reports in British Columbia have brought property assignment, also called “shadow flipping,” into the public conversation.
At its core, contract assignment involves a property buyer transferring their interest in the purchase to a second buyer before the original sale to the first buyer is finalized. Essentially, the original seller believes they are selling to the first buyer, but unbeknownst to them, a second buyer has already agreed to purchase the property from the first buyer, often at a higher price. This can result in the original seller not receiving the full value for their property.
One of the primary concerns about property assignment revolves around its legality. In Alberta, property assignment itself is not illegal, and neither is the act of flipping a property. However, there are crucial nuances to consider. While we don’t have all the facts about the B.C. cases, it sounds like real estate professionals themselves are involved in the transactions and are financially benefiting from assignments.
In some cases, real estate professionals may participate in assignments and benefit financially from them. They might purchase properties from unrepresented sellers and then resell these properties through assignment to a second buyer for a higher price before the original deal closes. Importantly, it is legal for real estate professionals to engage in these transactions, but they are obligated to disclose the assignment to the original seller.
Alberta boasts a robust set of rules and regulations concerning personal trades in real estate, disclosure, and the fulfillment of fiduciary duties. When real estate professionals have a direct or indirect interest in a real estate transaction, they are mandated to disclose this interest in writing to unrepresented buyers or sellers. This disclosure must encompass all the details of any negotiations for a further trade to another party or the professional’s interest in the property.
Additionally, real estate professionals in Alberta are bound by fiduciary duties, which include undivided loyalty to their clients, always acting in their clients’ best interests, and both avoiding and disclosing any 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 cases where a real estate professional is representing a buyer, they should refrain from approaching a potential seller to sign a Seller Representation Agreement for the sole purpose of facilitating their buyer’s purchase and collecting a commission. Instead, they should use a Seller Customer Acknowledgment and Fee Agreement form. This form explicitly outlines the real estate professional’s role, clarifying that they are not representing the seller’s best interests but rather the buyers.
Moreover, real estate professionals have a fiduciary duty to proactively avoid conflicts of interest from the outset. In situations where the buyer is the client, the seller should be treated as a customer to prevent any confusion.
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.
The Real Estate Council of Alberta (RECA) is responsible for investigating all written complaints. While assignments and property flipping themselves do not breach the Real Estate Act or Rules, RECA is vigilant in ensuring that industry professionals adhere to proper disclosure and fiduciary duty practices.
In conclusion, understanding the intricacies of contract assignment in Alberta is vital for both consumers and industry professionals. While property assignment is not illegal in the province, there are stringent rules and regulations in place to protect the interests of all parties involved. Whether you’re buying or selling a property, it’s crucial to work with a licensed real estate professional who can guide you through the process while adhering to the highest ethical standards. By doing so, you can ensure a smooth and transparent real estate transaction in Alberta.
Hi! I’m Erin Crocker. I’m a real estate lawyer with over 10 years of experience in Alberta and British Columbia real estate law. I love technology and efficiency. I’m on a mission to create a modern, digital closing experience for buyers and sellers through technology, transparency and sharing knowledge.
