The use of assignment clauses—which is also known as “shadow flipping”—gives realtors the opportunity to enjoy two to three times their base commissions for each transaction by reassigning a real estate contract to different owners at progressively higher prices before the sale is concluded.
Assignment clauses are currently not illegal in Canada, and the buyer can pass on the property to another buyer without any repercussions on the realtor’s part.
Industry insiders noted that the practice is not exclusive to red-hot markets like Vancouver and Toronto, but it can also be observed in other areas like Calgary and Edmonton.
“In Toronto, what you see a lot of is people who buy pre-built condos and then sell them at a profit before they even take possession of them. This is just another version of that,” Real Estate Investment Network founding partner and senior analyst Don Campbell told CBC News
Campbell noted that the potential effects of shadow flipping on the entire sector are minimal, since despite its popularity, the setup isn’t used by a majority of realtors. He added that assignment clauses would not have enough of an impact to be solely responsible for possible price spikes.
“Each factor, such as low interest rates, foreign investment, lack of available earth, densification…all of those factors play a role in the price of Vancouver real estate, and this is just one of those components,” Campbell said.
Canada’s real estate sector has seen remarkable activity and volume despite the country’s economic struggles in the past few years, but the emergence of so-called “assignment clauses” is threatening to place homes out of reach of the average middle-class household.