The Truth About “Shadow Flipping”
Over the past month or so, there’s been quite a bit in the media about “shadow flipping”. A lot of it has been driven by the Vancouver market.
Here’s an article from the Globe and Mail that a lot of people are referencing…“Real Estate Technique Fuelling Vancouver’s Housing Market”.
The info-graphic about half way down the page is a really good explanation of it.
I’ve posted it here again:
Nothing is illegal about it, so I’m not sure why the media is painting such a bad picture of it.
There’s 2 points behind it…lack of education and also the agent potentially mis-leading consumers.
Let’s dive a bit deeper into each person that’s involved.
Seller. The Seller has sold their home at an agreed upon price with Buyer #1. They shouldn’t be mad as long as they are comfortable with the price they got. They shouldn’t care what Buyer #1 does with it. They should only be concerned if they feel the agent selling their home mislead them on the price. On the other hand, maybe it was priced right and someone else really wanted the home.
Buyer #1. If Buyer #1 loves the house, maybe they won’t be willing to assign the contract to someone else for a premium. Maybe they will. What’s the price point at which they would be? $50K? $300K?
Buyer #2. As long as Buyer #2 is educated about the pricing and understands what they are doing, then by all means go ahead. You’re paying a premium to get something that you didn’t get in the first place.
Buyer #3. Same thing as Buyer #2.
At each stage in “shadow flipping”…each party should be educated in pricing, not because the agent is peddling a “good deal”.
The grey area comes when the agent lies about pricing to Buyer #2 or Buyer #3 just to make the extra “finders fee”. If the agent is involved and has an actual “interest” as one of the Buyers, then there might be some flags that could be raised as well.
But if the deal is a legitimate one, the agent should be paid for finding the deals.
I recently bought a used iPhone 5s for $250. I could easily turn around a flip it for $300 based on what things are selling for on Kijiji. I found a good deal and if someone is willing to pay more, I should benefit. In this case, I want to use the phone, so the extra $50 isn’t worth it to me.
This “shadow flipping” has been in the US for quite some time, and you could also call it Assigning or Wholesaling.
Buyer #1 finds a good deal and sells it to Buyer #2 for a premium and assigns over the original contract.
You can all it arbitrage, flipping, assigning…it doesn’t matter. It happens in all industries.
At the end of the day, it’s all about educating yourself.
Work with the people you trust.