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Real Estate Broker Arbitrage in Vancouver

60 points by cpymchn 11y ago

JTon 11y ago
Here's an image from the article that explains it all: > http://www.theglobeandmail.com/news/national/article28634862.ece/BINARY/w940/image.jpg http://www.theglobeandmail.com/news/national/article28634862...
- fweespeech 11y ago
  How that is legal, ethically, I'll never understand.
  - mgirdley 11y ago
    It's totally ethical. The contract is very clear when it says, "Buyer and/or assigns." In most states, that is written at the very beginning of the contract as well.
    - maxerickson 11y ago
      I feel like there is a lot of opportunity for the agent to act like they are working for the seller while not informing them fully of their knowledge of the market. If they are acting like an adviser, there's something at least a bit smarmy about not actually advising. If they were simply interested buyers, its harder to impute an obligation to the seller.
    - fweespeech 11y ago
      The real estate agents are clearly violating their fiduciary duty to all non-agent parties involved in the transaction by misrepresenting the market value of the property. The average property owner doesn't understand the market and is expecting the real estate agent to provide accurate price estimations. I don't understand, ethically, how this sort of thing could be legal as its clearly a clause meant to allow misrepresentation to take rubes for their money.
    - vinceguidry 11y ago
      You're mistaking legality with ethics. The assignment clause makes it legal, but that doesn't mean that the brokers are acting ethically. Ethics revolves around ensuring that everybody's interests are protected. A broker is supposed to be a neutral party that does not have an interest in the transaction. The seller's interests are not being represented.
  - grok2 11y ago
    It seems like a grey area. In a market where buyers intentionally overpay above market prices to get the house of their choice and if everyone involved is aware and understands what they are getting into and more critically has options to negotiate a deal that is best for them, perhaps it makes some sort of free-market sense.
    - jonas21 11y ago
      > buyers intentionally overpay above market prices to get the house of their choice If buyers are willing to pay a certain amount for a house of their choice, isn't that the definition of market price?
  - deleted 11y ago
    [deleted]
- neonhomer 11y ago
  It seems like being Buyer #1 or #2 is a great spot, as they walk away with $300k without doing that much.
  - analyst74 11y ago
    I imagine they would provide the capital to finance the deal, otherwise there is nothing stopping the realtors from flipping those houses themselves and pocket all the profit.
    - zaroth 11y ago
      The buyer's agent can't just assign the property to another buyer, the first buyer has to actually agree to sell it along at the higher price. Of course, then the first buyer might have to go find another house to buy... The purchase price isn't paid until an actual closing, by the final buyer.
  - shimon 11y ago
    They are being paid $300k in return for passing on the opportunity to buy a property at a below-market price. If they are still aiming to buy in the same market, this could be a bad decision -- if the market keeps going up, they might have to pay even more.
    - shawn-furyan 11y ago
      Well, one of the sub-themes of the article was that Chinese investors are underpinning this situation. So you've got a lot of players in the market with no interest in actually living in the city. I think the effect you mention is probably a lot more relevant to the people selling at below market to speculators that approached them, because if they were assuming that they could finance a home purchase in the city with the proceeds of the sale, they're going to find their purchasing power significantly weaker than they were probably expecting (given that they just clear 3x their original investment, "YAY!"). On top of that, with many agents speculating themselves, and a lot of foreign investors on the buy side of the market, they're likely to find that they are now swimming with sharks having just sold their boat. Additional commentary: If you find yourself in this situation, you might as well try to get a loan to buy a new house before you sell your current shelter from the elements. If you're no longer able to get a loan for an amount that would get you a house in your area, perhaps that's an indication that you should be very careful with how you proceed. It still may be worth selling, even taking a below market offer (conceivably). But now you know that selling your house is going to mean moving to a more buyer friendly market in advance of committing yourself. Or... if you're the gambling type, renting in anticipation of a bubble burst (though I think heavy foreign investment messes with people's expectations of what is too hot for a given market; certainly it is fickle, but can potentially prop prices up significantly above historical levels for a long time).
- zaroth 11y ago
  I really don't like this image, and I think it's pretty misleading. Where's the seller's agent pictured? Where's 'Buyer 1' agreeing to sell to 'Buyer 2' and so on...? This is simply 3 rapid sales compressed into a single closing to save on the transfer taxes. Literally everyone wins. How is this different from, for example, complaining that it's unfair for a stock to continue going up after you sell it?
  - jeremy_wiebe 11y ago
    I think part of the frustration comes from sellers who have an interest in who they sell their house to. Once the deal is signed and the original buyer flips the house (buyer #1) the seller now loses control of who ends up owning the house. It might be legal but that is little consolation to the seller who might have had reasons to sell, or not sell, to some party.
gburt 11y ago
From the perspective written in the article, I don't understand why the seller is portrayed as upset: they did the deal at a price they agreed upon. Just because another buyer came in "after" that had a better price changes nothing; this could happen in a non-assigned transaction too. This part, at least, is a natural part of the mechanism of price finding in the market. It is an interesting question why the sellers are mispricing their homes by as much as 30%, but if you know anything about the Vancouver real estate market, it is perhaps not that surprising: numbers move very fast, a lot of inexperienced non-investors own property (that they have usually owned for a very long time) and have perhaps never been involved in a deal of such scale. If I were the buyer in the first transaction, however, I'd be very upset with my real estate agent though: his job was to advise me, not to be my adversary in an internal negotiation. He did not act in my interest, despite representing himself as my agent. I would be promptly reviewing my real estate contract and the real estate laws in my province for words like "fiduciary duty" and given the size of the transaction, probably consulting a lawyer. A stark reminder that real estate agents are not your friend -- and actually, that is true regardless of what side of the transaction you are on. They are almost always paid by the selling party and still even have non-aligned incentives even for that party: preferring to get a sale done quickly than to get a better price for their client (as they only earn a fraction of the increase, but there is a high fixed 'minimum' property price in any given jurisdiction; a second sale will do much better for them than a 5% increase in their current sale).
- maxerickson 11y ago
  The sellers are upset because they misunderstood the market, by millions of dollars. Whether the world is supposed to be fair or not, it's at least easy to understand why that would be frustrating.
  - sbarre 11y ago
    Yeah the point in the article about eroding trust in the broker market is important. Lots of people are (legally) taking advantage of a hot market to make short-term profits, but may be creating a long-term impact on the reputation of an entire industry. Maybe this is an opportunity for property appraisal companies to step in and make a B2C play..
maxerickson 11y ago
I wonder why the sellers are miss pricing their homes by so much? I guess there is an aspect of trusting the agent too much, and a lack of experience making such lucrative deals (I think I'd still love the chance to make a horrible deal on $3 million of appreciation).
- fweespeech 11y ago
  As someone who used to sell services to real estate agents... Their incentives are not aligned with the seller or buyer of the home but with their ability to generate a commission per hour of labor. Selling your house at $180,000 in 30 hours is far more lucrative than selling your house at $200,000 [fair market value] in 90 hours. A substantial number of them will opt for the former rather than properly advising the seller. The buyer's agent will do the reverse as their commission size is based on making the sale and the larger the dollar figure, the greater their commission. [e.g. Nudge you in the direction they think will maximize their reward for effort, such as encouraging you to pay $205,000 on a $200,000 property so there isn't any real negotiation.]
  - jcdavis 11y ago
    I believe it was Freakonomics had a section that covered this - When real estate agents themselves sell their own houses, they stay on the market longer than average.
- deleted 11y ago
  [deleted]
buzzdenver 11y ago
This is house flipping, not arbitrage.
- biot 11y ago
  It's not flipping. Flipping is where Bob fully completes the purchase of a property from seller Alice, Bob pays the property transfer tax [0], Bob takes possession of the property as the new owner on the title, and then Bob re-lists his property on the market at a new price, ultimately completing the sale to Charlie. What's happening here is that agents involved in the sale of Alice's property provide Alice with a price of (for example) $1M, which Alice accepts under the assumption that her agent is representing her interests fairly and objectively. After Alice accepts this price, the purchase is delayed. While Alice waits to receive $1M for the sale, Eve (another agent) is assigned the property and sells the assignment to Bob for $1.25M. Bob then sells his assignment to Charlie for $1.5M. Charlie then completes the purchase, and only then is the property transferred from Alice to Charlie. Charlie pays $1.5M, but Alice receives only $1M. Eve and Bob both profit $250K each, never having taken possession of the property themselves. [0] The tax is charged at a rate of 1% for the first $200,000 and 2% for the portion of the fair market value that is greater than $200,000. Source: http://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax/understand http://www2.gov.bc.ca/gov/content/taxes/property-taxes/prope...
  - buzzdenver 11y ago
    I don't think there's a strict definition of flipping. What's happening here is much closer to flipping than arbitrage for any sensible definition of those.
    - biot 11y ago
      My understanding of flipping was what I thought to be a common-sense one. However, upon researching it further I stand corrected: https://en.wikipedia.org/wiki/Flipping#Wholesaling_and_assigning_a_contract https://en.wikipedia.org/wiki/Flipping#Wholesaling_and_assig... One part of that article that stands out is that this is possible because the seller is generally not getting market value, which implies that the seller's agent isn't doing a great job of representing them: "This practice is often frowned upon in the real estate community since it seems unethical or illegal. In practice there is nothing illegal about wholesaling or assigning rights to a purchase contract even if it is multiple times. It is important to understand that the reason there is an opportunity to wholesale is because the original seller is selling the property for substantially less than market value."
matrix 11y ago
And to think that I thought the Vancouver real estate market was crazy back in 2005... This story is very relevant to tech. As much as I would love to, I wouldn't even think about locating a new business or office in BC today. And I'm sure I'm not alone. Attracting and retaining good employees is just too difficult when housing is more expensive than San Francisco - in a city where pay and buying power is much, much lower.
- fleitz 11y ago
  It's not more expensive than SF, don't read reports look at prices. If you work in tech SF is a lot more expensive than Van.
biot 11y ago
It sounds to me like the solution is to introduce legislation where the seller receives the final closing price (minus fees and commissions), not the pre-close sale price. Assign as many times as you want prior to closing the deal, but if that $2M house gets reassigned a few times and ultimately closes at $2.6M, that's what the seller should receive. Essentially, the sale isn't complete until the property is actually transferred. This would protect the interests of the seller and align the agents with their interests, something which is required to happen in theory but seems lacking in practice with rules easily skirted by an agent making laughable claims like "oh, I wasn't aware that I would be interested in having a financial stake in this property until an hour after the buyer accepted the offer".
- sharemywin 11y ago
  just don't sign a contract with an assignment clause.
  - sokoloff 11y ago
    Why do you (as the seller) care if the contract is assigned? You agreed to sell the house for X dollars on Y date. You get X (minus commissions) on or before Y date and you're good. Whether the house is resold (or the contract assigned) 0 or N times isn't your concern. You took a price that you're happy with and got it. Whether another buyer was willing to pay a higher price 5 minutes, 5 days, 5 months, or 5 years later is not your concern, IMO. I bought both of my houses with an "or assigns" clause in the offer. In both cases, I expected to (and did) move into the house as my personal residence, but if a seller balked at the "or assigns" bit, I would have walked on the first house and not sure on the second house. Why? Because I may want to assign the contract to a trust, partnership or LLC, in addition to the freedom it gives me to assign to another buyer. The couple in the article were OK with selling their house for it to razed and a new structure built, but weren't OK with the new buyer selling the house to someone else?! That makes no sense to me...
    - biot 11y ago
      What's happening is that the house is not being resold. The sale isn't complete until the property is transferred to the new owner, who assumes the title. I explained this elsewhere [0]. If I were selling my place, I'd be happy to have you assign as many times as you want, whether it's to assign it to your holding company or to another seller if you're unable to complete on the deal. However, I would insist on receiving the completed sale price since that is the time at which the sale and transfer of the property happens; because I still own the property, it is still my concern. Upon taking ownership of the property, if you then wish to re-list the property on the market and try and get a better price that is no longer my concern. [0] https://news.ycombinator.com/item?id=11059602 https://news.ycombinator.com/item?id=11059602
reverend_gonzo 11y ago
Where's the seller's agent in all of this? The article mentions that the buyer's agent find another buyer who will pay more than Buyer #1. So, what's the problem with that? The buyer's agent has a fiduciary duty to the buyer, not to the seller. If the buyer's agent convinces the seller to sell at a price below market, and then finds Buyer #2 to buy at market, and Buyer #1 picks up the profits, that's a great agent ... for the buyer. The seller should have his own agent, who's job it is to find the highest bidder and to not sell below market.
- 1138 11y ago
  My impression from the article was that the sellers didn't have independent agents. They were approached by the buyer's agent when not even listing their house.
  - calbear81 11y ago
    Definitely seems that the buyers agent offered to also act as the seller's agent and probably threw in a "we can reduce our commissions if we are on both sides of the deal" type of offer. I had my own experience buying my first home, the new construction condo agent told me that I didn't have to have a buyer's agent and could just deal with them but the more I did my research the more I realized that my agent would be legally required to represent my best interests and could do a better job advising me on a process that might seem intimidating to a first time buyer. I can understand why some of these sellers said "YES!" when someone knocks on their door and offers them cash that's equivalent to a lifetime's worth of savings but there is some fault to be assigned to seller's who don't do their due diligence. If someone says they'll pay cash right away to you, you have to think that perhaps you should see if there are other buyers in the market.
sharemywin 11y ago
Where it gets tricky is the agent has a fiduciary duty to the client. Making multiple deals isn't int he interest of the buyer. Not sure about Canada though.
wired8 11y ago
Vancouver sw eng here. I've lived in this city for 14yrs, bought in 7yrs ago. My house has doubled in value since then. The min buy in has now reached the 1million mark and continues to climb. The ratio of real estate to salary is out of wack and the talent is starting to leave. Vancouver is becoming a playground for the wealthy.
- jb55 11y ago
  Another Vancouver sw eng here. Only got here 3 years ago. Have to rent, impossible to buy unless I move outside the core. Then why bother living here if I have to live in Surrey? Unhappy with the fact I have to raise my first kid in a 500sqft apartment. Not sure what I'm going to do if I have another. Hoping the market crashes so I can keep living here...
  - sbarre 11y ago
    Come to Toronto. The tech salaries are higher and the real estate market is not amazing but definitely lower, and we have better options for living outside the core without feeling like you're in the burbs. You lose the ocean and the mountains though, and that can be a really hard sell (source: I moved here 5 years ago from Vancouver).
- mrmch 11y ago
  Vancouverites -- Victoria is a very real option. You don't have to sacrifice ocean or mountains, and can afford to buy a home (and then some). https://github.com/sendwithus/vic-startup-jobs https://github.com/sendwithus/vic-startup-jobs
- cylinder 11y ago
  Just a note. Properties almost everywhere have almost doubled entirely due to interest rate declines over the last 8 or 9 years. Say a house rents for $25,000/year. At 2007's rate of 4.76% on the 10yr T-bill plus ~200 points for the risk premium, the value of the house is $369,000 based solely on the NOI. At 2016's rate of 1.85% + 200pts, the value of the house is $649,000, and that's with the same rent as 2007, not even adjusted for inflation. That's a 75% gain on interest rates alone. Add in other factors such as increased economic activity and capital flight from overseas and you arrive at doubling.
sharemywin 11y ago
wonder what these houses are getting appraised at. and if appraisals are just ignored and/or disclosed. I would think an agent that sells a house with knowledge of an appraisal that was 300k below what it sold for without disclosing could get in a lot of trouble.
rgbrgb 11y ago
If only all real estate agents were transparent and accountable agents in the AI sense, hard-coded with fiduciary duty to their clients. Working on it... :) I do think there's some confusion in these comments about buyer vs seller agent, but that goes back to the fact that traditional real estate deals are often murky and intentionally obfuscated to benefit the brokers.
msie 11y ago
Don't complain about your block becoming a ghost town if you're selling too.
pakled_engineer 11y ago
When they demolish and sell in Vancouver its given to the lowest contractor bid so will fall a part in a few years. Common to see huge cracks in new house walls, uneven garage doors that can't close and loose tile work galore. Glued together homes sold to absentee buyers made to last until next sale.
deleted 11y ago
[deleted]
holigey 11y ago
Similar to this happens all the time in India. Seller1 sells his property to buyer1 and gives all the property papers after transaction. Before _registering_ this property with the government Buyer1 finds another Buyer2 and sells the property. Buyer1 now avoids paying tax which is what registering property is.

60 points by cpymchn 11y ago

JTon 11y ago

Here's an image from the article that explains it all: > http://www.theglobeandmail.com/news/national/article28634862.ece/BINARY/w940/image.jpg http://www.theglobeandmail.com/news/national/article28634862...

fweespeech 11y ago
How that is legal, ethically, I'll never understand.
- mgirdley 11y ago
  It's totally ethical. The contract is very clear when it says, "Buyer and/or assigns." In most states, that is written at the very beginning of the contract as well.
  - maxerickson 11y ago
    I feel like there is a lot of opportunity for the agent to act like they are working for the seller while not informing them fully of their knowledge of the market. If they are acting like an adviser, there's something at least a bit smarmy about not actually advising. If they were simply interested buyers, its harder to impute an obligation to the seller.
  - fweespeech 11y ago
    The real estate agents are clearly violating their fiduciary duty to all non-agent parties involved in the transaction by misrepresenting the market value of the property. The average property owner doesn't understand the market and is expecting the real estate agent to provide accurate price estimations. I don't understand, ethically, how this sort of thing could be legal as its clearly a clause meant to allow misrepresentation to take rubes for their money.
  - vinceguidry 11y ago
    You're mistaking legality with ethics. The assignment clause makes it legal, but that doesn't mean that the brokers are acting ethically. Ethics revolves around ensuring that everybody's interests are protected. A broker is supposed to be a neutral party that does not have an interest in the transaction. The seller's interests are not being represented.
- grok2 11y ago
  It seems like a grey area. In a market where buyers intentionally overpay above market prices to get the house of their choice and if everyone involved is aware and understands what they are getting into and more critically has options to negotiate a deal that is best for them, perhaps it makes some sort of free-market sense.
  - jonas21 11y ago
    > buyers intentionally overpay above market prices to get the house of their choice If buyers are willing to pay a certain amount for a house of their choice, isn't that the definition of market price?
- deleted 11y ago
  [deleted]
neonhomer 11y ago
It seems like being Buyer #1 or #2 is a great spot, as they walk away with $300k without doing that much.
- analyst74 11y ago
  I imagine they would provide the capital to finance the deal, otherwise there is nothing stopping the realtors from flipping those houses themselves and pocket all the profit.
  - zaroth 11y ago
    The buyer's agent can't just assign the property to another buyer, the first buyer has to actually agree to sell it along at the higher price. Of course, then the first buyer might have to go find another house to buy... The purchase price isn't paid until an actual closing, by the final buyer.
- shimon 11y ago
  They are being paid $300k in return for passing on the opportunity to buy a property at a below-market price. If they are still aiming to buy in the same market, this could be a bad decision -- if the market keeps going up, they might have to pay even more.
  - shawn-furyan 11y ago
    Well, one of the sub-themes of the article was that Chinese investors are underpinning this situation. So you've got a lot of players in the market with no interest in actually living in the city. I think the effect you mention is probably a lot more relevant to the people selling at below market to speculators that approached them, because if they were assuming that they could finance a home purchase in the city with the proceeds of the sale, they're going to find their purchasing power significantly weaker than they were probably expecting (given that they just clear 3x their original investment, "YAY!"). On top of that, with many agents speculating themselves, and a lot of foreign investors on the buy side of the market, they're likely to find that they are now swimming with sharks having just sold their boat. Additional commentary: If you find yourself in this situation, you might as well try to get a loan to buy a new house before you sell your current shelter from the elements. If you're no longer able to get a loan for an amount that would get you a house in your area, perhaps that's an indication that you should be very careful with how you proceed. It still may be worth selling, even taking a below market offer (conceivably). But now you know that selling your house is going to mean moving to a more buyer friendly market in advance of committing yourself. Or... if you're the gambling type, renting in anticipation of a bubble burst (though I think heavy foreign investment messes with people's expectations of what is too hot for a given market; certainly it is fickle, but can potentially prop prices up significantly above historical levels for a long time).
zaroth 11y ago
I really don't like this image, and I think it's pretty misleading. Where's the seller's agent pictured? Where's 'Buyer 1' agreeing to sell to 'Buyer 2' and so on...? This is simply 3 rapid sales compressed into a single closing to save on the transfer taxes. Literally everyone wins. How is this different from, for example, complaining that it's unfair for a stock to continue going up after you sell it?
- jeremy_wiebe 11y ago
  I think part of the frustration comes from sellers who have an interest in who they sell their house to. Once the deal is signed and the original buyer flips the house (buyer #1) the seller now loses control of who ends up owning the house. It might be legal but that is little consolation to the seller who might have had reasons to sell, or not sell, to some party.

gburt 11y ago

From the perspective written in the article, I don't understand why the seller is portrayed as upset: they did the deal at a price they agreed upon. Just because another buyer came in "after" that had a better price changes nothing; this could happen in a non-assigned transaction too. This part, at least, is a natural part of the mechanism of price finding in the market. It is an interesting question why the sellers are mispricing their homes by as much as 30%, but if you know anything about the Vancouver real estate market, it is perhaps not that surprising: numbers move very fast, a lot of inexperienced non-investors own property (that they have usually owned for a very long time) and have perhaps never been involved in a deal of such scale. If I were the buyer in the first transaction, however, I'd be very upset with my real estate agent though: his job was to advise me, not to be my adversary in an internal negotiation. He did not act in my interest, despite representing himself as my agent. I would be promptly reviewing my real estate contract and the real estate laws in my province for words like "fiduciary duty" and given the size of the transaction, probably consulting a lawyer. A stark reminder that real estate agents are not your friend -- and actually, that is true regardless of what side of the transaction you are on. They are almost always paid by the selling party and still even have non-aligned incentives even for that party: preferring to get a sale done quickly than to get a better price for their client (as they only earn a fraction of the increase, but there is a high fixed 'minimum' property price in any given jurisdiction; a second sale will do much better for them than a 5% increase in their current sale).

maxerickson 11y ago
The sellers are upset because they misunderstood the market, by millions of dollars. Whether the world is supposed to be fair or not, it's at least easy to understand why that would be frustrating.
- sbarre 11y ago
  Yeah the point in the article about eroding trust in the broker market is important. Lots of people are (legally) taking advantage of a hot market to make short-term profits, but may be creating a long-term impact on the reputation of an entire industry. Maybe this is an opportunity for property appraisal companies to step in and make a B2C play..

maxerickson 11y ago

I wonder why the sellers are miss pricing their homes by so much? I guess there is an aspect of trusting the agent too much, and a lack of experience making such lucrative deals (I think I'd still love the chance to make a horrible deal on $3 million of appreciation).

fweespeech 11y ago
As someone who used to sell services to real estate agents... Their incentives are not aligned with the seller or buyer of the home but with their ability to generate a commission per hour of labor. Selling your house at $180,000 in 30 hours is far more lucrative than selling your house at $200,000 [fair market value] in 90 hours. A substantial number of them will opt for the former rather than properly advising the seller. The buyer's agent will do the reverse as their commission size is based on making the sale and the larger the dollar figure, the greater their commission. [e.g. Nudge you in the direction they think will maximize their reward for effort, such as encouraging you to pay $205,000 on a $200,000 property so there isn't any real negotiation.]
- jcdavis 11y ago
  I believe it was Freakonomics had a section that covered this - When real estate agents themselves sell their own houses, they stay on the market longer than average.
deleted 11y ago
[deleted]

buzzdenver 11y ago

This is house flipping, not arbitrage.

biot 11y ago
It's not flipping. Flipping is where Bob fully completes the purchase of a property from seller Alice, Bob pays the property transfer tax [0], Bob takes possession of the property as the new owner on the title, and then Bob re-lists his property on the market at a new price, ultimately completing the sale to Charlie. What's happening here is that agents involved in the sale of Alice's property provide Alice with a price of (for example) $1M, which Alice accepts under the assumption that her agent is representing her interests fairly and objectively. After Alice accepts this price, the purchase is delayed. While Alice waits to receive $1M for the sale, Eve (another agent) is assigned the property and sells the assignment to Bob for $1.25M. Bob then sells his assignment to Charlie for $1.5M. Charlie then completes the purchase, and only then is the property transferred from Alice to Charlie. Charlie pays $1.5M, but Alice receives only $1M. Eve and Bob both profit $250K each, never having taken possession of the property themselves. [0] The tax is charged at a rate of 1% for the first $200,000 and 2% for the portion of the fair market value that is greater than $200,000. Source: http://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax/understand http://www2.gov.bc.ca/gov/content/taxes/property-taxes/prope...
- buzzdenver 11y ago
  I don't think there's a strict definition of flipping. What's happening here is much closer to flipping than arbitrage for any sensible definition of those.
  - biot 11y ago
    My understanding of flipping was what I thought to be a common-sense one. However, upon researching it further I stand corrected: https://en.wikipedia.org/wiki/Flipping#Wholesaling_and_assigning_a_contract https://en.wikipedia.org/wiki/Flipping#Wholesaling_and_assig... One part of that article that stands out is that this is possible because the seller is generally not getting market value, which implies that the seller's agent isn't doing a great job of representing them: "This practice is often frowned upon in the real estate community since it seems unethical or illegal. In practice there is nothing illegal about wholesaling or assigning rights to a purchase contract even if it is multiple times. It is important to understand that the reason there is an opportunity to wholesale is because the original seller is selling the property for substantially less than market value."

matrix 11y ago

And to think that I thought the Vancouver real estate market was crazy back in 2005... This story is very relevant to tech. As much as I would love to, I wouldn't even think about locating a new business or office in BC today. And I'm sure I'm not alone. Attracting and retaining good employees is just too difficult when housing is more expensive than San Francisco - in a city where pay and buying power is much, much lower.

fleitz 11y ago
It's not more expensive than SF, don't read reports look at prices. If you work in tech SF is a lot more expensive than Van.

biot 11y ago

It sounds to me like the solution is to introduce legislation where the seller receives the final closing price (minus fees and commissions), not the pre-close sale price. Assign as many times as you want prior to closing the deal, but if that $2M house gets reassigned a few times and ultimately closes at $2.6M, that's what the seller should receive. Essentially, the sale isn't complete until the property is actually transferred. This would protect the interests of the seller and align the agents with their interests, something which is required to happen in theory but seems lacking in practice with rules easily skirted by an agent making laughable claims like "oh, I wasn't aware that I would be interested in having a financial stake in this property until an hour after the buyer accepted the offer".

sharemywin 11y ago
just don't sign a contract with an assignment clause.
- sokoloff 11y ago
  Why do you (as the seller) care if the contract is assigned? You agreed to sell the house for X dollars on Y date. You get X (minus commissions) on or before Y date and you're good. Whether the house is resold (or the contract assigned) 0 or N times isn't your concern. You took a price that you're happy with and got it. Whether another buyer was willing to pay a higher price 5 minutes, 5 days, 5 months, or 5 years later is not your concern, IMO. I bought both of my houses with an "or assigns" clause in the offer. In both cases, I expected to (and did) move into the house as my personal residence, but if a seller balked at the "or assigns" bit, I would have walked on the first house and not sure on the second house. Why? Because I may want to assign the contract to a trust, partnership or LLC, in addition to the freedom it gives me to assign to another buyer. The couple in the article were OK with selling their house for it to razed and a new structure built, but weren't OK with the new buyer selling the house to someone else?! That makes no sense to me...
  - biot 11y ago
    What's happening is that the house is not being resold. The sale isn't complete until the property is transferred to the new owner, who assumes the title. I explained this elsewhere [0]. If I were selling my place, I'd be happy to have you assign as many times as you want, whether it's to assign it to your holding company or to another seller if you're unable to complete on the deal. However, I would insist on receiving the completed sale price since that is the time at which the sale and transfer of the property happens; because I still own the property, it is still my concern. Upon taking ownership of the property, if you then wish to re-list the property on the market and try and get a better price that is no longer my concern. [0] https://news.ycombinator.com/item?id=11059602 https://news.ycombinator.com/item?id=11059602

reverend_gonzo 11y ago

Where's the seller's agent in all of this? The article mentions that the buyer's agent find another buyer who will pay more than Buyer #1. So, what's the problem with that? The buyer's agent has a fiduciary duty to the buyer, not to the seller. If the buyer's agent convinces the seller to sell at a price below market, and then finds Buyer #2 to buy at market, and Buyer #1 picks up the profits, that's a great agent ... for the buyer. The seller should have his own agent, who's job it is to find the highest bidder and to not sell below market.

1138 11y ago
My impression from the article was that the sellers didn't have independent agents. They were approached by the buyer's agent when not even listing their house.
- calbear81 11y ago
  Definitely seems that the buyers agent offered to also act as the seller's agent and probably threw in a "we can reduce our commissions if we are on both sides of the deal" type of offer. I had my own experience buying my first home, the new construction condo agent told me that I didn't have to have a buyer's agent and could just deal with them but the more I did my research the more I realized that my agent would be legally required to represent my best interests and could do a better job advising me on a process that might seem intimidating to a first time buyer. I can understand why some of these sellers said "YES!" when someone knocks on their door and offers them cash that's equivalent to a lifetime's worth of savings but there is some fault to be assigned to seller's who don't do their due diligence. If someone says they'll pay cash right away to you, you have to think that perhaps you should see if there are other buyers in the market.

sharemywin 11y ago

Where it gets tricky is the agent has a fiduciary duty to the client. Making multiple deals isn't int he interest of the buyer. Not sure about Canada though.

wired8 11y ago

Vancouver sw eng here. I've lived in this city for 14yrs, bought in 7yrs ago. My house has doubled in value since then. The min buy in has now reached the 1million mark and continues to climb. The ratio of real estate to salary is out of wack and the talent is starting to leave. Vancouver is becoming a playground for the wealthy.

jb55 11y ago
Another Vancouver sw eng here. Only got here 3 years ago. Have to rent, impossible to buy unless I move outside the core. Then why bother living here if I have to live in Surrey? Unhappy with the fact I have to raise my first kid in a 500sqft apartment. Not sure what I'm going to do if I have another. Hoping the market crashes so I can keep living here...
- sbarre 11y ago
  Come to Toronto. The tech salaries are higher and the real estate market is not amazing but definitely lower, and we have better options for living outside the core without feeling like you're in the burbs. You lose the ocean and the mountains though, and that can be a really hard sell (source: I moved here 5 years ago from Vancouver).
mrmch 11y ago
Vancouverites -- Victoria is a very real option. You don't have to sacrifice ocean or mountains, and can afford to buy a home (and then some). https://github.com/sendwithus/vic-startup-jobs https://github.com/sendwithus/vic-startup-jobs
cylinder 11y ago
Just a note. Properties almost everywhere have almost doubled entirely due to interest rate declines over the last 8 or 9 years. Say a house rents for $25,000/year. At 2007's rate of 4.76% on the 10yr T-bill plus ~200 points for the risk premium, the value of the house is $369,000 based solely on the NOI. At 2016's rate of 1.85% + 200pts, the value of the house is $649,000, and that's with the same rent as 2007, not even adjusted for inflation. That's a 75% gain on interest rates alone. Add in other factors such as increased economic activity and capital flight from overseas and you arrive at doubling.

sharemywin 11y ago

wonder what these houses are getting appraised at. and if appraisals are just ignored and/or disclosed. I would think an agent that sells a house with knowledge of an appraisal that was 300k below what it sold for without disclosing could get in a lot of trouble.

rgbrgb 11y ago

If only all real estate agents were transparent and accountable agents in the AI sense, hard-coded with fiduciary duty to their clients. Working on it... :) I do think there's some confusion in these comments about buyer vs seller agent, but that goes back to the fact that traditional real estate deals are often murky and intentionally obfuscated to benefit the brokers.

msie 11y ago

Don't complain about your block becoming a ghost town if you're selling too.

pakled_engineer 11y ago

When they demolish and sell in Vancouver its given to the lowest contractor bid so will fall a part in a few years. Common to see huge cracks in new house walls, uneven garage doors that can't close and loose tile work galore. Glued together homes sold to absentee buyers made to last until next sale.

deleted 11y ago

[deleted]

holigey 11y ago

Similar to this happens all the time in India. Seller1 sells his property to buyer1 and gives all the property papers after transaction. Before _registering_ this property with the government Buyer1 finds another Buyer2 and sells the property. Buyer1 now avoids paying tax which is what registering property is.