As you may or may not have heard, new regulations regarding real estate contract assignments have been introduced in B.C. These changes took effect on May 16, 2016. What does this mean for those of use involved in, or looking to get involved in, wholesale buying/selling and assignment of contract strategies? As a Certified Financial Planner and real estate investor myself, I am quite interested in how these new rules and regulations might affect me and my kind.
Intention of the New Regulation
The spirit of the regulation changes is to provide more protection for real estate sellers in B.C. You see, amongst the crazy price increases, what has been happening in B.C. is something called “shadow flipping” where licensed real estate agents have been convincing sellers to agree to sell their properties at one price and, through a series of contract assignments, have been selling the subject property at higher prices without the seller knowing nor sharing in the profits.
This is quite different from an educated real estate investor getting a property under a contract looking to assign said contract at the original purchase and sale price and where the real estate investor receives an assignment fee.
Key Points
- Firstly, this new regulation pertains to real estate licensees alone (i.e. licensed real estate agents). This regulation does not apply to unlicensed real estate investors who are considered equals with the seller in contract law.
- Secondly, this new regulation is aimed at stopping real estate licensees from assigning the original purchase and sale contract at a higher price without the seller knowing. As taught in high quality real estate investing classes, students are wholesaling their contracts at the original purchase and sale price, while receiving an assignment fee for doing so.
- Thirdly, a best practice that is also taught in high quality real estate investing classes is to include written consent by the seller before the real estate investor assigns the contract. Where a wholesale assignment transaction is done properly, the seller is made fully aware when the real estate investor assigns the purchase and sale contract for a fee—a fee that is paid by the assignee.
The Official Word
I spoke with Jamie Edwardson, Communications Director for the Ministry of Finance. According to Mr. Edwardson “The new regulation is not intended to do away with contract assignments entirely.” As an aside, he mentioned that assignments on pre-constructions are still okay.
Mr. Edwardson confirmed that the new rules regarding contract assignments apply only to real estate licensees (i.e. licensed real estate agents). He cautioned that if I were to be seen as providing real estate services that I may require a license and must follow the rules and regulations set for the by the RECBC (Real Estate Council of British Columbia).
I explained to him how it was that I was not providing real estate services and he politely took back his previous cautionary statement.
To Provide Real Estate Services or NOT to Provide Real Estate Services: That is the Question
The key point for real estate investors when assigning a real estate purchase and sale contract for a fee is to not appear to be providing “real estate services”. This applies to all of Canada and all 50 states in the U.S. except for California, where additional disclosures must be made to remain legal.
It is for this reason that is it critical for aspiring real estate investors to pay the price to get the proper education and guidance to invest in real estate safely. As Warren Buffet said “spend whatever it takes to be the safest and most secure. Then, spend whatever it takes to stay that way.”
Word, Warren. Word.
For the complete article posted on the Province of B.C. website go here: https://news.gov.bc.ca/releases/2016FIN0018-000756