Editorial: Agents' role in 'flipping' homes needs closer look

20 Don Street Papakura sold twice on the same day netting an investor $81,000 profit.

Opinion

What is wrong, some people are asking, with "flipping" a house for a windfall gain very soon after buying it? Is this not what traders in any market when they know something or someone unknown to the initial seller. It is certainly illegal, akin to insider trading, if the "flipper" is an agent of either party, but there was no evidence of that sort of collusion reported on the Herald's front page on Wednesday.

A young couple sold their house in Papakura for $819,000, almost exactly twice what they paid for it five years before. But when the settlement date arrived two and half months later, they learned by accident the property had been on-sold for $900,000 in the interim. Tough luck, some have said, for Joanne and Nick Booth. Their agent says the buyer, Hua Wu, found his buyers, Su Feng and Feng Yu, through his own networks. The agent says no recent sales in the neighbour indicated the Booth's house should fetch a price as high as $900,000. So somebody was ill-informed.

Markets are often said to function on unequal information but they need not and should not. The job of regulators is to see that the necessary information is fairly available to all interested parties. People given the same information will frequently evaluate it differently. That is how fair trading works.

The Papakura case was not the only incident the Herald has discovered. The Real Estate Agents Authority is sufficiently concerned to start initiating investigations of houses resold quickly for great profits. It says it is developing the technological ability to monitor sales data quickly and spot those that are turned over within a short time. It recently reviewed 300 cases of houses in Auckland being bought and resold within a year.

In an overheated market it can be very hard to know what is a fair price. For one thing, it can change by the month, or even week. As one market watcher said yesterday, when flipping occurs it is the aggrieved first seller who probably accepted the fair market price - the "going rate" for the size and location of the property - and the second buyer who paid too much. But excessive prices pulls up market prices and so it goes on.

But, hopefully, it is stopping. The Auckland market slowed over the summer after the trading banks began to restrict lending last year. The same lull occurred the previous summer after Reserve Bank loan to value ratios were raised against borrowing for investment houses in Auckland, but the market picked up in March. It is too soon to tell whether a March recovery will occur again.

Hopefully, it will not. House prices need to take a breather. They have risen way past the level that seem sustainable. As everyone who has looked at open homes in recent years knows, there have been very modest houses on the market for a million dollars or more. If the tide has turned, the next challenge will be for recent first home buyers to maintain their equity and their loan payments.

But for the moment, the REEA needs to ensure that if flipping cannot be stopped, at least agents are not complicit. But agents are the main information channel in this market and flipping suggests they need to work harder to make it fair.