Kathy Tomlinson
Other
It is Wednesday night in Burnaby. Real-estate agents and sales teams are gathered in a well-lit office training room. The group, some of them young and hungry to make their mark in the bracing property trade on the Lower Mainland, is there to learn a thing or two from the boss.
The boss is Ze Yu Wu, owner of one of the fastest-growing new brokerages in the Vancouver area, New Coast Realty, which boasts 445 agents and hundreds of millions in sales. It is an informal training session to give some of his new and top performers an edge. He suggests his sales teams listen up, take notes: These tips will help them, and the firm, make more money.
In this October session, one main theme is straightforward: How to move properties briskly by talking clients into selling their houses for less than they want.
“We should sell the house fast and buy the house fast,” Mr. Wu tells them at one point during the evening, underscoring the lucrative nature of speed in a commission-driven business. They joke and chat with him on how to do that.
Mr. Wu offers this advice: “You must consider your own interests.”
Some of his suggestions in the course of the night, however, tread the razor-edge between shrewd salesmanship and deception. One tip he drops casually is how to persuade clients – by lying to them – that the best offer they will get is the first one.
“It is only a saying to the homeowner, but actually, it’s not true,” Mr. Wu says. “The first offer will never be the best offer, I am sure about this. But you have to say the first offer is the best offer.”
(Listen to raw audio of a New Coast Realty training session.)
As a result of the Globe’s investigation, The Real Estate Council of British Columbia on Friday issued licence conditions for New Coast Realty.
Mr. Wu is not a licensed real-estate agent or managing broker. So although he runs the company, he is not bound by provincial laws governing individual licensees, unlike the teams he is coaching, who are supposed to act in their clients’ interests or risk disciplinary action.
He is in the club, though, of insiders making millions in Vancouver’s roaring property market. As prices tick ever upward, prompting a national debate over the causes of the phenomenon, the industry is under intense scrutiny after revelations of shady dealing. As a result of a Globe and Mail investigation into the practice of shadow flipping, for instance, B.C. Premier Christy Clark is promising tougher penalties for dodgy operators. An advisory group is trying to come up with deterrents for a list of questionable practices by June.
Mr. Wu, 42, is a permanent resident who moved here from China a decade ago. He does not speak English, and most of his staff speak Mandarin, so he explains his techniques in that language.
The Globe obtained an audio recording of Mr. Wu’s training session, held in Burnaby, B.C., on Oct. 14, 2015. It reveals the company owner teaching agents techniques to persuade clients to sell quickly, for less than their home could be worth.
“You must print out the lowest prices in the neighbourhood to show to the homeowner,” he says during the session. (The Globe translated the recording, and had it reviewed by a second Mandarin speaker who works in the real-estate industry.) “It is very critical to print out low sale prices in the neighbourhood.”
Several agents who have left New Coast told The Globe their former boss’s ideal business model is to sell client properties quickly to investors or speculators who are also New Coast clients, which maximizes the firm’s commissions. The ultimate goal, they say, is to have those investor clients hire them again to flip the properties for higher prices.
New Coast denies that through its lawyer, Simon Coval: “We are instructed that it seeks to obtain the best price for its clients.”
However, Mr. Wu told the agents in the session: “If the homeowner still insists on a high price and the deal cannot be closed, we agents have to keep travelling around and wasting time. We would keep burning the gas and no one will reimburse you for that. Our company will not reimburse you.”
Mr. Wu declined several requests from The Globe for an interview. Mr. Coval said his client’s words are being taken out of context.
“New Coast points out that the discussion included, for example, Mr. Wu stating … that the most important thing to remember is for agents to be sure not to do anything illegal or non-compliant and that respecting the requirements of their professional license is more important than money,” Mr. Coval said in a statement.
In the training session, Mr. Wu does warn agents to be mindful of their obligations. After about 40 minutes of coaching, he says: “Be careful. First of all, protect your licence, before you do anything else.” And again: “Be sure not to break the rules. Under this principle, you can take other actions.”
He goes on: “No matter how much money the deal is worth, even if the deal is right in front of you, don’t look at it. It will affect the licence.”
Some real-estate agents who have attended Mr. Wu’s sessions say the tactics make them uncomfortable, despite the warnings.
“Sometimes the owner wanted us to do something illegal to make more money,” agent John Zhou told The Globe. (He now works for a competitor and claims New Coast owes him $45,000 in commissions.)
“Of course, people trust the classes they are getting at the brokerage,” said Chris Chen, another licensee who left for the same competitor. “What I can remember, a lot of it sounded unethical.”
Real-estate licensees know, under B.C.’s Real Estate Services Act, it is their fiduciary duty to put clients’ interests first. It is illegal for them to deceive or hold back information.
New Coast has an unusually large stake in what agents earn. Unlike other brokerage firms, it takes a 50 per cent cut of team members’ commissions. Several people in the industry say most firms take much less, instead charging the agents fees for services.
During the session, Mr. Wu tells agents their goal is to persuade sellers to reduce their expectations and their prices. “In brief, whatever you are saying, the homeowner should think: Yes, it makes sense. The homeowners feel every word I am telling them makes sense. Then you can suppress homeowner’s bottom price.”
Several people who have worked for Mr. Wu say he often encourages agents to “double-end” their deals. That practice, in which the same agent or brokerage team represents both seller and buyer, is legal in B.C. However, because of potential conflicts, some firms do not allow it, according to disciplinary records from the Real Estate Council of B.C.
One competitor recalled a double-ended deal in which he believes he saw those conflicts play out.
In January, the agent told The Globe, he contacted New Coast agent Tracy Niu about a property she had listed that day on behalf of a seller. He was too late; the house had sold. One of Ms. Niu’s other clients – a buyer – had already snapped it up. Two days later, the agent said, Ms. Niu called him back and offered to flip the property to his client for $135,000 more than what her own client sold for.
Deals like this are done at the seller’s expense, said the agent, who spoke on condition of anonymity because he could face discipline by the Real Estate Board for publicly questioning a fellow member. “The agent told us it was none of the seller’s business. … How greedy can you get?”
MLS records confirm that Ms. Niu represented both seller and buyer in the sale. New Coast, through its lawyer, denied that Ms. Niu offered the property to the agent at a higher price.
New Coast agents represented both buyer and seller in one out of five transactions in the past two years, according to internal figures from the Real Estate Board. Other brokerages’ ratios are significantly lower. For example, two other new firms double-end deals 5 and 6 per cent of the time.
In some New Coast deals, the listing agent persuaded the seller to pay a bonus – $10,000 to $50,000 extra – to the buyer’s agent. New Coast and the agent team each take half of the commission and the bonus.
In the months of June and November of last year, according to sales figures, 13 of 21 double-ended New Coast deals closed for less than the seller initially wanted. Six of those clients who sold for less than list also paid bonuses.
Several real-estate agents told The Globe that Vancouver-area sellers usually get more than asking these days, not less. And in a hot market, they said, there is rarely a need to pay agents a bonus.
“They get the seller to list for a low price and agree to pay a bonus. Then they mislead buyers’ agents on how many offers there are. Then they sell to a New Coast client anyway,” said one competing agent who has been involved in several deals with New Coast.
Because New Coast agents prefer to deal with agents in their firm, outside agents feel shut out.
“This actually drives up prices, because outside [agents] have to offer way over market price just to get in on these deals.”
In the training session, Mr. Wu suggests another trick to make even more money on a deal: persuade the client to pay a bonus to the buying agent, then take a cut for yourself.
After adding the bonus, Mr. Wu tells the room, apologize to the other agent: “Sorry, you can have half and I’ll have the other half.”
He sounds a note of caution to his teams, however.
“At this time, if you are dealing with other companies, be careful with issues that could violate the rules. If the other agent is from our team, it can be easily arranged, right? Bonus is so awesome.”
New Coast’s lawyer, Mr. Coval, said the “context of this remark is a response to a question about attracting a buyer to a client’s property by offering higher commissions.”
The Globe spoke with one recent New Coast client who is convinced his agent was “working both sides” and cost him more than a quarter of a million dollars. “It makes me feel cheated,” Sukhjit Bassi said. “They rushed me into this deal – and that cost me money.”
According to Mr. Bassi, New Coast agent Sandra Li persuaded him two days before Christmas to list his Richmond house for $1.27-million – a low price – a tactic used to generate interest, with the aim of drawing multiple offers and fetching a higher price.
The next day – before showing his home to any prospective buyers – she sent an offer from a numbered company for $1.4-million. He countered for $1.5-million. They made a deal.
“Although the [upcoming] open house was cancelled, a whole bunch of people still showed up,” Mr. Bassi said. He said he received an angry voice mail from a buyer who was willing to pay more.
Records from other sales show the director of the numbered company is a speculator and former agent who has done other deals through Ms. Li. He had no agent representing him. Mr. Bassi said the buyer came to view the house later, along with Ms. Li’s assistant and an unrelated couple.
“I found it strange,” Mr. Bassi recalled: “‘Okay, I see the buyer. But who are these people?’”
Mr. Bassi said Ms. Li then sent him a text message asking detailed questions about his house, which he found odd because it was already sold. Mr. Bassi later discovered the buyer had assigned the contract to the unidentified couple for $100,000 more. None of that money went to Mr. Bassi. (Contract assignment, also known as shadow flipping, is when a buyer sells a property quickly to another buyer before the deal with the initial seller closes.)
He believes his own agent, Ms. Li, arranged the flip, although another former New Coast agent’s name is on the paperwork. The kicker, he told The Globe, was when his neighbour sold his “identical” house for $300,000 more than Mr. Bassi received.
“This is when I realized I had been duped. … I didn’t get market value for my house,” he said.
Through their lawyer, New Coast and Ms. Li said they had no idea their client’s house was flipped until The Globe brought it up. (Mr. Bassi raised the matter with Ms. Li in February, according to e-mails viewed by The Globe and Mail.) Mr. Bassi also recorded a conversation in which Ms. Li’s assistant tells him “everyone knows” about the flip.
Real Estate Board figures show New Coast bought and sold more than a billion dollars in property last year – and that does not include private and pre-sale deals outside the Multiple Listings Service.
A 2014 article in New Coast’s bilingual publication talks about selling to Chinese citizens who want a “safe house for their wealth.”
“The already lively real estate market in Vancouver is further taking giant leaps forward as a result of the Chinese anti-corruption policies,” the article says.
“Experts predict that with the increasing strictness of the anti-corruption policies in China it will continue to cause cash flow into the Vancouver housing market. Tapping into the patterns of these trends will help both buyers and sellers make the right and easy choice.”
Mr. Wu and his wife, Hui Ping Huang, are the sole directors of the corporation that founded New Coast in 2012. Bill Messer, the managing broker who helped them set up the firm, says it had “multi-millionaire” backers from China. Mr. Messer says he quit after a year over what he considered to be unethical practices.
“There is hundreds of millions of dollars into this scam,” Mr. Messer said. “The managing broker is responsible for everything that goes on in that company, if [an agent] does anything wrong. That is why I got out.”
Managing brokers are accountable for their brokerage firms’ activities and can lose their licences over infractions.
In an interview, the Real Estate Council of B.C. said there could be penalties for a brokerage found to have engaged in deceptive dealing or in breach of fiduciary duties.
“It is completely unacceptable to act contrary to a seller’s interest. It is a fundamental breach of our legislation to be deceptive in any way in dealing with our clients,” said Maureen Coleman, professional standards adviser.
Ms. Coleman said New Coast managing broker Josh Rosenberg – who was at Mr. Wu’s session in October, according to New Coast’s lawyer, but speaks only some Mandarin – should have intervened if Mr. Wu crossed any ethical lines.
“We would expect that he would … not permit his licensees to participate in any sort of instruction that would bring them into non-compliance,” she said.
The council, she said, will investigate.
Given that Mr. Wu does not have a real-estate licence, the council cannot take any action against him, unless there are financial discrepancies or other infractions unrelated to training. (The Globe and Mail found no evidence of such infractions.)
In a statement on Friday, Mr. Coval said New Coast met with the council on Thursday and was fully co-operative. The lawyer reiterated the company’s position that Mr. Wu’s remarks were being taken out of context.
The Globe talked to several people who say they have raised concerns about Mr. Wu’s company with the council before, but felt ignored. Another former New Coast managing broker, who requested anonymity, said he advised the regulator when he quit the company in 2015.
“My reasons for my resignation from New Coast Realty are numerous,” he wrote in an e-mail to the council. “They continue to be non-compliant with both the Real Estate Council and the Real Estate Board.”
No one got back to him, he said.
He was annoyed, but not surprised: “They are supposed to protect the public, and they don’t.”
The former managing broker said a lack of consequences sends the wrong message to those who don’t play by the rules. He alleges he had warned Mr. Wu in the past that New Coast was running afoul of the council and the board, to no avail.
When you can get away with it, he said, “It’s sort of like, ‘I have the licence to do whatever I want.’”
A managing broker from a competing firm shared e-mails he sent to the council and the board, dating back three years, also raising red flags about New Coast. He said he called Ms. Coleman, urging her to investigate, but gave up in frustration.
Mr. Messer said he also raised his concerns to the council when he quit in 2013.
“The Real Estate Council encouraged me to get out of [the company],” he said.
New Coast challenged these accounts. In a statement, Mr. Coval said: “We are instructed that it does not have Managing Brokers who have departed in such circumstances.”
Wendy Yang is a top-tier real-estate agent who just left New Coast to work for the competition in February. She alleges the brokerage owes her $200,000 in unpaid commissions. In court filings, the company alleges she engaged in fraudulent conduct by altering her listings so she could take them with her when she left. The matter has not been settled.
In an interview, Ms. Yang said Mr. Wu told her he is helping an investor from China buy $50-million worth of Vancouver-area homes quickly – with the intent of flipping them for a profit, using his company’s agents.
“[The investor] would make $200,000 to $300,000 for the flip on every property,” Ms. Yang said. “They are buying a lot of houses. One night on Mr. Wu’s table, I saw more than 10 property information sheets there.”
Ms. Yang said Mr. Wu has his sights set on the condo market next: “That is the real gold.”
Mr. Wu’s lawyer insisted he “is not working on any such thing.”
Don Stutt suspects a shadowy deal is playing out with the Richmond home he and his wife just sold. He said that, in December, the couple was given “a song and dance” by New Coast real-estate agent Claire Li, who persuaded them to sell – just hours after their house was listed – to her client.
The Stutts made a quick deal through their own agent for almost $1.5-million, and are happy with the price.
They said they were told the buyer planned to move into the house, but was flying back to Asia the next day. “That’s why the bid was only good until midnight,” Mr. Stutt said.
The buyer, he was told, had lost out on other properties. “He didn’t want to be in a bidding war and lose.”
As the Stutts were packing up their belongings, the buyer’s agent e-mailed asking if New Coast could host an open house because she wanted to find a new buyer to assign the sales contract to. The Stutts, who were still living in the house, refused.
“You want to have an open house? You bought the house [quickly] because you didn’t want an open house.” Mr. Stutt recalled. “There’s no remuneration for me – and it stunk.”
The buyer, it turned out, was actually a director of New Coast Holdings Ltd: Ms. Huang, whose home is in Richmond, B.C., not Asia. In the end, before closing, Ms. Huang assigned the contract and added another buyer’s name to hers.
Just four days after that deal closed, she and her co-owner listed the house again. The Stutts’ former home is now for sale, by New Coast, for nearly $400,000 more than what they sold it for just four months ago.
“Truth is always stranger than fiction,” Mr. Stutt said. “I suspected I was being sold a bill of goods from Day One.”
Through its lawyer, New Coast said Ms. Huang had second thoughts about the purchase. “Instead of backing out she completed the purchase with a friend.” The statement did not address Mr. Stutt’s claim that he was deceived.
Back at Mr. Wu’s fall training session, he offers agents suggestions on how to persuade homeowners their house is worth less than they think it is.
For a home in Richmond, for instance, he suggests agents warn sellers that wealthy buyers are afraid of earthquakes and tsunamis. “This reason is very powerful,” he says.
(On its website, the City of Richmond advises that the risk of tsunamis is not significant, despite myths to the contrary.)
Mr. Wu also offers a tip for selling in Vancouver’s west side: “Say that the houses in this area are too expensive, so you can suppress the seller’s bottom price. …
“If it’s a house by the road, say don’t buy a house by the road next time; if there is a ditch in front of the house, say don’t buy a house behind a ditch or electricity pole next time; if the house is quite narrow, say don’t buy a narrow house next time, it doesn’t look grand.”
He also suggests clients be led to believe that Chinese buyers’ sources of money are drying up, for various reasons – all of them plausible and intended to instill a sense of urgency to the transaction.
The Chinese stock market is down: “How do people have the money to buy the house?”
China is tightening its controls on outflows of cash: “People want to buy the house, but they can’t transfer the money to Canada.”
Later in the session, Mr. Wu reminds his staff that a deal benefits both agent and seller, describing a successful transaction as a virtuous circle.
“If you sell the house, you are doing him a favour. This offer is a good offer. Once the house is sold, there is tax. Then you are making contribution to the society. You are helping the client with an investment. And you are making contribution to society. We need to raise our own family, we also need to take the responsibility of society.”
Copyright 2016 The Globe and Mail Inc.