Daily newspapers have been full of stories about certain real estate practices such as flipping and shadow assignment of purchase contracts. The uproar has led the British Columbia government to appoint an advisory committee to examine the issues.

Assignment has received much attention as a potentially dubious practice. It’s an arrangement where a homebuyer turns around and resells the house before the final closing. The buyer profits by the difference between the purchase price and the resale price.

Sellers may be outraged by the resale at a higher price and final ultimate buyers may be peeved by paying more than first selling price. However, although it can be corrupted, assignment can serve a useful function.

“Good” assignment can take place when builders presell dwellings in advance of completion, often several years in advance. They do so to avoid the uncertainty about the future housing market and, in some cases, to lock up finance for the project.

“Good” assignment can also occur when house sellers wrap up the terms of the sale well before the closing date in order to commit to buy another house. Since a house is often a family’s biggest asset, doubling up would have added too much risk for many families.

On the buy side are similar forces. Many buyers don’t want to buy today for delivery long into the future out of fear of changing circumstances. Others worry about being able to afford mortgage costs when they need to complete the deal.

These forces lead to an imbalance in the housing market between sellers who want to commit and buyers who want to delay. Assignments offer a way out for both groups. The sellers can sell now and buyers can wait until later.

Some sellers of assigned contracts will be speculators who plan to profit from the resale. Often portrayed as preying on sellers and buyers, they actually can offer a valuable service. The seller, whether homeowner or builder, may be glad, given the ups and downs of the housing market, to wrap up the price. And the final buyer may be happy to wait to commit. “Good” assignment can really happen.

But “bad” assignments also happen, when the price to the seller falls short of the prevailing market. They happen when realtors and sellers misjudge the market and settle on too low a price. Buyers can then swoop in and resell at higher price. They can also happen when the realtor wants a quick sale, pocket the commission, and get on to selling more houses. In both cases, the “flipper” should not be blamed for the under-pricing. The agent who mispriced the house is the culprit.

There is a more pernicious “bad” assignment that also involves under-pricing. But, in this case, it results because the realtor allows friends or confederates to snap up the house at the low price before its availability is broadly known. The buyers can then put the house back on the market and get a higher price.

The difference between “good” and “bad’ assignments may be hard to sort out in practice. Quick initial sales that signal under-pricing would be hints of “bad” assignments. Resales that take place soon after the first sale would be stronger hints. More conclusive would be a pattern where the same buyers repeatedly buy a realtor’s listings and then sell the assignment on to others.

A policy of extending B.C.’s property transfer tax to both the first and following sales may have some appeal. Cutting into profits would certainly discourage assignments. It would, however, have the unfortunate side effect of discouraging “good” assignments as well as “bad. By doing so, it would make it more difficult for builders to make pre-sales. It would also make it harder for families that want to avoid over-commitment when selling one house to buy another.

The B.C. government’s committee will inevitably find themselves buffeted from many sides. It must resist these pressures and ensure than its findings and recommendations are based on the best available evidence.