Major condo developers in Vancouver are shutting out average buyers by selling their most affordable new units privately – to clients of select realtors and “family and friends” – before their advertised sale dates, The Globe and Mail has learned.

The typical sales contracts also allow those insiders to legally flip the units under construction (known as presale) before closing as long as the developer gets a cut from that transaction. Like shadow flipping with houses, flips of presale condos have been controversial in Vancouver. When supply is scarce and prices are escalating, flipping leaves buyers who want units to live in feeling ripped off or shut out.

Several realtors told The Globe deals with insiders are widespread and quietly encouraged by developers. In Vancouver’s wildly expensive market, it is yet another obstacle for people who feel the deck is stacked against them.

Mike Yeung would like to sell his small condo and buy a new one, but said he has encountered nothing but frustration. He said he worries some developers and realtors are withholding inventory from the public to drive up prices and profits.

“At two presale events, I was there in person,” Mr. Yeung said. “Each time, I was informed that all the studio and all one-bedroom condos were already sold out … to the developer’s family and friends.”

Eager buyers camp out in lineups for hours or days before the sales events. Thousands also sign up online to get “VIP” access, only to find out on opening day they had no chance. Several have said they were then invited to buy something more expensive.

“It’s shady and not forthright,” Mr. Yeung said. “It’s a bait and switch – to get you in the door.”

Michelle Ly said she recently tried to buy into several developments.

“Everything in the one-bedroom or one-bedroom-and-den range was gone well before the official presale started,” she said.

“It’s super misleading and it wastes my time. My realtor and I would spend weeks trying to get information out of the developer, signing up for all the newsletters and touching base with their marketing people every other week. I felt bad for people waiting in line for days.”

Two developments were recently promoted by Rennie Marketing Systems, owned by Vancouver’s most politically connected condo marketer, Bob Rennie, an outspoken advocate for increasing supply to cool the market.

Realtor Steve Saretsky contacted Rennie staff recently and said he was told most of the units in The Ellsworth, a new low-rise building in East Vancouver, have already gone to family and friends of the developer. When sales opened Monday at 8X on the Park, also marketed by Rennie, Mr. Saretsky said all the studio and one-bedroom units had been sold privately.

“I think we are being deceived,” he said. “I think it’s giving local people a false hope – that if we keep building and building and building, it’s going to help them to find a home.”

Mr. Rennie said developers advertise to the public as a sort of fallback policy. If the insiders who get first dibs do not buy enough units, they can sell what is left to the next tier of interested buyers.

“Nobody knows whether the person saying they want the studio will take the studio,” Mr. Rennie said.

Mr. Rennie said 3,500 people expressed interest in just 89 units at The Ellsworth, including the realtors and other insiders. As a result of The Globe’s inquiries, he said he now thinks all would-be-buyers should be told what they are up against.

“From talking this through, I think once you get to a certain level of registrants, we should tell people,” Mr. Rennie said. “I am going to suggest that [to developer-clients].”

Developer Magnum Projects, owned by George Wong, promoted its units in recent e-mails by telling the public, “You are eligible for our jump-the-queue program, allowing priority preview, best selection, and prelaunch pricing.” Interested buyers who signed up later received another e-mail saying: “Studios and 1 bedrooms have been spoken for by the stakeholders, family and friends involved in this development.”

The company did not reply to The Globe’s requests for comment.

A spokesperson for Cressey, which built Kings Crossing in Burnaby, confirmed every one of the units in the first tower was sold privately to clients of select realtors, despite promotions to the public beforehand.

Mr. Saretsky and other agents said many buyers with exclusive access are speculators with no intention of living in the units. The contracts usually stipulate if the property is flipped within a set period, the developer takes a cut. Developers put that provision in their contracts several years ago to prevent speculators from flipping new condos and keeping all the profits.

For example, Mr. Saretsky said, one developer he is familiar with takes a cut of 5 per cent of the original sales price. On a condo that costs $750,000 – a typical price for one-bedroom units in luxury buildings – a flip would earn that builder an extra $37,500 without taking any risk, because the property is no longer its financial responsibility.

These types of flips are done by contract assignment, where the original buyer sells the contract to another buyer before closing. B.C. has brought in new rules that limit the practice for single-family homes, but condo presales are exempt.

Toronto realtor Andrew la Fleur said condos are selling out to insiders in that hot market, too. He said he is one of the few agents whose clients get first crack at properties before the public. He estimates 95 per cent to 100 per cent of new condos are sold to insiders that way.

“I think the public is just unfortunately misinformed or uneducated,” Mr. la Fleur said. “Those of us in the industry can see this coming a mile away and we know how to get our clients in at an opportune time.”

However, he said he does not think most units in Toronto will be flipped, because condo prices are not increasing in that city like they are in Vancouver.

Kathy Tomlinson - Globe & Mail