Man ordered to pay $1.1M after pulling out of house purchase
This is a controversial yet legal real estate practice. I don’t understand why this is allowed. It’s legal in New Zealand, Canada, Australia and likely other countries too. It is a very risky business, and I would go as far as calling it dodgy.
Before I get into the cases, let’s clearly answer the question: what is shadow flipping?
Shadow flipping is when a buyer enters into a binding Sale and Purchase Agreement for a property, pays a deposit, but then on-sells that same property to another buyer before settlement — often without ever taking legal ownership. The second settlement usually aligns with the first, and the original buyer makes a profit from the difference between the purchase price and the resale price.
I’m going to explain two cases in New Zealand. One is very recent and resulted in a court verdict. In that case, everyone lost. The whole business was an absolute shambles from the get-go.
In a normal real estate transaction, you find a house, you purchase it, you pay the deposit, settlement occurs, and the title goes into your name. But in shadow flipping, you are legally entitled to on-sell the property before the settlement date of the original purchase.
Here’s how it works in practice. You enter into a Sale and Purchase Agreement and pay, say, a 10% deposit (sometimes less). Settlement might be one or two months away — or even longer. Before that settlement date, you secure another buyer at a higher price. The second settlement happens around the same time as the first, and you never actually take ownership of the property. You simply pocket the difference.
So again, what is shadow flipping? It is buying a property under contract and reselling it before settlement in order to capture the margin, often without ever becoming the registered owner.
The Auckland Case – Avondale
This case was published in Stuff by Marty Sharpe on January 21, 2026.
Robert and Margot Smallridge sold their family home in Avondale, Auckland, in November 2021 to Paljeet Singh for $1,925,000. Singh paid a deposit of $96,250 — only 5%, not the usual 10%.
I’ll veer slightly off topic here. The only people who unquestionably benefited from this mess were the real estate agents who sold the Smallridges’ house to Singh. Their commission was paid from the deposit. Whether settlement occurs in one month, two months, or even a year — as in this case — they are paid first, regardless of whether the deal ultimately settles.
Settlement was scheduled for November 2022 — a full year later. By that time, the market had plummeted.
Six weeks before settlement, Singh cancelled the agreement, claiming the vendors breached an essential term by failing to provide reasonable access to allow him to market and on-sell the property. This is where shadow flipping becomes legally complicated — unless specific access rights are written into the Sale and Purchase Agreement, a vendor is not automatically obliged to allow pre-settlement marketing.
Following discussions between the parties and their lawyers, the Smallridges resold the property in April 2023 for $1,130,000.
They then launched a claim for damages for wrongful cancellation. Singh counterclaimed for the return of his deposit — remember, two-thirds of that deposit had already gone toward commission.
Justice Tracey Walker heard the matter. She found the Smallridges to be credible witnesses and did not accept Singh’s version of events. She concluded the “access issue” was merely an attempt to avoid settlement in a falling market.
Singh was ordered to pay:
- $753,803.25 (difference between the first and second sale price, plus marketing costs, minus the deposit)
- $99,604.48 in interest at 14%
- Contractual interest at $268.01 per day from April 15, 2023 (totalling $270,958 as of today)
A devastating outcome.
The court found Singh’s inability to on-sell the property was due to a falling market and unrealistic price expectations — not because access was denied. This case shows the extreme financial exposure involved in shadow flipping when the market turns.
Are the Smallridges entirely without fault? I don’t know. Did they include an access clause in the agreement? The article does not clarify. What is clear is that when markets shift, this strategy can collapse spectacularly.
Will Singh ever pay? Is he bankrupt? Insolvent? Even still in the country? Unknown.
There are no real winners here.
The Wairarapa Case – $790,000 in 36 Days
The second example occurred in May 2020 in the Wellington region.
Two elderly brothers sold a large inherited section off-market for $2,290,000. The Capital Value (CV) was $3,225,000. Just 36 days later, the buyer resold it for $3,080,000 — a $790,000 profit.
The buyer was a colleague of the two real estate agents who marketed the property. The brothers complained to the Real Estate Authority, alleging collusion and abuse of trust.
The committee found no evidence of collusion. The two agents were cleared of wrongdoing. However, the buyer was found guilty of unsatisfactory conduct for failing to disclose that he had entered into an agency agreement to on-sell the property, given what was considered a fiduciary relationship.
He was fined $1,000 and ordered to reduce his commission by $4,500.
Compared to a $790,000 gain, that is hardly a dent.
The committee concluded the resale reflected changing market conditions rather than pre-planned profiteering. The Real Estate Authority stated that buyers are legally entitled to on-sell before settlement.
So for the third and final time, what is shadow flipping? It is the legal ability to buy under contract and transfer that deal to another purchaser before settlement — a strategy that can generate large profits in a rising market and catastrophic losses in a falling one.
Final Thoughts
It is legal.
It is risky.
And when markets shift, it can become financially catastrophic.
These cases are cautionary tales. When markets rise, people look clever. When markets fall, the consequences can be brutal.
Do business carefully. In property, timing is everything — and shadow flipping leaves very little room for error.