The real estate market has been red hot here in British Columbia. Multiple offers have become the norm and the majority of those offers have been subject free. It’s been difficult for the typical home buyer to purchase a property and still do their due diligence.
Home buyers are foregoing home inspections and many are tempted to not include a financing clause even though they are getting financing. This opens them up to a world of problems and liability.
Cooling-Off Period Introduced In British Columbia
To combat this, the provincial government has introduced The Property Law Amendment Act. Set to become law later this year, it includes a cooling-off period where a purchaser will have the right to rescind their offer within a set number of days upon an accepted offer (believed to be about 7 days, but this is still to be determined by regulations). All they have to do is supply the provided written notice.
When these amendments are passed they will give home buyers more time to consider their offers and complete a home inspection. It will also give them time to get their financing in order, thus protecting the consumer and allowing them to make a smart decision.
Protecting The Consumer
While it is a step forward, the provincial government has been criticized for not consulting industry professionals and those on the frontlines of real estate for their input or opinions. If not implemented correctly there could be major problems and loopholes that could do more harm than good.
For example, it doesn’t mention anywhere if there is a limit to how many properties a buyer can submit an offer on at any given time. In other words, a buyer can make offers on multiple properties at the same time and if they get more than one accepted offer they can simply back out of the one they like the least. The current legislation does mention a monetary penalty for backing out but no specifics have been announced just yet. This will be dealt with in the regulations.
In this market it’s the multiple offers that are playing on buyers’ emotions and enticing them to submit higher bids than they would normally be comfortable spending. With a cooling off period we are most likely going to see an even higher number of multiples on each property, which could cause more artificial demand.
Secondly, there could be a countermeasure taken by sellers. A seller could simply just ask for a deposit to be non-refundable. So now there’s a scenario where a buyer is facing more multiple offers, their deposit is non-refundable, and there is also a potential penalty on top of all this in the case that they decide to back out.
More Clarity To Come Later This Year
There are still a lot of details that will be determined once the government sets regulations later this year, including:
- The number of days for the rescission period;
- If there will be any circumstances where a purchaser can waive their right of rescission;
- Amount to be paid by the purchaser to the seller if the purchaser exercises the right of rescission;
- The timing of the payment of the deposit under a contract of purchase and sale;
- Whether the full deposit is to be returned to the buyer or if an amount of deposit should be kept by the seller;
- Whether there should be a class of real estate, a class of buyer, or type of interest in real estate that should be exempt from a cooling-off period;
If done right, this could have a positive impact on rising real estate prices in BC. An alternate suggestion by industry professionals is to create a pre-listing period where purchasers can schedule home inspections and gather information on a property before submitting their offer.
Seven-day cooling-off periods for pre-construction sales of multi-unit development properties such as condominiums and townhomes are already in place under the Real Estate Development and Marketing Act.
BC would be the first province to implement a cooling off period for both newly built and resale homes.