BC moves closer to 'cooling-off' periods in real estate deals

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BC should not only implement a new cooling-off period on home purchases, it should also build in a second pause at the front of real estate transactions to give buyers more time to do their due diligence in an ultra-competitive market, according to a new expert report commissioned by the government.

The province’s independent Financial Services Authority on Wednesday released its long-awaited recommendations on how to boost consumer protection for buyers and sellers in a red hot real estate sector dominated by bidding wars, competition and pressure for unconditional offers.

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Finance Minister Selina Robinson personally commissioned the report, and is poised to turn many of the proposals into law as early as this summer.

The report calls for two major changes:

A new five business day “pre-offer” period after a property is first listed for sale, during which offers are not allowed to be made or accepted
A new three business day “cooling-off” period after the seller accepts an offer, where the buyer can back out of the deal by paying a penalty.

“This is about consumer protection,” said Robinson. “We want to make sure that it works. It’s consumers we are most interested in and making sure there are tools in place to protect their interests.”

None of the changes are expected to lower the price of housing, she said.

The pre-offer period was recommended by the province’s real estate sector as a way to end so-called “bully bids” where a buyer makes a quick offer on a newly-listed property but stipulates a very short deadline to pressure the seller into a deal before other bidders willing to pay more can participate.

The government should also make it mandatory during this period for sellers to provide upfront property disclosure statements and strata documents to anyone interested, according to the report.

Buyers can use the time to conduct home inspections, arrange financing and get their affairs in order before making an offer at the end of the five-day freeze.

Once an offer is accepted, the new cooling-off period would kick in.

BC Financial Services Authority

The buyer could choose to back out for any reason – unhappiness at the home inspection, financing trouble, or legal advice – but they would have to pay a fee of as much as 0.5 per cent of the property value to the seller for wasting their time. On a $1 million home, the fee would amount to as much as $5,000; on a $750,000 home it would be as much as $3,750.

To help the new process, the report recommended government make it mandatory for sellers to allow access to their property at any point during the transaction for a home inspection (even if a home inspection is not a condition written into the offer) — but it stopped short of saying home inspections be mandatory on every purchase.

Buyers should also have to disclose to the seller if they have any other active offers in play on other properties before a deal is struck, according to the recommendations.

The financial authority recommended people not be able to waive or opt-out of the two pause periods, except for rare circumstances like court-ordered sales. And the rules should apply everywhere in BC, not just in specifically hot or cold local markets.

“This advice is unique,” said Blair Morrison, CEO of the BC Financial Services Authority.

“We are going in somewhat uncharted waters. So we want to make sure that when we implement something … we are not impacting the process too negatively. At the end of the day we are trying to improve consumer protection.”

Robinson said the government is “eager to move” on the recommendations, and in the past has said she’d like them in place before the real estate sector’s busy summer season.

“My expectations are we’re going to move as quickly as we can,” said Robinson. “It’s hard to pinpoint a date, but let’s say that this is very much top of mind for us to move on this.”

But not all the recommendations are cut and dry.

The financial authority said BC should end the current practice of blind bidding, where buyers don’t know who else has bid on the property or at what amount, and can sometimes result in drastic overbids that artificially inflate the sales value of the property.

Instead, BC should pursue a proactive real-time disclosure system for buyers and sellers used in Scandinavian countries like Norway, read the report. And the province should not follow countries like Australia, that hold open public auctions on properties.

“There has been lots of questions about the English style of offers, the videos you may have seen where people were on the corner and a real estate agent is taking bids like they would for a piece of art or a car — we don’t think that works,” said Morrison.

“We don’t think that addresses the concerns of consumer protection.”

The BC Real Estate Association offered muted praise for the report, saying it was “pleased” that its suggestion of a five-day pre-offer period was accepted, but that it continues to oppose the cooling-off period idea because it thinks it will have negative consequences in transactions.

“Prior to the implementation of any of these measures, it is imperative that the government further consult the real estate sector about the potential impact for buyers, sellers and the housing market as a whole,” the association said in a statement.

“There is still much work to be done to determine whether what has been recommended is the best path forward for British Columbians.”

Rob Shaw is Daily Hive’s Political Columnist, tackling the biggest political stories in BC. You can catch him on CHEK News as their on-air Political Correspondent.

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