Real Estate Association opposes BC's "cooling off period" policy

BC Real Estate Association opposed to government's "cooling-off" period policy

Single-family detached house in Vancouver. (Shutterstock)

“Cooling-off” periods for resale and new home sales may not produce the provincial government’s intended effect, according to the BC Real Estate Association (BCREA).

After announcing the policy direction in November 2021 as one of the latest measures to help improve housing affordability, the provincial government is expected to introduce legislation in Spring 2022 to require cooling-off periods for all homes that are resold or newly constructed — similar to the cooling-off periods that already exist for condominium pre-sales.

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Buyers would be provided with the ability to change their minds and cancel the purchase with no or diminished legal consequences during the regulated cooling-off period.

But according to BCREA’s new report outlining recommendations on how the provincial government can address housing affordability, the cooling-off period has the potential to create the unintended effect of increasing home prices. It increases the bargaining power of buyers relative to sellers, but it will also likely increase the ratio of buyers to sellers and raise transaction costs. It may also have a detrimental impact on the resale market.

“As buyers would be able to back out of contracts, the probability that a buyer will present an offer on a property rises under such a policy. Indeed, under a worst-case scenario, buyers would present offers on multiple properties to preserve their options and later back out of all but their one preferred deal. This policy may increase the incidence of multiple offers, already a common occurrence in a seller’s market in which there is more demand than supply of properties, suggesting that the cooling-off period is more about improving consumer protection than improving affordability,” reads the report.

“In a market with demand far outstripping supply (the fundamental driver of price growth in all markets), this proposal makes it easier and less risky to present an offer on homes, thereby raising demand. As a result, this policy may be perfectly counterproductive if the goal is slowing price growth.”

The report notes the position against a cooling-off period is based on an analysis of other major real estate markets elsewhere in the world, where unique local conditions and context are key factors for determining the effectiveness of such policies.

BCREA is recommending the implementation of a “pre-offer period” instead of the provincial government’s cooling-off period. This would prevent offers from being presented to a seller on a new listing until the listings have been posted for at least five business days.

A pre-offer period would allow the buyer to perform their due diligence while providing them with time to consider whether the offer they want to make is in their best interest.

As part of the policy changes, the provincial government is potentially considering restrictions to blind bidding, but BCREA is also recommending an alternative policy of mandating greater transparency on the number of offers to assist buyers in making more informed decisions.

But BCREA says fundamentally, the root cause of the housing affordability issues is the mismatch between supply and demand, which necessitates a coordinated approach by the federal, provincial, and municipal governments.

Other recommendations include mandating that all documents related to strata transactions are made available with the listing and raising entry qualification standards for new realtor licensees.

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