Opinion: New mandatory "cooling-off period" for BC home sales won't work

Mar 14 2022, 10:56 pm

Written for Daily Hive Urbanized by Mark Sakai, the Advocacy Projects Manager for BC Real Estate Association (BCREA), which works with the province’s eight real estate boards to provide professional education, advocacy, and economic research.

With the ongoing troubling events in Ukraine, it can seem almost inconsequential to think about our housing affordability crisis in British Columbia. However, amidst housing market conditions that are as competitive as they have ever been, the challenge for countless British Columbians is real and it’s necessary that we find solutions.

Last November, in response to concerns that the competitiveness of the market was increasing risk for home buyers, the BC government announced its intention to create a “cooling-off period” for all residential real estate purchases, and asked the industry regulator, the BC Financial Services Authority (BCFSA), to consult on the nature of its implementation, and other potential consumer protection measures.

At first glance, the government’s attempt to better protect consumers as they navigate one of the biggest financial decisions of their lives is a good step.

Our own research has shown that there were almost three times the number of buyers in the market last spring as there were available properties. Naturally, this can and has led to frenzied activity when new listings hit the market, as buyers scramble to prepare competitive offers for “fear of missing out.”

Without the time to complete due diligence, such as review of critical property documents, confirmation of financing, completion of home inspection reports, or even sufficient opportunities to view the property, it’s no surprise that failed buyers can feel frustrated and successful buyers can have second thoughts after previously undiscovered property issues come to light.

But is the government’s cooling-off period the answer to answer the problems buyers and sellers are facing in today’s market?

A cooling-off period, despite its name, won’t actually “cool down” the hot market and it actually won’t do a whole lot to help consumer in the heat of a competitive market.

Typically, a cooling-off period, or recession period as it’s more commonly known within the real estate sector, is when a buyer with an accepted offer (and therefore a fully binding contract) can walk away from the deal with no explanation or legal penalty during a specified time period. The rescission of the contract may come with a fee, but those types of details haven’t been made clear in the government’s plans.

If a buyer makes a mistake and has second thoughts after their offer has been accepted, with a cooling-off period, they could walk away. But in a real estate transaction, this type of policy only protects one party: the buyer with the accepted offer.

What about other prospective buyers in the heat of a multiple offer situation, and what about the seller? Not to mention the fact that a cooling-off period may encourage buyers – especially deep- pocketed, business savvy ones – to submit offers on multiple properties, thereby increasing demand and a potential bidding war; which is one of the problems we are seeing in the market today.

And, as the seller, if you are relying upon the sale of your existing home to secure the purchase of your new home, then that sale itself is subject to the cooling-off period, if the offer you accepted is rescinded, it places your own purchase in jeopardy. This potential of “cascading recissions” of linked transactions represents the greatest threat to buyers and sellers.

We think there is a better way for the government to protect consumers.

On February 28, BCREA published A Better Way Home: Strengthening Consumer Protection in Real Estate, a white paper with more than 30 recommendations addressing – among other things – the real estate transaction process and current market conditions.

Among the recommendations, we suggest that a pre-offer period does a whole lot more to help protect consumers in a uniquely challenging market without introducing any of the potentially negative consequences of a cooling-off period. A pre-offer period would require a minimum of five business days after a new listing is posted before a seller can receive any offers from buyers.

By requiring all critical property documents to be available at the time of listing and ensuring that the seller provides opportunities for viewing and access to home inspectors, a pre-offer period provides that critical element both consumers and government have been after: time to think and make a level-headed decision on an offer.

The pre-offer period also provides better assurance to sellers that the offers they receive are carefully thought out, serious offers, not rushed or ill-considered. And buyers can make decisions knowing that they have had the time to address many of the elements of risk associated with what is likely the biggest financial transaction they will be involved in.

If the objective of a new policy is to improve customer protection by providing more time for due diligence, and opportunities for careful reflection and consideration, then BCREA’s proposal of a pre-offer period is the better way forward.

Of course, neither a cooling-off nor pre-offer period addresses the underlying causes that led to the risks consumers face in an overheated market. There are simply too many interested buyers and not enough properties available.

This imbalance between supply and demand is ultimately what drives the price of a home. This imbalance needs addressed by all levels of government by prioritizing improvements to the housing approval process. We need more housing units, both market and non-market, of all types and in more areas to provide not only the numbers of available units for sale or rent, but also the diversity in housing choice necessary to meet the needs of our changing demographics.

Together, a series of carefully thought-out actions can address our housing affordability crisis with the hope that, when addressed holistically, the impact will stand the test of time.

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