For many, a home is the biggest financial decision of their life, and with good reason. A home represents stability. Somewhere for memories to be made and children to be raised. Something that creates peace of mind through building equity in a safe and secure investment. A home being the biggest purchase in a person’s life makes sense, because for many it is the realization of a long-held dream.
But in inflated housing markets like the one BC recently experienced, it can also be a nightmare. While the market has begun to calm down, the quest to find a family home in BC includes paying exorbitant prices, navigating soaring interest rates, and surviving a market so competitive that it is basically a necessity to waive all conditions to an offer in order to even be considered by the seller. Without conditions, buyers have a near-complete inability to protect their interests. The metaphorical ball is in the seller’s court, and the buyer is at the mercy of the seller to be honest in the transaction.
This has, unsurprisingly, led to instances where new homeowners have discovered costly problems only after a deal has closed.
The Homebuyer Protection Period
On March 28, 2022, the BC provincial government proposed to amend the Property Law Act through Bill 12. One amendment would be the introduction of the “Homebuyer Protection Period” – informally known as a “cooling-off period” – an effort by the government to protect buyers in a bloated real estate market.
While not yet confirmed, the period would give a residential property buyer a to-be-determined number of days to rescind their offer after it is accepted. The BC Financial Services Authority recommends a three-day homebuyer protection period, although the final timeframe has yet to be decided. In effect, this would be similar to the already-implemented 7-day right to rescission for pre-construction strata sales.
What Does This Mean for Homebuyers?
To put it simply, the cooling-off period gives buyers more power in real estate transactions. It gives the buyer a set amount of time to perform a home inspection and other due diligence, confirm they have the necessary financing, etc., after their offer has been accepted, and then back out of the contract if necessary with only minimal financial loss (likely 0.1 to 0.5 of the purchase price, according to the BC Financial Services Authority). This means if the accepted offer was for $1,000,000, the buyer could walk away from the deal with only a slap on the wrist payment of $1,000 to $5,000.
The intended effect of this transfer of power is to give buyers certainty and protection in one of the biggest transactions of their life. Instead of feeling like they need to waive every condition just to be considered, buyers can still take some time to reflect on all of the important factors that go into a real estate purchase after they have an accepted offer.
Future adjustments to the real estate market suggested by the BC Financial Services Authority include removing blind bidding and creating a 5-day no offer period for new listings. Both of these are intended to further foster transparency and breathing room in an incredibly competitive housing market.
The Potential Downfall of the Homebuyer Protection Period
While the intention of a cooling-off period may be to level the playing field between buyers and sellers, there are potential unintended side effects that could result in it causing more harm than good for both parties.
The most obvious is that a get out of jail (almost) free card on an accepted offer could lead to more potential buyers and even more outrageous bids. In a market with successful buyers consistently bidding well over asking price, why would potential buyers not make dangerously overextended offers on multiple properties at once, knowing that they can simply back out of any or all of them with minimal risk if their offer is accepted?
In effect, the tremendous uncertainty of the transaction is simply switched from the buyer to the seller.
While a cooling-off period is an effort to protect buyers in the current real estate landscape, it remains to be seen if these types of attempts by the government to control the marketplace will in fact result in a benefit to the parties.