On July 21st, 2022, the British Columbia finance minister announced details of new consumer protection measures, in the form of new legal protections for home buyers.
The measures will come into effect on January 1, 2023, so it is possible there may be some changes prior to implementation, but here’s what it looks like as of right now along with what we seeing going very wrong with this approach.
Homebuyer Protection Period Details
- Mandatory, non-waiveable homebuyer protection period of three business days, starting the day after an offer is accepted.
- A rescission, or cancellation, fee of 0.25 per cent of the purchase price would be levied against buyers who choose to back out of a signed deal. The seller of a million-dollar home, for example, would get $2,500 if the buyer decided to back out.
- Buyers can still make offers involving conditions such as home inspections or financing, but the protection period applies even with a clean, condition-free offer.
What could go wrong?
As realtors who have worked with hundreds of clients and met thousands of prospective clients over our years in business, we know first-hand that buying a home can be very stressful and choosing to move forward is a very difficult decision for many buyers. Every buyer has a unique set of requirements for their home, timing necessary for the purchase, and financial conditions that would make it possible.
The likely outcomes of a homebuyer protection period are as follows:
- It would directly encourage buyers who have not fully prepared or thought through the idea of buying a home to sign deals that would then be cancelled. Every real estate brokerage sees hundreds of purchases per year where buyers get cold feet and do not provide deposit cheques and try to back out of the deal. There are legal protections in place for such situations and the costs can be extremely high for these indecisive buyers. This happens with huge financial and legal repercussions and if the cost for such a change of mind is just $250 for every $100,000 of purchase price, you will see a dramatic increase in the number of cancelled deals. This means additional paperwork, confusion and stress for sellers.
- To be clear, these are deals where the buyer never should have wasted the time of the seller and the realtors involved as they just weren’t ready to buy. There must be consequences for buyers such that they have to be very clear on their decision and be prepared to move forward with the legal contract they sign for the purchase.
- Consider this analogy – if you were hungry and couldn’t quite decide what food you wanted to eat, would you order three different orders equalling $50 each? You likely wouldn’t because you’d be left with two orders you didn’t want once you decided on your preferred dinner option. If you only had to pay a cancellation fee of $1.25 for each of the two other orders to cancel them after they were made, you might do that while you keep deciding. It’s great for you as a consumer and terrible for the people on the other side who have to make the order for you, tell other customers it’s sold, see those customers leave for other options, only to have the order cancelled and be available again, where they receive a paltry fee that is nowhere near the full impact of the decision to cancel.
- Some buyers will hedge their bets on one property by bidding on second or third choice properties as well. While there may only be one home they can actually buy, they will be flooding the market with false offers that cannot be closed upon. If sellers start prioritizing offers where prospective buyers have other offers in play, we have complex offer situations with X number of “sole” offers, Y number of “spread” offers, some of which are clean offers without conditions, some of which have conditions, different closing dates, deposit amounts and any other myriad of offer attributes.
- The current regulations around conditional offers are clear around the circumstances under which a buyer may cancel a deal during the conditional period. The conditions are written in specific language that have legal meaning that has been established through decades of case law. A buyer who fails to fulfill a home inspection condition when they didn’t actually do a home inspection, or where the home inspection came back with no issues, is not entitled to use the condition as a reason to cancel the deal. If there is a mandatory protection period of three days, that gives the buyer a catch-all way to cancel a deal even if the specific condition would not have allowed them to terminate the deal.
There are undoubtedly other outcomes apart from the above that will result from this approach. The intent is admirable, but in our opinion, the planned model will simply encourage uncertain buyers to muddy the waters, with very significant and negative impacts on sellers and the realtors involved in both sides of the transaction.
While the idea of a homebuyer protection period appears positive, it is predicated on the idea that buyers are being pressured into deals they should not have signed by either market conditions or unethical realtors. The market conditions have shifted since this idea began and in Ontario at least, we have new legislation related to realtors’ code of conduct (the Trust in Real Estate Services Act) with more teeth when it comes to punishing bad agents.
The focus should be on educating buyers and regulating agent actions, not punishing sellers by allowing uncertain buyers to waste everyone’s time. If you’re a buyer and you want an agent who won’t pressure you to make a decision you’re not ready to make, who will help you work through what matters most and educate you on the best approach, then don’t hesitate to get in touch. We’d love to show you why a good agent makes all the difference.