Canada’s scorching hot housing market is putting pressure on the federal and provincial governments to come up with policies to make homes more affordable and increase consumer protection. Increasing the supply of housing is an obvious focal point, but the way that real estate deals are transacted is also coming under scrutiny.

In the current market, where there are few homes for sale but many motivated buyers, prices are rising and multiple offers are common. Buyers are fearful that if they don’t make their best offer now, they won’t have a chance to get the home. Most offers are made without conditions such as getting a home inspection or arranging financing.

In British Columbia, the provincial government has asked the real estate regulator to consult on a number of consumer protection measures. These include implementing a “cooling off” period, where buyers would be given a chance to back out of their home purchase for a certain period of time following the sale.

Other ideas being considered are restricting or banning “blind bidding” when there are multiple offers; calling for mandatory home inspection or financing conditions in all offers; and implementing mandatory disclosure statements.

The federal government is also talking about making home energy audits mandatory before a home is listed for sale. One of the Liberal Party’s election promises was to put an end to blind bidding.

The British Columbia Real Estate Association is wary of having the government make decisions about real estate transactions without consulting with industry leaders. It recently made a new suggestion that it says would accomplish many of the consumer protection concerns.

Instead of a cooling off period, the association says a viable solution is a “pre-offer period”. During the first five days after a new listing is posted, no offers could be presented to the sellers.

“This would allow time for viewing the property, home inspections and review of documents, such as property disclosure statements and strata documents,” says BCREA in a recent white paper. “This would also combat ‘bully offers’, which occur when purchasers make time-limited offers immediately upon listing, forcing the seller to make a quick decision and freezing out other potential purchasers.”

The association says the pre-offer period would negate the need for mandatory clauses for home inspections or financing approval, since it would allow time to these conditions to be fulfilled.

“It provides potential purchasers with the most valuable element that will reduce risk and stress: time to obtain critical information to properly consider an important decision,” says BCREA. “It also provides greater transparency in the transaction, in that all parties are aware of what due diligence is being undertaken.”

The association says research into existing cooling off periods in other jurisdictions shows that they don’t add consumer protection and they may push up housing prices. It gives more power to the buyer and less to the seller. “While this may sound desirable….most sellers are also buyers in other dependent transactions. Making the sellers worse off potentially risks an entire chain of transactions, adding uncertainty to the entire market,” says the report. “For example, if a homeowner buys another home but their home sale falls through because their potential buyer exercises a cooling off period, this could have a chain effect, jeopardizing their own homebuying efforts.”

With a cooling off period in place, buyers could present offers on many properties at the same time to keep their options open, and then back out of all but one of the deals. “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,” says BCREA.

The association is also opposed to policies that would put restrictions on blind bidding. It says that open bidding “can create frenzied market psychology that can cause final bids in open auctions to be even higher than in closed bidding.” It says the regulator should work with the real estate boards and BCREA to “provide greater transparency on the number of offers written.”

BCREA is also proposing that property disclosure statements be made mandatory. “For buyers, having information on the property condition known to the seller provides due diligence and helps them make informed decisions on offers. For sellers, property disclosure statements can increase the attractiveness of a property and reduce the risk of possible claims by buyers as complete written disclosure was conducted. Lawsuits are expensive and often result from misunderstanding, failed communication of lack of information,” it says.

The association wants to make sure that no matter what path the government takes, it does so after full consultation with the industry.

“In the past, lack of consultation has led to premature policy directions that have had negative unintended consequences,” says BCREA.

For example, in 2018 the B.C. government banned dual agency, in which both the buyer and seller in a real estate deal is represented by the same Realtor. That “attempt at improving consumer protection effectively achieved the opposite by reducing consumers’ access to knowledgeable Realtors and increasing the incidence of unrepresented parties,” says the association. “We are fearful that the hasty announcement of a cooling off period, along with other measures under consideration, risks additional unintended consequences and potential harm to consumers if not carefully researched and developed in partnership with sectoral expertise.”