Despite objections from British Columbia real estate professionals, implementation of a “cooling off” period for homebuyers is moving closer. The province’s real estate regulator is also recommending that the government look at ending “blind bidding” in real estate transactions, and explore replacing it with open-bid, open-end auctions.
Last April, the B.C. government passed legislation to implement a homebuyer protection period, or “cooling off” period that would give buyers a chance to back out of a real estate transaction if they had second thoughts. The B.C. Financial Services Authority (BCFSA), the real estate industry regulator, was tasked with recommending a policy as well as providing suggestions involving the bidding process. That report was recently released.
It suggests a non-waivable cooling off period of three business days. It would include a “modest” termination fee to discourage frivolous offers or a situation where a buyer might put in offers on multiple properties at the same time. During the cooling off period, BCFSA suggests buyers would be given “reasonable access” to the property to conduct due diligence, such as a home inspection or to confirm financing conditions.
In addition to exploring open-bid auctions, the report says the government should consider “implementing a disclosure of the number and price of offers where a buyer is asked to revise their offer in a multiple bid situation” and “require the inclusion of standard optional clauses related to financing, home inspection, insurance and legal advice in the contract of purchase and sale.”
The British Columbia Real Estate Association (BCREA) is opposed to a cooling off period and instead suggested a pre-offer period – a minimum time that a property can be on the market before an offer can be accepted. This idea was also endorsed by the BCFSA, suggesting a pre-offer period of five days.
BCREA says that research into existing cooling off periods in other jurisdictions shows that they don’t add consumer protection and they may push up housing prices.
Although the government says BCFSA is an independent regulator, it “has been directed to research a pre-decided policy without being given latitude to determine whether a cooling off period is an effective mechanism to protect consumers,” says Trevor Koot, CEO of BCREA. “This is a critical step that has been missed and we consider it vital before moving forward. More time, research and consultation with all parities involved in the real estate transaction process – including Realtors – is needed to ensure the nuances of such substantial changes are considered and unintended consequences on consumers are avoided.”
The BCFSA report acknowledges that, “There may be situations where a cooling off period may unduly harm sellers’ interests. These may include court-ordered sales, sales by auctions and sales where the buyer has previously made an offer to purchase the same property within a prescribed time.” The report says certain “narrow” exemptions to the cooling off rule should be considered.
On the topic of blind bidding, the BCFSA report says that during consultations for the report, there was a lack of consensus about whether open bidding should replace the current blind bidding model. Concerns were raised about both methods.
“Participants expressed that open bidding may help address transparency concerns and may reduce the potential for significant gaps between the sale price and the next highest offer that may occur under blind bidding. At the same time, open bidding may create privacy risks for buyers whose personal details could be shared with others; these concerns were particularly relevant to real-time disclosure models and to transactions in smaller communities.”
The regulator says some participants also “cited the literature pointing to open bidding leading to higher housing prices.”
BCREA previously said that open bidding “can create frenzied market psychology that can cause final bids in open auctions to be even higher than in closed bidding.”
In March, BCREA conducted a consumer survey that found only 35 per cent of those surveyed supported the cooling off period. Seventy-one per cent of B.C. residents surveyed said that Realtors should be consulted when it comes to developing and implementing policy impacting real estate markets, says BCREA. The association, along with its member boards and the Canadian Real Estate Association, were included in the BCFSA consultations.
“The Realtor profession does not benefit from over-heated market conditions that leave most of their clients frustrated and discouraged as they lose out again and again on their homeownership dreams,” said BCREA. “It’s time to let go of that harmful preconception and acknowledge the important contributions Realtors can make to better protecting consumers and improving housing affordability.”
The association says that Realtors are “the closest contact with consumers, representing their interests, hearing their questions and concerns” and that Realtors “can provide insight that is not available elsewhere.”
If the recommendations are approved, B.C. could become the first province in Canada to adopt a cooling off period for resale transactions. It could also be the first to ban blind bidding, although the federal government is also looking at ways to address the way that transactions are conducted.
