BC’s new rule that gives buyers three days’ grace to reconsider a property purchase has been a non-starter since it came into effect on January 3, 2023, say realtors.
Many long-time Vancouver realtors involved in a high number of transactions say they haven’t dealt with a single cancellation as a result of the new Home Buyer Rescission Period (HBRP), also known as the cooling-off period. Others say they've seen a minute uptake, but note an ensuing administrative headache.
“The numbers are extremely low, and the paperwork is high,” says Lorne Goldman, a realtor with Macdonald Realty, where just two out of at least 300 transactions have taken advantage of the HBRP. “The average person continues the process and does not change their mind.”
The new HBRP gives a buyers who make a subject-free offer three business days to rescind an accepted offer on a property. If they decide to walk away, they pay 0.25% of the offer amount. For example, if it’s a $2M deal, their cancellation fee is $5,000. Buyers and sellers cannot waive the HBRP, and buyers don’t need to give a reason for rescinding their offer. It could just be a case of cold feet.
Additionally, not all properties are included in the cooling-off period. Leasehold properties and properties sold at auction or under a court order are exempt from the HBRP. It also doesn’t apply to presales, which already have a seven-day right of rescission.
The intent of the new rule was to protect those buyers who made offers subject-free in a super-hot, high-pressure market, like what was seen early last year. But the market has since cooled off, and realtors say it’s created confusion as to why the HBRP is even necessary.
Goldman and others say they already hold back offers for 10 days or so, so that buyers can do their due diligence and get inspections.
Bryan Yan, a realtor with Regent Park Realty, also notes that buyers can also wrongly assume they are able to use the three days to get inspections or on-site appraisals done. Unless it’s a term in the contract, sellers are not legally obliged to open their house to inspections or meet any other buyer demands.
“People don’t know about that,” says Yan. “There is this false sense that, ‘I can write an offer and in those three days, walk in and do an inspection,’ but that’s not the case. Basically, it’s just like that game show where Regis says, ‘You can use a lifeline and call a friend for advice.’ That’s pretty much the extent of the protection.”
At Goldman’s brokerage, they had a multiple offer situation and the buyer got cold feet and asked to do an inspection. The seller refused.
Yan notes that even if allowed, doing due diligence in three days can be next to impossible. Imagine trying to find an inspector, or getting an oil tank inspection, obtaining insurance, getting background on possible permits at city hall, doing a title search for liens and easements, or getting mortgage approval in just three days.
A Race to No Conditions
In a hot market with little inventory, homes sell quickly and above asking. That pressurized environment, like was seen in the run up to the February 2022 peak, might compel buyers to make subject-free offers to “gain an edge over competing buyers,” said a report prepared in May 2022 by the BC Financial Services Authority, for the Minister of Finance. The purpose of making an offer with a condition on it, such as an inspection, is to ensure the buyer has the chance to do their due diligence. However, an unconditional offer, while attractive to the seller, “exposes them to significant risk as they forego an opportunity for due diligence,” says the report.
To combat this, BC became the first province to pass a bill and bring in a “cooling off” period, designed to protect homebuyers – particularly first-time buyers – from making misguided, fear-of-missing-out decisions.
Yan notes, however, that the new rule could have the unintended effect of increasing both prices and the number of subject-free offers, especially at entry level. A buyer could make a lowball offer that is subject free, causing others to feel the pressure to come in with a higher price that’s also subject free to get the edge over their competitors. He compares it to a poker game.
“What if there are several players at the table who always go all-in against you?”
For a seller, a subject-free offer, even if priced lower than a conditional offer, always has the advantage, he says. The BC government's rationale for the new rule was that 70% of offers were made without conditions a couple of years ago, when interest rates were low. If the rule had been in effect back then, Yan estimates 80 to 90% of offers would have been subject-free.
“The purpose of this rescission period is to supposedly cool down the market and offer more consumer protection, and I don’t see either happening,” he says.
An Opportunity to Take Advantage
When a buyer makes an offer with subjects, they have a few days to do their due diligence before the subjects are removed. If they back out of an accepted offer, they’re immediately on the hook for the deposit of 5 or 10% and other penalties. A $1M deal is going to cost them $50,000 or $100,000, says Yan.
“It’s counter-productive to have [the HBRP], because now, the penalty for the buyer to walk away on that $1M is only $2,500. They are not held accountable,” says Yan. “That means, ‘Hey, you know what, I could write a lowball offer, in cash and cancel,' and these seasoned investors, they will do that… It’s cheap to walk.”
Goldman similarly argues that the cancellation penalty is way too low to prevent unscrupulous buyers from trying to hold properties so they can potentially flip them.
“It could be abused, and if you are going to have a penalty, make it meaningful. It’s a joke how little the penalty is, and it was brought in without consultation with the real estate industry -- because anybody in the real estate industry would note that the amount is insignificant.”
Goldman says that in a hot market a buyer who flips properties could use the three days to shop around for another buyer, if there is potential to re-sell under the table at a price that is a lot higher than the penalty. If they can’t find anyone to flip to, they just pay the small penalty, which is the cost of doing business for a speculator type of buyer. That’s a potential setback for the seller.
“Now, after 72 hours, he says ‘I don’t want the property,’ because he hasn’t had a chance to resell it for a profit bigger than the penalty," Goldman said. "Now, the listing agent has to go back to the other competing offers and say, ‘We’re back on the market.’
“The average buyer would then say, ‘What’s wrong with the property? What did the first buyer find out?’ So, the policy is to the detriment of the seller, because now it’s tainted.”
Agents are therefore put in the position to determine which buyers are making flaky offers, says Goldman. Another concern for sellers is getting paid the penalty if the buyer does back out. Unless a deposit is paid and held in trust before the HBRP, the seller would possibly have to chase after the buyer for the penalty.
Andy Yan, Director of the City Program at Simon Fraser University, however, defends the HBRP as a necessary protective measure when the market picks up.
“Yeah, [abuse] could be possible,” he says. “But there will be some anti-flipping legislation coming up. That’s a sure thing.”
He points out that Premier David Eby has proposed a tax on flipping to discourage speculation, as part of his recently announced Homes for People plan, which includes a $4B investment in housing needs over the next three years. As well, the effectiveness of the HBRP will be monitored, he says.
