The news is churning out many words about interest rates and not much of the cooling-off period “Homebuyer Protection Period” legislation proposed by the B.C government. Real estate agents in Toronto are watching this news closely because, like a little sibling, Toronto often copies whatever Vancouver does in the land of real estate.
The big question is, will a cooling-off period help to slow our market and ease affordability? Likely not. This legislation will almost definitely miss the mark.
Let’s get into it:
What is the proposed cooling-off period?
The B.C government has produced a broad sketch of the idea with no specifics. But let’s assume that it means that a buyer can purchase a property, and then that buyer will have seven to ten days to get out of their agreement consequence-free. (This is how the cooling-off period works in Ontario if you’re buying new construction. )
This homebuyer protection period is designed to solve a real problem, where buyers are forced to waive their rights to conditions in their offers to win a bid. Offering with a “firm” offer is very common in Toronto.
In highly competitive markets, buyers understandably feel like the odds are stacked against them and don’t have adequate time to safeguard themselves against possible financing or home inspection issues. The cooling-off period, in theory, gives buyers plenty of time to get a firm commitment from their bank and conduct their home inspection.
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What will actually happen?
Chaos. Total chaos. Buyers will be able to offer on multiple properties (assuming they have enough cash for the deposit cheques that accompany their original offers).
They can pull out of any deal within the cooling-off period. We’ll also likely start to see sellers accepting second, third and fourth offers as backup offers. And all those “back-up” buyers can also have many offers on many properties. It could create a situation where we believe that there are far more buyers than there are in this market. It also locks a seller into a limbo situation, where they don’t know if their house is sold or not.
➤ Want to learn more about the Toronto real estate market? Have a look at these posts right here.
Will it solve the affordability problem?
Probably not. It is a myth that buyers are so caught up on offer night that they offer way more than they were expecting or hoping to. Buyers who are well represented by their real estate agents often know what they will do when they enter into negotiations.
They also have likely done all their due diligence in advance of offering on the property. Simply assuming that prices are so high because buyers lose their minds on offer night is unfair. Houses will likely continue to sell for the same amounts of money, subject to the same variability in market conditions like geopolitical issues and mortgage rates.
What’s the better solution?
Buyers do need a break in these seller market conditions. One easy way to quickly change the market is to ban offer dates entirely. So, if you want to sell your house, you have to be ready to review offers at any time. This will force sellers to list their houses at market value, and that will, in turn, start to slow down the price increases a bit.
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The more long-term solution is systemic. The only way to solve the affordability crisis is to increase the wages of low and middle earners and create more housing opportunities.
This requires a lot of work and will from the government, but it is the only thing that will work. If the market balances out, there will be no need for a cooling-off period because buyers will again be able to introduce conditions in their offer. A balanced market is the only way to help buyers and sellers. A cooling-off period will not balance the market; It will just shroud it in murkiness.
As always, Stay Safe
Robyn VanderVennen
