Did you enjoy the post about home inspections on Monday, or did you want to want to get political, yet again?
I read the comments on the blog most of the time, just so you know. I understand that not everything I write is going to be well-received. In fact, I’ve been accused many times of “dropping a lit match near some oily rags and running away.” When I was younger, I was far more controversial. I often sought out topics that would cause debate and disagreement, whereas today, I think that’s just the natural result of anything we discuss.
I know that readers will have their favourite columns and the ones that they don’t like.
And above all, I know that what one readers loves the most may fall into the loathe category for the next reader.
I recognize how political in nature my blogs have become and while this might have come with age and maturity, I also think it’s a by-product of where we are as a society, and how much the topic of “real estate” affects us.
Simply put, it’s impossible to discuss real estate without involving politics, unless I’m blogging about “Five Ways To Spruce Up Your Garden This Spring!” or some such nonsense that you’d find ghost-writers providing for every other real estate agent out there.
If we talk about the current market, the future of real estate, or even the past and how we got here, we simply must look at politics, since it’s legislation and decision-making at all three levels of government that have, will have, and have had the greatest affect on real estate.
And if we talk about city planning, development, infrastructure, fiscal or monetary policy, or the governance of organized real estate, again, I think it’s impossible to do without involving politics.
So far this year, I’ve talked a lot about the inner workings of the Toronto real estate industry as well as how the municipal, provincial, and federal governments are impacting our local market. Therein lay a lot of topics that don’t necessarily interest a portion of readers, whether those readers have had TRB bookmarked since 2009 or whether they just stumbled upon TRB on Google last week. But these are important topics in the context of why we find ourselves in this housing “crisis” as well as where we’re headed.
I don’t plan out my topics. The topics come to me.
What’s happening in the market? What are people saying? Where are the strengths and weaknesses? What’s interesting?
That’s what I write about most of the time. And when big news is presented, I wouldn’t be doing my job if I simply skipped over it.
So with that said, a massive real estate bombshell dropped this week when the B.C. government announced that they were going to impose a mandatory “cooling off” period for home buyers.
What is that you ask?
Well, if you’ve ever bought pre-construction in the province of Ontario, you would have already experienced the government-mandated 10-day cooling-off period that affects such sales. From the moment you strike a deal, under law, you have ten days to consider the contract, mull it over, make a decision, weigh the pros and cons, or however you want to describe the fact that you can opt out of that agreement.
Now why do we have this mandatory 10-day cooling off period?
And why am I likely going to compare this cooling-off period to the one being imposed on resale transactions, while arguing in favour of the former and against the latter?
Oh, that’s where I open myself up to hypocrisy! But let me give this a shot…
Long-time readers know how much I have spoken out on the perils of buying pre-construction. From the cancellations, to the delays, to the material changes, to the never-ending occupancy periods, to the deficiencies and ridiculousness of TARION, and of course, to the pricing that makes no sense.
None of these issues are present in resale transactions.
However, I would add, more importantly, that the developer’s contract, aka “builder’s forms,” are written and vetted by a team of lawyers whose job it is to protect that developer and ensure that the contract is entirely weighted in the developer’s favour. In addition, an overwhelming majority of pre-construction condo buyers purchase at the sales centre through an on-site sales representative who works for the developer.
On the resale side, you have “standard forms” written by organized real estate that are intended to protect both buyers and sellers, and hopefully, both buyer and seller have their own representative.
As a result, the government mandated some time ago that all pre-construction condo buyers have a 10-day cooling-off period. In this time, it is paramount that a buyer have their lawyer review the massive “builder form,” although sadly, many don’t.
So while I am in favour of this mandated cooling-off period, I never could have imagined that we’d see this on the resale side.
Here’s an article from the Canadian Press:
“Province Introduces Legislation Intended To Protect Homebuyers In Hot Real Estate Market”
March 28th, 2022The British Columbia government says people buying homes in the province’s hot real estate market could soon be protected by a cooling-off period that gives them time to back out of an agreement.
Finance Minister Selina Robinson says the Property Law Amendment Act introduced in the legislature today will help build the framework for a protection period for homebuyers to properly assess, finance and inspect the home they want to buy.
Robinson says the length of the cooling-off period and potential financial costs of leaving a purchase agreement have yet to be determined.
Real estate experts say the government’s cooling-off plan will not ease housing affordability in the province and could put sellers at a disadvantage.
Prof. Tsur Somerville at the University of B.C.’s Sauder school of business says the legislation would give buyers more time for due diligence, but may also allow purchasers to make offers without consequences, putting the seller at a disadvantage.
“You’ve got to have it set up in a way that has sufficient money at stake if somebody backs out of a deal.”
Somerville says the legislation won’t make housing less expensive.
“If your notion is this is going to address affordability, this really sort of isn’t the path to take.”
A report last month by the B.C. Real Estate Association said introducing a cooling-off period would cause more problems than it solves, including uncertainty for sellers.
In a news release, the association said a “pre-offer period” would give buyers more time to consider a purchase.
Rather than allowing buyers to back out, as in the cooling-off period envisioned by the government, it would require that properties be listed for five days before offers are opened, providing time for property viewing and inspections.
Robinson told CBC’s On the Coast host Gloria Macarenko that the province is also looking into mandatory inspections and closed bidding to make the market more comfortable for buyers.
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So what’s the real story here?
Or better yet: what are we trying to accomplish?
We talk a lot about affordability on TRB but is this story about affordability?
I don’t think so. I think it’s about “protecting home owners,” which I’m all in favour of. But my fear, as always, is that this is simply a distraction.
As I wrote on Friday, I don’t believe that any government, be it municipal, provincial, or federal, has a “plan” for tackling the housing crisis. I wish they did, and I would love to offer my two cents, but I don’t know what’s more unlikely.
So when I see legislation like this, my greatest fear is that this is going to distract constituents from the actual problem in the real estate market, which is affordability.
Then again, you might recall this article from Friday as well:
“Building More Won’t Solve The Housing Problem, B.C. Municipalities Say”
Globe & Mail
March 23, 2022
Yikes!
So if building more won’t solve the housing crisis, then will legislating a “cooling off” period do so?
The cooling off period isn’t an abhorrent idea, but it’s a poor one.
It’s like massaging the bicep when one has a broken wrist. It might make you feel slightly better, but it does nothing to address the issue.
As always, I also fear issues with implementation and logistics. Eventually, we’ll be told exactly how this is all going to work. But I think we can all agree that it’s a logistical nightmare, and won’t make the process of buying and selling any easier.
Let’s play this out.
Let’s say that tonight – March 30th, we have an “offer night” for a house in North Toronto for which ten offers are submitted. One offer is accepted, and the deal is firm. However, the ten-day cooling-off period or five-day, or whatever the govenrment decides, is immediately put into effect.
Let’s say it’s ten days. Now the buyers have until April 9th to decide, and the sellers must wait.
The article above says, “This puts the sellers at a disadvantage,” but I honestly don’t think that, given how many advantages that sellers have had over the last two decades, that we’re going to cry foul for them having to play ball.
But what’s the impact on the rest of the market?
The sellers have to wait ten days, as do the buyers. The buyers don’t get their existing condo listed for another ten days. The buyer pool sits and waits to see if this deal goes firm. And instead of a market working efficiently, we continue to see the equivalent of every house or condo in the city being “tied up” for ten days.
Is this necessary?
Is it helpful?
Does it truly “protect” buyers? Or does it throw the market into chaos, and complicate an already complex market?
Now, we know that with a 5-day condition on financing or inspection, the buyer may sign a “Waiver” or a “Notice of Fulfillment of Condition” at any time during the five days. They need not wait the full five days.
So can the same be done with respect to the cooling-off period?
If so, then I can tell you exactly where this is going: right back to the start.
If a buyer may waive this cooling-off period, then in order to be competitive, buyers will simply insert a clause into their offers waiving this right, privilege, or protection from the get-go.
In a hot market, this will become standard.
On Tuesday night, I had five offers on an east-side property. One had a condition on inspection. I had provided a pre-inspection from Carson Dunlop, but this agent said, “We didn’t have time to review it.” The property was listed for seven days, the buyers saw the house on Friday, and for them to effectively cut off their own legs before looking for a running start into the housing market, was surprising. They had zero chance of being successful with that condition.
So what if we, here in Ontario, had a cooling-off period just like in B.C.?
With five offers on the table, don’t you think that four of those buyers would have waived their cooling-off rights in order to be more competitive?
I’m not suggesting this nor condoning it, but rather I am rational and honest enough to see where this is going.
“Cooling Off Period Not The Solution To B.C. Housing Crisis”
CBC News
February 28th, 2022
From the article:
The B.C. Real Estate Association worries that legislation, the details of which have yet to be determined, won’t address the cause of the problem.
“We are deeply concerned that this decision was made without thorough public consultations with the real estate sector and consumers, a problem statement or supporting rationale,” the association said in a news release.
The B.C. Real Estate Association released a white paper with recommendations for the provincial government as it moves forward with the legislation.
It says a “pre-offer period” would give the buyer more time to consider a purchase. Rather than allowing buyers to back out, as in the cooling-off period envisioned by the government, it would require that properties be listed for five days before offers are opened.
The association says that would provide time for property viewing and inspections and would also combat “bully offers,” when buyers make time-limited offers immediately upon listing, forcing sellers to make snap decisions.
B.C. Finance Minister Selina Robinson said the government won’t scrap the idea of the cooling-off period, but the province is continuing to weigh its options.
If the province does move forward with the cooling-off period, the association suggests a financial penalty for anyone exercising that right that would be at least 50 per cent of the deposit and should also allow for exemptions where the buyer and seller agree to waive the cooling off period.
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Alright, wow. A few things here…
First, it’s no surprise that a real estate association doesn’t agree with this, but neither do I, so call us all biased.
Secondly, I agree that a “pre-offer period” makes far more sense than a cooling-off period, and I refuse to accept any argument to the contrary. Provided that this pre-offer period is carved in stone, and can’t be altered (ie. like in our market where sellers can accept “bully offers” a week before their scheduled/posted/promised offer date), I see no reason why all the preparation can’t be done in advance.
But this goes right back to the conversation from Monday’s blog about home inspections.
Once upon a time, in a buyer’s market or a balanced market, a buyer could conditionally purchase a home, spend his or her time doing an inspection, and then decide whether to proceed or not.
But in a seller’s market, that is a luxury.
And as was noted in Monday’s blog, there’s no reason why a buyer can’t do a pre-inspection, which are done all the time in Toronto.
So why then can’t we have a “pre-offer period” instead of a “cooling off period” to avoid the fallout which will undoubtedly follow in the latter case?
If buyers were able to waive the “cooling off” in their offers, then the pre-offer idea is actually a far better idea in the end, so long as sellers can’t waive that pre-offer period as they do in the case of bully offers.
And lastly, a pre-offer periods would avoid the ridiculous penalties that are being noted in the article above; “at least 50 percent of the deposit.”
Can you imagine?
A buyer for a $1,500,000 house is probably making a deposit of $75,000, or maybe $150,000 if they want to be really competitive.
Who in the world would walk away from half of that simply because they changed their mind?
I would hazard a guess that very, very few buyers would walk away during the cooling-off period if they were to lose “at least fifty percent” of their deposit, which then begs the question: what’s the point of this legislation?
One more thing to note from the article above: in B.C., real estate regulation falls under the purview of the Finance Minister.
In Ontario, we simply have the Real Estate Council of Ontario.
How long until we see Ontario follow suit? I think RECO is useless, so I’d be open to change. I’m not sure if this is simply rearranging the deck chairs on the Titanic, but it can’t get any worse than RECO.
I’m all in favour of protecting consumers. I just have different ideas.
Remember in 2018 when I wrote a blog post about how many transactions Realtors are doing?
I took a lot of heat for that post!
But I took heat from organized real estate, who didn’t want the truth out there, as well as the part-time and fly-by-night agents that didn’t want to be exposed.
Truth be told, the public would benefit greatly from knowing how experienced their buyer agent or listing agent really are, and I think real estate stats, at some level, should be made public. Either agents are given a designation to start every year, based on the previous year’s activity, or RECO has a tool on their website for looking at agent activity.
That is a way to protect consumers from choosing poorly, which many do. It’s one of many ideas I have, but which will never, ever be considered.
I’m tired of smokescreen ideas.
Cooling off “protection,” which can be waived or opted out of, that would cost a buyer 50% of their deposit, is going to have zero practical impact.
It’s time we look for practical solutions to both consumer protection and housing affordability, and stop using one to distract from the other.
Any ideas, folks?