What is the ‘Homebuyer Protection Period’?
On March 28, 2022, the BC Government announced plans to develop the introduction of a cooling off period, calling it the ‘Homebuyer Protection Period’, or ‘Right to Rescission’.
Similar to new strata builds, buyers will be given a pre-determined rescission period for accepted offers. This is meant to allow buyers time to get inspections, financing, etc. completed, as many buyers have been feeling pressure to submit unconditional offers in order to compete in the market.
An unconditional offer is more appealing to sellers as it means the deal is immediately complete upon their acceptance of the offer; whereas, when accepting an offer with conditions they are waiting for the buyer to complete the due diligence period and complete on the sale.
That being said, subjects are a reasonable request from buyers, often included even when a buyer has been pre-approved for financing. It was more common than not for an offer to include subjects prior to the ultra competitive market conditions we have been experiencing.
In 2021, 70% of properties sold with unconditional offers.
The provincial government has already introduced market-dampening tactics, such as vacancy rates and foreign buyers’ tax; however, evidently, these have not been successful in slowing down the market.
Will an automatic rescission period help to cool down the market?
On one hand, it is important for buyers to have an opportunity to do their due diligence, and this period would be successful in allowing for that.
There are concerns regarding the potential for buyers to tie-up properties under contract while continuing to look for other homes and thus without full sincerity of completing on the sale, which could cause stress to other potential buyers in addition to the sellers.
We are hopeful that the provincial government will work with BC Financial Services Authority’s recommendations to implement the period in a way that will help buyers and sellers in this heated market.
The most common subjects included in an offer:
Depending on the situation, subjects are a critical part of an offer. There is only so much a buyer can do prior to making an offer, many steps of due diligence occur after an offer has been accepted.
As mentioned above, the subject period is a finite length of time where the buyer can ensure proper due diligence is taken so that they feel confident moving forward with the sale.
The Victoria Real Estate Board has five standard subjects, labelled in Addendum Two of the offer as follows:
Financing
Pre-approval on a mortgage is not guaranteed, the lender requires documentation of the specific property for purchase before granting the final approval on a mortgage loan.
If an appraisal is a requirement of the lender, the seller will need to approve a time for an appraiser to walk through the home.
Insurance
The buyer wants to ensure no serious insurance claims on the property would cause their insurance premiums to be higher than they are willing to pay.
Inspection
Having a qualified inspector assess the state of the property will help ensure the buyers are taking ownership of the property with a clear understanding of the maintenance or repairs required.
Title Search
A title can come with certain “charges” on the property. Some common examples are right of ways, easements, and restrictive covenants.
A buyer will want to review these charges to ensure they will not interfere with their use of the property.
Most often, a right of way or easement allows for services such as Hydro and Telus to run wiring and plumbing to the home. Any “financial charges” such as tax deferment or mortgages will be cleared on the completion date.
Strata Document Review
When purchasing a condo, a buyer will request strata documents to ensure they have a clear understanding of planned upcoming costs and how the strata council is managing the building.
It is standard to have a lawyer or strata document review company go through meeting minutes and the depreciation report to provide a summary of how the building is aging and what strata holders can expect.
Completing the subject period:
Once the buyer has conducted their due diligence with satisfaction, they will remove their conditions (subjects) and we will receive their deposit to hold in trust. After that, the deal is now “pending” and we wait until the completion date.
Should the buyer choose not to remove their conditions, they will sign an agreement releasing both parties from the contract and the sellers are legally entitled to either enter into a new contract or, if the sellers have accepted a “back-up offer” for the property, the back-up offer will immediately take effect.
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Thank you for being here,
Alex Hughes* and Ricki-Lee Jewell, Victoria, BC Real Estate Agents
*Personal Real Estate Corporation
