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.
–
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.
–
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?
TOPlanner
at 8:44 am
Why not do pre-offer periods AND mandatory home inspections arranged by the selling agent? Levels the playing field in terms of access to information.
GinaTO
at 9:21 am
I was thinking the same. David had a pre-inspection of our house done before listing, which uncovered a small problem we didn’t know we had. Fixed problem, no offer conditional on inspection, and I also felt it was more fair to the buyer – we did get to do a post-offer inspection when we bought in 2012, and it helped to know which repairs to focus on short-term and longer term.
J
at 10:11 am
When I bought my home there was a pre-inspection available, but it was quite deficient. For example, there was no mention of the knob-and-tube wiring. Even some things that should have been obvious to anyone with a working eyeball were absent, such as a cracked window. The home inspection I paid for (from Carson Dunlop) was much more thorough, and I’m glad I didn’t put much weight into the pre-inspection.
I don’t think mandating pre-inspections would be very effective in helping buyers. The seller is the one paying for the inspection and can choose to hire the cheapest inspector or the one who’s willing to hide major problems.
Condodweller
at 1:11 pm
My opinion on this is that home inspectors should be held accountable for their work. I would make them carry E&O insurance that a buyer can claim against to address costly issues that were missed. Only items that could be realistically be identified. For the rest, they should include a standard warning section of possible issues like kitec/asbestos/etc based on build date.
This might require that the buyer hires the inspector to enforce but I believe in efficiency and one report done by the seller should do. Being able to claim against the insurance should alleviate any trust concerns. Alternatively, what someone suggested in the comments would work to have the buyer use the same inspector for a smaller fee since the inspection only needs to be done once.
Appraiser
at 9:18 am
To all of our dismay as voting citizens, we frequently find ourselves the recipients of political posturing. Often political representatives find themselves under so much perceived outrage, that they will do almost anything to portray the appearance of doing something.
No matter if that “something” is both ineffective and riddled with practical difficulties, implementation nightmares or potential negative unforeseen circumstances.
Because increasing housing supply is more difficult and time-consuming to achieve, we are left with our lawmakers, and way too many so-called housing analysts, offering to rearrange the deck chairs, while the housing crisis rages.
Appraiser
at 9:30 am
erratum: “circumstances” should be consequences.
Condodweller
at 12:58 pm
David, I read your blog because you stay on top of the RE news and you are not afraid to speak your mind and provide an honest and least biased opinion among other things. Yes, you (RE agents) are all biased; ask and you shall receive :-). I’m very similar which often gets me in trouble as well, but there are those who do appreciate hearing the truth. My quick comment on Friday was short and to the point as I really didn’t have time to engage. Think of it as feedback. When you lead by news headlines you run the risk of sounding hypocritical as all those articles with misleading headlines you often complain about. But fear not, those two vigilant trolls put me in my place. Perhaps consider a Friday “news”/political musings article when there is no news in the news and politicians are just up to their old tricks we all know about already.
On the other hand, introducing a cooling off period and increasing the foreign buyer tax to 20% is news and worth talking about. Unfortunately, I still don’t have time for a longer comment but here are my “shorter” ideas in point form. I’m sure this will be discussed in the future when it gets implemented.
– all those self-help books suggest when you want to improve something, instead of doing it in one step they say we should just “do better” every day. Baby steps I guess. I agree with this and while the cooling off period won’t solve the supply issue I believe it will balance the scale between buyers and sellers and just might slow down the price escalation. It should be net positive.
– I think this is a great idea as it will address the biggest concern for buyers which is being forced to waive all their rights in order to have a shot at buying a home.
– This effectively puts conditional offers back in play and suggesting that it could be waived is ridiculous and shows bias, if there was any doubt. That would be cutting off their own legs before ever implementing it. What is it that you say about not being able to contract out of a law?
– I do agree with the pre-cool off period as it would take care of bully offers in a single stroke.
– Effectively this is a forced condition that would make things fair for buyers. Since any condition allows a buyer to walk away before going firm.
– All those against this idea should ask themselves what they have to worry about? If everything was done fairly, and the seller accepted a fair offer what’s there to worry about? This is how deals were done in a “normal” market. I think David has indicated that the number of deals with conditions that fell through for him was minimal. People walking away is an irrational fear. As long as the deal was done in good faith.
– This will help keep a lid on prices as people can simply back out if they realize during the cool off period that they way over paid. Sellers may not like this. But it’s fair. It keeps prices in fair territory at least.
– looking forward to all the new strategies agents will employ to circumvent this.
Yes, this could have been much longer 🙂
David Fleming
at 4:41 pm
@ Condodweller
My intro today wasn’t directed at you or your comment, nor do I think you were in the wrong in any way, nor do I think that anybody need “put you in your place.”
I have felt somewhat “off” about the topics so far this year, and your comment and some of the other ones simply reinforced my feeling.
As I said, I go where the stories go, and I write about experiences. Most of my noteworthy experiences this year have been about agents behaving badly, and I’ve written way, way too much about it. I also have spent a lot of time talking about legislation and governance, but that’s where the stories are!
Look what happened today, for example:
https://www.theglobeandmail.com/canada/article-ontario-introduces-bill-aimed-at-speeding-up-housing-as-real-estate/
How can I NOT write about this?
I mean, I’m leaving for London on Friday, and my Friday blog is pre-written, so maybe we can escape this as a topic! 🙂
But try as I might to avoid the same 2-3 topics, over and over, they keep pulling me back in.
Condodweller
at 9:49 pm
I mean I was simply stating the obvious and I indicated my position. If that type of blog floats people’s boats let them row away. I can imagine how difficult it is to come up with new material. I’m firmly in your camp regarding politicians it’s just after a while I get bored of the same theme. People these days constantly ask for feedback and instead of sending emails I just comment.
That article is behind a paywall but according to the news I assume it’s about the new rules for rezoning and reducing approval times. If it moves the needle in the right direction I’m all for it. I like to see and discuss new items. Or at least a new take on old items. You lose me on old ideas on old items. But hey, it’s just me, and it’s your blog, so do what you will. I can ignore and move on without commenting, most of the time. Looking forward to the next one….
My problem with most of these measures is that they don’t begin to compensate for the amount of new immigrants to the country.
Toad
at 8:44 pm
Here’s what I’ll say. I was mostly onboard with David’s thinking that the cooling off period won’t affect prices and will just leave inventory hanging. But when David says “I refuse to accept any argument to the contrary”, that’s where we all get in trouble since people won’t even bother listen to the other side because we always think we’re right. Left. Right. It doesn’t matter… we all think we’re right.
I won’t take a hard line on the following argument, but it’s at least worth debating. So, let’s say there’s a house with a “true worth” of $1.5M (we’ll leave the true worth debate for another day… just go with it). So if someone ‘overpays’ and offers $1.8M and then they have a cooling off period… yes, in 5 days time they can come to their senses and realize that they’re overpaying by 300k… so they walk away. What’s the harm to the seller (other than time… which yes, is valuable)? If we want a fair market, then the end result should be that someone buys it for $1.5M. So the first person backs out… but that should be no problem because there will always be someone willing to pay a fair price. So it goes back on the market (or the other buyers that originally lost are contacted) and someone bids $1.6M… but again, after 5 days they walk away because they paid 100k too much. So it’s back on the market again and finally someone pays the fair price of $1.5M and sticks with it… since it’s the fair price. So in reality, while it will drag out the sales process, it may in fact at least help arrive at a more fair price. But yes, it sucks for sellers. But let’s be real, anything that makes prices more fair in this market must mean that it sucks for sellers. Hell, if housing supply is what you claim keeps prices up, building more houses will suck for sellers. So, some may logic it out that if something sucks for sellers, it might just mean that it’s making the market more balanced.
So ya, a cooling off period doesn’t automatically mean that prices will be exactly balanced… but it may just nudget it that way. Let the people that way overspent come to their senses and allow that price to come down to the point where no one wants to walk away.
Lots of assumptions in this example, for sure… but you get the gist.
Condodweller
at 9:53 pm
You nailed it. I completely agree, I just didn’t have the time to type it all up 🙂 . I was thinking of the example David wrote up where he almost choked on his coffee when he realized just how high the bid was.
Derek
at 11:43 pm
Why should it be so hard to sell your house? That is madness.
Toad
at 6:36 am
Fully agree with you. That would be madness. But it would eventually be normalized madness. Just like it’s madness that people are way overpaying. Or its madness that you have to make a (multi) million dollar decision after only seeing a property for 30 minutes. Or its madness that you have no idea what other people are offering when they’re all sitting right there in their cars in front of you (although I personally don’t feel as strongly about the blind bidding ‘issue’, but some people feel it’s madness). So, we fully normalize madness for buyers. Is having madness for the seller then a big deal? Again, what sucks for the seller will/may lead to more fair prices… if that’s the goal.
Ryan
at 6:58 pm
Was originally against this idea, but you’ve convinced me that it could actually work. This market is insane.
PM
at 5:26 am
What you’re describing is a free call option for the buyer. It comes at the expense of the seller. Options have value (time and volatility value) so your scenario just takes from the seller.
Toad
at 1:30 pm
Again, not saying that i fully agree with it but I wanted to put out another argument that had at least some validity since David said that he wouldn’t hear of any argument to the contrary.
And ya, if a moderation of prices is the goal, and if sellers are reaping the benefits of these high prices, then it stands to reason that ‘taking from the sellers’ will always be the outcome of a moderation of prices.
Keith
at 9:05 pm
I would argue that the blind bidding process negates most of the advantages of the resale market that you have pointed out. When markets favor one side long enough, people or businesses will demand government intervention. Governments need to be seen to take action, governing by opinion poll.
This policy will not work, but will join the foreign buyer tax, the empty homes tax, and many increases in liquidity on the scrap heap of useless government attempts to provide affordability. Perhaps increasing interest rates will be joined by more government policies to reduce liquidity, providing an equal and opposite price action to the last couple of decades.
Appraiser
at 10:22 am
Incidentally, I haven’t seen the bears this excited since the spring of 2020.
Sam
at 5:18 pm
I’m a regular person. Not in real estate or anything real-estate adjacent. Here are the things that really annoyed the beatlejuice out of me in my recent “selling condo and buying house” experience:
– blind bidding. Get rid of it. For good. Full transparency on what offers are.
– no conditions offers. Ban them. Mandate house inspections as necessary. Either seller-provided or buyer arranged. 5 days should be sufficient after the sale.
– similar to above, mandate a financing condition. It may put full cash buyers at an advantage but really how common are those (maybe more common than I would like to believe but still). I should not have to hold my breath hoping bank will actually agree to give me the mortgage after my no-conditions offer was accepted. And Pre-approval is NOT the same – Too many people believe it means automatic actual mortgage approval. It is not.
– deposit cheques. Make them 5% across the board. Not more not less.
Thanks for reading.
Shana
at 9:42 am
Spot on. I agree that the most beneficial action would be mandating the financing condition. It’s the only thing that has the ability to level the playing field between investers with leverage, and first time buyers trying to get a foot in the door with lots more uncertainty.
If anything, mandating a financing condition would help first time buyers provide more competitive offers (this doesn’t disadvantage sellers, weighed against the low risk of a failed deal). Also, by reducing the number of middle-man transactions by flippers and speculators, it’s one less transaction to get people into their own homes sooner, which can help affordability.
Inspection conditions should be paired with accountability of the inspector to the buyer, if waiving buyer inspections remains an option. This will also help buyers make the most competitive offers, by giving confidence of how much essential repairs are expected to cost in the first year after purchase. When in doubt, it’s better to be conservative and assume larger costs, thereby withholding more funds from a buyer’s offer.
I don’t think these things will change house prices all that much, but it can even the platform of who is able to make a purchase.
Perpetually Agitated
at 3:37 pm
How is this helping affordability? More government overreach by career politicians that know zilch about real estate…always have said that all things stupid in real estate come from either BC or California…all that sun has fried some brain cells…
Lindsay Smith
at 11:38 am
One of the downsides of a cooling off period comes from an experience I had last year. (I am a real estate broker) I sold a new townhome condo to a buyer and she started the 10 day cooling off period. During the 10 days she approached the builder who had a few towhomes in inventory that were not on the market. She used her accepted offer to negotiate a better deal. If there is a cooling off period with no downside to the buyer, nothing would prevent them from putting several offers in and determining which they felt was the best deal for themselves… which would tie up homes and the time of sellers and realtors. In a low inventory market this would make it even more complex to buy a home.