Pre-offer vs Cooling Off: Communicating with Clients
TAGS: A Better Way Home BC Financial Services Authority BCFSA Cooling Off Period Pre-Offer Period Real Estate Practice
In February, BCREA has published more than 30 recommendations to the BC Government and the province’s real estate regulator, the BC Financial Services Authority, to help guide their decision making to better protect consumers in the real estate transaction process.
A key recommendation we made is for government to mandate a “pre-offer period” instead of a “cooling off period” to improve the home buying and selling process and mitigate consumer risk in a competitive market.
For REALTORS®, it’s important that you can confidently and concisely explain to your clients what BCREA’s proposed “pre-offer period” is and what it would look like in practice, to ensure they know the differences and can amplify BCREA’s advocacy.
Below are three key questions and answers Realtors need to know when talking to clients about why a “pre-offer period” is better suited for British Columbians and the implications of the government's planned “cooling off period.”
What’s the difference between a “pre-offer period” and a “cooling off period”?
A “cooling off period” gives buyers the right to withdraw from a purchase agreement within a specified period of time after their offer is accepted. The objective of this policy is to allow buyers time to reconsider their decision after having their offer accepted. Although the government has already announced its intent to implement a mandatory “cooling off period,” our research has led us to have significant concerns with the policy.
Instead, we are proposing a “pre-offer period,” which would mandate that a listing be available for a minimum of five business days before offers are allowed to be presented. This would provide prospective buyers with the opportunity to undergo due diligence, giving more time to ensure proper financing is in place, review documents and disclosure statements and conduct a home inspection before submitting an offer. A “pre-offer period” will allow potential buyers to ensure that they are making offers that are well-informed, while also reducing pressures of the highly competitive real estate market.
Why a “pre-offer period” is better than a “cooling off period?”
A key difference between the two policies is that a “cooling off period” is reactive, allowing potential buyers to reconsider a decision after it has been made, while a “pre-offer period” is proactive, allowing due diligence to take place before an offer is made.
A potential issue with a “cooling off period” is that, if a potential buyer rescinds their offer, it may create a “cascading effect,” which would jeopardize a seller’s ability to purchase their next home. A “cooling off period” tries to protect buyers, but doesn’t consider that many buyers are also sellers, and if their own home sale falls through as a result of a “cooling off period,” their own homebuying efforts could be jeopardized. A “pre-offer period” avoids this unintended consequence by taking place before an offer is made.
Another potential negative consequence of a “cooling off period” is that it may increase the total amount of offers, ultimately worsening housing affordability. Sophisticated and wealthier buyers may take advantage of a “cooling off period,” presenting offers on multiple properties to preserve their options and later backing out of all but their one preferred deal. If this occurs, it would increase the instances of multiple offers. This resulting increase in demand from insincere or frivolous offers could further increase housing prices. A “pre-offer period” would not give opportunity for these frivolous offers. It’s important that serious buyers feel confident in their offer and on the property, and that can only happen when due diligence is complete beforehand.
What can my clients and I do to amplify BCREA’s advocacy?
We are asking Realtors and their clients to play a part in amplifying our advocacy. Some Realtors and their clients have written public letters to the Minister of Finance or their local MLA, addressing concerns with the “cooling off period” and offering a better way. Realtors can also encourage their clients to show support by raising awareness about BCREA’s recommendations on social media. Use the hashtag #BetterWayHomeBC and share bcrea.bc.ca/supporting-consumers and the graphics below on your social media channels:
- A Better Way Home - “Pre-Offer Period”
- A Better Way Home – Infographic
- A Better Way Home – Housing Supply
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