What You’re Not Being Told About the “Cooling Off Period”

November 4, 2022

Get To The Point Audio: November, 2022

Propel Real Estate Group · What You're Not Being Told About the "Cooling Off Period"

Thank you for taking a listen to Propel’s Get to the Point audio. We are now only 2 months away from the implementation of the legislated “Home Buyer Rescission Period,” commonly known as the “Cooling Off Period” and it appears there is still a lot of confusion amongst both consumers and real estate professionals as to the purpose of this new legislation.

Let me help set the record straight, a more accurate name for this piece of legislation would be “Market Cooling Off Period.” I know it’s cheesy, but you get my drift.

Now, before you jump to the conclusion that being a realtor automatically puts me at odds with this move. Since, you know, us, Realtors, love to stoke a hot market. Please keep in mind the following:

No realtor or collection of realtors are good enough to stoke an active market to the heated levels we’ve seen during 2020 and 2021; apparently, only the lowest interest rates in history are capable of that. And trust me, the thousands of realtors that represented families, who would miss out on half a dozen or so multiple-offer scenarios before ultimately giving up after 6 months of searching, they too were not huge fans of a frenzied market.

Lastly, I lead our developer services team, and I’ve been dealing with a 7-day cooling-off period for over a decade now without issue. So if anything, I should be in favour of a new cooling-off period for the single-family market.

So let me be clear: the purpose of this audio is not to agree or disagree with the move by the provincial government. That’s a discussion for another day. Rather, I simply would like us all to be clear as to the true intention behind a legislation.

To understand the core purpose of this move, we need to go back in time to review the market landscape at the inception of the idea for this legislation. Plans for the implementation of a cooling-off period were teased back in early spring of 2022, which, to me, indicates that it most likely was being discussed behind the scenes much earlier.

That means this consumer protection initiative was born during the hottest real estate market in history. a not-so-subtle clue of what it was intended for. But if this legislation is being put into place to protect consumers, namely real estate buyers, why does it not provide them with any due diligence rights? This move simply allows buyers to back out of or rescind their accepted offer within 3 business days of acceptance, accompanied with a break-fee, of course.

If, as a buyer, you would like to do diligence rights, then you still need to introduce those conditions as subjects in your offer. I mean, how much due diligence can a purchaser conduct in a three-business-day period without feeling rushed anyway?

And since we’re on the topic of consumer protection, what about property sellers? Let’s not forget, they are consumers too, and, as a seller, I would be a little bit worried about this legislation, as it’s currently written, it does not have any mechanisms to deal with buyers acting in bad faith (more on this specific topic in future episodes). Remember, most property buyers are sellers first.

All of this to say that, effectively, the cooling-off period provides the right to buyer’s remorse if you write a subject-free offer and are willing to pay the break-fee. So what’s my point? The cooling-off period is being introduced to help cool a hot market. It just so happens that the interest rates accomplished the feat before its official implementation in January 2023.

This legislation is simply meant to deter blind bidding in multiple offer scenarios in an effort to cool. A market that was overheated—emphasis on was—the reality is the cooling-off period will only have a significant impact in practice once our market hits the next upcycle. Once you understand the mechanics of this legislation in detail and lair on the reality of today’s real estate market, it will rarely have an effect on the dynamics of a transaction.

Multiple offers have virtually disappeared, and subject-free offers along with them. Even in the few multiple-offer scenarios that are taking place, the winning offers have subjects attached to them. So if you’re not submitting a subject-free offer, there is no practical value to a right of rescission, but I guess we’ll just have to wait until the next time. The market begins to heat up to see if it actually is effective.