The BC Government has adopted a mandatory a Cooling Off Period for homebuyers of residential properties starting January 2023. This new Home Buyers Rescission Period (HBRP) aims to protect consumers in a heated real estate market. But how will it affect you purchasing or selling this year? We’re having a look at all the details!
What is the “BC Cooling Off Period”?
The Cooling Off Period or Home Buyers Rescission Period (HBRP) gives BC homebuyers the right to withdraw from a purchase agreement within a specified period of time after an offer is accepted.
Prior to the HBRP, if a buyer wished to end a contract for reasons other than those laid out within the offer conditions, they would have had to negotiate with the seller. They may have face significant financial penalties or legal ramifications.
Under the Cooling Off Period, buyers now have the opportunity to re-think their purchase after an offer has been accepted. Examples include situations where buyers felt they acted too hastily during a heated multiple offer situation.
There is however a catch! If a buyer chooses to back out of a contract to purchase within the rescission period, they must now pay the seller 0.25% of the purchase price. To put it into context, the rescission fee would be $250 for every $100,000 of purchase price.
The Cooling Off Period applies to residential purchases across BC, whether a realtor is involved or it’s a private sale. It cannot be waived under any condition by the buyer or seller.
What Transactions does the hBRP apply to?
The HBRP applies to all residential real estate sales, which include:
- detached houses
- semi-detached houses
- apartments in a duplex or other multi-unit dwelling
What property types are exempt?
Certain property types are exempt from the HBRP and those include:
- residential properties on leased land
- residential properties sold under a court order (i.e. foreclosures)
- residential properties sold at auction
- new constructions or pre-sales (they already have rescission rights under the Real Estate Development Marketing Act)
Does the Buyer need to give a rescind?
No, they do not. A buyer can rescind at any time during the 3 day period and without giving a reason. Once they have made the decision to back out, they must give the seller written notice. The notice is sent by registered mail, by fax or by email with a read-receipt.
It’s important to keep in mind that a buyer can still walk away from a purchase without paying the rescission fee if they are unable to satisfy a condition in their offer.
For example, if you put in an offer on a home with financing conditions or home inspection, you can walk away from the deal for those reasons without paying the rescission fee.
The fee only applies when a buyer invokes their right of rescission in a Subject Free Offer situation or for a reason outside of their offer conditions.
How are the 3 business days calculated?
The 3 business days are calculated Monday-Friday, excluding weekends and holidays. The rescission period must also be three full days. For example, if an offer is accepted on Monday afternoon, the buyer would have until Thursday at 11:59pm to rescind their offer.
As a buyer, your subject removal period also runs at the same time as the rescission period.
In a situation where a backup offer is accepted on a home, those buyers also get a 3 day HBRP. Their rescission period starts when the backup offer is accepted, not 3 days from when the first offer collapses.
How is the Rescission Fee paid?
If the buyer exercises their rescission right, they must promptly pay the Rescission Fee to the seller. Typically, the fee would come from the deposit that the buyer submitted to the brokerage as part of their offer. In the event of a rescission, the fee is automatically paid to the seller by the brokerage on behalf of the buyer. The remainder of the deposit is returned to the buyer.
WHat if there is no deposit?
Even if no deposit was collected, the buyer is still legally obligated to pay the rescission fee to the seller. If they do not, the seller will have to seek legal advice on how to recover those funds. The legislation regretfully lacks a direct way to enforce the Rescission Fee without involving lawyers. As a result, we may see future contracts require deposits paid at the time of offer acceptance or shortly thereafter. Regardless, buyers should prepare themselves for the obligation to pay the fee if they invoke their new right.
What does this mean for you?
According to the BC government, more than 70% of offers in the province’s highly competitive markets through 2021 were made without conditions. The BC Cooling Off Period is intended to protect buyers during competitive real estate markets and increase transparency for buyers and sellers.
The three additional days provided by the HBRP are meant to provide an opportunity for buyers to:
- secure financing
- conduct additional due diligence
- simply ensure they are making a sound decision
However, it is also worth considering the potential impacts on BC’s housing affordability crisis. If implemented, more buyers could bid on more properties and we could see a further increase in housing prices. The BC Real Estate Association has voiced concerns over a 3 day Cooling Off Period and has recommended their own changes to better protect both buyers and sellers.
No matter what comes, there will surely be some interesting times ahead in the Real Estate market and I look forward to keeping you informed! As always, if you have any questions on how the BC Cooling Off Period might affect your real estate needs, feel free to reach out any time!