- For states that have implemented the policy, the period lasts between two and five business days.
- They also have exemptions for mandatory cooling-off periods, including but not limited to instances when the home is sold by auction or if the buyer waives the cooling-off period.
Some states do not have penalties for terminating the contract within the cooling-off period, while others have penalties ranging from $100 up to 0.25 percent of the purchase price. Penalties are intended to deter potential buyers from making offers without an intent to purchase, which can cause issues for the potential seller. If a 0.25 percent penalty were to be implemented in BC using an average MLS® price of $913,000, that would result in a $2282.50 penalty.
Existing research suggests that a cooling-off period is unlikely to have a significant impact on consumers’ decisions. Research by Deakin University found that when 60 consumers were faced with a 48-hour cooling-off period, none of them changed their minds when faced with a better alternative. The reason behind this lack of change is called ‘loss aversion,’ that the cost of losing something tends to be greater than making equivalent gains. For example, this means that the feeling of losing $100 tends to be greater than the feeling of gaining $100. Within real estate, this means that once a consumer has purchased a house, they are unlikely to change their mind and make use of a cooling-off period to terminate the contract, even if given comparable options at a slightly lower cost.
While the government’s goal of a cooling-off period is increased transparency, it’s worth considering the potential impact the policy could have on BC’s housing affordability crisis. If implemented, more buyers would be likely to bid on more properties, potentially causing an increase in housing prices. In BC’s extremely low supply conditions, this could increase prices by an additional two to three percent according to initial research conducted by BCREA.
BC’s real estate regulator, the BC Financial Services Authority (BCFSA), is consulting stakeholders on the appropriate length of a cooling-off period and whether or not to include penalties for exercising the right to recission. In addition, the Ministry of Finance has also requested consultation on the following consumer protection policies:
- blind bidding,
- price baiting,
- risks associated with unconditional offers,
- home inspections,
- financing, and
- other conditions.
Published on November 17, 2021