Monday Morning Quarterback: Mandatory Cooling Off Periods!

TorontoRealtyBlog

Somebody asked me last week, “What’s this ‘Monday morning quarterback’ thing all about?”

I guess I never stopped to consider that some readers aren’t familiar with the term, and thus don’t really ‘get’ these blog titles.

Years ago, before the advent of Thursday night football, the inclusion of late-season and playoff games on Saturday, and off-site games in London and/or Mexico on random Tuesdays, all National Football League games were played on Sunday.

The term “Monday morning quarterback” was coined to describe somebody who makes predictions or comments on Monday, after the games have been played on Sunday.

You can see how this goes, right?

That guy in your office on Monday morning says, “You picked the Bills? Are you nuts? They lost 48-24 yesterday, how did you not see that coming?”

That’s a Monday Morning Quarterback for ya.

I once heard “Randall the Handle” on the Fan 590 tell a caller, “Don’t you ever call me the day after the games have been played and tell me who I should have taken.”

I believe it was sports radio legend, Bob McCown, who said, “I have a 100% record in picking the winner of games after they’ve been played.”

For the record, I don’t like sports gambling. I’m not a huge fan of gambling in general, unless it’s entirely for entertainment purposes, like spending $300 on a Leafs’ game or going to a concert, but I fear most people subconsciously see gambling as a great way to make a few bucks.

Unfortunately, I’m so rational and logical that it renders me “boring” at times. And I combine a level of honesty and outspokenness that often label me a “downer.”

When it comes to gambling, I never met an adult male who said, “I lose much more than I win, and I’m definitely not better than the casinos and the sports book. I play knowing, full well, that I’m going to lose.”

In the history of mankind, there has never been a single man who said this, even though it’s true for 99.999% of the jocular, in-denial, adult male population.

I’m in the minority of Canadians who don’t like that the federal government legalized sports gambling. I mean, I suppose I’m indifferent towards it, but now every other commercial on television is Wayne Gretzky, or Georges St. Pierre, or “Jesse” from Breaking Bad telling us why and how we should bet on the third quarter of a college basketball game, that we know nothing about, all the while, padding the pockets of sports books, and taking money from the bank accounts of Canadians.

It’s just the last thing society needs.

Society cries poor at every opportunity. Real estate is too expensive. The minimum wage is too low. Every union is fighting for higher wages. Taxes are too high. Inflation has driven up the cost of everything.

But meanwhile, why don’t we make it easier for people to lose money gambling? Oh, wait, you don’t lose, I forgot.

Do you know who I respect? Those billionaires who play poker for buttons.

In today’s Monday Morning Quarterback, I want to look at some news that is about five weeks old, and which comes from another jurisdiction.

Here’s an article that ran last month:

“B.C. Announces 3-Day Cooling Period For Home Sales To Reduce Risk To Buyers”
July 21st, 2022
CBC News

From the article:

British Columbia has announced a mandatory three-day period to allow homebuyers time to arrange an inspection and take other important steps like securing financing in the province’s high-pressure real estate market.

Finance Minister Selina Robinson says the consumer protection policy, effective Jan. 1, is aimed at providing people with peace of mind as unconditional offers are common and could later end up costing buyers thousands of dollars in repairs.

Robinson says the policy, the first of its kind in Canada, includes a cancellation fee of 0.25 per cent of the purchase price, or $250 for every $100,000, for those who back out of a deal, balancing the needs of both buyers and sellers.

Buyers will still be able to make offers conditional on home inspections or financing at any time, the province said in a statement.

Robinson says the homebuyer protection period is based on consultations with the B.C. Financial Services Authority and the experiences of buyers who jumped into deals they later regretted.

Elaine Spilos, a homebuyer who joined Robinson at a news conference Thursday, says she contacted the finance minister after she and her husband were assured by their Realtor that the “exceptional” home they purchased had already been inspected and built to code.

Spilos says the retired couple endured a “very painful experience” three weeks after their purchase when a sewer backed up, with similar damage nine months later.

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Alright, let’s dissect this…

As it stands right now in the Province of Ontario, a buyer can submit an offer with conditions, if that buyer so chooses. The four most common conditions would be securing financing, obtaining a home inspection, review of the contract by a lawyer, or reviewing the status certificate in a condominium. In a down market, we might see a condition on the sale of a buyer’s property and in the development world, we might see a condition on applications or zoning amendments. There is no end to possible conditions in real estate.

These conditions can be for any length of time, and could have provisions for extensions as well.

A typical financing condition in Toronto is five business days.

A typical status certificate condition in Toronto is two business days to review, after ten business days to receive the documents (that’s in the Condominium Act).

And when it comes to home inspections, a buyer could ask for five business days, or to make the offer more competitive, the buyer could ask for only 24 hours and simply get the property inspected the next morning.

In a red-hot market, many, if not most buyers, will attempt to submit unconditional offers to make their offer more competitive.

I have written countless blogs about this over the years, and I’ve gone as far as to take shots at the one agent, out of twelve, who submits a conditional offer in competition on a property in those red-hot markets, where that conditional offer has a 0.00% of being successful.

Those markets are tough, no doubt about it.

But is it dangerous to waive all conditions and make an unconditional offer?

That’s a trick question since there’s no real answer.

Many people would say “no,” others would automatically say, “yes,” and others would argue “it depends.”

In a hot market, any reputable, high-end listing agent will have already conducted a pre-listing home inspection and have it prominently displayed on the dining room table for buyers to review. There are some people who always argue, “The listing agent could be in cahoots with the home inspector, so this isn’t the same thing as having the buyer do their own inspection.” I’ve written about this many times as well, so suffice it to say, those buyers should put their tin-foil hat back on and go back to digging the fallout shelter under their basement…

Also in any hot market, a good listing agent will get a copy of a condominium’s status certificate well in advance of the property being listed, and have those documents available for the buyer, the buyer’s agent, and the buyer’s lawyer to review.

Financing is a sticky one, since we all know that a lender can pull a firm commitment at any time before closing, so “arranging satisfactory financing” is never a sure thing. But banks don’t do pre-approvals for high ratio mortgages, and if you’re working with a good mortgage broker, they can give you a firm purchase number without getting a commitment or approval from a bank. There’s always a leap of faith with financing, and remember that a bank isn’t going to do an appraisal in those five business days per your condition, so you’re really just buying an extra bit of peace of mind with that condition, and not much certainty.

All told, there are ways to get out ahead of the need for a condition, whether the market is red-hot or ice-cold.

An unconditional offer gives a buyer bargaining power and often huge leverage in the event that the market is cold.

Now, let’s look at the points from the CBC article above:

Who decided on three days here?

Banks insist on five days for financing, so who is this helping?

Are these business days or calendar days?

Unconditional offers are common, but it’s up to the buyer.

I believe in allowing choice in a free market, but Ms. Robinson clearly doesn’t agree.

The idea that the unconditional offer is what “ends up costing buyers thousands of dollars in repairs” leads us to conclude that this legislation is more about home inspections than financing, but I would also add that many of these down-the-line repairs would never have been identified in advance. More on that in a moment…

On a $2,000,000 purchase, the cancellation fee is $5,000.

Yes, I chose $2 Million and not $300,000, but that’s because Vancouver is the most expensive city in Canada and it’s located in British Columbia. But for argument’s sake, a $650,000 house purchase would come with a $1,625 cancellation fee.

The choice of words here, “backing out of the deal,” seems to be putting a level of blame on the buyer. Is that fair? If the seller had provided a pre-inspection that the buyer could rely on, and use to make an informed decision, would we be having this conversation?

There are all kinds of implications of this cancellation fee, but let’s shelve that for now.

Robinson says the homebuyer protection period is based on consultations with the B.C. Financial Services Authority and the experiences of buyers who jumped into deals they later regretted.

Once again, we’re bringing all of society down to the lowest common denominator.

Somebody out there bought a house that he or she regretted later, and now everybody is going to have reactive legislation thrust upon them.

There is no cure for naivety, stupidity, or luck. Yes, many people made bad decisions, and yes, some people relied upon poor advice. But how long until there’s a full refund for people who didn’t know that the Cleveland Browns could cover the 7.5 point spread against the Cincinnati Bengals, and lost next month’s mortgage payment to a legal online sports book?

What if somebody “bid” on a house, that he or she had never seen in person, through an online auction website where there’s no identification of agents or buyers on the other end of the bids, and then regretted it?

“She Bought A House On A Fledgling Auction Site. Now She Faces Over $100K In Repairs”

I have yet to dedicate a full blog post to the perils of using an online auction site to buy real estate because I think those perils should be quite obvious. A site that has no affiliation with organized real estate offers zero protection, zero accountability, and there’s no reason to assume that the other “bidders” aren’t the sellers themselves, or their friends/family, or a Russian bot.

But who’s “fault” is this?

Is it the auction site, the home inspector, or the individual who made the decision to buy the home, sight-unseen, from across the country, through an auction site?

This is where I have a problem with society in 2022. It’s always somebody else’s fault.

So now, the government in British Columbia has discussed “regretful purchases” with a bunch of sour home-buyers, and has decided to shake up the whole real estate home buying/selling process as a result.

Spilos says the retired couple endured a “very painful experience” three weeks after their purchase when a sewer backed up, with similar damage nine months later.

Elaine is to Ms. Robinson what that down-on-his-luck farmer, or that returning-from-war soldier, or that small-business-owner is to any politician campaigning anywhere during any election.

A face and a name. Perfect.

A sewer backed up in their home and nine months later, there was damage.

I bought my home in 2018. I did a full inspection, but after I had unconditionally purchased it.

In February of 2020, my entire basement flooded.

At no point did I think, “Why wasn’t this caught during the home inspection?”

There is no section in the home inspection called “Future Issues.”

Marty McFly and Emmett “Doc” Brown are not home inspectors from the future.

And yet, whenever something goes wrong in a home, half the home-owners say, “Oh, crap,” and half of them say, “Should this have been noted in the inspection?”

In 2021, a client of mine called me and said that a pipe burst in his basement (thankfully an unfinished one…) and asked me exactly what I wrote above: “Should this have been noted in the inspection?”

I honestly wrote him back and said, “Should what have been noted in the inspection?”

He said, “The damage to the pipe. Should the inspector have identified this.”

The problem with this conversation was that they bought in 2016. Five years had passed since they did a home inspection and there’s no logical reason to think that a home inspector could see that far into the future.

The article above says that Ms. Spilos’ agent said the home was exceptional and had been inspected and built to code, but the article doesn’t say if there was an inspection, or if they read through it, or if they called the inspector to discuss. This is what real estate articles do: they skip over the facts to get to the complaints.

It’s possible that Ms. Spilos hired a shitty real estate agent, but maybe we need a cooling off period for that too?

I don’t see anything in that CBC article above that tells me this new legislation is a good idea.

Not only that, I have a few questions of my own…

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1) What’s the difference between a “conditional offer” and an unconditional offer with a “cooling off period?”

What happens if I make an offer conditional for three business days?

Is that the same as buying unconditionally with a three-day cooling off period?

Have they sorted this out yet? Because it’s going to be a logistical nightmare and there’s room for issues.

–

2) What happens if the buyer “backs out” during a true “conditional period?”

Further to the point above, is a “conditional offer” the same thing as an offer in a “cooling off period?”

Does the 0.25% cancellation fee apply?

If it does, then this is truly a laughable piece of legislation, since now we’re penalizing buyers for doing the right thing – making conditional offers, in good faith, checking their boxes, and deciding whether or not to move forward.

Imagine making an offer that’s conditional for five business days on financing, submitting your Agreement of Purchase & Sale to the lender along with your taxes, personal identification, net worth statement, et al, then finding out that you do not qualify to purchase the property, and having to pay a 0.25% cancellation fee.

What a joke.

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3) Is there a possibility for an escape clause?

With every conditional offer, there’s the option for the seller to insist on an “escape clause.”

If a buyer submits an offer on a house with a ten-day condition, the seller can insist on the escape clause so that they can review other offers, potentially with better terms or conditions.

In this case, with all offers having a 3-day cooling-off period, it’s not like the seller can include the escape clause in order to accept a better, unconditional offer on the second day of that ten-day conditional period, but the seller still can benefit in other ways from an escape clause.

So if a property is sold with a 3-day cooling-off period, is that the end of the seller’s option to insist on an escape clause – something that has always been their right?

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4) Why is this cooling-off period after a deal has been written, rather than before?

In red-hot markets, we often lament that properties “sell within hours of hitting the market.”

We often don’t like the fact that an “offer date” is set for one week from today, but a “bully offer” can be accepted ahead of time.

So then why not insist on a three-day pre-listing period for buyers instead of this three-day cooling off period?

Why not make this five days or seven days?

Let’s say a property is listed on Monday, August 29th.

New legislation from the B.C. government stipulates that offers on this property may not be presented, reviewed, or considered before Friday, September 2nd.

That gives buyers four days to do their diligence, whether it’s a home inspection or arranging financing.

This is one day longer than the current proposal, which is more helpful to buyers, but it’s not stretching into the following week, which may be helpful to sellers.

Even if we wanted this to be seven days, or even seven business days, meaning that offers can’t be reviewed until September 8th (thanks to Labour Day), it still doesn’t screw up the timing of the sale for the seller, and it gives the buyer way longer!

This is a win-win.

So why not adopt this instead?

–

In the end, this was all poorly planned and rushed.

Let’s not forget that this legislation was announced in April with no information whatsoever:

“B.C. Passes ‘Cooling Off’ Period For Home Buyers With No Idea How It Will Work”

From the article:

It’s effectively one large IOU note for Premier John Horgan’s cabinet to, in the months ahead, set all the rules it wants, when it wants, how it wants by regulation.

“It was really frustrating,” said BC Liberal finance critic Mike Bernier, who posed dozens of unanswered questions about the cooling-off period in the house.

“Why do we have a blank piece of paper for legislation? It’s typical of the NDP government right now, to present a one-page thing on the floor and say we’ll figure it out in our minds later.”

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That’s so like government! Any government, and any party. They all do it.

Real estate has become an increasingly politicized topic, especially in election season.

Here’s an article that ran last week:

“The Housing Crisis Is A Municipal Election Priority. Ask Candidates For Their Views”

Municipal elections are being held in both British Columbia and Ontario in October.

We will be selecting new city councilors and new mayors.

Oh, and this just in: the housing industry has released its “five-point plan” to address supply and affordability in Ontario.

Their five points, which you can read by clicking the link above, include the words:

-approval times
-red tape
-delay
-development fees
-taxes
-government
-new lands
-future growth
-land availability
-infrastructure
-transportation
-politics
-planning
-local
-decision-making

From this list of words, one might conclude that housing affordability starts and ends with the municipal government.

And in British Columbia, the provincial government just enacted legislation to complicate and delay the purchase-and-sale process, not to mention, costing potential buyers money with “cancellation fees.”

The intersection of politics and real estate has been a growing concern for many years, but with the B.C. government’s latest “bright idea,” it seems like we’ve only just begun.

I swear, I’d rather bet that Tom Brady is still playing football at age-50 than try to wager on anything the government does from here on out in order to “help” the market. Especially in an election year…

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