The British Columbian government created the Home Buyer’s Rescission Period (HBRP), also referred to as the "cooling-off period," as a customer safety mechanism to give homebuyers time to think about whether or not a residential real estate transaction is appropriate for them. The new law took effect on January 3, 2023, and was put in place by the British Columbia government and was signed by the Lieutenant Governor in the council based on the advice and permission of the executive council. The HBRP is disclosed in the standard Contract of Purchase and Sale and it is the representative’s responsibility to ensure their buyer and seller clients understand it. Buyers are not permitted to opt out of the rescission period; it is mandatory. The buyer can exercise this right for any reason different from placing subjects on an offer. Buyers have the option to withdraw their offer within three business days after the offer is accepted. A 0.25% rescission fee is due to the seller by the buyer if they decide to back out of the deal. This is not to be confused with the 7-day rescission period that buyers have when buying a pre-sale of a new development directly from a developer. This period provides time for buyers to complete due diligence to satisfy themselves that they have made the right decision for themselves. The rescission period is the 7-day period immediately following when an offer is accepted by the developer. Buyers will have received a Disclosure Statement, which is required of the developer by law and which the buyer must acknowledge receiving. They are given ample time to review it before deciding to exercise their right of rescission.
The rescission fee is determined by the price that the buyer and seller have contractually agreed. The charge is 0.25% of the contracted purchase price. For instance, if the purchase price is $500,000 the rescission fee would equal $1,250 (500,000 x 0.0025 = 1250). The brokerage has the right to immediately pay the seller the 0.25% of any money held in trust as a deposit and to refund the buyer the balance after paying the fee to the seller. However, if there is no deposit being held by the brokerage, the seller must pursue the buyer directly and may have to resort to legal proceedings upon the buyer’s failure to pay.
There are a few minor exceptions to the new rule, such as the majority of new developments covered by Developer's Disclosures, residential real estate on leased land, residential leasehold properties, residential property sold by court order, residential property sold at auction, and residential property sold at auction. The 0.25% fee that would apply should the buyer exercise their right to rescind, is calculated and included in the contract so both parties know what the buyer owes the seller should they rescind.
How much does it cost to exercise the right of rescission?
The rescission fee is determined by the price that the buyer and seller have contractually agreed. The charge is 0.25% of the contracted purchase price. For instance, if the purchase price is $500,000 the rescission fee would equal $1,250 (500,000 x 0.0025 = 1250). The brokerage has the right to immediately pay the seller the 0.25% of any money held in trust as a deposit and to refund the buyer the balance after paying the fee to the seller. However, if there is no deposit being held by the brokerage, the seller must pursue the buyer directly and may have to resort to legal proceedings upon the buyer’s failure to pay.
Exceptions to the rule
There are a few minor exceptions to the new rule, such as the majority of new developments covered by Developer's Disclosures, residential real estate on leased land, residential leasehold properties, residential property sold by court order, residential property sold at auction, and residential property sold at auction. The 0.25% fee that would apply should the buyer exercise their right to rescind, is calculated and included in the contract so both parties know what the buyer owes the seller should they rescind.
Who does the Homebuyer’s Rescission Period affect?
The HBRP has an impact on both buyers and sellers. Regardless of whether there are other conditions or not, the three-day rescission period will be a condition of the sale in any residential real estate offers that are submitted. Each and every residential real estate transaction, including those conducted for sale by owner and other non-realtor transactions, are subject to this condition, which cannot be waived. After the acceptance date, the clock starts ticking at midnight the next business day, and it doesn't stop until the completion of the third working day, at midnight. Real estate representatives are obliged to disclose this new right. Some offers include some conditions that must be met before the transaction can occur, such as financing requirements or the option of a building inspection. Since it takes some time to make financing arrangements and book professionals, these conditions typically have dates that are lengthier than three working days. Buyers will have three days to retract their proposal for any justification and pay a price, but after that time frame, the only means to do so is to leave any one of their other conditions in force.
Will buyers exercise this right?
Will many buyers exercise this right? Only time will tell, but it is another protection given to buyers to ensure that they feel their significant investment is the right decision for them. For a home buyer, the purchase of a home is often the largest financial transaction of their life, so having a cooling off period should give them some peace of mind after putting pen to paper on a contract. If you have any questions regarding the HBRP, contact a REALTOR and they will be happy to clarify matters for you. To learn more about the HBRP, view the BC Real Estate Association video at https://youtu.be/T3Q6U3PtokI.