What is the the 7 Day Rescission Period BC Requires for Presales?
Updated by Mike Stewart Realtor on February 28, 2024
The 7 day rescission period, governed by the Real Estate Development Marketing Act (REDMA), serves as a safeguard in British Columbia’s presale condo buying journey.
It grants prospective preconstruction home buyers the right to revoke their purchase agreement within 7 days of their offer being accepted.
This rescission period is a crucial part of the residential real property buying process, providing buyers with a safety net and ensuring they have ample time to make an informed decision.
When we work with new home buyers, we explain this important BC presale regulation as part of our new client onboarding.
In the dynamic world of British Columbia real estate, the 7-day rescission period stands as a beacon of security for prospective preconstruction condo buyers.
This safeguard, unique to BC, offers a window for buyers to reconsider their decisions, ensuring they tread with confidence in the intricate dance between presale and resale properties.
But what role does a Realtor, an essential figure in the Real Estate Development Marketing Act (REDMA), play in this process, and how can one exercise this crucial right?
Dive into this article to unravel the significance of the 7-day rescission period, the nuances distinguishing presale from resale properties, the invaluable guidance of Realtors, and the steps to make the most of this protective provision.
Your journey to making an informed real estate decision in BC starts here!
Before we go into detail on the 7 day rescission period for presale condos, let’s discuss the basic; what is a presale condo?
Some Background – What is a Presale Condo?
Before delving into the specifics of the 7-day rescission period, it’s important to understand what a presale condo is.
A presale condo is a unit in a condo building that is available for purchase before the building is constructed. These are sometimes referred to as pre-construction condos or off plan condos in other jurisdictions.
Developers sell units in this manner to secure funding for the project by proving to their lenders that sales of the project are viable and reduce financial risk.
Presale vs. Resale: Understanding the Difference
When diving into the world of real estate, it’s essential to understand the distinctions between presale and resale properties.
- Presale Properties: These are units sold by developers before the property is built or completed. Buyers are essentially purchasing a promise that the property will be constructed in the future. The 7-day rescission period is a unique aspect of presale properties, allowing buyers a safety net to reconsider their decision.
- Resale Properties: These are tangible, already constructed properties sold by non-developers. The buying process involves a subject removal period, where buyers can back out based on specific conditions, like financing. Resale properties are also subject to the 3 Day Home Buyer Rescission Period.
The processes for buying presale and resale properties differ significantly, making it crucial to work with a realtor experienced in the type you’re interested in.
Definition and Purpose under REDMA Real Estate Development Marketing Act
The 7 day right of rescission is a provision under section 21 of the Real Estate Development Marketing Act (REDMA).
This period allows presale condo buyers to cancel their purchase agreement without any penalties within seven days of signing the contract.
REDMA is overseen by the British Columbia Financial Services Authority which regulates the purchase of presale condos and new condos in this province.
The purpose of this provision is to protect buyers from making rushed decisions. The presale rescission period gives buyer time to review the contract, review the presale condo disclosure statement, seek legal advice, seek accounting advice, get advice from their Realtor, and ensure they are comfortable with their purchase.
How it Works
The rescission period begins on the earlier of one of two things happening:
- An accepted offer signed by both vendor (seller/developer) and the buyer.
- The day the buyer receives a copy of the presale condo disclosure statement and signs a second document confirming receipt.
This presale condo disclosure statement contains vital information about the development, including the developer’s background, construction details, strata details, and financial arrangements.
The Realtor’s Role in Presale Purchases
While developers focus on sales, it’s the Realtor’s role, backed by the guidelines of the Real Estate Development Marketing Act (REDMA), to ensure that buyers’ interests are represented.
This is where the role of a Realtor becomes invaluable:
- Expert Guidance: An experienced realtor can guide you through the intricacies of the presale process, ensuring you’re aware of all the terms and conditions.
- Due Diligence: Realtors can help you in reviewing all documentation, including the Contract of Purchase and Sale and the Disclosure Statement. The nice thing is that having a Realtor assist with the proper due diligence does not involve cost for the buyer. Please get in touch with us to find out how.
- Negotiation: A realtor can negotiate on your behalf, ensuring you get the best deal possible. Developers will often share incentives and discounts with their Realtor partners that they may not share with the general public. By working with such Realtors (like us), buyers can get access to these incentives and discounts.
- Protection: With a realtor by your side, you have someone looking out for your best interests, ensuring you’re making an informed decision.
A Word of Caution: Automatic Purchase If No Action Taken
It’s crucial for buyers to understand the implications of the rescission period’s end. If no action is taken during these seven days, the purchase automatically moves forward. This means you’re contractually obligated to proceed with the purchase. Always be vigilant about this timeline and ensure you communicate any decisions within this window.
Presale Accepted Offer – Developer Can’t End Contract – Buyer Can for 7 Days
Once the buyer has an accepted offer on a presale, the developer is locked into the deal. Unlike the developer, the buyer can kill the deal for up to seven days after during the homebuyer protection period.
How to Exercise the 7-Day Rescission Period in BC
During this period, buyers can cancel their agreement for any reason. To exercise their seven day rescission right in BC, a presale condo buyer simply needs to provide written rescission notice to the developer. The buyer can do this directly or via their Realtor or their Lawyer. If the buyer decides to rescind the contract, they are entitled to a full refund of their deposit.
Buyer Does Nothing – Deal Goes Forward
If the buyer does not take action to rescind on the presale contract of purchase and sale during the presale condo rescission period, the deal goes forward automatically. after this time the contract is legally binding on the buyer and they are required to move forward with the purchase of the presale.
Importance of the 7 Day Rescission Period
Buyer Protection
The 7-day rescission period is a significant part of BC’s real estate law because it provides a layer of protection for new home buyers. It ensures that buyers have enough time to fully understand the implications of their purchase and to seek advice from professionals. It also allows time for pre-construction condo buyers to make an informed decision about the purchase with a depressurized timeline. This period is particularly important for presale condos, as these purchases come with unique risks and considerations and are quite different from the purchase of existing condos.
Risk Mitigation with Informed Decision Making on A Presale Condo Purchase
Presale condos carry certain risks. For instance, the final product might not meet the buyer’s expectations, or the project could be delayed or even cancelled. The 7-day rescission period allows buyers to assess these risks and decide whether they are comfortable proceeding with the purchase. And again this rescission period allows the buyer to make an informed decision
Making the Most of the 7-Day Rescission Period
Questions to Ponder During the Rescission Period
While the rescission period offers a chance to reconsider, it’s also a time to seek answers. Here are some questions to consider:
- Financing: Have you secured a mortgage pre-approval? Are you confident in your financial commitments?
- Property Details: Are you satisfied with the property’s layout, amenities, and other features?
- Developer’s Track Record: What’s the developer’s reputation? Have they successfully completed previous projects?
- Legal & Tax Implications: Have you consulted with a lawyer and accountant to understand all legal and tax implications of your purchase?
Always seek answers to these questions to ensure you’re making an informed decision.
Review the Disclosure Statement
The disclosure statement is a crucial document that provides detailed information about the development. Buyers should carefully review this document during the rescission period. It’s important to understand the developer’s plans for the project, the construction timeline, and the strata details.
Coupled with the rescission period, reviewing the disclosure statement is a key component of allowing the buyer to make an informed decision on the presale purchase.
Know the exact end date
It’s crucial to mark the precise end date of your 7-day rescission period for your presale condo purchase. This is a non-negotiable deadline and missing it means losing the right to rescind.
Important – Get a Mortgage Preapproval
Most buyers in the BC real estate market borrow money to purchase properties. Typically we advise our clients to to get a mortgage preapproval before they go shopping for properties, but we know life is busy. The rescission period is an added level of protection for presale condo buyers as it allows them time to get a mortgage preapproval.
Many lenders may not give a mortgage preapproval for presale condo purchases. Most will review the presale purchase in terms of cost and then review the buyers financial situation and will give a rough idea of whether the buyer can get a mortgage.
Some lenders do offer mortgage pre-approvals, but the rates tend to be quite a bit higher than current market rates. The good news is the these higher rates are guaranteed by the lender all the way to the completion of the presale.
Typically these lenders may have loaned money to the developer of the project, so they will have detailed pricing on the project and so therefore feel confident in lending to the buyers of the condo in the development. in my experience, it tends to be the large chartered Canadian banks that do this.
We strongly recommend to our clients to get these presale pre-approvals. These presale pre-approvals are like a cheap insurance policy on a mortgage. Barring any financial personal issues prior to completion, the buyer should be able to get a mortgage.
Here is why:
- If interest rates are higher at the time of the presales completion than the buyer saves money on interest and is guaranteed a mortgage. (again remember – in most cases there is no guarantee of getting a mortgage on a presale condo)
- If interest rates are lower at the time when the presale completes, the buyer is not required or obligated to move forward with the presale mortgage preapproval. In the weeks and months coming up to the completion date, the buyer can shop around for the best mortgage or rate.
That said, we are not mortgage brokers so please do check in with a mortgage professional before you start shopping. We also have a good options available for referral.
Confirm the Funds for the Presale Condo Deposits
It is a requirement of the presale purchase contract that the buyer pays their deposits in full at the time they are required to be paid. The buyer should use the rescission period to confirm that they have funds available and ready when they are required.
Please note – It is often possible to adjust when presale condo deposits are payable by a few weeks to a few months depending on the project. It is best to negotiate these changes either before an accepted offer on a presale or during the 7-day rescission period. Once the rescission period is up the buyer no longer has any leverage to make these changes as the contract is firm and binding.
Review the Presale Condo Purchase with your Realtor
Taking time to review the presale condo purchase with your Realtor is also recommended. At the time of purchase, the buyer may not have had time to ask all the questions they needed to ask about the contract, the building, the neighbourhood, or any other pertinent details.
The rescission period gives new condo purchasers time to think of, ask, and get the answers from their Realtor they need to make the best decision possible.
Seek Legal Advice
During the rescission period, can also buyers seek legal advice if there are questions that cannot be answered any other way. A lawyer can help you understand the terms and conditions of the contract, the disclosure statement, and any potential risks involved in the purchase.
Seek Accounting Advice
Getting the advice of a qualified and knowledgeable accountant is always recommended when purchasing a property, especially when buying a presale.
Presale condos are taxed differently than existing condos. For example new and presale condos are subject to GST (Goods and Services Tax) in British Columbia whereas existing condos are not.
Also, if a presale buyer is thinking of potentially intends to assign their rights under the presale condo purchase contract, there may be tax implications they did not expect. Its always best to speak with an accountant when purchasing a preconstruction home to avoid any nasty surprises come completion time or after.
What Happens at the End of the 7 Day Rescission Period?
At the end of the 7-day rescission period, the presale contract of purchase and sale becomes legally binding on the buyer. After this time, the buyer can expect to receive documents on the progress of the construction of the building and updates and changes to the disclosure statement.
What percentage of buyer Exercise their Rescission Right?
In our experience of representing buyers of presale condos since 2005 in the BC and Vancouver real estate market, we find that about 15-33% of presale condo buyers exercise their rescission rights in a presale condo purchase.
Why do Buyers Exercise Their 7 Day Rescission Right?
Buyers exercise their rescission right for a number of reasons. Typically here are the reasons we see buyers rescind presale condo purchases:
- Not confident of getting a mortgage once they check in with the lender.
- Didn’t like what they read in the disclosure statement.
- Not ready to buy.
- Investigated the property more and didn’t like what they saw.
Remember, the 7 day right of rescission is a buyers legal right to exercise it, as they see fit and there is no penalty.
7-Day Rescission Period BC FAQ’s
Q1: What is the 7-day rescission period for presale condos in BC?
A1: The rescission period is a required safeguard that allows prospective preconstruction homebuyers to revoke their purchase agreement within 7 days of their offer being accepted.
Q2: What is a pre sale condo?
A2: A pre sale condo is a unit available for purchase before the building is constructed, helping developers secure project funding.
Q3: Why does the 7-day rescission period exist?
A3: It protects buyers from rushed decisions, providing time to review the contract, seek advice, and ensure comfort with the purchase.
Q4: When does the rescission period start?
A4: It begins when either an offer is signed by both parties or the buyer receives and acknowledges the presale condo disclosure statement.
Q5: How can a buyer exercise the 7-day rescission right BC offers?
A5: Buyers can cancel their agreement for any reason by providing written notice to the developer within the period, entitling them to a full deposit refund.
Q6: What if the buyer doesn’t act during the rescission period?
A6: If no action is taken to rescind the contract during this period, the deal automatically proceeds and becomes legally binding.
Q7: What should a buyer do during the 7-day rescission period?
A7: Buyers should review the disclosure statement, confirm the rescission period end date, secure mortgage preapproval, confirm deposit funds, consult their Realtor, and seek legal and accounting advice.
Q8: What happens post the 7-day rescission period?
A8: The contract becomes legally binding, and the buyer receives updates on the construction progress and changes to the disclosure statement.
Q9: How many buyers typically exercise their rescission right?
A9: Approximately 15-33% of presale condo buyers exercise their rescission rights.
Q10: Why might buyers exercise their 7-day rescission right?
A10: Reasons can include uncertainty about mortgage approval, dissatisfaction with the disclosure statement, not being ready to buy, or discovering unfavorable property details or something else about the presale home.
Q11: What Government Body Oversees the 7 Day Home Buyer Rescission Period?
A10: The British Columbia Financial Services Authority (BCFSA) is the BC government regulator that oversees both REDMA and this important 7 day presale condo consumer protection.
Q12: Is there a Rescission fee if I exercise my 7 day right of rescission?
A12: No.
There is no rescission fee for rescinding on a presale condo or preconstruction purchase contract in BC according to REDMA.
Q13: Does this consumer protection apply to all presale condos in BC?
Though most presale condos in BC are in Greater Vancouver and the Fraser Valley, there are presales in other parts of the province. Good news is the 7 day consumer protection for presale residential real estate applies to all new construction homes across BC.
Q14: Does my Realtor get paid if I rescind my presale purchase contract?
No.
Your Realtor does not get paid if you rescind on your presale purchase contract. Your Realtor only gets paid if you do not rescind on the accepted offer on the presale you are buying. Learn more on this at How Do Realtors Get Paid.
Presale vs. Resale: Navigating the Real Estate Landscape
When considering a property purchase in BC, understanding the distinction between presale and resale properties is crucial:
- Presale Properties: These are units sold by developers before the property is built. Buyers are essentially purchasing a promise of future construction. The 7-day rescission period is a unique feature, allowing buyers a window to reconsider. There is no financial penalty or rescission fee if a buyer exercises their rescission right.
- Resale Properties: These are existing, tangible properties sold by current owners. The buying process involves a subject removal period, where buyers can back out based on specific conditions. When a buyer does not remove their subject conditions typically do not involve a financial penalty. That said, there is also the Home Buyer Rescission Program that gives a buyer the right to kill the deal for up to 3 business days after an accepted offer in the absence of subject conditions. Buyers exercising this right are required to pay the seller a rescission fee of 0.025% of the purchase price.
Key Takeaway: While both offer unique advantages, it’s essential to understand their nuances to make an informed decision.
The 7-Day Rescission Period is an Important Part of Buying a Presale Condo in BC
The 7 day rescission period, a cornerstone of the Real Estate Development Marketing Act (REDMA), stands out as a pivotal aspect of the presale condo buying process in British Columbia.
It provides buyers with a safety net, allowing them time to make an informed decision about their purchase. By understanding this period and making the most of it, buyers can ensure they are making a sound investment.
Remember, buying a presale condo is a significant financial decision. It’s essential to take the time to understand the process, the risks, and the protections in place, such as the 7-day rescission period. Always seek professional advice and ensure you are comfortable with your decision before proceeding with the purchase.
Looking for expert guidance on presale properties or real estate sales in BC? Call us at 604-265-9356 for a personalized consultation.