By: Mpamag

How the federal government plans to alter the purchasing procedure

Tags: Canada Mortgage and Housing Corporation (CMHC), Industry News, Real Estate 2021

A Home Buyer's Bill of Rights is being discussed, which would address a significant development in a scorching market.

Despite the fact that the COVID-19 pandemic was still at the top of each party's list for September's federal election, housing prices and continued challenges for first-time buyers were frequently mentioned during the campaign.

That was perhaps to be expected, given the plethora of trends that have emerged as a result of a frenzied housing market created during the pandemic era by Canada Mortgage and Housing Corporation (CMHC) at its most dangerous risk level just weeks ago.

The use of subject-free bids has been a worrying trend for the past 18 months, with bidders increasingly willing to give up essential elements of the housebuying process, such as financing terms and home inspections, in order to avoid strong competition from would-be competitors.

The re-elected Liberal government has promised to face this problem, with provisions protecting bidders' interests prominent in its election platform. The party's main ideas include a Home Buyer's Bill of Rights, which it claims will guarantee that the process of buying a house is "fair, open, and transparent.

A legal right for a home inspection is included in the consumer protection measures that the bill would implement, according to the Liberals. "This will ensure that purchasers have peace of mind that their investment is sound," they said.

Blind bidding would be banned, deferrals for up to six months following a significant life event (such as a job loss) would be required, and mortgage lenders would have to work in their clients' best interests to keep them fully informed of the range of options open during the mortgage application process.

Another strategy being considered to cool the housing market is a ban on residential flipping, as well as an anti-flipping tax on homes. Both of these would be restricted for two years under a proposal that restricts foreign ownership.

It's also worth noting that the Mortgage Brokers Ottawa broker informed Canadian Mortgage Professional that it was critical for brokers to guarantee their clients were fully aware of the danger they were taking by declining to complete the purchase process at this stage.

"I'm advising clients to take things slowly," he added. "From a financing standpoint, if we do our job correctly, they should be able to rest confident that their funding will be there in the future based on upfront receipt of documentation."

"Even if they put down 50%, I'll tell them, "Even if the lender chose to appraise and the appraisal came back a little lower, it's no big deal because we've got plenty of options."' If you're financing a home with 5% down, the risk is that you'll have to come up with more money if it appraises lower."

In a competitive market like the one we've seen over the last 18 months, Napolitano said he thought it was "crazy" to purchase a property without having done a thorough inspection.

"I always go back to a saying: you can't buy a used car without safety, and a used car is hundreds of times less expensive than a home."

When default insurers appraise properties at a significantly lower amount than the agreed fee, it can be difficult to decide not to go ahead with a house inspection. Even though Napolitano stated that it was unusual in the Ottawa market for default insurers to value homes at considerably less than the contract price, this might happen when valuing homes below what they are worth.

Fortunately, in his home market of Ottawa, the mayhem of the first half of the year had subsided somewhat, and many clients were now obtaining possibilities to add house inspections during the purchase process.

Overall, offers have been coming in at close to the list price over the past few months, with the financing and home inspection included - which is excellent for purchasers.

"I think it's fantastic for everyone. Vendors were receiving top dollar, and I believe it expanded the market for individuals who had difficulties with their houses to be able to sell them without worrying about the issues they would have today as a result of a home inspection being performed." 

Despite the federal government's guarantee to address the problem, Napolitano said he would rather see provincial governments handle it on their own.

"I prefer to have it up to the province," he added. "The federal government has required that home inspections be mandatory since part of their mission is to protect Canadians from substandard homes. I believe it's a provincial function, however. I'd want to see the province implement this."