Subjects, do I need to have subjects in my offer to buy a home?....Yes!

I have been hearing a lot about clients wondering if it is wise to put in an offer on a purchase of a home without any ‘subjects’. In short, no. Subjects are there to allow you to make sure that you are able to get your financing and or other due diligence.Even though I had a recent newsletter that talked a bit about this, I think it’s worth another few comments.

You are risking a disaster when you put in an offer without subjects. In fact I firmly believe that there should be a mandatory wait time between the time you put in any offer to buy a home and when your offer becomes a binding contract. This is the case when you buy from the builder of the home or condo. It is somewhat crazy that the government would not give everyone the same protection from the sort of pressure that a lot of you are under. I had a great client call me recently to tell me that her realtor had requested that they put in an offer without subjects. She thought it did not sound right.

• Here is the disaster that will become of you if you cannot fulfill a subject free offer (A binding Contract):You will pay the seller’s realtor that sold the property
• You will pay the next realtor that will again sell the property for the same seller
• You will be responsible for the damages to the seller who likely was counting on your purchasing their property to buy another.

This list goes on and on from seller to buyer along the chain that is nowbroken. In the meantime your deposit is held until everything is ironed out, which at the very least may halt your ability to buy another home. This problem becomes more of an issue with pre-sales, as so much can happen between the time of your accepted offer and the closing or completion, which could be a year or more later.

What changes are on the horizon for the government? Here is something that the government is contemplating:

The Government is proposing a rise in the qualifying rate for those with more than a 20% down payment. The proposed changes target only those purchasing with 20% down or more. Yes, that’s right—it restricts borrowing by the most well qualified group of buyers/borrowers. This makes very little sense.

Let’s have a bit of a Q&A:

How much restriction are we talking about? About 5% less borrowing power. Given that the current stress test enacted January 1, 2018, reduced borrowing power by 35%, this seems pretty minor. And the impact will be minor; it will have no effect on borrowers putting less than 20% down on purchases. So, it will have little to no effect on the market priced under 1 million dollars.

Okay, so who will it slow down? It will affect a few hundred, perhaps even a few thousand, middle-class families in their early earning years. But again, it’s not anywhere near enough to address the runaway prices.

So why only one proposed tweak, and a minor one at that? The pandemic has stripped away the illusion of a housing market driven by foreign investment, and the stress test further stripped away the illusion of ‘over-indebted Canadians’ borrowing more than they could afford. All the ridiculous distractions such as foreign buyers taxes, speculation taxes and vacant home taxes have been used up and proven as worthless at slowing prices (as we in the know said they would be). Only one thing slows prices, and the answer is as simple as it is complex; increased supply.

Try as they might, regulators cannot restrict demand for housing as long as we continue to have children and welcome much needed and economically vital immigration. The only tools left to fix this are in the toolbox would be to provide more housing to increase the supply side. So far, no level of government has wanted to open that toolbox, but somebody is going to have to step up and figure it out.

If China can build a 57 story high-rise in 19 days, surely we can figure out how to build some four story wood frame condos in fewer than 5-7 years. But here’s the rub, this proposed qualifying change will once again not be grandfathered for those who purchased a pre-sale. The final note here—be extra cautious when purchasing pre-construction, be sure that you more than easily qualify and are not just squeaking through. As little as this proposed (and almost certain to happen) adjustment will impact the overall market, it may have the power to impact your own personal situation significantly.

How close to the line are you?