The breakneck speed of real estate transactions in British Columbia has some brokers so concerned, they are suggesting agents have clients sign a form spelling out that they understand the risks when offers are made with no conditions.
Sotheby's International Realty has sent a notice to its agents with a new form asking for official client acknowledgment that there could be serious consequences to an offer that includes nothing that makes the purchase subject to financing or property inspection.
"Something I'm concerned about is a bank then saying, 'I'm sorry, we're not going to appraise the property for that price,'" said Polly Cordwell, Sotheby's managing broker, who drafted the new form.
People who can't get financing risk losing their substantial deposits. They could also get sued.
Ms. Cordwell said close to 100 per cent of the buyer offers that the agency is seeing lately – as prices have spiralled to unheard-of heights, not just in Vancouver but throughout the region – are being made without conditions.
The Sotheby's form asks buyers to recognize that "lenders may not approve financing if the property appraisal, conditions of the lands or building or any other factor pertaining to the property is not acceptable to the lender, even if a financing pre-approval has been obtained."
It also warns them that making an offer without a building inspection could lead to unexpected and expensive repairs later
Dustan Woodhouse, a mortgage broker who mainly serves clients in the Tri-Cities area, said he had eight sets of clients in the first half of last week who all wanted to make subject-free offers.
He said he's just finished talking to a lawyer about a similar form warning them about the risks.
"I am contemplating an indemnification agreement to make it crystal clear that at no time can I ever possibly advise any client that they are 100-per-cent safe to go subject-free," he said. "The greatest danger in the market is the consumer walking around with a 'pre-approval' and failing to understand that it is little more than a ratehold."
Although Mr. Woodhouse is doing well financially in the current market, he said he thinks the region's real estate market has become dangerous. "These are very problematic conditions right now. I do not like this market, I do not believe this market is healthy. A little more rational behaviour would be nice."
The Mortgage Brokers Association of B.C. is not yet seeing a stampede of brokers toward new forms advising buyers of risk.
But CEO Samantha Gale said she is definitely hearing concerns from the association's 1,500 members – who are among the province's 3,200 brokers – about the high number of offers they're seeing that are subject-free and have unrealistic completion dates.
None of those contacted by The Globe and Mail has yet heard of a bank or credit union turning down a buyer because the offer is deemed to be much higher than the value of the property. That's largely because, as prices keep rising, an offer that is far above the official assessed value is still being considered as reasonable in current market conditions.
"But it's something we need to be aware of as a possibility," Ms. Cordwell of Sotheby's said.
Realtor Ian Watt said the region is "overdue" for some fallout from the no-condition offers.
"We know somebody's going to get sued." It won't happen immediately, as long as the market is hot, he said, but as soon as there's a slight downtown, that will become a possibility.
The region is going through one of the most unusual bursts of spiralling prices that many people in the real estate industry can remember. Until a few months ago, the stories of skyrocketing prices, sales for hundreds of thousands over asking and no-subject offers were largely confined to certain hot spots, such as the west side of Vancouver and the North Shore.