A change in the wind
The challenge is to set the right asking price
By Carolyn Ireland – Globe and Mail
The summer slump in the Toronto real estate market has industry players dusting off strategies they haven’t used in eons: Agents are becoming reacquainted with conditional offers, lengthy periods of negotiations and — most remarkably — asking prices that actually reflect what the seller would accept for the house.
“I’ve done things this year that I haven’t done in 10 years,” says Wilfred Veinot of Sutton Group Partners Realty Inc.
Mr. Veinot calls this market “a reality check for sellers.”
The mantra in the industry, he says, is becoming, “Sellers are thinking last year; buyers are thinking next year.”
Ominously, that means that sellers still want their houses to fetch more than their neighbour’s place did last year while some prospective buyers are delaying purchases in the hope that prices will crumble.
In the past week, Mr. Veinot has been fielding calls from prospective sellers who are preparing for the fall Toronto real estate market, which traditionally kicks off once kids are back in school and soccer schedules are sorted out, he says.
While August is traditionally a slow month in Toronto real estate, “The buzz is out there already,” he says of the anticipation approaching Labour Day.
Agents and industry pundits are expecting this fall’s market to offer more choices for buyers and a tougher environment for sellers compared with last year at this time.
The Toronto Real Estate Board reported earlier this week that sales this month are continuing the slowdown that started in the spring.
By mid-month, sales of existing homes in the Greater Toronto Area had dropped 13% from the same period last year, and 8% compared with the same period in 2006.
Prices, meanwhile, are holding up. The current average price in the GTA is $373,844, which is a 5% increase from the figure of $354,088 tallied at mid-August last year.
Mr. Veinot, who specializes in the Riverdale neighbourhood, says that he has recently changed his advice: He is starting to recommend that sellers put their house on the market before they shop for a new property. In the past few years, he has always advised move-up buyers to find their new house first because it was almost a given that their current house would sell quickly.
Now, he says, “If it was me, I’d sell first.”
The agent adds that sellers can no longer be certain that they’ll receive their asking price in a hurry. And bidding wars are less common.
In one case, Mr. Veinot and his clients offered $75,000 less than the $1-million asking price. “The seller had a fit,” he says. It took a week to negotiate the deal, but eventually the two sides came together.
In the Toronto condo market, buying and selling this year has cooled off after the blistering pace set in 2007.
Jane Renwick, editor and vice-president for the Urbanation housing report, says Toronto condo sales were healthy in the second quarter but average sales a project were down significantly from 2007.
The Toronto condo market has grown by 20% to a record-breaking 295 projects, she adds.
Ms. Renwick says that absorbing 2008’s condo unit production will take time, but prices remained relatively stable in the second quarter. The average price stands at $396 a square foot, compared with $388 in the first quarter.
In the resale market, meanwhile, while buyers have become accustomed to making offers with no conditions attached in recent years in the hopes of making their bid more appealing to the seller, conditions are starting to creep back in.
Some offers allow the buyer to back out if they don’t receive bank financing or they don’t like the results of a home inspection.
Indeed, Mr. Veinot has done two deals this year in which the buyers made the offer conditional on selling their existing houses.
The agent has seen other changes: In one case, a buyer signed a deal in April to buy a house, then, as the closing date approached a few months later, didn’t want to go through with the deal.
“I find it unusual that that person wanted out,” he says. “Did they get cold feet?”
Mr. Veinot heard about the dilemma through another agent in his office and brought in a potential buyer who he had been helping search for a house.
His client stepped in and bought the house for the price the owner had accepted in April because, he says, the owner didn’t want to risk going back to market.
Last week, the Canadian Real Estate Association reported that new listings in July reached their highest level on record in Toronto.
The larger inventory of properties, combined with a drop in sales, means there is less “upward pressure” on home prices, CREA president Calvin Lindberg says.
The average price of a resale home in Canada fell by 3.6% last month, continuing a reversal that started in June when prices fell for the first time in more than nine years.
Toronto also appears headed for a drop, with prices rising a scant 1.5% in July, while sales fell by 12.4% and new listings surged by 17.8%, according to CREA’s numbers.
“The challenge for many sellers is determining the right price for today’s market conditions,” Mr. Lindberg says.
Mr. Veinot agrees. He says some potential buyers say they want to see the price for a mid-Toronto house drop by $100,000.
“I say to them, ‘Wow, I’m not sure that’s going to happen,'” he says.
Sellers, meanwhile, still want $110,000 over asking.
Agents, Mr. Veinot says, need to do their homework to make sure that buyers and sellers understand the environment so that they can set asking prices and make offers accordingly.
“I’ve actually turned down more listings this year than I’ve ever done because sellers are way up there,” he says.
He won’t represent a seller whom he thinks has unrealistic expectations because no good comes of setting the price too high, Mr. Veinot adds. He risks spending a lot of time and effort only to look bad in the eyes of other agents and prospective clients if the house sits on the market a long time.
“I just don’t need my ‘for sale’ sign on the lawn if it doesn’t sell.”
But he isn’t gloomy about the current market: He still sees a widespread desire to own and he’s happy for a return to the “normal” practice in real estate of a negotiation between buyer and seller.
Autumn, meanwhile, often means a healthy trade in country properties. People are back from vacation and likely to indulge in day trips to see the fall colours, says Sandy Ball of Chestnut Park Real Estate Ltd., who specializes in luxury country properties in and around Erin, Ont.
Ms. Ball says buyers of country vacation homes are less influenced by the market forces that affect Toronto. Because a second home is a discretionary purchase, the people making it are often more swayed by sentiment than the economy, she explains.
The agents notes that business has been quite brisk in the Caledon area this summer. She expects it to pick up even more in September because that’s when country properties look their best.
“Once kids are back in school, the buyers are out. People love coming out in the fall.”
Business falls off sharply from November to April when the trees are bare.
“People want to see what it really looks like,” she says of the countryside.
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