There’s been a dramatic drop in real estate prices since April, and while the summer lull might be the culprit, look for the crazed Toronto market to settle down a little.

Comment: This is the same thing happens every year. Generally prices peak in May, then slow for the rest of the year, bumping up again in the fall. Back down again only to rise in the spring and peak around April or May. This is not news, it happens every single year. Yet, every single year we treat it like something new, like the start of something different.

David Fleming – The Grid TO

Throughout the past decade in Toronto, it was almost a given that sellers with great houses would set offer dates to try to solicit multiple bids and a hefty sale price. Bidding wars became the norm for many homeowners and a much-dreaded reality for buyers. Sometimes, aggressive buyers would “bully” the seller by submitting an outstanding bid a few days before the offer date, and often the tactic worked – it’s hard for a seller to turn down an incredible offer when there’s no guarantee of exceeding it. I’ve been very successful with bully offers in every realm of the Toronto market: houses, condos; high-end, low-end—you name it. But I wonder if this is the last time I’ll be speaking about them for a while, as I’ve recently noticed a significant drop in their frequency.

Comment: But that is because the spring market is the yearly peak. Summer always has less activity – and thus fewer bidding wars. Trust me, I hope to never see another offer date, but I think someone is reading too much into a yearly trend. But, with an significant increase in listings over the past 3-4 months, coupled with a decrease in sales, we might just be seeing a market settling down. I hope so, because the frantic bidding of the past were cruel in so many ways. Not to say that the best houses are still not going to see multiple offers, but at least it won’t be on 70% of the houses in a given neighbourhood.

We may look back on April and May as the peak of the bull market, because sales slowed substantially in the subsequent months. While Toronto Real Estate Board statistics show that prices are increasing over last year, they also show that there’s been a dramatic drop in prices since April. And as a realtor who’s pounding the pavement every day, I can tell you that there’s less activity. Whatever the reason, we’re not seeing as many house-hungry buyers who ignore logic and reason and let emotion take control of their personal finances. There are fewer outrageous prices being paid for homes, and the market is becoming more balanced.

Comment: For a real estate agent, he should know better. Action always slows in the summer. It used to be that realtors took July off because it was so dead. And he should also know that May (or even April) is the price peak of the year – usually 10-15% higher than the low point around the end of the year. This is simple data that all real estate agents should know.

When the market dipped for about 10 minutes in 2008, I noticed that some MLS listings came with notes from the agents that bully offers on a property were welcome. It was nonsense. The whole point of an offer date is to have a fixed time to review offers. Now the listing agents were encouraging bullies? It was like they were saying, “There’s no way we’re going to look at offers before Aug. 16,” then whispering, “But actually, we will! Shhhh!”

Comment: Of course, they were hedging their bets. What if they did not get multiples on the offer date? And that was the start of the real bidding frenzy, before bully offers became popular. All tricks to get the highest price for the seller.

Well, as the market begins to slow now in 2012, I’ve seen this garbage again. An east-end property was listed last month, and the selling agent wrote “Pre-emptive offers are welcome” in the remarks for the public and “Bully offers encouraged” in the notes for agents. That house was a great litmus test. The owner didn’t receive any bully offers. In fact, they didn’t receive any bids at all on their set offer night. The house sold once, fell through on inspection, then finally sold about four weeks after it was initially listed—for $10,000 under the asking price. How anti-climactic.

Comment: And the request for bully offers was a clear sign that either the agent did not know what they were doing, or that they were not confident in getting multiples on the offer date. Not always the agent’s fault though, we are all beholden to our clients and must do what they ask us to do – regardless of how ridiculous it may be.

We might be in a typical summer lull – when long weekends and weeks at the cottage make for a decidedly slower pace than in the spring – or we might be seeing the start of a softening market. We won’t know until about two or three weeks into the fall real-estate season, which usually starts with a bang right after Labour Day. Either way, I think we might have seen the end of bully offers.

Comment: So why even put it out there when you know as well as I do that we cannot know anything for sure until a couple of months from now? Why suggest a trend that cannot be proven, one that goes against the current long term trend? It is silly to postulate about the unknown when the evidence fits with existing patterns.

More and more buyers are noticing that houses are selling for (gasp!) fair market value, and they’re not rushed to get into a melee on offer night. Fewer people are getting caught up in the hype and now find themselves letting price dictate whether they buy a house, instead of emotion, frenzy, and panic. There’s always the risk that your dream home sells via bully offer or in a bidding-war situation on offer night, but here and there, a house you might have pegged for multiple offers will be passed over. Aggressiveness and quick decision-making were rewarded for so long, but patience is making a comeback.

Comment: Bidding war or not, whatever a house sell for is market value. Fair or not, a house is worth what someone will pay for it, simple as that. And offer dates are not always about price – they are about firm offers with no conditions, getting the right closing date, less than a week of showings, etc. Buyers always think it is about greed and money – it is not.

In a perfect world, every buyer would have ample time to make a decision, and be able to say that he or she received a great deal on the purchase. In reality, the market often doesn’t allow for either, but at least the end of bully offers will allow the home-buying experience to be more enjoyable.

Comment: Home buying is only going to get worse. There are 100-110,000 people coming to the GTA every year and they need somewhere to live. There are 25-30,000 new condos being built every year – many of those owners will want to move up to a house at some point. And they are building many new houses, land is not being made. The demand is only ever going to increase, while the supply stays static. Sure, more areas are becoming popular, spreading the demand for trendy spots around, but that can only do so much. Do not expect house buying to ever be easy…

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Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto Realtor with Century 21 Regal Realty. He did not
write these articles, he just reproduces them here for people who are
interested in Toronto real estate. He does not work for any builders.
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