Real estate markets in Toronto and Vancouver are red hot. Some buyers are bidding without conditions. Here’s how to stay out of trouble

Mark Weisleder – Toronto Star

Real estate markets in Toronto and Vancouver are still red hot with bidding wars driving up prices, mainly for detached homes under $1 million. One reason is that listings are in short supply.

Comment: That is the main reason. As I have mentioned before, everyone went nuts over that semi in The Junction that sold a couple months back with 32 offers. But it was the only house for sale in the whole area at the time. I checked again a week later. Still just one. A month after that? Still one. Right now? Two.

In at least one case, I know of, more than 20 offers were received and in others buyers are paying tens or hundreds of thousands of dollars over the asking price. What’s worse, many buyers are putting in offers without any conditions, hoping this will help them clinch the deal.

Comment: And that is where the problems begin.

In this kind of market, buyers can still protect themselves.

Don’t bid without an inspection: In an environment of bidding wars, odds are that you will lose up to five times before you get the house you want.

Even if you make a bid without a condition, the home should be gone over by a home inspector before the bid. This can get expensive, since the average inspection report costs between $350 — $550, depending on the size of the house.

Comment: But there is no reason you cannot get an inspection done before bidding day. The sellers will allow it, trust me, as it must mean you are quite serious about the house. If they don’t allow it, walk away. No reasonable seller would prevent an inspection unless they had something to hide.

As such, you may pay up to $2,500 in inspection fees before you get an accepted offer. In my opinion, when buying a million dollar property, this is a worthwhile investment. I have heard too many stories of people who bought without an inspection, only to discover major problems later.

Comment: My neighbours bought without an inspection and paid $4,000 to fix a leak in the basement. An inspection would have been cheaper.

Interview a few inspectors first: Doing so means you’ll get an idea about what they look for when inspect a home. You may also be able to make an arrangement whereby if they do multiple inspections, the costs per inspection drops. The main things to watch for are the age of the furnace, roof, water penetration issues and the wiring. The inspector will also look for cracks, slopes in the floors and doors that do not close properly, which all could point to potential foundation issues.

The five bidder rule: I would consider backing out when there are more than five bidders on a home. You will likely seriously overpay for the home, based on the irrationality of the other bidders. Even if you win, there may be problems financing your purchase. Just because you may have qualified for a million dollar home, if your lender figures you paid too much, you will not get the loan you expected, which may result in your not being able to close your deal.

Comment: There is no such thing as over pay. There is simply an amount you are comfortable with and the amount the house sells for. If they do not mesh, then so be it. But it does mean someone over paid for the house. The next house to come up for sale nearby will use that sale price as a base for their own listing and sale ideas. When it comes time to sell that house, people will see what the owners paid for it. But another major point. Before removing your financing condition, take the listing to your lender and ask them about a specific amount for that specific property. Having a pre-approval for $Xxx,000 is one thing, but knowing that the bank is comfortable with lending you $724,000 for 123 Leslieville Street means so much more.

Inspections done by sellers: Some sellers have their own inspections and make the report available to buyers. It is dangerous to rely on this and not conduct your own. These seller’s reports usually come with a disclaimer that it is for information purposes only, so you won’t be able to sue anyone after closing if the information turns out wrong. You would have to prove the seller actively concealed major defects.

Comment: I take those with a grain of salt. If they show nothing wrong at all, that the house is perfect, then I consider it seriously suspect. If there are a lot of problems, then I would want my own inspector to check it over. If there are a few things here and there, that seems legit to me. Not to say you should not do your own inspection.

The 10% effect: Foreign investors continue to love Canadian real estate as a safe haven. With the fall of the Canadian dollar, our houses just got 10% cheaper in U.S. dollar terms. The focus tends to be condominiums, so don’t expect a crash in the condo market any time soon.

Comment: What does that have to do with bidding wars and home inspections?

When you are looking for a home, even at these prices, make sure you are close to public transit, and have good amenities around you. You are not a stock day trader, buying a home and selling it shortly afterwards for a quick profit. If you are buying for the long term and can afford the payments, you do not have to worry about any changes in the market or in interest rates — if you lock in your rate for an extended period.

Even when those around you are going crazy, be prepared and you can be successful, even in a bidding war.

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

Laurin Jeffrey is a Toronto real estate agent 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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