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Toronto Loft Conversions

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Modern Toronto Lofts

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Unique Toronto Homes

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Condos in Toronto

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Toronto Real Estate

Toronto Real Estate

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Tag Archives: financing condition

‘I don’t see how it could get any crazier’: High number of Toronto listings go to bidding war

Susan Smith – National Post

A long time ago, in a land far far away, there was an oft-heard adage in the real estate business – price a house right and it will sell. But this is now, in Toronto, where you price it low to spark a bidding war and expect it will sell for way over asking.

Comment: Heck, price it right and 10 people will still fight for it.

According to Realosophy, a brokerage and research firm, more than half of the homes that sold last year in Toronto’s 10 hottest neighbourhoods sold for more than asking. The highest was Kensington Market, where 69% of deals done exceeded the sticker price.

Comment: And we had a bunch of neighbourhoods a year or two ago with 70% of houses going over asking. I bet if there were more houses for sale, we would see more bidding wars. The only reason there are fewer is because there are 30% fewer listings than there were then.

Toronto Bidding Wars
The company has not crunched comparable numbers so far this year, but president John Pasalis says the trend is definitely continuing. Houses attracting an unusually high number of multiple bids – and in some cases selling for hundreds of thousands over asking – are being reported with greater frequency. He calls it a “mini insane period” that has turned the heat up even higher on what has been for some time a robust seller’s market.

Comment: But as noted at the start of the article, the houses are priced low to spark a bidding war. So if we know the asking price is artificially low, why do we concentrate on how much over asking the house sold for?

Low listings work well for sellers who expect multiple bids, as they attract more people. And a higher number of interested people tells bidders that they will have to aim high in order to win. But unrealistically low asking prices are a source of frustration for buyers as well as agents, wasting time and adding pressure to an inherently stressful process. The buyer who wins walks away happy, of course, but there is always the question: Did I overbid to beat out the competition?

Comment: But us agents, as part of our job, have to educate our clients. I have those that come to me with a house for, say, $500,000 but I have to caution them that they want offers and are likely to get $700,000. So we stay away from it. Too many agents are all too willing to get their clients to make an offer, turning what should be 10 bids into 32 bids. Now, instead of selling for $760,000 it goes for $850,000. All because of a bunch of unrealistic people who had no business bidding in the first place.

“Some agents are underpricing by 15% and that’s crazy,” Mr. Pasalis says. An unrealistic price falsely raises the hopes of low bidders while the ones at the top scramble to figure out how much more they would be willing to pay in a second round.

In the end, extreme underpricing doesn’t really add much value, he believes. Houses in Toronto are selling for what location, condition, comparables and market conditions say they’re worth. The trick is to understand all the parameters and educate buyers and sellers on what they can expect.

Comment: Oh, but it does. You can list for $650,000 and get 15 offers or list for $549,000 and get 30 offers. The more offers, the higher the price. Even if market value is $750,000, 30 offers will push it closer to $800,000.

More inventory coming on the market as spring arrives, Mr. Pasalis says, may mean the bidding frenzy won’t get much worse. And he hopes that happens. “I don’t see how it could get any crazier,” he says. “But then you never know.”

Comment: Only if there is more inventory. And if there is, it only means more bidding wars. For every house that has 32 bidders, 31 people did not buy a house. As new buyers come into the market, that pool only gets bigger. So next time, there are 35 bidders. And then 34 need somewhere to live… which turns into 40 next week and so on. Until listings double, bidding wars will be the norm.

Norman Farquhar, operating principal at Keller Williams Neighbourhood Realty, estimates that more than 60% of the deals his firm does now involve houses selling above asking.

“It’s unbelievable,” he says. And like Mr. Pasalis, he wouldn’t mind a bit of a breather. “I’m looking forward to more of a balanced market coming back, where people have time to make decisions, so they’re buying in a manner we should all be able to buy in, instead of in a big panic.”

Comment: I just had people back out of a deal, no bids, but because the seller pressured them. They wanted time to think and did not get it. Most people would just go for it, but they decided to walk away. Good for them!

His advice to house hunters is to have financing in place, go in with no conditions, and put the best foot forward. In this market, low offers and conditions will knock potential buyers out fast. He also cautions against assuming there will be a second round of bidding, because sometimes there is not. “You never know what will happen at the table,” he says. “And you’re out there saying, ‘But I was going to buy that!’ And it’s too late. It’s over.”

Comment: So stupid to remove conditions. They protect BOTH sides, which sellers and their agents seem to forget. When it is my property, it really comes down to price and closing. I never advise my sellers to take an offer with no conditions over one with a higher price – which I have seen happen. And the repercussions when the buyer can’t get financing on closing… something that would have been sorted out a week after the offer had their been a financing condition.

Mr. Farquhar is not averse to so-called bully offers, where a bid is made before the assigned date in order to avoid a bidding war. But these offers have to be high for the seller to consider going this route.

He says the way to help clients navigate these frothy Toronto real estate waters is for agents to be as honest as possible with buyers about what houses are really going to sell for – no matter what the asking price – to avoid the frustration that comes with bidding and losing out on properties.

Comment: Exactly!

“They have to be prepared,” he says, “and when they’re not, that’s when they get frustrated.

“People are looking at houses they can’t afford anymore,” he adds. “Maybe they could have afforded them a year ago or two years ago, but not in this marketplace. So the agents should get them out of that milieu and into something they can afford.”

Brian Madigan, a broker at Re/Max West and a lawyer with years of experience in real estate litigation, says the best way to make things as painless as possible is to enlist companies with proven reputations and agents who know the ins and outs of the bidding process. Bidding is conducted in the boardroom of the offices. People arrive into a professional setting. There are sealed envelopes and marked times.

“What you want to do is have a very fair process,” he says. “You want everyone to understand, ‘This is what we’re going to do. This is what it’s going to be.’ ”

And while he agrees that conditional offers won’t fly when there are lots of bidders, he strongly advises against foregoing an inspection. Many sellers are providing their own inspections, which can be trusted if recognized names are used. But to be doubly sure, or if there is no inspection report available, he recommends potential buyers arrive with an inspector to have things checked out before submitting a bid, even if there isn’t much time.

“If the seller says no [to allowing an inspection], walk away from it,” he says.

Comment: Or take the time before offer date to have an inspection done. I have done it before, if the buyer is serious, that is the way around an inspection condition. Get your mortgage pre-approval and make sure to discuss the exact property with your lender. Bring a copy of the pre-approval to the offer site with you. Bring your deposit cheque and be ready with your best bid. Do not hold back for a round 2, I have never had that go well for a client. Do your best the first and be ready whichever way it goes.

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.