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Condos in Toronto

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Toronto Real Estate

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Tag Archives: tight market

What this west-end bidding war says about Toronto’s housing market

A renovated semi-detached house in Toronto’s hot Junction Triangle area has gone for almost $210,000 over asking price in a bidding war frenzy.

Susan Pigg – Toronto Star

It’s a simple semi, not that much different from all the others lined up along Perth Ave. in the up-and-coming Junction Triangle, except that now it’s got all the neighbours — and Toronto real estate watchers — talking.

It was considered one of the first “good listings” of 2014 in a shockingly tight market for low-rise houses where, since the recession, demand has far outstripped supply: A tastefully renovated house in an up-and-coming neighbourhood, priced under the magic threshold of $800,000.

Comment: Since when did $800k become a threshold? Heck, I am seeing crazy bidding wars in Ajax these days, of all places. How about 8 people fighting for a basic 10-year-old townhouse in the north end? Nuts.

325 Perth Avenue

More than 400 people, some of them battle-scarred bidding war veterans, lined up during open houses last weekend to dutifully check off all the boxes that now drive the decision to buy in the highly sought-after 416: Renovated kitchen and bathroom, stainless steel appliances, close to schools, transit, the city core.

By the 7 p.m. deadline for offers Tuesday night there were 32 of them. The house, which had been listed at $639,900 sold for $848,625 — almost $210,000 more.

“Overwhelmed” Keller Williams co-listing agent Mike Gryspeerdt — who actually owns the house and has raised his family there over the last 12 years — is still apologizing for the bidding frenzy.

“I’m genuinely, 100% shocked by this. I did not expect this to happen — nor did I want this to happen. I’m not comfortable with this at all,” said Gryspeerdt in an interview Wednesday.

He’s now being, he believes, unfairly “vilified” by frustrated house hunters and real estate watchers.

But even fellow realtors — who are prohibited by the Real Estate Council of Ontario’s own code of ethics from speaking out publicly against a competitor — are outraged by how low Perth Ave. was priced, given similar properties nearby went for well over $700,000.

Maggie Lind, the realtor for the buyers, who declined to talk to the Star, acknowledged that the house was priced low considering a similar one on Perth Avenue sold for $730,000 last spring.

Comment: So? Even if it had been priced at $729,900 there still would have been a ton of offers. There is nothing out there, so little inventory and so many buyers.

Gryspeerdt points out it had a designer kitchen, a basement music studio and “high-efficiency everything.”

“I don’t think it was about price. It was about winning,” Gryspeerdt says of the bids, believed to be a record number for Toronto. “Also, the Junction Triangle is a great neighbourhood.”

In fact, realtors say, Perth Avenue is a perfect example of problems plaguing a market that just won’t cool down, despite Finance Minister Jim Flaherty’s best efforts.

Most pressing is the lack of inventory: The Toronto Real Estate Board has seen a dramatic drop in the number of homes listed for sale, especially since the 2008 recession.

Listings that used to average about 16,000 even in the slow December period were down to 13,241 in 2012 and dropped a further 14% just from 2012 to 2013, says TREB.

Comment: Wow… that is more than 31% fewer listings. No wonder bids are crazy. Even if the number of buyers stayed the same, there are 1/3rd fewer listings. In an already tight market.

“A lot of it is about where do you go next — (moving up) is drastic,” says Lind. “A lot of people are getting discouraged by that next step up and how high it is and they are staying put and renovating. It can easily cost $100,000 just to make the move.”

TREB cites Toronto’s double land transfer tax, but realtors may be at least partly to blame as well: Most have fought hard to keep commissions at 5% as house prices have skyrocketed, pushing fees sky-high right along with house prices.

Comment: Come on, we all know commissions aren’t 5% anymore, they haven’t been for quite some time. They usually run in the 3.5-4% range now. And why are we being blamed for getting paid? No one vilifies their mechanic or dentist for what they have to pay them.

Flaherty’s own moves to tighten mortgage lending rules may also be contributing to the frenzy: It’s now so much harder to buy a $1 million-plus home with anything below a 20% down payment, it’s now boosting competition for lower-priced homes, says mortgage broker Steve Garganis.

Add on top of that all those buyers who’ve been waiting for prices to drop the last two years and now realize they aren’t. (Condos are another matter, that market has more supply than demand.)

Comment: As I have said for years, don’t wait, prices will only rise. And those who decided to wait for 2 years have seen $400,000 house become $500,000 houses. Condos are no better, regardless of what the press would have you believe. Prices and sales have both risen 10-20% in the last quarter of 2013. More and more people are priced out of houses and are looking to condos as an alternative. The supply is not really increasing and the demand is not really abating.

Sales may have slipped in the latter part of 2013, but prices haven’t: The average transaction price for a detached house in the City of Toronto hit $894,654 in mid-January, up 21.1% year-over year, according to TREB figures.

Semis were up almost 14%, to an average of $581,475.

The sheer number of realtors — some 37,000 in the Toronto board, many with less than five years’ experience — may also be an issue. They tend to have less sense of the market or strength to rein in would-buyers.

Comment: How do you “rein in” a buyer who wants a certain house, regardless of cost? I have been reading real estate articles for many years and the writer of this one has been doing it for less than 5 years. Should I question her experience? A sense of the market is moot when 32 people go after a house and emotions run wild. Tell your people to calm down and bid less – and they lose the house. And then they are upset. Yeah, that is a much better idea…

Veteran realtors stress that every bid contributes to escalating house prices overall: That Perth Avenue home will now become the new high-water benchmark comparable for realtors looking to price new listings in the area.

“The public wants to blame agents for underlisting, but I blame some of my colleagues for not always doing a good job of informing their buyers,” says outspoken realtor David Fleming.

“The first words out of any agent’s mouth walking in the door (of Perth) should have been ‘This is going to push $800,000.'”

And they were, says Lind. She refuses to discuss her clients’ winning bid at all, other than to say they are “ecstatic.”

“It’s a fabulous house. They really don’t have to do a thing.”

Comment: The biggest nugget of truth in all of this is that too many bids push prices up. I have had buyers want to submit low offers all the time. The problem is, of those 32 offers, probably 20 had no business being in it. They would all have been too low. But they always tell me “you never know” or “what if”. But their fantasies never come true. The house does not miraculously sell for under asking. Since all you have to go on is the number of bids, the serious ones push their price up based on how many there are. So 32 bids pushed the price up $210,000 – that means each bid was worth about $6,500 over asking. Had 20 non-serious buyers not put in a bid, the price might have been as low as $720,000 – quite in line with other recent sales. Maybe $750,000, to account for extras and put it over the other sale of $730,000. But when you through a bunch of non-competitive bids in, it pushes the price up. Oddly enough, it is those with no hope of winning the bids that make the price higher. I always tell people to stay out if they can’t compete. It only makes the situation worse, as that house sells for a lot more, which then sets the bar for the next one, and so on. Now, a bunch of people hoping that their low bid goes through force the prices up and suddenly a street that sold for $650,000 last year is selling for $800,000 this year. And now they have no hope at all. But it is their unfounded belief in the “what if”s that eventually push them out of the market they so desperately wanted to be in. Yes, agents need to tell people what they think it will sell for. But buyers also have to believe us. The press spends so much time vilifying realtors that so many people think we are shady or crooks or lying or whatnot. So they don’t believe us when we say it will go for over $800,000. They want to put in a bid for $650,000 because “you never know”. Well yes, I do know, I have been doing this a long time and have been in a lot of bidding wars. They haven’t. But, as their agent, I have to do what they ask me. If they want to bid $500,000, then I am bound to do it. And if I don’t, they will find another agent who will.

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.