It's a scorching hot Autumn market where competition is fierce in a Tyra Banks way!
Right now there are a handful of winners and a slew of beleaguered Buyers scratching their heads over how fast real estate values are climbing.
Part of it stems from some significant changes at RECO (Real Estate Council Of Ontario) where a new CEO (non Realtor), Registrar (non Realtor) and Head of Compliance (non Realtor) are flexing their considerable powers in a manner that is somewhat disconcerting. RECO recently cast a ruling that suggests a misunderstanding of the dynamics of our industry, the degree of which boggles the mind. It started with a complaint which resulted in a fine against a reputable center core agent for TEN THOUSAND DOLLARS. This sum was levied to the realtor for accepting a ‘bully offer”, which is a strategic tool, commonly used in a robust market like we're experiencing in the City of Toronto.
If this isn't a term you're familiar with, a ‘bully offer’ - perhaps more appropriately called the ‘preemptive offer strike’ - is where an offer is submitted by a buyer in advance of the ‘hold back on offer’ date the seller has posted. By disregarding the hold back instructions, the buyer attempts to ‘bully’ the seller into accepting their bid before other parties can submit. If you want to learn more, here's one of our past newsletters called Bully Offers & Bidding Wars - Strategies For Buying And Selling.
Now, as far as we can glean, the listing realtor did everything we believe is required when a co-operating broker calls you up and tells you he's registering an offer in advance of the offer date with an irrevocable that will expire in a matter of hours (Yes! Hours!). This included notifying all the realtors who had showed the property or who had booked viewing, calling everyone who had already registered offers, followed the client's instructions to a tee (which are providing in writing) and even changed the MLS listing to note that a pre-emptive offer had come in. But ‘Joe Public’ thought the offer date was false advertising and RECO agreed.
To combat this, MLS listings are now coming out with both a Holdback Offer Date (The Seller will receive offers on 'such and such a date') and - in the broker's comments - the words "Seller Reserves The Right To Consider Pre-Emptive Offers". What this basically signals is that the holdback offer date isn't really a sure thing. Essentially any Buyer truly interested and keen to buy the property might as well submit a Pre-Emptive Offer, throwing an enticing sum at the Seller in the hopes that it will be enough!
This is exactly what our Buyers did last night to score a house in the Upper Beach. While the property was competitively-priced with a holdback on offers, our clients didn't wait for the offer date. Instead, they submitted a cash, condition-free offer with a 5 percent bank draft for a sum of around 11 percent over the list price. Was it too much? Hardly. In fact, it was actually less than what they were really prepared to pay. So, instead of waiting a day to fight it out in competition and thrust them to their max, they strategically offered less and secured it without any of the bidding war drama.
Is this what it has come to? The short answer is 'Yes'.
Whilst our 'bully offer' was playing out, it was also happening on the Central West Side! A classic, Edwardian, vintage semi in a desirable Central West location listed at $1.3 Million got snapped up 72 hours after coming to market (and before the offer date) for a cool $200K over list. Meanwhile, another client who had viewed a three-bedroom midtown semi listed just under $800K, saw it shoot over 1 million dollars, after garnering nine offers. And for a semi no less! And to think, less than a year ago, some urbaneer clients paid $1Million for a detached dwell in an even more desirable area. Here's a worthy read on how we got strategic: A Winning Bidding War Strategy.
Not only are these sales spinning heads, they're leaving a trail of Buyers licking their wounds and realizing that they're going to be priced out of downtown if they don't act quickly. Soon, they'll be flocking to wherever they have to go to snap up whatever they can.
So why is this happening?
While there are multiple reasons that Buyers are competing against each other to secure freehold houses in the City centre, demographics are arguably one of the most critical mitigating variables currently contributing to the frenetic character of central Toronto's freehold housing market. Right now there are multiple generations of Torontonians in their early 30s to mid-50s who either have children or intend to soon.This triple cohort of highly-educated, high-earning professional Buyers are either first-time Buyers, or are climbing the property ladder out of their first or second purchase. This particular rung on the property ladder puts them at the doorstep of dwellings which will be Home for the next 10 to 25 years. These Buyers seek properties located in family-friendly neighbourhoods with quality schools in convenient locations, offering shopping, green space and easily-accessed public transportation to the central business district. Since they're looking to buy and stay for the long term, they're willing to pay top dollar and amortize whatever 'premium' they're paying to secure a dwelling.
Another important factor is this: as prices escalate by leaps and bounds, the cost of climbing the property ladder now runs at around 100K for legal and realtor fees, moving costs, and the horrific double land transfer taxes. Downtown homeowners who already own a piece of the real estate pie are now electing to stay in their properties and renovate, expand up or out with an addition, or just put up with less space because they simply can't afford to move. In today's heated market, it now costs 200K more to get a fourth bedroom in a family-friendly neighbourhood than a three bedroom, which is a heck of a lot of money! So, with fewer houses trading, the limited supply that does come available is getting snapped up at precedent-setting values.
Compounding this is the financing rule, introduced in June 2012; it states that CMHC will only insure high-ratio purchasers placing 5 to 19.99 percent down on properties which sell for under $1Million. In other words, the moment the purchase price goes over $1Million, 20 percent down becomes essential (here's a Toronto Star article outlining how, as of July 31st CMHC no longer insures properties over $1Million). While it was implemented because CMHC is getting topped up and reaching its threshold, the result has kinda sorta back-fired by applying undue pressure on the market. High-ratio Buyers are now scrambling to secure anything under $1Million which - in a climate of limited supply that has fueled the stratospheric rise in values - is effectively spurning the market to crest even higher. Instead of quelling the market and controlling the debt levels of cash-poor income-rich buyers, it's forcing them to pay larger sums and, ironically, incur greater debt than they might otherwise have had to if the rule was never introduced. As it stands, a qualified buyer can buy a $999,999 house with 50k down (5 percent) but a $1Million house requires $200,000 (20 percent). Can we say 'Cray Cray'?
All of this suggests that soon every half-decent downtown dwelling will be a $1Million property. Here's one of our past newsletters called Understanding Our Market Momentum.
Did you read the Toronto Life October 2014 edition called Real Estate Mania? We LOVE Toronto Life. Their outrageous tales are a window into our real estate world.
In fact, if you're actively looking for real estate, consider reading our post called Toronto Life’s ‘Where to Buy Now 2013: The City’s Top 10 Neighbourhoods for High-Return Real Estate’ from our own Tales From The Real Estate Trenches.
And stay tuned for our Autumn 2014 Real Estate Forecast!
At urbaneer, we recognize there are many factors influencing the way Buyers and Sellers approach real estate. While we cannot change the way our property economy is evolving, we can guide you with a level of awareness and insight that only comes with comprehensive education and loads of first-hand experience. As one of Bosley's consistent Top Ten Producers, my team and I are here to help!
~ Steven and the urbaneer team
We're here to earn your trust, then your business!
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**Thank you Toronto Life for letting us post your October 2014 cover!**