For those who take the headlines at face value, the real estate market has undergone an absolute roller coaster in the past few months. We've been hearing threats of unsustainable growth and a bubble that's ready to pop, unscrupulous sellers and their agents who have manipulated bidding wars to extreme heights and now... Eeek, it seems that the prices are falling.
In reality, home sales typically slow in the summer likely due to a number of factors, such as the sticky weather, family vacations and the fact that very few people want to move during the first few weeks of the school year. Add to that the new mortgage rules and we are seeing the market moderate a little- Something those of us in the business have been expecting to happen eventually. Far from a crash, a bit of equalizing could be excellent news for the market.
The Globe And Mail ran a great article this week which outlined five great reasons why a small decline in house prices could be very good news. Topping the list is the fact that this may give many first time buyers who have been discouraged by the number of multiple offer scenarios last spring, a chance to finally break into the market. Also on the list was the suggestion that this could lead to more rational transactions and negotiations. Without an auction mentality, it is easy to reason that more buyers will feel good about their purchases in the years to come.
Our housing market is still strong and steady, as is our economy. If housing prices see a small correction overall, it will likely increase overall confidence in our market and subsequently long-term strength.
It's the day of your open house and, in this market, that could mean your agent is expecting dozens of interested buyers to visit your home. Your house is staged and tidy. A large bowl of fake fruit sits on your kitchen counter. The floors are scrubbed, the closets cleaned and you feel prepared for anything and excited at the prospect of offers on the horizon.
Most good agents will request that owners and pets vacate the house during the open house in order to allow prospective buyers to feel comfortable looking carefully and even contemplating changes they might make if they were to purchase the home. Your agent has advertised the open house and even brought some extra feature sheets, information on local schools and refreshments. You know you are leaving your home in good hands. Everything is perfect. So what are you forgetting?
Open houses are such a common step in the selling process that we often forget the fact that there will actually be strangers walking through our houses and looking at our things. When a seller opens their home to showings, each buyer is accompanied by a licensed agent and the listing agent has a record of all visits. The very nature of an open house, however, is to allow maximum exposure and so many of the visitors will be looking without their own agent. A listing agent usually stands downstairs to greet guests and answer questions, but who is watching what happens upstairs?
I recently read a fantastic article in Real Estate Magazine on protecting sellers' privacy during open houses and showings. Many sellers will not feel that all of these suggestions are necessary and some may seem obvious but I think every seller should at least consider them. I don't know how many times I've seen calendars in houses during showings with vacation time blocked off. Do you really want all the guests at your open house to know when your home is vacant?
I would add to the suggestions in the article that it is prudent to ensure that your agent is requesting that each guest sign in with first and last name as well as a home address and telephone number. People tend to be more respectful when their identity is known. Another good idea if you own a very large home or if your agent is expecting heavy traffic is to ask your agent if they have a colleague who can assist them by walking around and answering questions. I also happen to think a one day open house that lasts two hours tends to generate more traffic than an open house that stretches an entire weekend. Remember, other open house guests also serve to eliminate snooping behaviour.
Last but not least, plan, prepare and then RELAX. You have hired a professional whom you trust so if you have any nagging concerns, allow them to set your mind at ease with their own security ideas.
Now, I'm obviously a little biased where this topic is concerned since I make my living by assisting people in buying and selling homes. Still, I plan to examine the title question as objectively as possible.
It seems we live in a society where Do-It-Yourself or DYI is becoming increasingly popular. Our technology allows us to access professional (or amateur) resources from anywhere and it is easy to feel that we are all just a few weeks of Internet research away from being experts at other people's jobs. I know I am also guilty of this and have gone to the doctor having already looked up some possible causes of my symptoms. When I was having my will prepared, I recalled a legal article and asked to refine one of the clauses. I have even speculated at a reason for the noise my AC was making to the repair person. Am I an unusually annoying consumer? Perhaps, but my point here is that we all do this to an extent and I find that many professionals respect a savvy consumer who asks educated questions.
But what about those consumers who actually take matters into their own hands and cut out the pros? It's a matter of opinion. We could probably cut our own hair, represent ourselves in court or install our own kitchens... but how many of us want to? In fact, shows like Holmes on Homes show us the many pitfalls of attempting work without the right professionals. So why do discount brokerages and listings for sale by owner exist? Some sellers feel that the compensation paid to real estate professionals is too high and would rather try it on their own.
Are they correct? Perhaps in some cases, they are. However a good agent should serve as a market expert, assisting with staging, pricing and marketing their property, arranging showings (because an owner who is present for a showing is a huge deterrent for an interested buyer) and orchestrating maximum interest to ensure a good position for their clients during negotiations. They should have a keen eye on the market and be able to advise their clients when to list, when to adjust the price and when to accept offers. They should be familiar with clause wordings and be able to negotiate the best price and terms for their clients. They should be available long after the sale to ensure that conditions are met and closing proceeds smoothly. A very good agent remains in touch with clients and can act as an adviser with respect to renovations which pay off or tradespeople or professionals that may be required in the future.
So, when is it worth it to try to sell your home on your own? In Toronto, with the average seller offering about 5% commission, which would mean 2.5% to their own agent and 2.5% to a buyer's agent, a smart seller will never cut the commission paid to a buyer's agent as they want their home to be attractive to agents who may have a buyer. Of the 2.5% that they would pay their own agent, they should consider the costs of staging their home on their own, paying a discount brokerage to list their home on MLS, added legal fees since they would require a lawyer to review all offers and possibly multiple sign-backs, marketing expenses, the stress of negotiating offers, the inconvenience of arranging showings and the expectation that homes sold without an agent are generally expected to sell for less and sit on the market longer. I can confidently tell my clients that I can easily justify my compensation and they will more than likely make more money using me, than they would save on my commission.
A recent Globe and Mail article discusses one couple's adventure with their own DIY listing. It has long been an accepted fact in the real estate community (and even a source of easy leads for some agents) that for sale by owner properties or FSBOs don't sell. Many of us even read about the FSBO company founder who sold his own property using a broker.
One would expect this FSBO theory to not apply to a HOT market like Toronto's, so I watched this listing to satisfy my own curiosity. The owners were optimistic that they would have multiple offers on their offer date of June 14th. I cannot confirm whether or not this was the case but it is now June 20th and the home is still listed. I checked to see if it was overpriced but it actually seemed to be priced fairly low for the area with the lowest sale of a 3 bedroom, 2-3 storey, detached home this year in the district at $512,000, the highest at $911,000 and the majority of the 18 sales falling between the mid-$600,000's to the mid-$800,000's.
In my opinion, there will always be some people who prefer to risk doing something themselves if it will save them a couple of bucks and it is wonderful that we all have the freedom to do so. The question is: Are they even really saving any money? Each case is different but I tend to doubt it.
Between all the headlines stirring fear of a bubble that's doomed to burst and soaring house prices, some potential investors are wondering if now is the right time to buy. In fact, a recent article in Maclean's magazine which claimed that Canada looks like the US before their housing market crashed has actually spawned some more balanced perspectives to surface. One such article in the Financial Post, examines some of the Maclean's headlines from 2007 to present which all seem to warn of imminent Canadian housing market collapse. It's actually quite a good read. In the end, we need to accept that danger and doom tends to see newspapers and magazines better than headlines reading "Clear Skies and Smooth Sailing Ahead" and it is really up to the consumer to find a market professional whom they trust and conduct their own research as well.
With interest rates so low and bound to eventually increase, some buyers are looking for homes which would provide them the option of renting a floor for extra income. While not a bad idea, research into the Residential Tenancies Act as well as local zoning laws and addressing questions to a trusted real estate professional are all advisable.
In a recent Fincial Post article, the writer, Fabio Campanella urges buyers to consider their own financial situations over market conditions when assessing whether it is a good time to buy. The most successful investors purchase properties which they can afford to hold onto until market conditions dictate the timing is right for them to sell. In contrast, investors who spread themselves too thin by investing in multiple properties and stretching their means, are more likely to be forced to sell if conditions or their situation were to change. Campanella writes:
"If the Toronto residential market is used as a barometer, we can see that residential real estate has treated us quite well over the past 20 years. During the period from 1992 to 2011, the average sale price for a home in Toronto increased from $214,971 to $465,412 according to the Toronto Real Estate Board (TREB)."
He calculates a ROI based on an investor putting 25% down and finding a tenant whos payments cover only basic operating costs like interest payments (not principal) on their mortgage, taxes and maintenance. The results are impressive... especially when compared with those of the TSX.
He even addresses investors' fears of buying just before a dip in the market by looking back at the shattering crash in 1990:
"In fact, even if you were to have purchased a property at the bull market peak just before the infamous GTA real estate crash of 1990, you would still have achieved an 8.94% ROI if you held the property with a decent tenant until 2008 even though the value of your investment would have dropped by 25% over the first four years."
Questions regarding the comparison between real estate and stocks are common although, they are really like apples vs. oranges. First of all, we cannot live in our stocks, enjoy our families, decorate or garden or any of the other things we associate with a home. We need to live somewhere and we so seldom consider what our monthly payments would be as renters when considering our home expenses. Finally, unless you hold an important position with the company of which you own stocks, you do not have much control over your stock investment (aside from deciding to sell) whereas with real estate we can upgrade, renovate and stage to our heart's content.
Still, real estate seems to win the comparison as seen by the chart (above, right) which was published on a property inventment company's website. While our stocks are still recovering from the downturn in 2008, the real estate market only experienced a minor bump in the road.
All in all, while specific advice should always be sought, it appears that real estate is still a solid investment for Canadians.
With RBC's 19th annual home ownership poll showing us that women are more likely than men to be first-time buyers in the next two years, it seems that Sandra Rinomato's new show, Buy Herself premiered at the perfect time.
Like men, women looking to purchase their first home prioritize down payment, job security and readiness at the top their list of concerns although an interesting difference between the genders crops up where rick tolerance is concerned, with only 16% of women (versus 25% of men) willing to take on a variable rate mortgage.
Rinomato has already seen success with her show Property Virgins and I'm interested (both as a real estate agent and as a woman who purchased my first home on my own) to see how she deals with the unique concerns that many single women have in terms of security, a single income and many other factors. I'm also wondering how they'll inject drama into the show without couples disagreeing on which property to buy... Perhaps we'll see some crazy characters or overly involved parents. After all, it is television first and reality second!
We've heard them called Caviar Condos and right now, Toronto has four of them. With Residences at the Ritz-Carlton and Trump International Hotel and Tower open and Four Seasons Private Residences and Living Shangri-La both scheduled to open this summer, many are wondering exactly who is buying these 1 million to 28 million dollar residences attached to luxury hotels and whether there can possibly be a demand for over one thousand of these units hitting the market within a year.
Toronto Life recently featured a fun article comparing these luxury developments in terms of percentage of units sold as well as some of the challenges these developers have been facing. The Four Seasons seems to be the hands down winner, with around 90% of the units sold and stories of some early investors who have already sold their units (over half a decade later) for nearly double what they paid. Second place seems to go to the Ritz with over 90% of units sold. The difficulty now is that the 20 units listed for resale could prove difficult for the builder to sell their remaining inventory. Third place goes to Living Shangri-La with around 85% of their units sold with Trump trailing with only 40% of residential units sold and 80% of all units.
This news about Trump Tower shouldn't surprise anyone who has been following some of the bad press this residence has been receiving. It seems that while the hotel condos are selling (certainly faster than the residences) many buyers have encountered problems with financing due to the different rules applied to commercial properties. A few buyers have so little confidence in the project that they are even attempting to break their contracts or walk away from their significant deposits. Not only can property taxes be much higher for commercial properties but most lenders require the bar to be set higher in order to qualify a commercial buyer. For me, this is just a shame. I like to see DT thrive and I never miss an episode of The Apprentice. Perhaps this will just mean we'll be seeing this real estate mogul in Toronto more frequently as he attempts some damage control.
Luckily, not everyone feels pessimistic and our luxury condo market seems to be an attractive investment for foreign buyers. While it is difficult to obtain statistics on foreign investors, Janice Fox, the director of sales at The Four Seasons estimates between 30% and 40% of sales have been to international buyers. In fact, The Four Seasons enjoyed a record setting sale last year of a 28 million dollar unit to a foreign family with plans to move here.
This optimism is also shared by many industry experts here in Toronto. Oliver Beumeister, a real estate agent purchased a unit in one of these luxury developments five months ago and, according to a Reuters article, his plan is to wait until the surplus of units has been sold off in about four years and to then sell his unit for a 20% profit. Not bad.
Most buyers today generally accept the value of a home inspection. This is especially true with many of the older homes in some of Toronto's established neighbourhoods. A recent Huffington Post article reminds us of some of the areas an inspector typically examines and there are many sub-areas of specialty including termites and old wiring.
For between $300 and $500 on average, buyers can have an expert set of eyes examine their prospective home or sellers can obtain a pre-listing inspection as an added value feature to entice buyers. So, what happens when a buyers is competing against multiple offers and the seller's agent is asking for "clean" offers (without conditions) only?
Only the buyer can make this decision. I've seen buyers fall in love with a house and ignore the odd problem uncovered in a home inspection. In fact, I typically remind buyers that in my experience, a home inspector always finds something... even if it's small, since no house is perfect. On the other hand, there is something to be said for entering into the largest purchase of your life with open eyes and an awareness of major repairs that may arise. Indeed, an inspection is not a guarantee and sometimes there are issues that cannot be examined due to access, time of year etc. but my concern for buyers who ignore this step is that they may wonder "what if..." down the road.
For buyers who are worried about forgoing an inspection in order to make their offer more attractive, I remind them that it is their choice and leave them with the options:
They may waive the inspection entirely (I don't advise this) and hire an inspector once they move in to give them some awareness of any upcoming repairs or preventative maintenance.
They may request a copy of the pre-listing inspection (if there is one) and allow their own inspector or contractor to read through it.
They may ask the seller permission to pay for an inspection prior to submitting an offer.
OR, They may include an inspection clause in the offer with a short conditional time. In this case, it is up to their agent to convey to the seller's the good intentions but fair concerns of the buyers and highlight the other attractive aspects of the offer.
I often ask my clients to imagine two different frames of mind when paying a roofing company to re-shingle the roof one year after moving in. Would you rather be thinking: "Well, we knew we'd need to do this and we budgeted and considered it in the purchase price." or "I can't believe we're already spending more money! I wonder if we would have bought this place if we had known we'd need to do this so soon."
In the end, the answer to the question in the title is a definite MAYBE... Many sellers would likely prefer to take a "sure thing" which in this case comes in the form of an offer without conditions. A buyer who insists on an inspection may not get the house but I'm a believer that you'll never know if you don't try.
