Thursday, 25 June 2015

The Right Way To Sell Your Home in A Bidding War

Once you own a property, you are never the same again. You are invested. Not just in the obvious financial way, but in a way that you couldn't quite wrap your head around before you owned property. You are more curious about your neighbourhood. You become excited when a new restaurant or coffeeshop or baby gear store opens up within walkable distance. You keenly pay attention to real estate articles, blogs and gossip. Instead of feeling terror and disappointment at the rise of property values, you most feel a little giddy, even proud of price appreciations in your neighbourhood or condo building. 

Of course, there will come a time when the home owner or investor will choose to let go of their beloved property. Sometimes you need more space. Sometimes you need less space and less maintenance. Sometimes you meet someone with whom you would like to share property. And sometimes you discover you may be better off on your own, or maybe with someone else. Whatever the reason is, when it comes time to sell, sellers want to receive the best price possible. 

Though there are many different strategies to arrive at the best price, many sellers these days would like to see their property sell in a bidding war. And really, who could blame them? What's not to like about buyers competing to buy your home? The thing to remember, however, is that not all homes sell in multiples. Still, this selling strategy has a lot of appeal to sellers right now. 

During chats with neighbours over fences, in elevators or while leafing through the paper on their own, most sellers gravitate to those stories around bidding wars. Why? Well, because it's a rush to know that a house could sell for way over the asking price. When there are multiple offers on a home, it does lead to the best stories - drama, suspense and possibly a little shock or disappointment. So, if you want to sell your place, the question becomes: Is setting your property up to sell in a bidding war the best way to sell your home? Do you need the drama? Does it always work? 

If you do feel like this may be the best route for you as as seller, then you need to do your homework on your neighbourhood or building. Receiving bidding wars on a property is no guarantee. If you are keen on setting up your home for a bidding war, you may want to consider these things: 

1. Get an agent who knows how to market your home. Don't go for someone who is just going to put your property on the MLS .You need someone who will really market it. 

2. Know thy competition - Know the other houses in your area. Which one are receiving multiple offers? If it is the staged ones, you will need to do some work to prep your place. If your home is nothing like the properties receiving multiple offers, then you may want to reconsider. 

3. Look at the culture of your neighbourhood. Some condo buildings don't have bidding wars at all. So, it may be weird if you try to buck the trend. Some neighbourhood have bidding wars constantly. Some have very few. Know your building or neighbourhood well. 

Still feeling you want to try the bidding war option? There are two different approaches to selling in a bidding war. One is that you list your home lower than market value in order to drum up as many offers as possible. With this method, you could potentially receive several offers that would send the price of your home above market value. On the flip side, you could receive no offers, and then your property looks like it can't even sell at the low price. It can be risky. 

The other, less risky, way is to list at market value and hold back a week. This way the property will have a full week of exposure for marketing. If you receive list price, then you're happy. If you receive more, even better. 

Whether you are planning for multiples or not, you need to prepare. What happened six months ago is not relevant. Bidding wars do come in and out of favour. Buyer do go through periods of bidding war fatigue. Remember, it may be exciting and story-worthy to sell in a bidding war, but at the end of the day, you need to pick a strategy that will sell your home for the best price reflective of the current housing market, whether that's in a bidding war or not.

Wednesday, 17 June 2015

How Canada Compares to Real Estate Markets Around the World Now

Context. It sure can offer us some perspective. It let's us see ourselves in relation to our surroundings, sometimes with a whole new point of view. In some ways it tells us how we stack up. So, to mix things up a little, I'm NOT going to focus on Toronto as a city or a neighbourhood in Toronto or something about the culture and practices of Toronto real estate. Today I'm going to look at Canada in the context of the rest of the world to see how it compares in 2015 with regard to its real estate market. I do believe that real estate does function primarily at a local level, but if we look at the big picture, we can see how some ideas and misconceptions about our country's real estate markets hold up.

In the past few years in this country, there has been quite a bit of anxiety around foreign investment in Canada. In some ways this fear stems for a sense of the unknown because the Canadian government does not make a point of taking any records of foreign investment. I think this has been a bit of a mistake, though there has been other companies that have tracked foreign investment. Though there is nothing wrong with some foreign investment per se, there is some concern that cities with a great deal of foreign investment in the real estate sector can lead to higher prices for those locals who live in a given city or lead to a crash in real estate prices if foreign investors left all at once. Some argue that Asian money has caused Vancouver prices, for example, to go beyond where they should go. Toronto's foreign investment is much more diversified than Vancouver. It has investment from Asia, but also the Middle East, the United States and Europe. In some countries like Australia, there has been laws passed to curtail foreign investment. In Miami, there is concern about a lot of foreign investment from South America and Canada.

Now, Canada has no plans to curtail its foreign investors at the moment like Australia has done. Yes, there are no numbers available to tell us just how much foreign investment has officially been conducted here, but if we put Canada in the context of countries like Australia and cities like Miami, one thing becomes clear. We're a lot colder. And yes, that means there is a lot less foreign investment. Why? Well, let me put it this way: From a large country like Brazil, how many Brazilians do you think would like to retire in Canada? Probably not too many. But, we can argue that Canada is safe place for foreign investment because of our stable economy. That's what really brings the investors here, particularly when many parts of the world had very rocky real estate markets in the past ten years.

So, let's talk about those rocky real estate markets because they do have a lot of draw for foreign buyers in 2015, including foreign buyers from Canada. Since the recession in 2008, there has been more foreign investment in Canada because it has been seen as a stable real estate economy when few other countries were looking stable. In 2015, we are still receiving interest from foreign buyers, but since our real estate market didn't crash, our properties are not exactly bargain basement prices any more. You know where it's cheaper? Cities that have had their real estate markets crash in the double digits year after year since 2008 before stabilizing. Think Dublin, Athens, Las Vegas or Barcelona. That's where the foreign investors are now. They are seeking out deals in real estate markets that are showing signs of recovery that have sunk to rock bottom prices. After such a tumble from the top, what investors could resist this deal? Stable just isn't as appealing as cheap. Yes, Canada is still seen as a stable place to invest, but it hardly takes the lion's share of foreign investors in 2015.

In fact, in terms of real estate appreciation over the last year, Canada is healthy but hardly at the head of the pack. The top 5 go to Ireland, the UK, Peru, Sweden and Chile. Canada comes in further down the list between Germany and Thailand. According a Global Economics report, Canada and the United States remain steady performers with single digit real house price increases to go along with their moderate growth.

Now, I'm always suspicious of trying to group all the real estate of one country together. Canada is a broad sample. Toronto and Vancouver are certainly outperforming the rest of the country, especially in comparison to the oil producing provinces right now. Still, it does say something that Canada is not an overheated mess with runaway prices full of foreign investors who threaten to lead prices higher and potentially destabilize the real estate market across Canada. At least that's the case right now.

Context. It does give perspective.

Wednesday, 10 June 2015

The Art of The Bidding War

With 66.15% of all freehold houses selling at our above asking in May 2015, it's clear that bidding wars have become a way of life for many folks in Toronto's downtown core, at least for the time being. Bidding wars often make life better for sellers, but a little tougher for buyers. But buyers, do not despair! It is possible to buy a house that is not purchased in a bidding war. Yes, it does happen. Not all of the time, but often enough. If, however, you are one of those buyers who is consistently drawn to those homes that receive more than one offer, then here's what you need to do:

This is an obvious one, but it needs to be emphasized. Don't make an offer without knowing exactly where your limits lie with your lending institution. Make sure you talk to a mortgage broker or bank and know what you can afford. Have a pre-approval ready before you jump in. Don't  get caught up in the rush of winning and buy something without knowing your mortgage parameters and price limits.

If you need to have a condition on working out your financing or on doing a home or termite inspection with your offer to purchase, then put that into the offer. However, if there is a number of offers, the chances of landing your dream home would be slim or even slimmer than slim. If the seller has a choice of many offers, he or she will likely gravitate to the one that will be "clean". In other words,  the seller will choose the offer that cannot fall through on a home inspection or any other condition like financing, insurance, or you selling your current home. Sellers will rarely choose an offer that could potentially fall apart on a condition when they have several offers. If the deal falls through because a buyer is not happy with one of his or her conditions, the seller has to go back to the market after waiting several days for the conditions to be waived or fulfilled. If the offer is "clean", the deal is firm and done that night. Ideally, if you know you're going to be in competition, it is a good idea to have your financing ironed out before you offer, and do your home and/or termite inspections in advance so you have a good sense of what you are buying.

You won't know the price that the other buyers have bid on the same property as you. Real estate salespeople cannot disclose the contents of the other offers. So, if you are among eight people bidding on the same property, and you end up having the best offer according the the seller, you're first feeling will be overwhelming happiness followed by your next feeling, the anxiety that you may have offered too much. Don't worry. It's all natural. Those who didn't win, often wonder if they could have offered a little more. At the end of the day, you should be comfortable with the price you offer whether you win or lose.

The toughest multiple offer situations are not when there are ten offers on the same house, but when there is only one other offer. Yes, your chances of winning are better with only one other offer on the table, but with several offers, there usually is a pattern. When there are ten offers, you know there will often be a few lowballs, a few decent offers and a few that are exceptional. So, the price will likely land at the high end of the spectrum of market value (or more). If there is one other offer, it could be anything. A lowball offer, a way-over-asking offer. It's hard to tell. A stronger pattern often kicks with the more offers that are put forward.

Most often, the top price takes the property for sale in the end, but not always. Sometimes it comes down to the sellers, and if they simply like the buyers. Perhaps they identify with them on some level or feel their house needs to be given to the right person, in their minds. Maybe the buyers are going to start a family like the sellers did. Maybe the buyers are their cousin Al's good friend. Maybe the buyer wrote a corny letter to say how they will love the new property as much as they can, more than any other buyer. Don't laugh. This has happened and sadly worked! Of course, it's not always emotional. Perhaps, the top buyer selects a more convenient closing date, the offer is clean, or they put more money down on a deposit that makes the seller feel more secure about the transaction. Price is not always the deciding factor, but it often is.

A shorftall does happen in this day and age thanks to your friends at the bank. Instead of trying to explain it, let me give you an example of how a shortfall works. Let's say you buy a property for $600,000. The bank agrees to give you a mortgage, but decides to send out an appraiser to assess what he or she thinks your property is worth, regardless of what you paid for it. The appraiser crunches some numbers and does their calculation, and determines the property is worth $550,000. This means the bank will only cover for a mortgage based on  the $550,000 price tag the appraiser determined. You would need to cover the $50,000 difference, or the shortfall ($600,000 - $550,000) on your own. Now, appraisers have been known for not always coming in at a reasonable price in my experience. I have seen two different appraiser appraise the same property a week apart with $100,000 difference in worth. They like to think of their appraisals as a kind of science, but there is more subjectivity than you think. Sometimes, if the bank is doing an appraisal, and you think the appraiser is off, you could order  another one. No promise it will be higher, but it may be worth a shot. If you have less than 20% as a down payment, CHMC or Genworth does the appraisal.

With that said, hopefully this advice will make you feel better prepared for multiple offers on the same property. Remember, you don't need to buy a house in a bidding war. It is possible to do it without competing with others. However, if you are ready to put on your helmets and pull out your swords to smite the competition, just make sure you are ready for battle and you understand the rules of the battlefield.

Thursday, 4 June 2015

Can You Time the Real Estate Market?

First of all, I'm not going to pretend that I have aced timing as far as real estate goes. Yes, I'm a real estate salesperson, and I have learned what not-so-good timing is and what better timing can be, but any one who tells you that he or she can perfectly time the real estate market to maximize your real estate investments is making an educated guess at best or is the kind of person who could make you believe they could levitate a table.

Of course, it's not such complete guesswork that no one can predict anything.  We, as human beings, like to look for patterns to make sense of our world. Here is one of the most common patterns referenced that attempts to show real estate investors how to time the market.

This graph follows the basic principals given to real estate investors:  Sell high and buy low. And generally speaking, this is not a bad place to start. There is some truth to this. The problem is, if the whole world worked this simply, many of us would be a lot richer by following a graph.

Let me take my current house as an example as to why this sell high and buy low thing can be tough to predict. I bought this house in 2010. It has probably increased in value by around 35% since then with some updates here and there, but no gut jobs or major overhauls. When I met the sellers back in 2010, I asked them why they were selling. They told me they were leaving their home because they believed the Toronto market was at its peak (please see "boom market" above). In their minds, it was time to to cash out. The rest of the world had falling house prices. We must be next. Plus, in their minds, we were due for a correction after such a sustained period of increasing home prices in Toronto. They planned to rent until property prices dropped (see "recession" above). Then they would buy cheap again and ride the increases to the top of the boom cycle. Seems easy enough.

This was a pretty straight forward approach by the sellers of my current house to time the market. They had strong convictions that they were at the top of the boom cycle when they sold to me in 2010. According to their calculation, 2010 should have had the highest prices in Toronto's history.

In the end, this couple did make some good money on the sale. They received twice as much for the house than they paid for it. Still, if they were renting and waiting for the market to crash, they made a big mistake. To get back into the market now in 2015 with the money they made off the house would net them a much smaller property.

The moral of my story? You have it! It's tough to time the market. No matter what you hear, it is difficult to know where the tops and the bottoms of these cycles will actually occur, and to what extent of time these peaks and valleys will occur. If you choose the right spot, you come off looking pretty smart, though I suspect part of that has to do with some luck.

At the end of the day, I'm not sure the real estate market consistently follows such a cycle as the graph above. What happened in 2008 in Toronto? Did we have a real recession that caused real estate prices to dip slightly for a very short period or was that merely a temporary blip in the upswing caused by external factors from other parts of the world?

Aside from a small blip in 2008, our last trough was in 1989. That is a very long time for sustained growth. It's easy to see why the doom and gloomers are calling for a crash any day now if they buy into the bust and boom cycle. We appear overdue for a crash. But we're not crashing. And it is possible that it may be a very long time until there is a price adjustment on real estate in Toronto. The truth is, there are so many factors influencing a boom and bust cycle, it's difficult to make a realistic prediction. Interest rates, housing supply, local economies, international economies, public policy, mortgage restriction, migration and immigration patterns, age demographics, and public transit are just some of the factors that could influence real estate prices in a given city.

I think there is only one group of people who should be open to cashing out their homes. And that is retirees. If there is a dip in prices, they may not have the time to wait it out until their investment improves, especially if they want to take advantage of the equity they accumulated in their homes to enjoy their retirement. They can put their money into easier assets that won't potentially slip in value and be safer.

For the rest to us, holding a property long enough, even in a downturn, has historically led to a property values in Toronto bouncing back and continuing their climb, even from 1989. You just have to wait it out. This is not me trying to predict the future, but it is an educated guess based on my human desire to look for patterns based on historical data.