Let’s Change The Conversation About Toronto Real Estate
Author: Tracy Ruddell
Halfway through one of the most surprising, spring home sales periods in our history and it’s clear that everyone has an opinion about the future of the Toronto Real Estate market. As listings surge and offer nights come and go with no bids, the news is filled with stories of homeowners cashing out and buyers finally getting that long-awaited shift in power. Is the market really headed for a crash, however? Is it even cooling at all, as dozens of media headlines would have us believe?
Whatever the story you’re consuming, whatever the source, we must all remember context. One would hope fake news isn’t quite as prevalent as a certain neighbour to the south would have us believe (rampant online, likely, but I still have faith in most of the major media outlets here in North America) BUT that doesn’t mean that headlines aren’t dramatized in order to sell papers. They are. Headlines are seldom written by the reporter / writer of the article (although they may suggest some options). Headlines are typically written by copy editors. They select a theme within the story that they believe will act as a hook (it’s sometimes not even the main theme of the story) and use this to grab your attention and entice clicks or reads.
It’s not that the content of the headline is untrue but rather it may be used outside of it’s intended context–a soundbite chosen in order to create drama. This cherry-picking of information can create false impressions of what’s really happening in the market place. So, let’s shift the Real Estate conversation. Let’s start talking about facts that will actually help inform buyer and seller strategies.
Here’s what we’re talking about around the office right now.
Last week, in our review of the April Real Estate Market, we asked the question, what exactly is a “cooling” of the market, anyway, because it sure seems to mean different things to different people. Are we talking about a dip in the number of sales? In which case, it’s true, April did see a drop in home sales in the Greater Toronto Area market. Sales were down -3.2% compared to April 2016. Compared to March 2017, sales were also down slightly in April from 12,077 to 11,630 total properties sold.
However, we think that most buyers don’t care about the number of sales per se. They care about prices. The question on every buyer’s lips, in particular first-time buyers, is “Is it going to get any cheaper for me to buy a Toronto home for sale if I wait”? The answer to that is likely no. That's not what buyers want to hear and it’s not what sells papers.
In fact, it’s getting increasingly more expensive to purchase a home in the GTA. The average GTA home sales price in April was up +24.5% over the same month last year (average of all property types combined) and it was also up slightly from March, the month prior. Seeing sales prices stay so strong, can we fairly call what’s happening right now a “cooling”?
We need to look at the unusual activity in April and May as a shift in the market rather than a cooling-off. There are differences in today’s GTA Real Estate Market from what we saw just a few months ago.
What are the shifts? The changes that are happening are largely to do with the listings surge. Listings surged +33.6% year-over-year in April and that's a complete sea-change for the market. Increased listings have led to more options for buyers which in turn has led to fewer (if any) offers on offer night for sellers. Buyers have more choice and they're taking their time. When houses do sell, however, they are still selling for record-breaking prices, on average. It’s just that buyer behaviour is shifting and sellers need to shift their behaviour in turn. As agents, we also need to change the way we're selling homes.
We’ve been advising our clients since mid-March not to under-list and not to hold for offers on a set offer night. List for what you want and accept offers anytime with a 48-hr irrevocable clause (or at least 24-hrs), allowing time for other bids to come in if there are other interested parties. If you were going to get a bidding war on your property, it’ll most likely still happen with this approach it just means that the first offer that comes through sets the timing of “offer night” and everyone else has to jump in the ring if they really want the house.
Now, you're unlikely to actually get a 48-hr sign-back allowance in practice (the buyer's agent will almost certainly push for acceptance or sign-back within a few hours; sleeping on it overnight is the death of many a deal) but express that desire and negotiate back from there. The idea is simply to leave enough time for your agent to call everyone who's visited the property already or who has a booking made, allowing them time to view the home again and submit a competing offer. Most serious buyers are prepared with mortgage pre-approval and they know that, if they really want a particular house, they need to move fast.
Listing for the price you hope to get (or a little higher if it's not absurd) saves you from the dreaded re-list. How many properties are being under-listed, don’t sell within a week and then re-listed for more the following week?. It also gives buyers who are fed up with Real Estate lies more confidence in making an offer. It shows that you’re open to negotiation and you’re not playing games.
If you’re a buyer, don’t think that you’ll get a steal in today's market but you'll certainly have an easier go of things. You may even have more sway during negotiations then if you had purchased a property in February because you may not be in competition with multiple, other bidders.
Sellers, keep the faith. Be patient and don’t stress if your house doesn’t sell within a week. It may take two or three weeks, maybe longer for certain properties, but you will sell and you’ll almost certainly be happy with the final sales price providing you haven’t let the last few years of media headlines over-inflate your sense of value.
So, the number of offers is declining along with the number of bidding wars on set offer nights. Is that a cooling of the market? Not when prices continue to rise so dramatically. The real question is whether or not these shifts will have any long-term staying power and that, frankly, is just impossible to answer with only a months worth of data to work with.
It's quite possible that many buyers were scared of waiting until spring and jumped the market gun buying this winter, causing a swell in sales, whereas most sellers took the ill-advice of all those agents who were telling them to wait until spring to list; we've been advising clients (in most cases) to ignore traditional seasonal cycles and list as soon as they're ready, avoiding holiday weeks only.
It's also possible that Wynne's Fair Housing Plan caused an artificial, temporary market blip - buyers got spooked and many ceased their property hunt, choosing to hang back, waiting to see how this all plays out. In any case, it'll take a few more months worth of data to formulate a clear picture of what's really happening here.
A lot of REALTORS® will tell you that you’ll get more money by under-listing your home. The fact is that no one can guarantee you that. It’s true that bidding wars create a sort of blind auction, each bid acting as another hand going up, driving the final sales price up further. But it’s also true that in a 15- or 20-person bidding war, it’s almost certainly less than 5 bidders who ever stood a chance at winning, often just a couple. Those bidders had a knowledgable and experienced REALTOR® advising them accurately on the true market value of the home and they were savvy enough to go in strong right out-of-the-gate.
The truth is, we just don’t know if the final sales price of a home would’ve been lower (or, indeed, higher) had it been priced appropriately and had only the top few bidders showed up on offer night. The real reason behind under-listing by many agents is fear. This unpredictable market has agents scared that they won’t price your home appropriately or that, even if they do, a few comps will list the same week as yours and they’ll be under-listed, thereby directing showings away from your home. Who can blame them? It really is a case of follow-the-leader; once the majority of homes on the market are under-listed, it's risky not to follow the same approach. At least until the market dictates otherwise, which is what happened last month.
The other reason why under-listing has become so popular is that we had been under a major listings shortage for several years and so there often aren't any comps for your REALTOR® to use in valuating your property. Any sales data older than 6 months isn’t worth a hell of a lot in a rapidly changing marketplace like ours.
And so, under-listing became the flavour du jour. List low and let the market determine your value. Buyers pretty much had to assume that every property was priced at $1 because all of those $899k and $999k properties were positioned simply to attract multiple bids from buyers not approved for a property over $1M, when all along it was going to sell for seven figures.
But that’s all changing. If the market is commanding fewer bidding wars now then it no longer makes sense to under-list properties. Good riddance to under-listing, we say. If fewer properties are under-listed, it’s easier to list at what you believe to be market value; the pressure to compete against artificially-low list prices is lifted. Plus, with an increase in listings comes an increase in comparables. We hope we’ll see more sold data moving forward that agents can use to valuate your home and price it properly.
Sellers, you’d be wise to review the risks of under-listing with your agent, particularly in a market that’s no longer commanding the same number of multiple bids.
With under-listed properties starting to dwindle, the other thing that needs to shift is how REALTORS® market themselves. The “sold for 180% of list!” taglines don’t hold much value anymore anyway as most consumers are savvy enough to realize that the property was under-listed to start with; it’s not proof positive that you’re a talented REALTOR®.
REALTORS® need to start proving their value beyond dollar signs. Any agent can buy your listing by telling you what you want to hear (i.e. that your home is worth much more than it is) and then fail to deliver but guess what? You’ve signed a 6-month BRA contract and you're now stuck with them. Likewise, any agent can under-list your home and let the market determine what it’s worth and come out looking like a hero. There’s no science in that.
The real value of a REALTOR® to sellers is in their vast knowledge of your particular neighbohrbood and property type (selling a downtown Toronto condo is not the same as selling a house in Richmond Hill) and in their ability to open your home up to the largest market possible. To do that, they need to ensure that your home is impeccably presented and market it appropriately to drive the most interest. That’s the only thing that will drive your final sales price up further–having more than one bidder who has the budget to pay at or above market value. They also need to be able to negotiate circles around other agents while not coming off as an asshole (no one wants to deal with assholes in any profession). That is harder to come by than one may think. So, interview several agents to find the right fit for you before you sign on the dotted line.
For interview tips, have a read of our post on how to find a REALTOR® and of course, we'd love for you to interview one of our GTA REALTORS® who specialize not only by neighbourhood but by property type.
With Real Estate, it’s been all too easy to blame foreign buyers as the primary source of skyrocketing housing prices. The truth is, as most REALTORS® will tell you, we see far more local investors and flippers purchasing properties than foreigners. We also need to separate investors from speculators as we should be encouraging investment to increase rental supply.
Are foreign buyers a part of the affordability problem here in Toronto? Yes but just one part. We are actually one of the few brokerages who are ‘pro’ foreign buyer’s tax BUT for different reasons than most (and we’re not all in agreement at the Property.ca offices on this one). Those of us who are pro-tax are so for one very specific property category where foreign buyers ARE a significant barrier to local ownership and that’s the pre-construction Toronto condo market. We’ve seen wealthy foreign buyers buy entire floors of new buildings, blocking the local market. This is a major problem in that particular property category / market segment that needs to be stopped.
Will the introduction of the foreign buyers’ tax impact the larger Real Estate market? Slightly, perhaps, but to believe, without any evidence in support of it, that reducing the number of foreign buyers is going to lead to cheaper home prices for the average Torontonian is ludicrous. It should help bring balance to the pre-con market but the vast majority of competition in the re-sale market is from end-user buyers, particularly in the single-family home category.
There simply haven’t been enough decent freehold homes to go around. Now, with listings up significantly, we’re seeing the start of what will hopefully be a much more balanced market but we can't rely on this continuing. We want to see the conversation shift away from foreign buyers to the big issue that's much harder to solve, namely, supply. This includes the rental category as well.
The truth is, if more urbanites were prepared to raise families in a vertical lifestyle the issue wouldn't be so big. But Canadians are spoiled for space; most people want a backyard. We're seeing the impact of that lifestyle preference impact the suburbs where home prices are rising at a higher rate than Toronto in many cases. Oshawa, for example, saw average home prices increase over 50% in March year-over-year and nearly 40% in April. The battle for low-rise living is not ending anytime soon, folks, despite what some headlines would have you believe.
Is there anything that irks you about Toronto Real Estate media content? What stories should we be talking about? Tell us below.
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