“I heard a house sold for $200,000 above the asking price in Brampton,” said the caller. “How does something like this happen?” Her voice had a somber tone with a strained pitch. My client, let’s call her Natasha, was frustrated. I could tell she was doing her best to keep it together, despite her words cracking as she spoke.
Around two months before, we had listed Natasha’s condo for sale. While the unit had some wonderful charms—views, ceiling height and a great layout—it needed some pre-market TLC to make it spark. We brought in a team of cleaners, stagers and a photographer to shoot stills and create a jazzy video.
The transformation was magical. One open house visitor described the condo as a five-star model suite and asked us for tips to enhance their own living space.
On the big day, we had eleven offers on the table, all above the asking price. Of course, we went with the highest number and negotiated a closing date conducive to our goals, or, so we thought at the time. More on this later. The buyers were happy, my client was happy, high-fives all around the table.
That was then. Grey clouds had since moved in, dimming our small window of sunshine. The closing date was galloping towards us and we were no closer to finding a condo for Natasha to purchase.
Before listing, Natasha and I had a lengthy chat about the new realities of purchasing real estate in Toronto. Things were different, I told her. This was not a normal market by any means.
Although sales were up on a year over year basis, the number of new listings was down by double-digits. “Including condos?” Natasha asked. Yes, including condos, I replied.
To put things into perspective, the number of listings available for this month is around half the quantity available around this time last year. On the selling side, this bodes well. However, on the buying side, the market paints a different picture as buyers need to be prepared for war. A long drawn out battle with no guarantees of victory.
“I thought this was a problem only for houses in the city, you’re telling me this now applies to condos too?” “I have a hard time believing that, Stevie.”
Think of it this way, Natasha, there is an expanding back-log of buyers that’s growing every month. For many, a house is no longer an affordable option with prices averaging $1.2 million in Toronto, and the 905 regions are not too far behind. Affordability has plummeted, forcing many would-be home owners into the condo market.
As a result, we are seeing the demand for 2-bedrooms and larger condos skyrocket. This frenzy is fed from the unique segment of buyers who began their real estate dreams with a 3-bedroom house in mind. The realities of the market has forced this group to adjust their size preference and seek out the next best alternative: a 2-bedroom or 2+ den condo in the city.
Natasha listened in silence. My suggestion was to begin our condo search three to four months before listing the condo. Still, Natasha was unconvinced, feeling that three months was too a long period to delay. With reluctance, I agreed to a compromise to begin the search one month and a half instead of three.
Now, here we were, three and a half months later with seven unsuccessful offers on our résumé and nothing to show for it. In every case, we were outgunned. The weapons of choice: higher offers, zero conditions, same month closing. Natasha was getting nervous.
Her condo was closing soon and the buyers were not willing to grant an extension beyond the sixty days agreed to in the offer. As a back-up, Natasha could tuck in with her parents for a bit but the commute from Hamilton to her office downtown was not appealing.
Our approach wasn’t working, we needed new weapons for this battle. I arranged to meet Natasha the following day to craft a new game plan and a set of tactics. Here are five things we did differently.
Tactic 1: We went back to the financial drawing board. In the condo segment we were searching, prices were inching up at a pace of 3% per month. It was clear that our original target price was no longer viable.
We crunched the numbers together and established a larger budget that Natasha felt comfortable with. Our armour was strengthened and our options expanded with this one key move.
Tactic 2: Using last year’s sold price to determine today’s market value, no longer makes sense. You’ll have to adapt a more flexible approach to offers, one not bent on traditional selling trends. I’m not suggesting of course that you hand over a blank check. Instead, consider the highest monthly carrying-cost you are most comfortable with and use that as your gauge.
Instead of holding to a fixed opinion of value, use your monthly numbers as a guide to how high you’re willing to go. In today’s low-rate environment, an additional $50,000 on a $500,000 mortgage equates to a $180 barrier between you and your new home.
Tactic 3: Clip your size expectations right now. In downtown condo-land, any size above eight hundred square feet is now considered a premium suite, bordering on luxury. Natasha was not happy at hearing this.
She sold her one plus den condo to move up to a larger space. I encouraged her, size is the biggest mental shift you’ll have to make. The future is small and it’s already here. If you’re able to adapt to a space instead of expecting the space to adapt to you, you’ll go a long way in finding something of value.
Tactic 4: Prepare to make an offer before seeing the unit. “What?” Natasha exclaimed. Yup, you heard correct. If something lands on the market that meets your criteria, be prepared to present an offer before—not without—seeing the unit. Timing is everything. Although the trend is to hold offers on a specific date to generate multiples, some sellers are open to pre-emptive offers, i.e. allowing buyers to jump ahead of the line. Natasha grew more sceptical by the minute. Her eye-brows raised, head nodding with the occasional deep sighs.
Tactic 5: Be ruthless with your availability for showings. The days of seeing properties only on the weekends or after 5pm during the work-week are gone. Go on your lunch break, prep your boss and colleagues in advance.
Take sick days, use vacation days, anything that allows you maximum flexibility to act on the fly, I highly encourage. I looked at Natasha, sitting across the table, quietly taking in all I had to say. There was a slight sparkle in her eye, an improvement from the disheartened glare seen moments ago.
She spoke, “Stevie, I understand what you’re saying and although this all seems a bit extreme, I feel a little better having a game plan than no game plan at all.” “I’ll have to give all this some thought.”
A new week began and something unexpected happened. A two bedroom plus den came on the market on Monday. It was in a neighbourhood we hadn’t considered before, situated around 40 minutes by subway north of downtown but within walking distance from a TTC station.
The size was a spectacular 1000+ square foot, including a parking space, locker and a unique wrap around balcony. Bonus, the building was relatively new. The same corner suite downtown would have listed for fifty to eighty thousand dollars more.
We had to act. I emailed Natasha the listing then sent a text: Must See, Call Me Now. Within five minutes the phone rang, I’m sending you an offer in 30 minutes, can you meet me at the property in an hour? “You mean today?” Asked Natasha. Yes, one hour. She paused, “I’m going to need at-least two hours because of the snow and the traffic.” Okay see you there, I replied.
I did a bit of research while Natasha was in transit. My recommended offer was above the asking price with a closing date in under three weeks. Natasha agreed, signed the forms and emailed me back. I sent a conditional offer over to the listing agent and booked a showing.
Natasha’s reservations about the location melted away when she stepped inside the unit. She wanted that condo and wanted it now. The agent called back while we were inside the unit to let us know a second offer had just come in. Great, we had competition. We agreed that one competitor was better than 8 or 10.
Natasha’s initial offer still left us a sizeable wiggle room to go up, while remaining in her comfort zone. It was time to pull out all the stops, we countered with a stronger price and a narrower two week closing, the competition backed off, we won. Natasha could not hold back the tears.
What you just read is factual. For my client’s privacy, I’ve changed the name and other minor elements but the story unfolded as described. Not every buyer’s experience will end on this positive note.
There are many Natasha’s out there, bravely vying for a small slice of a shrinking pie. Last month, there were only 5,400 active listings on the Toronto Real Estate Board. Compare that to the expected 12,000 buyers per month entering the spring market and you can see the problem we’re facing.
While new pre-construction condos will play a limited role in offsetting some demand, it won’t be enough. Many of these projects take 4-5 years to complete. This might explain the huge spike in demand for rental units as of late; some even receiving multiple offers. Despite it all, I’m still an optimist. This is not the first real estate storm we’ve weathered as a city and it won’t be the last. The future is friendly.
Drop me a quick email or give me a call to discuss what tomorrow’s market place will look like and how to best prepare. Talk soon.