Tag Archives: buyers

Want to Sell High? Get Inside Buyers’ Heads.

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It’s no secret in real estate that, ultimately, price trumps all else. Every home will sell in a certain amount of time, at any given list price. Want to sell that mansion in Puslinch in twenty minutes? List it for $50,000. Don’t know why your 900 sq. ft. bungalow on Speedvale hasn’t sold in 9 years? It might be because you’re asking $750,000.

Extreme examples, sure. But it illustrates the point that the asking price, relative to the buyers’ perceived value of the house can have a profound impact on the time it takes to sell. When the list price exceeds perceived value, the house will sit on the market longer. If buyers see more value than the numerical value a seller puts on it, well then that’s where we see property move quickly.

The goal then, from a Realtor’s point of view is to strike the perfect harmony between a buyer’s willingness to pay and the sellers’ expectations and needs in terms of sale proceeds. Only in the rarest of circumstances, especially today, can a listing agent dupe buyers into paying more for a house than it’s worth. And sellers can be nieve in thinking otherwise. Just because, as a seller, you “need” a certain number for the house doesn’t mean there’s a single human on the planet who will give you that figure. Not to mention that today’s buyers are savvier than ever and shop loaded with information including: sale prices, days on market statistics, fact sheets on comparable properties and all sorts of other goodies readily accessible through a Realtor. The market, as a whole, doesn’t make mistakes.

Now that’s not to say that some sucker won’t. I’ve seen it before and I’ll see it a million more times where someone bought a house privately (*slams head into desk*), or on bad advice, and wound up paying way too much. But Buyer Representation Agreements, BRA’s for short, create a responsibility for agents to protect their buyer clients’ interests, and that includes not allowing them to overpay substantially without interjection & consultation. This means that as soon as a buyer locks in with their agent, your chance of taking them to the cleaners as a seller is virtually nil.

So, then, how do we manage to differenitate good agents from bad ones & smart sellers from suckers? A lot of it can boil down to the psychology behind a list price. The difference between a good deal & a bad deal is growing ever slimmer and outliers becoming more and more rare; but research has gone into strategizing a list price, and here’s what it says: The “just below” pricing model you see on listings every day generates greater sale prices than other pricing strategies.

For the same reason McDonald’s charges $4.99 for a Big Mac, and everything at Wal-Mart costs $X.96; selling your home for just less than a given number can make all the difference.

In fact, evidence from a December Washington Post article suggests that this charm pricing strategy -to make the house look more affordable- can actually result in a seller receiving 2% more on average than homes using a different strategy. And while 2% might not sound like much, consider that most buyer or “co-operating” agents earn a 2-2.5% commission for representing the buyer. In essence, with this strategy, you can have a buyer brought to your door for free.

There were more than a few highlights to the story, which I’d highly recommend reading in full at the source. That said, in an effort to summarize both the article & my thoughts:

1. Ignore the urge to meet search criteria. In a very aware move, the researchers asked buyers for their take on homes priced at a dead-even number such as $300,000. In theory, with so many buyers using auto-search criteria & Realtor.ca price ranges, evenly priced houses might show up in a few more searches than their unevenly priced counterparts. At $300k for example, you might show up in searches from $250k-$300k & $300k-$325k; a perceived benefit. In reality, feedback from buyers suggested that they felt sellers were just ballparking their asking prices and weren’t sure what it was really worth. On the other hand, a $299,900 list price looked like a bargain.

Charm Pricing

Source: Econsultancy/Arie Shpanya, 2014

2. Charm pricing promotes over-pricing. Just like in “The Goods” starring Jeremy Piven (an unjustly underrated movie, FWIW), the product doesn’t need to be a good deal- it just needs to look like it is. List prices designed to feel like a bargain didn’t end up being one for buyers. In fact, they were more overpriced than employers of any other pricing strategy… to the tune of about 5% each time. In the movie, Piven’s character, Don Ready, employs the classic “put a higher price sticker on the windshield, just to tear it off and close the guy with a bargain” move that car salesmen are known for. Home sellers do it too, whether they know they are or not.

3. There’s a method to the madness. Only 45% of listings took the charm pricing approach; with others deviating to the round-number pricing to fit search criteria, or an exact price (ie. $239,588, as if to suggest they just added up a bunch of receipts and this is their number). I can appreciate the merits of the round number pricing as more buyers turn to rigid search criteria online, however, only houses worth near to a major round number would even qualify for this strategy. Charm pricing appears in nearly every segment of our lives as buyers, from groceries to cars to shoes (as if to suggest women look at the prices of shoes), and there’s a reason for it. It works. It generates sales, while blissfully pulling the wool over buyers’ eyes. And as sellers, there’s nothing more you could ask for.

 

 

How Young Homebuyers Are Bucking the “Too Expensive” Narrative

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“Home ownership is too costly.”

“We don’t make enough money.”

“Banks are biased against us.”

Regardless of validity, the reasons against ownership for young people are numerous. Despite them however, more and more are defying the excuses and converting their hard-earned paycheques into a piece of property to call their own.

More and more young people are buying houses & condos, despite narratives to the contrary. From: The Globe & Mail

More and more young people are buying houses & condos, despite narratives to the contrary. From: The Globe & Mail

It’s a good thing they are too, as rates of home ownership tend to decline after age 65. While our demographics shift toward an older population, young buyers will be expected to fill that void. An inability to do so long-term could create a vast housing surplus, and drop property values across the board. So far though, it seems that the under-25 crowd are keeping things heading in the right direction.

Over the past decade and beyond, home values in some of the major urban cores have skyrocketed as land scarcity and foreign investment have pushed housing demand ever higher. It pits buyers of all kinds, especially young buyers with less accrued equity, in a tight spot. They’re being forced to compete with foreign, cash buyers using the Canadian real estate market as their own personal piggy bank, outside the grasp of their communist governments. Naturally, t’s a one-sided fight.

That said, in smaller markets, housing remains substantially more affordable; and the goal of home ownership much more attainable than the general overlying narrative. Furthermore, if buyers in Vancouver, Toronto and Montreal can buck the trend, then the same should be true across the board.

I hear people my age talk a lot about how expensive housing is, and what they don’t often consider is that there are landlords out there making positive cash flows off of them. In select instances, a landlord can lump mortgage costs, insurance and taxes together and still take his family out for a steak dinner on a tenant’s rent. So why then, aren’t young people more proactive about it?

Overall, we are finally catching on. In fact, home ownership among the youngest share of the population (Under 25’s) rose by 4% from 2006 to 2011 and now remains around 25% from the graphic above. To buyers’ benefits, price growth was minimally stunted by the US recession, aiding in affordability. However these gains come despite consistent upward price movement from the big 3 Canadian cities, and in ignorance of decreased affordability in those markets.

How is this possible?

Having established that, counter-intuitively, this generation’s ownership share’s been growing; it’s key to take a look at how. The biggest contributors are buyers’ parents, who are pitching in with down-payments more than ever before. From 2010-2014, first-time homebuyers received about 11% of down payments as gifts from family members, with another 6% coming from personal loans from family members. Though the loan share was unchanged from 2000-2004, the gifted portion is about 5% higher than 10 years ago. With average down payments equaling about 21% on first-time purchases, that 17% figure amounts to $10,080 on your average $300,000 home. For perspective, the house my grandparents bought in 1970 set them back a measly $10k to own it outright, so I guess $10,000 gifts are peanuts. It is understandable though that with the rise in values we’ve, the help from the folks is almost necessary to sustain the goals of today’s young shopper, and given that it’s been the parent’s houses who’ve seen the growth, we know the equity is there to be able to make these gifts, generally speaking.

As parents' aid pushes demand from D1 to D2, both the quantity demanded and the market price rise, furthering the handicap for those without family funding.

As parents’ aid pushes demand from D1 to D2, both the quantity demanded and the market price rise, furthering the handicap for those without family funding.

At the same time, parents are artificially fueling the fire. By adding $10,000 to the budgets of a growing market share, parents are effectively promoting the ballooning of home prices. As illustrated here, these gifts that young buyers are stumbling into is resulting in more buyers entering the market, and buyers’ budgets being greater than they might otherwise be. This in itself creates a bit of a dangerous predicament, since some buyers are being aided by their parents while others are not, and this price shift pushes the latter further from their ownership goals. The Canadian Association of Accredited Mortgage Professionals disputes the impact that parents are having on prices, but consider this: With 1/3 of 18- to 35-year olds who haven’t bought a home attributing the decision to waiting for prices to drop; how will they ever drop if parents keep pumping in money? Answer: They won’t. Even if you don’t have the help, use parents supporting the market as a way to make your house purchase work for you.

Housing is like any investment. You have to pay to play, and you’re not going to make a cent off of it unless you buy something. The people that complain certain stocks are too expensive are the ones who sat on the sideline didn’t buy in when they were affordable. There are elements of risk involved, but you can continue to pay rent to a landlord or you can cut out other expenses to make home ownership a reality. It’s a decision that more and more young people are making sacrifices to pursue. And I can’t blame them for a second.

 

With statistics from (Links in post):

“How young Vancouver buyers are crashing the real estate party”, Frances Bula, Globe and Mail, October 17, 2014.

“1st time home buyers get more family help for down payment”, CBC News, November 18, 2014.

How not to get burned buying pre-construction

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Two alarming stories have surfaced from (shocker alert) Toronto over the last little while regarding developers who’ve skirted their end of deals, and with what looks like a lack of intention to fulfill them from day one. These aren’t the first, nor will they be the last; but if you’re considering a condo purchase, it’s important to know the signs.

The first story of note comes from Centrium Condos- a North York hotel/condo/commercial development whose CEO and his lawyer allegedly conspired to con buyers out of their deposits by releasing funds that were to be held in trust until closing. Ultimately, the 140 pre-construction buyers’ deposits amounted to somewhere in the neighbourhood of $12-$14 million dollars. The lawyer released these funds to the developer who ultimately sold the land the project was to be built on and subsequently took off to Korea without looking back.

The purpose of the funds being held in trust is so that neither party, buyer or seller, has permission to access these funds; but they do provide leverage for the developer to secure financing from a third-party if required. It also provides a form of tender to solidify the transaction. Therefore, when the lawyer does shell it out well before she’s supposed to, she gets tossed in jail and slammed with 25 counts of fraud over $5,000, 25 counts of possession of property obtained by crime and 25 counts of breach of trust.

Before I go any further, this is ultimately nobody’s fault except for the company’s owner and the lawyer who aided in the scheme. I’m not about to suggest that anyone else is to blame here.

However, given the nature of the pre-construction condo industry and the relative lack of regulation; one of the most important due diligence items that a buyer can do is to research the developer. In this case, this was Centrust Development Group’s first and only development. They had no previous development experience whatsoever. Far from a Menkes, Tridel or Empire, which are among the closest to a sure thing Toronto will offer; these folks bought in hand over fist to a shelf company with absolutely no track record.

To put it in context, two products I’m fortunate enough to sell most are those done by two of the most reputable builders out there: Reid’s Heritage Homes & The Tricar Group. One is arguably the most recognized builder in the area, and the other was Tarion’s High-Rise Builder of the Year for 2013. Companies like that, with deep roots, ample capital and gleaming reputations aren’t the kind to take off with uninsured deposits. In fact, Tricar only requires $20,000 deposits for a number of their builds. Why? Because that is the maximum insured by the Tarion New Home Warranty Program. Meaning that if anything ever did happen to them financially, rendering them incapable of completing the build, buyers would never be on the hook for a shortfall, and never out so much as a dime. At Centrium, lost deposits ranged from $40,000 to $700,000; all of which is now being sheltered overseas, never to be seen again.

If you were buying a new car, you’d probably test drive it. Worst case, you could rely on third-party testimonials, reviews or the brand itself. What you wouldn’t do, is look at the marketing handout with all sorts of unfounded claims and pretty CGI pictures of a car that doesn’t exist and cut the dealership a cheque on the spot. And yet, that’s what 140 people did. It’s not rocket science. If ever there was a “buyer beware” industry, pre-construction condo development would be it.

The second story is equally gutsy, but less explicitly wrong. It’s about a developer exercising one of those pre-construction purchase agreement “weasel clauses” that allow developers to make reasonable changes to the plan. At Emerald City Condos, at Don Mills & Sheppard, building renderings in marketing materials depicted an “Emerald City” stairway leading up from the subway tracks and some of the brochure copy referred to “easy underground access” to the transit.

You can guess what happened next.

Move in day came for a young buyer named Wendy Ji, and only then did she discover the lack of a tunnel to the subway. Odds are it was never in the plans, since the developers denied that such claims were never made, and promises never broken.

This is the website for Elad Canada Inc., the developer of Emerald City

This is the website for Elad Canada Inc., the developer of Emerald City Condos. You’d think a with any semblance of a reputation could do better.

Terrible, and yet wholly predictable (See photo/earlier paragraphs).

Now, the buyers feel they should be entitled to a rebate on the purchase of the condo to account for the value or lack thereof pertaining to the tunnel having never been constructed.

The $30-million class-action lawsuit that Wendy and others launched is demanding 10-15% back, per unit, to account for the discrepancy in price between Emerald City units and comparables in other buildings with a lack of direct transit connection.

Personally, this seems like an entirely reasonable compromise for a developer who clearly tried to pull the wool over buyers’ eyes. You can’t sell a condo with materials that read, “the lower level lobby is connected directly to the subway, allowing you the convenience of going anywhere you like on the TTC without having to go outside,” without getting burned for not doing it.

Ontario has made progress to curb these types of raw deals by instituting a 10-day cooling off period for buyers to review agreements of purchase and sale, along with disclosure statements. In spite of that rule, it’s still a challenge for buyers to gauge risk; especially when they shouldn’t have to in the first place. If every developer just held up their end of the bargain, these stories wouldn’t blow up. But they do. And it hurts the developers who build an honest building & play by the rules.

The point I’m trying to make isn’t, “never buy a pre-construction condo”; but rather “know who you’re buying your pre-construction condo from”. There’s a lot to be said for buying something at its 2014 value and paying for it in 2017 with devalued currency and instant market appreciation. Just don’t get hosed. Buy from a developer who has done it a million times, and plans to do it a million more. Their name is on the line, their future rides on success, and they want the building to do as well as you want it to.

Multiple-Offers: Winning, or At Least, Not Losing

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Real_Time_BiddingBy now you’ve heard about the wild, buyer free-for-all that is the Toronto real estate market. The number of buyers looking to make a move combined with a shortage of lucrative inventory has created a sellers’ market to end all sellers’ markets. We’re starting to see multiple offer situations on Toronto condos again, a trend not seen in recent years as condo supply reached some record highs.

Chances are you may have seen other stories about multiple offers, but none compare to this one from last week that saw a house in the Yonge & Lawrence area, listed at $699,900, sell for $1,366,000 with 72 offers. SEVENTY-TWO.

I have no idea how this happens. At offer number 10, your odds as a buyer are incredibly slim, to the point that you probably shouldn’t bother. But hey, there’s a chance right? Apparently then, another 62 people proceeded not to care much for the odds either.

Naturally, there were likely a ton of offers in there that were just doing the sellers a favour by boosting the quantity of competition, without being a real threat to the serious buyers. The offers that included sale of property, financing, or insurance conditions would fall into that category. So would anything around asking price. Regardless though, they were there, and on every other bidder’s mind when it came to formulating an offer price.

In competition, the cleaner an offer is, the more lucrative the offer, as oftentimes conditions can be as important as price. When there are 72 offers to choose from, the seller isn’t going to accept a condition that forces them to wait for a house in a less sought after to sell. They’re taking the sure thing.

By far the biggest challenge buyers face in multiple offer scenarios is the blind bidding process. This will always garner the optimal result for the seller and will leave at least one bidder with a bad taste in their mouth, and hopefully that’s if they lose. In the story above, I’m sure all 72 will end up with some degree of animosity. From the guy who bid $675k conditional on the sale of his place in Georgetown; to the woman with the second best offer who lost by a few grand; to the winners who’ll look back at the $1.1M house they just paid an extra $260k for, and who will then be putting another few hundred thousand into fixing it up; they all lose. Working in their sellers’ best interest, listing agents don’t disclose any terms of the competing offers to the buyer agents, which forces buyers to put their best foot forward right off the bat. The best case for the buyer in multiples is that they get a house they love for what it’s worth. With 72 offers, that’s not happening.

Congrats to the listing agent for drumming up that many offers and doing their seller client a huge favour. At the same time, buyers and their agents need to do a better job of knowing what market value on a house like that is. Ultimately, list price doesn’t mean a thing. Only people who are willing to pay what a house is worth should be offering, and I’m willing to bet that 80% of those offers were nowhere close. As Toronto Realtor David Fleming (@TORealtyBlog, a solid twitter follow) was quoted saying, “we’re in a hot market, but no house is hot enough to get 72 offers”.

Fortunately, most of you aren’t buying in Toronto and will probably never encounter such an absurd scenario. There is a chance though, depending on location and market conditions, that you could find yourself in competition with a few other buyers. Let’s take a look at that process and what you can do to win out, or at least feel good about walking away.

As a buyer, you really need to weigh your interest in a property before committing to a multiple-offer situation in an attempt to buy a property. If you really love the house, chances are you’ll find a way to come up with a few thousand dollars if you need it. Because of the competitive nature of things though, it’s important not to get caught up in winning but rather ensuring you still like the house you buy at the end of the day.

When sellers receive multiple offers to purchase they basically have 4 options:

  1. Accept the best offer
  2. Send any number of the offers back for buyers to try again
  3. Counter-offer on the best offer
  4. Work with none of the offers

Number 4 is pretty rare. After all, as a seller, if you go routes 2 or 3, you’re not committing to any of the offers either, but it’s much better to work with an offer you have in front of you than to wait and hope a few more materialize. Your first offer is usually your best offer, so if you can pit more than one buyer against each other, you’re crazy not to.

With option 3, if a seller counters your offer, it gives you a sliver of leverage since you know that there are no other offers in play at the moment, and that the seller has lost their competitive scenario. However, you know that those offers could come back in at any time if you don’t accept the sellers’ counter offer. The seller is basically telling you that your offer was the best, and may be making a change to the closing date or a condition that’s simply there for you to accept and win the battle.

Leverage as a seller is paramount. I’ve offered with clients in a multiple-offer scenario which we lost, but when the other offer fell through, we went back in $5,000 lower than our original offer knowing that we had no competition. My clients ultimately got the house for $3,000 less than their original offer. If you’re a seller, you better make damn sure the counter is going to be accepted if you choose to go with option 3.

If the sellers send you and others back to submit a new offer, it’s for one of two reasons: Either none of the offers were acceptable OR multiple offers were very close to each other and the seller thinks they can get higher bids back from one or more to put them over the top. It’s a bit of a slap in the face and maybe a tad greedy, but if the seller thinks that buyers’ interest outweighs the offense, it’s a seller-friendly strategy that they can employ.

As a buyer, number 1 is the easiest to navigate if you win, but sometimes hard to swallow if you don’t. Eventually your agent is going to find out what it sold for (potentially right away if the winning offer is condition-free) and the worst thing that can happen is your agent giving you the sale price and it being something you would’ve been willing to pay. There you’re back to square one. Two of my listings have sold with multiple offers in the last 2 weeks, and the phone calls to the losers in the bidding process are usually tough ones to make. Let’s make sure that phone call doesn’t happen.

Multiple-offers can be a sticky situation as a buyer, so make sure you’ve got an agent who’s been there before and can help you strategize to achieve the best outcome for you. You’ll be glad you did.