That question could lead to a whole slew of topics, and different applications of the term “second chance.”
But for the purpose of this blog, I want to look at “second chances” as they pertain to a buyer looking at a property, watching that property sell, and then seeing the property come back onto the market, thus giving the buyer a second chance.
How common do you think this is? How many times do you think I’ve experienced this?
I have a feeling you’ll be absolutely shocked by the answer…
With the Canadian dollar as low as it currently is, I find myself with an influx of American buyers, looking to take advantage of the situation.
For some of these investors, not buying real estate in Toronto one or two years ago seemed to actually make them money.
Let’s work an example, just for fun.
Let’s go back a-year-and-a-half, to, August 24th of 2014.
The Canadian dollar was worth $0.91171 in USD.
So an American purchasing a $300,000 condo for investment would pay $273,513 in their own money.
Over the last 18 months, perhaps that condo has increased in value by, say, 8%.
It’s now worth $324,000.
So the would-be American buyer has lost out on the $24,000 in appreciation.
But with the Canadian dollar now worth $0.72796 in USD, that $324,000 condo, after the eighteen months of appreciation, only costs the American investor $235,859.
Even as prices in Toronto continue to rise, and even after an 8% appreciation on a condo, the American investor “makes” $37,654 by buying on February 24th of 2016, rather than August 24th of 2014.
Interesting stuff, but not the point of today’s blog…
Now if you’ve ever watched real estate television shows, based in the United States, surely you’ll notice the different terminology.
When they sell a property conditionally, they say it’s “under contract.”
They don’t refer to “deposit monies” but rather money “in escrow.”
Watch one episode, and you’ll see just how many differences there are.
Working with American clients in Toronto is difficult because there are so many incredible differences between our two markets.
Last week, one of my clients emailed me about a property I had showed him, and said that he had mulled it over, and wanted to make an offer. Actually, he said “place a bid.”
I told him that the property was sold conditionally, and he said, “Fine, I don’t mind. Let’s make a bid.”
I told him that it didn’t work that way, and that it was sold He didn’t understand.
He told me, “David, just find out how much the active bid is for, and we’ll beat it by $1,000. I can have money in escrow within 24 hours.”
I had the unfortunate task of informing him that the only way we could bid on this property was if the existing Agreement of Purchase and Sale, which was signed by both buyer and seller, fell through.
He said, “We have to wait for a deal to fall through, in order to place a bid? That sounds incredibly inefficient, and like a monumental waste of time.”
Perhaps, I might be inclined to agree. Except for one thing: deals almost never fall through in Toronto.
And that’s the big difference between our market and those either south of the border, or in other countries around the world.
You rarely, ever, get a second chance in the Toronto real estate market.
I’m not talking about pre-construction condos with the 10-day rescission period – I’m talking about residential, resale properties.
How many deals fall through? For residential, houses and condos, in the central core?
Off the top of my head………maybe one in 200? Or 300?
A condo deal might fall through if the buyer’s lawyer determines there’s an “issue” with the Status Certificate, but more often than not, that’s a rubber stamp. I’ve only had deals fall through on a Status Certificate three times in twelve years.
A deal for a freehold property might fall through for a “failed” home inspection, but there really isn’t a “pass” or “fail;” there’s just the buyer’s desire to follow through with the transaction.
When a house or condo is sold conditionally, it’s almost a guarantee that the property is “gone.”
My American buyers, after learning they couldn’t submit a bid on a property that was “under contract,” told me they wanted me to keep an eye on it and let them know if the deal fell through.
I told them there was little to no point. I would keep an eye on it, but I told them not to hold their breath.
It just doesn’t happen often enough to warrant waiting, or getting your hopes up. There just aren’t any second chances in this market. You have to be persistent, diligent, completely informed, and ready to move. And when a property sells, you move on.
I can count three times where I had a buyer for a property, and that property sold, we were disappointed, and then we were elated to find out that the deal fell through, and we had a second chance.
One was back in 2004, in my first year of real estate.
It was a different market back then, so these numbers might not make sense.
A house was listed for sale at $1,099,000, and my clients, up against a competing offer, submitted a bid of $1,040,000.
Isn’t that wild? We were in competition, and were still able to offer $60K under the list price.
In any event, we lost, and my clients were crushed.
They called me the next day, one of them crying, saying that they’d made a tragic mistake, and they shouldn’t have “gotten cute” with the price. They loved the house, and they should have just “gone for it.”
It’s the opposite of “buyers remorse,” I suppose. These folks woke up the next morning and regretted not buying the house.
That would have been a big deal for me in my first year, and I lamented the loss rather heavily.
I day-dreamed about a phone call from the listing agent where she said, “The deal fell through, the property is still available,” but in the back of my mind, I knew it wasn’t going to happen.
I knew, that is, until it did.
My Blackberry 8600 buzzed a couple days later, and I remember seeing the listing agent’s name on the display. It gave me the same feeling of butterflies in the stomach that you get when that girl you really like, but you thought blew you off, calls you and you see her name……on your old Nokia 3310…
As I had been praying for, she told me, “David, the buyer wasn’t able to get financing on the property, so can you check and see if your clients are still interested?”
Check and see? I’ll take a goddam hot-air balloon to their apartment and drop a carrier pigeon if I have to…
My clients ended up getting that seldom-experienced “real estate second chance,” and they bought the house for $1,048,000. God, I wonder what that’s worth today…
That was in 2004.
And then things went dark for over eleven years, before I got my second real estate second chance.
Most residential homes in this market, as you know, sell in competition. An offer date is set, multiple offers ensue, and there is only one winner.
“Losing” is never easy to take, but buyers need to see it as a reality, and agents need to simply adopt it as a part of the business.
When there are six, ten, or twelve offers on a property, you might think it makes it easier on your buyer-client when they’re told, “I’m sorry, but another offer was accepted,” but it’s not easier; it’s just losing, and to a hopeful buyer, there’s only one type of losing.
Coming in second-place, however, might rub salt into the wounds.
Earlier this year, a client of mine made an offer on a property, along with nine other buyers, and as is every buyer, we were hopeful, and optimistic.
We were told it was a “one shot deal” by the listing agent, and to his credit, he stuck to that.
Unfortunately, we were not the highest offer, and in actual fact, we were second-highest.
My buyer was crushed, especially when I told him what the listing agent told me: that we lost by only a couple thousand dollars.
My buyer made a solid, clean offer, with a bank draft in hand, and he came up just a little bit short.
Two days later, I was in my car, driving to the west end to meet my client and return his deposit cheque, when irony struck.
My phone rang, and it was the listing agent, telling me that the “winner” from two nights previous had “pulled out.”
I was stunned.
And confused too!
How could a buyer “pull out?” What does that mean?
The listing agent told me, “We waited all day for the buyer’s agent to bring us a deposit cheque, but he never came. Today he called to say his client had changed his mind, and wasn’t going to bring us a cheque.”
Amazing. Absolutely astounding, for two reasons:
1) Who changes their mind?
2) Why the HELL did the listing agent take an offer that, apparently, was only “a couple thousand dollars” higher than ours, without an accompanying deposit cheque?
The listing agent told me, “David, this is yours, if you want it,” to which I gladly replied “Oh we want it.”
But then he said, “You have to come up $2,400 to match the price that the other buyer had, however,” and that’s when I paused and weighed the risk/reward proposition.
On the one hand, getting a second-shot at this was exceptionally rare, and my buyer would gladly pay $2,400 more to guarantee getting the house. We make offers in a blind, auction process, and any buyer in the neigbhourhood of the highest offer would likely agree to that number, if that number was made clear, and the price was agreed upon.
On the other hand, I didn’t like the idea of coming up in price, and matching the other offer. We lost fair and square, and thus we should win fair and square as well.
I didn’t tell the agent “yes” or “no,” but rather simply said, “I’ll call my client, and we’ll have an offer to you shortly.”
I continued on to meet my client, and imagine his surprise when I told him that instead of handing him back his deposit cheque, I wanted to keep it – so that we could resubmit our offer and buy this damn house!
He was elated, to say the least.
We went to his office, I pulled the original offer from my email, changed the dates, and had him sign it.
I did not, however, change the price.
There’s not much of a story here, folks; no drama. I simply re-submitted our original price, and said to the agent, “See attached.”
Four hours later, we had a deal, and I couldn’t believe how it all played out.
That was the dream scenario for any buyer who had ever “lost” on a house.
You almost never get a second-chance in the Toronto real estate market.
And look at my history – my two second-chances were separated by more than a decade…