If I can admit when I’m wrong, but I think I can explain my way out of it, then does it count? 🙂
You know December is a slow month in real estate, right?
And you know not only do the stats back it up, but the “feeling” out there is that the market has finished for the year.
Well let me tell you a story about a condo that sold on December 20th, just to tell you how wrong I was…
You do not list your home for sale in December.
That’s a well-known fact in the real estate community, and while an argument can be made in favour of taking on the “risk-reward-equation,” most of us still think you’re better off waiting for January.
Real estate has long been a “chicken and the egg” phenomenon, with buyers only coming out in full force when they know listings are going to peak, and sellers only listing when they know the number of buyers is the strongest.
Our “spring market” starts in January, so excuse the verbiage, as we don’t really refer to it as the “winter market.” But the spring market runs through to the end of June, and then we have a slowdown in July & August, followed by a very quick yet busy market in September, October, and November.
Then comes the December slowdown.
Those who do decide to list their properties in December are taking on the risk – that there are fewer buyers looking, as many have put their searches on hold for the year, to chase the reward – that with listings down significantly, they’ll face little to no competition.
The fact is, December is slow for many reasons.
Buyers who haven’t yet bought in the fall market are discouraged, tired, and looking forward to “time off” from the search. With the holidays right around the corner, most of them hit the pause button.
Real estate agents work around the market cycle, and most will choose to take their time off in December; many of them right at the start of the month.
Overall, that chicken-and-egg, follow-the-leader cycle has most participants in the market feeling the slowdown.
This year, I felt it even earlier. By late-November, it already seemed as though the market was drying up.
Sure, we still got new listings.
But most of what hit the market in December was junk. “Recycled” listings – those that had already been on the market previously, were at the top of the list. There was a lot of assignments out there, perhaps some plagued-investors thought a new condo sales agreement would make a great stocking stuffer. And overall, we just didn’t see a lot of quality.
There were a few, no doubt.
But not enough, from what I could tell, to really motivate those on-the-fence buyers who had resigned themselves to the fact that they’d be back out looking in January.
From a seller’s perspective, I still think, even as I write this blog which will clearly demonstrate I was wrong in one instance, that it’s a mistake to list in December.
The numbers show a massive decline in sales, take a look:
Sales plummet in December.
And when sales are slow, it reminds us that buyers aren’t buying.
Some of that is due to buyers not seeing what they want, but as I said above, many buyers are out of the market.
When it comes to price, the decline isn’t as pronounced, but enough to make you reconsider listing:
In a market where the average home price is increasing every month, we see a decline in December.
This has been consistent, every year, for two decades.
So if it’s me, or my clients, I’m saying, “Wait until January.”
But you guys know a story is coming that could contradict all that…
In mid-December, there was a new listing up in a very popular, very well-known condominium in the St. Lawrence Market area.
The listing hit the market on December 12th, with an “offer date” of December 20th.
I saw this, and I thought it was nuts.
By December 12th, the market was basically “over” for 2016. Half the agents in the industry were already on break, and most of the buyers were focused on the holidays.
Offers on the 20th? That late in the year?
I didn’t think this would work. And boy, was I wrong…
The listing was, to be completely honest, nothing special.
I know this layout as I have sold it a couple of times, and for a 2-bed, 1-bath, it’s a decent layout but the second bedroom is tiny, and the unit is wedged into the corner of the building, where it turns into an “L,” so you can see your neighbours’ windows from your living room, not to mention this is the only exposure to natural light.
The unit was listed for $424,900, with no parking space.
What did the comparable sales tell us?
Well I’m the one always telling my clients, “Throw the comparables out the window in this market.”
With the market increasing over 20% per year, what can “comps” really tell you?
Perhaps that’s more the case for houses rather than condos, but nevertheless, the same model had sold in July, which would give us some idea on price.
That unit sold for $467,500, with a parking space, albeit five floors lower down, but that difference is negligible.
But parking runs $30,000, so we’re looking at a comparable sale of $437,500, apples-to-apples.
So what would that unit be worth today, with “today” being December 20th?
You can make numbers say anything you want.
We know the average home price was up about 20%, year-over-year, in each of Sept/Oct/Nov.
Do you want to call it 1.67% per month, for five months?
It sounds crazy to suggest that the same condo is worth 8.33% more from July to December, but the market is crazy, is it not?
So let’s value that condo at $473,944 as it was in December.
The same unit, WITH a parking space just sold for $467,500, and now we’re saying this unit, without parking, is worth more?
Well, that’s what the numbers are telling us.
My colleague had a client for this unit, and we chatted about pricing before and during the offer night.
I felt that with December being slow, they might not pull that $470’ish price point.
$465,000 sounded more than reasonable, given it was listed at $424,900, they were holding back offers five days before Christmas, and this layout wasn’t the best. Not to mention, 2-bedroom condos without parking don’t always sell well. Moving a 2-bed, 2-bath without parking in this market is tough, since that demographic usually has, and requires, a car. So a 2-bed, 1-bath, albeit smaller and cheaper, might experience a bit of the same issue.
I told my colleague that despite the December slowdown, to expect at least 1-2 competing offers.
Imagine that. Three offers on a condo, five days before Christmas.
My colleague tried his hand at a bully offer, but the sellers wouldn’t look at one.
The listing agent was up front with him, and suggested the sellers were looking for $460,000 on offer night.
A big price, but in the ballpark, give or take.
Offer day came, and my colleague registered his offer first thing in the morning.
By noon, there was only one competing offer.
I started to wonder if perhaps this unit could be had for $440,000. With only one competing offer, it wasn’t unreasonable.
A third offer was registered later that afternoon, and my colleague figured he’d have to arrive with his clients’ max: $465,000.
$424,900 list price, three offers.
It might sound like a lot to some of you folks, but remember that the list price is often insignificant in this market. And the 2nd and 3rd offers were registered by buyers who already knew that they were in competition, and thus they weren’t fence-sitting, but rather they knew they would have to be aggressive.
By the time 6pm rolled around, however, there were six offers on the condo, and I was just absolutely flabbergasted.
I won’t drag this on any longer, folks.
Sometimes when I write stories like this, part of the theme is the suspense, and the step-by-step updates.
But that’s not the point here today; it’s the discussion after the fact that’s important.
So I’ll spare you the suspense – the property ended up getting sixteen offers, and selling for $505,000.
Oh, and the winning bid was unconditional.
Sixteen buyers were ready to pounce on a property five days before Christmas (actually it was four days, since the listing agent and seller had to extend bids until 10am on December 21st), and the winning bid was about 10% more than expectations.
10% doesn’t sound like a big number, in this market.
But let’s work backwards to show what the property really sold for.
Take this $505,000 sale in December, and compare it to the $437,500 equivalent sale (ie. $467,500, minus $30K for parking), back in July.
That’s a $67,500 increase on a $437,500 sale, which based on five months, is an annualized return of 37%.
THAT is a number that raises eyebrows!
That makes the 20% numbers being thrown around in the fall market look like peanuts.
So where did we, namely I, go wrong in all this?
How did a property get sixteen offers, and sell for an unfathomable price in a market that most people expected to be dead?
Well, I suppose the obvious answer is – buyers wanted to get in before the New Year.
Sure, a lot of buyers, or most buyers were out of the market by December 21st. But many saw this as their last opportunity to buy in 2016.
Personally, I see that as an arbitrary number and date.
If your “goal” is to buy in 2016, as opposed to waiting three weeks until the January market picks up, then that’s silly.
And I don’t think this has to do with mortgage rate pre-approvals or anything. I think a lot of folks just saw this as a “last chance,” and they jumped on it.
But I also think the reason for the sixteen offers, and the obscene price is partly due to the idea that there might be a “deal” out there, based on opinions and understanding of the market cycle.
If most buyers out there feel that other buyers have put their searches on hold, then they’re going to get involved whether this is the “perfect” condo or not.
Maybe some buyers naively expected a steal. Maybe those buyers thought they’d catch the rest of the market sleeping.
What I don’t understand is why any buyer, knowing there were already, say, nine offers, would get involved with a bid if they weren’t going to go for broke.
I’ve been on the other side of the table.
I know what bids are like when you’ve got 16 of them.
More than half are throw-aways, and in this case, you know somebody that registered their offer at 6:55pm, knowing there were 10, 11, or 12 offers, made a bid of slightly over the list price.
That is also part of the reason for the crazy sale price. The winning bidder, in the end, saw the 15 competing bids and put more on the table than he or she ever contemplated before.
It’s a classic bidding frenzy.
We just never expected to see it this late in the year.
So will I now change my tune? Having seen this, will I alter my approach?
This is but one story, that makes for a great read.
And next November, when a would-be seller calls me on the 28th and says, “I could have my condo ready to list in two weeks, should I get it on the market?” I will still tell them, without hesitation, to wait until the busy spring market…