Do you watch Billions?
I love it. I absolutely love it.
It’s so well-written, so engaging, the characters are so dynamic, and above all, the music is phenomenal.
Do you remember seeing The Social Network and doing a double-take when the words “Music By Trent Reznor” appeared on the screen? Huh? Really?
That’s how I felt when I saw that Eskmo is the composer for “Billions.”
The music is so dark, and yet so appropriate. Just like in The Social Network.
In Season Four of Billions, there’s a fantastic episode where Chuck Rhoades, a former US Attorney, now wanna be “fixer,” needs to do a favour for somebody. He needs to obtain a conceal/carry gun permit for a friend. The sequence of events that unfolds is fascinating.
Chuck has to do a favour for the chief of police in order to obtain the gun permit, but in order to do that favour, he must do another favour for somebody else. That person wants tickets to an exclusive Hanukkah event, and in order to obtain those tickets, Chuck needs to do another favour for the person who has them. That person wants an “All Access” pass to Deer Vally Ski Resort. But to give up that pass, Chuck must do that person a favour as well…
Chuck refers to this as “borrowing from Peter, to pay Paul, to pay Mary,” which is a minor spin on “Manoeuvering the Apostles;” a religious saying that essentially means to pay one debt by incurring another.
I watched this play out during the episode of Billions, and I wondered how far it would go. How far down the line would Chuck need to move? How many favours would he have to do, and how many debts would he need to incur?
It was like dominoes. And you just hoped that the continuity was fluid, and that one favour-trader in the mix wouldn’t change his or her mind.
Over the weekend, I had my first experience with a sale conditional on the sale of a buyer’s property in quite a long time.
I wasn’t involved in the sale itself, but rather the mere mention of the notion was the first I had heard of it in years. And as I explained to my clients, and to the agent that was debating accepting such an offer, it could turn into a never-ending line of dominoes, or borrowing from Peter to pay Paul.
It reminded me oh-so-much of that episode of Billions, and I actually referenced the episode to the listing agent I dealt with.
For those of you that don’t know – and this is probably because you can’t fathom such a thing in the Toronto market, some properties are actually sold conditionally on the sale of the buyer’s own property.
Here in the central core, we’re used to buying condos conditional on the satisfactory review of the condominium corporation’s status certificate, and that’s usually a 2-3 day condition.
We’re used to buying houses or condos conditional on obtaining satisfactory financing terms (although we know these conditions don’t work when there are multiple offers), often for as long as five business days.
And we’re also used to buying houses conditional on a satisfactory home inspection (again, buying a house in competition with a condition is near-impossible in a hot market).
But what about a longer condition?
What about a more complicated condition?
What about both?
Imagine approaching the seller of a house and making an offer with a 30 or even 60 day condition that you are able to sell your own home. Is that something that you had ever even considered?
Those of you who live outside Toronto, and/or can remember a time when real estate wasn’t absolutely red-hot, are quite familiar with the idea of a condition on the sale of a buyer’s property, and probably feel like I’m acting like 9-year-old by explaining what it is.
But through fifteen years working in the Toronto market, I have only come across this condition once. That is, until this past weekend.
Clients of mine were interested in a house in Markham, and the listing agent – a new(er) agent who possibly wasn’t exactly sure what he was supposed tell prospective buyers and their agents, informed us that he had an offer in hand that was conditional upon the sale of the buyer’s home.
Now let’s leave aside for a moment what terms and conditions an agent can disclose with regards to a competing offer. That’s a topic for another day, albeit an important one.
The agent told us that he had two offers, and while one was only conditional on financing, it was a lowball, and wouldn’t be considered (I know, I know, now you want to discuss disclosure…), and the second offer that he had was for a decent price, but with a lengthy condition.
He didn’t tell us for how long the condition would be (at least he kept something to himself), but did say that the sellers were willing to risk it.
Oh – and he did tell us the price of that offer, which, again, might lead the discussion back to disclosure once again, but just work with me here, folks.
So armed with this knowledge, my clients and I decided to submit an unconditional offer, which is very rare in this particular market. They have their financing in place, the house is 2-years-old and contains zero of the red-flag building materials that we look for here in the central core (clay pipes, lead pipes, knob-and-tube wiring, aluminum wiring, asbestos, UFFI, etc), and having completed a thorough investigation of the house themselves, they were more than comfortable with the condition of the home.
Our offer was submitted about $15,000 lower than the competing bid.
And sure enough, the agent called back to say that we’d have to match the competing bid in order for us to win out.
This was absolutely, positively, not something we would consider.
In our minds, we were handing them a gift! For a mere $15,000, they could sell their house tonight, firm.
The other agent didn’t see it that way.
In his opinion, the other offer, even though it was conditional on the sale of the buyer’s property, was more valuable.
Well, colour me surprised!
He went on to explain that he’s worked with this condition before, in fact, he had a situation recently where the condition went on down the line.
Listen to this – he sold a property that was conditional on the sale of the buyer’s home. That buyer was able to sell his home, however, it was also conditional on the sale of a subsequent buyer’s home.
I listened to him describe the situation as though it were normal, and I just couldn’t make sense of it all.
I was reminded of Chuck Rhoades in Billions, and while I had faith in Chuck, I didn’t have faith in this daisy chain of property sales.
Property A was sold, conditional on the sale of Property B, which was sold conditional on the sale of Property C.
And then what? How about D, E, and F? Where would it end?
I asked him, “How long is the condition for the offer you have in hand?”
I mean, how long would you actually give a person to satisfy a condition? 15 days? Is that too long to tie yourself up? But also, can you expect a seller to move that quickly? 30 days? Why would anybody accept such a condition?
Get this – it was sixty days.
And the craziest part in all of this? There was no escape clause!
An escape clause is something that, as with the condition described above, isn’t that common in our current Toronto market. As you might expect, the clause allows the seller to escape from a binding Agreement of Purchase and Sale, subject to certain conditions.
Let’s say Property A is sold conditional on the sale of Property B. This condition is for 30 days.
But along comes Buyer C, who wants to buy Property A.
Buyer C can submit an offer conditional on the seller of Property A being released from that Agreement of Purchase & Sale so long as that APS has an escape clause.
The seller of Property A can activate the escape clause, and the original buyer would typically have 48 hours to firm up the deal, or the deal would terminate.
That’s the Coles Notes on how this works, apologies if an 800-word example is needed but I kind of want to move on.
So you can argue that accepting an offer that’s conditional on the sale of a buyer’s property, so long as there is an escape clause, makes sense. I would still argue it does not, save for very cold markets where sellers have absolutely no alternative.
But imagine accepting an offer with this condition, and no escape clause?
It’s absurd.
And how much investigation would you have to do on the buyer’s property in order to consider it?
If it were me, I’d want to know the following:
1) Where is the property?
What’s the address? What condition is the home in? How old or new is it?
2) What’s the price?
Is this a move-up buyer? Do they have an easier-to-sell property that’s at a cheaper price?
And what’s the property worth? Are the sellers going to list their $750,000 home at $849,900 and just “see how the market responds?”
3) What are the market conditions like in this area?
Feeding into the first two questions, how long would we expect a property like this one, at this price point, to sell in this market?
What’s the average length of time for a property like this to sell?
4) Who is the listing agent? What is the listing strategy?
If we’re assuming that the buyer-agent in the first transaction is going to be representing that buyer in the sale of the property, then who is this agent? What is his or her track record like? Do they sell a lot of real estate? Are they brand new in the business? What is their average list-to-sale ratio, and how long do their properties sit on the market?
What is the listing strategy here with respect to price, offers, etc? Is the property going to be cleaned, painted, and staged? Will the dogs be home for showings? Will the snakes be home too?
–
There are so many questions I’d have in a situation where the buyer is looking to purchase with a condition on the sale of his or her property, and there’s one reason why I could almost never bring myself to consider such a condition: control.
A seller of real estate is his or her own boss, and controls his or her own destiny. The minute you accept an offer that is conditional on the sale of somebody else’s property, then you give up control.
You can’t control if they list the property at a reasonable price, you can’t control if the property shows well, and you can’t control what they do when an offer comes in.
Only in a depressed market, with no other options, would I ever consider selling a property conditional on the sale of the buyer’s property, and I don’t ever believe that this will become a reality in the central core market here in Toronto. The older folks will laugh at me for saying this, and the bears will cross their fingers that I come to eat those arrogant words, but I just can’t envision this day coming.
As for my clients looking to buy in Markham, I guess they’ll find out all about the sellers’ tolerance for risk rather shortly.
If you could sell your home for $810,000, firm, tonight, or wait upwards of sixty days, with no escape, to get $825,000, what would you do?
Verbal Kint
at 7:21 am
I hear the Toronto market is so hot right now that agents are buying space in the print edition of Toronto’s National Newspaper, then running a single listing picture that only shows a paved over back yard loomed over by a dismal, muddy cliff.
Bold, in a “I can sell properties standing on my head” kind of way, I guess. Gives the oldsters who still read the Saturday papers a chuckle too.
Ed
at 8:39 am
I’m in the Niagara region and selling a property on the condition of the buyers selling their own home is quite common. As long as there is an escape clause with a reasonable 48 hr limit then I don’t see the harm or the ‘loss of control’. And just for a point of reference I wouldn’t say it is either a hot or cold market here (DOM 30-60).
For any new offers that come in they just have to be irrevocable for let’s say 72 hours, similar to many estate sales.
John
at 1:46 pm
i am in the same situation. my agent brought a buyer then i accepted the offer then after he told me that there is a conditional on the purchase buyer’s property . since May 19th up to now i am still locked in. i have asked my agent to provide me with the buyer’s property so i can do some investigation but he never provided me with the address. the closing date that’s the date the conditional can be removed or before the closing. I am already tired , i do not have much time to look for another property to move into. not only that prices are soaring up. I can receive new offer but my agent is the one representing my buyer. There is no open house since then.My question is what do i have to do in this case?
John
Jennifer
at 1:25 pm
I didn’t think Markham was that hot anymore. Aren’t there tons of properties for sale in that area? Maybe they really need this $15,000 for their next purchase? I know relative to the purchase price it’s probably not that much, but it’s still $15,000 tax free.? Sell firm today or wait 2 months for more likely than not an extra $15,000? It’s not that crazy to me to wait. But say a $5,000 difference I would have taken your client’s offer.
Francesca
at 2:39 pm
I live in Markham and can attest the housing market has taken a huge hit compared to the peak in spring 2017. Anything over a million in particular is taking a very long time to sell unless it’s big enough to house multi generations apparently (according to one local real estate realtor I just spoke to last week). If this house that David is talking about is only two years old that means that the sellers most likely paid pre construction prices which are still very high here compared to resale. Their house is very likely worth less than what they paid for it pre construction so 15k extra goes a long way I guess when you are most likely just trying to flip the house as happens a lot here with pre construction homes similar to what happens in downtown Toronto with pre construction condos. The flip side of all this is that not many people are actually submitting offers on homes so if David’s clients were willing to buy it firmly now with no conditions, it seems silly to me to wait for an offer that may not come to fruition. They should have at minimum put in a clause to accept any new offers that come in. When we bought our house here ten years ago exactly this month we put in an offer conditional on selling our townhouse in Toronto but we had 30 days to sell our townhouse and had to prove that we were pricing it right in comparison to other towns for sale at the time in the complex. The sellers were also allowed to entertain any other offers that came through in the meantime. We ended up selling in just a week and the house was ours. A situation like that where both the Toronto market and 905 market was in a downturn was something we most likely won’t see again.
jeff316
at 9:41 am
Agreed – sure, there is some risk but 15 000$ is a lot of money to leave on the table.
Professional Shanker
at 2:01 pm
$15k/2% is not an insignificant sum of money to most people. With an escape clause it makes sense to accept the offer, without it way too risky of a proposition. That said the property likely has a good chance of closing, people who have a condition of selling their property should have a realistic sense of the market considering they just purchased!
Re: your buyers – if they liked the property enough to bid on it, they should have come up 10k and made the decision for the seller easy, real estate is not a financial equation for most sellers when reviewing offers, not saying it shouldn’t be.
Kyle
at 3:23 pm
“That said the property likely has a good chance of closing, people who have a condition of selling their property should have a realistic sense of the market considering they just purchased!”
But how do you really know the buyers aren’t just using the condition as a potential out? For all we know they may still be making offers on other houses? So they’ve conditionally purchased at price X from Seller 1, but how do you know they aren’t still looking to see if they can find a better deal? And if they end up finding a better deal with Seller 2, they can just let their conditional offer with Seller 1 expire. Seller 1 is then left to go back to the drawing board in what could be a different market.
Professional Shanker
at 6:00 pm
In a make believe fantasy world anything is possible. Selling conditions were not uncommon in previous decades and they very well may rise in popularity again. Most buyers act in good faith, a small minority do not, that is the risk you run.
Derek
at 3:05 pm
I know this blog isn’t really about the following topic, but I keep an eye on a couple areas in the west end where I live. I was very surprised to see the house across the river at 79 Dunedin Drive (Kingsway) sell in May 2019 for $1,775,000. It last sold two years ago in March 2017 for $1,740,000, so over $100,000 loss in two years (considering LTT & 5% commission). First example (that I noticed) of a loss like that, crystallizing in that area.
Kyle
at 3:41 pm
I don’t think anyone realistically can ever expect to break even or make money if they’re selling after two years. I have to imagine they are only selling due to life changes.
Derek
at 9:25 pm
Well……….except for every year in recent memory up until they bought that house.
Derek
at 10:35 pm
Kyle, following on your comments the other day about rents increasing because of the stress test, is there data that shows the rate of rent increases spiking above previous rate increases? ….. I suppose I can just check the google… I was wondering if there would be or could be such thing as a downward influence on rents if people have to rent longer— the rent increases are capped—versus a situation of high turnover of renters becoming buyers whereby rents could be jacked for a new renter. If nobody is leaving the rental market the rate increase could be slower….or maybe that’s crazy talk…
Kyle
at 6:16 am
There are basically two types of rental data now, but both are reflecting a spike.
1. Data for what people are currently paying in rent published by CMHC:
https://www.cmhc-schl.gc.ca/en/data-and-research/publications-and-reports/rental-market-reports-major-centres
Select Toronto and See Fig 2
2. Data for Asking rents published by Padmapper, TREB, Altus, etc
https://blog.padmapper.com/2019/04/17/april-2019-canadian-rent-report/
http://www.trebhome.com/files/market-stats/rental-reports/rental_report_Q1-2019.pdf
Kyle
at 2:17 pm
Correction for 2, Padmapper shows asking rents, TREB shows average signed leased rents
Derek
at 2:46 pm
Thank you
Housing Bear
at 9:38 am
Rents begin to spike towards the end of a huge run up in prices and into the earlier stages of a correction as rental demand increases and supply decreases. Factors include; speculators leaving properties empty, as people get priced out they choose to rent longer, some people sell their homes to lock in gains and rent. When prices start to fall some people will keep renting to hold out for a bottom, some landlords will want to kick out their renters and sell. B-20 would contribute to some of the factors above but not as much as the industry calling for its removal would have you believe. Rents are now starting to fall in Vancouver for example.
Appraiser
at 12:49 pm
The “correction” was over long ago.
Your analysis could not possibly be more wrong.
Housing Bear
at 1:37 pm
https://www.cbc.ca/news/canada/british-columbia/vancouver-s-rental-prices-have-stopped-climbing-1.5108322
Rents down in Vancouver.
This April was the first and only month since 2017 that really surprised to the upside from a sales volume perspective. Prices basically flat as a whole from April 2018 if you adjust for inflation, and allow for increased percentage of detached. BC recently announced they would start tracking beneficial ownership. GTA could get a short term boost if the money laundering starts to concentrate here. I thought Dougie boy would ignore the problem at least until the run up to the next election. The fact OREA and TREB are now saying we need to do something about this just gave that theory a blow.
Appraiser
at 5:10 pm
This is the T.O. Realty Blog.
johnny chase
at 3:35 pm
i think this recently happened on Rosedale Heights drive. one house sold conditional (tell me when the last time that happened in Moore Park. I heard it was a neighbour down the street. then low and behold, the following week the neighbours house goes for sale and the first is still conditional – and they happen to have the same agents. I’m thinking the vendors of that first house got screwed because the second house didn’t sell with a bid date and now the price has gone up.
m m
at 3:44 pm
Hi David, I would love to see a post about the recent investigation into the role of laundered criminal money in the BC/Vancouver RE market. This is pretty serious, and if it exists in BC, it sure exists here.
Chris
at 8:58 am
OREA and TREB both join the call for land registry to crack down on money laundering:
““Ontario realtors don’t want to see a single dollar of dirty money coming into the housing market,” said Ontario Real Estate Association CEO Tim Hudak. “When criminals hide their money here, it drives the price of real estate out of reach for regular Ontarians.”
Hudak said a beneficial ownership registry for property in Ontario is “well past due.”
Hudak’s comments were echoed by the Toronto Real Estate Board (TREB), which said the current land registry allows property owners to use companies or trusts to remain anonymous.”
With regards to the suggestion that we “forget FINTRAC”:
“Garry Clement, former national director of the RCMP’s proceeds of crime program, now trains bankers and other professionals — including real-estate agents — on how to catch money laundering.
He said he was shocked when he asked a room full of real-estate agents how many of them had ever accepted cash payments.
“The hands shot up,” he said. “They just didn’t see anything wrong with it.”
Even when they suspect something is fishy, real-estate agents don’t want to turn down big commissions.
“They haven’t taken (the money laundering rules) seriously,” he said. “This plays into the hands of organized crime.
“They’ll never get it right until some prominent agent or broker is walked out in handcuffs,” he said. “At some point, everyone has an obligation to put ethics ahead of profit.””
https://www.thestar.com/news/investigations/2019/05/14/realtors-call-for-land-registry-to-crack-down-on-money-laundering.html
As I said last week, more measures, enforcement, and penalties, not reduced reporting responsibilities, are required.
Housing Bear
at 9:45 am
Good on OREA and TREB for taking this position. Have seen people online arguing that money laundering is overblown, most of it is not drug money and that if you want the government to do anything about it; than you secretly want Canada to go into a huge recession because you are a jealous renter.
Chris
at 10:41 am
Anyone arguing that money laundering in Canada is overblown is standing against some pretty reputable experts; the US State Department, Transparency International Canada, The C.D. Howe Institute, the B.C. Government have all stated, just within the past few months, that it a serious problem.
To suggest that we just permit illegal activity, because clamping down on it would hurt our economy, is also a ridiculous assertion. From an ethical standpoint, the Rule of Law is of vital importance. From a more practical standpoint, it will harm our reputation and international relationships if we are not seen to take appropriate action against criminals. How long do we think the US State Department will keep idly warning us about allowing drug cartels, terrorists, human traffickers, etc., to launder money in our country, before they take steps, and force us to?
Housing Bear
at 10:52 am
LOL I agree its a ridiculous position, I am just glad that our large RE lobby groups are not down playing the issue.
Chris
at 11:14 am
Agreed, though I’m sure much of it is self interest. They must know they are not a well respected profession; Insights West’s 2018 Survey of Canadians on Professions showed that only 47% held a positive opinion of Realtors, making it one of the most negatively perceived professions.
If they did not come out firmly against money laundering, I’m sure many would view this as them being complicit in criminal activity in order to enrich themselves. As evidenced in the article I shared above, Realtors need to take this more seriously, before Canadians turn on them, more than they already have.
Franky B
at 10:13 am
The cynic in me suspects TREB is trying to find a way to justify keeping their databases private
Appraiser
at 12:56 pm
The MLS database is private (and trademarked) because it is proprietary. That fact has never been in dispute, either by the Competition Bureau, the courts or anyone else (besides real estate bears).
Chris
at 1:20 pm
“After a costly seven-year legal battle, the privacy arguments TREB raised to defend its anticompetitive data restrictions have been dealt with exhaustively by the courts.
After all, realtors in the GTA freely share the same information with their clients in a variety of other ways many times each day.
In 2017, the Court cited “compelling” evidence that TREB’s intent was to limit competition, not to protect privacy.
TREB’s privacy arguments related to the case have had their day in court, and the courts have spoken.”
– Matthew Boswell, Interim Commissioner of Competition
https://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/04402.html
Database may be proprietary, but courts have decided that Virtual Office Websites are permissible, essentially making the data public and very easily accessible.
Appraiser
at 5:15 pm
You have to go through a Realtor to access a V.O.W. (which is not the MLS)
How is that public?
Chris
at 6:57 pm
Bungol, Housesigma, even TO Realty Blog’s Data Hub only require you to sign up. Then you have access to the data. Your interaction with a Realtor are slim to nil.
Hence it is essentially public.
Batalha
at 4:18 pm
Ah, wait, would this be the same Tim Hudak who did absolutely nothing along these lines during his two decades as an Ontario MLA, four years of which were spent as a Harris/Eves cabinet minister (including a year-and-a-half as Minister of Consumer and Business Affairs) and leader of the provincial Tories from 2009 until 2014? Yes, the same do-nothing a-hole now whining for government to “do something.” Self-interest incarnate.
Appraiser
at 12:45 pm
“The mortgage stress tests are raising the risks to house prices and the economy of Canada,” wrote MPC Chief Economist Will Dunning wrote in the organization’s annual report for 2018. … “The expansion of alternative mortgage lending is certainly an added risk for the entire financial system,”
~Will Dunning
Chris
at 1:32 pm
“These (stress test) policies underpin stability for Canada’s economy, financial institutions and individual families, benefiting all Canadians. These actions have also contributed to slower growth in house prices and reduced speculation in key areas, helping to limit the amount of debt Canadians must take on to buy a home and improve housing affordability.”
– Evan Siddall, President & CEO of CMHC
“He (Poloz) credited the tougher mortgage guidelines, which brought in interest-rate stress tests, for working as they were designed. They helped improve the quality of loans and stop the speculative increase in house prices in Vancouver and Toronto, he said.
Poloz predicts buyers affected by the stress tests will return to the market in search of less expensive homes, while some will wait until they’ve saved more for a down payment.”
– CBC on Stephen Poloz, Governor of the Bank of Canada
“We’re listening to everyone about their concerns and we are going to keep watching that stress test and make sure that it is having the desired effect, but we are seeing fewer and fewer people take on those overreaching debt-loads, particularly in the higher sectors of the market…
(the stress test was about) taking some of the froth out of those markets but also ensuring that people weren’t stretching themselves further than was wise, particularly given the the fact that we can see interest rates rising in the future, and recognizing Canadians carry a high level of personal indebtedness that we need to respond to.”
– Justin Trudeau, Prime Minister of Canada
Housing Bear
at 1:40 pm
Or we can trust Will Dunning, the man who works for a mortgage professionals lobbying group that wants mortgage restrictions reduced.
Appraiser
at 5:16 pm
Your buddy cherry-picked a Will Dunning quote yesterday.
jeff316
at 3:54 pm
So glad this discussion of sale conditions degenerated in yet another bear-bull pissing match.
Westrom Group Real Estate
at 2:17 am
Great blog!
I read your post. It is informative and knowledgeable. Thank for posting such a piece of informative information.
Kim
at 3:01 pm
Take the cash offer always
Mike
at 7:49 pm
This is very common in BC. I find it strange that Ontario realtors do not also have this in place. And the agreement is only void if the buyer isn’t able to sell their home in the agreed upon time. The fact that the seller can sell to anyone who offers them a higher bid is ridiculous. What is the point in even drawing up be contract in the first place?!