Today is Friday, so as promised, here is the third “crazy story” from this incredible Fall, 2016 real estate market.
Maybe these stories aren’t all that crazy, given the climate in the market.
But on a relative basis to other markets, or even the Fall, 2015 market, it’s just nuts.
We’ve talked about bully offers for crazy prices, sight-unseen and unconditional offers, and today we’ll talk about multiple offers – for units that really shouldn’t get them…
The participant in the 2016 fall real estate market that has it the worst, hands down, is the buyer agent.
Sure, you could argue the buyer has it worse, since he or she is the one actually paying for the unit.
But buyer agents are the ones pulling their hair out every day. The buyer often doesn’t end up seeing a unit, let alone making an offer on it, but the buyer agent is running around town, working until midnight, trying desperately to sell something in a climate where even condos are selling in mere hours.
I had an east-end listing this week that came out on Tuesday, and got eight showings booked that day.
The next morning, and agent emailed me and said:
David,
Are there any offers on XXX Street?
I have a very discouraged and frustrated buyer who refused to see any unit with an offer registered.
Please let me know, thanks!
–
First of all, that’s common. There are a lot of really tired buyers out there in the condo market, and it’s only the third week of fall!
But if you are a condo-buyer, and you are tired out, here’s some tough love: suck it up; everything has multiple offers these days, and quitting or pouting isn’t going to get you anywhere.
I work on the buy side half the time, and the sell side half the time. So when I have multiple offers on condos, as the listing agent, I’m as empathetic as a person can be, and I run the process how I would want to see it run when I’m on the buy side.
So I told this agent that there were no offers, and she showed the property, and brought me an offer – with a three-hour irrevocable.
Another offer came in within an hour, of course, and I actually felt bad having to call her and give her the news.
She picked up the phone – so excited, “HI DAVID???”
It’s like telling a kid there’s no Santa Claus.
In the end, her offer beat the second offer – which was a Bosley offer, I might add, but I was actually really happy for her. I could just feel her pain through the phone, and I was happy that her frustrated, discouraged buyer finally got a place.
When there’s two offers on a condo, there can only be one winner.
And I always feel bad for the person who didn’t win.
But what about when there’s more than two offers?
What about when there’s more than ten?
Clients of mine who own an original-condition, 1980’s condo told me during the summer that they wanted to sell come fall when their long-term tenants were out.
I took a look at the unit, which really, truly was 1987, to T.
I told them that if they renovated the unit, they could get high-$300’s for it, maybe even a touch over $400,000.
We priced out a renovation – new floors, new bathroom, new light fixtures, full new kitchen, taking down two walls to open up the living space, and some other odds and ends.
The renovation quote went from $25K, to $30K, and then over $40K really quickly.
My client told me that he wanted to get rid of the unit in its current condition, and he was okay with not spending $40,000 to get maybe $50-$60K more for the unit.
I told him that in its original condition, it would be a tough sell.
My honest estimate of value?
$340,000.
Who knows, maybe more, but maybe less too. Maybe it would sit on the market for a while. Units do sit on the market in Toronto, despite what we’re accustomed to believing, and this original-condition unit is exactly the type that might not get interest.
We brought the unit out at $329,900, with a hold-back on offers.
As I wrote in Monday’s blog – I’m not a fan of hold-backs, but the market necessitates it, and the sellers demand it.
I’m also not a fan of rampant under-pricing, but I put my money where my mouth was here; some agents would list this unit at $289,900 to try and “start a frenzy,” but I priced it just slightly below what I thought fair market value was.
I’ll give you the end of the story before we even begin: the listing was crazy.
It brought out all the crazies, and by that I mean both those willing to pay way too little, and those willing to pay way too much.
Two days into the listing, I got a call from a guy who sounded really strange on the phone, and it turned out he was a real estate agent. He knew nothing about the property, and seemingly nothing about the market – when he asked, “Is your client flexible on the price.”
I thought that was strange, given the market climate – with every condo selling in multiple offers for over the list price, and considering there was an offer date here.
I told him that no, we weren’t flexible, and that we expected at least a couple offers, and probably $340,000 plus.
Amazingly, the next day, he sent me an offer for $300,000.
I told him very respectfully that I thought I had explained the situation, and the expectation, and that we weren’t ready to work with this “bully offer,” given the price, and the timing.
I was shocked when he said, “So sign it back to us.”
I looked him up, expecting him to be from Barrie or North Bay, but he’s actually licensed with a Toronto brokerage. He could be a part-timer, who knows, but I was just shocked at how out to lunch some market participants are these days – buyer agents, listing agents, buyers, and sellers alike.
He ended up sending a revised offer the day after, this time for $320,000.
I also got a phone call from a woman who lives in the building, and told me that my price was “foolish,” and that she would be willing to pay $290,000, as her daughter was looking for a place to live.
I told her that $290,000 wasn’t really in the ballpark, and that we had an offer date anyways.
She told me that I had an obligation to “present all offers to the seller,” and she was right; sort of. I didn’t consider her verbal offer to be an actual offer, and I told her that if she wanted me to bring her offer – which had no basis being made, to be respectfully honest, to the sellers, then she would have to come over to the office to sign it.
“Bring it to me here,” she said. “I’m in Unit XXX.”
Suffice it to say, I didn’t follow up.
I received some more bizarre calls throughout the week, but those are the more notable interactions.
Offer day came, and having 36 showings on the property, I thought we would do well.
What we did, in the end, was absolutely insane.
I’ll be honest here – the price that this condo sold for makes absolutely no sense.
But don’t shoot the messenger; I did my job, and I did so with a level playing field, and without any gimmicks. And before you suggest it – I’ll tell you that if you consider “a hold back on offers” to be a gimmick, then you’re dreaming about a market that is so far gone, you should forget about it. Or like many, dream about when it comes back.
We ended up with twelve offers on the property.
I told every single agent that it would be a “one shot deal,” and to bring their best offer, because there would be no second rounds.
And there weren’t. I simply took the highest offer.
I made sure that every single time a subsequent registered offer was registered, I emailed the agents who already had registered offers, to let them know.
By the time we had the twelve offers, I made sure to email all the agents one last time to let them know.
And because I’m sure you all want to know what twelve offers look like, I’ll do what no other agent will ever do (actually I think Steve Fudge did this once…) and disclose all the offers.
This is in ascending order, and keep in mind that the list price is $329,900:
$320,000*
$329,900
$331,000
$341,900
$345,000
$345,100
$350,000
$360,001
$376,000
$378,000
$381,000
If you counted those offers, you’ll note that there were only eleven.
That’s because on person who registered their offer never sent it.
But I did get the offer two days later, for some strange reason.
The “Internet;” what a crazy, crazy idea!
Two interesting tidbits about those eleven offers:
1) The $320,000 offer that has the asterisk – I emailed this agent to tell him that we were receiving offers, and he said, “If you want $350,000, I’ll get you $350,000, but no more.” I told him he would have to put that down on paper for it to be considered, and he said, “If you get more than $350,000, forget us. But if you don’t, then we’ll bid $350,000.” I told him it doesn’t work that way.
2) The $350,000 offer was sent five days before offer night, with a five-day irrevocable. Question: what if there were no competing offers? Then this buyer would have paid $21,100 over list price for no reason.
Really, really strange interactions on this one, all around.
The strangest part of all this, of course, is the final selling price of $381,000.
That model unit, renovated, is worth $395,000.
Or “was” worth $395,000, since this sale clearly changes things.
The sale price was crazy.
My clients didn’t believe me when I told them.
One of them said, “I would have been happy with $350,000,” and then the other said, “Really? I would have been happy with $340,000!”
So did every condo in that building just go up 10% overnight?
Or is this an outlier?
Maybe a bit of both, to be quite honest.
And before you ask me what everybody is asking, including the media who is doing so incessantly, no, I will not tell you the demographic of the buyer, or the demographic of the three top offers. It’s a conversation I’m tired of having.
–
So that’s that, folks!
Three crazy stories from the even crazier fall market.
And that’s just stories from me; imagine if every active real estate agent in the city could collectively tell their tales?
I’ve never seen a market like this in my twelve years in the business, and it’s the condo market that’s really shocking.
Every damn condo is getting multiple offers.
But it wasn’t until I saw a new listing with an “offer night” in Regent Park, that I realized this is a level of heat we’ve never seen in this market.
Seriously. We’re holding back offers on condos in Regent Park now?
What housing shortage?
Have a great weekend, folks!
Joe Q.
at 10:32 am
Out of curiosity, David, do you know if the purchaser of this condo intends to live in it, or will he / she rent it out?
David Fleming
at 2:17 pm
@ Joe Q.
It’s an end user.
NPDB
at 1:00 pm
I think everyone was wondering if you let the person who lived in the building know what the final price was for your foolish listing?
Peter
at 2:10 pm
This is your best week of blogs ever!
Awesome stories, David!
Jeremy
at 2:16 pm
David, I’m going to to assume that because you mentioned the “demographic,” then they are in fact said demographic.
But what would be wrong with mentioning it? Are we so afraid of being labelled racists? There’s nothing wrong with pointing out that Chinese buyers are here in Toronto after being kicked out of Vancouver. And frankly, this is the sort of thing that your readership wants to know.
Libertarian
at 2:22 pm
Based on how crazy David says that the market is, I am curious where all of this money is coming from – that’s not an indirect reference to Asian buyers. All we keep hearing is that incomes haven’t gone up whatsoever and that household debt is at all-time high. And yet, David says there are lots of people out there getting into bidding wars on nearly every property trying to buy up ever last piece of real estate in this city. How is this all possible?
Kyle
at 3:37 pm
Because the average income is irrelevant when it comes to real estate prices in a Global City. It’s the “right tail” of the income distribution that buys real estate, not the average income earner. Every country in the G10 is going to have one or two or three cities with really expensive real estate. The more Globalized the world becomes, the more real estate costs in these cities, because these cities have a disproportionate number of very high paying jobs (e.g. head office or regional office execs and managers, banks, asset managers, investment banks, law firms, IT firms, consulting firms, real estate developers, marketing agencies, government officials, and all those other types of jobs that tend to be found mainly in Global cities) and thus these cities have a fatter “right tail”. That’s where the money comes from.
Appraiser
at 4:38 pm
Thank-you Kyle!
I am so tired of hearing about average prices vs. average incomes, as if the two must be correlated, I could scream.
Kyle
at 4:54 pm
The average household income in Toronto is $76K (e.g. a couple making $38K each). Those households aren’t the ones buying houses in this city.
Mike
at 5:21 pm
Kyle,
That has to be the dumbest thing I’v ever read, “average income is irrelevant to real estate prices in a global city”
You do know that cities are not self sufficient, right? They need workers in order to operate and those workers need to be able to afford places to live or else they’ll just move elsewhere.
Whistler is a perfect example of what happens when you allow housing prices to outstrip income, the town can barely function and is a shadow of what it once was. The only thing that Whistler has going for it is the mountain. Toronto doesn’t have a mountain.
Prices have dropped significantly in cities like New York, London, Miami and Paris when things became too expensive and those are all global cities.
Kyle
at 7:48 pm
Of course the argument seems stupid to one who can’t comprehend it (BTW: you’re really not making much progress in this area).
I’m talking about average people being able to buy, not being able to find work or live. You may find this shocking but not everyone who works in NY, and London own properties in those cities.
Like i’ve said before trying to enlighten you is like giving medicine to the dead.
Joel
at 11:06 pm
The “workers” of the city are not the ones buying the houses. They are renting or commuting in. If there was a stat for how many house holds in Toronto had incomes above 100K and above 200K that would show the amount of people that can afford to buy and why there is such high demand.
Mike
at 2:37 pm
Ah yes, they’re renting and commuting in. Brilliant.
So let me guess, “foreigners” are buying houses and condos to rent to “workers” at discounted rates out of a sense of altruism? If housing prices start to outstrip income you don’t think rents will rise? The underlying asset has increased in price, the costs associated have increased as a result but you’re going to keep the rent the same. Brilliant. Please tell me that you and Kyle are landlords.
Kyle
at 9:25 pm
“So let me guess…”
LOL you guess?!?! Here’s a tip which will save you much future embarrassment Mike, someone as utterly clueless as you shouldn’t make bullshit statements and you certainly shouldn’t guess. When you don’t know a lick about what you’re talking about (basically all the time), you should try what everyone else does – asking a question and listening to the answer, instead of making foolish statements that telegraph your enormous stupidity.
Nobody said rents that workers pay won’t rise with prices. But just like every other rung of the real estate ladder, as prices or rents rise, people adapt and learn to settle for less. Just as those priced out of detached houses, settle for semis, renters whose rents rise beyond what they can afford, end up moving to smaller, crummier or lesser locations or they take on room mates. An apartment just sold for over $10K/ sq ft in NY, but believe it or not Manhattan is still full of workers, cab drivers, waiters, doormen, bank tellers, teachers, nurses, baristas and pretty much any job you can think of. So much for another one of your bullshit theories…POOF
Mike
at 10:20 pm
Uhm you said it, “Because the average income is irrelevant when it comes to real estate prices in a Global City” which runs completely contrary to, “Nobody said rents that workers pay won’t rise with prices.” Which is it?
You bring up a single example of an apartment in Manhattan but that’s an outlier. You’re not talking about the average cost of an apartment in Manhattan moving to $10,000 sq/ft. Six blocks north of that apartment lies Harlem where prices are below $1,000 sq/ft and a 30 minute subway ride you’re in Queens or Brooklyn where prices are even lower. How long wold it take you to get downtown from Markham, Pickering, Scarborough or Vaughan?
You’re probably also aware that Manhattan has some of the toughest rent controls in the world. Why? So people can live and work in Manhattan. Again, we don’t have that here.
But its nice that you’re actually using an example, as weak as it is, it’s still nice to see.
Kyle
at 9:10 am
“Uhm you said it, “Because the average income is irrelevant when it comes to real estate prices in a Global City” which runs completely contrary to, “Nobody said rents that workers pay won’t rise with prices.” Which is it?”
As already explained and proven, but you clearly could not comprehend it, THE STATEMENTS DO NOT RUN COMPLETELY CONTRARY.
Steve
at 11:32 pm
Mike, all due respect but that is one the dumbest comments I’ve ever read . Truly retarded
Kramer
at 11:15 am
Hahaha… Steve… “With all due respect, AND I MEAN THAT… with all due respect. You are retarded.” Love it.
Joel’s point is fantastic and to the point. Find a graph that shows the growth of the NUMBER OF HOUSEHOLDS IN THE GTA that make $100K+, and $200K+… constantly rising. Average can stay the same. If that’s not clear enough for you Mike, then give up.
Steve
at 1:10 am
I am happy there are people like Mike around . It tells me we are not yet at the peak and this bull market still has legs. Time to exit will be when Mike understands the argument and finally jumps on the bandwagon .
Kramer
at 9:34 am
Pure genius.
Mike, keep us posted.
Libertarian
at 9:56 pm
For the record, I wasn’t referring to the average household income in the city of Toronto. I was referring to annual pay raises for every Torontonian, or the lack thereof. I admit that this is anecdotal, but I feel safe in saying that most of us are not getting significant pat raises every year, maybe 1 or 2 percent, if anything. Real estate is appreciating over 10% per year. So if real estate is appreciating at a ratio of 10:1 to incomes, where are people finding the extra money to get into bidding wars and pay way more than asking?
I assume the answer will be: rich people. But as David pointed out the other day, the more you pay for an investment condo, then it doesn’t work as an investment.
P.S. – if anyone has a job where they get annual 10% raises, please let me know so that I can apply to work there!
Condodweller
at 5:25 am
One source of the money is wealth transfer from baby boomers to their kids, the other is immigration. Immigrants are not only political refugees fleeing war but wealthy individuals who promise to start a business and employ Canadians. I recently met someone who immigrated to Canada with 600k in their back pocket. Come to think of it I also know someone who immigrated from China with 500k. Yes, it was in Toronto and they bought a house.
If you want a job where you can get 10% pay increases look for one where your pay is based on performance. Of course to get 10% raises would you have to perform. It has been said that most salaried people perform the minimum amount required to keep their job. I can get you a job where it’s possible to get 10%+ raises but you probably would not want it because of the effort required to obtain it.
Add to this self-employed business owners and you have plenty of people to drive the real estate market higher who can afford current prices. There are also many professionals on contract who can afford current prices but I don’t know how much longer it can be sustained.
Regarding real estate investors, someone made a good point that real estate agents should be regulated by the OSC. Investment advisors who are regulated by the OSC must follow the “Know your client” rule which means they have to justify the investments they recommend are suitable and in the best interest of the client. I would tend to agree that real estate investors, anyone who will not live in the property, should need to disclose the fact to their agents, and as soon as a real estate agent becomes aware that it is an investment property they are recommending should have to abide by the know your client rule. Those of you who have been advised buying real estate as an investment is a bad idea please raise your hand…..
Investment advisors have to jump through hoops and carry errors and omission insurance to protect themselves in case they get sued when a client loses money, even if it was justified at the time. If they want to use leverage scrutiny increases 10 fold even if it’s only 5% yet real estate agents have 0 accountability for leveraging up investors 80%. Actually 20% down would be 500% wouldn’t it? The irony is that it’s real estate agents who constantly accuse investment advisors of conflict of interest as soon as they suggest people invest in the markets even though an appropriate portion can be invested in real estate.
A frequent topic of discussion here is how to cool the real estate market. I say either have the OSC regulate real estate agents as soon as they find out the purpose of the purchase is for investment or have their governing body hold members to the same standard as the OSC does and see what happens.
Kyle
at 9:51 pm
Your assertion are based on flawed assumptions:
1. Not everyone’s income needs to rise 10% for real estate prices to increase 10%. There are 80-100K real estate sales in the GTA and 6M people, so in theory only a small percentage of people’s incomes rising 10% could cause real estate prices to rise 10%
2. People who own, don’t have to repay the latest market value for their home (i.e. they don’t need their income to rise 10% every year). Say someone gets promoted and gets a 10% raise and buys a house, even if his income only rises 2% every year after that, every passing year it is actually getting more affordable him.
3. Lots of people in the prime home buying years 30 – 50 do get 10% raises every few years.
Kramer
at 10:51 am
Kyle’s perspective in general is correct in my opinion.
If you have an average household income of $76,000, and then you have 100,000 households move into the GTA per year with the same average income and say 25,000 of those households make up the right tail of the distribution and earn $150,000+.
a) The average income stays the same.
b) You have increased the number of households making $150,000+ by 25,000
c) You have NOT, over the same period, increased the supply of homes demanded by those right tail 25,000 households.
The last factor is the key element to prices going up so fast… which has been discussed to death on here. Not enough supply. If you’re looking at a city where they can still tear up 5 parking lots to build 150 new detached houses if the demand seems to be there, then prices will not react as they are here. This is not the case in the GTA.
When you factor in:
a) Low interest rates
b) Canada and Toronto growing in global profile and ranking in most livable cities to live in on EARTH
c) Foreign investment
d) Everything else that is a tailwind for the market
… then you have what we are seeing today. Falling back on average incomes not rising as fast as a sole reason for this being a bubble or a BS market is not only a one dimensional viewpoint, but an incorrect one dimensional viewpoint. I am also tired of hearing about average prices vs. average incomes as if the two must be PERFECTLY correlated. There’s a relationship between them… it’s just not the leading relationship. Population growth and housing supply are trumping all, with a backdrop of good employment situation and ultra low interest rates.
Did you know there are $US15 Trillion in negative yielding bonds in the market? Investors are seeking equities (businesses) and real assets (real estate, infrastructure) to invest in since bonds yields are not returning enough. So even from a crazy high up level we don’t see and many of us don’t understand, there is pressure on real estate in growing and great markets like Toronto.
Average household income… if you want to understand what is going on here, get over it.
B
at 5:18 pm
Please give us part 4 !!!!!
Condodweller
at 7:59 pm
I don’t see evidence of this “crazy market” David is talking about. I’m no agent and I don’t doubt he is busier and there are more multiple offer situations for condos, however, I don’t see major price increases for condos in the areas and buildings that I monitor. What I have seen is supply go down as in some of the buildings I have not seen a listing in the last few months where before there used to be at least a few each month.
The first two stories may be irritating to agents and disappointing to buyers but I wouldn’t call it crazy. I don’t mean to be a wet blanket perhaps I’m just not that easy to impress. Even this story is not all that crazy unless it becomes a trend as I think it’s evidence of what I said may happen which is buyers who can’t afford houses anymore move down the chain and start bidding for condos. This might explain the multiple offer situation for condos.
It’s nice to see condo prices moving up as I haven’t seen significant movements, again the places I watch. This spring I finally saw comparable units exceed min in price in a few years, and there was one that was significantly higher sold recently which bodes well for mine. Having said that, the smaller units are still sitting on the market and haven’t moved up significantly. I mean if the ones currently listed go 50k above asking that’s different, but again I think we should temper our enthusiasm until further evidence becomes available from the fall market.
Mr. Late
at 6:37 pm
Crazy indeed …. and it will continue until people get their “Vancouver Moment”.
Cool Koshur
at 8:59 pm
I understand this is crazy market. This doesn’t makes sense relative to what people make – (8X of family income) Who are buying these homes and how do they qualify for these homes for financing.
@David
What is typical demographics of people buying these homes? I mean What percentage of your clients are foreign, new immigrants, investors or first time home buyers?
Mr. Late
at 4:52 pm
“I am so tired of hearing about average prices vs. average incomes, as if the two must be correlated, I could scream.”
This must be the most dangerous and idiotic statement I’ve read on this blog. RE is an investment often driven by emotions (like FOMO) as opposed to reason, so when doubt enters the mind, enthusiasm wanes, and price becomes paramount. Don’t believe me, well then, you have not lived long enough.
Cool Koshur
at 9:18 pm
Real estate may be an investment for some. I get that from the investors perspective average price vs average incomes sound idiotic.
But for most part, people buy homes to live not for investment. Home is place where you establish roots for a family.It is no doubt biggest financial decision in life. To afford the home, one needs to make enough money to meet financial obligations of a mortgage. So from home owners perspective, income is a key factor which dictates how much you can afford. Banks wont give you a mortgage just because you want to buy a home. Average family incomes haven’t kept up with home prices. My 2 cents
Kramer
at 11:01 am
If you have an average household income of $76,000, and then you have 100,000 households move into the GTA per year with the same average income and say 25,000 of those households make up the right tail of the distribution and earn $150,000+.
a) The average income stays the same.
b) You have increased the number of households making $150,000+ by 25,000
c) You have NOT, over the same period, increased the supply of homes demanded by those right tail 25,000 households.
The last factor is the key element to prices going up so fast… which has been discussed to death on here. Not enough supply. If you’re looking at a city where they can still tear up 5 parking lots to build 150 new detached houses if the demand seems to be there, then prices will not react as they are here. This is not the case in the GTA.
When you factor in:
a) Low interest rates
b) Canada and Toronto growing in global profile and ranking in most livable cities to live in on EARTH
c) Foreign investment
d) Everything else that is a tailwind for the market
… then you have what we are seeing today. Falling back on average incomes not rising as fast as a sole reason for this being a bubble or a BS market is not only a one dimensional viewpoint, but an incorrect one dimensional viewpoint. I am also tired of hearing about average prices vs. average incomes as if the two must be PERFECTLY correlated. There’s a relationship between them… it’s just not the leading relationship. Population growth and housing supply are trumping all, with a backdrop of good employment situation and ultra low interest rates.
Did you know there are $US15 Trillion in negative yielding bonds in the market? Investors are seeking equities (businesses) and real assets (real estate, infrastructure) to invest in since bonds yields are not returning enough. So even from a crazy high up level we don’t see and many of us don’t understand, there is pressure on real estate in growing and great markets like Toronto.
Average household income… if you want to understand what is going on here, get over it.
Cool Koshur
at 9:28 pm
I carefully read these 3 posts. When I look at selling prices, there are lot of people trying to get into these entry level properties. This is least people can afford in downtown. Rent have crept up higher in last 5 years. I agree they have FOMO
M Adam
at 1:50 pm
As a potential buyer in this so-called crazy market, I find this in-depth look at the inside of the condo buy and sell world to be very fascinating!! It is somewhat troublesome when you hear consistent talk of a crazy market (albeit that is the housing community at large, not just the condo market) and then find out that lots of offers are being with-held; it really does put forward an awkward image.
This highlights the trickiness of the condo market, and also how easy it is to lose your way or to get duped into paying a much higher amount than necessary! It seems that a lot of agents we put our highest faith in when trying to buy a condo or property may not have an even remotely accurate idea of how the game is played! While I do not feel comfortable taking such matters into my own hands, I do feel better having read this and gotten some perspective on what is really going on as buyers and agents create an offer that seems to “fit.”
Milan Adam
http://torontoseoexpert.org/