The First Week Back!

Stories!

10 minute read

January 14, 2019

I was in the office on January 2nd, to the surprise of nobody, especially not my wife.

I’d had just about as much “time off” as I could handle, and couldn’t wait to get back to the cozy confines of my office.  The only problem was: there are no new listings in the days after New Year’s!

January 2nd was a Wednesday, and very few, if anybody, is going to list a property for sale on January 2nd, 3rd, or 4th.

So this past week was the first true week “back” at it, and while new listings were still scarce, I was pleasantly surprised by the quality of the listings that we did see.

Don’t get me wrong, it’s not nearly enough to satisfy the demand.  But it’s more than expected, and I found myself making three offers for buyers last week, which was surprising for early-January.

I fielded some calls and emails from new prospective buyers and sellers, and by the time the week was done, I realized that the different experiences I’d had might shed some light on the current state of the market, what’s hot and cold, and where the surpluses and deficits lay.

Or, maybe it’s just five days to start the year, which means nothing.  But I can’t help but think it’s the former…

Clients of mine have been looking for a freehold home for over a year.  They came to me after working, unsuccessfully, with another agent (this happens quite a bit in our industry), and were eager to get started in 2019, as soon as listings came about.

To our collective surprise, there was a perfect new listing in their target search area which hit the market on Tuesday.  This is, keep in mind, Tuesday the eighth day of January.  Who in the world would choose to list their home only eight days into the new year?  It was strange, but welcome!

When we first discussed the home, I told my clients, who have a budget of $999,999 due to the obvious mortgage restrictions, “This is a hard-no.  It’s a great house, but even without parking and backing onto a main street, I think this is a $1,050,000 house.”

My clients were obviously disappointed, but I always tell my clients in that price range, “We have to be active in order to be successful.  We need to try to make something happen.”  And while I’m not the type of agent to run around the city making dummy offers (ie. the ones without any chance of being accepted that oh-so-many buyer-agents make), I told my buyers that I would chat with the agent.

The agent was admittedly bearish on the market, and so too were her clients.

I asked her point-blank, “Is this a high-$900’s house, in your opinion?” and she said, “Absolutely, my clients are reasonable.”

I further asked her, “Would they be interested in a bully offer?” and before I could finish the sentence, she was already telling me that, indeed, they would be.

She questioned the timing of the listing, and the condition of the market.  She told me her clients were reasonable people, and they didn’t have any illusions of grandeur.

So we put together an offer for $999,000, obtained a bank draft for a deposit, and submitted the offer at 2:00pm with an 8:00pm irrevocable.  The timing is always tough with bully offers; you don’t want to give the seller too much time, ie. 11:59pm in this case, as we would fear the door to other offers coming in is left far too wide, but you also can’t shove it down their throat by giving them an hour to decide.  The house, by the way, was listed at $874,990.

At about 3:30pm, the agent called me to say, “They’re going to work with the offer,” which in bully-offer terminology basically means, “We are going to forego our scheduled next-Wednesday offer night, and accept your offer, provided another offer doesn’t come in and beat it.”

The last part of that sentence is never said, but inferred.

If the seller decides to “work with” the offer, it means that they’re now going to get the ball rolling, so to speak, and call all the other agents who have shown the property to let them know that there is a bully offer, and it will be presented that evening.

As an aside, were are still seeing a handful of listings that specify, “Seller Reserves The Right To Consider Pre-Emptive Offers Without Notice,” which is illegal, and was a problem back in the spring of 2017, but those agents are mostly discount brokerages and fly-by-nighters that you’d expect this behaviour from.

In any event, my clients and I waited on pins and needles to see if our offer would have legs.

The first step was now complete: we had convinced the seller to move up their offer review day, and convinced them to work with our offer, which was well below what we thought was fair market value for the home, but the sellers seemed to think the price was fantastic!  Now we had to hope that we would catch the market sleeping, and that other buyers wouldn’t materialize, and wouldn’t be able to get their act together to draft an offer and procure a bank draft within 3-4 hours.

As is always almost the case, however, two more offers were submitted by 6:30pm.

And when I called the agent at 7:00pm, I could hear it in her voice.  You just know by the way they pick up the phone.

Along with our bully offer, there were four more offers in the end.

And by 8:00pm, the property had sold firm for, wait for it……..$1,050,000.

Hmmmmmm….silver lining?  That I pegged the price?

Do we take any solace in the “efficient market,” in that this house sold for what it was worth?

Irrespective of my clients’ situation, I suppose.  But the entire point of this excursion was to try to catch the market off-guard in early January, and yet the market countered our offense with brilliant defence, and the house sold for what it should have.

What does it say about the market that only one week into the year, a house is selling for 20% over list, with five offers on a bully attempt?  What does it say about the market that four other buyers came to the offer table, within three hours of a bully offer being submitted, all in the first damn week of January?

It tells me that the market is resilient, at least in this price point.

Later in the week, I was called in to price a Scarborough home which I noted had been languishing on the market for the better part of two years.

This house was listed for sale in March of 2017 at a price that, even then, seemed really high, and then sat on the market through the spring and summer.

It was a beautiful house, but a new-build in an area that was full of new builds, and while the getting wasn’t just good, but rather great in 2016 and into 2017 for builders, things really cooled off in April of 2017.

The house was eventually rented out in the fall of 2017, and that lease expired by the end of 2018.  The tenants are now on a month-to-month lease.

I met with the seller at his home, and we weren’t alone.  A family of six was present in the house, although it felt as if a family of at least twelve lived there, based on all the stuff.  Call me a minimalist, that’s fine.  I’m O.C.D. and I like things a certain way, not to mention I hate clutter.  But I’m being fair with respect to this home when I say it was a……hmmm…….what would I call it….

…..rat’s nest?

That’s harsh.  But I don’t care.

This house was a rat’s nest.  It was God-awful.  I simply cold not believe what tenants had done to this house in such a short amount of time.

And yet the photos of this house from when it was up for sale in 2017 show a gorgeous renovation, with gleaming, never-used-before features, in a never-lived-in house.

I found it to be very odd to present my market analysis to the owner in front of the tenants, but the owner didn’t seem to mind, and the tenants (the father, at least) was extremely curious.

I went through my evaluation with the seller, and I could tell by his body language that he didn’t like what I had to show him.

This house was on the market for $1,299,900 in March of 2017 when it was probably “worth” $1,200,000 and yet it still could have sold for that ridiculous price, only because everything was selling back then.  By the time July rolled around, he’d have been lucky to get $1,150,000 for it, and perhaps I’m just being generous here, and feeling his pain.

I compared his home to every single new-build that had sold in the past 24 months, making adjustments for every conceivable feature: bedrooms, bathrooms, square footage, garage and/or parking situation, lot frontage, lot depth, location, features/finishes, school district, proximity to transit, etc.

I used four different metrics for the time adjustment:

1) GTA average home price
2) 416 average home price
3) 416 average detached home price
4) Scarborough average detached home price

I showed him what his home would be worth with all the adjustments, and then each of the adjustments for time shown above.  Then I showed him what it would be worth with an average of those four, just for good measure.

In the end, I felt that the 416 average detached home price metric made the most sense, since there weren’t enough sales in Scarborough to avoid a sample size error.

I concluded that his home was worth $1,100,000, but we could try listing for $1,169,000 for a short period to see if we have any bites, and perhaps let buyers feel that they’re getting a “deal” if we dropped the price by $50,000, either in a negotiation, or via revised listing after 30-45 days.  This listing, I told him, would be a long, drawn out process due to the current market conditions for this home in this area.

With his arms across his chest, he said, “I wouldn’t sell for less than $1.4 Million.”

What would be going through your mind, if you were in my position?

I was just floored.  Absolutely gobsmacked.

“Do you think that your house is worth $1.4 Million?” I asked, “Or do you mean that you wouldn’t sell for less than $1.4 Million?”

“What does it matter?” he asked me.

I explained that it matters because I would love to wave a $20 bill around in the parking lot at Best Buy, offering to part with it for $25, but I didn’t think I would have any success.  I explained that “wants” and “needs” are two different things, and there is zero correlation.

“I want $1.4 Million for my house,” he told me, “And if you want my listing, you’ll get me my price,” he explained.

I told him in as respectful a way as possible that I didn’t want his listing at $1.4 Million, and that nobody would get him his price.  Further, any agent that did want his listing at $1.4 Million should represent an immediate red flag in his field of vision.

I knew this wasn’t going anywhere, so I asked him, “Just to confirm – this house will be vacant when it’s for sale, correct?”

He presented a bit of a cocky smile, as I think that by this point, he didn’t like me, and he said, “Now why would I do that?”

This was tough, given the tenant was sitting right next to me, but I believe in this business, truth trumps feelings, so I said, “This house shows poorly.  Very poorly.  When I list properties for sale, I recommend that they are vacated, cleaned, painted, staged, and marketed.”

“Let me tell you something about the math,” he responded, as I literally began writing this blog post in my head.  “I’m getting $3,000 per month in rent for this house.  I can’t afford to have it sit vacant for two months while you rearrange the furniture, then have it sit for another five or six.”

Playing on his theme, I said, “My math tells me that eight months represents a paltry $24,000 in lost revenue, and yet you’re about $300,000 high on the price of the home.”

He went on to explain that every month he had the tenant in the house, he lost $5,000.  He was leveraged up the you-know-what on this project, and had a construction loan to boot.  He had apparently lost $75,000 by holding this home for 15 months, which is why he figured he could simply add that number to his original ask of $1,299,900, and then round up for good measure.

I left on cordial terms, asked him to keep my evaluation, and encouraged him to look it over with whichever agent he hires to list the property.  I told him that a small loss is better than a large loss, and that it might make sense to cut the cord.  I explained that not every builder/flipper/renovator makes money on the first go-around, and that in the long run, he would look back at this a small bump on the road.  I felt like his mother, trying to put a positive spin on getting beat up at school; something like, “They pick on you because they’re jealous of you!”  But in the end, I could tell my words were falling on deaf ears.

That home will never sell for anything close to what he’s asking, and with that family living there, I don’t believe buyers will even look at it.

My last story is about as basic as they come – it’s about an entry-level condo in King West.

I’m working with a few investor-clients right now, all of whom want to buy a condo in the downtown core, close to cash flow neutral, with long-term appreciation potential, and low maintenance fees.

My client threw me for a loop when he told me in the New Year, “I want to keep the purchase under $500,000,” which is a number that I think will be really, really hard to achieve this year, unless you’re considering bachelor units or junior-one-bedrooms.

Low and behold, a unit came up for sale for $499,000 in prime King West – 545 square feet, with $203/month maintenance fees.  This building, FYI, has seen its fees decrease every single year since its inception, and from what I can tell, has the lowest fees per square foot in the downtown core.

Within about five minutes of entering the condo, my client said, “Let’s make an offer.”  Investors usually know right away, although to be fair, I see this a lot with end-users as well.

We submitted an offer by 9:30pm, for full-price, with a deposit.  The offer was set to expire the next day at 12pm.

I didn’t hear back from the agent until 11am the next morning, and he had some “life circumstances” that were not ideal to our situation, but to be fair, life happens, and we were forced to wait until later that evening to get a response to our offer.

Of course, by later that evening, there was a second offer, and we ended up losing.

We had come up to $510,000, but the other offer was also $510,000, albeit unconditional, and with a very quick closing.

Knowing that the listing agent had yet to order the Status Certificate, this means that the competing buyer was willing to make an offer without a condition on Status, or even a review of the status.  That’s something we saw a lot in early 2017.

I have no doubt that this was still a good buy at $510,000, but we would have likely had to offer $515,000 or more, and who knows how much we’d have to actually pay in order to beat out an unconditional offer, when our offer had a condition.

So all in all, it was a busier-than-expected week, for the first real week back.

These three situations underscore what I had predicted going into the year: entry-level freehold homes in the central core will be hot, downtown condos will be hot, and houses outside the core, as well as builder-spec-homes, will remain cold.

So far, nothing out of the ordinary in the market.

But I will say that inventory is suffering.

We saw 5,034 active listings in January of 2017, and then 11,894 in January of 2018.

Do you believe the 2019 number will be closer to 2017, or 2018?

Written By David Fleming

David Fleming is the author of Toronto Realty Blog, founded in 2007. He combined his passion for writing and real estate to create a space for honest information and two-way communication in a complex and dynamic market. David is a licensed Broker and the Broker of Record for Bosley – Toronto Realty Group

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27 Comments

  1. Appraiser

    at 8:23 am

    …if there were more good listings, there would be more sales…

    It’s not a demand issue, especially in the core.

    …if you list it (and it’s any good), they will buy…

    1. Chris

      at 10:27 am

      “BoC Governor Poloz…repeated his previous estimate that it can take between 18 and 24 months before the full economic impact of each rate hike can be felt. That’s concerning because our already slowing economy is only just now experiencing the impact from the first of the BoC’s five previous rate hikes.”

      https://www.movesmartly.com/articles/the-glaring-omission-in-the-bank-of-canadas-latest-forecast

      But Poloz and the BoC are probably just jokes too, right?

      In other news, according to polling by the Financial Consumer Agency of Canada, the average HELOC holder at a federally regulated bank owes $65,000, 27 per cent of users reported paying only the interest portion most months, and 13 per cent said they regularly use HELOCS to meet payments on other debt, while another 16 per cent said they did this “sometimes”.

      “Many consumers appear to lack awareness of the terms and conditions of this financial product, exposing them to the risk of over‑borrowing, debt persistence, uninformed decision-making and wealth erosion”

      More jokers at this agency, I assume?

      1. Appraiser

        at 11:19 am

        Some people are poor money managers, duh.

        1. Chris

          at 11:47 am

          As usual, you’ve missed the point by a country mile.

          Put the above together with the BoC, CMHC, and OSB info I posted last week:

          https://torontorealtyblog.com/blog/top-ten-burning-questions-for-the-2019-real-estate-market-pt2/#comment-100356

          Hardly seems that “one big bear driver just went off the road”. If Poloz and the rest of these groups are to be believed, we will see the full impact of the first of five interest rate rises between now and July. That leaves four more, plus any additional raises this year.

          But hey, maybe you’re right? It’s nothing, just a couple of people bad with managing money, totally yawn-worthy. Damn Poloz, always so uppity.

        2. Housing Bear

          at 12:46 pm

          And those people who are poor at managing money will soon be the ones setting price comps

          1. Appraiser

            at 7:14 pm

            Nah, stats show that those that go bankrupt and are closest to bankruptcy are overwhelmingly renters.

          2. Housing Bear

            at 8:06 pm

            Which stats are those? Curious how many renters get approved for HELOCS. Do you do the appraisals for those loans as well?

          3. Housing Bear

            at 8:10 pm

            YIKES……….Scary to think that someone who is responsible for valuating the underlying securities for a debt load larger than our economy can’t even follow a conversation that goes longer than a single post

          4. Chris

            at 10:08 pm

            Yep, appraiser seems to be getting angrier, ruder, and less willing to back up any of his claims by the day.

            Instead of rebutting any opposing views, he just resorts to calling everyone clowns or jokes. Then, when he’s definitively proven wrong, he slinks away without response.

            It makes for very poor debates, but by us responding and picking apart his theories, at very least anyone else reading will see his errors.

      2. Professional Shanker

        at 1:11 pm

        HELOCs are a ticking time bomb in Canada for obvious reasons but I wonder if a decent percentage of people are using them for their tax deductible feature as opposed to a pure consumption basis. As Canadians we are not able to deduct mortgage interest, but once you get to a point where you have paid off/close to paid off your principal residence, why wouldn’t someone utilize a HELOC to invest. The interest payments are tax deductible so essentially someone is borrowing at the HELOC interest rate (current is approx. 4.5%) * highest marginal tax rate = 2.25% in certain cases.

        I wonder the % which are doing this and does it skew the % upwards?

          1. Professional Shanker

            at 1:59 pm

            Thanks…..not that significant at 11%

            Overall, most respondents tended to use HELOCs for similar purposes, regardless of demographic differences such as age or income. However, HELOC borrowers with annual household incomes above $150,000 were more likely to have used HELOCs for financial investment or investment in real estate. HELOC users aged 25-34 were more likely to say they used their HELOC for day-to-day expenses, education/training, and business purposes

        1. Appraiser

          at 7:20 pm

          “Ticking time bomb”

          So ominous. Stop it you’re scaring me.

          Nothing but hyperbole and conjecture from you clowns.

          1. Professional Shanker

            at 10:09 pm

            Tick tick

      3. Kyle

        at 1:24 pm

        Let’s be very clear here. When Poloz estimates that it takes 18 – 24 months for the full economic impact to be felt, he is talking about feeding back to GDP, not house prices.

        Also as it relates to houses, people need to qualify at the qualifying rate (which is not impacted by BoC’s rate decision), so the rate set by the BoC has much less impact to house prices. They’ll affect HELOC and renewals, but those impacts to house prices are more secondary than what they would have been through the the primary mortgage market before B20.

        1. Chris

          at 1:40 pm

          The qualifying rate typically climbs as the big banks raise their mortgage rates, in response to the BoC raising interest rates/higher bond yields.

          HELOC and mortgage renewal rates may impact prices through increased pressure on households, and investors/speculators. This will presumably take longer to manifest.

          And if the impact of interest raises is to blunt GDP growth, I doubt the public’s response to slowing economic expansion, or a recession, will be to bid home prices ever higher.

          I don’t think it’s so cut and dry that you can simply write off Poloz’s comments as pertaining solely to GDP, and therefore not impactful on home prices. They’re interconnected factors.

          1. Kyle

            at 2:08 pm

            Exactly no one including Poloz knows exactly how much lingering effect there could be to house prices, if any.

            Just as no one can write off any lingering effects, no one should suggest that the brunt of residual effects are still on their way.

          2. Chris

            at 2:18 pm

            “Let’s be very clear here. When Poloz estimates that it takes 18 – 24 months for the full economic impact to be felt, he is talking about feeding back to GDP, not house prices.”

            “Exactly no one including Poloz knows exactly how much lingering effect there could be to house prices, if any.”

            Your two statements seem to be at odds. In one, you appear to know that Poloz is referring exclusively to the impact on GDP, and not house prices. In the other, you claim that we cannot know what future impacts will be, and if they will or will not involve house prices.

            I can’t personally predict exactly what impacts remain to be felt, but I believe the BoC when they say all have not yet manifested. I also don’t think many of these will be positive for house price appreciation. Perhaps neutral, but some will feasibly be negative. Hence why I said to appraiser that it is premature to declare that “one big bear driver just went off the road” because rate hikes are slowing.

          3. Kyle

            at 2:46 pm

            “Your two statements seem to be at odds. In one, you appear to know that Poloz is referring exclusively to the impact on GDP, and not house prices. In the other, you claim that we cannot know what future impacts will be, and if they will or will not involve house prices.”

            It’s not at odds at all. Poloz is referring exclusively to the impact on GDP, he says nothing about house prices. Which is entirely aligned me saying with we can not know what lingering impacts will be to house prices.

          4. Chris

            at 3:42 pm

            Actually, it seems Poloz was referring primarily to the lagged impact that interest rate rises have on inflation:

            https://www.bankofcanada.ca/multimedia/mpr-press-conference-webcasts-january-2019/

            At approx. the 36 minute mark.

            As I outlined above, it is feasible that interest rate rises will continue to have impacts on house prices, albeit less directly, through mortgage renewals and blunted GDP growth. It’s not guaranteed, but as you say yourself, nor can we write it off.

            Therefore, I repeat, to claim that “one big bear driver just went off the road” because rate hikes are slowing, seems very premature.

  2. Retired Real Estate Broker

    at 8:38 am

    Back in the day when I was still selling real estate, we used to hand write our new listings on a designated white board in the office.

    In order to diminish the embarrassment and possible ridicule, in front of one’s colleagues, at least to some degree, when scribing a poorly-priced listing on the board, it was followed by the letters OPT.

    Over Priced Turkey.

    One agent was quite adept at drawing a life-like turkey tail.

    Gallows humor.

  3. John

    at 8:53 am

    Does the address start with 70? I guess someone is trying to sell at just under 1.4

  4. Chris

    at 1:05 pm

    Scott Ingram with some great data on the 416 market over the first two weeks of the new year:

    “Inventory building much quicker pace than last year. Interesting to watch because from what I see unofficially sales volumes are down in first 2 weeks. 416 Freeholds -22% 416 Condos -20%”

    https://twitter.com/areacode416/status/1085222062812213250

    Obviously small sample size given time-frame, and may be somewhat confounded by people pulling forward transactions at the end of 2017 to beat B20. But interesting data nonetheless.

    1. Appraiser

      at 7:16 pm

      Whatever floats your boat, or sinks it.

      1. Appraiser

        at 7:45 pm

        “FWIW a house in Wychwood that my clients were interested in had 16 offers and sold $300K over asking (and $100K over what I thought it was likely worth). So your mileage may vary (across housing types and neighbourhoods).”

        Scott Ingram.

        1. Housing Bear

          at 8:20 pm

          LOL! Here’s how that thread started off

          A live look-in at 416 Active Listings. Inventory building much quicker pace than last year.
          Interesting to watch because from what I see unofficially sales volumes are down in first 2 weeks.
          416 Freeholds ⬇️22%
          416 Condos ⬇️20%

          – Scott Ingram

          You really cant follow a topic past a single post can you?

          On a side note……. I thought Dec 2018 sales were supposed to be down YOY because we had that pull forward effect at the end of 2017 as people were trying to beat stress test. January 2018 massive MOM drop was blamed on this as well………. January 2019 trending to be even lower than 2018!? and in the “HOT” 416!?

          1. Chris

            at 10:12 pm

            Ya, Scott really sums it up for us multiple times:

            “So increasing increasing listings and decreasing sales mean ⬆️ months of inventory. Rising MOI means heading towards buyers market (and softer or falling prices).”

            The data may be based on a relatively small sample size, but it is the data, and one anecdote of a home selling over-asking does not supersede that.

            Given that Scott Ingram’s analysis is only for the 416, I suspect numbers look even worse TREB-wide.

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