The market shift that began in July 2012 which resulted in a significant decline in unit sales has now settled into an active balanced market. Buyers and sellers generally take time to get in sync when the market shifts from a hot seller’s market to a balanced market especially when sellers hang on to their hot market expectations; multiple offers, bully offers, sale prices well above the list price, unconditional offers and houses that sell overnight.
Statistics for central Toronto districts C01-C04 for the first six weeks of 2013 (excluding condos) as compared to the same period in 2012 show:
- 20% decline in unit sales
- 45% of houses sold above the list price in 2012 as compared to 26% in 2013
- Average percent over the list price was 10.76% in 2012 versus 7.54% in 2013
What do these statistics mean? Obviously today’s market is not as heated as it was in 2012 but it’s still very active. So who rules the real estate market in 2013? Buyer or Seller?
Today's buyer seems to have heeded the warning issued by the federal government last July when changes to mortgage rules were implemented to cool the housing market. However, motivated by low interest rates, buyers have returned to the market after retreating somewhat in the latter part of 2012. Nevertheless, buyers are much more level headed than they were in the hot seller's market of 2012 and generally will not accede to seller demands as easily. So how is buyer behaviour different today than it was in the hot seller's market and how is that change affecting the overall market?
- Buyers are still very willing to buy, because mortgage rates are at an all time low, but fewer buyers are willing to participate in a frantic bidding war.
- If a buyer decides to participate in a bidding war, they usually act more sensibly offering less over the list price than they would have in the hot market of 2012.
- Many buyers are more willing to walk away rather than overpay for a house if it looks like competition is getting fierce for a property.
- For the most part, gone are the days when a seller can sign back the only offer they receive above the list price just because. This was not unusual in the frenzied seller’s market of 2012 when buyers were more willing to comply with a seller's grandiose expectations. Today, a seller’s stubbornness can prove to be costly if the buyer walks away and the seller doesn’t get another offer at a later date even at the asking price.
- Most properties that sell above the list price do not receive 6 to 10 offers which was a more frequent occurrence in a hot seller's market.
- For the most part, the bully offer is as common as the rotary phone – for now.
- Many buyers are taking a little more time to decide to purchase and therefore some properties are on the market slightly longer than in a frenzied seller's market.
Although the latest 2013 statistics show a market that’s slightly skewed in the sellers favour, sellers should be careful not to get too cocky because buyers are more level headed than they were last year. So what advice would we give sellers so they can be in sync with buyers in this market?
- First, if you're going to set a date for accepting offers, do so with caution and with knowledge of the potential risks. In this uncertain market buyers are more rational and are more likely to change their mind about buying as more time passes. For instance, if a buyer sees your house on a Friday and wants to make you an offer but has to wait until Monday (because that is the date set to review offers) the buyer’s interest may wane and it is entirely possible that on offer date you will have no offers to consider. So you may want to think about reviewing offers as they come in - especially if you’ve already bought another house.
- If you're going to play the price game by under listing a property to attract more offers hoping it will sell at the highest price possible, you may be disappointed. Unlike the spring of 2012, there aren't as many buyers submitting offers today so you may be leaving money on the table. On March 1st an agent blogged that he showed his buyer client a house listed at $489,000. He believed the property was very underpriced and it would fetch upwards of $650,000. His clients were prepared to pay $605,000. On offer night only three buyers came to the table and his buyer clients procured the house for $570,000. This is an example of a pricing strategy that went wrong.
- The old real estate saying "Your first offer may be your best offer" is especially true in this market and sellers should be very careful about rejecting reasonable first offers especially if you’ve bought another house. An example of this is when we presented an offer for $947,000 on a property that was listed for $969,000 with another brokerage (the property had been on the market for many weeks). The seller rejected our offer and eventually sold the property for much less than the price our buyer offered. Clearly, in this case, the first offer was the best offer. This happens more often than you think.
- Sellers should take their real estate agent's advice and set an asking price that reflects comparable sales and the realistic valuation of the home’s unique attributes. Time is not necessarily your friend in real estate and generally the longer your house is on the market, the less you will get for it.
- Conversely though, you should not overreact if you don't receive an offer within the first week because some houses are taking a little longer to sell. Reducing the asking price should not be done too hastily either.
- Sellers should provide a pre-listing home inspection to the buyer to encourage firm offers. In this market, buyers are more likely to change their mind during the conditional period because they don't feel the urgency to purchase when home prices are not rising rapidly as is happening now. Making matters worse is if your agent reports the sale on the MLS system and then has to record it as “having fallen through on a home inspection”. Going forward this will not bode well to achieve the highest sale price for your house.
- If you sell your house conditional on a home inspection and the buyer happens to ask for a reasonable rebate in the purchase price because they found an unexpected deficiency, seriously consider it but negotiate the terms with the buyer to come to a compromise, if possible. Don’t dismiss it outright for the wrong reason. Too many times sellers dig their heels in, sometimes out of pride, and deny the price reduction to only sell their house for so much less weeks or months later.
It’s best to discuss all your options and their associated risks with your real estate agent to achieve success in this new market reality. Every situation is different and will require its own strategy and considerations.
In todays market both buyers and sellers can be winners as long as sellers remain realistic and don’t hold on to expectations as if we are still in a hot seller's market. Yes, many properties are still selling above the list price but today we are dealing with a different, more level headed buyer, who is willing to walk away rather than comply with unreasonable seller demands.
Buyers on the other hand, will be successful if you remain sensible and don't bite off more than you can chew. But if you find a house you can afford and it fits your criteria, then act on it because it‘s definitely a great time to buy a house. Consider locking into a ten year mortgage rate. In the long run it wll save you tens of thousands of dollars in interest payments if rates go up substantially before your term is up.