Bidding War Tactic #547: The Last Minute Surprise Attack Offer

Participating in a bidding war is a strange practice.  If you're working for the seller, it can make your life a whole lot easier. Sellers sit back and have buyers and their agents present offers and gush all over them. They simply have to pick their favourite one, which is usually the one with the best price. Buyers and their agents wait in cars parked outside the seller's house or the listing brokerage hoping they are the one. It sometimes feels like a sad version of The Bachelor.

From the buyers' side, it's tough. You can spend a lot of time preparing for a bidding war and then get your ass kicked. Not a good feeling. It takes time to line up your financing and possibly conduct a home inspection. You may be emotionally invested. It may be the house you have been dreaming of since you were seven years old. And sadly this may be the case for several other buyers too.

I think it is quite human to have an aversion to bidding wars. A lot of people feel uncomfortable being a part of something so mysterious. Even if you are the one whose offer is accepted, you may wonder if you've gone too high on price since the selling agent cannot divulge the contents of the other offers. They are, however, a fact of life in many parts of Toronto with many kinds of properties. Just last month alone 62.3% of all transactions on houses at Bosley Real Estate received multiple offers. So, if you must go into battle, it's best to be prepared.

There are no guarantees with bidding wars, but from a buyer's perspective I think it is a good idea to have a plan. Usually, it is wise to do your due diligence in advance of offer night - line up your financing and do your own home and termite inspection. But that's not the plan I'm taking about. I think you have to be prepared for any surprises that may come along.

So, with most sale representatives who are holding back offers, they will ask buyers and their representative to register any offers by a certain time, like 5pm and they will start reviewing offers by 7pm. Now, if most buyers are told this, they believe that they must register an offer by 5pm and be ready to present their offer to the sellers by 7pm. And that would be understandable.

Of course, life does not always happen on schedule. So, if an offer comes in at 6pm or even 7pm, will a seller say "No, I will not see it!"?  Of course not. They will want to see it. Now, according to the rules of real estate in this province, the selling agent needs to inform all interested parties who have registered an offer with an update of how many offers are on the table. Some times, this does not always happen, and sometimes offers come in at the last minute.

There are some real estate representatives on the buyer side who use this last minute surprise offer as a kind of tactic. They will call at the very last minute to register an offer. Many feel this will throw off their competition this way.  Sometimes this tactic works, but I always tell my buyers that an offer can come in at any time up until you have a signed contract. Be prepared!

Let me illustrate this by an experience I had this year. I was representing a very nice couple who had found a home that they loved. Offers were to be presented at the owners house. Buyers and their agents walked up to the door, one by one, to present their offers. I was the third person to offer on what I thought was the last offer presentation of the night. When it was my turn, as soon as I walked in, I greeted the listing agent and the seller, and asked: "How many offers are you reviewing tonight?" Now let me remind you that my clients and I were told three offers, but when I asked this question again, I was told five. So, I excused myself and told the sellers and their agent that I needed to review this information with my clients before I could present my offer. I walked back to my car, spoke to my clients who felt they would like to raise the offer a certain amount now that we had five purchasers in the running to buy this house instead of three. Then I walked back into the house and presented my offer fully aware of ALL the offers that had come in.

What is the point to all of this? Well, I think buyers should be prepared for several scenarios. I always suggest to my buyers that they have a price they are willing to pay, within a reasonable range of market value, when there are no other offers on the property, one or two other buyers, or five or more offers on the property. That way, no one is caught off guard if the last minute offer tactic is pulled out and buyers feel unprepared.

Luckily, two last minute surprise attack offers did not prevent our offer from being the chosen one!  And on behalf of my clients, I can safely say that it was even better than landing the Bachelor!

How To Be A Better Seller

When it comes to buying some properties in Toronto right now, you need to put up your mitts and get ready to battle. We hear so much about the bidding wars and the resulting out-of-this world sold prices on Toronto homes.  Neighbours are thrilled. Buyers are depressed. Even if you are the lucky buyer to land a property in a bidding war, you fear that you have paid way more than market value after getting caught up in the spirit of the battle. 

The truth of the matter is, many properties don't sell this way. In fact, there are properties that do sell for what I consider less than their market value. It's very rare in this current market, but it can happen. And it usually has to do with less-than-stellar marketing of a property. So, just how does this happen in Toronto? How can you possibly land a deal as a buyer or avoid becoming the owner of a house that sells for under value as a seller? Well, here are my thoughts on why some properties sell below market value. 

1. The Commission Gap. Many sellers do not understand what is going to attract the most buyers. They focus on saving money by asking the selling agent for a reduced commission. Fair enough, it is your prerogative to negotiate. But be careful. If, as a seller, you only offers 2% to the buyer agent for bringing in the buyer when the overwhelming norm is 2.5%,  then the buyer may be on the hook for the extra .5% if the buyer is in a contract with a real estate sales person where he or she are to be compensated 2.5%. Buyers have enough to pay for while buying a home including land transfer tax and lawyers. The last thing they want is an additional cost .5% to make up for the shortfall the seller isn't offering. So, the seller can lose a lot of potential buyers this way, and receive a lower price on their property,  a price even less than the .5% they are trying to save. 

2. Dreaming too Big. When a seller is ready to sell his or her home, they may interview a few agents to see who would be best suited for them. It's a good practice. I recommend it. When the seller should be focusing on the marketing plan that will yield the best price for their home, they sometimes  fall victim to the real estate agent who promises the highest price. The problem with a home priced higher than everything in the building or the neighbourhood is that it tends to help sell the more reasonable priced homes nearby. So, you are overlooked as a seller. Your property receives few visits and your home may not sell for weeks. Then, after enough time, the property becomes stale, and you either need to reduce your price or accept  a low ball offer. It's not always a poor strategy to list higher with the knowledge that you may accept something less. But if you are expecting a certain number out of wack for your neighbourhood, without anything extraordinary about your home, then you are doing yourself a disservice. 

3. Doing It Alone. First of all, I'm not down on these  For-Sale-By-Owner (FSBO) folks. I think some sellers can sell their home on their own, but this is a very rare breed. Most of the time, sellers do not understand what kind of work is involved, and they often don't know how to market their home, attract buyers or price their home. In Toronto, many For-Sale-By-Owners will fail.  There is a reason why there are agents who focus exclusively on picking up FSBO listings. Many FSBOs cannot sell their home on their own. They often price too high or do not market it properly, even with the MLS.

So, with all those do nots, what should sellers do? Well, you need to make sure you choose a real estate salesperson who presents the best marketing plan and a selling strategy that will yield the best price for your place. When the focus is saving money or dreaming of a big price, the real focus is ignored. 

Let me illustrate this by a recent experience I had with two clients. These buyers were able to obtain a house that I believe was under market value. The sellers offered less commission than the regular amount.  They didn't develop a strategy for selling their home. And they did not put up any photos of the inside of their home. Most of the time when there are not photos on a listing, it's like saying the inside looks like a serial killer and a hoarder exploded from a blender. But this place looked amazing. The sellers kept it tidy and maintained it beautifully, but for whatever reason, there were no photos and you did not get a sense of how great the place was. 

So, sellers, when you're ready to sell your home, look for the salesperson who offers you the best marketing strategy, not the highest price or cheapest commission. 

Buyers, deals are are hard to come by in Toronto but you may want to revisit some of the stale listings that have not sold. Most will have not sold for a good reason, but there may be a few in there that have slipped through the cracks, ripe for the plucking at a lower price.

Is Bigger Better For Your Condo Unit?

For the past three years, the Toronto condo market has been quite predictable, maybe even a little boring. It is not like the often competitive, battle-heavy housing market where prices have shot up each year due to low inventory and high demand. Condos have had humble results in the past three years. In many neighbourhoods and buildings, there have been modest price increases. While in others, there have been slight declines. Overall, particularly in the past year, the condo market has shown some respectable price gains.

But something new is starting to take shape here in the Toronto condo market that will change, and complicate, how the condo market functions. It's true that when you buy a condo, you need to be very aware of the neighbourhood in which you are buying and the health and appeal of the building to have the best return on your investment. That will not change. What will change, in terms of an increase in value, has to do with the size of your condo unit. Bigger can be better. And when I say bigger, I'm not talking about a few hundred square feet here and there. I'm talking about the big condos, the ones that are large two to three bedroom units, a house alternative if you will. They may soon become the condo with the best return on your investment.

But why is that? It was not long ago that Toronto developers avoided building too many large condos, particularly three bedroom condos, because they had a hard time selling them. The demand was for smaller condos, not the big ones. In cities like New York, the practice of the developers was different. They did build larger condos because the people of New York are much more accustomed to living in apartment buildings for their entire lives. In Toronto, it is still mostly a new phenomenon from the past few decades. So, compared to some large cities, Toronto did not build very many big condos because the demand was not there.

But something has changed. There is an increase for the demand of larger condos in Toronto, more than ever before. To understand this, you need to look at how houses are selling in this city. Many first time buyers have become wary of the bidding wars for houses and are now looking for house alternatives. They can live closer to downtown, and they don't have to compete for a condo unit as much as they do for a house. They have consistent maintenance fees, and do not require a large renovation budget. Plus, they don't have to commute from far away if they work downtown.

Also, we have the boomers changing everything again. As they downsize from their larger homes, they are looking to be in the city, close to restaurants, their kids (if they have any), and they don't have to mow the lawn or shovel the snow. Plus, if they want to take off to Florida or Spain for four months, they can lock and leave their condo and go. As a group, they have the money for, and the desire for, larger spaces, and will not settle for less. Many have not grown up in an era where they had to live in a tiny bachelor apartment for a portion of their adult life. Real estate offered decent space at an affordable price in their lifetimes for the most part.

Condos may not be for everyone, but there is a growing demand for the big condo. And since developers have not built very many in Toronto's most recent construction boom, we have a classic case of low inventory and high demand in the making. In my opinion, this will likely lead to above average price appreciation on these bigger condo units down the road.

Why Canadians Are Buying Properties Abroad

Do you remember, about five to ten years ago, almost all HGTV shows featured British couples buying property abroad? Every time I turned on the HGTV channel,  up popped a British couple buying property in Portugal, Spain, Costa Rica, Argentina, Thailand and even Albania. We were left with the impression that British people are culturally programmed to buy properties outside of their own country.

But is this just a cultural thing? Sure, the British like to travel, and have a history of roaming (and invading) many parts of the world. I think, however, their lust for foreign real estate investment has more to do with the prices at home. London, where a whole lot of British people live, has always been expensive. If you think Toronto is expensive, try taking a look at the listing in a city like London. Owning a house, or a condo here is almost a luxury. So, many people rent in the city, and buy cheaper properties abroad. And for those British who did buy property at home, their homes have increased in value to the point where they have built up enough equity for a second vacation home in an often warmer country where things are less expensive than in their homeland. And in the case of the UK, that would be almost every other country. The recession, and the dip in real estate values around 2008, certainly slowed this process down, but properties values are back up in the UK and the hunger for foreign property purchase is back.

But why am I, a Toronto real estate salesperson, going on about the British buying properties abroad? Because Canadians share a lot in common with the British these days. From a purely geographical perspective, both countries do not have a warm, tropical or Mediterranean vacation location to go to within their own borders. Winter may be milder in Britain, but you certainly can't relax on the beach during the cold months. It's not like the U.S. or Australia or France where you can go south and be in more tropical, summer-like locations without a passport.

Also, as in Britain, Canadians have built up a lot of equity through their real estate purchases so they have the funds to buy abroad. Canada, for example, is the biggest foreign real estate investor in Florida. This may seem obvious to some, but you have to remember that Florida has become a huge destination for foreign investment from South America, Europe and China. Even in a place like Australia, Canada, after the British, is the biggest foreign investor in real estate, ahead of the United States, a country with nine times the population of our country.

So, what does all of this say? Well, I'm not trying to encourage people to buy abroad, though it is a great idea if you have the money and if you plan to spend some time in a warmer climate. But I am saying this: In the past 20 years, real estate in the UK and Canada has allowed many people to increase their wealth. Will the real estate market always be like this? Probably not. Prices rise and slip, but in places like Toronto, the long term direction is up. For long term real estate investment, Toronto ranks as one of the top cities in the world to buy real estate because of its diversified economy and its stable governments. So, if you would like to buy a cheap condo in Ecuador for a fraction of the price of a Toronto condo one day, to retire to or spend a few months during the year, then you may want to build some equity at home first.

The Million Dollar House

Remember when $1 million dollars was a lot of money? It was not too long ago that the term "millionaire" meant you were in the leagues of Thurston Howell or Howard Hughes, a yacht-owning, caviar munching member of the luxury class. Today, one million dollars is still a lot of money, but it hardly puts you in leagues of the super-rich. In some Toronto middle class neighbourhoods, it is quite common to be a millionaire, especially when it comes to real estate. I've seen teachers, labourers, even cleaning ladies become millionaires when they sell the houses that they purchased in the eighties, in once humble Toronto neighbourhoods, for seven figures thirty years later.

Nowadays, as far as Toronto is concerned, the established neighbourhoods have no problem hitting the million dollar mark, but even the more advanced emerging neighbourhoods like Leslieville, the Junction, and Beaconsfield are closing in on the million dollar mark and, in some cases, surpassing it.

Now, there are two ways of looking at this phenomenon. One is to say wow, houses are sure overpriced in this city and we are due for a serious and much needed correction. And that may be true, but I would more likely think that we are undergoing a certain transformation in this city that is fundamentally changing how this city functions. And it's changing so fast, it is hard to keep up with which neighbourhoods are emerging next.

For example, you may have visited or lived along Queen Street West when it was the cool part of town and a cheap place to rent from a nice Portuguese landlady at at reasonable price in the nineties. The thing is, the cool thing, whether you like it or not, has been made public. When Vogue calls you the 2nd coolest neighbourhood in the world, some may roll their eyes, but it does say something. When people move to this city from New York, Chicago, London or even Oshawa, they will Google the cool neighbourhoods, and up pops Queen West. And that's where the newcomers want to go because they do not know much about Toronto, but they want to live somewhere uniquely urban.

So, this humble strip becomes a destination. The hookers who used to hang out across from Trinity Bellwoods take their business elsewhere. The 20 something cool t-shirt shops or that place to buy a bong gives way to designers and top notch bakeries and restaurant. It is not as chi chi as Yorkville. It still has some grit to keep it interesting. But there's no denying that this neighbourhood is becoming wealthier. A Northcott home, for example,  that was once a rooming house, became a house featured in a architectual and design magazine.

Now, I'm not saying all of this to affirm how awesome Queen West has become for the jet set and the super fancy. I do, however, think something very interesting is happening in our city. Living downtown is becoming a luxury for those of us who like to live in houses. The hub of wealth in Toronto is shifting from the midtown to downtown centre east and west.

I'm also suggesting that those who bought up early when places like Trinity Bellwood near Queen east or Beaconsfiled sure made a killing when this neighbourhood was still emerging and had some of the roughness from its past. That's why there's been an explosion of Canadians buying property abroad in Florida, Hawaii, Australian, Europe and South America. They have built up equity in their home here in Toronto.

Of course, there's no guarantee that the equity in your home will always be there. The market can change, but I still think house-buying in Toronto is a good idea. Here's why:

1. Houses are good investments in Toronto because they don't build them very often any more in the city limits. It's simple supply and demand. Supply is limited, but demand grows.

2. Traffic is making the idea of a short commute to the city centre a lot more appealing. The closer you are to downtown or easy access to it, the better. The time is coming where the cost of a home may depend on the distance it is to the downtown.

3. There are other emerging neighbourhoods to watch. I don't know if we'll ever see something as trendy as Queen West or Ossington or Leslieville occur as fast, but it's happening in the area around the Junction Triangle along Bloor and Lansdowne, and along Wallace. It's happening in the Danforth Village, the area along St. Clair West, up to and past Dufferin. And there are other neighbourhoods that are still less expensive that I believe will be worth a lot more one day.

You have to roll the dice, be patient with the rough-around-the-edges neighbourhood, and chances are, they will improve in value. Not every neighbourhood in this city, but some key ones.

The momentum for living in Toronto (and many other cities) is growing. Toronto will be a very different place in 20 years. Maybe, if you take a leap of faith with your real estate investments, you could be a millionaire like Thurston Howell or Howard Hughes. Sure, a million dollars may be worth even less in 20 years, but you will likely prosper from Toronto's transformation.