Buying in the Toronto Real Estate Market? Here’s what you need to know!
February 28, 2017
Buyers in the Toronto real estate market face a number of challenges, but none are impossible to overcome.
The first challenge is the lack of inventory. It’s no surprise that when there’s a shortage of listings, one of the results is that buyers are willing to make more compromises on their “wish list” than ever before. But what makes it that much more frustrating is that those homes are often sold before we have a chance to see them… the market is incredibly fast and it forces prospective buyers to step up their game and be on high alert with flexible schedules. It’s definitely a case of “the early bird gets a better chance of getting the worm… maybe”.
For example, as of today, let’s say somebody is looking for a one bedroom apartment with parking and they’re able to go up to $350,000. When I do a search for a buyer from Mimico to Coxwell, which is a huge area, I’m seeing about 24 listings and that’s including studios. That is incredibly little inventory. Or when I’m looking for a two bedroom with or without parking from $0 to $700K, from Spadina to Sherbourne and from Gerrard to Bloor Street. there are approximately 16 units available.
So when a new listing goes on the market, there is a flurry of activity early on… it’s not unusual for there to be 40-60 showings booked in the first 48 hours if it’s a desirable location and in a highly- sought-after building or home in “have to have” neighbourhood. The reason for this burst of showings early on is because, although many listing realtors will set a date to review offers from interested buyers, the seller often reserves the right to review pre-emptive offers (commonly known as bully offers). What this means is that even though a date has been set to accept offers, that could change to an earlier date. So in short, on that same day the property was listed, there could be a handful of offers registered in hopes of speeding up the process and forcing the seller to review and accept an offer earlier than planned and if a buyer doesn’t get in to see the property early, they may never have the chance to see it or bid on it.
For buyers right now, it’s all about patience and preparation. A buyer has to make sure that they are pre-qualified for a mortgage, know their maximum carrying costs and be prepared to make an offer when a unit they’re interested in hits the market. The patience part comes into play because so few units are hitting the market. Depending on the criteria, a buyer may find one new listing a week coming to the market that may work. So if a buyer sees one that works and can get into see it quickly, if it’s right, they have to act fast.
It’s important to know the maximum budget, because the second challenge is pricing. For sellers, there’s no accurate way to price a unit these days. The winning buyers are those who are going way beyond what the historical data tells us may be a fair price and the winning bid is often times way out of a buyer’s comfort zone. The truth is that week old historical data is considered old data nowadays and because we have no idea what someone else is willing to pay for a property, a buyer often has to go in with an “all or nothing” strategy and hope it sticks.
A great example is a two-level loft listed recently in King West that was approximately 900 square feet. Between showings and open houses, I can imagine it was hard to keep count as to how many people came through the property. In the end, they had 30 offers and the property sold for 40% over the asking price. Now some might say that’s crazy but honestly, it’s the new reality of our market. At the time of listing, it was the only property like it, so it was bound to generate excitement. Product is so rare and there are so many people looking. It’s a perfect example of supply and demand!
How can a realtor help?
Emotions are heightened when a buyer is putting in an offer. Chances are a buyer will have to make an offer on a number of units before they are successful. Admittedly, some days it’s difficult to know how to advise a buyer. It seems absurd to tell people they have to go $150K or more above asking to secure a one bedroom plus den… but again that is the reality of the market and there is still growth potential in Toronto real estate purchases. The odds are still very high that buyers can make money in this kind of market… certainly no one should ever strategize a real estate purchase with a short-term mindset; long term hold purchases are always wiser. But at this point, if you buy and have to sell in the short-term, I suspect you won’t get hurt too badly, if at all.
At one time $600-$700 per square foot was the higher end of the market and now properties are selling for $900-$1000 a square foot and nobody is blinking an eye…. again the new reality.
A third challenge for today’s buyer is financing. If a buyer doesn’t have a sizeable down payment and the bank appraises the condo at significantly less than they’re offering, they may not qualify for the mortgage. To make things even more difficult, if a buyer includes a financing condition in an offer they are submitting, a seller may disregard the offer completely… especially if it’s one of ten offers and the other nine have no conditions. One has to be very secure in their ability to get financing… it may feel like jumping in feet first and it’s scary!
The Toronto real estate market is scary to navigate through at the best of times, but it’s still possible to find a place you love within your budget. It just takes time. You need to educate yourself and watch the market. Know what your options are. A good realtor will guide you and give you the time you need to get comfortable with the process so that you can act fast when you’re ready… in short, get your ducks in a row and then fire!
If you have any questions about buying or selling in this market, please don’t hesitate to get in touch.