While rising real estate prices and bidding wars have many sellers dancing their way to the bank, realtors are not necessarily as happy about the situation.
For one, it means a lot more effort that goes into the sale of a single property when there are multiple offers and bids. This reduces the time they can spend sourcing new business. Secondly, they must find creative ways to get the
attention of prospective buyers as new listings come up almost every day with more homeowners being tempted to sell.
One realtor, Manjit Singh, had a brilliant idea of listing a Toronto home for $1. He admits it was a marketing gimmick aimed to generate interest in his property. He says that with the real estate market being so crazy, he was just
looking for a way to stand out. And it worked, considering all the media coverage he has received. He intends to take full advantage of bidding wars to push up the selling price. Mind you this is his own semi-detached Junction home that he has listed for less than the price of a cup of coffee.
Singh’s situation exemplifies the current market scenario in more ways than one. Recent sales probably spurred him to first list the home at an unrealistically high price (in my humble opinion) of $899,000. While many sellers were able to pull it off and some got more than they asked, Singh was not one of the lucky ones. So he decided to get creative instead of just lowering the price.
Irrespective of the absurd listing price, he’s not ready to accept less than $700,000. He’s also saved himself some effort by having all offers come in on one day. So while prospects duel it out, Singh can just sit back and take his
pick. And who knows he might even end up getting his original asking price or come really close.
Although a bidding war might be every seller’s dream, it is without a doubt every buyer’s nightmare. I remember my realtor advising me not to consider such properties more than 12 years ago. I must confess that I regret taking his advice as one particular property that was listed at $300,000 was definitely worth the $10,000 to $15,000 more it might have sold for.
Today however, biding is bordering on the ludicrous and irrespective of whether the property is worth it or not. In fact many realtors purposely lower listing price to encourage bidding. Prospects going in with modest offers (like those mentioned above) find themselves outbid by as much as $20,000 to $30,000. Unfortunately some buyers find it hard to contain themselves and are fuelling this trend. How else would you justify town homes and semis in the GTA selling for $40,000 and more, over the asking price?
This short-sighted approach has the real estate market dithering dangerously in the past couple of years with some not above using dubious tactics to inflate price.
As a result many property owners are selling just to cash in on the boom, only to find themselves being unable to afford another home anywhere in the area unless they are downsizing. The only ones who might benefit (if at all) would be original owners who purchased the property for half or a third of the current price and are now ready to sail off into the sunset. But they too need a place to live, no?
Buyers are in an unenviable position right now, especially the first timers. In addition to being forced to sign up for bigger debt, they also have smaller square footage to show for it. Those that are hoping to convert from rent to
equity are finding they have to dig deeper into pockets that can’t support the lowest down payment amount or the huge mortgage. Anxious to own a home as well as cash in on the action in a year or two, they are often pushed into
questionable means of getting financing. The underground mortgage market is not only alive but thriving thanks to real estate boom.
With incomes stagnating and the stock market losing its shine, many see real estate as a get-rich-quick opportunity. As a result fewer individuals are buying homes with idea of comfortably living in them. Rental potential and resale value are now bigger priorities than buying a home that a family can afford and enjoy.
So what happens when things go south? What can millennials expect to pay for a home in the GTA? Or will the next generation be forced into renting? More importantly what happens to real estate value when demand shrinks? -CINEWS