By: Pino Di Mascio
Prices are up and interest rates rising. With homes scarce and buyers plentiful, Canadians looking to buy a home in Canada's major cities face numerous challenges - particularly first-time purchasers. Straight Goods takes a four-part look at the often complicated home buying process. Pino Di Mascio and his wife Kelly O'Neill are searching for a home in downtown Toronto. In this series, the author shares insights and tips from his search for an affordable urban home. Last week, Straight Goods featured Part 1: Disentangling the home-buying process. Today...
Part 2 - Immersed in the search: The dangers and pitfalls of buying in a sellers' market
You may be in your late twenties or early thirties and finally feel financially secure enough to become a homeowner. Or perhaps you missed the housing boom in the 1980s, were unable to buy during the prolonged recession and are just now entering the housing market. Maybe the rental market has become so tight and expensive that owning makes more sense for you. Or maybe your family has outgrown your current space.
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Put in your best offer first and refuse to get into any bidding wars from the outset |
Whatever the reasons, many Canadians are currently looking for a home - many more than those trying to sell. You don't need an economics degree to understand what the forces of supply and demand do in these conditions. In the housing game, this is what is called a sellers' market. And a sellers' market can be dangerous, particularly for the inexperienced first-time buyer.
A sure sign of a sellers' market is that homes are consistently selling for more than their asking price. Potential buyers can become desperate in such a situation. They panic. They make irrational decisions. And many get burned - buying a home that exceeds their budget or doesn't meet their needs.
Immersed in our search for a home in downtown Toronto, my wife and I have learned a few points about today's market, which are also reflected in the experience of our friends.
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There aren't enough houses for sale, and most of the houses you look at will be unsuitable for you or too expensive. So be prepared to keep looking. |
There is a lack of supply.
There just aren't enough houses for sale, so don't set unrealistic expectations about timing. Most of the houses you look at will be unsuitable for you or out of your price range. Be prepared to keep looking.
If you like the house, so will others.
Multiple offers are the norm in a seller's market. You should understand that it is quite likely others will be making an offer on the same house. This means you need to strategize beforehand. A house with two offers on it will likely be sold around the asking price. With three offers, it will very likely sell above the asking price and if there are more than three it will be well above.
| Author Pino Di Mascio, his wife Kelly O'Neill and their dog Flynn, taking a break from their search for the perfect house |
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Know your limits before getting into a bidding war. Better yet, avoid one altogether.
People get caught up in bidding wars. When offers are close, the seller will likely ask for more. It's very easy to make the mortgage calculations and realize that an extra $5,000 will only cost you $30-$40/month. It becomes tempting. But in a bidding war, those $5,000 increments can quickly accumulate and you may end up talking yourself into spending a lot more than you intended. Before you get into a bidding war, make sure you know your absolute limit and walk away at that point. If you really have the courage, put in your best offer first and refuse to get into any bidding wars from the outset.
Beware of the deal that sounds too good.
There is a practice today of "underlisting" a house. That is, agents list a house below the level they believe it could sell for in the hope that more people will be enticed to make an offer. This creates a pseudo bidding war that can artificially raise the selling price. After watching the market for a while you will learn the values and market rates for different houses. When you spot something below its value, expect a bidding war.
Houses that have had difficulty selling in the past are coming back on the market.
Not all houses are easy to sell. We all know that house that keeps going on the market but never gets sold. Perhaps it has a structural problem, or no parking. Another reason is that it may back onto an industrial property. The point is that these houses are difficult to sell and are usually discounted due to their weaknesses. In a sellers' market, however, they become more attractive as people begin to overlook minor problems. Look at the details and make sure what you offer takes into account any shortcomings.
The best bet, as always, is to remember what you can afford and take your time.
Pino Di Mascio is an urban planner with Toronto-based international planning and design firm Urban Strategies Inc. He can be reached at pdimascio@urbanstrategies.com.
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