Fernando Morales/The Globe and Mail
Question: We've lost three bidding wars for semis in Leslieville in the last four months and we're getting a bit depressed. I thought the market was slowing down? What gives? Is it just Leslieville?
Answer: At first if you don't succeed; try, try again! Then move to the 'burbs.
Your experience is a common theme in today's Toronto marketplace. And no, it isn't just Leslieville – several communities in the core from High Park to Roncesvalles to the Beaches have real estate action that's just as competitive.
Many reports say the market is slowing down, and while that may be true in some areas, there are many Toronto-area neighbourhoods where resale housing continues to be red hot. This is especially true in the coveted $400K to $600K range. And it isn't just downtown – I've seen and been a part of bidding wars happening in suburban locations such as Pickering and Ajax too.
That said, even though prices are at record highs in the city of Toronto, there has been a general slowdown in the number of houses sold year over year. But I still don't think its' a good idea to try to "play" the market. Sure, prices may be high but the cost of borrowing is still at record lows. If the market does cool, the opposite will hold true for interest rates. This effect will essentially nullify any such price drops.
For example, take a house priced at $500,000. With a 5% down payment and a five-year fixed rate mortgage of 3%, your monthly payment would be about $2,250. If there happened to be a price drop of 10% on the home's value and an increase of 1% in interest rates, your monthly payment would be virtually the same.
In one of my previous columns, I discuss some specific strategies when going into a bidding war. Have a read for some input on how to deal with conditions when putting an offer on a home. I specifically talk about the home inspection clause, but a similar strategy would hold true for including a financing condition.
In short, the only way I would forego the financing condition is if I had absolute assurance (in writing) from my lender that my financing would not be a problem for a specific home at a specific price.
The next piece of advice: Try to keep your emotions out of the offer process. I know this is easier said than done, but I've seen countless situations where potential buyers throw caution to the wind and start throwing out numbers that artificially inflate the value of a home. All strategy, budgeting and reasoning goes out the window in the heat of the moment. You need to set a hard cap on what you are willing to pay, and stick to it. I mean, absolutely stick to it!
Following my advice, you may lose a couple more bids. Just know that the right house will eventually come to you. Your patience will be tried and tested at times, but you will end up with the piece of mind that you acted rationally and made a sound financial decision.
Ricky Chadha is a broker with Royal LePage Estate Realty in Toronto, and specializes in applying social media and other digital tools to the business of real estate. You can find Ricky on Twitter @your416 or at his website RickyChadha.com.
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