There are several unique and desirable buildings, including a rare hard-loft building in a self-contained, walkable neighbourhood close to the downtown core. So, when a broker listing a 636-square-foot hard loft last month had 28 showings, multiple bids and a sale in just three days, should it be seen as an indication of a hypercompetitive real estate market in the GTA at large? Or did it have more to do with the saleability of the building itself? Or was it the sales strategy of a seasoned broker who knows the market, understands valuation and is experienced in negotiation? Or all of the above?
“The start of 2021 allowed us to combine elements yet to be seen in our market before,” says Alexandru Bejinariu, a broker with Re/Max Regal Homes, who represented the seller in the hard-loft deal. “There have been record-low interest rates, low inventory, abundance of buyers. When a unique product is synced with a proficient realtor who can convey its value, that leads to a very desirable outcome for both seller obtaining top dollar and for the buyer securing a very exclusive product in the marketplace.”
In a seller’s market like this, buyers are searching for any edge they can get. Bejinariu says it’s commonplace now for buyers to have to push past planned budgets for a home they love. According to the Toronto Regional Real Estate Board (TRREB), February was another month in which the GTA real estate market surged forward, spurred on by low borrowing costs and confidence in an economic recovery as vaccines to combat COVID-19 become more available.
TRREB reported 10,970 sales in February, up 52.5 per cent compared to February 2020. Condos led the charge in categories of homes with a 64 per cent sales increase. The average selling price for homes overall hit a record $1,045,488, a 14.9 per cent year-to-year increase. TRREB pointed to supply of housing not keeping up with a huge demand.
Many people saved money during the past year because fewer were spending on travel, restaurants, clothing or new cars and so they have a lot of buying power. According to a CIBC report in November, Canadian households are sitting on $90-billion in excess cash.
Immigration is another market driver. While the pandemic has temporarily limited the number of immigrants coming here, Canada will continue to attract them in the near future, from students coming in with money to wealthy foreign buyers.
And with lockdowns, Canadians turned more inward, and focused more on the importance of home, especially such features as home offices, gyms and outdoor space.
Inventory is also low as people opt to hold onto their starter homes as investment properties while they upgrade and move to a larger property. A reluctance to allow strangers through the home out of health concerns is another factor in low inventory market conditions.
Brokers are now talking about how all kinds of properties are selling above asking price (led most by detached and semi-detached homes), with many multiple-offer scenarios, and about how bully offers and bidding wars are the norm.
While lower inventory is a big factor, some in the industry also point to pricing strategies in which agents list a home well below market value to create an auction or competition scenario. That’s commonplace now, says Tamsin Pukonen, property consultant at Pukonen Property.
“In a market where prices are increasing week to week, we do not want to put a ceiling on the potential selling price,” she says. “By pricing low with an offer date, you are basically allowing the buyers to decide what they are willing to pay. Right now that amount seems to be more and more each week.”
A bully offer is a pre-emptive strike in which the buyer ignores the seller’s set timeline to review formal offers and submits an aggressive early offer in the hopes of not having to compete.
“Typically, this is only successful if the bully offer is stronger than what the seller was hoping to achieve at auction,” she says.
It’s a scenario in which buyers literally want to bully their way to the front of the line, and are typically pre-qualified, or have cash offers over asking price and without conditions to better appeal to the seller, says Christopher Alexander, chief strategy officer and executive vice-president, Re/Max of Ontario-Atlantic Canada.
“To buy in Toronto right now, you have to have thick skin and be prepared to offer your maximum,” he says. “People who have lost their dream home to bully offers or bidding wars are experiencing buyer fatigue, and the bully offer becomes more appealing. If you’re going to make a pre-emptive offer, you have to get ahead of the competition and make an offer the seller can’t refuse. But keep your wits about you. A home is only worth what someone is willing to pay for it. A wise real estate purchase depends on your individual circumstances including your finances, employment, family situation and many other factors. Buyers should always look at the big picture.”
In that bully offer scenario, do your homework with your bank first and make sure your financing is in place, says Katherine Minovski, a broker with Royal LePage. And get that in writing from the bank, with an out clause if the seller hasn’t yet accepted your offer.
“When the seller knows you have your financing in order it helps alleviate concern they may have had in signing your offer,” she says.
Paul Peterson, a sales representative with Chestnut Park Real Estate, says a lot of selling agents won’t review bully offers now because of how hot the market is.
“If you have the stomach to wait, you will typically get more money on the offer night when buyers are pressured to increase their price, as opposed to submitting a bully offer when a buyer is more likely in a more rational, level-headed frame of mind,” he says.
That said, he says a bully offer scenario still has its place. “I love the idea of a good pre-emptive offer, especially in this current seller’s environment,” Peterson adds. “You get to deal exclusively with the seller and hopefully avoid any of the irrational buyers on offer night. When you see a house that seems perfect for you, that’s when it’s time to be aggressive. A lot of houses will have seven out of 10 things you are looking for, but when the perfect house comes along, go for it. If you are going to stay for a long time, the buying price (within reason of course) shouldn’t matter.”
Michael Kalles, president of Harvey Kalles Real Estate Ltd., sees a current, highly competitive seller’s market with many scenarios: buyers putting through pre-emptive offers, others waiting for offer night, and others looking for off-market or exclusive listings. In that last scenario, many realtors have an extensive database of clients who may not be actively shopping but will jump on a deal if the right opportunity comes along. There are many homeowners out there who want to take advantage of a strong market and sell for a good price without having to prep their home for an MLS listing.
For those interested in real estate as an investment, Kalles sees good times ahead.
Real estate investment “may lack the drama of Gamestop and Bitcoin, but it’s predictable and that’s important,” he says. “If you look at the last 50 years, you could have bought a house on any day and, if you held it for seven years, it was worth more than it was on the day you purchased. Certainly, the market has its ups and downs, but the overall upward trend is a clear one. And, as an added bonus, while your home’s value is appreciating, you can live in it, too.”
Where things get interesting in the current market is at ground level, where a seasoned broker will work a strategy based on the client’s individual situation and comfort level, along with current market conditions to get a maximum price for the home.
“Do not jump on the bandwagon just because everyone else is doing something,” Minovski says. “Always stick to your comfort zone. Go in with your best offer, give or take a little but if you come in nowhere near the top two to three offers you will not have any chance to update your offer. That’s it, then, on to the next.”
Bejinariu opted not to set a lower asking price with the hard loft in Liberty Village that sold last month, like the scenario Pukonen laid out of an offer date to create an auction. He listed the unit based on its market value of $699,000, in part because of the uniqueness of the building. It sold for $776,000.
“Sometimes the buyer sees a price and then they don’t understand why they have to pay 50 per cent more,” he says. “You have to educate them that this price is completely under market value. We went the other way … and brought in people who were content with that price. In these situations they understand their competition and have to come up. Let them drive the price up organically.
“Listing that hard loft condo at a lower list price of $599,000 and then getting half my offers at $650,000 made no sense,” he adds. “There is a time and place for each [sales strategy].”
The moral of the story is to listen to your agent, who knows how to navigate a unique market such as the one we are presently in.
“It’s hard to believe how solid the Toronto real estate market truly is,” Peterson says. “Even a global pandemic can only slow it down for so long until the insatiable demand returns like it has right now. The double land transfer tax, the buyer stress test and even the foreign buyer’s tax were all implemented to slow down our market and nothing has worked. It’s all about supply and demand. Until you can increase supply, nothing will change. Once the borders open up and immigration returns, our supply problems will get even worse.”
Advertising feature produced by Globe Content Studio. The Globe’s editorial department was not involved.