If you managed to buy a house in Toronto recently after several failed bids, you might be celebrating. Until you remember you have to sell the place you already own.
That's the scenario the clients of Toronto-based real estate agent Manu Singh found themselves in – just as the market shifted.
Their circumstances are familiar to a lot of the young professionals trading in real estate in the city today, he says.
People have been living in condo units longer than young couples did in the past, he says. As single-family homes saw runaway price growth compared with the lacklustre rise in condo prices, it became harder to make the leap. They also grew accustomed to the easy lifestyle and quick trip to the office that often comes with condo dwelling. Migrating to the suburbs to find a house they can afford doesn't suit some young couples.
"Eventually, space runs out and they want a backyard, but they're still urban dwellers."
His most recent clients in this bracket are living in a tower at the foot of Yonge Street. Now that they have a little one, the Harbourfront area seems less ideal.
"They wanted to get away from the hustle," says Mr. Singh, of Right at Home Realty Inc. The couple bid on a couple of houses in early May but lost out to competing buyers each time. But as the month unfolded, listings jumped and the bidding mania subsided.
A detached house was listed near the Danforth in the east end of the city with an asking price of $899,000 and an offer date one week later. Usually, listing agents set a price far below what they consider market value when they want to spark a bidding war. But this time, the sellers didn't get what they were looking for on offer night. The listing was terminated and the house was relisted with an asking price of $1.1-million.
Mr. Singh says his clients knew this history when they put their own offer on the table – below the asking price.
"For once, the buyers were in the driver's seat," Mr. Singh says. "That's where we were able to capitalize."
Scott Ingram, a real estate agent with Century 21 Regal Realty Inc., has been tracking the market's transition on a weekly basis. He says freehold houses in the 416 area code have seen more terminated listings than sold listings for five consecutive weeks. He notes, however, that terminations have levelled off recently – but they're still at much higher levels than at this time last year.
Only 36 per cent of freehold properties that sold in the city of Toronto last week changed hands at prices above the asking price. That compares with 84 per cent in early April and 66 per cent last year at this time. The condo segment has fared better than freehold recently, with 39 per cent trading above asking last week, Mr. Ingram's number-crunching shows.
For Mr. Singh's clients trying to negotiate for a detached house with a garden, some back and forth took place until about 1 a.m., the agent says. At that time, the two sides reached a deal at $50,000 below asking.
"The buyers were very happy," Mr. Singh says. "Then we switched gears to the condo."
That's when their spirits deflated.
The corner unit at 16 Yonge St. has two bedrooms plus a den, a good layout and wraparound views of Lake Ontario through floor-to-ceiling glass. Still, they needed several weeks to add some polish, Mr. Singh says.
The most recent comparable sale in the building had been a record on April 12 – eight days before the provincial government announced a suite of policy and rule changes aimed at cooling a blazingly hot market.
That unit was listed with an asking price of $799,000 and sold for $921,000 – a hefty $122,000 above the asking price.
"You would think that was a very recent comparable," Mr. Singh says. But he had seen the change in buyer psychology.
"You're seeing so much more caution," Mr. Singh says. "Buyers are on the sidelines. They're just not putting pen to paper."
The couple and Mr. Singh worked as fast as they could to declutter the space and repaint the baseboards and one of the bathrooms. The entire unit was professionally cleaned and staged with furniture and greenery. The real estate team shot a video and built a website.
"We were kind of anxious," Mr. Singh acknowledges.
In the early part of the year, he says, he saw condo units snatched up no matter how poorly they were cared for or marketed. Now, those units will sit for 30 or 40 days, he says. The most desirable units are still selling, but they need to offer some sizzle. The preparation and the marketing also have to be flawless.
He and the sellers decided on an asking price of $799,000 and an offer date one week later. That night, they drew three offers and the sellers accepted a bid near $850,000.
The buyers understood the change in the market, he says, but Mr. Singh is still surprised at how quickly the market chill spread. After only a few weeks, his clients received $75,000 less for a nearly identical unit with comparable height and views.
"This is an important input for the financing because they're going to use the proceeds for the house," he points out.
That equation can cause problems for buyers who buy first and then sell for less than they anticipated, he adds. His clients at 16 Yonge were still able to secure financing, but they kept in constant touch with the mortgage broker and lender, he says.
"You really have to be on top of that."
Mr. Singh says he normally recommends clients buy a new house or condo before selling an existing property. But for the first time in years, it may make sense to switch tactics.
"Now, that discussion is much more in play."
Mr. Singh says part of the decision rests on the the type of property the client is planning to buy and in which area. If the buyer is searching for something specific and rare, and they have a comfortable amount of cash, it's likely wise to buy first.
But if they have a tight budget and need to reap a certain amount of profit to secure the move-up property, selling first can be less risky.
Other factors, such as whether the buyers can rent for a while or stay with parents if they need to, can also sway the decision.
Sellers need to think through what their options would be if the property doesn't sell, he adds.
"They need not only Plan B but Plan C as well."
He adds that people need to figure out not only financing but other details, such as the closing date, now that buyers have more power.
"When the power shifts a little bit, you may not get the closing date that you want."