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24
Feb

Lost that offer by $1000. Here’s the perfect comeback.

i-winHere is my tip of the day. We’ve all been on multiple offers. Sometimes we win, sometimes we lose. In the losing category there are different levels of loss, but one of the most painful is the loss by a few thousand dollars. Ouch. Simply speaking, these types of loses tell you one undeniable fact….You know what you are doing! You have done your research, you know the comparable properties in the neighbourhood, you know the homes strengths and weaknesses, and have pinpointed the value…almost. Conversely, don’t let getting blown out of the water make you crazy. Losing by $50k or more, while painful, sends a much different message. It could be read as…not educating or preparing your buyer, not understanding the neighbourhood or market, or simply not reading the signals given off by the facts (number of offers for instance). There is one other thing to consider…Sometimes it just happens because you just never know what the motivation is of the winning bidder. They may have lost out a few times before and are willing to just throw everything, including the kitchen sink, at the next house.

There is no question that the GTA market has its challenges. The media has thrown a lot of coverage on the fact that there is a supply issue and with demand at peak levels, the simple economic rules of supply and demand prevail. Consider the latest news of over 80 offers on a home in Brampton. The truth is that the biggest bag of money wins 99 out of a 100 times. To increase your odds when you don’t have the most money check out my tips for increasing your chances here. For those that lose out it is important to have a comprehensive debrief of the bid with your clients the next day. Stay positive, share what you’ve learned and then move on to the next one.

Awhile ago I wrote a post about having to lose a few in order to build trust with your buyer. Many agents in my office have experienced this from time to time. Agents who are dealing with first time buyers are more susceptible to this phenomenon because those buyers are a little more concerned with paying too much or getting financing. They are still finding their footing. The process of educating the buyer might take several weeks, even months. You may have to look at a lot of homes too so keep a record of what they have seen and let them know what they sold for. It is important to point out some things about each house and make notes about what they liked and didn’t like because after a while all houses will start to look the same. At the end of the day, your perfect comeback is, “hey, we know what we are doing”.

Mark McLean is the Broker/Manager at the Bosley Real Estate Queen St W office, the Immediate Past President the Toronto Real Estate Board and a director at the Ontario Real estate Association. The opinions expressed here do not reflect the opinions of TREB, OREA or Bosley RE.

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14
Feb

The New Danger to Toronto’s Rental Pool

condo-rentalsThere should be no surprise to anyone that we are seeing significant competition for rental suites in the city. Last week an agent in my office scoured MLS to find 21 condos that met the size, location and price for his client. He started calling to make appointments only to find that all but 4 had been rented out. Clearly a shortage exists in the rental pool across the city which is creating competing bids. In this situation the winner is not just the guy with the biggest amount of money. Today’s winning tenant is the one who has the best covenant, that is.. the best job (meaning long track record of employment) and the biggest salary, the least debt and highest credit score. Perhaps that doesn’t come as much of a surprise.

But the bigger concern should be the shrinking pool of rental units across the city. The double-digit price increases that condos are experiencing together with some of the highest numbers, in terms of millennial buyers, entering the market, should be cause for concern. Consider that in January 2014 the average condo in C01 cost $448k. That would typically be a 1 bedroom and den configuration of about 700 square feet +/-. For simplicity I will assume that a typical buyer would put down 20% (or $90k) and carry the balance on a mortgage at a cost of about $1694/month. ($358k at 3%, 5 yr term). Include a typical property tax of about $265 per month (Around $3200 annually) and maintenance fees around $385/month ( $.55/per sq ft). and you have a total operating cost of about $2345/ month. For that kind of money in C01 you are probably located on King West about a few blocks away from the Financial District and assuming the unit had parking, the monthly rent MIGHT cover your nut. Not a bad deal especially if you hope that the unit is appreciating year over year.
Jump ahead two years. That same unit is now, according to TREB stats, pushing $531k. Interest rates have not changed significantly so the monthly cost of your mortgage, with the same 20%down, is now $2016/mo ($531k-$105k deposit= $426k at 3%, 5 yr term). Assume maintenance and taxes are similar and your monthly carrying cost is now closing in on $2670/month. Rental rates have not kept pace, so if you are an investor, you would be running a loss, in fact you need to have nerves of steel to be ok with losing well over $300/ month. For investors, buying a condo to rent out just doesn’t make sense.
Now consider the investor who bought in 2012. Chances are they are covering their expenses nicely. Even with higher maintenance fees and taxes, they are still in the black by $200-$300/month. But at an average purchase price of $410K in January 2012, if that person sold today he would gross $121k. Hard to pass up on that considering it would take you roughly 40 years to earn that same income when you are collecting it $250 a month. Naturally, I am omitting commissions and capital gains out of the picture but the theme remains. Currently in the C01 there are nearly 400 active listings of which 122 are listed as having tenants. Many of the listings I examined contained vacant possession notes in the broker comments. If half of those tenants are forced to move to accommodate end users, Toronto could face a much more serious housing shortage. On a side note, two other factors will change the landscape of rental units in Toronto namely the tightening of speculative lending through the banks and AirBandB. Two things to keep an eye on.

Mark McLean is the Broker/Manager at the Bosley Real Estate Queen St W office, the Immediate Past President the Toronto Real Estate Board and a director at the Ontario Real estate Association. The opinions expressed here do not reflect the opinions of TREB, OREA or Bosley RE.

14
Feb

Nothing says ‘I’m serious about buying this house’ like a huge deposit

meetingI had to laugh. A few months ago I bought a property in the country. Knowing the Toronto market like I do, I was prepared to shell out $50,000 as a deposit with my offer. Before I wrote the cheque I thought I would just ask the listing agent what an appropriate deposit would be. His response…$5K should do it! The experience highlighted the differences between our two markets. One, a fast paced, come hell or high water environment where a big deposit means business, and the other, gentle simplicity where trust is the underlying currency.

The reason I bring this up is that many years ago, at the start of my real estate career, deposits were never really that high. It was always impressed upon me, when I was starting out, that the deposit should at least cover the commission but that guideline was seldom adhered to. Today, the deposit amount plays an intricate role in the purchase of a house. A big deposit, in the form of a bank draft will beat out a small deposit written on an uncertified personal cheque every time. In fact, nothing says ‘I’m serious’ like a deposit of 10% of the property value when offering. With big money on the line, buyers need to know the implications….on the off chance that something goes wrong. Clearly its a lot of money to leave on the table.

What I am inferring here is that the buyer interview just got a whole lot more important. We are long past taking a buyer’s word that they are approved to buy a house. A responsible Realtor needs to do a deep dive during that initial buyer meeting and be prepared to ask some often difficult questions. Buyers have to know that their deposit might be at stake given the fact that there are so many places where things can go south. It’s not just buyer’s remorse anymore, we are seeing deals fall apart because banks are changing financing terms on the fly.

So what can you do to help Betty Buyer? Ask more questions and offer more advice. It’s no longer good enough to ask if she has talked to a bank. Get Betty to provide a letter of commitment from the bank OR get her to talk to YOUR guy. Talk to Betty about the perils of not closing. Explain what happens if the house doesn’t appraise out. Ask if there are sources for her to find more capital (like the bank of Mom and Dad). Talk about closing costs and various taxes she will need to pay. Its time to take the buyer interview to the extreme vetting stage! For some agents it will be a difficult conversation. For others it will be instinctive. But at the end of the day it is not just about all saving you grief and heartache when the deal goes south, its about going the extra mile for your buyer client. As the listing agent, there is extra onus on you to ensure that the buyer is QUALIFIED to buy the home. This means asking the buyer agent questions about their buyer; how long have they been associated? Have they done offers before? What steps did the buyer agent take to ensure the buyer has money to close? I am reminded of a deal I did many years ago that went sideways after an accepted offer. I asked the buyer agent what they new about their buyer and was shocked to hear that they met them at an open house, and didn’t have time to properly qualify them. Hey, not all deals will go according to plan but if you ask the right questions first you eliminate problems down the road.

Mark McLean is the Broker/Manager at the Bosley Real Estate Queen St W office, the Immediate Past President the Toronto Real Estate Board and a director at the Ontario Real estate Association. The opinions expressed here do not reflect the opinions of TREB, OREA or Bosley RE.

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