When Toronto’s real estate market started to pick up in April it was encouraging to see that many Toronto home buyers were taking a very cautious approach when competing for houses. It wasn’t uncommon to see a house with 4-5 offers sell for just over the list price. Since then we’ve seen the imbalance between supply and demand widen. In June there were 27% more buyers competing for 30% fewer houses when compared to the same month last year.
The shortage of homes available for sale is driving some buyers to pay far above a house’s true value when faced with a multiple offer scenario.
Last week 17 eager home buyers decided to compete for a small house just south of the Dufferin Mall. The home was priced at just over $400,000 making it within reach of most first time home buyers. Unlike many homes getting multiple offers, this one was not staged and had a list of selling features that included:
- Knob and tube wiring (an old type of wiring that would need to be replaced)
- 65 Amp electrical service (most insurance companies require 100 Amps)
- A 27 year old furnace
- A lead water line coming into the home
- Old windows
- Very dated and weathered kitchen and bathrooms
Given the poor condition of the home, I was quite surprised when I heard that 17 buyers decided to compete for this house. Maybe they all read the same Globe and Mail article that weekend that highlighted the redevelopment and gentrification going on in the Dufferin Mall area.
If you ever find yourself in a situation where the number of buyers competing for a home you’re interested in reaches the double digits, I recommend you use the same strategy we recommend to all of Realosophy’s clients. Walk away. It takes a lot of emotional energy to put in an offer on a house. It takes even more energy to compete with 17 other buyers, waiting outside the seller’s house for 3 hours clinging to the glimmer of hope that you might win it.
The truth is you should never want to win a bidding war when you’re competing against 17 other buyers because the winning offer is almost always going to be far above the true value of the property. In the case of the house last week, the winners bid almost $100,000 or 24% over the list price.
Be careful. If there are going to be any casualties coming out of this little boom we’re seeing in Toronto’s real estate market it’s going to be the few buyers who out of frustration or lack of information pay way more than fair market value for their house.
July 31, 2009Market |