How you need to adjust your strategy in a suddenly changing market.
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As we are seeing in the market numbers for April (see this month's market update), the Toronto area real estate market is losing steam. Regular readers of my reports will recall that in my March 2022 report, I noted that at our brokerage Realosophy Realty, we were seeing very early signs of Toronto’s housing market slowing down on the ground, in advance of seeing this show up in the data.
This change in the market has led to many consumers asking me if they should go ahead with their plan to buy a home before selling their current home or change their approach.
Sudden real estate market changes cause a lot of anxiety for consumers (see my previous story this month "Why Are Some Toronto House Prices Dropping So Quickly?”).
For real estate professionals, it’s a particularly challenging time to advise clients, because even if we are able to see early signs of a slow down, we can’t be too sure about predicting what will come next. The approach I’ve always taken and trained my team on, is to think about tracking the market very carefully and moving in step with it, discussing the changing pros and cons of various approaches to help our clients decide what approach works given their particular circumstances.
When we first started advising about a slowdown several months ago, we had a number of clients who decided to go ahead with buying a home first knowing that they might be selling in a slowing market because selling first was not a practical option for personal reasons or because they didn’t want to pass up on buying a very unique home.
Given the more challenging nature of this approach, I think it would be helpful to share how we ensured that we were able to help all of these clients successfully sell their home after buying.
Get the Order of Your Steps Right
Prepping a home for sale takes time — between decluttering, purging, making minor improvements and repairing deficiencies, it can take weeks to get a home ready for sale. But there is no time to waste when you are selling after buying as you could potentially be risking selling in an even slower market.
This is why we advise our clients who still plan to buy first to prepare their home for sale right away while they are still searching for their next home. With this approach, we’re often able to list their current home for sale within a week or two of them buying.
We also focus on helping our clients negotiate a longer closing date on the home they purchase, typically at least ninety days.
Understand Your Current Market
Before listing your home for sale, your realtor needs to give you a very good breakdown of the market dynamics in your particular neighbourhood. While I breakdown market trends in this report to see what is happening with different segments (houses vs. condos) and municipalities and regions in the Toronto area, we need to drill down even deeper when our clients are selling.
Non-professionals often underestimate just how differently every neighbourhood (and sometimes even micro areas within them) can behave, with some areas with fewer homes for sale remaining relatively hotter than those with quickly rising inventory.
While we track months of inventory of data by neighbourhood carefully (you can see this data at movesmartly.com), we also get way more granular. It’s critical for us to talk to other agents with similar homes for sale in the same neighbourhood and know how many showings and offers these homes are getting and what these agents are experiencing.
Most agents don’t do this type of homework. Instead many rely on looking at listing info only. On seeing that a similar home down the street recently sold for $150,000 over the asking price, they assume the market is still very busy and advise their client to take the same approach — list with a low price to attract many buyers with offers on a set offer night.
But often the real story doesn’t show up on paper. Calling the agent who sold that home for more than asking and you might find that they had very few showings and were lucky to get one offer on their offer night.
This type of information helps us arrive at a more resilient strategy for pricing and marketing your home, one that takes into account what could happen if the conditions you are expecting don’t materialize.
Follow a More Nuanced Strategy
Before going on the market for sale, you have to decide if you’re going to use a common pricing strategy seen in hot markets — listing with a low price to attract as many buyers as possible competing against each other in order to get a price well above your list price — or going with the strategy of listing your home for what it’s worth and accepting offers any time.
There are pros and cons to each approach — deciding on which strategy is right for you depends on the current market conditions in your area but also your own personal circumstances. Your marketing and pricing strategy will need to be very different if you only have three weeks to sell your home as opposed to two months. With a two month timeline, you can be a bit more patient, listing your home at the high end of its value range, and adjusting the price if you don’t get the buyer interest and traffic you want. When you only have three weeks to sell, it is harder to use this type of wait and re-assess strategy.
Have Realistic Price Expectations
If you’re listing your home for sale today it may be unrealistic to assume you will achieve the same price that similar homes sold for a few months ago in February. I say “may” because this is dependent on the type and location of the home. Downtown Toronto homes and most condos have not seen much downward pressure on prices yet. Many low-rise suburban homes, on the other hand, have seen a decline in prices (see my earlier story from our report this month "Suburban Toronto Houses Lose Relative Value") which means your price expectations need to be in line with the location and segment of your particular market.
If one homeowner decides to sell their home for a significant discount from their market value, it doesn’t mean you have to follow them and accept such a low sale price — one comparable sale does not make a market.
You need to base your price expectations on all of the most recent comparable sales, ideally homes that have sold in the past two to three weeks.
In a normal balanced market, it’s common to use comparable sales of homes that have sold 3 to 4 months ago, but in a slowing market in which prices are changing quickly you need to use more recent sales.
The flip side to having realistic price expectations is to not be too desperate. Many of the sellers who we recently helped sell their home after they bought found that the first offer they received for their home was below what they wanted — and below what they eventually sold their home for. When a market begins to change, it is common to see a lot of buyers start to test sellers to see how desperate they are and we are seeing this on the ground. Some inexperienced agents may be pressuring their clients to take these low-ball offers if they are also panicked (as discussed in my earlier story).
Top Image Credit: Getty/iStock
The Move Smartly monthly report is powered Realosophy Realty Inc. Brokerage, an innovative residential real estate brokerage in Toronto. A leader in real estate analytics, Realosophy educates consumers at Realosophy.com and MoveSmartly.com and helps clients make better decisions when buying and selling a home.