When the Market Talks Back: Navigating Surprising Seller Scenarios!

Navigating Uncharted Real Estate Conversations That Sellers Never Saw Coming:

In our latest video podcast, we explore uncharted real estate dialogues, tackling questions sellers never anticipated facing, like optimal selling timing, the intricacies of market statistics, and the consequences of buying before selling. We’re committed to unravelling these important conversations and illuminating the tactics, hazards, and benefits as they unfold. Our discourse offers insights for sellers, buyers, and property aficionados alike.

Presently, the market is brimming with listings—signifying a definitive buyer’s market, especially within the condominium sector where the supply far outstrips demand. According to the Toronto Real Estate Board, a staggering 5,797 condos are up for grabs, with 820 new listings emerging last week alone, yet only 164 condos were sold firm across the GTA. The freehold market tells a similar story, with nearly 3,000 homes available and a mere 164 transactions closing last week.
It’s abundantly clear we’re navigating a buyer’s market, an assertion that’s become widely accepted, albeit somewhat regrettably. In these unique market conditions, we find ourselves, for the first time in our careers, advising some homeowners against selling. It’s a stark indication of the current climate we are dissecting—an environment filled with as much opportunity as it is with caution.

Unlock Market Insights: Watch the Video Podcast Every Toronto Property Owner Should See:

What factors indicate that now may NOT be the prime time for certain homeowners to sell?

In our current real estate milieu, the once “sure thing” of selling Toronto properties, be it condo or freehold, has lost its certainty. The market’s lethargy, underscored by the paltry sales activity, signals that selling now might mean hitting, or nearing, the market’s nadir. Our counsel to clients is clear: sell only if necessary due to financial or personal imperatives. Otherwise, it’s prudent to wait for the market to rebound.

The reasons not to sell now are multifold. Showings are slow, buyers scarce, and there’s the risk that even if a solid offer is made, the appraiser might not concur on the value. Additionally, selling is not just a financial transaction; it’s an emotional odyssey rife with potential stress and significant upfront costs without assured returns. These costs range from home repairs to staging, with no sale guarantee. By listing now—especially in a condo market awash with options—sellers risk stigmatizing their properties if they fail to sell, potentially leading to the tough choice of removing their listing or renting out, only to attempt a sale later when the market shows more vigour.

In these unpredictable times, attaching a stigma to a property can occur without genuine cause. As advisors, we prompt sellers to introspect: Are you considering a sale due to financial worries, or is it a reflex to the current climate, which, despite the gloom and uncertainty, hasn’t shifted the core dynamics of Toronto’s real estate—supply constraints, government policy, and the greenbelt. Interest rates are the real culprits now, and banks predict a drop by mid-2024. We recall last January when the Bank of Canada’s mere pause in policy sent the market soaring; it’s not about actions but confidence. With few active buyers, many are biding their time, waiting for that sentiment to flip when the market will undoubtedly rebound.

We’re urging our clients to wait it out. A hasty sale could mean missing out on potentially huge gains if the bank shifts its stance anytime soon (a known unknown). Patience could translate to a substantial financial difference. Sellers we are speaking with, typically on their second or third home, are tempted by the current buyer’s market, eying upgrades with less competition. They’re weighing the benefits of selling to buy, yet without a sale guarantee. Historically, we advised buying before selling due to a competitive market. Now, we suggest the reverse: secure a sale before venturing into the market.

The savvy move? Rent out your current property, tap into its equity, then buy, riding the wave until the market peaks to sell the investment for a profit. This isn’t feasible for all, but for those who can, it’s a prime strategy. Now is the time to engage in creative dialogue with mortgage brokers and banks—there are more accommodating packages than most realize. Opportunities abound in a downturn for the resourceful, those willing to embrace the discomfort for long-term gain. This moment, albeit fraught with anxiety, could be the precursor to a lucrative leap of faith.

Weathering the storm and holding onto your property is the wisest decision for long-term gains.

What role do market trends play in the showing activity of listings?

Weathering the current real estate climate and holding on to your property could spell substantial long-term benefits. A notable decline in showings and offers has many wondering why—high-interest rates and an additional stress test may be edging potential buyers out, prompting them to sideline in today’s uncertain geopolitical backdrop of wars, inflation fears, and recession worries. With ample market choices, buyers aren’t pressed to move forward. However, there’s an exception for distinctive properties, like well-maintained or tastefully updated classic Victorians, which, akin to classic cars, have an enduring allure and scarcity that can still ignite bidding wars, albeit less frenzied than in peak market times. Offers are more measured now; the days of bids skyrocketing hundreds of thousands over asking are eclipsed by a more prudent, interest-rate-aware approach, where each extra thousand in the offer is carefully considered.

What psychological impact do price reductions have on potential buyers?

Significant price reductions can dramatically shape both the seller’s returns and the buyer’s expectations. For sellers, each reduction not only chips away at potential profit margins but also tends to lower offer prices since buyers seldom pay the above list in a buyer’s market. For example, aiming for a $700,000 sale, a seller might list at $725,000, anticipating negotiations. But if the property lingers without interest, a drop to $699,000 could be warranted, potentially attracting offers around $680,000 – undercutting the seller’s target. From the buyer’s perspective, each cut signals a chance to bargain harder, interpreting reductions as a sign that their negotiating power is strengthening and every condo in the building or house on the street might follow suit. This tug-of-war occurs amidst a market in flux; hence, timing is critical. With a glut of inventory, advice for sellers is to list assertively and avoid chasing past market peaks, aligning with the current market reality rather than holding out for a rebound. If the market is on a downtrend, sellers are cautioned that the longer a property sits unsold, the more likely it will face further depreciation. In essence, a faster sale could mitigate more profound losses, as waiting could exacerbate the financial hit in a sliding market. It’s a period where both buyers and sellers must navigate with an acute awareness of market dynamics and with a strategy that acknowledges the market’s potential trajectory.

How do we support clients who proceed contrary to our sell-first recommendation?

Clients opting to buy first and sell second are entering a risky territory, and we lay it out plainly for them. They must brace for potential drastic price slashes on their current property—$50,000, $100,000, or even $150,000—to secure a sale in this market. We explore every scenario, from seeking a financial cushion from personal connections to possibly holding and renting out their property until the market returns. We stress the importance of consulting with financial advisors, mortgage brokers, and, yes, even their therapists to grasp the full impact of their decision on their financial and mental well-being.

In this unpredictable market, it’s crucial to prepare for the worst. Hoping for a record sale on a standard condo is fantasy; reality demands a “what if?” approach. If there’s no safety net allowing you to carry two properties, it’s better to sell before you buy. Should renting become necessary, it’s important to note the sluggish rental market and prepare for potential vacancies of up to three months, all while juggling two properties.

Our advice is emphatic: don’t buy before you sell. Get your ducks in a row—talk to experts, create a detailed plan, and consider every contingency, whether it’s deferring life plans or accepting lower rent. This industry is no walk in the park, contrary to what some might think. It’s about guiding clients through their life’s investments, often delivering hard truths to protect them from dire financial mistakes.

What tactics can sellers employ in a crowded market to stand out?

In the saturated market, sellers must focus on quality representation and realistic pricing. The best strategy isn’t necessarily undercutting the price—it depends on the asset and the situation. Prioritizing the hiring of an experienced real estate team is crucial, as expertise and value add significantly during such times. Being realistic with pricing is key; homeowners often overvalue their properties, but with the market trending downwards, it’s essential to align expectations with the current market climate, which may be significantly lower than anticipated.

A property’s valuation is more complex than comparing recent sales. Rapidly increasing inventory can quickly outdate such comparisons, necessitating a readiness to adjust if the market feedback indicates overpricing. It’s about more than just the property’s specific shortcomings but rather about the sheer volume of competing listings. The conversation has shifted towards inventory levels and sell-through rates, providing context that it’s not personal but simply the reality of market competition.

Importantly, sellers should prepare their property for sale. Investing in necessary improvements, like a fresh coat of paint or new flooring, can make a significant difference. These upgrades are advised not just for selling but also as a lasting investment in the property. Ultimately, adequate preparation and presentation can be just as crucial as the listing price in such a challenging market.

Can minimal investments still yield significant returns in the current market?

In the current real estate climate, cash-strapped sellers might contemplate listing their properties “as is,” tempting buyers with the allure of a blank canvas to tailor as they wish. However, with the hefty price tag and considerable inconvenience of renovations, especially for freehold properties, buyers are often discouraged. They’re looking for convenience, something turnkey and easy.. Previously, buyers may have overlooked significant flaws to snag any available property, but as the market fills with options and the urgency wanes, the stakes have changed. Carrying costs, renovation expenses, and rising labour rates mean it’s critical for sellers to present a home that’s not just livable but appealing. A property at its peak readiness not only commands attention but stands out in a market that’s no longer racing to buy but choosing with care.

What is the role of conditional on-home selling clauses in today’s market?

When discussing the “conditional on home selling” clause in the context of real estate transactions, we’re looking at a market feature that was much more common in the 1970s and 80s but is now resurgent in today’s buyer’s market. This clause acts as a contingency within a purchase offer, allowing the buyer to make the sale of their new home dependent on the successful sale of their current residence within a specified timeframe. Traditionally, a period of around 60 days is provided for this condition, although this duration is subject to negotiation based on the needs and circumstances of both parties involved.

For buyers, this clause offers a safeguard against owning two homes simultaneously, which could be financially burdensome. It grants them a form of protection where they can purchase a new property without the immediate risk of being unable to sell their existing one. However, for sellers, this condition introduces a significant degree of risk and uncertainty. They must contend that the sale might not go through if the buyer fails to sell their home, and they have no control over the buyer’s selling process or how well their property is marketed.

Moreover, suppose a seller accepts such a contingent offer. In that case, their property is, in effect, tied to the success of another property’s sale, potentially causing them to miss out on other offers in the interim. As a result, sellers might seek to include an “escape clause” to keep their options open or request a higher earnest money deposit as compensation for the risk and potential inconvenience.

Given the complexities introduced by this clause, it is wise for both buyers and sellers to consult with real estate professionals, including agents who are becoming reacquainted with the clause’s use, and lawyers to ensure the language in the contract protects their interests. The reintroduction of this clause into the real estate market speaks volumes about the current market dynamics. It suggests a strategic shift for buyers and sellers navigating property transactions during uncertain times.

Conclusion

In wrapping up this article on these unexpected but pivotal real estate negotiations, remember the calibre of your representation is paramount. It’s not the time to gamble on the inexperienced—be it your newly licensed niece or that amiable Uber driver moonlighting as a realtor. If you’re considering weaving in the home-selling condition, be strategic: start prepping your property for sale even before you’ve set your sights on a new one. And through all the stress and tough talks, take solace in knowing that this period is just a temporary challenge. Better days are on the horizon, and the actual task is navigating the journey from the current market to those forthcoming brighter days.

Contact Fox Marin, Toronto’s downtown luxury real estate brokerage, today to learn more about the advantages of hiring a quality team!

Contact Us (We’re Nice).

—

Kori Marin is a Toronto Broker & Managing Partner at Fox Marin Associates. For high-energy real estate aficionado Kori Marin, a well-lived life is achieved by maintaining an “all-in” attitude that realizes every last ounce of one’s full potential. This mindset has driven successful results in every aspect of her life – from her corporate sales and account management experience to her international travels to her years of fitness training and leadership – and is the hallmark of the exceptional work that she does on behalf of her clients in the residential real estate sector in downtown Toronto.