Editor’s note: this blog is Part 2 of a two-part series. Read Part 1: How Some Housing Markets are Dealing with Competition for the First Time.
Thanks to a perfect storm of pent-up demand, limited inventory and low interest rates during COVID-19, real estate markets across Canada are experiencing increased competition—and not just in Toronto and Vancouver. So how can REALTORS® help guide clients through the ups and downs of these unprecedented times, especially in parts of the country that aren’t accustomed to competition?
“Jokes have been made about your house making more than you will this year. This can be nice for existing owners, but it is not good for buyers looking to get into the market,” says Shaun Cathcart, CREA’s senior economist.
What we’re seeing now is the result of demand outpacing supply. There was already a lot of pent-up demand heading into 2020, says Cathcart, and the combination of an increasingly middle-aged millennial cohort together with rising international immigration in recent years (before the pandemic) means there are a lot of first-time home buyers around.
The long-term solution is to make sure supply keeps up with demand but, in the meantime, REALTORS® have to prepare clients for competitive market conditions. While this may be par for the course in markets such as Toronto and Vancouver, it’s unusual in many other parts of the country—leaving many buyers feeling anxious or frustrated. And while the highest bid often wins the house, it’s not the only factor.
At a glance:
- ensure clients are pre-qualified;
- set expectations;
- have patience;
- write a letter;
- limit conditions; and
- be flexible.
It’s important for clients to be pre-qualified, know what they can afford and go with a lender that will vet their source documents to find out if there’s an issue before they’re at the bargaining table. But for many REALTORS®, these new market conditions require managing or tempering client expectations.
With demand (and prices) in London, Ontario at all-time highs, Blair Campbell, broker of record for Accsell Realty Inc. Brokerage, says he often has to set expectations ahead of time since many properties are selling well over the asking price—which isn’t typical for London.
“If they’re pre-qualified for $500,000 and houses are selling $40,000 over asking price, then we need to look at $450,000 houses,” he says. “That can be difficult because most people want to start looking at $500,000.”
A frustrated buyer may end up overpaying, rather than waiting it out. “It is a challenge, it requires patience, and the hard part is dealing with the buyer who has already sold their home and is under the gun,” says Campbell.
While nine times out of 10 the seller is going to take an offer based on the highest bid, “it doesn’t hurt to write a letter about how it’s a great fit,” he says. In one case, he was working with a seller whose home was located near a hospital. One of the potential buyers wrote a letter explaining they had a daughter with epilepsy who needed to be near the hospital. The seller, whose heart went out to this family, decided to sell the home to the letter writer, even though it wasn’t the highest bid.
Vicki Sweeney, president of the Durham Region Association of REALTORS® (DRAR), says personal letters are “always a nice bonus for the seller to read about who’s purchasing their home.” Recently, she had clients who were looking to move back to the area where they grew up. “We put that in the offer presentation,” she says, “and the homeowners were very touched by their letter.”
While in many cases the highest bid may still win out, “the conditions also have a lot to do with it,” says Sweeney. That could include anything from being flexible about the closing date to limiting their ‘asks.’
If the seller is worried about quickly selling their home and then not being able to find a new place to live, being flexible with the closing date can help a buyer make their offer more attractive, according to Sherry Sheldrick, a REALTOR® and salesperson from Saint John, New Brunswick, and member of CREA’s Marketing and Communications Committee.
In Saint John, high demand and low inventory have resulted in unprecedented competition in the market. So, Sheldrick also recommends her clients go in “with less of an ask”—such as not requiring the seller to paint, upgrade appliances or replace the water heater—to make their bid more competitive.
Anne Da Silva, REALTOR® and broker with Da Silva Gosse Real Estate Group, is seeing the same in Halifax (and most of Nova Scotia). She also recommends her clients adjust their expectations: If the seller wants a six-month closing date, they may have an edge over the competition if they’re willing to wait those six months.
“They don’t want to give you the appliances? You’re not asking for them,” says Da Silva. “The odds are that there’s probably a backup offer behind you. So, the minute you ask for a light bulb, you run the risk of somebody scooping you out of that house.”
“The odds are that there’s probably a backup offer behind you. So, the minute you ask for a light bulb, you run the risk of somebody scooping you out of that house.”
As a result, she has to temper client expectations. In addition to whatever they’re offering on the home, they’ll do that “knowing [they] may have to still undertake some of these repairs,” she says. “We’re seeing people prepared to take on certain projects within the home … and a little more prepared to put in some sweat equity.”
Some buyers are understandably frustrated, overpaying or pulling out. On the flip side, some—particularly first-time home buyers—are eyeing low interest rates and seeing this as an opportunity, despite higher competition. Regardless, navigating the ‘new normal’ is where REALTORS® like you can play a key role in helping clients find a home in unusual times and circumstances.