What was already an ultra-competitive seller’s market for real estate in Toronto pre-pandemic is spiraling out of control. Canada and the GTA have been setting records for the number of sales and average selling prices of homes since the initial shock of COVID-19 to the market.
The average price of a home is now well over $1 million in many of Toronto’s neighbourhoods. And in 2021, cities like Brampton and Mississauga also saw average selling prices for homes surpass the $1 million mark for the first time in their histories.
Unfortunately, these prices aren’t expected to come down substantially any time soon although there could be a small correction in the real estate market if the Bank of Canada raises interest rates as they have hinted they will in the next few months. The deficiency between the number of homes available for sale and the demand, one of the drivers of accelerating house prices, has been compounded with the record number of sales. Sales have slowed because there aren’t as many homes for sale, but prices continue to soar as buyers compete over what’s left.
Affordable Housing is Now Even Harder to Find
A lack of transparency and the competition for housing in several Canadian markets over the last decade has led to troubling practices by homebuyers, including overpaying in a real estate bidding war and no-contingency offers. Because buyers are in the dark regarding other possible offers on a home, many will come in with an over-the-top bid to guarantee winning the bidding war. This practice contributes to the lack of affordable housing and leaves buyers exposed to massive losses if they need to sell their overpriced homes after a market correction.
One of the other risks buyers are taking is to make a firm, no-contingency offer the seller can hardly refuse by waiving home inspections and appraisals. Not only will lenders sometimes refuse to give a final approval without these protections, but the potential for overpaying for a money-pit isn’t one any homebuyer should have to expose themselves to with their life savings plus hundreds of thousands of dollars on a mortgage on the line.
How to Stay Protected and Put in a Potentially Winning Bid
One of the few protections you still have left as a homebuyer is the availability of professional advice at an affordable cost.
Consult an Online Real Estate Lawyer
For example, if you move to a competitive market like Mississauga’s, consulting Mississauga real estate lawyers before you make an offer to purchase so that they can review your offer ensures you aren’t exposed. Because they offer their services online, they are not only affordable and convenient; they are also available to review your offer in a fast turn-around time so that you won’t lose out on the property you want.
Bring Home Inspector with You
When you find a property on which you want to make an offer, before you make an offer, bring the home inspector with you to the viewing so that s/he can advise you of any apparent deficiences in the property, as well as their cost. Having a home inspector accompany you to the property before you make an offer could save you thousands in unexpected repair costs. You may even decide not to make an offer as the potential repair costs are beyond your budget. This way, you can meet your lender’s requirements, protect yourself and submit an offer with little-to-no conditions, which will make your offer much more attractive to the vendor.
Include an escalation clause in your offer. An escalation clause tells the seller how much you are willing to overbid a higher offer than the one you are currently making – and how high you are willing to go. This leaves you room to compete while capping your offer at a maximum price you feel comfortable with.
Also, homebuyers can enlist the help of a real estate agent who represents their interests and provides the insights they need without paying a fee (the seller pays the commission) instead of using the listing agent to complete the sale, whose obligations are to the sellers.
Usually a buyer submits a deposit cheque to the listing agent’s broker’s office within 24 hours of their offer being accepted by the seller. The amount is typically 5% of the sale price of the property. To show the seller that you are serious about your offer, you could submit a certified cheque or money order for the deposit amount along with your offer instead of after your offer is accepted.
Avoid Properties Listed Below Market Price
If you are considering a property that is listed below market price, the seller (and listing agent!) is most likely trying to create a real estate bidding war. Because the price of the property is so attractive, many buyers will submit offers and be encouraged to outbid other offers. It’s better to put an offer on a property that is priced at market value. Your real estate agent will be able to provide you with recent sales in the neighbourhood so that you will both understand how much properties in the area are selling for.
The Bottom Line
Until the proposed federal Home Buyer’s Bill of Rights is passed and fulfils its promises of ending blind bidding and establishing home inspections as a legal right, buyers are at the mercy of sellers and other, desperate buyers. But following the tips above can help you keep valuable protections in place and compete in a bidding war.
You may be interested in reading, “Preparing Your Home for Cold Toronto Winters“.