Real Estate Strategies – How to Buy in a Low Inventory Market
Recent statistics from the Toronto Real Estate Board indicate that current active MLS listings are way down (approximately 47% percent down) from those of a year ago. Low interest rates, combined with a ‘wait-and-see’ attitude of many Canadian sellers, have resulted in a situation very different from the market in many U.S. cities. Reports of bidding wars in some prime Toronto neighborhoods, and even in some suburban neighborhoods, have confounded the experts, and many buyers and their agents have felt frustration in losing out in what turns out to be an irrational bidding war with other buyers. There is nothing more frustrating to any buyer, or their agent, than finding the perfect house, and then losing it to someone else who bids a higher price.
In a market such as this a pre-planned strategy is vital, as decisive action is required in both the search and the offer process. Patience is often also required, as more time is often needed in finding that perfect home. Once the desired home is found, you will need to be ready to make an offer based on the seller’s time frame parameters, so ‘sleeping on it’, consulting with friends or family, or viewing multiple times, may not be possible.
In this type of market, an experienced, expert professional Buyer’s Agent is worth their weight in gold.
Here are some tips in how to get the house you want in a low-inventory environment:
1.) Use an Expert Professional Full-time Realtor who is knowledgeable about the neighborhood
In a market where the better homes are snapped up almost immediately, there is no better contact to have than an experienced, professional, full-time Realtor, working for you. Going it alone, despite all of the information available online, will place you at a disadvantage when there is competition among buyers, and a good realtor will use all their skill and experience to get you the house that fits your needs.
2.) Sign a Buyer Agency Agreement with your Realtor
When the benefits are properly explained, savvy buyers will be eager to sign a Buyer Agreement with their agent. The key principle at work here is that, if a Buyer Agency Agreement is not signed between the buyer and their agent, then by default, the agent is working for the Seller! You must remember, it is the Seller who is paying the commission, and it is only through the entering into a Buyer Agency Agreement, where the agent becomes legally bound to act in the best interests of the Buyer. While some buyers are reluctant to ‘tie’ themselves to a Buyer Agent, what must be remembered is that the agreement also ‘ties’ the agent to the buyer. Once the agent is working for you the buyer, everything they do must be in your best fiduciary interest, and there is a long list of obligations that they are obliged to make to you.
3.) Have your agent set up a Buyer Contact system, whereby the MLS system e-mails you automatically with new listings in your price range and area, as they come out.
Most big city Multiple Listing Services provide a contact system where the computer e-mails the buyer with every new listing that comes out in the geographic area specified, in the price range and type of property requested. It is like getting an RSS feed from the Real Estate Board itself, and the service is free and is easily set up by the Realtor. These updates are delivered into your inbox daily, and are automatically generated. When you see a house which interests you, simply contact your agent to view.
4.) Get Pre-Approval from your Lender, and make sure that you understand all the terms and conditions of the loan commitment.
Nothing could be more important, or simpler to action, than a pre-approval from your bank, mortgage broker, or lending institution. This service is free from almost all lenders, and will typically be good for a period of anywhere from 60 to 120 days. Once you have the pre-approval in place, then you know how much you are qualified for, and how much you can offer on any property. If you are a first time buyer, your agent can connect you with lenders who can help. If you suspect that there could be difficulties from past credit issues, get these cleared up through the pre-approval process. Often, a minor credit issue can be cleared up with a simple explanation. Credit approvals can be verbal, but it is always better to get them in writing.
5.) Be prepared to view homes as they come on the market
Once again, in a seller’s market, when inventory is low, it is imperative to act quickly when the new listings appear. If you wait for the weekend, or for a convenient time, the house may be gone. Be prepared to make time for showings as they come out.
6.) Have an offer strategy when multiple offers are a possibility
Discuss with your agent how you will deal with competing offers. Experienced agents know strategies which will help you to come out on top when you have to compete. Have a price ceiling in mind. Your agent will know how many other offers are competing, but they will not know what the other offer prices, terms, or conditions are. How high will you go? You need to discuss this beforehand. There are plenty of ways to make your offer stand out, apart from the offer price; make sure you give the largest good faith deposit possible. When there are two nearly identical offers, and one contains a larger deposit, the seller will naturally accept the one with the larger deposit. Make sure your agent contacts the listing agent, and determines the most acceptable closing date for the seller – and then match it. Only include conditions which are absolutely necessary. Once again, your agent, if they are experienced, will check with the seller’s agent to see which conditions are o.k. to include.
7.) Understand the risks and liabilities of making a firm offer
Most offers contain at least one or two ‘conditions’, which allow the buyer to buy conditionally, and which allow the buyer an out clause in case the conditions are not met. Typical conditions would be those on financing approval, on home inspection, on condominium Status Certificate (if the subject property is a condominium), and on the sale of the buyer’s property (if the buyer also has a house to sell). When multiple offers are present, all these conditions create a disadvantage for the buyer. When there are identical or similar offers on the table from multiple buyers, the seller will naturally select the offer with the fewest conditions (the fewest risks for the seller). Many sellers in the Toronto area will pay for a professional house inspection themselves, and have it ready for the buyer’s perusal, thereby negating the need for a home inspection condition. Here again, an expert realtor can advise which conditions can be included on a competing offer, and which should be not included. The biggest risk for any buyer is to make an offer ‘firm’, with no conditions, specifically with no bank finance approval condition. Unless you are paying cash for the house, you must be sure that the bank approval will be forthcoming. Remember, the offer, if it is accepted by the seller, is a Contract, which must be fulfilled. Banks will approve you, the Buyer, but they must also approve the transaction. Banks will send out a bank appraiser to appraise the property, to ensure that the money loaned is for an amount appropriate to the value of the house. If you have bid higher than the appraised value (in a bidding war), then the bank may not approve the full loan amount. So it is very important to discuss these issues with your realtor and with your lender, to know exactly how high you can go.
8.) Make sure your agent does a thorough Competitive Market Analysis prior to making the offer.
This is Real Estate 101. Make sure that your realtor shows you the prices for recent sales of comparative properties in the neighborhood – this will give you a sense for what price the home you are interested in will go for. Remember, though, that no two houses are alike, and that adjustments need to be made, and that everything from condition, to location on the street, to time of the year will impact sales prices.
9.) Understand all the closing costs, so there are no surprises later.
Once you have successfully gotten the home of your dreams, there are closing costs for things like the Ontario Land Transfer Tax, and for your lawyer’s services. These amounts are due on the closing date (the day that you get the keys and take possession). Having an accurate idea of what these closing costs will be is something which your realtor can provide you with.
These are just a few of the many tips and strategies which an expert Realtor can provide you with, when you are buying in a competitive market. Using them wisely can make the difference between getting the house of your dreams, or watching it go to someone else.
Randy Selzer is a dedicated Realtor who has been helping people to enhance their lifestyles through the buying and selling of fine real estate in the Greater Toronto Area since 1993. Randy is also a fan and a student of Web 2.0 and social media networking. Get expert real estate tips and advice at http://www.twitter.com/randyselzer and free E-books and more at http://www.randyselzer.com/
- April 2017
- February 2017
- October 2016
- June 2016
- April 2016
- February 2016
- January 2016
- November 2015
- October 2015
- September 2015
- June 2015
- May 2015
- February 2015
- January 2015
- January 2014
- November 2013
- October 2013
- September 2013
- August 2013
- July 2013
- June 2013
- May 2013
- April 2013
- September 2012
- July 2012
- June 2012
- August 2011
- May 2011
- January 2011
- August 2010
- April 2010
- March 2010
- February 2010
- January 2010
- December 2009
- November 2009