If you’re as frustrated and confused as I am about the real estate market, let’s talk about Toronto condo prices specifically. Saying condo prices have surged in the past few months is an understatement.
More accurately, it would be fair to say that some areas in condo are seeing unprecedented price surges recently.
Before I get to the specifics, let’s look at what the Toronto condo market did in January.
The average price for a Toronto condo in January 2017 rose to $471,409, a double digit increase from January 2016 of 13.1%.
The prices of condos in 905 area doesn’t seem too bad, as average prices rose to $379,169. But when you consider that’s a 18.5% increase, you’ve got to start wondering what’s going on in the condo market.
Now let’s get to some real action.
Two weeks about, I was helping a client out with buying a Scarborough condo. We’ve been looking for weeks but nothing really seemed to impress them. Newer condos were a bit small for them (they’re downsizing). So we ended up exploring older condos.
They happened to discover Tridel built circa 1990’s condos in the Markham and Eglinton neighbourhood. They fell in love with the space — a two bedroom condo plus den, well presented (and obviously staged), convenient location and impressive building amenities.
Oh, and there was an offer date set on this condo.
Seriously — an offer presentation date, for a condo in Scarborough? I work with Scarborough condos all the time, but I just had to call the listing agent to ask if they would take pre-emptive offers. He said no.
So we prepared an offer, knowing full well my clients and I had to come up with a price strategy depending on how many offers would surface.
On the offer date, my clients happened to see another listing come up in the adjacent building — this one for a much lower priced one bedroom plus den. With offer in hand, they wanted me to show it to them anyway, ‘just in case’ we didn’t end up getting the two bedroom plus den.
On offer night, literally minutes before presentations started, we looked at the one plus den. We proceeded to make an offer on the two bedroom plus den we saw.
And there were 11 offers. Yes, eleven offers on a 1990’s condo at Markham and Eglinton… in Scarborough.
Needless to say we were eliminated in the first round. Even though we came in well above asking price. Even though we had a firm offer (no financing, no inspection, no status certificate — because we had already reviewed it).
Thankfully we saw the second condo.
So it was time for round two.
The offer presentation was two days later, but again I asked the listing agent if they would consider pre-emptive offers.
No, the sellers wouldn’t.
After coming out with minor bruises from our first try, we were prepared to be more aggressive. My clients really wanted the condo, and would do anything (reasonable) to get it.
Offer night — 7 offers. Yes, seven.
I mean… seriously… you would see this kind of action happen with freehold houses throughout the city, but again… in Scarborough? For an older condo?
We came in strong, being the first offer presented, and as I sat there, face-to-face with the sellers and their agent, I saw their eyes widen and faces light up as they saw our opening offer. They definitely wanted to work with my client’s offer, but there were six others to go.
So we waited, and as the other offers were presented, the listing agent called.
We didn’t get it. But the sellers wanted to work with the top three. Fortunately, we were one of them.
As I discussed the situation with my clients, they reiterated that they wanted the condo. They WANTED it.
We revised our offer, once again coming in firm, with a price well above what they were looking for.
We got the call. And my clients won.
Six other offers were turned down. Six buyers were rejected.
As the sellers were about to sign the acceptance of the offer, one of the other buyer agents called. They wanted to improve their offer. With a price that would be higher than my clients.
With such integrity, the listing agent politely refused, told the buyer’s agent they already had the chance and that the sellers already expressed interest in working with the offer in front of them.
Phew. That was a close call.
My clients got their condo. And to say they were ecstatic is an understatement.
Who’s really behind surging Toronto condo prices
Now it’s time to play the blame game. Because everybody loves to point fingers. Why are condo prices going up? With double digit price growths recently?
After experiencing this ordeal (not just this time but many times in the past few months), I happen to see who’s lined up for offers at these condo bidding wars.
Let me give you a glimpse. Because it’s actually obvious who’s fuelling condo prices.
First time buyers
It’s tough being a first time buyer in today’s market. Not only are you competing against other first timer’s, you’re also competing with other buyers with greater resources and more options available to them (as we’ll discover below). In close to 15 years of real estate, I’ve never seen such a big hurdle facing
Competing with the first time buyer market are downsizers selling their large home to move to a smaller space. As home prices have increased, many homeowners who have lived in the same home for 20-30 or more years have realized the huge amount of equity they’re sitting on. They’re also realizing just how much work it takes to maintain a big house.
Should we even call them that, or are they speculators now? Investors expect a return on investment, based on cash flow and healthy appreciation. But when you calculate return on investment, and consider that putting 20% down on a lot of condos today would hardly break you even on monthly costs, investors would have to rely on continued double digit price increases to get any kind of return on investment. But that’s assuming you’d buy a condo, hold onto it (while experiencing negative cash flow) and then sell it five years from now at ‘double’ what you bought it for. Is this reasonable to expect?
You might argue with me on this one, and that’s okay. Because I know for a fact that there are condo buyers out there who want to get in on the action because of FOMO — fear of missing out. These are the buyers who have long contemplated about entering the real estate market. Perhaps they were thinking of buying two years, or five years ago. And after seeing just how much prices have gone up, they fear they won’t be able to afford a home if they keep sitting on the sidelines.