Category Archives for "Buying And Selling"

Jun 09

Ottawa Condo Prices – Older vs. Newer

Buying And Selling , Investing

Talking about Ottawa condo prices with one of my clients recently, I realised it’s been 6 years since I looked at the average selling price trend for older vs. newer condo apartments in Ottawa. Here’s the article from 2012: Are New or Re-Sale Condos a Better Investment?

Fast forward to today; let’s take a look at the average selling price trend for condominium apartments, comparing units built before 2008 to units built in 2008 or later (i.e. within roughly the past ten years). We’ll look at the entire Metro Ottawa area, and then isolate the urban core to compare trends.

First up, across Metro Ottawa, the graph below shows that condos built within the past ten years sell for more than older units on average. This will not surprise anyone, but what about the trend? Do newer condos appreciate more or less in value over time compared to older units? To my eye, the two trend lines on this graph run almost parallel to each other. There may be slight evidence of a widening gap in the most recent couple of years, but not enough to make a reliable assessment. The initial conclusion is that re-sale condominium apartments appreciate in value at roughly the same rate regardless of their age.

The first graph includes sales of all condominium apartments: re-sale and new construction. The graph below includes a separate curve showing only new construction condos sold through the MLS system. This represents only a portion of all new construction sales as many are sold without MLS and Realtor services. The small number of sales included in this curve mean there is more variability in average price. The question is, how much impact do new construction sales have on the overall MLS average price statistics? The third graph removes new construction sales from the equation, showing only re-sale condos.

The graph below is the result of subtracting the yellow line in graph 2 from the lines in graph 1 that included all condominium apartments, re-sale and new construction. There are a couple of places on the graph where the two curves run closer together with new construction units removed. The gap in the most recent two years seems slightly narrower than it did with new construction units included. We are making approximations here, but this analysis appears to strengthen the argument that once new condominiums have been absorbed into the re-sale market, their average price appreciation does not change substantially with age.

For investors, the main conclusion from the above data is that you need to assess condominium apartments on factors other than estimated appreciation. This supports the general approach I recommend to investor clients: invest, do not speculate. In selecting a property for investment purposes, the fundamentals of quality real estate are key: location, size, layout, view, construction quality, finishes, amenities. Acquiring desirable, higher quality properties will increase the potential for greater appreciation relative to the average. However, an objective analysis of the numbers is the ultimate test.

To help you with that objective analysis, I developed a property analyser spreadsheet that you can receive when you sign up for my investor bulletins called RED Alerts (Real Estate Deal Alerts) on the investing page. You’ll receive periodic updates to this tool by remaining on the list of registered users.

Before signing off, I also ran the re-sale average price analysis for older and newer condominium apartments in the urban core of Ottawa only, to see if there is a significant difference in price appreciation inside the greenbelt compared to the suburbs. Have a look at this graph and let me know what you think. I’d love to hear your observations and feedback in the comments below.

May 08

Bidding Wars That Aren’t

Buying And Selling

Have you read the CBC article from April 25th about Ottawa real estate’s “Perfect Storm” intensifying “Bidding Wars”? I’d like to go through this article and shed some light on a few of the pronouncements it makes. You can read the original article by clicking the button below.

CBC Article: Bidding Wars Intensify

It’s fun working in real estate because almost everybody finds it interesting and has opinions about it – there is always a great conversation just around the corner with the next person you bump into. The intense level of interest in real estate also results in a lot of media coverage and analysis, and incredibly intense discussions in online forums. As the market works its way through the cycle it has been turning for thousands of years, the same arguments arise. And some people say silly things.

We don’t get past the sub-title of this CBC article without encountering silly comment number one: 

Fewer properties, more buyers, new sales tactics combine to create unprecedented sellers’ market.

If only the journalist could have constrained this statement to its factual components – but of course, it wouldn’t grab as much attention if it did. The factual version would be: “Fewer properties, more buyers create strong sellers’ market.”

There are no “new” sales tactics; and if the word “tactics” is meant to imply tomfoolery then there are no “tactics” at all. There are tactics being used of course – any conscious plan employed to get the best result is nothing other than a series of steps, or tactics. But what is the writer trying to say? The implication seems to be that in a “fair” market there would be no tactics. Everyone would simply act randomly.

The sellers’ market in Ottawa right now is not “unprecedented” either. Check the individual years in Ottawa history when average property values increased the most: 1973 ( 25.3% ), 1974 ( 21.8% ), 1983 ( 21.3 % ). Year to date in 2018 average freehold home prices are up 5.7% over the same period in 2017. The average annual increase in home (including freehold and condo) prices over the past 60 years is 5.9%.

I realise the writer is drawing attention more to market behaviour – multiple offers and homes selling over asking price – than she is necessarily to how much more homes are selling for this year than last year; but these things are related. Do you think in the many years ( 10 individual years to be exact ) that home prices went up by 10% or more, there were never multiple offers or homes selling over asking price to the extent they are this year? I’m sure there were.

A couple of paragraphs into the article we have a slightly more detailed remark about the “tactics”: 

a shift among realtors toward a more aggressive sales strategy

A more aggressive sales strategy… what exactly does this mean? Later in the article the writer explains the process. Under the heading “Blind Auctions” she outlines how agents are holding open houses and then having buyers present their bids one after the other on an “Offer Night”. The article talks about prices being driven up because buyers are “eager to outbid each other”. There are a lot of misleading statements in this depiction of the process. Here’s a point-form breakdown:

  • Open Houses have little if anything to do with it. Anyone who has bought or sold a house within the past 5 years should know by now that open houses have no impact on the sale of a home. They can be a convenient way to allow multiple buyers an opportunity to view a home without having to schedule an appointment, but virtually every serious buyer is working with an agent and would book a private showing of the home if there was no open house. In the vast majority of cases they book that private showing even if there is an open house. The buyer who simply attends the open house on their own without an agent, whether or not they have hired an agent, is significantly less likely to make an offer on the home.
  • “Offer Nights” are nothing new, and are not exactly as described. By law under the Real Estate and Business Broker’s Act, an agent representing a Seller cannot reveal any terms of any offer to another party. The process is a blind bidding process by law, not by “aggressive sales strategy”. Sellers pay commissions to their agents who are bound to work in their best interest. That includes, under law in Ontario, employing an offer system that does not undermine the Seller’s chances of realizing the highest sale price that the fair market will bear. That price is the price that some buyer is willing to pay. When buyers do not know what other buyers are willing to pay, they bring their best offer to the table because they will only get one chance. This does not mean that “buyers are eager to outbid each other” – but it does mean that buyers recognize when property values are rapidly increasing. By reviewing recent sales of similar homes with the help of their agent who can provide all of the data and share their experience in helping analyse that data, buyers learn what homes are currently worth. Buyers should factor into their analysis the possibility that any rapid increase in market value could flatten or recede.
  • Bidding wars that aren’t. In Ottawa, seller’s agents almost always follow a “best foot forward” competition model for multiple offers. In other words, every buyer is informed of the number of offers in play and decides what their best offer for the property will be, and submits that. The seller reviews all offers and selects the one that suits them best. There are sometimes minor changes requested of the buyer with the “best” offer, but it is rare for the seller to engage in a process of back and forth price negotiations with multiple buyers in an actual “bidding” process like an auction, increasing their countered asking price to each buyer until all buyers say “stop”. That would be a “bidding war”. Bidding wars essentially do not happen in Ottawa. I’m not saying they never happen, but they are extremely rare.

Remember, the offer process in Ontario is always a blind bidding process, whether market conditions currently favour sellers, buyers, or neither. Sellers who choose to allow time for buyers to see their home before selling it to the first person who is able to run out of work to see it and make an offer, are not only ensuring that the seller achieves market value, but are also giving every buyer a fair shot at purchasing the home. Not delaying offers nor having “offer nights” would mean that a lot of potential buyers of a home wouldn’t even get a chance to see the home, let alone make an offer.

The process is arguably the most fair process for all involved. But sure, it’s not fun for buyers when their chances of acquiring a house they make an offer on are reduced dramatically because of competition. Not being fun doesn’t mean it isn’t fair, and it certainly doesn’t mean that “aggressive sales strategies” are being used. The delayed offer tactical method has been employed for decades – it’s not a “new sales tactic”.

(Un)professional Spin

The last thing I’d like to comment on is the statement from the Ottawa Real Estate Board’s President, Ralph Shaw, quoted in the article: 

“Inventories aren’t getting a chance to build because we’re selling them as soon as they come on the market,” Shaw said.

It’s one thing when the media puts a spin on the facts to weave a narrative or create a bit of a buzz or sensation based loosely on the facts. But as I often point out in my monthly newsletter and on this blog, it is quite another thing when real estate professionals misrepresent facts, statistics, and market behaviours.

Mr. Shaw’s statement implies (I’m being kind – it doesn’t just imply it, it states it straight-up) that the reason inventory is low is that agents are selling homes as soon as they hit the market. Let’s break this down.

First, are agents selling homes as soon as they hit the market? There is some truth to this. The average number of days a home or condo was on the market before selling in April was 49.4. If you don’t count re-lists of the same property and just look at how long on average a discrete listing took to sell, the average was 34.2 days. That is the lowest it’s been since May of 2012. So homes are indeed selling very quickly.

What about the number of homes sold, then? If agents are selling them so quickly, the number of sales must be through the roof, no? Well, year to date there have been 4,197 freehold home sales compared to 3,970 by the end of April 2017. That’s an increase of 5.7%

However, a far more telling statistic is the number of new listings of homes being brought to market. Year-to-date there have been 6,600 new listings in Ottawa. By the end of April, 2017 the year-to-date total was 8,749. I have been tracking the detailed statistics monthly since 2009 and that year, 2009, is the last time that the number of new listings year-to-date through April was lower than in 2017. So 2017 saw the lowest number of new listings in 9 years, and in 2018 it has dropped another 32.6%

I ask you, as President of the Ottawa Real Estate Board, with these statistics in hand, would you point out the 5.7% increase in number of homes sold year to date, the remarkably quick 34.2 days on market, or the whopping 32.6% drop in the supply of homes on the market compared to last year, which already had the fewest in 9 years, as the main driver of the current sellers’ market in Ottawa?

Nov 23

Selling – Dealing With The Agent Who Already Has a Buyer

Buying And Selling

Law makers are waking up to some of the old school sales tactics that are unfortunately still common in the real estate business. CBC’s Marketplace ran their story (episode 44 – you can Google it if you haven’t seen it) about Realtors in Toronto working both sides of a transaction for the benefit of themselves (and buyer customers or clients) at the expense of their seller clients.

Ontario is now putting new rules in place to limit the practice of multiple representation (what used to be called dual agency). B.C. is going a step further and essentially banning the practice. The rule changes do not prevent the kind of behaviour documented in the Marketplace piece; but, I think they will help by raising public awareness of the problem.

Today I don’t mean to cover the new laws or go into the core of the multiple representation issue. I want to talk about one simple practice that happens every day that is dishonest and costs many home sellers thousands of dollars. In some cases it falls under the multiple-representation umbrella. It is caused mainly by people not understanding how real estate representation and transaction management work.

I’m talking about the agent who says “I have a buyer for your home”. This comes in many forms. It could be your friend’s agent that you bump into at a party. You start chatting and mention that you’ll be selling your house soon. Maybe you already have a Realtor in mind for the job – one who was highly recommended to you for their trustworthiness. The agent at the party is friendly and outgoing and seems quite interested in your house and your situation. As you describe your house, the agent asks if you want a second opinion on it. Whether you invite this party agent over for a look or not, at one point s/he says the magic words:  “You know, I’m working with a Buyer right now who is probably perfect for your house.”

What seller can resist those words? People frequently tell me they’ve received calls or post cards from agents about their house, stating they have someone looking for a house like theirs or that their house is special and they have someone who’d love to buy it. This kind of flattery generates emotional excitement because people are proud of their homes.

I’m here to tell you that “I have a buyer for your home” is a sales script. I’ll explain its various levels of evil in this article.

The Buyer Is Real

“I already have a buyer lined up,” says the Realtor. Let’s break this down.

First, does s/he really have a buyer already lined up?  There are only two possibilities – either they do or they don’t. Let’s say they DO have a buyer for your house. If this is true, why do they need to list and market the home?  Rather than paying them 5% to list it and presumably sell it immediately to this buyer, why not represent yourself? Don’t bother going through the listing process – ask them to simply bring you an offer. Agree to pay them 2.5% for bringing the buyer. Ask your real estate lawyer to review the contract for you.

If this Realtor already has a buyer lined up, presumably the buyer is a client of the Realtor. This means the Realtor is working in the buyer’s best interest. If this was a court case, would you hire the other party’s lawyer to work for you too? I Have A Buyer For Your Home Hire someone to represent you (a Realtor and/or your lawyer). If the Realtor says that the buyer is not his/her client but just a customer, you’ll have to question how well they’ve qualified this buyer and why they are willing to give them first dibs on your home.

There are approximately 3,500 Realtors in Ottawa, all working for their buyer and seller clients. Why sell the property without properly marketing it to expose it to ALL potential buyers?  Often in Ottawa there is competition and you sell for a much higher price than you would by simply selling to the first buyer who comes along without advertising it. You are giving this buyer (client of the agent or otherwise) the scoop. The winners in this scenario are the Realtor and the buyer. The buyer is thrilled – his agent helped him scoop your property before it hit the market!  Is this really how you want to sell?

The Buyer Is Fake

In the majority of cases you’ll find that the agent does not in fact have a qualified, motivated, perfectly match buyer lined up for your home. This line is simply a sales script used to secure a listing. You think it’s great the agent already has a buyer, so you list your property with this agent instead of interviewing for the job or hiring someone you trust based on recommendations. At most the agent shows the property to one “buyer” right away, but it turns out the buyer isn’t interested for one reasonable explanation or another. Now you’re moving forward and the Realtor seems nice enough and it’s too much work to back out so you keep going. But let’s tell it like it is: you’ve decided to work with a liar.

Hundreds (Or Thousands!) Of Buyers

There is an extension to this issue that has become a powerful marketing tool for some agents. Once you understand what I’ve outlined above, you realise it is ridiculous and should make you laugh. If you care about truth in advertising, it might also make you angry.

Tune in to a local radio station and listen for a few hours. You are bound to hear one of several Realtors in Ottawa advertising they have hundreds of “now” buyers (“we have over 723 buyers”) ready to buy your home if you list with the Realtor. One such ad that I heard recently stated that the agent has more than 8,000 active buyers ready to purchase.

There are about 3,500 Realtors in Ottawa. These Realtors will jointly manage a little over 15,000 purchase and sale transactions this year. Do you think this one Realtor is working with 8,000 buyers today when 15,000 total buyers will purchase a home through 3,500 Realtors all year?

[ Editorial update ( Jan 2018 ): a little over 17,000 homes and condos sold through the Ottawa real estate board’s MLS service in 2017. ]

If a Realtor or brokerage has “buyers in waiting”, their job and legal obligation is to bring every candidate property to their clients’ attention. And have no fear, agents who use sales tactics like the “I have a buyer” line are motivated to make sales happen. When you properly prepare, list, and market your property, they will definitely bring their buyers (assuming they have some) to see your home. Why wouldn’t they? You don’t really think they will hide your home from their ready-to-buy clients if they have the possibility of making a sale, do you? The last thing you want is for that Realtor to also represent you – let them stick to their job working for their buyer client. Let your agent market your property to all Realtors, bring you the maximum number of potential buyers, and net the best results.

Sales Culture

In selecting a Realtor to represent you in marketing and selling your property, it is important to talk to a few and ask some pressing questions about their approach. The real estate industry was for many decades a purely sales business and the majority of agents still behave as though we are living in the 1970’s. This can be either deliberately from experience, or inadvertently by example and training.

Agent education after licensing largely still focuses on “scripts” to “convert” prospects into sales. Agents are taught to say things that evoke an emotional response to convince the person to sign a contract. There is a rising tide of greater professionalism, but you may need to speak with a few agents to find one who works solely in your best interest as a client.

There are many districts in the U.S.A. (I don’t believe there are any in Canada that have gone this far yet, while B.C.’s recent regulation comes close) whose laws specify that real estate brokerages must register to represent either buyers or sellers exclusively. That’s right – in those jurisdictions, as a consumer, you cannot hire an agent to help you sell your property based on how many buyers they are currently working with, because they are all working with zero buyers. All of the buyers are represented by brokerages working exclusively with buyers.

Amazingly, they have no trouble selling homes in these places. And they never have problems with conflict of interest.

What Do You Think?

We’d love to hear what you think. Does our position make sense to you? We tend to zig when other agents zag. Would you like to see even tougher regulations to prevent Realtors from confusing the public about how our services work? Drop us a line or a question in the comments section below. We’ll do our best to reply to as many as possible.

Oct 25

Rise of the Real Estate Cash Offer Nightmare

Buying And Selling

Your home hits the market and bam! You receive multiple offers – how excellent is that? And now you have to decide which offer to work with, or to accept. A quick glance reveals that the prices are all very close, the closing dates are all acceptable, and there is little to obviously set one of the offers apart from the crowd. Continue Reading

Mar 27

Is That Basement Bedroom Legal?

Buying And Selling , Investing

Basement bedroom window size is an issue that often comes up during home showings and inspections. When buying a home: “Is that bedroom basement legal?” When helping a client prepare to sell their home, the question is, “Can we call this a 3+1 bedroom home?” Does the bedroom in the basement “count”? Is it legal?Continue Reading

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