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 here: 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”.
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?