Today's post deals with the challenges of buying a home in a seller's market. First, let's look at a bit of recent history. In November of 2008, fear and uncertainty were in the air. Overextended sellers were anxious to unload their properties at a discount. Buyers, following years of a seller's market, were finally in control. Unfortunately for buyers, it didn't last. Fast forward to November, 2009 and, for sellers, it's business as usual. The Kitchener-Waterloo market has returned to a strong seller's market characterized by a low inventory of properties for sale.
So, as a buyer, what are the challenges being encountered? When there are many buyers for fewer homes, often there will be multiple offers on a desired property. Buyers and their agent are faced with the frustrating task of determining how much to offer to achieve a successful result(without overpaying). The outcome leaves one happy buyer and agent and multiple unhappy buyers and agents left to figure out where they went wrong.
In a strong seller's market, prices can change quickly and this causes added stress for buyers. A recent example is the demand for Power of sale properties in K-W. A number of them are getting multiple offers resulting in a sale price higher than the asking price. As part of the process, the lender on the defaulted mortgage typically has the property professionally appraised to determine market value. This will protect them from claims by the delinquent borrower that they sold it too cheap. Rising prices create anxious buyers often willing to pay too much to secure a property. As this result plays out over and over, a frenzy or "bubble" can develop as anyone who has tried to buy a property in Vancouver or Toronto recently can attest to.
The home pictured above is in a desirable east Waterloo neighbourhood. The seller sought to take advantage of current market conditions and listed the home recently on a Thursday with no offers to be considered before Monday. The asking price was set at $379 900 and it sold for $410 000!
So are there any pitfalls to avoid? In a seller's market, some buyers adopt the risky strategy of not including any conditions in their offer in the hope that it will appear more attractive. These conditions could include arranging a mortgage, a satisfactory home inspection or even the sale of the buyer's current home. As a buyer's agent, I'm told: "We're preapproved", It's only _ years old so what could possibly be wrong with it?" and "We'll have no trouble selling our home." Here are the hard facts. The buyer likely is preapproved but it's always possible the property may not meet the lender's policies. A new home is less likely to have home inspection issues but we all know what happens when we assume things are fine. Lastly, most sellers overestimate what their home is worth and underestimate how long it will take to sell.
What can we take away from all this? First, hire an experienced Realtor to represent you and protect your best interests. Remember, in most cases, the seller pays the Realtor's service fee so it often costs the buyer nothing. Without an agent, mistakes could cost the buyer $1000's or result in litigation. Second, always have a home inspection done. For $400-$500, at worst, you're purchasing peace of mind. Thirdly, the challenges of selling one home to buy another are avoided by using a Guaranteed Sale Program which is offered by some real estate companies including Century 21 Home Realty. Lastly, be patient. Things always happen for a reason and often when you look back, you're happier with the final outcome.
As always, for prudent advice on your real estate needs, feel free to contact me at Jeff.Gingerich@Century21.ca or direct at 519-505-4488.