The apparent cooling in Canada’s housing market is leaving many buyers and sellers alike confused about how to price and bid on homes in the normally fervent spring market, real estate brokers say.
Those who spoke to Global News said the new market is resulting in negotiation power swinging back into the hands of buyers in many cases.
Nasma Ali, broker and founder of One Group Real Estate in Toronto, said the difference between the mid-winter market — before the Bank of Canada started hiking interest rates — and today is “day and night.”
Back in January and February, properties across Ontario, be they cottages or in the urban core, were all seeing multiple offers and going well above asking, she recalled in an interview with Global News.
“Every single house that went on the market was expecting and was getting multiple offers, really high demand,” Ali said.
The strategy then saw sellers accept offers on a single date, playing on the expectation that a bidding war would drive up the end price. Buyers had little leverage here, she noted, as sellers were under no pressure to accept the first offer they received.
“Why would they take a bully (offer) when they feel like they could get, like, an astronomical, magical number on offer night?”
The Toronto Regional Real Estate Board last week reported the number of April sales in the market dropped by about 41 per cent from the same month last year and 27 per cent from March.
Ali said many prospective buyers are waiting on the sidelines, looking to see where interest rates will land and how the housing market reacts before jumping back into their search.
Similar slowdowns were seen in many other Canadian housing markets including Montreal and Vancouver.
Craig Munn at the Greater Vancouver Real Estate Board told Global News that while the market has seen a slowdown from 2021, today’s pace of homebuying represents more of a return to normalcy from the record-breaking pandemic era.
“With homebuyer demand coming down, we’re seeing fewer multiple offers in the market,” he said, noting that units such as townhomes are among property classes still seeing strong demand.
A lack of supply is the main factor keeping Vancouver from becoming a buyer’s market, Munn said.
Why are home prices still so high?
While homebuyer demand is softening, home prices are taking longer to settle.
The average home price in Toronto last month was more than $1.2 million, down from about $1.3 million the month before, but was still about 15 per cent higher than the year before, when the average price was about $1 million.
This pricing change didn’t happen overnight, though. Ali said she saw a gradual drop in the number of people coming by showings, and a slow dawning on sellers that their home might not be able to generate the buzz it used to when the market was hotter.
They started accepting offers that were based on, say, what a nearby home on the street last went for instead of waiting to see what they could get on offer night. The result was that prices stayed elevated for longer until buyers started waking up to the actual market conditions.
Marc LeFrancois, a broker with Royal LePage Tendance in Montreal, told The Canadian Press recently that he’s been seeing homes sell after receiving a single offer, or just a few rather than some 20 offers that brokers were accustomed to dealing with months ago.
But the lower number of bids some properties are receiving have some of LeFrancois’ clients questioning why they should bid significantly above the asking price if sales are down.
“The buyers are a bit hedgy. They’re worried when they buy a home and it wasn’t done under multiple offers,” he said.
“I’ve got a client … (who) said, ‘did I pay too much? Nobody else was bidding and it’s strange because the last two years it was 20 buyers for a home.’”
How to craft a bid
Pritesh Parekh, a Toronto realtor with Century 21, told Global News that the cooling housing market has fundamentally changed how buyers should be understanding list prices.
Parekh said he’s had multiple clients coming to him in recent weeks unsure of how to process the price on the sticker.
With less demand driving up sale prices than in previous months, the list price might be closer to what a seller is expecting. There might even be room to negotiate down, he said.
“You can see how this is so confusing,” Parekh said. “When a consumer sees a house listed for $1 million, they have no idea if it’s worth $900,000 or if it’s worth $1.1 million or if it’s actually just worth what it says on the sticker.”
One of the best clues to parse the list price is the style of offer presentation — whether a home is accepting bids at any time, or just on a single night.
“When you say ‘offer at any time’, it is expected to go for somewhere in or around that price,” Parekh explains. “When it’s a bidding-war situation on an offer date, it’s always underpriced with the expectation that all the offers will be above that particular price.”
Ali said there are still a few homes that drive bidding wars — this is reserved for real gems that “tick all the boxes” — but the majority of houses can’t drive this kind of activity anymore.
When it comes to 90 per cent of homes on the market, “you’d be surprised what you can negotiate down” right now, she said.
Conditions are back on the table
With a less frenzied market, buyers have a bit more freedom to add conditions to their offers, according to the brokers who spoke to Global News.
“In this market, this is when you 100 per cent can negotiate,” Ali said.
In Toronto, she’s seen conditions added to sales for inspections, financing and even escape clauses — conditions that could allow a buyer or seller to back out of the deal.
While escape-clause conditions could give a seller a chance to shop around for other offers while keeping a prospective buyer on the hook, Ali said that in practice, once a conditional deal is accepted, few are actively considering that home as being on the market.
“When your house status becomes SC – which is sold conditionally – you can be assured that almost nobody’s going to come look at your house,” she said.
Back in Vancouver, Munn says that he’s hearing that conditions are making more of a comeback even in Canada’s most expensive housing market.
“Anecdotally, we’re hearing there’s more of that coming back into the market along with fewer multiple-offer situations where there’s that intense competition,” he said.
In some circumstances, buyers might still be wise to up the dollar figure on their bid “to show they’re serious” if they’re looking to add in a condition, Parekh notes.
— with files from The Canadian Press