The real estate markets are going a little crazy in Toronto and Vancouver, with out of control bidding wars, primarily for detached homes under 1 million dollars. Experts say it is because there is not enough supply. In some cases, over 20 offers are received and the successful buyers are paying sometimes tens or hundreds of thousands of dollars over the asking price. What’s worse, many buyers are putting offers in without any conditions whatsoever, hoping this will sway the seller to accept their offer.
Buyers, you can still be protected in this scenario. Here’s how:
Buyers should understand that in this environment, you are likely to lose up to 5 times before you win a bidding war. Still, it is important to remember that even if you make a bid without a condition, the home must be pre-inspected by a professional home inspector. This can get expensive, since the average home inspection report costs between $350 – $550, depending on the size of the home. As such, you may pay up to $2,500 in home inspection fees before you get an accepted offer. In my opinion, when buying a million dollar property, this is a worthwhile investment. I have heard too many stories of buyers who buy without an inspection, only to discover major problems after closing.
Before you get involved in this process, meet with a few different home inspectors to get an idea what they look for when inspecting a home. Then try to make a deal that if they end up doing multiple inspections for you, the costs will reduce on a per inspection basis. The main things to watch for are the age of the furnace, roof, water penetration issues and the electrical wiring. The inspector will also look for cracks, slopes in the floors and doors that do not close properly, which all could point to potential foundation issues.
I would also seriously consider backing out when there are more than 5 bidders on a home. You will likely have to seriously overpay to get the home, based on the irrationality of the other bidders. Even if you win, there may be problems with financing your purchase. Just because you may have qualified for a million dollar home, if your lender figures you paid too much, you will not get the loan you expected, which may result in your not being able to close your deal.
Some sellers have their own inspection done and make the report available to buyers. It is dangerous for a buyer to rely on this and not conduct their own inspection. These seller reports usually come with a disclaimer that they are for information purposes only and not a warranty so you won’t be able to sue anyone after closing if the information turns out wrong, unless you can prove that the seller actively concealed major defects without telling you.
Foreigners continue to love Canadian real estate as it is seen as a safe haven. With the recent fall of the Canadian dollar, Canadian real estate just got 10 per cent cheaper for foreign investors. These people primarily buy condominiums, so don’t expect a crash in the condominium market either.
When you are looking for a home, even at these prices, make sure you are close to public transit, and have nice amenities around you. You are not a stock day trader when you buy a home and then sell it shortly afterwards for a quick profit. If you are buying for the long term and can afford the payments, you do not have to worry about any future changes in the market or in interest rates.
Even when those around you are going crazy, be prepared and you can be successful, even in a bidding war.
Click here to read the article: http://www.thestar.com/business/personal_finance/2014/03/14/toronto_real_estate_how_to_play_safe_during_bidding_war.html
My Law Practice
I have received many inquiries about my law practice, providing legal services to real estate buyers, sellers and investors. Working with Real Property Transaction Centres, I am now able to close real estate transactions throughout the GTA. If you require any assistance on a transaction that you are working on, please email me at firstname.lastname@example.org
If you or your clients are looking for a written quote, please visit www.realproperty.ca and search under “How much does it cost” or contact Suzanne at 1-877- 219-9618, ext. 231.
About Mark Weisleder
Mark is a lawyer, author, instructor, Toronto Star columnist and keynote speaker for the real estate industry.