Toronto faced the snowiest January since records began in 1937.Sammy Kogan/The Globe and Mail
Declining prices in the Toronto-area real estate market are often a double-edged sword: the trend entices hopeful aspiring buyers into having a look around. It also tempts some of those folks to hang about and see if values have farther to fall.
The national sales-to-new listings ratio for January is pointing to a sharp drop in house prices this year, notes Alexandra Brown, North America economist at Capital Economics.
“House prices continue to defy our expectations for them to stabilize,” says Ms. Brown, adding that the weakness last month was concentrated in the Greater Golden Horseshoe and Southern Ontario.
Toronto faced the snowiest January since records began in 1937, points out Ms. Brown, who believes the weather played a part in the steep drop in sales from the same month last year.
Against that backdrop, the GTA market remains firmly in buyer’s territory, which prompts aggressive house hunters to shop around for desperate sellers who might accept a lowball bid.
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Meanwhile, the scarcity of listings for well-renovated houses on Toronto’s frozen side streets has led to some bidding contests in recent weeks.
Alex Beauregard, real estate agent with Sutton Group-Associate Realty, decided to list a four-bedroom detached house in Mimico soon after a monster storm in early February.
“I was out there three days in a row shoveling. My cardio is great,” laughs Mr. Beauregard. “I took it upon myself to shovel parking spaces on the street.”
The exercise paid off.
Mr. Beauregard listed the property at 80 Elma St. with an eye-catching asking price of $1.199-million and a set date for reviewing offers.
After 40 showings, the house drew four bids and sold for $1.362-million.
“Sellers held off bringing properties out, so I was the only one out there.”
80 Elma St., a four-bedroom detached house in Mimico.PropertyVision
In the two weeks after the sale, three houses landed on the market in that pocket.
In the central Bickford Park neighbourhood, Mr. Beauregard listed a renovated semi-detached house with an asking price of $1.489-million.
On offer day, the seller rebuffed two lowball bids for the three-bedroom home at 466 Montrose Ave.
Mr. Beauregard attempted to have the buyers, who submitted offers of $1.3-million and $1.45-million respectively, raise their bids, with no success. One agent had been working with the same house hunters for a year.
Many agents who work with unrealistic buyers have adopted the tactic of submitting the lowball offers their clients demand, knowing they will fail, Mr. Beauregard says.
The agents working with those buyers figure the clients will receive an inevitable education as they fall in love with homes and then lose out, he says.
“They’re allowing their clients to suffer the rejection, suffer the heartbreak.”
On Montrose, Mr. Beauregard relisted the property with an asking price of $1.649-million, pointing to comparable properties which sold around the $1.7-million mark.
466 Montrose Ave., a renovated semi-detached house in Bickford Park.PropertyVision
A new buyer stepped up and paid $1.64-million, he says.
The lowball bidders could have snagged it for less if they were willing to come up to at least $1.55-million, he says.
Mr. Beauregard says some of the buyers lobbing lowballs figure they will find a desperate seller eventually.
One set of buyers for a house Mr. Beauregard had listed not only submitted an offer drastically below the asking price, they made the deal conditional on selling their condo first. The seller rejected the offer outright.
“If they have a good agent, they would not dream of putting that condition on,” he says.
The segment for detached homes in the $2-million to $2.5-million price range is surprisingly active in Toronto’s central neighbourhoods, says Andre Kutyan, broker with Harvey Kalles Real Estate.
A gold-standard garden suite, dressed in copper, in Toronto’s Bridle Path
Lowball offers have little chance in that bracket, he says.
The strategy is more successful in areas with lots of inventory and homes priced above the $5-million level, he says.
In the area around Bayview and York Mills, for example, the stalemate is ongoing as “days on market” pile up, and buyers have more leverage.
“There is a lot of fishing,” he says, as buyers test out the resolve of sellers.
Mr. Kutyan has an ongoing text chain with one agent who has buyers interested in one of his listings in midtown.
The agent maintains that her clients would need to do extensive work, and therefore the seller should be willing to accept less.
“This is a newer home. This is not a property that requires renovations,” he says with a laugh.
So far, the agent has not presented an offer in writing.
Homeowners are likely to reject a lowball bid at 10 per cent or more below the asking price if it’s the first offer they receive, says Mr. Kutyan.
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Most sellers will test out the market for a time and then drop their asking price by three to five per cent to see if that attracts a new set of buyers before accepting a lowball, he adds.
Homeowners with a languishing property tend to be worn down by receiving two or three offers around the same level over the course of weeks or months, he says.
Mr. Kutyan sometimes works with buyers who are adamant about submitting lowballs of their own.
“My advice changes depending on which side I’m on,” he says. “There’s a lot of game theory in negotiations.”
In the inventory-laden condo segment, Mr. Kutyan lines up the comparable units and submits offers one by one.
“You go in order, and you try to sniff out the deal – someone’s hungry,” he says.
When clients want to talk a seller down in price for a particular property, Mr. Kutyan delves into the data.
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Recently, one set of buyers was interested in an extensively-renovated semi-detached house listed around the $2-million mark.
Mr. Kutyan turned to a lawyer to conduct a title search and discovered the homeowners owed about $1.9-million in mortgage debt to a private lender charging a high rate of interest.
“I knew what the carrying costs were,” he says.
Mr. Kutyan hammered down the asking price with the knowledge that the heavy debt was pressing on the sellers.
His own clients had a house to sell, so he made the closing date four months later, but added an advancement clause which would allow the buyers to close sooner.
The existing property sold quite quickly, so Mr. Kutyan informed the listing agent that the buyer would be enforcing the clause.
“Their agent was up in arms,” he says.
Mr. Kutyan knew the principal and interest costs the sellers were carrying, along with the collateral they had provided.
He pointed out that the sellers had a contractual obligation to close early and urged them to consider the opportunity costs if they continued to shell out mortgage payments.
The homeowners relented, and the buyers closed the deal.
Every seller and every situation is different, advises Mr. Kutyan.
“There’s always a strategy,” he says. “Always.”