There is a lot of talk within the Toronto real estate market about a buyer’s market versus a seller’s market, and what they mean given the recent rate hikes, the surplus of listings, and the stabilization of pricing. And while certain seasons may be busier than others when it comes to buying and selling, the fluctuations within the real estate market have far more to do with the concept of supply and demand than they do with the time of year.
So what do these markets actually mean, and how do they impact your buying or selling strategy if you’re considering making a move? Let’s take a look.
What is a Buyer’s Market?
A buyer’s market occurs when supply exceeds demand. To put it another way, real estate inventory is high, and there are plenty of homes for sale, but there’s a shortage of interested home buyers. These conditions give buyers leverage over sellers because when supply is higher and demand lower, the market is forced to respond.
In a buyer’s market, real estate prices decrease, and homes linger on the market longer. So, sellers must compete with each other in order to attract potential buyers. Typically, sellers will drop their asking prices to gain an advantage in the market. Furthermore, they are much more willing to negotiate offers to prevent buyers from walking away and accept offers with conditions such as home inspection or financing.
One thing to note about a Buyers Market is that they don’t last long. Once buyers realize they have the upper hand, it doesn’t take long for them to flood the market, creating a quick return to bidding wars, offer nights, and major competition for homes and condos.
TRB’s Tips for Buyers in a Buyer’s Market
A buyer’s market is the ideal time to purchase a new home because prices are lower and there are fewer buyers to compete with.
- Take your time. During a buyer’s market, it’s best to take your time because there’s less of a concern about losing out on a property you’re interested in.
- Know what’s available. See as many properties as possible before making an offer. Knowing what’s available on the market is highly beneficial because it will not only help you ensure that you find your ideal home but also afford you a greater ability to negotiate price.
- Analyze comparable properties. Becoming familiar with comparable properties on the market is key to negotiating effectively. By analyzing comps with your Broker, you can use their pricing to your advantage.
- Pay attention to days on the market. The longer a home has been available, the more power you’ll have negotiating for a lower price. Even if you don’t ask to lower the price significantly, you can still negotiate for contingencies, seller concessions, and repairs.
This also comes into play for Leases – if you’re constantly being outbid in the hot rental market, look for homes that have been on the market for 30+ days. You’ll have a better chance here as the owner wants to fill the space quickly before missing out on another month’s rent.
TRB’s Tips For Sellers During a Buyer’s Market
If you find yourself selling your house or condo during a buyer’s market, do everything you can to make yours stand out.
- Make some needed repairs. Since there are more properties for buyers to choose from, you’ll find that they can be pickier. You’ll want to do any necessary repairs before putting your home on the market and consider making minor improvements.
- Clean and depersonalize your home. Spend a lot of time considering how others will view your property. If buyers can’t envision themselves living in your home, they won’t make offers. So, do a deep clean of your home, get rid of any clutter, and touch up your landscaping or patio space in preparation. As you clean and stage your living space, try to depersonalize your space as much as possible: get rid of family photos, papers, souvenirs, and anything else that points to you living there.
- Marketing! Team up with your Broker to ensure the marketing plan for your home covers every single base possible. Ask your Broker for the marketing plan and ensure you have professional photos, a video and a virtual tour. Ask if the marketing campaign includes a slick social media campaign. If the answer is no, you may want to look for a new Broker.
If your home will be vacant or your decor is dated, it’s a good idea to hire a stager. With the assistance of a professional, you’ll be able to transform your rooms, so they look cohesive and polished. - Price it competitively. It’s crucial that you ensure your home is competitive by pricing it to sell. Request that your Broker survey similar homes on the market to see what they’re asking. What are the comparables and the competition (there is a big difference here!). Make sure your list price is either on par with or lower than the comparable homes in your area. And when you do get an offer, make sure that you judge it fairly.
What Is A Seller’s Market?
A seller’s market arises when demand exceeds supply. In other words, there are many interested buyers, but the real estate inventory is low. Since there are fewer homes available, sellers are at an advantage.
In a seller’s market, homes sell faster, and buyers must compete with each other in order to score a property. These market conditions often make buyers willing to spend more on a home than they would otherwise. Therefore, sellers can raise their asking prices. Furthermore, the increased interest means that buyers rarely have the power to negotiate and are more willing to accept properties as-is.
Due to the shortage of housing, these conditions often lead to bidding wars. During bidding wars, buyers will make competing offers and drive up the price, typically above what the seller initially asked for.
TRB’s Tips For Buyers in a Seller’s Market
Whenever there’s a limited supply of houses on the market and a wealth of interested buyers, time is of the essence.
- Act fast. If you find your dream home during a seller’s market, it will be an advantage for you to act fast. If you go back and forth over a house you know you want to buy, you may find that it’s no longer available by the time you wish to make an offer. Understand how to get preapproved for a mortgage ahead of time, so your financing is in order when you need it.
- Know you’re at a disadvantage. When it comes to making an offer, keep in mind that you’re the one at a disadvantage. A seller’s market is not the time to try to push contingencies, concessions, specific closing dates or repairs. Focus your attention on what’s most important to you. If there are certain stipulations you want written into the offer, think hard about whether they’re worth losing the property over. If you can make a firm, you should. Sellers prefer buyers who are willing to buy the house without conditions because they don’t have to worry about the deal falling through due to issues with financing, home inspection or anything else.
- Be patient. If you find that you keep losing out on the homes you’re interested in, it’s crucial to be patient and not get discouraged. Many buyers end up stressing during a seller’s market because they get frustrated. Inexperienced buyers caught up in bidding wars will often offer more money than a home is actually worth – or they feel comfortable spending – in order to get the home they want. That’s always a mistake.
- Don’t settle. On the flip side, some buyers will end up making offers on homes they otherwise wouldn’t be interested in because they’re tired of losing out. Remember, buying any property is a huge investment. Don’t settle on a home just because it’s available. Unless you have to move immediately, it’s a much better idea to wait it out for something you truly love and can afford.
TRB’s Tips For Sellers in a Seller’s Market
Since sellers must compete with each other to attract buyers in a seller’s market, it’s helpful to know how to increase interest in your property.
- Clean and organize your home. To begin, make sure that your home is in good condition and has been cleaned and organized before you market or show the property.
- Price it fairly. Even though homes tend to sell for more money in a seller’s market, it still helps to price your home fairly. If you and your Broker set the asking price at or slightly below fair market value, you’re likely to attract more interested buyers. Some sellers choose to list their homes for slightly less than the assessed value in order to encourage a bidding war.
- Carefully consider offers. It’s even more important during a seller’s market that you carefully review the offers you receive. Sellers are often so focused on choosing the highest offer that they fail to examine the financial strength of each buyer. Just because buyers say they’ll pay a certain amount for your home doesn’t guarantee they’ll actually be able to obtain those funds. Lenders will not allow buyers to borrow more than the assessed value of your home.The last thing you want is to accept an unrealistic offer and be forced to put your home back on the market when the deal falls through. The longer your home is on the market, the more questionable it will seem to buyers, and the more power they will have when negotiating.
- Ensure pre-approval. For any buyers who require financing, you should ensure that they have been pre-approved for a mortgage. Pre-approval requires that buyers’ finances and credit history are verified, making it far more likely they’ll ultimately be able to obtain a mortgage for a specific amount of money. Prequalification, on the other hand, is just an estimate of buyers’ finances.
- Be aware of contingencies. Also, be on the lookout for offers that include contingencies. Offers that include stipulations, like mortgage contingencies, home sale contingencies, appraisal contingencies, and inspection contingencies, enable buyers to back out of sales contracts if certain conditions aren’t met.
Current State of the Toronto Real Estate Market
So – buyer’s market versus seller’s market – what is it? The current state of the Toronto real estate market is weighing on the side of buyers. For now. With the increased interest rates impacting all segments of the market (condos, semis, and detached), buyers have less buying power than they did a few months ago.
What we are seeing is not a crash, but a stabilization of pricing. Many think this is a negative thing, but on the other hand, when you look at it from a different perspective, you’ll see plenty of opportunities ahead of you for both buyers and sellers.
With lower pricing, more buyers can buy. Sellers may think they are getting exponentially less than what they “could have” a few months ago, but real estate isn’t a month-by-month trade. It’s typically at least 5+ years. So if you’re a seller that’s hung up on what could have been, take a look at the price you paid for your house however many years ago – I bet you’re still making a very healthy profit.
So yes, as we sit in the current buyers market, buyers still need to be aware. These don’t last long. Buy now while you have the chance because the real estate cycle will continue. The more buyers that start to flood the market, inventory will dwindle and suddenly we’re going to wake up to bidding wars and competitive bids again because all of those smart buyers will be…well…buying.
If you want to discuss your buying and selling strategy and learn more about when I think is going to be the best time this year to buy, complete my form below or reach out to me directly.
~Romey Halabi
Founder & Lead Broker, Toronto Realty Boutique
416-999-1240