Let me start off with a bit of a “State of the Nation” in the real estate market from a realtor’s perspective. In the last 30 days, my experience in the market is that I have and continue to witness extreme irrational buying behavior. For example, here are just three recent experiences:
- I co-listed a property in Vancouver and it sold $150,000 over asking, with a no-subjects offer in less than a week.
- I have a client that has been trying to buy a duplex or suited property for his parents in Prince George and the client has lost out on 8 listings. They sold the same day or within a day of being listed no subjects, and sometimes over asking.
- I am working with a few different sets of clients looking for a townhouse in the lower mainland and everything is selling within a day or days of listing over asking.
The theme in the real estate markets across the country is a general ‘fear of missing out’ (FOMO) and buyers are actually getting stressed out. This FOMO phenomenon is occurring across the country. RBC issued a report today entitled: FOMO, low inventories drive Canadian home prices up $100,000 since August.
Due to COVID-19 restrictions, agents are showing homes in 15 minute intervals so that as many people can view the property during the showing times. This leaves no time for the purchasers to arrange for all the “normal” due diligence such as inspections, appraisals, reviewing property documents, and of course, financing. This opens the purchasers up to all sorts of potential issues especially if the purchaser provides a subject free offer.
How to Prevent Purchaser Fatigue and Stress
In such competitive market conditions, purchasers are experiencing offer fatigue because they missing out on purchase after purchase – and it is stressful. I am hearing some listings are getting 20, 30, 40 offers. Oh and we are dealing with record high sales volumes at present. If this isn’t reflective of FOMO then I don’t know what is.
You may be asking how can I insulate myself or improve my odds as a buyer and or investor. That is the point of this blog.
Should you Buy Right NOW?
I suggest that you ask yourself this question. Is it absolutely necessary for you to buy right NOW or could you wait 6 months? The reason is that the fever pitch of the current market conditions is not sustainable. Also, there may be deals to be had when things slightly or heavily cool off because those that are selling may actually have to sell as they have already purchased elsewhere and need to close.
Important Recommendations for Buying Now
If you need to buy now and it is more than FOMO, here are a few things that may help you.
I recommend against going with a subject free offer to any of my clients as it opens the purchasers up for all sorts of potential risk. Here are just a few risk examples:
- What if there are structural issues with the property or site?
- If it is a strata or condo titled property are there concerns with obtaining insurance or special assessments?
- What if the property doesn’t appraise out to the value to which you have offered?
- What if your income or job situation changes between the offer and closing date?
Even if you are pre-qualified, remember the lender is approving you, not the property, and they will do an additional check usually the week of closing to ensure everything financially is as it was when the purchasers were approved for the mortgage financing.
- Do as much due diligence as you can prior to making an offer including reviewing all documentation.
- If you can, request to do a pre-inspection on a prior date to when the sellers are accepting and reviewing offers. Have your inspector lined up and prepared ahead of time.
- Ask as many questions as you can from the agents about the property to get a better understanding.
- Make sure that you have a letter signed by your lender that states you would qualify for the appropriate financing for the value you are offering. But remember ,there is NO Guarantee that you will get that financing because the lender still needs the property to appraise at that value for that financing.
- The seller will take the best offer! This is not the time for back and forth counter-offers, so offer your best price upfront but make sure that it is in alignment with your financing qualifications and that you have extra funds in case it doesn’t appraise to the value you are offering.
- Usually buyers will come with a 5% or 10% deposit. Consider coming in with a stronger (higher) deposit if you can. It shows that you are serious.
- Have the deposit in hand when writing the offer so that your agent can take a photo of it when they submit the offer
- Be flexible with the dates as much as you can to accommodate the sellers timelines. They may have a firm deal and need to move early or later than you.
- If you feel that you have to go subject free, despite my recommendations against this, realize that you can’t eliminate the risk that something will go wrong somewhere somehow.
Good or Bad News?
Now, here’s some good news or bad news, depending on your perspective. The bond yield rates are increasing, which in turn usually triggers increases the fixed term mortgage rates, but significant increases are not expected. This could have a cooling off effect the market. Secondly, we are heading into the spring market where there are typically more homes listed meaning more supply.
In speaking with my mortgage broker friends, the lenders are already seeing a somewhat slower pace for new mortgage applications in the last couple of weeks. Thirdly, with the roll out of the vaccines for COVID-19, travel may begin again. This means we could see more foreign buyers coming to our markets, and once again, can influence price and demand. So in short the FOMO phenomenon could be coming to an end. Hopefully you find this info is helpful so that you can make more informed buying decisions.
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I want to thank my fellow agents and mortgage brokers for sharing their experiences in these unprecedented market conditions. If you would like to discuss further, please feel free to give me a call @ 604-889-1760. Happy house hunting and stay safe out there! Andrew