You can't escape the news articles, blog posts and outcries on social media about todays crazy housing market. Here's some insight into what's happening now from the perspective of an active, full-time and high producing Realtor.
The economics of why prices are so high: simply put, low supply and high demand, fueled by the low cost of borrowing! And this supply/demand issue is also putting pressure on the rental market as well.
Advice from a listing Agent - The public likes to lay blame for this crazy market on agents. Simply put, we are tasked to get the highest price for our sellers when we take a listing. Right now the psychology of buyers in this market, for better or for worse is that:
- underpricing a property slightly brings in more buyers
- more buyers who view a home results in more offers
- more offers usually results in a higher sale price
I have tried listing closer to asking price, and in my experience it results in less buyers viewing the home & fewer offers
Can we always predict the sale price? No, because realistically:
- the next buyer (who may have lost out on other properties) may offer substantially more than the last comparable sale
- the buyer who purchased the last home at 'substantially more' has bought a home, and is now off the market
- there may be more (or less) homes for sale than before, resulting in more (or less) competition
As a buyer, make sure your Realtor explains all this to you. Make sure you understand how the seller has chosen to sell the home on offers night - if you don't know, ask! The more information you have the more you can develop a good offer strategy.
Advice as a buying Agent - As a buyer understand there is a disconnect between the List Price and the Sale Price. What does that mean? Anyone can set up a true auction and list a home for $1. If the home is worth $1.3 million - there will be a buyer willing to pay market value for the house. And the seller will not be willing to sell for under market value - make sense?
I have seen homes in my neighborhood that I value at $1.3 million be listed for $899,000 and $1,100,000. Guess what? They both sold for market value! The lower list price did not mean that you could scoop up the price for less.
So make sure you're looking at homes that have sold in your price range as a gauge for what you can buy. Understand that house will likely sell for more a month from now!
Multiple offers are usually bell-curved, so don't be discouraged at putting in an offer - If I get 10 offers on a property or 20 offers on a property they are bell curved. 1-2 offers at asking or below (assuming the house is priced below expectation), the majority clustered together somewhere in the middle, and 2 or 3 offers at the top. So if you are in the running, you have far less competition than you think!
And yes, I have successfully won an offer where the house was drastically underpriced based on recent sales. There were 43 offers & my buyer did not overpay based on comparable prices!
Play the long game - Financially speaking, getting in the market is everything. If you feel you're over extending yourself with the offer price, do two things:
- Ask your lender what your monthly payments will be at different purchase prices. You may be surprised to see that low interest rates and longer amortization periods mean monthly payment differences are lower than you'd expect.
- Project 5 years forward. Would you be able to save the same amount the property will appreciate during that time? (likely not)
Would open bidding solve the issue? Open bidding has been raised as a solution to this problem for a while. You may remember that was one of the Liberals housing platforms during the last election.
You've probably seen this style of live auction that's used in places like New Zealand and Australia. They're experiencing property supply issues there, and open bidding has not solved the issue! Did you know that prices have risen 16.4% in Australia & 25.9% in New Zealand - and that's when buyers know what their competition is bidding! Here are some other recent news articles on open bidding.