In the slouching Toronto-area real estate market, figuring out which seller is motivated to sell at a discount is a game patient buyers are prepared to play.
One of the tactics is the deployment of a lowball offer.
Tossing in a bid significantly below the asking price is an aggressive negotiating strategy that risks offending the seller, who may not respond at all.
But the ploy can also lead to a deal.
The Tuesday after Labour Day is the traditional kickoff to the fall market. This year, broker Andre Kutyan of Harvey Kalles Real Estate Ltd. received four offers on three properties on that day.
By the time the haggling was finished, only one property had sold.
“They’re just trying to test the water and see who’s hungry,” he says of the buyers.
A late burst of activity led to a bounce in sales in the Greater Toronto Area, which saw an 11-per-cent increase in transactions in August compared with July.
Rishi Sondhi, economist at Toronto-Dominion Bank, notes that sales were down in nine out of 10 provinces in Canada last month, with only Ontario able to muster a gain as a result of the GTA rebound.
Mr. Sondhi cautions, however, that it’s hard to argue that conditions have reached a turning point: Sales remain 30 per cent below pre-pandemic levels in the GTA, the supply-demand balance is tilted in favour of buyers, and the benchmark price slipped two per cent in August from July.
He expects the slowdown to continue into the fall after the Bank of Canada raised a key interest rate by an additional 75 basis points this month. The fifth rate hike this year brought the overnight rate to 3.25 per cent.
In Mr. Sondhi’s opinion, Toronto’s recent gain is unsustainable as a significant economic slowdown appears likely. He forecasts the national average home price will fall approximately 20 per cent by early 2023 from its peak in the first quarter of this year.
Against this backdrop, sellers and buyers are navigating a rocky landscape.
Mr. Kutyan says buyers often have their eyes on three or four properties and they will submit a bid on one after another until they find a sufficiently motivated seller.
Some sellers are relieved to receive an offer below asking because at least it signals the existence of an interested buyer and the chance to negotiate. And when one offer lands, it often spurs another buyer to bring a more serious bid.
The deal that did come together was the sale of a luxurious Yorkville condo unit with an asking price of $6,999,000. After a lengthy negotiation, the two-bedroom unit 6A at 36 Hazelton Ave., sold firm for $6,660,000.
The price of the 3,150-square-foot unit in a boutique building had been reduced several times since it was first listed with an asking price of $8,329,500 in July, 2021.
“It’s difficult to price because there are no comparables,” Mr. Kutyan says, adding, “It’s such a finite number of people who can afford this sort of thing.”
One offer had landed last year when the asking price was $7.995-million, but the seller needed more time to test the waters, he explains.
Mr. Kutyan advised the seller to cut the price to below the $7-million mark in late August, and that move prompted a second buyer to come forward.
Mr. Kutyan says the offer received in 2021 was slightly higher than the sale price this month.
But that’s not necessarily bad news because the seller is planning to downsize to a smaller house in the area. The price the seller will have to pay for a home in the nearby Annex neighbourhood, for example, has dropped over the same period.
“Prices have softened even in a high-demand area like that,” Mr. Kutyan says.
On the same day, Mr. Kutyan received an offer for a newly built house In Bedford Park, which he had listed with an asking price of $3.995-million at the end of June.
With supply chain disruptions and labour shortages to deal with, the builders had spent more than two years building the four-bedroom home on a 30-foot-wide lot at 388 Elm Rd.
When one buyer submitted a lowball offer, Mr. Kutyan notified all of the agents who had shown the property. That prompted another buyer to come to the table, but the second buyer also brought what Mr. Kutyan deems a “stink bid.”
The builders are well-financed, he says, and unwilling to settle for low prices after investing in land, construction, taxes and other soft costs.
Mr. Kutyan points out that the Greater Toronto Area market is made up of hundreds of micro-markets. Within the overall trends, various price segments and pockets often trade in different ways.
He notes that the benchmark price of a detached single-family home in Bedford Park and the surrounding area rose 7 per cent in August compared with August, 2021.
By comparison, the family-friendly neighbourhood of Leaside and the area around it saw its benchmark price for a detached house dipped 3 per cent in August from the same month last year.
Mr. Kutyan adds that there are few competing properties in the neighbourhood and the sellers are in a position to hold firm.
“I’m the only game in town if you want a 30-footer in Bedford Park. They’re not going to give away the house,” he says. “Before a seller drops their pants significantly, they’re going to see what happens in the market.”
That same day, a first-time buyer submitted a lowball offer for a condo near Avenue Road and St. Clair Avenue West with an asking price of $2.849-million.
The purchaser had backing from the “bank of mom and dad,” he says.
“It’s a stink bid – they are trying to steal the place.”
The two sides could not come to an agreement and the buyer disappeared.
Davelle Morrison, broker with Bosley Real Estate Ltd., says buyers and sellers remain hesitant in Toronto.
“They’re trying to read the market and figure things out.”
Some people would like to trade up, she says, but many prefer to buy first because they’re fearful of being forced to make a panicked decision.
“The place they live in now is good enough – yes, they’d like something more but they don’t want to sell and have a gun to their head.”
Sellers also sometimes fail to understand that the same dynamics dragging down the prices of other properties will also apply to their own.
“The market has changed and it’s taking time to drill that into their heads.”
She says unrealistic sellers also face risks even if they do find a buyer to pay the number they want. Many lenders are unwilling to approve a mortgage if an overeager buyer offered too much.
“The lender is going to send over an appraiser and give everyone a reality check,” she says. “The bank’s appraiser is going to win in this argument.”
And while properties are languishing on the market, some buyers are still willing to jump into competition – especially if they perceive that someone else wants the property.
Bidding wars are harder to conjure these days, but setting an asking price at just the right level is key.
During the summer slump, a couple planning to downsize from their 1980s-era house hired Mr. Kutyan to list the property in a subdivision in Richmond Hill.
When he looked at the competition in the area, he found 55 properties listed between $1-million and $2-million.
Some of the other homes were larger, but Mr. Kutyan’s listing backed onto a small pond.
He listed the four-bedroom house at 55 Samantha Circle with an asking price of $1.395-million and drew 121 showings in six days. Fifteen bidders came to the table on offer night and the house sold for $1.625-million.
“The door was swinging,” he says. “People were lined up in front of the house. It becomes a commodity too good to be true.”
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