Soaring prices, bidding wars, the Toronto spillover.
Welcome to the new real estate norm
Photo: Homeowners Blake and Dryden Armstrong
ON THE DAY Julia and Jon-Paul Theriault decided to bid on the home they’re moving into the first week of this month, they had other things on their schedule.
In addition to working—she’s a teacher; he’s a computer technician—they were planning to sign the paperwork to build a home in Lucan. It wasn’t their first choice. Or second. Or third. But the arrival of their son, Miles, a few months earlier had prompted them to look for something larger than their Old South home.
They had bought the Old South property less than three years earlier, a process Jon-Paul recalls being, “as easy as possible.” They found a place they liked, bid below asking price with financing and home-inspection conditions, and got the house.
“I don’t know what happened in those two years,” he says. “But when we wanted to buy this time, everything had changed. It was completely different.”
The young couple had walked into the teeth of a hurricane known as the London real estate market. After six months of searching actively and losing out on a dozen or so homes with multiple bids, they took a break last August. Their sales rep, Ann De Bono of RE/MAX Advantage Realty, kept looking and occasionally sent them a listing, but they stopped devoting every weekend to actively searching.
By November, they were ready to try again, relying in part on conventional wisdom that the market would slow around Christmas. But things had only gotten more competitive.
“Since January, it’s like someone flipped a switch. It’s forcing people to
buy with no conditions, and they can make a huge mistake” —Barb Staeger,
Royal LePage Triland Realty
“We bid $30,000 over what we were comfortable with on a Westmount house and didn’t get it,” Jon-Paul recalls. “We were floored by that. Another time we lost out by $1,000. It was terrible.”
And so they looked to Lucan, a lovely community to be sure, but not what the couple had in mind. It was the first week of March, and they were going to sign the final paperwork to build. But De Bono had one more card to play. She sent the couple a last-ditch Westmount listing.
This one had not been staged. In fact, it needed a fair amount of work. But as a result, there wasn’t quite the feeding frenzy they had experienced everywhere else. It had the yard they wanted and an attached garage. The asking price was well below the $300,000-plus they expected to see, and the sellers were accepting bids immediately. They had to act quickly.
Julia saw the house. Jon-Paul did not. But they bid anyway, with no conditions except an extra walkthrough. Even then, they were competing with two other bids. But they got it. Closing date: May 5. He had not set foot in the house when they got the good news.
The Theriault story is being repeated hundreds of times every month across the city, and increasingly in communities outside London. For every buyer who finally secures a house after months of bids and disappointments, there’s a seller who gets tens of thousands over asking price. For every agent who delivers the good news to her desperate clients, there are dozens who deliver bad news: They accepted a higher offer. We’ll keep looking.
The law of supply and demand has always been the governing principle of the real estate market. But now there’s another factor—the ripple effect. Two hours down the road, couples like the Theriaults are bidding $100,000 over asking prices of $1 million or more for houses they might not even like, but which happen to be in the right school district or close to public transit or not on fire the day they hit the market.
Whether they’re buying as an investment or principal residence, buyers forced out of Toronto are spreading from the city like a cloud of locusts, consuming properties along the way, sometimes sight unseen, and driving up prices everywhere they go.
When you mix in some good old fashion speculation because prices are rising so quickly month-over-month in many areas, together with the new-normal of infinitesimal borrowing rates, you get a market that no one in London has ever seen before.
In the first three months of this year, re-sales were up 30 per cent from the first three months of 2016, which itself was a record year with more than 10,000 re-sales. In March alone this year, there were 1,242 re-sales, a whopping 44 per cent more than last March. There’s little doubt 2017 will top last year and set another record.
“It’s an uncomfortable way to buy,” says sales rep Chris Staeger of Royal LePage Triland Realty. “You need to know your buyer’s tolerance level.”
“Since January, it’s like someone flipped a switch,” says his wife, Barb, also a sales rep. “It used to be unusual to see offers over asking price, but this spring we’re seeing more and more. It’s forcing people to buy with no conditions, and they can make a huge mistake.”
Staeger clients Blake and Dryden Armstrong will take possession of their new home at the end of June. The Byron property is nothing like the home they had in mind when they started looking months ago. Living in a Fox Field Trails home Blake purchased before the couple married a year ago, they were looking for their forever/family home.
They did not realize, however, they were targeting the most competitive segment of the most competitive market in the city’s history. Family homes on large lots are unicorns, the rarest of creatures, much sought after.
After a number of disappointments, they decided they would go big to go home and bid more than $50,000 over asking, with no conditions, on a Byron home in the mid-$400,000 range. They were dreaming of sectionals and backyard barbecues when, boom, they didn’t get it, outbid by $8,000.
“I had a client looking in the Hyde Park and Fanshawe area. We made five offers and failed every time. The fifth time, there were 17 offers. We made what I thought was a very good offer and were second last” —Marc Sopoco,
Royal LePage Triland Realty
Next up was a Stoneybrook house listed for around $415,000. They didn’t even get a chance to have their bid rejected. It went the day after it was listed, before a scheduled open house, for $100,000 over asking. (That’s known as a bully offer, and while no one likes them, it’s difficult to stop sellers from accepting such offers before hearing from other bidders. OREA form 244 is designed to keep the playing field level, but it’s optional and doesn’t always work.)
Meanwhile, as the Armstrongs were being battered as buyers, they were affected by the same forces as sellers. When they thought they were getting the Bryon home, they put theirs up for sale. Nothing to sneeze at, it attracted six offers the first weekend, all over the asking price.
“We had a rush open house on the Saturday, and I was working when we started getting offers,” recalls Dryden, a nurse.
“When we didn’t get the house, we had about 30 minutes to decide if we would sell ours anyway,” Blake says. “We let it ride and got $20,000 over asking.”
They were willing to simply rent for a while to reduce the pressure of finding their perfect home, when Staeger turned over a wildcard. As De Bono did for her clients, he had found a Byron home that needed some work. They got the home under asking price, which allows them to budget for new floors, paint and other cosmetics. Ever the optimist, Blake thinks it can be done for about $25,000.
“If the house is listed at under $500,000 and is updated in London, it goes,” says Marc Sopoco, a sales rep at Royal LePage Triland Realty. He splits his time evenly between London and St. Thomas, where he lives. The ripple effect is only starting to reach St. Thomas, where it’s still possible to find value, he says.
“I had a client moving here from Mississauga, looking in the Hyde Park/Fanshawe area,” he says. “We made five offers and failed every time. The fifth time, there were 17 offers. We made what I thought was a very good offer and were second last.”
Bloodied by the experience, his buyer was open to looking in St. Thomas. “We found a four-year-old home in the desirable Shaw Valley area listed at $359,000. It was very similar to homes in Hyde Park that would list for $450,000 or so. We bid $356,000 and got it.
Sopoco says foreign investors and GTA buyers have not yet discovered St. Thomas en masse, but there are signs it’s happening. “I just noticed a two-storey, two-bedroom, one-bath home listed for $209,000. It should have been at $179,000, and then it sold for $230,000.
“With prices in Toronto, we see people driving west until they qualify for
a mortgage. The single-family market is hot across all segments, but 40-foot
lots are in highest demand” —Trevor McKenzie, McKenzie Homes
The buying craze is affecting builders as well, of course. They plan further out and can’t adapt to monthly trends, but they are well aware of the growing demand for homes.
“We’re seeing a bit of an influx of the GTA. We’re starting to see some people buying from floor plans,” says Adam Carapella, a vice-president at condo builder Tricar Group. “We build in many communities, and the closer our developments are to the GTA, the faster they sell and the higher the prices are,” he says.
The company’s signature Azure condo tower, under construction on Talbot Street, is nearly 50 per cent sold, “a good result for the London market,” he says. “Typically, London has been a touch-and-feel market. People like to see model suites. In Toronto, you can sell off floor plans and sell 300 units in a weekend. We probably would have sold Azure in a weekend in Toronto.”
As it stands, 11 of Azure’s 15 luxury penthouses are sold, along with close to half the remaining 185 units
“With prices in Toronto, we see people driving west until they qualify for a mortgage,” says Trevor McKenzie, president of the London Home Builders’ Association. “The single-family market is hot across all segments, but 40-foot lots are in highest demand.”
The ripple effect is in play among builders too. “The townhouse market is strong with investors and end users,” he says. “Some local buyers are being pushed to attached units because of affordability.”
McKenzie says part of the solution is to increase supply by building more homes. It would be odd for the president of the LHBA to argue otherwise, but he says the city has been short of serviced lots “for a few years, and this is a byproduct. There is no short-term fix.”
His own business, McKenzie Homes, will build about 100 homes this year, its best year ever. “But we could sell 200 if we chose to,” says McKenzie.
No one knows how long the market will continue at this pace, but everyone involved seems to believe it will continue indefinitely. It’s logical to assume that as long as the Toronto market is a Category 5 hurricane, London will be a Category 3, at least.
So what is a buyer to do? Buying homes without financing in place and forgoing home inspections is a risky practice. But buyers are pushed to take the risk because sellers have all the power. Agents everywhere are decrying the situation, doing what they can to prepare their clients for the process and trying to protect them from buying a house full of problems papered over by a dishonest seller.
But agents, as a group, are also busier than they’ve ever been, closing multiple sales by the week and month. Last month on Facebook, one local agent titled his post: “Sold! Sold! Sold! $85,000 Over Asking!!” Then he urged anyone looking to sell for “Top Dollar” to contact him about his proven sales method. A cynic might note the current market doesn’t require a proven sales method so much as a steady hand to guide buyers through a potentially frustrating and annoying process.
That was certainly the case with Julia and Jon-Paul Theriault, who added one small condition to their offer, on the advice of their sales rep, Ann De Bono.
“She told us to ask for a second walk-through,” Jon-Paul says. “On that second visit, we discovered water damage in the basement that wasn’t declared. We got a quote to fix it and reduced the price we paid to cover the repairs. We only did that because of Ann.”
Despite the risks, the market can be intoxicating. As his newlywed bride listens apprehensively, Blake Armstrong talks about how much more valuable their new home will be post-renovation. “This is our forever home, yes, but it would be interesting just to see. You know?” Christopher Clark