The Toronto real estate market is insane. If you’ve read the news lately, there are many examples of insane bidding wars that lead to inflated prices and more speculation.
So what is happening here? I thought I’d break down some of the interesting things I’ve learned along the way.
Generally, it’s not that houses are sold for more than they’re worth. Instead, agents price houses well under what they’re worth to stimulate a bidding war. There’s essentially no downside to under-pricing, but over-pricing will discourage people from looking seriously because they assume it’s out of their budget.
I signed up for Toronto Real Estate Sold, which sent me daily reports on properties sold in Toronto (by price or location). It was a great resource and I used it to track houses (via spreadsheet) that we were interested in to get a sense of what we should offer. It looks something like this:
From what I observed, most houses sell in 7 days (see DOM or “days on market” in the image above). Anything that is on the market for more than 7 days usually sells under asking.
Things move very fast in Toronto. In general, but also in real estate. This probably surprised me the most. You see a house and decide within days whether you want to buy it. Crazy, right?!
This is basically the timeline for when things happen:
Tuesday (Day 1): House posted on MLS
Once you see a house that looks more-or-less like something you might be able to live in, check it out on Streetview, look at the photos, and call your agent (who books a time to see the house).
Saturday/Sunday (Days 5/6): Open House
Open houses are usually on the weekend (but can also be Thursday or Friday). Our realtor never brought us to open houses, but instead brought us before the open house to take a look. This is also how I learned how those little real estate agent lock boxes work.
Your realtor contacts the selling agent to get the combination and confirm a time when you will visit. Then you show up, punch in the code, and get the keys to the house.
It’s nice to see houses outside of Open House hours because it allows you and your agent to speak freely about what you like/dislike. It also allows you to snoop a bit – like look under rugs for what the floor really looks like, look in closets, etc.
Monday-Tuesday (Days 7-8): Run-around Days
I call these the run-around days because that’s what you do: run around.
If the selling agent hasn’t already done a home inspection, now’s your chance. Home inspections take 2-3 hours, so most home inspectors can only do 2 per day (given that they need/want natural light). This means that many are already booked, so you might want to keep a few names on hand (or ask your agent) in case you don’t get your first choice.
One of the things I didn’t know before starting this process was that you also need to show up with a deposit cheque. And in Toronto, the deposit cheque better be pretty hefty. Apparently it’s how you show that you’re really serious. And you can’t be $10,000 serious. You need to be at least $40,000 serious. This deposit ensures that you won’t back out of your offer because if you do, you lose the cheque. I don’t know much about this because I didn’t have to test it, but I’m sure there are other ways of getting your money back if this happens. It’s just likely painful enough that you really don’t want to make an offer unless you really want to purchase the house.
Your agent should also send you some comparables – other houses that have sold in the same area that are comparable to yours. This will give you an idea of what you should expect to pay. You will then decide what your bid range is. For example, if the house is listed at $700,000, your range might be $700-760K, depending on how badly you want the house. We had a rational range and then an emotional range – the extra bit of crazy we were willing to go based on how much we loved the house.
You should also call the bank at this point to confirm that everything is good to go. I didn’t have to do much here – actually, our agent called the bank for us. But it’s good to confirm that everything’s in place before the big night…
Tuesday or Wednesday (Day 8 or 9): Bid Night
Now the scariest part. Between Sunday and Tuesday, you’ve likely done everything humanly possible to get your offer together. You’re tired. But excited. But also terrified.
There is usually a bid registration deadline (about an hour before bids are viewed). Most bid nights start around 7, so your agent will likely register around 5 or 6. Just before 7, your realtor will then call the selling agent and confirm the number of bids. I’m not sure what the norm is, but my sense is that they’re pretty honest about it. This lets you know where in your range you need to be.
At this time, if you haven’t done so already, you will sign a contract with your agent to solidify your working relationship. Basically, he gets commission on the house you buy. We didn’t sign ours until bid night, but sometimes this happens when you first start working with an agent. You will also fill out the offer paperwork that confirms the price and conditions on the offer.
If there are no other offers, you’ll likely start at asking or the bottom of your bid range. If there are 10 offers (or more), you’ll likely be at the top end of your range and also throw all of your conditions out the window. Whether it’s right or not, if you want to win a bidding war in Toronto, you have to have the best offer. This usually (but not always) includes the top price, a hefty deposit and no conditions on the offer.
Then you wait.
This didn’t happen to us (because we were the only bid), but sometimes the selling agent comes back to the highest bidders and basically asks for more. This is where speculation comes into play and you now have to figure out if you want to bid more – not knowing whether you’re the lowest or highest. It’s awful and I’m glad we didn’t go through this. But it happens. A lot.
Within a few hours, you’ve either bought a house or lost it in battle.