As market cools, some buyers feel remorse
Drop in prices can be costly for those who bought at peak
Harry Sarvaiya knows how recent homebuyers are feeling now that prices are dropping.
Tired of waiting for a break in Toronto’s hot pandemic market, the real estate broker bought a four-bedroom bungalow in March, near Martin Grove Road and Westhumber Boulevard in Rexdale, for $1,285,000.
Now, the realtor of 12 years is looking enviously at the declining market as he approaches his June closing. Other bungalows in the area are now going for $1.1 million.
“I still think if I waited, I would have got (a house) a little bit cheaper and I would have more choice,” said Sarvaiya of Re/Max West Realty Inc.
As Toronto’s scorching real estate market has finally begun to cool down, buyers who bought at the peak are sharing their woes on social media, while real estate agents and mortgage brokers report a growing number of stories of remorse.
Some who bid high in the heated market are now wondering if they jumped the gun. Others who are nearing their closing day are facing mortgage shortfalls as their home values drop, leaving them scrambling to scrape together funds.
“Bigger and better houses are selling in the same price where we ended up buying a townhouse and sacrificed … our dream house,” said one first-time buyer on social media.
Another who bought a house for $1.3 million saw bigger homes sell in the same neighbourhood for $1.1 million. “I’m feeling stressed and wanted to get out of this deal though I have no option left other than forfeit my deposit,” the buyer wrote in a post shared by a realtor on Twitter.
The Toronto region real estate market peaked in February, when homes and condos were selling for $1.33 million on average. But with rising interest rates and an injection of new listings, sales have been plummeting this spring in what is normally prime real estate season. That’s cooled prices. The average selling price dropped to $1.25 million in April (although it was still 15 per cent higher than the same period last year), according to the Toronto Regional Real Estate Board.
“It’s kind of scary,” said Shay Asnani, a realtor with Right at Home Realty. “Some people are feeling a little remorse for buying when things were super crazy.”
He said his clients who lost out in the competitive market are now grateful they didn’t plunge in. Other buyers are getting cold feet.
Mary Sialtsis, a mortgage broker at Concierge Mortgage Group, says she’s concerned about anyone who bought before the April 13 interest rate hike whose closing is at the end of May or later, because values are dropping.
During the market peak, sellers were receiving so many offers they weren’t even considering conditional ones. That pushed some buyers to make high, firm offers just ahead of the market softening. Now, as they near their closing date, appraisals are coming back tens or hundreds of thousands of dollars short, leaving people scrambling to pay the difference or risk losing their deposit — or worse.
Last month, an investor bought a detached home in Burlington on an unconditional offer of $2.1 million with a short closing, only for the appraisal to come back at $1.7 million, said Ian Minton of Ambassador Mortgage Solutions, which previously worked with the client.
The buyer, faced with the bank lending significantly less than the purchase price, was then left with few options: turning to family and friends to borrow money, or going to alternative or private lenders. But that doesn’t always work out. “When an appraisal comes in $400,000 short, it’s very difficult to bridge that gap even with a private lender, because private lenders are looking at values based on appraisals as well,” said Minton, who noted in the Burlington case, the buyer missed their closing, which usually means forfeiting their deposit.
But it could get worse. The seller can relist the home and if they don’t get as high an offer as what they previously accepted, they can sue the first buyer for the difference, said Matthew Gibson, a real estate lawyer in Hamilton.
That happened after the market dip in 2017. In a case that went to Ontario Superior Court, a buyer backed out of a deal in Richmond Hill just as the market was cooling. The seller relisted and sold for a lower price, then sued the original buyer — and won $810,000 for the difference between the original sale price and what they eventually sold for, plus other costs. (That number didn’t include any legal costs, which the judge still had to review.)
With further interest hikes looming, realtors and mortgage brokers offered a few tips for recent and future homebuyers.
First, don’t panic. If you bought a house and feel you could have purchased a better one for less, it might not be true. You might be comparing apples to oranges because the lot size or other features could be different, Sarvaiya said. Or, a seller of a neighbouring home may have accepted a low offer out of desperation, not market forces.
If you don’t plan to sell your newly acquired property soon, you can always wait for the market to go up again.
“When you’re buying, ideally you’re buying for the long term,” said Asnani.
If you’re entering the market now, try to put in offers with a financing condition (Sialtsis suggested at least three days), unless you already have the necessary funds for the purchase. With the cooling market and further interest rate increases expected, conditions are reappearing in offers.
And try to get an appraisal soon after the sale to avoid market swings and allow time to address any issues if the appraisal comes up
“The biggest misconception is that if a client has a preapproval, they think that’s a blank cheque to buy whatever they want. It’s not.
MARY SIALTSIS CONCIERGE MORTGAGE GROUP
short. Remember that a mortgage preapproval is not a guarantee of funds. To approve a mortgage, a lender has to approve both the borrower and the property.
“The biggest misconception is that if a client has a preapproval, they think that’s a blank cheque to buy whatever they want. It’s not,” Sialtsis said. “The property is what the lender is betting on.”
If your appraisal does come back low, there are some options. If the difference between the sale price and appraisal is a few tens of thousands of dollars, you can try going back to the lender with more information on the property (such as recent renovations) or recent comparables to see if they’ll accept the higher value.
“If you can put real hard facts up against what the value should be … then you can sometimes make a case for it,” said Sialtsis.
If you’re working with a mortgage broker, they see the appraisal before it gets to the lender. If the value is low, they can order a second or third appraisal (for a fee), and the lender will only see the one the broker chooses.
Another option is to try to secure the funds by approaching a different bank, through lines of credit, from alternative or private lenders, or by borrowing from family and friends.
If you still can’t close the deal, consult a lawyer immediately to see if you can negotiate a mutual release agreement with the seller, which usually means forfeiting the deposit.
Finally, if you’re looking to buy, don’t try to play the market. While Sarvaiya could have purchased for less if he were buying now, he’s glad that he got a house with features he liked, such as skylights.
He recommends focusing on buying the right property at the right price for you.
“There is no right time,” he said.