RULES OF ENGAGEMENT
If you follow the real estate market, you have no doubt heard about some of the ongoing absurdity, with buyers scrambling to get into properties, and dozens of offers on a single home.
COVID-19 and the pandemic lockdowns have forced more and more Canadians to work from home. Toronto, Vancouver and Montreal are losing young, mobile buyers to the outlying regions, where they find better value and, more importantly, more space to live and work from home.
This market shift has been quite evident throughout our local market. An incredible 14% of the 3,013 homes sold in Guelph in 2020 went to out-of-town buyers. Homes flew off the shelf and prices, as we have previously reported, increased by 16% from 2019. Coupled with this increased demand for homes in our area was an 8.1% decrease in new listings coming into the market – these conditions are ripe for the bidding wars and unruly behaviour we are seeing at the offer table now.
The Real Estate Council of Ontario (RECO) is the governing body of organized real estate in the province, and is mandated to safeguard real estate consumers throughout the province. Over the years, RECO has published numerous guidelines and bulletins around best practices and how to protect the consumer. One of the Registrar’s bulletins details best practices when dealing with multiple offers.
One of the biggest challenges Realtors will face in this market is pricing a home. In the past, we could look back over 6 months – even a year’s worth of sales data – looking for the perfect matching homes that would indicate where this listing should be priced. In a balanced and stable market, this method works well.
In a market like our current one, last week’s sales may be an inadequate example of where the market is headed. Proper pricing is an entire other can of worms, and another post for the future. Even with perfectly priced homes in this market, the market reaction is not predictable at all.
Exactly what is the best way to look after our clients’ best interests – as mandated by the legislation and overseen by RECO – has been debated numerous times during our brokerage team meetings. We’ve broken the solution down to the most concise answer:
Communication.
Let me set the stage.
A new listing is released on MLS®, and immediately, thousands of Realtors and their clients are getting emailed details of this new listing. There is an almost immediate flurry of appointments being booked as buyers and agents scramble to get through. If the listing Realtor hasn’t already had a detailed discussion and strategy mapped out with their seller, the following days are likely to be chaotic. It is becoming increasingly common that we see a property flooded with back-to-back showings, groups of people lined up and mingling outside the house while they wait their turn. COVID protocols, even in the best of times, are difficult to enforce; now imagine 50-75 groups, three people at a time, going through a house in the span of 48-72 hours. It’s virtually impossible to avoid overlap unless you have a strong process in place.
When offer presentations come around, the 5, 10, sometimes 30+ offers being presented becomes the biggest friction point for most buyer agents, as they don’t know what they are competing against. The result? We see sales prices sometimes going 20+% over list price. There’s a lot of frustration in this process, and it’s not something that is sustainable or beneficial to consumers, or the industry as a whole.
As a home seller or buyer during this market, you have a right to know the exact process that will be used to help you sell or buy.
This starts with communication. RECO has made it very clear what the law and the governing body expects when dealing with multiple offers. The listing agent needs to have clear, written instructions prior to the listing being released, detailing exactly how they intend to deal with offers. Too often, this discussion is glossed over with a short clause in the MLS® listing indicating offers are being held until a future date. What doesn’t usually get discussed is how they intend to deal with pre-emptive (bully) offers, and what the actual process will be on offer day.
My frustration is that the listing agent has an incredible opportunity to have this process go smoothly and provide a positive experience for everyone involved. It takes a bit of planning, and a lot of “what if” discussions with the seller to ensure everyone understands their role and the rules of engagement – well before the listing is released. I am amazed at how little thought and planning seems to go into this process, both on an individual Realtor level and a brokerage level.
While some would place the bulk of the problem at the feet of “out-of-town” agents (there’s plenty to be written about this subject as well), I’m going to argue that a well-executed plan by the listing agent will counter many of the issues caused by the current market conditions. After all, the pandemic has been with us for almost a year, and we’ve had plenty of time to adjust to these market conditions.
As a brokerage, we have created a clear protocol for our team to follow when dealing with multiple offers, and put into place a step-by-step guide on communication throughout the offer presentation process. This protocol starts with a conversation between the Agent and Seller, outlining the various options and strategies that can be used. The critical part of this process is “wargaming” out what can happen, and what the reaction and likely outcome is going to be. The goal is to explore ahead of time what can happen, and to minimize unwanted outcomes like bully offers when the seller has already said no to considering them.
Many of our team meetings have been used to discuss strategies and tactics to minimize stress for our clients, and questioning the long-held notions of how things have been done in the past. We’ve had a lot of discussion around what a well-priced home looks like in this market, and how we coach our buyer clients on what the likely sales price should be on new listings that appear to be in their price range.
At the end of the day, this business and in particular, the whole multiple offer scenario is about having detailed – and, yes, often difficult – conversations around what is right for the clients and the best course of action, versus what is expeditious and makes the agent look good for marketing purposes.
As someone who has been in the industry for over 35 years, my best piece of advice to both sellers and buyers is to have detailed conversations with your potential Realtor early on, and not be afraid to ask a lot of questions. This is your largest asset purchase or sale, and you are entitled to feel comfortable and confident with the process and outcome.
I’m always available to have these conversations with the public, and with Realtors. The pandemic may have complicated the real estate market and added to the stress of buying or selling – but that doesn’t mean we let the level of communication or respect for all parties in the real estate transaction slide.
Enjoy the weekend.
THE PAST WEEK IN THE GUELPH REAL ESTATE MARKET
In our current market, the number of sales speaks closely to the inventory itself. Last week in our local market, 36 homes sold – up over 50% from last week’s 23 sales. Comparatively, the same number of homes sold in the same week last year.
The median home last week looked like this: 3 bedrooms, 3 bathrooms, and 1,356 square feet. This home sold in 7 days for $635,500 – that’s $465/sqft and 116.1% of the original list price. Again, staggering numbers, and it seems the small uptick in listings cannot satiate the massive number of active buyers.
Same week last year, the median home was decidedly smaller, with 3 beds, 2 baths and 1,230 square feet. In contrast, this home sold in 11 days for $508,000 – that’s $394/sqft and 100.3% of the original list price.
33 of the 36 homes sold last week went at or above list price (that’s 92%), while 24/36 did the same week last year. Even more, ten of 36 sales this past week sold at over 120% of list price, and – let me reiterate this – we saw a 16% YOY increase in sales-price-to-list-price ratio.
For a bit of perspective, here’s what we wrote this week last year:
36 homes were reported sold this past week, 2 less than the same week in 2019 and 5 less than we reported sold in 2018. Not a big deal at this point. In 2018, 21 of the 41 (51%) listings that sold went at or above list price. In 2019 that number was 39%, or 15/38 homes. This past week, 24 out of 36 homes sold (yes, 67%!) went at or above list price! Talk about flying out of the gate!
IN CASE YOU MISSED IT: 2020 Stats
Last week, we’ve released our 2020 Year in Review Market Report. This comprehensive report breaks down sales activity in Guelph by home type and neighbourhood, plus detailed reports for Kitchener, Waterloo, Cambridge and our surrounding townships.
Click below to view and download the report, and as always, reach out to us if you have specific questions or you’d like to know more about a certain area.
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