As the temperature rises so does the frustrations of many would-be home buyers who face a scarcity of listings and exploding housing prices. The sellers’ market we have been enjoying (if you’re a seller) or hating (if you’re a buyer) started about five years ago and has advanced unabated for all that time. There’s nothing to indicate a “bursting bubble,” but everyone expects some correction to occur — a good thing, even for sellers.
However, what goes around comes around. Even if you’re a seller in today’s Winnipeg market, you still have to find another place to live. With the province’s archaic rent control legislation still in effect, there’s no real alternative except to buy another place when you sell your digs. The money made on the sale of your home is often immediately blown on a replacement. And when the shoe’s on the other foot, sellers-turned-buyers don’t think the market’s so “hot” anymore.
How does a sellers’ market work? Do the rules change? Why isn’t somebody in control?
First we should clarify that there are sellers’ markets and then there are sellers’ markets. After five years, this is a sellers’ market.
In a balanced market, the supply of new homes, resale homes, condos and rental apartments would be in some state of equilibrium with demand. You’d have buyers and sellers negotiating without undue pressure.
In a buyers’ market, buyers have the advantage. There’s a glut of housing available whether it’s new homes, resale homes, condos or rentals. Anyone who chooses to sell or has to sell in a buyers’ market is at a disadvantage because of the abundance of competition. Buyers can take their time and casually “shop” because of all the alternatives. With the myriad of choices, they can negotiate on the listed price. Buyers can pass on a particular house while they try to land their “perfect dream home.” While we haven’t had a buyers’ market in recent years, anyone who has lived in the West for any length of time will remember when the pace was leisurely and you could actually make an offer with “conditions;” for example, conditional on a home inspection, conditional on a survey and conditional on
financing. But that’s not the market we’re in today.
In a sellers’ market, the advantage switches to the seller, because there are more buyers than there are houses available.
In the housing market, you can’t just turn on a tap to increase supply or turn off the tap when demand abates. It takes years to bring on serviced lots and pools of skilled labour to build houses in response to ever-increasing
demand. That’s why the approval of Waverly West was so important to the city.
So we have the market we have and it is a sellers’
market — tried and true.
How does a sellers’ market affect the way business is done? It’s a simple fact that there are fewer houses available for buyers. So the seller is in the driver’s seat. And remember, the seller is a private consumer just like the buyer. As well, the seller wants something diametrically opposed to what the buyer wants — top dollar. The seller wants to take advantage of this market and there are no laws or licences restraining the seller. So when a buyer makes a full-priced offer and the seller turns it down, the seller is not even obliged to give the potential buyer a reason. If the buyer knows there will be competitive bids on a house and even offers above list price, there’s no law that says the seller has to accept any of the offers that come in above list price.
The seller is free to accept one, reject all or even choose one to counter, which can be very frustrating for a buyer, especially since they don’t know what the other offers are and by law can’t be told! Sellers may take it upon themselves to tell some buyers what’s in a competitive offer, but REALTORS® cannot divulge price and terms of an offer to anyone other than the buyer and seller involved in that particular contract. The only thing that the listing agent can reveal to buyers and their agents is the number of competitive offers that are available.
It’s small consolation that the market will turn one day and become more balanced, fair and less frustrating — not only for buyers, but for buyer agents, lenders, appraisers and a host of related professions involved in this craziness.
There will be an adjustment in the market; in the meantime, buyers should follow these simple practices:
• Seek a professional agent. They know all markets — new, resale, condo, rental — and even possess knowledge of houses that may come on the market but aren’t there yet.
• Always make your best offer first since you may not get a second chance.
• Never get caught up in the frenzy. Know your budget and know your limitations.
• While it’s easy to say and difficult to do, still perform due diligence and make sure you are buying what you think you are buying. While conditions and contingencies may complicate your offer, you’ll sleep a lot better putting them in rather than making your offer more expedient by ignoring them.
• Remember, the sellers always want the best price and terms for their property.
• Listing agents work for the seller and they represent the seller’s interests.
• You never have to accept a counter offer, nor does a buyer have to counter a counter offer. Again, know your budget and recognize your limitations. Don’t become house-poor by reacting to a frenzied multiple offer bidding war.
Frustrating? You bet!
Remember, only one offer can be accepted and the seller is definitely in control. Recognize the current market. Go into each negotiation with your eyes wide open. Realize you will never have all the information you need in a multiple offer situation. Be prepared to walk if things get hairy.
Remember, this is probably going to be the biggest investment of your life so don’t feel pressured to make a bigger investment than is needed just because we are currently in a sellers’ market.
Remember, there are more terms in the offer than just a price. Ensure you consider and are flexible on such items as the closing date, deposit, extras, date and time clauses, etc., to make your offer more attractive.