The real estate market is back in the news again. This time, it isn’t about the soaring prices of houses all over the country. Recent events have changed the market, perhaps significantly. We have already started seeing a shift. Whether these events signify a lasting change or a slight hiccup remains to be seen. What is going on?
For the last two years, interest rates have been low to help with the economic recovery from the Coronavirus pandemic. We always knew those rates wouldn’t last forever, but no one was prepared for how sudden the rate would increase or by how much.
The Bank of Canada announced its first hike near the beginning of March. Nothing much changed at the time, but that was only the first in a series of increases. The rate changed another 50 points a few weeks later, the most significant increase in 20 years.
Will the bubble burst? Sellers and buyers have been asking for a long time. No one knows for sure what will happen, but there will always be opportunities for savvy investors:
- Is Now A Good Time To Buy An Investment Property In Guelph?
- Five Best Cities In Ontario To Buy Recession-Proof Investment Properties
- The Benefits Of This Changing Market For Upsizers
Overall, the rate is still low at 1%, but we can already see the impact. The Bank of Canada will announce another hike in June, and all we can do is wait to see how the market responds. We do know one thing. (Update: As of July 2022, the target rate is now 2.5%)
What Was Once Guaranteed is No Longer Certain
What does this mean to the real estate market? A few short months ago, if you listed your house, you could count on a fast and easy sale. You would see multiple offers, often with no conditions and pull in far above your asking price. Now, we are starting to notice three significant changes.
- The sale is no longer guaranteed. Homes are still selling fast, of course. However, we are starting to see a few listings go back on the market.
- Houses don’t always sell for as much over asking. The market is still competitive, but there are not as many offers for $100,000 over asking.
- Bidding wars are happening less often.
If you’re thinking of making an investment purchase, the market may be starting to shift slightly more in your favour. Here’s the critical first step you need to know.
With the changes in the market, it might be a good time to review some of the basics.
Types of Offers and What They Mean in the Current Market
Almost every listing has generated multiple offers for the past few years, and many have even triggered full-on bidding wars. If the market is starting to balance, we might expect to see other scenarios.
Unconditional Offers
An unconditional offer means a buyer is willing to purchase your home with no strings attached. If you are happy with the price, you can simply accept, and the deal is finished. The ultra-competitive seller’s market had many buyers submitting unconditional offers to compete with other hopefuls.
As a seller, receiving an unconditional offer is great news. You don’t have to wait to see the results of a home inspection or whether the buyer can get financing to know whether your sale is successful.
Conditional Offers
Up until the last couple of years, conditional offers were the norm in real estate. A condition, or contingency, means the seller must meet a set of circumstances before the sale proceeds.
Recently, the market has been so competitive that many buyers have set aside all contingencies to make their offers stand out. It is still a strong seller’s market, but conditional offers are starting to make a comeback. However, receiving any offer is still a good sign. It means that the buyer loves the house. They simply want to ensure that they can proceed safely with the purchase. These are the most common contingencies we see when reviewing offers:
- Conditional on sale of home: Most buyers depend on the funds from the sale of their current property to purchase a new home. Up until the last two years, almost every offer included this condition.
- Conditional on financing: Before a buyer commits to the sale, they want to ensure their mortgage loan is approved. Nowadays, many people get a pre-approval before they even begin house-hunting. As a result, we don’t see this condition as often, especially during a strong seller’s market. However, it remains one of the top three conditions.
- Conditional on home inspection: Buying a house is the largest investment most people are ever going to make.
In a way, conditional offers protect both the buyer and the seller. The buyer benefits because they can be sure of their financing. The seller also benefits because they don’t have to worry about the sale falling through because an overconfident buyer made an offer they couldn’t afford.
Bully Offers
Most real estate agents will keep your house on the market for a pre-determined amount of time before they start considering offers. If a buyer jumps in with an offer before the presentation date, it’s called a “bully offer” or a “preemptive offer.” Why would anyone do this? In competitive markets, it gives the buyer a chance to seal the deal before other interested parties even have a chance to look at the property. For a bully offer to have any appeal, it usually has no conditions and comes in well above your asking price. The seller will have a very short window of time to consider the terms.
As a seller, accepting a bully offer can make sense if you’re satisfied with the dollar amount. It means the sale is over, and you no longer have to worry about showing your home to other buyers.
On the other hand, you might regret your decision. You’ll never know if you would have received a better offer if you had waited until the official presentation date.
Preparing your home before selling is as important as ever. What steps should you take? These resources will get you started:
- Should Your Home Be Show Ready Before You Get an Evaluation
- Preparing Your Home For Sale in 3 Easy Steps
- Renovating vs Selling Your Home As Is
Multiple Offers and Bidding Wars
In a seller’s market like this one, multiple offers are common. There are more buyers than sellers, so each listing attracts a lot of attention. When multiple buyers actively try to outbid each other, it becomes a full-on bidding war.
As a seller, both scenarios work in your favour to help you receive more than your asking price. It is still important to consider each offer carefully to ensure the buyer is willing and able to follow through with the purchase.
Even with the recent shift in the market, multiple offer scenarios and bidding wars still happen but have become less frequent.
Real estate can be complicated, but an experienced, local agent can help you reach your goals. Why not reach out with your questions today?
