What’s it Worth to You?

Did you hear the one about the fixer-upper that went for $1.366 million? In the Toronto real estate market, that’s no joke.

In April, a five-bedroom handyman’s special on Glencairn in the Yonge and Lawrence area sold for 195% of its $699,000 asking price — after the agents sifted through 72 offers! The listing agent admits that they expected a final price in the $1.1 million neighbourhood. More than a thousand people booked viewing appointments (no doubt based on the listing price), with 80% of the eventual offers coming in at more than a million. The agent himself said that no house in the neighbourhood had sold for $700k in more than a decade.

This is a glamorous example — especially with the buyer turning out to be also a client of the listing agent, it has soap-worthy intrigue — but it’s not that far off typical in Toronto these days.

Clearly, money here was no object, but for buyers who hope to cut it close, buying over asking can pose problems when it comes time to get a mortgage. Just because you paid $1.3 million for it doesn’t mean it will be appraised for that much. It may not matter to you if you plan to live there until the market catches up (shouldn’t take long at this rate!) but especially if you’re planning to put 5% down (and have to pay mortgage insurance), you could be in trouble.

People who buy homes at prices above market value aren’t responding to the need for a home; they’re responding to a fever that has afflicted us all from time to time, a combination of competitiveness, covetousness, and the thrill of a good chase. In this sellers’ market, you need to keep your wits about you, and go in with a plan, a budget, and a cool head.

-          Get an independent appraisal before you put in a firm and final bid.

-          Check with a mortgage broker, too. He can check with lenders ahead of time to see what they’ll mortgage it for. If you spend $400,000 and the bank thinks it’s worth $350,000, you’ll have to make up the difference.

-          Don’t waive the inspection contingency, no matter how bad you want the house, unless your last name is Hilton. Some buyers are willing to waive an inspection to strengthen their bidding position, but a home can turn quickly into a money pit if you’re not careful. Have a home inspector on high alert — even be a little sneaky and bring him along as “a friend.” It won’t give him the opportunity to get up on the roof, but at least he can have a good snoop.

-          Do as much homework in advance as you can. Know the neighbourhood, the schools, the daycares, any zoning that seems like it might change, etc., all before you start bidding. Most especially, know the comps, i.e. comparable homes in the neighbourhood. What are they going for?

-          Try to get into the house before the weekend. The fever tends to burn hotter when there are other potential buyers wandering around. The agent may tell you there’s an official date to make an offer, but there’s no law that says you have to wait for it.

-          If you’ve decided you absolutely must have the house, have your mortgage pre-approval paperwork on hand. Keep contingencies to a minimum as long as you’re not gambling with your own future. Be flexible on closing dates. Come up with as much of a deposit as you can. All other things being equal, being well prepared could win the day.

-          Make it personal. Buying and selling homes is an emotional proposition — accompany your bid with a letter telling the buyer how much you love it, how much you look forward to raising your kids there, how much it means to you that the treehouse in the yard looks so well-loved. Like salt over your shoulder, it can’t hurt.