Harry Sarvaiya knows how recent buyers feel now that prices are falling.
Tired of waiting for a break from the hot pandemic market in Toronto, the realtor bought a four-bedroom bungalow in March near Martin Grove Road and Westhumber Boulevard in Rexdale for $1,285,000.
Now the 12-year-old estate agent is eyeing the declining market with envy as it nears its June close. Other bungalows in the area now cost $1.1 million.
“I still think if I waited I would get (a house) a little cheaper and have more choices,” said Sarvaiya of Re/Max West Realty Inc.
He is not alone. As Toronto’s scorching real estate market has finally cooled, buyers who bought at the top are sharing their woes on social media, while realtors and mortgage brokers are reporting a growing number of stories of remorse.
Some who bid high in the heated market are now wondering if they took the leap. Others approaching closing day face mortgage shortfalls as their home values drop, forcing them to scramble to raise funds.
“Bigger and better homes sell for the same price where we ended up buying a townhouse and sacrificing…our dreams of a dream home,” one first-time buyer posted on social media.
Another who bought a home for $1.3 million saw larger homes selling in the same neighborhood for $1.1 million. “I feel stressed and wanted to back out of this deal even though I have no choice but to forfeit my deposit,” the buyer wrote in a post shared by a real estate agent on Twitter.
The Toronto-area real estate market peaked in February when homes and condos averaged $1.33 million. But with interest rates rising and an injection of new listings, sales have plummeted this spring in what is normally prime real estate season. It’s chilled prices. The average sale price fell to $1.25 million in April (although still 15% higher year over year), according to the Toronto Regional Real Estate Board.
“It’s a little scary,” said Shay Asnani, realtor at Right at Home Realty. “Some people feel a little remorse for buying when things were super crazy.”
He said his clients who lost out in the competitive market are now thankful they didn’t jump in. Other buyers are cold-eyed.
Mary Sialtsis, mortgage broker at Concierge Mortgage Group, says she’s concerned for anyone who bought before the April 13 interest rate hike that closes in late May or later because values are falling.
During the peak of the market, sellers received so many offers that they did not even consider conditional offers. This prompted some buyers to make firm and high offers just before the market eased. Now, as they approach their closing date, valuations are back to tens or hundreds of thousands of dollars, leaving people scrambling to pay the difference or risk losing their deposit – or worse.
Last month, an investor bought a single-family home in Burlington on an unconditional offer for $2.1 million with a short close, only for the valuation to drop back to $1.7 million, Ian Minton said. Ambassador Mortgage Solutions, who previously worked with the client.
The buyer, faced with the bank lending significantly less than the purchase price, then had few options: to turn to family and friends to borrow money, or to alternative or private lenders. .
But that doesn’t always work.
“When an appraisal is missing by $400,000, it’s very difficult to bridge that gap, even with a private lender, because private lenders also look at values based on appraisals,” Minton said, noting in the Burlington case, the buyer missed their closing, which usually means forfeiture of their deposit.
But it could get worse. The seller can put the house up for sale again and if he doesn’t get as high an offer as he had previously accepted, he can sue the first buyer for the difference, said Matthew Gibson, a real estate lawyer at Hamilton.
This happened after the market crashed in 2017. In a case in Ontario Superior Court, a buyer backed out of a deal in Richmond Hill as the market cooled. 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 the price the seller eventually sold, plus more costs. (This figure did not include court costs, which the judge had yet to consider.)
With further spikes in interest looming, real estate agents and mortgage brokers have offered some advice to recent and prospective buyers.
First, don’t panic. If you bought a house and you think you could have bought a better one for less, it may not be true. You might be comparing apples to oranges because the batch size or other characteristics might be different, Sarvaiya said. Or, a seller of a neighboring house might have accepted a low offer out of desperation, not market forces.
If you are not planning to sell your newly acquired property soon, you can always wait for the market to pick up.
“When you’re buying, ideally you’re buying for the long term,” Asnani said.
If you’re entering the market now, try to bid with a funding condition (Sialtsis says at least three days), unless you already have the funds to make the purchase. With the market cooling and further interest rate hikes expected, conditions are reappearing in offers.
And try to get an appraisal soon after the sale to avoid market fluctuations and allow time to resolve any issues if the appraisal turns out to be insufficient. Remember that a mortgage pre-approval is not a guarantee of funds. To approve a mortgage, a lender must approve both the borrower and the property.
“The biggest misconception is that if a customer has pre-approval, they think it’s a blank check to buy whatever they want. This is not the case,” Sialtsis said. “Property is what the lender is betting on.”
If your rating comes back low, there are a few options. If the difference between the sale price and the appraisal is a few tens of thousands of dollars, you can try going back to the lender with more information about the property (such as recent renovations) or recent comparables to see s he will accept the higher price. value.
“If you can compare real, hard facts to what the value should be…then you can justify it sometimes,” Sialtsis said.
If you work 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 chosen by the broker.
Another option is to try to secure the funds by going to another 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 an attorney immediately to see if you can negotiate a mutual release agreement with the seller, which usually means forfeiture of the deposit.
Finally, if you’re looking to buy, don’t try to play the market. While Sarvaiya could have bought cheaper if he bought now, he is happy to have a house with features he liked, like skylights.
He recommends focusing on buying the right property at the right price for you.
“There is no good time,” he said.
Corrigendum – May 11, 2022: This article has been corrected to say that a mortgage broker can order a second or third appraisal, not the lender.
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