Top 5 Challenges Buyers Face in the Condo Market
Buying a condo can be a challenging endeavour, even for those who have a lot of experience in real estate. The amount of money you’ll have to come up with for a down payment can be intimidating. Plus, paperwork required to close on a property can be overwhelming. But in the end, owning your own home has proven to be a strong long term investment — particularly if you live in Toronto — and certainly beats paying down a landlord’s mortgage.
Below are the top 5 most common challenges I help my clients navigate.
1 - Offer Dates
When looking at condos, you’ll sometimes run into situations where the seller has chosen to ‘hold back offers’. In real estate, this simply means that no one can submit an offer on the property until a specified date (e.g. “Offers will be reviewed next Tuesday at 7:00PM”). And on that date, there will be what some refer to as a "bidding war" among the interested buyers.
Sellers will often hold back offers because they believe their unit is in high-demand. They recognize (sometimes incorrectly) that there are likely multiple buyers who would submit an offer on their property, and they want to give all potential buyers a fair opportunity to view their property before entertaining any offers.
This strategy can be quite frustrating for buyers who just want to submit an offer and get on with the process. However, in a competitive market, there is one benefit to buyers: When there's an offer date, they don't have to drop everything they’re doing to view every new listing that interests them out of fear it'll be sold before they can get in the door.
Most listings do not have offer dates. It all just depends on the supply and demand in the area or building.
For example, if you’re in the market for a junior 1-bedroom unit, you’re going to be in a very popular price point. Odds are, those junior 1-bedroom units are going to have offer dates and attract multiple buyers.
Looking for a 1,500 square foot 3 bedroom unit? In that price point, it would be very risky for the seller to set an offer date.
When assessing a property with an offer date, be sure your realtor gives you a strong sense for the value by digging into the most recently sold comparable properties. This will help you determine where you see the true value (and save you from overpaying!), as most condos with an offer date will sell above the list price.
Your realtor should also advise you on a number of ways to make your offer more competitive: for example, you can have your deposit prepared, provide the most ideal closing date for the seller, or remove any conditions that can be satisfied in advance.
2 - Securing Finances
One of the biggest challenges homebuyers face is coming up with enough money for a down payment. As you work towards your savings goals, there are many things you can do to put yourself on a better financial footing.
Mortgage lenders will want to see a sizeable down payment, but they’ll also be looking at your credit score and debt-to-income ratio. Build up your credit score by paying down credit cards. Reducing your debt is key to improving your overall financial picture. As well, reducing your ‘access’ to debt will improve your credit score, so consider discarding loans, lines of credit and credit cards you no longer need.
When talking to a lender, I always recommend working with a mortgage broker, as they’ll shop around many different lenders on your behalf and are ultimately compensated by the lender you choose to go with. Just be sure to find an experienced mortgage broker you can trust. You want one who has relationships with multiple lenders and who’ll present different financial scenarios for you. Contact me if you’d like a referral for an excellent mortgage broker.
3 - Managing Seller’s Expectations
On occasion, you might find the perfect condo...but with a price tag that just isn’t justifiable. Based on what I personally see in the market, about 1 in 6 listings are just plain overpriced.
Your agent should do their homework and offer you clear advice on a property’s true value. However what separates a good agent from an exceptional one is how they go about submitting your offer. Many realtors will simply email your offer with no context or comments on the price and conditions.
I always make sure to back up my clients’ offers with a clear and measured explanation as to how we arrived at that purchase price. This is the key to managing unrealistic sellers expectations. The most effective negotiating strategy is what I’d call “informed diplomacy”: convey your offer clearly, back it up with data, and do so respectfully, as bluster and overconfidence will get you nowhere in negotiations.
Many sellers are emotionally attached to their homes and have an inflated sense of the value. Convincing them of the true value in a way that’s disarming takes patience, skill and the ability to explain your value estimate in understandable and persuasive terms.
If your agent can convince the seller of the true value (and that they won’t receive a better offer), you’re going to be in a strong negotiating position.
4 - Unexpected Problems with a Condo Building
You’ve found the perfect condo unit and the seller has accepted your offer! The conditional period has begun, and your lawyer is reviewing the condo status certificate (a document provided by the condo’s management company that tells you about the financial, structural and legal state of the condo).
But before finalizing your purchase, it’s important to put your emotions in check and listen to your lawyer’s objective feedback, based on their assessment of the status certificate.
Does the condo have any special assessments or pending lawsuits? Is the building’s reserve fund adequate or low? As a potential homebuyer, you have every right to know what condition the condo is in. And it’s crucial your lawyer and realtor inform you on these details before you finalize your offer.
Unfortunately, many agents don't request the condo status certificate and include a condition on both yourself and your lawyer reviewing and approving of it (unless there's an offer date, in which case it should be reviewed 'before' offers are submitted).
Remember, any problems you would want to be aware of will be disclosed in this document. Don’t waive the condition if you’re not happy with the result, and depending on how your realtor worded the condition, you should be entitled to your deposit back in full.
5 - Risk of Overpaying
Thanks to Toronto’s competitive market, I observe more properties than you might think selling above fair market value. Buyers are only human, and sometimes find it difficult to keep their critical thinking skills in check when they're so emotionally drawn to a property. If you’re working with an inexperienced agent, they may just assume the price is reasonable and encourage you to offer the full list price.
Nobody wants to overpay for anything, especially when it comes to real estate, which is why I can’t stress this point enough: work with an agent who you can not only trust, but who has the experience and local knowledge to assess a condo’s true value. This value should reflect existing market conditions, and not the anticipated growth ahead.
If you’re specifically looking for a condo in Toronto, don’t work with your uncle who specializes in subdivisions in Thornhill. He won't know that one of the buildings you've shortlisted had a flooding problem or lawsuit a couple years ago. Work with an agent who is intimately familiar with Toronto’s condo buildings and the local neighbourhoods, and who you can trust share the good, the bad and the ugly with you.
I hope you’ve found this article to be helpful! If you have any questions, don’t hesitate to reach out.
If you’re looking for assistance and would like to start with a no-obligation discussion about your criteria or to book a showing, call me at 902-719-9121 or send an email to jenelle@strata.ca. I’m always happy to help!
