Wait or buy? A risk assessment approach
No one can predict where prices are going (if someone tells you they can, run away). However at the same time the market is not random, and some outcomes are more likely than others at any given time. The best you can do is estimate those probabilities and then act accordingly. In other words, you can use a risk assessment approach and then buy when the risk is at an acceptable level for you*.
Buying a home is the single largest transaction that most people will make, and thus it’s worth thinking about when to make it. Although over a lifetime you may accumulate more in market investments, those are generally acquired slowly, with most people employing a form of dollar cost averaging which means you’re investing across good markets and bad rather than all at once. In that case there’s really no need to think about timing and research shows you’re likely better off setting and forgetting.
For real estate though, I think it’s worth going over the risks of buying, and just as importantly, the risks of not buying.
Regulatory Risk
Regulators are always making tweaks that influence credit availability, and hence the real estate market. Often these small adjustments have no discernible effect on the market and merely gently apply some pressure in one direction or the other. The most recent, the OSFI stress test, was nothing like that. It immediately cut 20% of buyers out of the market and jolted some balance back into a hot market. Additional regulatory intervention either provincially or federally could weaken the market more and bring us to a buyers market.
It can also go the other way, as we saw in the recent election where the various parties proposed opening the credit taps again in various ways. Those measures would have added demand to the market and driven prices higher which is a risk if you’re planning to wait. In fact the conservative regulatory environment we are in is a fairly recent thing. During the 2000s the CMHC went hog-wild and loosened credit limits until they were essentially throwing money at people with zero down 40 year mortgages and super low insurance rates before the great financial crisis scared them straight. The regulatory environment has turned many times before and could turn again.
My assessment: Personally I think the risk of additional regulatory measures is quite low right now. Prices in some of the most expensive centres have either given up some of their gains or at least stopped rising. That has tempered the appetite for restricting credit further. On the other side the market has stabilised across the country since the grimmer numbers earlier this year, so the appetite for demand stimulating measures has also been reduced. I would be willing to bet we aren’t going to see the promised boosts for first time buyers or 30 year mortgages, and in fact we aren’t likely to see any significant regulatory housing measures in the near term.
Market Affordability Risk
Long term data shows us that when affordability is poor in Victoria, house prices stagnate or decline, and when affordability is (relatively) good, house prices rise. The data from the last 4 real estate cycles in the last 50 years shows this relationship is very strong. That doesn’t mean prices can’t rise when affordability is poor (Exhibit A: Vancouver), but you’re not likely to find any better underlying factor that influences Victoria real estate prices.
Where are we in the affordability cycle? Approximately mid-range. The mortgage stress test throws a little wrench into this data since affordability for those needing to borrow is actually artificially worse because of that regulatory change. That’s likely the reason that affordability turned down (aka started improving) earlier than we might have otherwise expected.
My Assessment: It’s complicated but I would say risk of substantially dropping prices from current affordability levels is relatively low. The stress test did a good job of cutting the top out of this market, without which we would have almost certainly seen higher prices. That very likely reduced the magnitude of any subsequent drop. There’s isn’t much room to cut interest rates (which restored affordability in recent cycles) but on the other hand we still have strong consumer sentiment that is keeping the market buoyant. On the other hand, I also think there is little risk of a price explosion upwards at current affordability levels. We may yet see some price appreciation in the short term but at these affordability levels I don’t see large pressure in either direction. Unless the cycle breaks this time, we should still be seeing improving affordability for a couple more years.
Economic Risk
We are in the 10th year of the economic boom which is a long time to go without a recession. Unemployment is at record lows right now which is great for housing. The number one determinant of whether someone can afford their house is whether they have a job or not, so employment downturns tend to coincide with housing downturns (both influencing the other). At some point that will turn around as it always has done in the past, but of course no one can tell exactly when that will happen. As they say economists have predicted 9 of the last 5 recessions so just because there are recession calls doesn’t mean it will happen. What we do know is that recession is closer now than it was a year ago.
My Assessment: I believe a broader economic downturn and the associated reduction in buyer confidence is currently the biggest single threat to the market. With the economy firing on all cylinders, the market is holding steady, but what if that support goes? It’s very hard to imagine what lower consumer confidence does to the market when you’re in a time of high consumer confidence, but we do have an example from the previous downturn. People just suddenly feel less comfortable with debt. They become more cautious and simply aren’t willing to pay what they were happy to just a year ago.
Black Swan Risk
The big one could hit Victoria, the orange haired one could start nuking China, or we might face an invasion from irritated Orcas (or Albertans, I’m not sure what is more likely). Less ridiculously we could also have a large global depression. Black swan events are unpredictable large scale events and the thing about black swans is that they’re black, which makes them hard to see. Especially at night. When they hunt.
My Assessment: In all seriousness there’s no sense worrying about these. Make an earthquake kit, buy some insurance, and move on. If any of these happens housing will be the least of your worries.
Personal Financial Risk
This is all about your own personal financial situation. How close to the affordability limit do you have to get to buy what you want or need? How much of a buffer do you have if your income is cut? How stable is your job in a slowdown? If you are buying on two incomes (who isn’t these days?) could you get by on one for a while if you had to? Can you bridge a downturn in prices until they turn up again?
Of course everyone would lose their house if they lost all sources of income and couldn’t find another job. The point here is not to imagine the worst case scenario, but to think about a few scenarios that could happen to your finances, how probable they are, and what the impact would be on your ability to pay a mortgage. This doesn’t have to be all negative. You may also be in a position where you have a high probability to significantly increase your income going forward and it’s no problem to stretch now.
Emotional Risk
If you buy today and prices drop by 10%, would that keep you up at night? Would you become miserable with regret? Conversely if you decided to wait and prices climbed how will you feel about that? Would either case have knockdown effects on your life or relationships? Housing is an emotional purchase, and the number one cause of friction in relationships is money so it’s worth talking this through.
My Assessment: When we bought our house we mentally prepared ourselves to lose $50k in equity and had made our peace with that. It ended up not happening but we had factored it into the equation and still decided to buy. What I didn’t really consider when we decided to wait in 2010 was how we would feel if prices had exploded upwards. Fortunately prices dropped while we waited, but many that made similar decisions in Vancouver had the opposite experience. Either way it’s probably a good idea to tune out of market information once you buy 🙂
Mash it together
There’s no scientific way to combine all these into one measure of risk. It’s more of a personal thing where you make your best probabilistic estimates about the real estate market, the economic situation, and your personal situation to come up with a feeling about the purchase decision as a whole. Then you weigh that against your risk tolerance and buy when it makes sense for you. Once you do buy, your best bet to mitigate market risk is to hold for longer. After holding for at least 5 years (10 is better) it has historically been pretty hard to lose money on a house in Victoria (past performance etc etc). Just like the stock market, you can’t control what the market does, but if you make reasoned decisions and minimize costs you’ll likely come out ahead.
*And yes I do realize that most people don’t think about buying this way and instead put more weight on how perfect the kids room or the workshop is. Indulge my analytical approach, if you will.
Monday numbers: https://househuntvictoria.ca/2019/11/25/nov-25-market-update-the-housing-crisis-in-one-number
You forgot the part where you get your parents to pay for University, and add to your down payment so that you have 15% down. Also didn’t you buy in 2009 during the recession?
The chart of holding costs per year flattens out by year 10. So if the holding period was 10 years, the only significant extra cost (compared to a 20yr hold) is a single RE listing + moving fee at year 10.
I think so, but it is a lot tougher.
idk, five more?
Also, the Introvert Method involves chucking massive (extra) amounts of money at the mortgage over many years, which, for a variety of reasons, I don’t think many would be capable, disciplined, or willing enough to do.
OK, maybe the Introvert Method isn’t designed for the masses…
So does the Introvert Method work when the house costs $850k instead of $500?
If so how many more years of renting?
Presenting the Introvert Method™:
• Rent (and live) as cheaply as possible until you have a 15-20% down payment
• Buy a typical 2,200-sq. ft. house with a suite in GH for ~$800K
• Rent the basement suite for, at a minimum, the first 10 years
• Take back the suite when your finances allow and when you need the space for your growing family (thus obviating the need to sell and re-buy)
Leo S – Interesting household move charts. BC also seems to be an outlier for moving for reasons of “school” and “closer to family”. If they are capturing foreign students, it might explain that, since they make such a big impact. E.g. A quarter of people at UBC in 2016 were foreign students, according to a Douglas Todd article in Van Sun at the time. And there are of course countless language schools there too..
patriotz – “Some people seem to think that if they sell their property for more than they pay for it they are realizing a profit, even if they just buy another property in the same market.”
And on the the flip side, I’ve been shocked when homeowners can’t get it through their head that falling prices can be good news for them too.
A: “Omg, the value of my (principal residence) home has fallen, its horrible!”
B: “Um, aren’t you planning to upgrade to a bigger, more expensive place for your growing family in the next year or two?”
A: “Yes.”
B: “Are you over-indebted on your current property, in any danger of going underwater with falling prices?
A: “No.”
B. “Do you have any investment (not principal residence) properties, such that the falling prices will hurt you financially there?”
A: “No.”
B: “You do realize that if prices fall at the same rate for your home and the more expensive home you plan to buy, the differential between the two shrinks, and (assuming you do the two transactions close together) it is actually saving you money when prices fall, right?”
A: “Huh? No! Omg, the value of my property has fallen, its horrible!”
They’re better off than if they hadn’t bought that first house and rented instead. So yes, they are realizing the profit for their smart move to buy that first home, which has appreciated , and not have just rented.
True but simply not possible for most people
Marko – Thank you for your insights below about working with unrepresented buyers.
“Getting a cash back realtor is a really smart choice as a buyer, not doubt about it, but from running a real estate business it just didn’t work.”
If I was a well-established realtor getting more than enough clients using the traditional agent commission model, I would probably do the same as you too.
“50% less revenue but more time spent on each buyer.”
I don’t see how that can be the case using the barebones service business model I have explained in postings below. As a buyer’s agent refunding 50% of commission, they apparently just write the offers/paperwork from the quiet of their offices, and that’s it. No scheduling and attending countless appointments. No endless hours driving around to attend said appointments. No discussions about price. No discussions about conditions and location of the home, etc, etc. No digging up and compiling comparable sales data. Yes, they probably write up more offers per client than you’re used to, but if that’s makes up most of what they’re doing, I’m sure they’ve become quite proficient at it. Given that the offers are on an electronic template, once they have written up one offer for a given client then assuming the client isn’t changing up all the conditions on subsequent offers, I don’t see how edits for subsequent offers are taking up all that much time.
Apparently their business model works for them; their realtor (Mayur Arora) is advertised as being consistently in Top 1% of sales volume in Greater Vancouver.
I don’t see why the same business model couldn’t work on the island. The classic and new business models can coexist. There will always be clients for well informed, truly professional realtors like yourself.
“As a seller not sure I would want my agent bringing individuals through my place that simply clicked “request a showing” on realtor.ca. I would expect the agent to do some vetting.”…”those nuts people on deficiency walk-through, etc. Once we had a guy crawl on the floor”..”20% of unrepresented buyers that booked appointments to view properties didn’t show up to appointment without calling me to let me know.”
It sounds like then buyer’s agent are useful to you as acting as a chaperone/Miss Manners for potential buyers. I could see that would be more necessary in entry level markets where buyers have less experience with what is to be expected. (I’m sure you have anecdotes of that happening with higher value unrepresented buyers too. No matter what you do there are always going to be the rude/weird people. Sadly this extends to realtors too; e.g. a friend of mine once showed up to a local viewing, only to have the realtor drive up late — and noticably intoxicated.)
It occurs to me also that all those things you mention are exactly the things to dread whenever you’re ever renting out properties, too – as I’m sure you know. No-shows, lookie-lous, weird/rude/crazy people, unreasonable demands, outright lies/deception. But that’s just part of the business of renting out properties, they learn methods of dealing with these things. E.g. Want to avoid a no-show? Easy. Have them call you 30 minutes before the agreed appointment time (or however long it will take you to drive there), and make it clear to them that if they don’t, you won’t show up for the showing. They don’t call, they’re a no-show, and you don’t go.
I’m still several months away from being able to buy, but I’m just getting my ducks in a row now for when I’m ready. In the meantime I’m just going to attend open houses. I’m leaning increasingly towards representing myself.
Seems like it’s time to repost my chart. Can’t recall the exact assumptions I made here so don’t hold me to the exact figures but basically hold as long as possible
Yeah def heard that after the run up. People getting antsy to cash in and upgrade after all that free equity. Somehow didn’t easily connect that the more expensive places appreciated more in dollar terms than their place so it is now actually harder to upgrade rather than easier
Shoot, what better things could one put $200K towards … hmmm …
• paying for your kids’ university tuition
• paying off your mortgage much sooner, with less interest
• saving for retirement
• buying a Tesla or two
It really does pay dividends to buy your “forever” house the first time, and not sell for 20-30 years.
Not counting the first home, or factor in GST, or break mortgage/CMHC contract if applicable. However, I would expect to pay $25K or more in realtor fees per transaction on an average $750K Victoria SFH, $13K for property transfer tax, $2K or more for buying and selling legal fees, $1K or more for inspection fees, $1K or more land surveying fees, services disconnect and hookup fees, and moving costs.
So changing home would cost at least $42K per sell and buy transaction if the house stay at a constant $750K in BC, and it would easily be north of $50K if factor in moving, update, painting, and services costs. Or, north of $200K for 4 complete moves.
Some people seem to think that if they sell their property for more than they pay for it they are realizing a profit, even if they just buy another property in the same market.
People seem to not be sensitive to fees. Especially when those fees are expressed in percentages and apply to investments where much of the equity was not necessarily generated by them from a regular job. The housing market has appreciated so much that it feels like magic money to people. Easy come easy go.
In markets that have not seen that kind of appreciation, you get a massively higher percentage of owners buying and selling by themselves in order to save money. East Coast is the case in point
Similar thing happens with mutual funds where people are happy to pay 2 to 3% management expense ratios for the off chance that their particular fund beats the market.
A big chunk of my business is people moving for no particular reason in my opinion. I guess some people just like change but it’s a ton of money down the drain.
https://twitter.com/KBAndersen/status/1198653456581562368
I checked. It does even though it doesn’t specifically break out interprovincial moves.
“Moved in the past 5 years from the same city, town, village, township, municipality or Indian reserve”
“Moved in the past 5 years from a different city, town, village, township, municipality or Indian reserve in Canada”
“Moved in the past 5 years from outside of Canada”
Someone please add up the likely amount spent on transaction costs including realtor fees on those 5 homes.
Yes, I know that some moves are truly necessary. But many aren’t. At any rate, I bet that’s a lotta money down the drain.
Question re: MIC as an investment strategy
I’m very skeptical of stock prices at this time. Valuations are very stretched and likes of Shiller and Dalio are sounding the alarms. Market-timing may not work but I’ll like to diversify away from stocks. I’m 36 and own my primary residence in the core (with tons of mortgage, of course). Outside of my primary residence, I’m invested in stocks with my North American (80%) managed by Odlum Brown and Foreign portion (20%) personally managed through ETF’s.
Does anyone invest in Mortgage Investment Corporations (MICs)? How risky do you view these instruments? They seem to promise 6-10% with little risk. With stocks being in the stratosphere, is this a good time to look into alternatives like these?
Yes, the graph says household moves, so that would also include renters.
Seven years average homeowner moves are pretty close to the 8-8.5 years that I was told by my realtor, and it is right in line with 4.5-5.5 homes for the lifetime of Canadian.
Perhaps renter moves weren’t factored out hence it bumped up the average move to 5 years .
The average Canadian owns 4.5 to 5.5 homes in their lifetime: https://business.financialpost.com/personal-finance/mortgages-real-estate/serial-movers-are-throwing-away-money
On average renters move every 2 years: https://www.moneysense.ca/columns/stats-on-renter-dilemmas/
Not 100% sure if they count moves as people move in or as people move out. I expect it’s the latter
Nice graphics Leo. I heard before that normally people (home owners) move every 7 years on average (which is close to true for ourselves). But that’s lots movement for just 5 years. Do you know if it includes the inflow of inter-provincial and immigration moves?
~60% of BC residents moved in the last 5 years.
A few things jumped out at me where BC is an outlier:
From here: https://doodles.mountainmath.ca/blog/2019/11/23/canadian-housing-survey-a-first-look/
You are pointing out that the timing of when you buy will effect your disposable income. You are correct that these price changes matter before you purchase. However, you are using it to argue that price fluctuations after you purchase (for the long term) matter a lot.
The only thing that it could effect is that if you were planning to use the growth in your home equity to finance renovations, for which you might have to wait longer if the price initially drops.
It’s true enough, but I do wonder what a buyer would do with that information. For those of you who remember Dasmo, he used to always say: when you’re looking to buy there’s only the market in front of you today. If you don’t like it or cannot afford it, then it’s easy – just don’t buy.
Whether you decide to buy or decide to wait, you are taking a risk. The risk that it will become less affordable, or the risk that you will lose money on the purchase and spend more than you needed to. The more in demand a product is and the easier it is to make money on it, generally the riskier it is. With homes as with any investment, the key is holding time. This is a dangerous time to buy in to flip, IMO, whereas a marginal time to buy in to live. For a lot of people I still don’t think it’s worth it, especially for condos. The prices there are almost pure fantasy now.
If you’re going to buy now – you better have a good down payment and/or love it to pieces. Then you’ll probably be okay (as I quietly knock on wood). I agree there will be less risk in say, 3 years from now. Buyers on the sidelines have some good days ahead, IMO. But I’d say today is better than in 2017. Don’t ever participate in panic.
It’s the decision to buy at a particular price that affects your disposable income. That’s why price changes after you buy matter. If you buy before a price drop, you have missed the opportunity to buy at a lower price. Thus your disposable income long term will be lower than if you waited to buy after the price drop.
Does that really need explaining?
The only “disposable” payment in a mortgage is the interest, as the equity payment is forced savings. Someone renting a home for $2,000 per month who switches to paying $1500 per month of mortgage interest would end up “disposing” about the same as when he rented (because other disposable non-mortgage homeowner expenses are about $500/month).
With 20% down, and a 2.69% 5 yr mortgage, (ratehub.ca lowest rate is 2.28%), paying $1,500 monthly mortgage interest would get you a $669k mortgage ($167k downpayment) and a $836k house. Now you’ve broken even in terms of disposable income compared to renting, as you’re still disposing $2000 per month of homeowner expenses as when you rented for $2000.
From an inventive perspective, you’ve lost the interest on your down payment (about $3k per year) but you’ve gained the expected Equity build from nominal house price inflation (about 2.5%*$836k per year = $21k per year. If that happens you’re way ahead.
And that’s just in year one, where you’re ahead by $21k if house prices rise with inflation. In subsequent years, the renters rent is rising, and his potential buy-in to buying a home is rising ($21k per year), but the homeowners mortgage payments has stayed the same as his equity rises.
Barrister… we absolutely love Sooke.
As you know, both my wife and I are artists and it’s easy to ship our work anywhere in the world. We originally chose Victoria because houses were, and still are, so much cheaper than Vancouver, which allowed us to have the freedom financially to travel and mount one man shows in the former Soviet Union, Iraq, Scotland, the USA etc etc.
With todays world of amazing communication tools, it is so much easier to work further away from major centres.
I also still firmly believe that Victoria’s SFH are largely undervalued.
That is a different point than the point being made that price changes after you buy for the long term don’t matter very much. The changes in price after you buy will not affect your disposable income.
Now that the election is over the head of the CMHC is back to fighting against any loosening of credit. https://business.financialpost.com/news/economy/cmhc-head-sounds-the-alarm-on-housing-policies-that-push-up-prices
It matters plenty. The price you pay, or more precisely the amount you borrow, will affect your disposable income for the long term.
Deryk: Congratulations on your new home. I dont know much about Sooke so how are you finding it.
Actually Prairie Boy ran a different blog (still available here: https://victoriastruth.blogspot.com/) and ended up buying a house here in spring 2009 (turned out to be good timing) after which he shut down the blog (nice shoutout to Just Jack on that final post). Then everyone moved to the original Househuntvictoria that was run by a guy named John. That guy ended up moving to Alberta sometime around 2010 or so if I recall which is about the time I started writing for the site.
Interestingly enough, the same guy ran a second site with a couple posts called Disolve the CMHC which was active until 2013 but I didn’t know about previously: https://dissolve-the-cmhc.blogspot.com/
When you realize that your children’s are not able to start at family at 40 due to housing.. you don’t care if the current home is worth 1.5mil, 2mil,or 4..
Again, what a great post, Leo.
Regarding regulatory risks, what about Trudeau’s promise to introduce a nation-wide foreign buyer’s speculation tax?
I realize Trudeau, like most politicians, doesn’t keep all his promises, but what if he does keep some form of this promise? Foreign buyers would start hitting the brakes on purchases in Toronto and Montreal (Vancouver is already experiencing this, of course), and they’d also be more inclined to sell whatever they already hold there.
How would that affect Victoria? Ontario retirees heading to Victoria would have less purchasing power, if Ontario sales prices are affected…. But to what extent would that be noticeable here?
Can Trudeau afford not to keep his promised foreign buyer’s speculation tax, given that typical young Ontarians have been seeing prices increasingly get out of reach? One thing that surprised me about Vancouverites, was how the foreign/vacancy taxes there were well received even among many homeowners.
One more reason I think all R1-B lots in the city of Victoria should be rezoned to duplex ->
https://www.cbc.ca/news/canada/british-columbia/bc-building-code-secondary-suites-duplexes-townhouses-1.5369390
Just giving my thoughts from an agent perspective working in a flawed compensation system where you can make anywhere from $2,000/hour with a client to making $0 for hundreds of hours work (yes, I’ve had people look at 50-100 homes and then decide to buy up island or similar). Personally, as a buyer, I would have no problems going unrepresented and that’s what I did in 2009 when I bought my first place before I got my licence.
But that is just the reality of it. I use to do 40+ buyers a year 2012-2015 running 50% cash back and it was an insane workload. The buyers looking for 50% cash back are going to consume more time as they are prudent and financially conservative so they tend to offer less, etc. 2016 was a brutal year for me with buyers as I had a lot of very conservative buyers but everything was going in bidding wars so for maybe every 15 offers I wrote one was accepted and let’s say the average number of offers on some of these places was 5 so I was way below the average in terms of success due to my buyer demographic. On average, you aren’t going to go find a 50% cash back realtor and then go in with an awesome offer.
Getting a cash back realtor is a really smart choice as a buyer, not doubt about it, but from running a real estate business it just didn’t work. 50% less revenue but more time spent on each buyer.
As a seller not sure I would want my agent bringing individuals through my place that simply clicked “request a showing” on realtor.ca. I would expect the agent to do some vetting.
Actually, four personal places I’ve sold three times I told my realtor to not bring unrepresented parties and the one time I handled my own sale I told all unrepresented parties to get a realtor if they wanted to view my own place. Just too much headache I am not willing to deal with on personal sales.
Also, all the sales for my father’s new builds absolutely no chance I would do unrepresented party. I don’t mind having a buyer’s agent as a buffer when you get those nuts people on deficiency walk-through, etc. Once we had a guy crawl on the floor looking for imperfections and then when I had to go drop off a missing windows screen three months later they had a 80 lb dog that went to town on the floors. A lot easier for me to tell the buyer’s agent that his or her client is an idiot versus telling it to someones face.
Unrepresented buyers, on average, are really difficult to work with. I’ve always hated working with unrepresented parties and I’ve done it for almost 10 years (unlike other realtors even before the regulations changed I never offered dual agency unless it happened to be my buyer buying my listing). The potentially larger commission was never on my mind.
I think one year around 20% of unrepresented buyers that booked appointments to view properties didn’t show up to appointment without calling me to let me know. The ones that showed up would be “ohhh 40 lb pound bylaw limit for dogs, that sucks my dog is 70 lb, thanks for your time.”
When it comes to unrepresented parties I love the new regulations. When I get a request to view a listing I email the unrepresented party the required unrepresented non-client forms to initial and send back and I literally don’t hear back from 90%.
The 10% that actual initial and send the forms back we book the appointment and I’ve had solid experiences with.
Great point Barrister. If you decide that you’re going to be a homeowner for the long term, it doesn’t much matter if prices rise or fall – you’re not cashing out to become a renter again anytime soon. Changing houses mid-stream is a wash, if prices fall you sell at a loss but rebuy at a lower price.
Yes, that’s a bad aspect of the RE agent payment model, for both agents and clients. As a buyer, I’d prefer to pay RE agents for work they do for me (time spent) and not have them feeling they are doing it for free unless I buy a house with them. By analogy, I wouldn’t want my Dr. to only get paid if he cures me, cause then the Dr. might not want me as a patient!
Leo,
Great post, and a good format. Well done. The sites looking great too. I’ve got nothing to complain about 🙂
“I used to be on the unrepresented train. What convinced me to work with a realtor was the fact that being a first-time buyer and being unrepresented, no one takes you seriously.”
Josh – I see what you mean, but two quick points:
1) Going with the 50%-cashback service I mentioned below, a realtor IS technically still representing the buyer.
2) When the target market segment is already slow, I can’t imagine many agents turning away bonafide, interested unrepresented buyers. It isn’t hard to spot a Lookie-Lou or buyer that is way out of their depth, in case that’s what they’re avoiding, and those can’t be avoided even when they’re represented.
I grant that there are a few agents out there seem to be about strongly prioritizing first and foremost listings/clients suggestions within their own broader organization, then second dealing with licensed realtors — and not wanting to support giving business to somebody that is not a licensed realtors. Those aren’t agents working in the best interest of their clients. Not at all. I wonder what their clients would say if they knew that they are paying an agents to turn away bonafide potential buyers? Especially if it is something they would rather not want their clients to admit to clients, then the term “Old Boys Network” comes to mind.
The last I would do is allow that to be the reason I throw up my hands and join in to support that.
Maybe in a super hot market segment they’d have the luxury of turning away unrepresented clients without their own clients caring.
Thanks Barrister. I have been checking in to House Hunt as an observer all the time and find joy in hearing the opinions of people.
We actually sold our house in Victoria about four months ago and we bought a totally new house in Sooke.
Our old house was a fabulous old place with five fireplaces and it served us well for almost thirty years. We feel blessed to have lived there and we hope the new people get as much satisfaction living in it as we did.
We chose to sell because it was the right time in our lives to do so.
We have always loved Sooke and planned to retire there. We also like the idea of living in a house that is built to all the new building codes.
Victoria is also a great place to live. But we have chosen Sooke now and it is a new chapter in our lives with new adventures.
I still believe that it is an amazing time to buy into the Victoria market for the younger generation.
It’s also a pleasure to see so many young people here in Sooke pushing baby buggies everywhere you go. It’s got a beautiful sense of community.
We drive an electric car and so the cost of driving is cheap. (Round trip to Victoria and back to Sooke is $1.75 in electricity.)
Anyway….. thought I would explain. Thanks for the work you do Leo!
I used to be on the unrepresented train. What convinced me to work with a realtor was the fact that being a first-time buyer and being unrepresented, no one takes you seriously. I couldn’t get requests for viewings answered without a realtor. It’s a super shitty reason to shell out thousands but I don’t want to lose a property because I’m unrepresented, and that seemed like a likely risk.
Leo what makes you think, if anything, that we can’t have a “double top” like scenario that happened in 1990 and 1995 on your chart? couldn’t affordability get worse again and then get better for a longer period? i am just curious on your opinion on this cycle considering one of the 3 previous cycles weren’t just straight up and down – if it acts like 1990 we could be further away from the bottom (and closer to another top) then your write up considers. let me know what you think. Cheers.
Great post, Leo S.
Thanks to those that replied in the previous thread. I’m the one from the previous thread, looking at either buying without a realtor or using a cash back arrangement (at least 50%).
Marko – I know what you mean about nightmare clients that make you regret doing the cashback thing. I have seen time and again that a minority of people (5%-10%) are the difficult ones that account for a majority of the problems/work. I wouldn’t want to be an agent offering 50% cashback with an abnormally high maintenance buyer.
That’s why the service I’ve found so far (based on the mainland) is no-frills, very barebones (OneFlatFee.ca). By the looks of it, they expect the client to do the vast majority of the work, by themselves, for the 50% cashback option. I haven’t used their service, but the impression I get is that they will write up offers and handle buyer’s side of paperwork for an offer/sale, but otherwise tell the buyer they’re on their own — and mean it. They might not even provide opinions, advice on price, or market analysis for the 50% cash back. But that’s totally okay if I have access to that information already. They have another option where they say they give the same services as other agents for 25% cashback. Obviously, only the 50% option could possibly work if purchasing in Victoria, since they’re based on the mainland — that is, assuming they would go for that. I am still weighing my options.
Local Fool – I agree and seem to also be along the lines that you describe, don’t want nor need to have my hands held for suggestions on what I might be interested in, can look up listings on my own (obv. except for the couple of days before a listing goes up on MLS, but I’m not worried about those types of listings going away quickly in the current market, for what I’m looking for). Yes, sometimes having an agent is more of an inconvenience than a help (setting up appointments on their schedule, pushing back suggestions you are 100% sure you don’t want, etc).
What has especially turned me off paying tens of thousands of dollars in commission bucks to a realtor is my experience years ago with one that agreed with me on a target price, but after only two weeks that it did not sell started relentlessly pressuring me to adjust my price. Yeah, I’m just fine without paying somebody big bucks to constantly pressure me, thanks. He also made it clear after I signed him on that if it didn’t sell in 30 days he’d be out of there. Wonderful. Nice to see he’s prepared to “work” for his tens of thousands of dollars, but only if he can pocket it quickly.
As an aside, it doesn’t make sense to me that a buyer’s agent is rewarded more as the purchase price goes higher. That’s like a defense lawyer billing a client more if his client is sentenced to a longer time in jail, lol! It would make more sense to use a system where the buyer’s agent is rewarded for actually helping the client get a better deal. There are a lot of ways this could work, but to brainstorm:
commission could be anchored to a generous flat fee plus or minus some % commensurate to how far above the final price compared to some pre-agreed baseline price (e.g. most recent assessed value). In the meantime, like it or not a buyer’s agent is monetarily incentivized to convince his client -to pay more.
To be fair, there are a lot of people for whom using a full-commission buyer’s agent is best. I would be more likely to want to use a full service buyer’s realtor if:
– I were just moving into town (That said, it would be best for me to rent and get to know the area on my own first)
– I had zero access to recent comparable sales numbers
– I had limited analytical skills
– I were elderly
– I were easily stressed, and unable to guide my own decisions
Excellent post Leo. I truly appreciate the effort and time you put into all of them. I do remember so well when you purchased your home. I know you were a little anxious as you should have been……….but it all worked out very well and I bet you and your family are so happy that you took that big step.
Remember Prairie Boy? He left the city thinking he could never get into the market. Prices have soared since then. I wonder if he checks in on this blog. Hope he didn’t move to Edmonton.
What a wonderful sunny day it is today. Going to get out and enjoy it for sure.
Good post, Mr. Leo. The “My Assessment” format is well-done and appreciated.
Great line.. +1
Deryk : Nice to see you online again, it seems to have been forever.
Great Post: At the end of the day, there is a limited amount of things that people can do about the bigger picture risk assessments. I think it is wise advice to accept the fact that your house could easily drop in value after you buy it. Not seeing your house as some sort of investment is extremely wise.
Is the Canadian housing market vulnerable, most definitely, for that matter so is the Canadian economy but if you are the average person there is not much you can do about it so staying up at night worrying about it is not productive. It is wiser to just move on and hope for the best. I will admit that it is easy for me to say since we are bailing out of here.
Leo briefly mentioned relationships and the effect of finances on a couple. If there is one priority it should be that both parties in a relationship are fully and equally invested in the purchase of a home. Few relationships can survive one person blaming the other for a housing choice.
In case there is any misunderstanding I am not making any predictions on either the Canadian economy or the housing market.
Great Post and assessment Leo.
So much depends on each individual’s personality, willingness and ability to handle risk. Everyone sees the world in different ways.
One of the best articles I’ve ever seen here. Out of the park. Absolutely wonderful write up, Leo.
LOL.
Awesome post!
Nice write up Leo!