Buyers show new muscle in an almost dormant market

A home for sale in Toronto’s Annex neighborhood on July 18.Fred Lum/The Balloon and the Mail

In a nearly dormant real estate market, some sellers are facing the resurgence of an anachronistic practice: nervous buyers make their offer to purchase a property conditional on the sale of what they already own.

Buyers in a hot market don’t stand a chance with an offer mired in such a twisted condition, but in a market downturn or in a region where properties are slow to come to market, sellers become more tame.

Matthew Regan, a broker with Royal LePage Real Estate Services, saw some buyers attach the clause during the 2018 market downturn, but it disappeared when sales picked up again.

In Oakville and Mississauga, where Mr. Regan concentrates much of his business, conditional offers on the sale of the buyer’s property are rare these days, but they are starting to appear, he says.

In Mr. Regan’s opinion, the strategy may be successful, but sellers need to be careful. Once a property has been conditionally sold, that information becomes public. The property remains visible on the Multiple Listing Service, but some buyers may avoid even booking a viewing.

“It can slow down the momentum,” he says. “It’s a red flag for the house in the eyes of the buyer.”

Mr. Regan says that such an agreement typically includes an “escape clause” in the Purchase and Sale Agreement. The clause allows the seller to continue to market the house and show it to other potential buyers. If a second buyer submits an offer acceptable to the seller, the seller informs the first buyer, who then has a period of time, usually 48 hours, to waive the condition or withdraw.

To trigger that escape clause, the second buyer must be willing to make a tempting offer that forces the original buyer’s hand.

The risk to the second buyer is that they may end up being used as a pawn, Mr. Regan warns, because they are giving the seller an advantage over the first buyer.

“The seller is, in theory, very happy with that offer. The seller is in the driver’s seat,” says Mr. Regan. “As a second buyer, you can lose a lot of emotional time.”

Mr. Regan says that sellers should be aware that many home seekers prefer to avoid such a complicated process and only look for a property that has not been conditionally sold.

He knows of a deal in Oakville that fell through after the sellers of a home worth about $2.5 million accepted a conditional offer on the sale of the buyer’s home in the $3.2 million range.

“In a market like this, you’re in an area where there just aren’t a lot of houses selling over $3 million,” he says.

Two owners recently agreed to the condition of sale agreements at the London, Ontario company. offices, he adds.

Mr. Regan says the pace of sales in London tends to lag six to eight weeks behind the Greater Toronto Area, and sellers are more likely to be receptive to such a condition in areas where their property has been sitting for a long time.

“This could be the first offer they have seen.”

According to the London-St. Thomas Association of Realtors, the number of new listings was the highest ever recorded for the month of June, while the number of sales was at its lowest point in the last 10 years for June. That trend has pushed “months of inventory,” a measure of how long it would take to sell all active listings at the current pace of sales, to 2.8 in June from 1.7 in May.

In the Waterloo region west of Toronto, broker Thien Nguyen of TrilliumWest Real Estate says he has seen more conditional offers in recent months than in the previous two years.

In the first week of July, the number of conditional sales increased 47 percent from the previous month.

The Kitchener-Waterloo Association of Realtors reported a 24 percent drop in sales in June compared to June 2021. Prices have fallen as the number of properties for sale has steadily increased, according to the association.

Sales at GTA fell 41 percent in June compared to the same month last year and 4.7 percent from May on a seasonally adjusted basis.Fred Lum/The Balloon and the Mail

Making a conditional offer on the sale of the buyer’s property is also a growing trend, Mr. Nguyen says, with 38 per cent of conditional offers containing such a clause.

If Mr. Nguyen represents the sellers, he first collects as much information as he can about the house he needs to sell. He talks to the buyer’s agent to find out when they plan to list, in what neighborhood, and at what price. If the house is not in a great area or needs a major renovation and therefore could take longer to sell, he would advise the owner not to accept and keep the market listing.

Elise Stern, a real estate broker at Harvey Kalles Real Estate Ltd., says the market in downtown Toronto is holding up better than that in the suburbs but, on average, houses are taking longer to sell compared to earlier this year. . In recent years, when supply was tight, Ms. Stern advised homeowners to buy their next property before selling an existing one. She now recommends that they sell first.

Sales at GTA fell 41 percent in June compared to the same month last year and 4.7 percent from May on a seasonally adjusted basis.

Buyers are adding more conditions to their offers, she says. The most common terms relate to financing or a home inspection, but sometimes they include the sale of a buyer’s home, says Ms. Stern, “which we haven’t talked about in years but is here now again”.

She says some buyers have floated the idea, but she thinks sellers are better off agreeing to a longer closing if they can.

“I try to run the deal that way,” she says.

In a recent transaction, the seller agreed to a closing after 120 days instead of the usual 60 or 90.

If the 120th day comes and the buyer hasn’t sold the property, I would suggest the seller extend the closing again rather than lose the buyer outright.

Ms. Stern is also working with buyers who are looking for a home they like but need time to reflect before making an offer. The seller’s agent called to say the owner is thinking of taking the house off the market and putting it back up for sale in the fall. Ms. Stern asked if they would accept the closing at a later date since they may have to wait for a buyer until the fall anyway.

“Why not offer a longer closing if the deal goes through?” says Ms. Stern, who is a former lawyer. “Veterans have seen tough times. Now you have to be smart and creative.”

Royal LePage’s Mr. Regan expects demand to pick up again, but if the market remains sluggish, more homeowners who are seeing their properties languish may be motivated to consider such a deal. He would do his homework on the potential buyer’s existing home before recommending the seller accept such a condition.

I would request details about the condition of the home, the neighborhood, and the marketing plan from the buyer’s agent.

If the house appears to be worth $1 million but they plan to list it at $10 million, I would advise the sellers to fire them. But if buyers plan to list their existing home for $999,000 and it seems likely to sell quickly, you might advise sellers to accept.

“One would expect a buyer with an easy sale,” he says.

If the buyer fails to sell their first home before the deal is finalized, the buyer gets their deposit back and the two parties agree to a mutual release. Mr. Regan warns that even that result can be dangerous for the seller.

“The unknown is you don’t know how many shows you missed.”

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