Craft­ing a win­ning strategy

By Mad­havi Acharya-Tom Yew – Mon​eyville​.ca

Jaff and Brad Robert­son are broth­ers who are also part­ners in real estate. They know what it takes to buy an aging prop­erty and ren­o­vate it. They know what it takes to be landlords.

And they know what it’s like to get into a bid­ding war.

“It’s def­i­nitely nerve-wracking and very emo­tional. It’s a very stress­ful process,” says Brad, 28.

“There were times we bumped up our bid with­out any provo­ca­tion. We would just think, ‘There’s other bid­ders now. We need to go in higher.’ “

Last year, they walked away from what seemed like the per­fect house.

It drew eight offers and ended up going for about $110,000 over asking.

“We offered more than the ask­ing but not close to that much,” said Jaff, 34. “It wasn’t worth it for us.”

Bid­ding wars have become the norm in many Toronto neigh­bour­hoods. For first-time buy­ers in par­tic­u­lar, it can feel like a los­ing bat­tle. There are strate­gies to help you come out on top.

One key is to keep per­spec­tive and avoid get­ting too emo­tional, experts say. Of course, that’s eas­ier said than done.

“Nobody ever says, I really want to get involved in a bid­ding war,” said real estate agent Gina Roman. “Peo­ple want what they want, and that’s why there are bid­ding wars.”

The dan­ger of pay­ing a price that far exceeds the mar­ket value is that if you need to put the prop­erty back on the mar­ket in a short time frame, you may not get your money back once agent fees and other expenses are taken into account.

Com­ment: Every­one for­gets that mar­ket value is what it sells for. If you paid $800,000 for a house listed at $700,000 then the house is worth $800,000. It was priced too low. Remem­ber, list­ing price is NOT mar­ket value – sell­ing price is. And these days, in Toronto, if you have to sell 12 months later you are likely to get 10% more than you paid – eas­ily cov­er­ing your costs.

That would cer­tainly be the case if the long-awaited cor­rec­tion in the hous­ing mar­ket comes around. Buy­ers often think noth­ing of adding $30,000 or $40,000 to a bid as they try to edge out the other guy, espe­cially in the era of ultra-low inter­est rates. When you amor­tize that over 25 or 30 years, the added monthly cost is very little.

Com­ment: Not awaited, pre­dicted by peo­ple who have been wrong for about 10 years straight now. There is no cor­rec­tion com­ing. Toronto real estate prices are not going to go down. Trust me, this is what I do for a liv­ing, every day. They may flat­ten out, but they are not going to drop 20% in a year. I do not want to explain it right now, but if you spend any time on this blog, you will know why prices are not going to drop – I have explained it in 20 other places.

But that’s only part of the story, said Kelvin Man­ga­roo, founder of Rate​Su​per​mar​ket​.ca. For instance, for a home­buyer who bor­rows $400,000 on a 3% five-year term, amor­tized over 25 years, the monthly mort­gage pay­ment is $1,892.98.

If a bid­ding war pushes the amount bor­rowed to $465,000, it adds only $307.61 to the monthly pay­ment. But the dif­fer­ence over the course of the mort­gage is a whop­ping $92,282.83 – and that’s assum­ing mort­gage rates remain unchanged, which is unlikely.

“The total inter­est cost is huge, but peo­ple don’t tend to think of it that way,” Man­ga­roo said.

Com­ment: But that is moot when we are talk­ing about $200,000 in inter­est paid over 25 years. It is the $300 a month that matters.

The dan­ger for young cou­ples is that they become cash-strapped, and are unable to save for emer­gen­cies, their children’s edu­ca­tion, or their retire­ment, said real estate agent Nick Horton.

Sit down with a banker or mort­gage bro­ker and make sure you under­stand how much you’ll be able to bor­row, and how you would carry the monthly payments.

Com­ment: And then take less than they will give you. I bought a house for $200,000 less than the bank would have given me. But that gives me money to play with, not hav­ing to spend EVERY cent on my mort­gage. I may not live where I want to, but I am not stressed out about mak­ing my payments.

Get a pre-approval, but keep in mind that it doesn’t mean you are guar­an­teed to get a mort­gage, espe­cially if you’ve over­paid on a prop­erty and are up against your upper limit for borrowing.

Com­ment: Can we please stop using the word “over­paid”? It has no mean­ing. If you paid more than list­ing, that just means the house was under priced, not that you over paid.

After a cou­ple bid­ding wars, Brad and Jaff took a new approach.

“We got to the point were we tried to take emo­tions out of it, give an objec­tive val­u­a­tion of what we thought the house was worth to us and if we didn’t get it, we didn’t get it,” Brad said.

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Con­tact the Jef­frey Team for more infor­ma­tion – 416−388−1960

Lau­rin & Natalie Jef­frey are Toronto Real­tors with Cen­tury 21 Regal Realty.
They did not write these arti­cles, they just repro­duce them here for peo­ple
who are inter­ested in Toronto real estate. They do not work for any builders.
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