What Ontario Gov’t Should Do To Stabilize Real Estate Prices But Not Kill The Market

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What Ontario Gov’t Should Do To Stop Real Estate Insanity But Not Kill The Market

Let’s face it. No homeowner wants the value of their home to go down. 

Everyone would agree that real estate appreciating over time is the way it should be. 

But the insanity that has been so devastating for so many Buyers is the fact that Real Estate prices have gone up SO MUCH SO FAST. 

And continues to do so. 

What if there was a way to ensure homeowners still see capital appreciation while slowing the price growth to a more manageable pace?

Well I assure you there is. 

Back in 2017 our fearless Government tried to step in and stop the insane price increases. 

They announced a FOREIGN BUYER TAX. 

They announce a more stringent STRESS TEST for people to get a mortgage. 

If I recall they announced a bunch of other new policies & restrictions as well. 

But they didn’t work. 

The market did stall for a short time. It was more like a blip on the radar screen. 

Then it picked up again. 

Why you might ask? It’s because the politicians & law makers for real estate missed the single most relevant flaw in the real estate Act that allows for this market craziness to happen. 

They tried to put their 2 cents in on anything except fixing the most relevant flaw in our system.   

And they might do it again. 

Today I heard they might urge the Feds to NOT hold interest rates so low until 2023. 

Well, given the high mortgages people now have, and the pandemic causing many deferred payments or people out of work or making less money, that will only cause a market crash like we saw in the U.S. in 2008. 

That crash happened when lenders got people to buy homes for more than they could afford with introductory low interest rates that adjusted after 6 months. 

Nobody wants a crash here in Ontario now (or ever). 

Today I heard they might announce a “Flippers Tax”. 

If you buy a property to fix and flip you must live in it for a certain period of time. 

The longer you live there the less tax you pay when you sell. 

Do you notice a pattern?  They think the answer to everything is tax us more and more. 

I’m not even going to talk about how we live in one of the highest taxed societies in the world. I’ll leave that for now. 

They were even talking about introducing a new Capital Gains Tax on principal residences when you sell. 

Thankfully they scratched that.  But a Flippers Tax? 

The problem is not high value homes.   It isn’t even adding value to a home. 

Flippers didn’t create the market frenzy. 

And if someone buys something worth $100.00. Then invests $100.00 to fix it up and add true value …

then that product is now arguably truly worth $200.00.  Maybe even $250.00 as the person who fixed it deserves compensation for their time and effort too. 

So there’s nothing wrong with flipping properties for more than you paid IF you truly add value. 

As long as the property sells for what it’s WORTH!

Here’s what they fail to acknowledge. 

The solution isn’t babysitting and controlling people as to when they can sell. 

The problem (and therefore solution) is in the PROCESS of real estate transactions. 

By the way, if you think about what I just said, everything should sell for what it’s worth. 

But in multiple offers (aka bidding wars) many homes are sold for more than they’re worth – according to bank appraisals and according to the market. 

WHY?  Glad you asked. 

Because there’s a flaw in the process. 

So let me be specific. 

As a LISTING AGENT if I’m selling your home, and we get 2 or 3 or more offers at the same time, my job is to get you as much money as possible for your home. Sometimes by generating multiple offers.

And there isn’t anything wrong with people bidding against each other. They call that an auction. 

But if you think about art auctions and things like that, people sign up willingly for auctions because they know what they’re getting themselves into. 

Buyer’s don’t like real estate bidding wars because they don’t know what they’re getting themselves into. 

Here’s what I mean. 

When you go to an auction and you bid on something you raise your paddle.

The auctioneer announces the highest bid. 

Everyone else decides, based on that knowledge, if they’d like to increase their bid. 

And so those who can and want to do it. 

But they also decide how much (what increment) to raise their bid because they know what # they’re bidding against. 

According to the Real Estate Act (the Law) which all Realtors must abide by, when we receive multiple offers on our listing, we go back to all interested Buyers and give them a chance to raise their offer or improve the terms of their offer. 

But we are NOT ALLOWED to disclose to the different offers/bidders what the terms, numbers, or contents of the competing offers are. 

So therein lies the problem. 

If Buyer’s don’t know what they are bidding against, what they have to beat, then they are throwing darts at a dart board. 

Sometimes they could beat another offer simply by changing the closing date, or conditions, while not raising their offer amount. 

But they don’t know that so they shorten their closing date, remove their conditions, AND throw some more money at the offer just in case. 

And if we focus just on the money component for a minute, let’s use the auction analogy gain for a minute. 

If the bidder beside you yells out $1,000 then you can yell $1,100 if you want to bid more. 

But in real estate you don’t know what the other Buyers offered. 

So you don’t raise your bid a little bit. You raise your bid a lot. 

Instead of raising your bid by $1,000 you raise your bid by $50k or $100k (or more). 

The Real Estate Act we operate under is from 2002. There have been some updates. But not this particular fact. 

And back in 2002 multiple offers was so popular. 

So think about this for a minute. 

If you’re bidding $1Million on a house or condo and the Seller’s Agent tells you there’s another offer you have to beat. 

But can’t tell you how much, you raise your offer to $1.1 Million. 

But, if that Seller’s Agent was able to tell you the highest offer to beat is $1Million you could offer $1,010,000 or even $1,025,000.

You could raise your offer in $10k or even $25k increments and still be in the running. 

If they made this change 5 years ago or even 3 years ago, homes would still keep going up in value and sell for top dollar. 

But with $10k or $25k increments (just for example) vs. $100k or $200k increments. 

So it’s the huge increments due to taking a shot in the dark that have driven the market prices to rise at an unmanageable pace. 

In my opinion, the Government does not need to stall the market or crash the market. 

The Government doesn’t have to tax us to death or penalize us for living. 

If they simply change the Real Estate Act, so that when a Listing Agent receives multiple offers on a property, that Listing Agent can legally disclose the contents of the offers, here’s what will happen. 

The listing agent can tell the Buyer’s agents that the offer that the Seller is most likely to accept has:

 a $1 Million dollar offer

 is offering to close on June 1st

 and is conditional on Financing, Inspection, and whatever.

Then the Buyers can improve their offer if they want but in small amounts.

The prices will still go up but in smaller and more manageable increments. 

And in some cases, one offer might beat the other offers by removing some of the Conditions from the offer, or offering to give up the dining room fixture, or being more flexible on the June 1st closing date if the Seller prefers a different date. 

In other words it becomes a true negotiation of the terms of the Agreement and not just a dart board of $$$. 

In no other negotiation in life can a professional negotiation against TERMS of the negotiation that are a secret. 

What we’ve seen recently in our market is not negotiating. 

It isn’t even truly an Auction, which would still be ok. 

It’s just plain illogical and quite frankly ludicrous. 

I’ve explained this flaw every time our market went into bidding war frenzies for the past 10 years. 

Hopefully this time the Government might listen to logic, from someone in the trenches who does this day in and day out, rather than try to make decisions from a political perspective, thinking it’s an economic situation like everything else. 

Yes, our real estate is part of the economy. 

But the solution does not lie in more taxes, higher interest rates, or penalties. 

I ask our Government to simply tweak the Real Estate Act so listing agents can disclose details of competing offers, and sit back give yourselves a pat on the back. 

Because it’ll work like a charm and solve the current problem, while not causing damage or havoc to our economy.

If you’re thinking of moving and have questions, I’m always happy to chat with you. 

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