Déjà vu – 2006 Lessons Learned?
| February 19, 2014
Remember 2006? Did we learn anything from that crazy time in Alberta’s real estate market? Are you applying those lessons today?
In 2006, the real estate market in much of Alberta was white hot. There was inadequate inventory. There were competing offers for just about every property. Clients often wrote offers without conditions and well above asking price.
It was a perfect storm:
- Available inventory trended way down
- Average days on market trended down to less than 10
- Average sale-to-list price trended up to well over 100% for an extended period of time
Buyers were desperate. They were concerned the rapid increase in prices would quickly make their dreams of home ownership unaffordable. They jumped into the frenzy without proper due diligence and the protection that comes from it.
Two years later, the market had cooled and some buyers began to regret the buying decisions they made as they became aware of the consequences of those decisions.
In conversation with real estate professionals in many parts of Alberta today, we see market conditions similar to 2006. Is there one lesson we can apply now?
Yes – real estate professionals must help their clients understand the possible implications of the choices they make. Writing condition-free offers and paying higher-than-asking prices have potentially serious consequences:
- If there is no home inspection, does the client understand one possible result is having to deal with costly repairs to defects that a home inspector may have found?
- If there is no review of condominium documents, does the client understand they may have to deal with a special assessment or increased condo fees to fund a repair or capital reserve fund shortage that a condo document reviewer would have uncovered?
- If there is no financing condition and the property does not appraise at the agreed upon price leaving the buyer without mortgage financing, does the client understand at least one likely implication is a loss of their deposit?
- If the buyer wishes to relocate in a couple of years and if market values decline during that time, does the client understand they may have to sell the property for less than the amount they paid?
If you tell your clients they will only be successful in a competing offer situation with a condition-free offer well above asking price, then you likely haven’t met your agency obligations. On the other hand, if a consumer asks you to draft a condition-free offer well above asking price with full knowledge of the implications of that decision, then you can proceed knowing you served them well.
Buyers may later regret competing in a seller’s market. Please make sure if they do, it’s only their decision to compete that they regret rather than the fact they were unaware of the consequences.