H2 | REALESTATE O THEGLOBEANDMAIL| FRIDAY,MARCH13,2020
T
he Toronto-area real estate
market is looking like early
2017 redux in more ways
than one: Intense competition
occasionally leads buyers to offer
huge amounts above the asking
price of a property, then the deal
goes south in the messy after-
math.
One problem arises when fi-
nancialinstitutionsrequireanap-
praisal of the property’s value be-
fore they sign off on a mortgage.
When buyers who feel a despera-
tion to buy get carried away, they
may find the appraised value falls
shortoftheirstunningofferprice.
According to the latest data,
sales in the Greater Toronto Area
soared 45.6 per cent in February
compared with February, 2019,
which marked a 10-year low, the
Toronto Real Estate Board says.
Sales have still not matched the
recordsetinsizzling2017,accord-
ing to TREB.
Last month’s roaring sales
came as new listings rose by a
much smaller 7.9 per cent last
month compared with the same
month last year.
The average price in the Grea-
ter Toronto Area (GTA) stood at
$910,290 at the end of February,
which marks a 16.7 per cent in-
crease from February, 2019.
Last week the Bank of Canada
also cut a key interest rate by 50
basis points to 1.25 per cent in re-
sponsetotheriskstoCanada’sec-
onomic growth posed by the cor-
onavirus.
Beata Caranci, chief economist
at Toronto-Dominion Bank, ex-
pectsthecentralbanktocutagain
in April.
She says the easing policy will
keep mortgage rates, sovereign
bond yields and corporate bor-
rowings costs at extraordinarily
low levels.
Even without an outbreak of
the virus in a large, urban centre,
economicactivitywillbewhittled
away as consumers become more
cautious about travelling and at-
tending activities, Ms. Caranci
says.
In the short term, a high-oc-
tane market can result in buyers
offering exorbitant amounts in
order to beat out the competition
in a bidding war.
Thien Nguyen of TrilliumWest
Real Estate Brokerage recently
sold a townhouse in Maple, Ont.,
for $945,000, or a $225,100 premi-
um to the asking price of
$719,900.
Mr. Nguyen says he made sure
that the bidder who submitted
thehighestofferhadthefinancial
clout to close the deal. He has
made a practice of asking the
buyer’s agent in any deal if they
have a preapproved mortgage.
“That’s a huge aspect for us.”
In this case the buyer was well-
financed and provided a solid de-
posit, he says.
But sometimes buyers – even
with preapproved mortgages –
can still run into trouble if the ap-
praiser values a house below the
sale price.
Financial institutions are con-
cerned that they’re not lending
more than the property is worth.
So if a buyer signs an agreement
for $1-million, for example, and
the appraisal comes in at
$900,000, the buyer may have to
come up with $100,000 to close
the gap.
Buyers who stretched to make
a down payment end up scram-
bling to find the added capital –
sometimes without success. He
hasheardofsomeinstancesinre-
cent weeks.
“Somedealshavefallenapart,”
Mr. Nguyen says.
Mr. Nguyen says the parties on
both sides of the deal typically
want it to go through, if possible.But the upside of competition is
that the seller’s agent has a list of
rival bidders who may be willing
to step up.
“Theycangotothenextperson
in line and see if they have capi-
tal.”
Duncan Fremlin, a real estate
agent with Re/Max Hallmark Re-
alty Ltd., works mainly in the Riv-
erdale and Leslieville areas of To-
ronto. He has not seen any deals
scuttledbyafailuretoappraiseso
far in 2020 but he has seen in the
past.
“It’s very disturbing when it
happens.”
Mr. Fremlin explains to buyers
and sellers that there are signifi-
cant differences between an ap-
praisal and an evaluation.
In Ontario, appraisers are
trained to produce detailed and
unbiased reports.Their govern-
ing body, the Appraisal Institute
of Ontario, oversees their work.
The banks and the judiciary
only recognize appraisals from
members of the institute, Mr.
Fremlin says.
Evaluations, which are carried
out by real estate agents, are not
policed or regulated by any real
estate association, Mr. Fremlin
says.
“Even though we are in the
business of pricing properties,
we’renotrecognizedbythebanks
or the courts,” he says. “What’s
missing from our qualifications is
‘unbiased.’ ”
Those institutions are con-
cerned that a real estate agent
might be influenced by an obvi-
ousconflict of interest, he points
out.
Despite that fact, evaluations
maybemoreaccurateinsomeas-
pects, he explains.
Appraisers pay close attention
to such factors as the condition ofa house, how many bedrooms it
hasandthestateoftheplumbing.
But they don’t take into consider-
ation whether or not it has park-
ing or if it’s the right address for
parents who want to send their
children to a well-regarded public
school.
In the family-friendly neigh-
bourhood of Riverdale, for exam-
ple, Jackman Avenue Junior Pub-
lic School is coveted by many par-
ents. On Browning Avenue, some
propertiesarewithinthebounda-
ry and some are outside of it.
“An appraiser wouldn’t know
that,” he says. “They’re not going
to be aware of nuances. There are
advantagesthatwehavethatthey
don’t have.”
Mr. Fremlin points out that ex-
perienced agents will also guide
their clients. If a buyer pays way
above the asking price for a prop-
erty, for example, the agent
should make sure there’s evi-
dence to justify that price.
Mr. Fremlin relied on his edu-
cation as a property tax assessor
when he started out in the real es-
tatebusiness33yearsago.Evenaf-
tersomanyyearsinthefield,eval-
uating a property is a precarious
endeavour,hesays,becausethere
are so many variables.
Mr. Fremlin says the shortage
of listings in Toronto continues.
Properties in Riverdale are selling
quickly, for the most part.
As warm weather returns,
more homeowners will put out a
“for sale” sign.
“The sellers think that their
gardens will sell the house.”
He doesn’t expect homeown-
ers to rush to sell as they hear
about the high prices that some
properties are drawing.
“Ifpeopleselltocashout,that’s
the wrong reason,” he says. “It’s
notastock.”RealestateagentThienNguyenofTrilliumWestRealEstateBrokeragerecentlysoldatownhouseinMaple,Ont.,justnorthofToronto,for$945,000,ora$225,100premiumtotheasking
priceof$719,900.PHOTOSBYIGUIDE
Agentswarnhighbiddersofappraisalshock
Somebuyersmayget
carriedawayandfind
theirwinningbid
isaloserafterall
CAROLYN
IRELAND
NEXTMOVETORONTO
Mr.Nguyensaidhemade
surethewinningbidder
forthetownhousehad
thefinancialbackingto
closethedeal.Intheshortterm,a
high-octanemarket
canresultinbuyers
offeringexorbitant
amountsinorderto
beatoutthe
competitionina
biddingwar.