The inventory of homes for sale is building. At the end of August, we had 1,065 homes for sale in Durham Region, and as of today, we have 1,771 homes for sale. That is an increase of 66%! This is a good thing for Buyers, right? Well, in some cases, yes and in others, no.
What we are seeing are some homes that were sold over the past few years coming back on the market for sale with prices lower than they were purchased for. After spending a few minutes on MLS here is what I noticed on a few homes that are currently on the market for sale:
- 2 storey in Bowmanville. Currently listed for $699,000 and sold Mar/22 for $1,000,000.
- 2 storey in Oshawa. Currently listed for $685,000 and sold June/21 for $700,000.
- Link home in Oshawa. Currently listed for $799,000 and sold Jan/21 for $1,000,000.
- Detached home in Whitby. Currently listed for $1,100,000 and sold Jul/22 for $1,170,000.
Taking the first example into consideration for a Buyer, my first question would be, “if the home was bought at $1 million, how can they sell it for $300,000 less?” The real question for a Buyer would be whether the mortgage is more than $700,000. (The current asking price.) Without a lawyer checking the title of the property, it is difficult to know, however, in the event the mortgage exceeds the purchase price the lender most likely will not allow the mortgage to be discharged and will block a sale from a Buyer. Lenders tend to look at getting their investment back. In such cases, it is critically important to use a realtor and lawyer experienced in distress sales.
The other thing we are beginning to see come on the market are “power-of-sale” properties. These are properties where the lender has taken possession of the property from the owner, typically after they have stopped paying their mortgage. After a quick legal process, the property is placed on the market for sale. The next question is the same as the first, “should a Buyer be wary of this type of sale?”
First, let’s look at what a power-of-sale is and the pros and cons of offering on one. This is a process where a lender takes possession of a property that they hold a mortgage on, and (once they place it on the market they are obligated to sell the property for market value, with any excess funds once the fees and mortgage are paid out) returned to the owner of the property. Along with this obligation the property is sold with no warranties. This means that if the property has a construction lien, a municipal lien or there are any rental items the lender makes no claim as to what the Buyer is purchasing. Along with this, in the event that the original owner starts paying the mortgage and whatever is outstanding, the agreement with the lender and the new Buyer can be cancelled at any point up to the day of closing. I have had this happen and the Buyer was understandably miffed. We have not seen power-of-sale properties for years; however, some things have changed since we last saw them in high numbers. One difference is rental items. It is not uncommon for a homeowner to rent air conditioners, furnaces and hot water tanks. If the home is sold, the lender is not obligated to disclose any knowledge of rentals, and the Buyer has no choice but to assume them. Recently we had a Seller who had rental air conditioner and furnace and the quote to pay them out was $14,000.
When the market shifts, such as it is currently, using an experienced realtor is important to ensure that you know what you are buying. Power-of-sale properties can be a good opportunity if the Buyer is protected, and a good Real Estate agent can help to lessen the odds of surprises on closing.
There is a term that is used in Real Estate, “due-diligence.” This means that work is done to know exactly what a Buyer is offering on. The last thing a Buyer needs are surprises or costly hidden items. The last time we saw a high volume of either bank owned distressed properties, or homes selling for less than they were purchased for was in the early 1990’s meaning that most of the realtors working today have never worked with these types of sales. The best insurance for a smooth transaction is experience.
If you are interested in looking for a home in today’s market, I would be happy to help you navigate the process so you fully understand what you are buying with no surprises.
I can be reached at 905-743-5555 or lindsay@buyselllove.ca
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