A wave of buyers’ regrets is starting to form in many of the raging real estate markets, after home prices have started to fall and the number of sales has slowed over the past two months.
The Canadian Real Estate Association said Monday that the country saw a 25.7 percent drop in the number of homes sold over the past year and a 3.8 percent drop in home prices between March and April. The median home price last month was $741,517.
Those numbers have prompted some sellers to explore lawsuits to ensure transactions go ahead, and other buyers to worry about the value of pre-sale properties they bought years ago but haven’t yet acquired.
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“With real estate prices today, there’s really no choice but to go ahead and if you’re going to get it all in, then all of a sudden you realize you might have made a bad bet and there’s a way to get out of that bet,” said Mark Morris, a real estate attorney in Toronto. “.
In recent weeks, he’s seen nine instances of buyers wanting to back out of deals, but on Monday alone he was contacted by three sellers eager to use legal channels to stop buyers turning away.
Morris does not call confrontations a trend because it is not clear how one such event every few months.
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“Buyers look at the current crisis, and in the best of times, they feel they overpaid, but now they have objective evidence that they did because markets are starting to crash and crash and aren’t really showing any signs of slowing down,” Morris said.
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“Many of these buyers are faced with the choice of going forward or stepping up and walking.”
Phil Soper, chief executive of Royal LePage, said people “freak out” every time the market turns and explore what they can do about deals they’ve signed, but few end up getting away because it’s hard to get out of such transactions.
It is believed that the exception to this pattern came in 2020, when the COVID-19 pandemic spread and people wanting to exit transactions had a lot of unknowns on their side.
Morris said most buyers trying to close a deal this year will not succeed because there is no legal way out, but such cases are impractical for sellers.
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“Is the seller really willing to go after a buyer who has no assets? Will the seller really go through three years of trial to find that he has a judgment that cannot be pursued?” he thought.
“Are they really willing to pay the amount it would take to pursue this to the fullest if they could resell it? Probably not.”
Morris said that in cases where a buyer puts money into a seller’s trust account, that money can only be released through judicial proceedings, closing the deal or a mutual agreement not to proceed with the sale. He has seen buyers agree to give the seller money, if the seller mutually agrees to end the deal.
Should the deal go through, brokers can sue for their lost commission but not many explore that avenue because it’s “not good” to take legal action against a client, who may still turn to you when they try to sell the home from the failed deal again, Morris said.
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While Tirajeh Mazaheri has not seen a Vancouver lawsuit, Coldwell Banker Prestige Realty agent has seen buyer’s remorse and anxiety among investors who bought pre-construction homes a few years ago but haven’t yet acquired them.
“A lot of these people are thinking, ‘Will the market be able to justify that price or keep up with the price I paid, and can I get that money back if I want to sell in a year?’ ” She said.
She said that people who bought in the first rounds of pre-construction sales of a building are already ahead of the curve, but those who bought later will have to wait longer to break even or turn a profit.
Despite the rising concern, Mazaheri and Sober agree that markets are rebounding and homes are still a valuable investment.
“Anyone who buys a house in 2021 in this country, if they buy anywhere near the market price, their house will be more valuable in 2021,” Sober said.
“Will it be worth more than one year from now? It’s hard to predict? But even a year from now, the likelihood that this home will be worth less than it is today is even lower.”
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