Do You Have to Overpay in a Hot Market?

Cliff Rego
Published on September 15, 2016

Do You Have to Overpay in a Hot Market?

The August stats for Kitchener-Waterloo were released this week and, not surprisingly, they closely resemble the trend we’ve seen throughout 2016:

  • 598 homes sold (busiest August on record)
  • Average sale price up 15.2% vs. last August ($402,000)
  • Homes available for sale: only 836 (down 46.6% from this time last year)

So, more homes are selling than ever before, they’re selling fast and for top dollar, and there’s only half the inventory that you’d typically have available to you as a buyer – a level of scarcity likely to continue to drive up prices.

“Alright, I guess I have no choice but to overpay for my next home – or maybe I should just forget about buying altogether…”

Not so fast.

First, as we mentioned in a previous post, paying over the asking price does not necessarily mean that you’re overpaying for a home. “Overpaying” generally refers to paying too much relative to what similar homes have sold for. Yes, some buyers are overpaying, but in other cases homes are listed below market value to attract more offers and drive up the selling price – which may or may not end up over market value. Defer to your agent on this one as they have the comparative data to help with drafting an attractive-but-fair offer.

Second, it is entirely possible to buy homes in Kitchener-Waterloo without competing and maybe even getting a relative deal – you just need to 1) know where to look and 2) be open to options you may not have considered. Here’s a starting point:

From the 296 single family homes currently available in Kitchener-Waterloo between $300,000 and $500,000, 141 have been listed for longer than 27 days – which is the average time homes in this area and price range take to sell in 2016.

And, there are more homes that, barring a firm offer within the next week, will cross this 27-day threshold.

So, there are many homes in this hot Kitchener-Waterloo market that aren’t selling immediately, let alone with multiple offers. (There is hope!)

“Ok – but there’s gotta be something wrong with these homes. Otherwise, someone would’ve bought them – right?”

In some cases, there may be material defects with the home (leaks, moisture, outdated electrical, etc.) – but not always. Here are some reasons why homes don’t sell fast in a hot market:

Time Warp

Ugly wallpaper, shag carpets, cream-coloured appliances – some homes haven’t seen a drop of paint in decades. BUT, do not automatically correlate lack of style with lack of maintenance. Some long-term owners, while not embracing 21st century style and decor standards, may still have taken fantastic care of their home. Talk to your agent about what it would take to bring a particular home up to date; they should have contractors a phone call away who can provide a quote. Also, as we’ve mentioned in previous posts, there are financing plans available to help with renovations. Depending on the amount of equity you can add through renovations, and the purchase price you can attain, you may be able to get a great home in a great neighbourhood for less than you’d think.

Poorly Presented

While we often talk about the importance of staging, multimedia and marketing reach in terms of generating the most possible buyer interest, some homeowners can’t be bothered to do the dishes or put away their clothes. Add some poorly-taken photos into the mix and you’ve got a home that just doesn’t generate the interest it could have. If you can see past the clutter and are willing to put in some minor cosmetic work (cleaning, painting, etc.) that others buyers can’t be bothered to do, you may be able to get a relative steal.

Less-Desirable Location

“Less desirable” doesn’t necessarily mean bars on the windows and grow ops. Sometimes, a home may linger on the market because of its distance from major commuter routes, shopping, schools, etc. Assess your needs and wants: maybe you don’t need to be 5 min from the 401, or walking distance to a French Immersion school or steps from a Shoppers Drug Mart. Maybe the neighbourhood that is less desirable to some will be just fine for you, which may work to your advantage at offer time.

Just Plain Overpriced

Some homes are modern, well presented and in popular family neighbourhoods – they’re just priced way too high. What’s interesting in this market, in which buyers know homes are selling fast and expect to pay close to the asking price or more, is that they may not bother submitting a “low” offer because they 1) assume all homes go for asking price and 2) don’t want to offend the sellers. If you see a home you like that has been sitting on the market, don’t be afraid to put in an offer below asking price. Your agent, by looking at comparable homes and understanding the local market, should be able to tell you if the home in question is overpriced and guide you through negotiations.

Summary

Yes, many homes are selling fast, for higher than ever, and relatively few homes are left on the market. But remember: paying over asking price doesn’t necessarily mean you’re paying over market value. Also, there are many homes that don’t sell fast. Depending on your needs, wants and vision, you may be able to get a relative bargain.

Your agent, who understand both the local market and your needs and wants, is your best asset in finding and securing a home – without overpaying.

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