Thursday, May 12, 2011

Buying: the search and the offer

We've been at it for four long years. This search was very easy. We used a poor facsimile of VREB's Matrix or PCS system and the MLS® website to find the houses we wanted to view. Our REALTOR® scheduled appointments. We gave her a list of 30 houses we wanted to see, 15 each day for two days. After the first day, we asked her to add 5 houses she thought we should see based on our reaction to what we'd already seen.

Day one was very fast. We'd planned to be at it for around 7-8 hours. We were done in four. Let's just say we get to "no" very quickly. Mrs HHV came up with some handy acronyms for our listings sheets:
  • NWIH = No way in hell
  • NATP = Not at this price
  • WAO = Worth an offer
At the end of day one we had two WAOs on our list. We repeated the process again the next day, in almost as little time. We found the home we bought around mid-day. We looked at half a dozen more afterwards. By the end of our two-days of looking we had 5 WAOs on our list and one house we thought we really wanted.

We spent the rest of that day doing what we always do when we have a big decision to make. We compared the status quo to the anticipated outcome of the action taken. Action won out. We decided to schedule a second showing and, if it showed as well the second time, make an offer. It showed better the second time.

Here's an interesting side note: both times we viewed the home, the owners were present. Normally agents advise against this. The mobility of the owners was an issue, so they chose to stay home. We were very glad they were present. They made themselves scarce and weren't an issue for us. But they were a big part of the gut feel we got while inspecting their home. They were the original owners and their pride showed.

When we went to make the offer our agent showed us what had sold in the neighbourhood over the previous six months. Like many neighbourhoods in Canada, prices were on the downswing. The asking price was below the assessed value, only marginally so. The home had only been on the market a few days. Our agent suggested a price. We suggested another.

The negotiation would have been very simple if the listing agent hadn't been trying to take the day off. We had a few conditions on the offer: appraisal, inspection, financing and a change to the possession date. Our offered price was 2.6% below the asking price. We felt it was strong. Did it need to be? Given what we knew about the owners I'd say yes, it did. Given what we knew about the market conditions, I'd forgive you for telling me we paid too much.

So why did we choose to present a strong offer? Simple: the product and the people.

The house is immaculate and gives us the perfect opportunity to make it our own at our own pace. It needs nothing to make it livable today, but its old enough to make updating it worthwhile over the next 5 to 10 years. The layout is flexible. We're a small footprint family right now, but we may not always be. The house meets both those needs.

The lot size was above average for the neighbourhood. But the home built on it was about 90% the size of many of the other houses in the neighbourhood. The price reflected the home size, but not the lot size when we reviewed comparables. We value land. We like houses, but don't value a big house the way many people who choose to buy big homes on small lots seem to.

This house had one thing I always look for in a home: copper. If you've been in a new build in the last 5-7 years you'll often see an abundance of what's known in the plumbing world as PEX. We don't like it and don't trust the long term viability of it. I'd say 60% of the homes we viewed were plumbed with PEX versus copper. That was enough for us to rule them out, "good bones" and all that. All the major upkeep work had already been done: roof, siding, furnace, hot water heater etc.

This home was well-loved. Enough so that I wanted to know how it was well-loved. That was worth something to us: not leaving a distaste in the process of selling the home for the current owners. We wanted inside knowledge and were willing to pay for it.

Our agent suggested an offer price $5,000 lower than what we suggested.

The owner of the home had already decided his final price. It was $5,000 higher than our offer. When that came back we countered a matched price, but asked for some things around the property we knew the current owner didn't want to move (another reason why we were thankful they'd been around for the viewings and we'd had a chance to ask them a few questions). We certainly didn't get $5,000 worth of items, but we did them a service (they don't have to try to sell the lawnmower, yard tools, gas BBQ, spare fridge etc) and we saved a bit of time/money not having to go out and try to buy all this stuff anyway.

When I attended the home inspection 5 days after having the accepted offer in place, the inspector confirmed our gut feel had been right. No home inspection will ever be "perfect," but the total "fixes" necessary to this house are priced out under $500. Even better, the owners of the home showed me everything I had wanted to know about the house: how the sprinkler system works, how to maintain the water system, how to shut down the gas and water supplies, how to run the A/C/heatpump unit etc. We exchanged numbers and they'll be a good knowledge source in the future should anything surprise us.

Much of the time we discuss properties here at HHV, we focus on the financial side of things. We have to in Victoria because the prices dictate us to be excessively prudent to prevent ourselves from getting overwhelmed by the emotional side of buying a home and ending up in a potentially financially ruinous situation. Buying a home is emotional though, you can see that in some of my description above. It's been a positive experience for us thus far. We're not in the house yet and we know there will likely be a few initial "moments" when we are, but we're thankful that the price we paid allowed us to embrace the emotional side of the home buying experience -- there's value in that too. 

47 comments:

jesse said...

Absolutely wonderful stuff.

Alexandrahere said...

HHV....I am really delighted for you and your family. I agree, pretty well every place I have bought, I had some interaction with the vendors. Every single time I was grateful for that. As you say, you learn all the ins and outs of running the place....often eliminating much frustration. And yes you pick up some much needed items (weedwackers, gardening ornaments, equipment and supplies,window coverings, storage units, freezers etc.) at reasonable prices (if not free) from the sellers. You get to know about your neighbours and amenities of the municipalities. On a couple of occasions, I have had the owners or their children come back a few years later to "see" the place. They usually loved what I had added to their home and were so proud, contented and happy that someone was taking loving care of it.

jesse said...

In case blogger hasn't restored comments, wonderful stuff here.

a simple man said...

Moving into a new home is a magical time. Enjoy it.

DavidL said...

Thanks so much for sharing the details of how you and Mrs. HHV selected you new home!

DavidL said...

@HHV

Regarding you comments (in the previous topic) about switching to WordPress instead of using Blogger ...

Sounds like a great idea! If I were self employed, I would pay to advertise on your site as well.

I have two feature requests for "HHV.org":
[1] Ability to post tabular data - either using conventional HTML <table/> tags or an alternate, and
[2] ability to edit comments within 5 minutes after posting - so that typographical errors, etc. can be fixed.

Dave said...

HHV...welcome to Alberta
Dave#1

a simple man said...

I am noticing that "Sold" stickers and signs are seemingly staying up forever. I wonder if this is being done to purposely make people feel like the market is actually normal?

Waiting said...

I've noticed a HUGE slowdown in sales on my PCS this week. I'm only following a small area but there have been lots of new listings and very few sales. Here's hoping it continues!!

a simple man said...

I am seeing the same, waiting - likely due to our similar catchment areas.

What I am also noticing is a number of homes that I would actually buy given the right price - that hasn't happened too frequently in the past year.

The right price is still 20% away in my mind. Will we get there? I think so.

This week my wife and I heard three separate tales of financial woe in Oak Bay. Soon real estate here will be like the Hoop and Holler bend once the interest rate excavators break the dike that has been propping up real estate prices for too long so that they have reached critical levels.

Could I be wrong? Yup. By waiting this out I may lose a year or two in my future home if the market stays flat (a rent vs buy analysis last night showed me that even if it is flat, I am better off renting for the next two years).

But what if I am right? I will save hundreds of thousands of dollars which will make me debt free much, much sooner (two yrs vs five years).

My wife and I have been using the following calculation for what we can afford here:

Maximum purchase price = downpayment + acceptable mortgage amount for us

acceptable mortgage amount = gross income from last year x 35% x 5 years

happy renter said...

Agreed -- I'm seeing to see what I consider to be better homes pop up on my PCS. Some of the prices actually seem kind of appealing, too, but only kind of. I'll be waiting this market out a while yet.

Introvert said...

A letter to the editor in today's Times Colonist:

Re: "We must stop treating housing as investments," May 12.

The proposal to reduce the high cost of housing in the area by increasing property taxes for absentee owners and speculators is defective.

No one lives and works in Victoria at the point of a gun. Yes, living here means higher housing costs, but that is offset by all those things that make this city so attractive.

The fact that so many people choose to remain living here despite the high cost of purchasing or renting homes indicates that free market forces are working the way they should, without the need of unnecessary, heavy-handed government intervention. If we reached a point where workers, especially those in the service industry, could not afford to live here, they would start abandoning this city in droves. When that happened, those expensive pieces of property would have no renters and buyers would lose interest in purchasing them because there would be no shops, restaurants, cafes, and bakeries to service their needs. Then housing costs would inevitably go down and people would come back to buy or rent property they could afford to live in.

Barry Gaetz
Victoria

a simple man said...

Introvert - I can't really argue too much with that logic and I basically agree. The market forces will do what they will with this market largely without municipal intervention.

jesse said...

"without the need of unnecessary, heavy-handed government intervention"

What do they think CMHC is? What a horribly argued article. The free market is working like it should. Priceless.

DavidL said...

@ a simple man wrote: By waiting this out I may lose a year or two in my future home if the market stays flat (a rent vs buy analysis last night showed me that even if it is flat, I am better off renting for the next two years).

I figure that by waiting a year or two, you'll find a house that costs less and that you'll like more than for something that you may have "settled" for by buying now.

My analysis also shows that more "quality" homes are coming onto the market.

Introvert said...

Some of the prices actually seem kind of appealing, too, but only kind of. I'll be waiting this market out a while yet.

Perhaps when all the extremely patient renters eventually do buy houses because prices have dropped sufficiently then, by virtue of all of them buying houses, the market will heat up a bit (a lot?) and prices will again rise?

Introvert said...

HHV...welcome to Alberta
Dave#1


Now, now, Dave. We mustn't bug HHV about his secrecy. It's perfectly understandable that an anonymous blogger would suddenly become shy about revealing his new location when, in fact, for the previous four years he was completely fine with his readers knowing where he lived.

jesse said...

Introvert you are a classless idiot. Thanks for proving it beyond any doubt.

Phil said...

Jesse, so true about that letter. No understanding of the forces at work in our real estate market.

I wonder if this is the same individual as the letter writer?

http://tinyurl.com/6h7kxum

HouseHuntVictoria said...

@Jesse, re: CMHC, too true. It's funny when so-called free marketers, well, aren't.

Just Janice said...

I'm thinking Fall 2012 is about as long as I'll be able to postpone DH's house buying desires....unless the owner of our rental gets back to us and actually wants to sell at a price within our budget - in which case I might be a reluctant homeowner before then. I'm keeping my eyes open for properties that might also accommodate a live work situation for DH (ie. Could be duplexed with the office in one half and our personal residence in the other in a location that is amenable to such use)....

Mindset said...

a simple man said: I am noticing that "Sold" stickers and signs are seemingly staying up forever. I wonder if this is being done to purposely make people feel like the market is actually normal?

Of course. A sold sign makes sellers feel like sales are happening, and is a great advertisement for the realtor that they are able to sell homes.

Developers also commonly are first to buy into their own multiple-unit developments to get 'sold' signs out front. It's like the clubs that 'hold' a lineup out front, even when it's still empty inside. Looks like the place to go because others are there.

So leaving sales signs up is psychologically smart and a great market strength and realtor capability 'signal' to us all (as long as the seller and buyer will let the sign stay there), and when you see the first few units 'sold', that doesn't necessarily mean sold to 'the public' when it comes to developers with multiple units for sale.

a simple man said...

Question about CMHC - they insure properties that have less than 20% down (I think). Don't you have to put at least 25% down for a spec property?

HouseHuntVictoria said...

AsimpleMan,

20% for investment properties now. But that just changed. For the past few years specuvestors could access the same down payments schemes as owner occupier buyers.

JustWaiting said...

Here is the Sunday stat preview from an agent source....

May 8-15
- 391 New listings
- 231 Price changes
- 124 Pending sales

May 1-7
- 396 New listings
- 128 Pending sales


So... sales are still at a very low level for May. In a "normal" year they should be around 160-175 per week. With 16 days left and the long weekend coming up I suspect sales will be around 525 for the month. This is 10% less than last months 574 and 25% down from the 695 recorded in May 2010.

And take a look at the 231 price changes!! Almost 2:1 over sales. This is what happened last month:

April 17-24
- 343 New listings
- 177 Price changes
- 130 Pending sales

April 10-17
- 331 New listings
- 215 Price changes
- 130 Pending sales

April 3-10
- 405 New listings
- 191 Price changes
- 113 Pending sales

a simple man said...

thanks HHV - I somehow had forgotten that from the changes last year. So, effectively, speculators are not now insurable by CMHC and the banks must assume the risk?

a simple man said...

JustWaiting;

So sales are steadily low, new listings are steady and overall listings are rising (32% new sales:listings ratio).

The price change data is the powerful stat here, aside from the ever-increasing inventory with ever-lower sales pushing the MOI ever higher.

jesse said...

"speculators are not now insurable by CMHC and the banks must assume the risk?"

Banks still typically require MI on investor loans even with 20% DP. Investor loans are treated as higher risk.

I'm not sure what they're doing these days but banks used to require a certain yield on rentals to loan out money. Not sure what they do now because most properties I see selling have rents that barely cover the mortgage, let alone other expenses. Maybe that's why they need the MI...

HouseHuntVictoria said...

@Jesse, who's doing the MI? CMHC? Genworth... or other bit player insurers?

DavidL said...

I've been watching 3968 Arlene Place (MLS 290509). Although the most recent assessment was $561K, the single family home was aggressively priced at $549K as an estate sale. After 49 days on the market, it just sold for $505K - 10% less than assessment and 8% less than the asking price. The house was in good shape and well maintained.

Just 14 months ago and 3 houses away, 3956 Arlene Place (which was built two years earlier in 1979 by the same developer) was listed at $540K and sold in just 18 days at the end of March 2010 for $525K. This most recent assessment for this house (based on July 1st, 2010) was $516K.

What a difference a year makes ...

Marko said...

3956 Arlene Place was 600 sq/ft bigger and had a renovated one bedroom suite.....3968 Arlene no suite...pretty big difference.

jesse said...

HHV, CMHC does investor MI. Not sure about others but the CMHC MI is gov't backed. As to why this is necessary, look at the cap rates. Banks aren't dumb.

JMJ said...
This comment has been removed by the author.
Marko said...

Monday May 16, 2011 6:45am:

MTD May
2011 2010
Net Unconditional Sales: 254 695
New Listings: 771 1,621
Active Listings: 4,543 4,521

Please Note
Left Column: stats so far this month
Right Column: stats for the entire month from last year

Alexandrahere said...

Morning. My stats for last week 9 May - 15 May

SFH: Min 2 beds & 2 baths, priced between $375-$775 in core municipalities of Victoria, Oak Bay, Esquimalt, Saanich East & Saanich West.

New: 45
Sold: 20
OM: 16
P/C: 38

8 out of the 20 solds went for under BC Assessment & four of them had suites.

Avg Selling Price: $568K
Med.Selling Price: $553K

Condo's:
Min 2 beds & 2 baths, priced between $250K & $580K in
Victoria - Most areas not downtown
Oak Bay - All areas
Esquimalt - All areas
Saanich East - Most Areas
Saanich West - Gorge,Tillicum,Interurban

New: 33
Sold: 5Apts & 5 townhouses
OM: 6
P/C: 21

Avg t/h selling price: $458K
Med t/h selling price: $457K

Avg apt selling price: $325K
Med apt selling price: $324K

omc said...

Thanks for the the information Marko.

I am seeing prices dropping now, and they have already dropped in my price range. Houses are still very expensive, but I am not sure if most realize how bad it was at the peaks. In my price range, $800k basically got you a tear down. I am no longer looking at houses that are tear downs.

I am hearing that open houses are now having many more older couples looking to downsize, than younger people looking to buy. This is a change in my market segment, and is probably not true in the lower end neighborhoods.

Just Jack said...

In 2007 the market was hot, hot, hot and a quite a few people made hasty purchases to get into the market. Easy financing, low interest rates and no appraisal requirements made it easy to over pay for properties. Speed was being pushed over due diligence.

Especially if you bought a character conversion in the sizzling area of Fairfield. Now with the ever slowing strata market, those poor choices of the past are burning holes in seller's pocket books.

Like the heritage condo on Linden that was bought for $429,900 plus GST almost four years and has now just sold for $429,000.

Yet the same is happening today, as people buy detached homes along arterial roads like Fernwood for $650,000. The race is on to get into the detached home market in the urban core, as buyers sell their condominiums and homes in the western communities and buy in Victoria under the myth that the central urban areas hold their values.

Oak Bay demonstrates the price ceiling for properties in Greater Victoria. The steadily rising inventory shows us where our price cap is. When Fernwood and Fairfield prices reach that price cap - the agents phones will stop ringing.

Urban centres may be the last to drop - but they still fall in price. And because of the recent upwards pressure on price in the city core, you may see Victoria prices take a bigger fall from the peak than the western communities.

The Chinese calender should add one more animal to the chart and make this the year of the Lemming.

Sweetrealtor said...

JJ, I think the marmot would be more appropriate for Vancouver Island.

Leo S said...

An update on sale price/assessed value of SFHs.

Under $550k
$550k to $900k

Leo S said...

I switched to tracking the rolling median and extended the period to 20 sales to reduce the volatility of the data and the effect of outliers.

DavidL said...

@Marko

Regarding the houses on Arlene Place ... while a seller hopes to get the best price they can - the market determines what a house is worth. ;-)

Am I correct that assessed value of a house is the expected value (based on historical sales) as compared with other houses in the same neighbourhood? The 3956 house was assessed at 9K less than the sale price, 3 months after it was sold. The 3968 house was assessed at 55K more than the selling price, 10 months before it was sold. I think that it would be fair to assume that the assessed value for 3968 will be going down substantially.

As for the differences between the properties - yes, 3956 has a decent basement suite while 3956 has no suite and about 500 sq. ft. smaller. Rental potential a property maketh? Quite a bit of the size difference between the two houses is because walls were added what was an open car port at 3956 during the early 1980's. The house at 3968 still has a covered car port, has nicer architecture and a much larger yard.

DavidL said...

Thanks Leo ... it looks like the bottom end (under $550K) is dropping faster than the upper end of the market. Where have the first time buyers gone?

EagerBuyer said...
This comment has been removed by the author.
a simple man said...

The first time buyers have packed up their hammers and skateboards and have headed for Fort Mac.

Libresprit said...

Congratulations!

Libresprit said...
This comment has been removed by the author.
Chickinvic said...

HHV, my boss buys apartment buildings, and he always gets CMHC insurance on them, so it is still CMHC.