What to consider when you have bought but have not sold

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This discussion originates from a panicked conversation with a potential client that was referred to me as someone that could help her with her condo problem. The realtor she had hired to help her move had gone firm on her purchase to close in 30 days and the condo they had to sell had been on the market for a month with no successful sale.  This essay will display the logical factors a seller and I, her realtor, used to sell full price in a declining market. There will be a display of listing price logic, escape options to consider, mortgage financing options and finally negotiating techniques used.

I had explained to her that I could not discuss the specific case because she was currently under a listing contract with her friend, who was her realtor.  Her realtor friend confessed that she over her head.  A number of market factors the Summer of 2017 caused sellers to panic with a virtually non-existent buyer market coupled with increase listing supply of new weekly listings in the building and surrounding area of investors cashing out of their condos in the immediate market forced the realtor to call “foul”.  The realtor wanted to quit because she was feeling the pressure.  The purchase had gone firm with a $30,000 deposit and the clients were in a panic with no offer in sight to sell.  The current realtor cancelled the listing and the client called to meet the next day.

The clients were selling their first condo and panicking.  I had to be very clear explaining their choices which were:

  1. Listing price choices and ramifications.
  2. Negotiating extensions or terminations.
  3. Exploring financing options on their purchase.

Although staging, pictures and refreshing the MLS listing were obvious improvements in marketing the condo for sale, the immediate sale of the condo forced them to look at relisting lower, but how much lower?  I gave them three options and explained the higher the price, the more likely they will be waiting for an offer and more likely a closing to coincide with the required 30 days diminishes with time.  The market statistics of Average sale price for a condo of similar size in the same area in the last 60 days were irrelevant in a declining market and the Days on Market was increasing.  The clients decided the lowest of the price options which was the same list price of a similar condo sold conditional in the same building was the likely going to be the sale price.  They were not willing to list high and wait.  They wanted an offer, a reasonable one, immediately.

Now if the seller needed more time to sell the condo, I explained that they could initiate a renegotiation of completion date on their purchase, which they told was not an option due to the sellers having a previous failed sale.   I also explained that they would need legal advice if they decided if they wanted to cancel their purchase and notify the realtor and sellers.  I don’t want to get in detail on the ramifications, but the least cost would be their deposit, but they could also be liable for the seller suing for costs and loss of value, plus the buyer realtor suing for lost commissions.

The financing options is the most interesting and complex discussion as it requires close communication with a financing expert.  My first questions were on their purchase of their next property: how much down payment they were putting down, were all the funds required coming from the sale and had the appraisal been completed.  My suggestion is if they needed to “bridge” or work with a purchase BEFORE the completion of their sale, how could they make that work.  This could be accomplished by

  • a smaller down payment and qualifying for a high-ratio insured mortgage.
  • get a co-signor on the purchase to accommodate for the additional Total Debt Service of a second mortgage, albeit temporarily.

If the appraisal had not been done yet then it needed to be done immediately to assess whether their purchase price is in inline with their down payment requirements.  For illustration purposes, if they purchased a home at $500,000 in a declining market with five percent down payment or $25,000 then the lender would lend them $475,000 for simplicity.  However, if the house appraises for $480,000, then the lender would only give the buyer 95% or $456,000 which would require the buyers to come up with an additional $19,000 beyond the initially contributed $25,000 to close the purchase.

The seller was very stressed out and needed to sell- have an accepted offer- in less than a week.  The seller asked if I will “hold off” offers, in a market that was more of a buyer market this was not a smart strategy because buyers and buyer agents resist this scenario.  Also, if we were priced low, then I would rather encourage a natural competition environment.  We listed Friday evening to be alert buyers by Saturday morning, which lead to 3 showings the whole weekend.  This low showing activity told me not very likely a scenario conducive to multiple offers by eager buyers, but all I needed was one buyer to sell!!  An agent called me Monday asking if there were any offers, which I explained there were none and she told me she was preparing an offer.

The offer came in $20,000 below asking.  The seller was not happy as they felt they listed at their lowest acceptable price.  They knew the other options I had explained to them.  I assessed the buyer agent as a long-time professional and I explained the background and the new listing at a much reduced price and we felt we listed at the true market price and that we were not moving from that price.  I explained that she could negotiate further with us over the next couple of days, but likely she would wait for another offer to intercept and create a multiple offer situation, so it would be in her best interest to accept our full-price signback.  The buyer accepted.

In conclusion, the clients closed on their sale and purchase successfully as desired and are very happy with the result.  As a professional, I was very aware of the pitfalls that could have happened and they were all averted with clear and concise communication of the game plan.

 

This blog was written by Wiley Published author of “Investing in Condominiums: Strategies, Tips and Expert Advice for the Canadian Real Estate Investor”, Real estate broker, Mortgage broker, Candidate commercial appraiser, and Professional real estate investor Randy Ramadhin.

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