One of the hallmarks of a buyer’s market is the return of a conditional clause called the Sale of Buyer’s Property (or SBP for short).

As the name states, this clause makes the firm purchase of another property conditional upon the sale of their own home.

Here’s the typical wording of the clause.

This Offer is conditional upon the sale of the Buyer’s property known as ___________________. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than  on that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.

It isn’t unusual for the conditional period end date to be two to three months away, as the buyer wants enough time in a slow market to make sure they can sell their own home at a price that allows them to move forward with the purchase of the other property.

While an SBP can be a useful approach to get a deal done, there are three rules that need to be followed in order for it to make sense for the seller.  Let’s get into it.

Rule #1 – Its gotta be a good offer.

This may seem basic, but it is surprising how often buyer agents don’t understand that in order for a seller to accept a SBP, it needs to be a good offer.  The reason for this is simple – a deal that is conditional for a number of months is inherently less appealing than a firm deal or a deal that has a short conditional period of a few days.  Here’s why:

• A seller who accepts a SBP is entering into an extended period of uncertainty. They cannot make firm plans for their next steps, as the deal is conditional and may not take place.
• In many cases, due to the nature of a SBP, the closing is longer than the typical 45 to 60 days you would see from a buyer who is ready to move forward with the purchase. If a longer close works for the seller, than this may not be an issue, but if the seller would prefer to move on quickly, a SBP is unappealing.
• You’re putting your fate in the hands of other people, specifically the realtor that lists the buyer’s home for sale – and you better hope they know what they’re doing.
• You’re missing out on the possibility of another buyer who doesn’t require this condition showing up and potentially a better deal.

Given the inherent drawbacks to accepted a SBP, an offer that comes in with this condition needs to make up for it in other ways.  The price, deposit and any other conditions need to be very appealing to make up for the uncertainty of delaying the sure sale of the home for months.

Rule #2 – The buyer’s place being sold better be…well, sellable.

We mentioned above how when a seller accepts an offer with a SBP condition, they’re relying on the agent that the buyer hires to sell the property in question.  Whenever we’re entertaining the possibility of a SBP condition for one of our seller’s we have a very frank conversation about who is listing the buyer’s property for sale.  If it is an inexperienced or discount agent with no track record – or even worse, a poor track record – it makes it even riskier to sign off on the deal with this condition.

In addition to the agent who we’re trusting has the ability to sell the buyer’s home in a timely fashion, we also need to look at the property itself.  The type of property (condo or freehold), the style (detached, semi-detached, townhouse, etc.), the attributes (does it have enough bedrooms, washrooms, parking and so forth) and the condition (updated or just dated) all play into how long it can take for a property to sell.

In essence, if a seller is going to agree to a deal with a SBP condition, they basically need the listing agent for the buyer’s property to present to the seller.  If you wouldn’t ever hire that agent to sell a home, or it’s a property that is largely unappealing to the majority of the market, then saying no to the deal is the best approach.

Rule #3 – The conditional deal has to include an escape clause.

Our final rule has to do with a way to somewhat mitigate the downsides of accepting a deal with a SBP condition.  There is a clause that can and should be inserted in all deals that are conditional upon a SBP, and that is what’s called an escape clause.

Here’s the wording for it.

Provided further that the Seller may continue to offer the property for sale and, in the event the Seller receives another Offer satisfactory to the Seller, the Seller may so notify the Buyer in writing by delivery to the Buyer personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto. The Buyer shall have __________ hours from the giving of such notice to waive or remove this condition by notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto, failing which this Offer shall be null and void, and the Buyer’s deposit shall be returned in full without deduction.

The number of hours for an escape clause is typically either 48 or 72 hours, so it gives the original buyer two to three days to either waive the condition and firm up the deal, or they have to let the deal die.

We’ve previously written about escape clauses in detail and you’re welcome to read that article here so you understand how they work.

By including an escape clause in the Agreement of Purchase and Sale along with the SBP condition, it does a few things of benefit to the seller.

• It allows the property to be marked SCE (sold conditionally with an escape clause) rather than SC (sold conditionally). While many buyers don’t want to see a home that is sold conditionally, for fear of falling in love with a property they can’t buy, a home that is marked SCE is much more likely to be able to be bought.  Escape clauses are only really added for conditional sales with long conditional periods, so it communicates to other agents that this home is still very much available.
• It puts pressure on the buyer to actually get their home sold. When a buyer knows that at any moment, the seller of the home could receive an offer and negotiate it, it means that the urgency is there for the buyer to price their home aggressively and to seriously make the efforts necessary to get it sold.
• Finally, and most fundamentally, it allows the home to be continued to marketed in an appealing fashion to other buyers. Good buyer’s agents know that a home that is sold conditionally with an escape clause is likely a deal that was only accepted because the seller had no other options.  If a new buyer arrives with the ability to offer a firm deal in a timeframe that suits the seller, it is often very much of interest to the seller.

While including an escape clause doesn’t mitigate all of the negatives of accepting a deal with a SBP condition, it does make it more appealing for the seller.

If you’re thinking about buying or selling in the current market and want to work with agents who understand how creative solutions can sometimes be the way forward, then get in touch with us!

There is a tendency in real estate to talk about “the” market as if there is one, uniform market out there.   

As anyone who has ever considered buying in two different areas will know, geography plays a huge role in how much homes cost – and it is equally impactful when it comes to whether a market is hot or not.  

Whether it is one neighbourhood versus another a few minutes away, or two condo buildings on the same street, the market for each can be radically different in terms of composition and activity. 

Similarly, if one looks at the level of competition in a given market, it can vary signficantly at different price points.  In some cases, the entry level price point is quite competitive, whereas the mid-end properties in the same market have few interested buyers. 

Finally, the housing type also plays a big role in the state of the market.  A seller in a neighbourhood full of detached homes at the $1M mark may think “the” market is quite good for sellers, whereas someone trying to get rid of a condo in the $600K range may be seeing tons of competition and great difficulty in selling at the desired price. 

Apart from these specific aspects that determine how a given market is defined, we wanted to go over the the types of markets that exist – and why, right now, it’s a very good time to be a certain type of buyer.   

Let’s get into it! 

This ain’t no Farmer’s Market. 

In real estate terms, we have three types of markets that exist when we’re talking about the conditions in the market.  This is a very broad approach, but it is useful to quickly review what they are and who they benefit. 

In a buyer’s market, with lots of inventory and few buyers looking for properties, it’s a great time to be one of the few people interested in buying real estate. 

• In a seller’s market, with little inventory and many buyers on the hunt, it’s a great time to be a seller who has a property available for buyers to fight over. 

• In a balanced market, with a decent number of homes for sale and a reasonable level of active buyers looking to purchase a home, it’s OK to be on either side.  As a seller, you’re not making out like a bandit, but neither are you forced to accept a lower sale price as the only option.  As a buyer, you have a good number of options for homes, but other people are also looking, and you can’t low-ball your way to a bargain purchase. 

There you have it.  In simple terms, if you’re a seller, you want a seller’s market, if you’re a buyer, you want a buyer’s market.  If you can’t have what you want, a balanced market is next best.  So, what sort of market do we have these days?  Despite the time of year, it is not, in fact, a Farmer’s Market.

The Summer of 2024 Welcomes you to a Buyer’s Market! 

Every month we do a review of the markets with the GTA, including Toronto, Peel, Halton, York, Durham, Dufferin and Simcoe.   

When we reviewed the June, 2024 market stats, we looked at three key stats that identify what type of market we’re in these days. 

The first is Sales to New Listing Ratio, or SNLR.  The SNLR tells us how many of the sales we saw this month came from new listings, versus existing listings that had been on the market from previous months.    

• If the SNLR is around 50%, we have a balanced market, with sales equal to half the number of new listings coming on the market. A good amount of sales and a good amount of new options means reasonable price increases. 
• Over 50% is heading towards a seller’s market, as we have sales outpacing the new inventory coming on the market. In extreme cases, we can have an SNLR of over 100%, which means we saw more sales in a month than inventory came on the market, meaning next month is very likely to see a price increase. 
• Under 50% tells us that the we are headed towards a buyer’s market. The lower the SNLR, the more of a net increase in properties available the following month.  This means prices typically drop as buyers react to having lots of choices by pushing down the price they are willing to pay. 

As of June, 2024, the average Sales to New Listing Ratio across the GTA was about 36%, putting us firmly into a Buyer’s market.  In most of the markets within the GTA, June was the lowest SNLR this year, so the best Buyer’s market so far this year. 

The next stat we look at to determine what type of market we’re in right now is the number of active listings.  This is the number of actual, currently for sale properties at the end of the month.  This number is therefore comprised of the older listings already on the market at the start of the month, plus any new listings that didn’t sell in the month, less any older or new listings that did sell before the end of the month. 

In June, 2024, we had almost 22,000 active listings on the market across the GTA.  A year ago, we had just over 14,000 active listings, so buyers have about 9,000 more options this June than a year ago.  Across all of the GTA markets, June, 2024 saw the largest number of active listings in more than two years.  Using this stat, we are most definitely in a Buyer’s market! 

Finally, we look at the Months of Inventory, or MOI.  This statistic tracks how long it would take for all properties for sale in any given market to sell if we stopped having any new listings.  The higher the MOI, the more of a buyer’s market, the lower the MOI, the more of a seller’s market.  Somewhere between three to four months is considered a balanced market, but we’ve often seen below two months in Toronto and most of the GTA. 

As of June, 2024, the average Months of Inventory across the GTA was 3.7 months.  While this is towards the high end of what is considered a balanced market, we’re inching into a Buyer’s market according to this statistic. 

While a Buyer’s market benefits buyers far more than sellers, there are certain types of buyers that benefit tremendously from the current market conditions we’re seeing.  If you fit into one of these types of buyers, then it’s time to make a move. 

Buh-bye rentals! 

The first type of buyer that should be very happy with our current markets in the GTA is the first-time buyer who is currently renting a place.  The level of inventory for properties is at a two-year high, and this is particularly true for condo apartments.  In the city of Toronto there are over 6,200 condo apartments for sale as of the end of June!  The Sale to New Listing Ratio for condo units is 26.5%, which means that very few of the listings on the market are being absorbed each month, which is a great opportunity to push on the purchase price. 

If you have been living in a condo unit and paying down a landlord’s mortgage, speak to a mortgage broker ASAP and see if you qualify for buying a place of your own. 

The level of options is huge right now and that is true across a number of price points in the condo market.  While markets outside of Toronto have fewer condo units in general, they are also seeing a rise in the number of available condo units for sale. 

Moving on up! 

The second type of buyer who is well suited for our current market is the home owner who is looking to move up the property ladder.  Yes, that means we’re saying a certain type of seller can also benefit from this current Buyer’s market! 

We often refer to the spectrum of housing as the property ladder.  Most buyers get on the first rung of the ladder at the lowest price point in the market, and that’s often condo apartments.  Overtime, they move up the ladder, going to a higher price point and often a different housing type.  The next step is typically a townhouse (whether freehold or condo), followed by a semi-detached home and finally the top of the ladder is a detached house. 

There is some counter-intuitive logic at play in our suggestion that now is a good time to sell and buy, so let’s go into the specific of what we mean. 

A homeowner who owns a condo apartment unit, whether in Toronto or in other parts of the GTA, has seen the value of their condo drop in the past year.   In Toronto, the average price for a condo apartment when down 0.9% in the past year.  In the GTA, it was a bigger drop, going down 2.6% in the past year.  If the property is worth less now than it was a year ago, how on earth is it a good idea to sell now? 

The reason it makes sense is when you take a look at what’s happened in the other housing types on the property ladder.  Let’s use Toronto as our example and talk specific dollars. 

The average price for a condo in Toronto as of June, 2024 is $763,000.  A year ago, in June, 2023, it was $770,000, which means that, on average, if you owned a condo in Toronto in the past year, it went down about $7,000, almost 1%. 

Let’s look at where the opportunity lies for the average condo apartment owner in Toronto. 

In the past year, the average price for a townhouse in Toronto went down 2.7% and the average price for a semi-detached went down 8.9%!  Even detached homes dropped in value more than condo units did, going down 1.6% on average since June, 2023. 

Keeping in mind that the average condo in Toronto dropped $7,000, let’s look at what the dollar value difference is for the other housing types.  

• Townhouses (condo and freehold types) had an average price of $1,006,000 as of June, 2024, whereas a year ago, in June, 2023, the average price was $1,035,000.  That’s a drop of $29,000 in one year.
• Semi-detached houses in Toronto had an average price of $1,282,000 most recently, but back in June, 2023, they had an average price of $1,408,000.  That’s a drop of $126,000 in one year. 
• Detached homes in Toronto had an average price in June, 2024 of $1.758M and a year ago, the average price for such homes was $1.787M.  That’s a drop of $29,000 in one year. 

The clear winner when you look at the above analysis are semi-detached houses.  If you have the ability to move from a condo apartment to a semi-detached house, you’ll have saved yourself, on average, $119,000.  Sure, you would have lost $7K on the sale of your condo unit, but you would have been able to buy a semi-detached for $126K less than it would have cost you a year ago. 

Obviously, these are just averages, so any given specific situation might be different, but it is nonetheless fascinating to see where the opportunities exist these days! 

In our work with our clients, we love to look into the nitty gritty of what current market conditions mean for their individual circumstances.  While understanding what’s happening in various markets in general is useful, it’s when you dive into the specifics for where you live – and where you want to live – that we identify opportunities.  If that sounds appealing, get in touch with us to go over what’s next for you!