The Return of the Financing Condition Signals a Buyer’s Condo Market
There was a time in the not-too-distant past when those hoping to purchase a Toronto condo found themselves at the mercy of the housing market and its sellers – often desperately.
Thanks to a relentlessly high demand and inevitable bidding wars, making decisions and dropping dollars on a whim were all part of the (frustrating) purchasing experience. The power was in the hands of the seller, who could essentially sit back and dictate the entire transaction.
But, as Toronto rental costs – which were sky-high pre-COVID – began to (finally) drop this past summer due to a sudden surge in supply, the pendulum started to shift in the condo market in favour of the buyers – and hasn’t stopped since. Of course, this is something nobody could have predicted, one of the countless ramifications of the ongoing pandemic.
Our COVID-19-forced remote work culture, the decline in international students and new immigrants, and condo owners looking to get investment properties off their hands are responsible for this heightened supply.
“The city has long been known as a seller’s market. In this type of environment, the seller and/or listing realtor are dictating the terms of the property and the real estate transaction,” says Toronto-based mortgage broker Jerome Trail, owner of The Mortgage Trail. “If the seller is entertaining multiple offers, they are able to look at the offer with the largest deposit, optimal closing date, the least amount of conditions, etc. In a multiple offer situation, there would be no reason for a seller to accept an offer with a number of items that might delay or – even worse – kill the deal.”
Within the last 90 days, however, Trail says the city’s condo market has indeed shifted to a choice-filled buyer’s market. The most telling example of this is the return of the long-lost financing condition. And, as a mortgage broker, he’s not complaining.
“With a sudden glut of inventory made available for a variety of mostly COVID-related reasons, the position of power – the party who is controlling the transaction – has seen the pendulum shift away from the seller and to the buyer,” says Trail. “With a choice of possible properties available, they are able to dictate terms… and hence, the return of the financing condition.”
For prospective condo buyers, this offers peace of mind in already uncertain times.
“For as long as I can remember, we have had realtors sending in purchase transactions with no conditions attached,” says Trail. “In those situations, the mutual clients are fully exposed if there is a problem with the purchase transaction. For instance, with no conditions attached, and if a lender finds a condo corporation in an unacceptable financial position, the buyer is typically left to find an alternative lending solution – if possible – in order to avoid losing their deposit on offer and other various legal ramifications.”
Now, a sudden increase in purchase transactions have financing conditions included in the offer that allow clients to line up financing within an agreed upon time frame.
“This new state of affairs is most welcome, as it takes away the risk factor if financing is difficult or impossible,” says Trail.
For those in the market to buy a shiny new Toronto condo, Trail predicts that the financing condition’s comeback is here to stay for the foreseeable future. While this is undoubtedly good news for prospective buyers, it may require an adjustment for listing agents. “It’s a completely different way of looking at things in that, you better curb your expectations if you’re a listing agent and understand what’s happening in the marketplace,” says Trail.
Well, a listing agent in Toronto, anyway.
In their Q3-2020 Condominium Market Survey, Urbanation found that while condo sales in the 905-region saw 106% growth year-over-year, City of Toronto condo sales actually declined by 16%.