I read yet another article in the newspaper today about a bidding war in Toronto and how this is supposedly a big problem for people who are trying to buy a new house, especially if it’s their first one.
The article covered a house sale sale where they were asking $1.3 million and got $1.9 million which is pretty amazing when you consider they got almost 50% more than they were asking for. Now I don’t know if this house is worth $1.9 million or not but from the description it sure sounds like a pretty good house in a pretty good area.
Later in the article there were some comments from real estate agents who were saying that a lot of their clients are tired of getting into bidding wars and having houses sell for more than asking. They also mentioned how some clients just refuse to rent because they have been taught (brainwashed?) about the value of house ownership by their boomer parents. I think those house buyers should consider the value of renting according to Financial Jungle. Ok, it’s a different city but the logic still applies.
Know your real estate market
When I was looking for my current house, I made an effort to look at as many houses as possible in order to get a sense of the market value for the type of house we wanted. Normally what I would do is look at a house, and then see what it would sell for. After a while I noticed that there were some houses that sold for over asking (bidding war), some houses that sold for around the asking price (quick sales) and some houses that sold for less than the original asking price, in some cases much less (greedy, delusional sellers).
Asking price is meaningless
What did I learn from this? Mainly that the asking price doesn’t mean anything. It’s up the buyer to know roughly what the house is worth by getting familiar with the market. If you look at a house and think it will be a steal for $450k, then guess what…you won’t be alone, since there will probably be other people who will be thinking the same thing. Don’t complain if the house ends up going for $500k or $550k. If that’s what it’s worth then that’s what it will sell for. The other thing for buyers to consider, especially for their first house is that maybe their dream of owning a detached house on a nice street on their limited budget is a fantasy and they should start looking at different areas, semi-detached houses, townhouses and condos and just work with that they have.