BC NDP Finance Minister Selina Robinson, served up what can only be described as, “the 3 Day Nothing Burger” as her governments solution to calm overheated markets that saw the average sale price of a home in BC reach $1.096 million dollars in March 2022. The same month Minister Robinson commissioned the BC Financial Services Association to consult industry stakeholders in examining ways to cool down the frenzied market activity.
One has to wonder, why only one, almost irrelevant recommendation meant to alleviate “unreasonable risk” to ill-prepared buyers was announced this past week, when they had an opportunity to take a deep dive into solutions to the real issues of supply and affordability in the province. The Minister vocalized of hearing too many “horror stories” of buyers taking unreasonable risks in waiving home inspections to achieve an accepted offer, as if that is the worst of what is happening to the provinces home buyers & renters amid the crux of housing affordability.
Any licensed realtor, submitting a condition free offer for a million dollar property on behalf of a client who has NO lender pre-approval NOR completed any kind of due diligence/inspection on the property should not be allowed to advise anyone else. All sellers from across the province should not be penalized for the ignorance, ill-preparedness, or unprofessionalism of a small segment skirting their due diligence and professional integrity.
Sellers already take a calculated chance that the offer they accept will not complete if contingencies are not removed by the date outlined out in the signed legally binding purchase contract. In past years, accepting an offer with no subjects in the contract meant the buyer did not need to secure financing and was willing to accept and pay out of pocket for anything that was wrong with the property. Now, when a seller received this type of offer, they will have to determine if it comes from an unprepared, higher risk buyer, who now has a way to back out and waste everyone’s time.
The property purchase process already has built in measures of protection for buyers. Purchasers should not expect tax payers to fund changing the long standing effectively working system, so they can’t be held accountable for making poor decisions.
Furthermore, the real estate market is an economy driven cycle that fluctuates through four identifiable phases of activity: recovery, expansion, recession and then hyper-supply. A full cycle historically last on average about a decade, but as we just experienced, can be unpredictable when socioeconomic pressure and events influence where people want and need to live. Statistically, looking back, there has never been a sustained expansion or recession without an eventual hyper-supply period followed by recovery and overheated markets in Vancouver have already cooled with the latest 100 basis points interest rate hike.
Several of BC’s hottest markets are already few weeks to a month into the recession phase, a correction which historically foreshadows a period of balanced market activity. Balance has been missing from the market, and its return would be a welcomed change for those buyers who could not complete in the most recent frenzied expansion phase.The trepidation is, that rising interest rates combined with 40 year high inflation has weakened consumer confidence and mortgage-ability. Even though demand is still unprecedented, the buyer pool is greatly reduced, and we may transition more quickly into the next hyper-supply phase if consumer confidence and inflation remain unfavourable.
As a trained evaluator of both commercial and residential property, I advise clients to carefully evaluate any property or business purchase as a strategic long term investment. While markets are mid correction, sellers are reconsidering their initial asking prices, and buyers should be submitting competitive offers subject to contingencies that are there to protect them from a bad investment. No one wants to purchase property only to have it immediately loose value, but, keep in mind, a property’s market value is ultimately what someone is willing to pay for it.
It is very unlikely that the BC regional markets will see prices fall below their pre-pandemic levels this year. You may experience a drop in market value if you closed at the height of the last expansion and paid a premium to acquire the purchase, but most new mortgage holders are in it for the long haul, and in 20 years or less we will have been through at least one, maybe two market cycle expansions phases, with opportunity to recoup any correctional losses.
The realtor you’re working with should be helping you to navigate the inventory you are interested in by providing more than just a basic neighbourhood comparison. A market assessment is a guesstimate based off a pool of similar properties that have recently sold in the area. I recommend you go further and perform your own evaluation and appraisal. An in-depth examination of not just the property and dwellings, but the region, the city or town, and the neighbourhood that surrounds it, to determine if the investment will hold its value.
A property purchase means buying into the location long term and anything that could negatively effect the area, can negatively effect your investment. The environment directly surrounding your property can change over time, and the quiet heavily treed rural neighbourhood you buy in today, can become a busy high traffic location with urban expansion.
Locate or request the future city or municipal land use plans for the area, check the zoning on adjacent titles, and thoroughly investigate all of the above ground and below ground infrastructure and services. Adjacent properties can have mixed zoning that could see a business move in that will reduce your investments value.
In addition, all physical structures tend to depreciate over time, while the land historically holds its value. Your long term goals for the investment need to be worth the time and money spent paying down the mortgage. For example: if you purchase a small lot with a 50 years old dwelling, in 30 years the dwelling, even with upkeep, will most likely be nearing the end of its livability and structural integrity, on the other hand if you purchased 10 acres of waterfront with a similar 50 year old dwelling, in 30 years it won’t matter as much that the dwelling didn’t retain its value, the lakefront land with services will have greatly appreciated in value, and be highly sought after.
It is time for common sense to make a come back. Buyers, protect yourself, and work with a long standing experienced realtor who has been through a few market cycles and can advise you with first hand experience. Do not cut corners on due diligence, go the extra mile in assessing any purchase and be upfront and realistic with any submitted offer.
Sellers, it is also critical to list with a licensed professional who is able to qualify all submitted offers and negotiate a closed sale that protects you from offers that will be a waste of your time.
Freddy & Linda Marks, 3A®Group RE/MAX Nyda Realty