Luxury Home and Condo Sales Remain Strong in 2014

Following the lackluster real estate market of the first quarter, activity has started to come back reflecting a higher level of sales typically associated with the arrival of spring. Periods such as what we experienced through this past winter where demand softened this year due to the harsh winter, typically serve to create a pent-up demand and this time was no exception.

MLS® sales reported by the Southern Georgian Bay Association of REALTORS® during May reflected an 11% increase in unit sales for the month versus May 2013 while dollar volume for the month was up 14%.  While stronger sales through both April and May have helped to lessen the impact of the weak sales activity we experienced January through March, MLS® unit sales are still trailing behind 2013 particularly for single family homes.

  The upper end of the market which we define as any homes or condominiums, priced over $750,000 has remained very bullish in 2014.  As per the accompanying graph, sales though the end of May for properties over $750,000 total 27 units.  Baring any downtown in the market we are on track to handily exceed last year’s sales of 58 properties.

  Upper end homes and condominiums is one segment of the local market where there is always an abundance of available inventory.  As per the accompanying graph, there are currently 180 active MLS® listings priced above $750,000.  Based on the current pace of sales in 2014, the current level of available inventory reflects a 2.8 year supply.  If we move up to the $1 million plus range, year-to-date there have been 10 sales whereas there are currently 98 active MLS® listings over $1 million.  This translates into a 4 year inventory of homes for sale over $1 million. 

  I am always amazed when I see a contractor building a $1 million plus home on speculation ie: they are building it merely to sell.  This is in my opinion is a very risky move.  First is the obvious issue of over-supply.  With 4 years of available inventory for homes over $1 million, you are really rolling the dice so-to-speak when you are custom building a million dollar plus property strictly for resale.  It could takes months even years to find a buyer. Secondary to that but of perhaps even greater importance is the matter of clientele.  In my experience the numerous buyers that I have been fortunate enough to work with for upper end properties are very specific in what they want.  Many have been thorough the custom home building process.  They have very specific tastes and desires and more importantly they can afford it.  More often than not, they would just as soon build their own home to the standard they want and we have no shortage of available vacant land for them to fulfill that desire.  Based on their prior building experience these people are also very knowledgeable on costs.  In my next post I will speak more on the matter of luxury home pricing. 

2013 Was Another Good Year For the Wealthy

Based on various article and reports I have read in recent weeks, 2013 was another good year for wealthy individuals. This no doubt stems from a variety of reasons. The global economy continues to improve following the last recession, gains are being realized in the stock market and most importantly, many wealthy clients or individuals I have met, work smart and work hard.

The following is a summary of the key indicators that reflects the ongoing growth talking place in the wealthy demographic segment. 

• The world’s club of ultrawealthy individuals, or those with $30 million or more in net assets, added about 5,000 new members last year. Over the last decade, the ranks of the über-rich have swelled by 59 percent, and the register of billionaires climbed 80 percent, to 1,682.

• The world’s 0.1 percenters had a pretty good year; three-quarters said their assets had increased. Only 4 percent said they wound up worth less.

• By 2023, China is expected to have 322 billionaires, more than Britain, Russia, France and Switzerland combined.

Lastly and of good news for the real estate market,

• Looking for someplace to park their wealth, the world’s rich still prefer property.

  Here in the southern Georgian Bay region we continue to modest growth in the luxury property market.  This area has yet to reach the point where we are regarded as a globally recognized destination to invest in luxury real estate and I suspect it will be years before we are.  Nonetheless, every year there is an increasingly greater number of wealthy individual looking to invest in our market.

  As of this writing, there are 108 properties listed for sale on the local multiple listing service.  As mentioned in prior posts, that represents roughly 4 years of inventory in this price segment of the market.  Selling a property in the $1 million plus segment takes time and most importantly it's all about price.  Wealthy Buyers are smart.  They know what they want and they know value.  Many have had the experience of building or extensively renovating homes and they know the costs associated with construction. When viewing your property if they do not see an asking price that is a least equal to the bare minimum replacement cost, they will simply move on.    

  If your property has been listed for an extensively long period of time with no offers and or very few showings perhaps you need to ask yourself and your REALTOR® what's wrong?

The Sale is Dead - What Happens to the Deposit?

 Buyers and Sellers entering into a real estate Agreement of Purchase and Sale are usually at opposite ends of the spectrum on a number of issues the most important of which is money.  Obviously the purchase price is the biggest hurtle to agree on, secondary to that, deposits can sometimes be a thorny issue as well.

  Contrary to what you may believe, an Agreement of Purchase and Sale is a binding contract even if there is “zero” monies paid as a deposit.  A contract is made based on considerations being made.  In real estate, the considerations made in an Agreement of Purchase and Sale includes the Seller transferring the title to the property to the Buyer.  It may also require the Seller to include specific items ie: the appliances and other things that are specified in the Agreement.  Similarly the Buyer agrees to pay the Seller the agreed to purchase price on a specific date etc.  All of these items are essentially promises that are being made by both parties in the terms of the contract.  What makes the contract binding is not the deposit but the fact that the Agreement is signed “under seal.”  As you will note on most real estate forms, signatures are make next to a small black seal and the Agreement is noted as being SIGNED, SEALED and DELIVERED…..

  Virtually all Agreements of Purchase and Sale do however include a deposit the mount of which can vary.  There is no specified or accepted deposit amount ie: 10% of the purchase price etc.  The deposit is a further show of good faith by the Buyer.  The amount of the deposit is not only based on price but also the length of the closing date is an important factor as well.  If a Buyer purchases a property with a long closing date ie: 6 months with say a $2,000 deposit, there is not much of a deterrent for them to not complete the Agreement if all they have at risk monetarily is $2,000.

  Most real estate transactions today have “conditions” that for the most part need to be satisfied by the Buyer.  These can include the sale of the Buyer’s current home, securing a mortgage to complete their purchase, obtaining a satisfactory home inspection report and so on.  Conditions are typically worded such that if they have not been either satisfied or waived by the Buyer by a set date and time, “…the offer shall become null and void and the deposit shall be returned to the Buyer in full without deduction.”  Seldom are deposits “non-refundable” unless specified as such which is rare.  Sellers are as a rule not eligible to keep the Buyer’s deposit even when the Seller feels the Buyer has reneged on the terms of the Agreement. 

  Deposits are for the most part held in the trust account of the real estate Brokerage representing the Seller(s).  So what happens with the deposit when an Agreement of Purchase and Sale becomes null and void or should a conflict arise between a Seller(s) and Buyer(s) and the Agreement is not completed?

  Real estate Brokerages can release a Buyer’s deposit one of two ways.  When an Agreement is aborted, the Seller and Buyer sign a “Mutual Release.”  This releases both parties from the contract, the Brokerage holding the deposit refunds it to the Buyer(s) and life come goes.  If either the Seller or Buyer refuses to sign a Mutual Release it may be an indication that one of the two parties is going to litigate in an attempt to make the Agreement enforceable.  Should that be the case, the only way in which a Brokerage can release a deposit to the Buyer is via a Court Order.  

  If you are a Seller, you want a sufficient enough of a deposit so as to feel comfortable that the Buyer is committed.  A relatively large deposit potentially signifies that the Buyer(s) have the financial ability to complete the transaction.  As a Buyer, you naturally may want to cough up as small a deposit as possible as most deposits are held on non-interest bearing trust accounts.  This means that if your money is sitting in a real estate Brokerage’s trust account for several months, it is not earning you any interest.  As a Buyer, providing a larger deposit shows you are serious and depending on the Seller it may give you more leverage with respect to negotiating the price, closing date and other terms that you want.

  I hope you find this information helpful and I encourage your comments.