The subject of how people choose their realtors has always fascinated me. Over the years, several editions of this newsletter have discussed how a good realtor makes a world of difference. When I first started in real estate, I thought that everyone would want the best realtor possible since so much money was at stake. I’ve since learned that my understanding of human nature at that young age was not yet fully developed. People have as many reasons for choosing their realtors as there are people choosing realtors.

I still don’t think it’s wise to hire your friend or relative, the agent with the most signs, the agent who charges the lowest commission or the agent who knocks on your door (I could go on and on…), but I now have a greater appreciation for how different we all are. For the most part, my clients tend to be educated consumers who want to be represented by the best realtor possible (and, if I may say so myself, they have chosen well).

The idea for this newsletter came to me last night after I met with a couple who set out to hire the best realtor possible a couple of years ago, did research to determine which realtors specialized in their area and interviewed five “top realtors”, but still ended up being disappointed with their ultimate choice when their home didn’t sell. While it sounds like they did everything right, finding the best realtor isn’t easy unless you know what to look for. Here are some tips about what to look for if you’re trying to determine who the best possible realtor is:

It goes without saying that your realtor should be someone you trust and someone who is sufficiently personable to deal with other realtors and their buying and selling clients (remember, your realtor is a reflection of you). Also keep in mind that chemistry will play a big part in your selection. Your gut feel will usually steer you in the right direction.

If you decide to interview several realtors, keep in mind that when most people interview realtors, they usually focus their questions on things like open houses, feature sheets, professional photographers and the like. These are all aspects of marketing. Based on my twenty years of experience in the business, I’d say that marketing is important, but it’s really just a small component of what your realtor should do for you and shouldn’t be the main focus of your questions.

If you want to hire the best realtor possible, you should focus your questions on what my experience has shown me to be the most important aspects of your realtor’s job. (Don’t feel badly if you never thought of these. As with most professions, it’s easier to see what’s important when you’re on the inside.) The three most important aspects of your realtor’s job are: 1) providing you with knowledgeable, well-reasoned advice that takes into account your personal situation and goals; 2) negotiating strongly on your behalf; and 3) taking care of all the details in a conscientious and thorough manner so nothing slips through the cracks that will cause you to incur unwanted expenses or cause your deal to fall apart.

But how do you determine how good a realtor is at the three most important aspects of his or her job? After all, some realtors are very good at marketing themselves and selling themselves to you, but that doesn’t mean they’re going to do a good job for you. You’ll find similar people in other professions. They’re often referred to as rainmakers or relationship specialists. They’re excellent at bringing in business, but may not be the best person for doing the actual work.

To determine how good a realtor really is, ask yourself questions such as “Does this realtor have enough experience and expertise to give me good, impartial advice?”, “Do I want this realtor sitting next to me at the negotiating table?” and “Is this realtor detail-oriented and organized?”. 

To help you answer these questions, here are some specific questions I’d ask a realtor if I were interviewing them. In some instances, the question is followed by my comments regarding what I think you should listen for in the answer. The realtor’s answers, whatever they may be, should provide you with clues to help you decide if that realtor is the best realtor for you. (Keep in mind that this isn’t an exhaustive list and we all have our unique likes and dislikes.)

If you’re selling:

1. What are the best 3 features about my home?
2. Who is the most likely buyer for my home and what are they looking for?
3. What are the 3 most negative things prospective buyers will say about my home? How will you overcome these negative comments?
4. How did you arrive at your suggested list price? Did you rely on comparable properties that have recently sold? Which of these comparables did you see in person? [Setting the correct list price for your home is crucial. Your realtor needs to be able to advise you how to select the right price. He or she also needs to be able to support your price to other realtors and buyers. It’s not sufficient to select a really low list price and hope for multiple offers.]
5. For how much can we expect our home to sell and why? [If you’re buying first, you need to know how much you’ll receive for your current home so you know how much you can spend. When you’re selling, you need to know what to expect so you can deal with offers realistically.]
6. What’s our strategy if the first offer we receive isn’t good enough for us? [First, you have to really understand what “good enough” means for you and that’s a key part of the process you should go through with your realtor. If the offer really isn’t good enough, then the right answer is that you should wait for a better offer. The oft- used real estate axiom that your first offer is always your best offer simply isn’t true.]
7. If we don’t receive an acceptable offer, how long do we wait before reducing the price? [Some realtors will tell you that you should reduce the price after a week or two. I don’t agree. It depends on your circumstances. Some homes take longer to sell than others. If your home is priced fairly, then it may be correct to not reduce at all and wait for the right buyer to come along.]
8. Will we be working with anyone other than you and, if so, when will we be working with someone else, who will we be working with and what are their qualifications? [Some realtors have other realtors helping them, not all of whom are as qualified as the realtor you hire. Make sure you get who you’re paying for.]
9. Can we cancel our listing agreement with you at any time without penalty if we’re not happy with your services?

If you’re buying:

1. How long will you work with us?
2. How many homes will you show us? [Your realtor should work with you for as long as it takes and should show you as many homes as you need to see until you find the home that is right for you.]
3. How will we know we’re not making a mistake? [Your realtor should educate you so you’ll know what type of home you’ll get in different areas and at different prices. Once you’re educated, you’ll be able to choose the home that’s best for you and you won’t make a mistake.]
4. How can we make sure we don’t overpay? [Same as the answer to question 3: part of your education is to understand values. When you see a home you like, you should have a pretty good idea of how much it’s worth and your realtor should be sufficiently knowledgeable and willing to discuss values with you.]
5. How many homes have you sold in this area in the past 3 years?
6. What are your areas of specialty? [I don’t know too many realtors who can effectively specialize in the entire city of Toronto. It’s just too large.]
7. How do we avoid wasting our time looking at homes that don’t match our criteria? [Before you start looking at homes, your realtor should ask you a lot of questions
   relating to the type of home for which you’re looking so he or she knows what to show you. He or she should also preview homes for you and describe them to you so you can decide if they’re worth seeing.]
8. What do you do if you have another buyer looking for the same type of home as us? [This doesn’t happen very often, but it can get complicated and you’ll need to rely on your agent’s integrity. Your agent should always be honest with you and tell you if he or she has another client who is putting an offer in on the same home as you. He or she should never favour one client over another, should not disclose confidential information and should provide you with the same advice you would receive as if you were his or her only client offering on the home.]
9. Will we be working with anyone other than you and, if so, when will we be working with someone else, who will we be working with and what are their qualifications? [Some realtors have other realtors helping them, not all of whom are as qualified as the realtor you hire. Make sure you get who you’re paying for.]
10. Can we cancel our buyer representation agreement with you at any time without penalty if we’re not happy with your services?

When all is said and done, choosing your realtor is a very important and personal decision. Hopefully, this advice will help you make the right decision if you’re in the market for a realtor who really knows what they’re doing.

Ted and Tina were getting divorced and decided to sell their home. They hired me to help them.

Their property was very unique for its neighbourhood. Their home was of average size, but their lot was one of the largest in the neighbourhood. There was a big addition at the rear, but the entire home required updating or renovating. It took a fair amount of thought and discussion to estimate the fair market value of their property as there weren’t really any comparable properties that had recently sold. We had to look at sales of similar properties in adjacent neighbourhoods, figure out who the likely buyers would be for their home and estimate the amount these buyers would be willing to pay for a property of this type in their neighbourhood. After estimating the fair market value of their property, we then had to set the list price. Because we believed that the most likely buyer would be a builder or someone who wanted to renovate the home and this type of buyer usually wants to negotiate price, we decided to list their property at a price that left some room for negotiation instead of following the now common practice of listing low and hoping for multiple offers.

Lesson 1: It’s best to have an agent who understands your market well enough to help you determine the proper list price and pricing strategy for your particular situation.

The property went on the market just as summer was arriving. Ted and Tina were not desperate to sell. We told them to be patient because the market is usually slower in the summer. We also told them not to be discouraged or insulted if they received a lowball offer because some builders or renovators might try to buy their property for a ridiculously low price. To them, this is a business and the less they pay for the property, the greater their profit.

Lesson 2: Not every home sells right away with multiple offers. Have realistic expectations with respect to the time it will take your home to sell. You’ll feel less stress.

Lesson 3: Keep your emotions in check. Once you decide to sell your home, move into business mode. Your goal is to get the best terms possible, including price. Leaving your emotions out of your decisions will help you achieve this goal.

During the approximately 3 months that their property was on the market, Tina and Ted received 5 offers (6 if you include an offer that was made over the phone). The first offer was for approximately 13% less than the list price. Because they were prepared, they were not insulted by this offer. We advised them that we felt that the price being offered was too low to accept. The buyer was not willing to increase his price, so no deal was struck.

Lesson 4: Despite what you may be told, your first offer is not necessarily your best offer. Don’t feel pressured to take your first offer because you think you may never get another offer. In this case, each of the 4 other offers which Tina and Ted received was higher than their first offer.

Their second offer started out even lower than the first, at almost 17% less than list price. Tina and Ted weren’t fussed. We started negotiating and ultimately got the buyer to agree to a price that was within about 3% of list price. Unfortunately, the buyer relied upon a condition in the agreement to terminate it a few days later.

Lesson 5: Don’t count your chickens until all conditions have been waived. A deal without conditions is worth more than a deal with conditions because buyers can use conditions to get out of deals. That’s why some sellers choose to accept an offer with a lower price and no conditions instead of an offer with a higher price and conditions.

Lesson 6: It’s smart to require a certified cheque or bank draft on account of the deposit so you have the buyer’s money firmly in hand when a deal is struck. Buyers are less likely to have a change of heart after they sign on the dotted line if they know that they may lose their deposit and that they can’t put a stop on their cheque.

In the course of negotiating the third offer, the buyer eventually offered a price which Tina said she’d be willing to accept. Ted said he’d be willing to accept it, too, but wanted to try for a little more. The buyer’s agent told us that her client agreed to the higher price, but half an hour before he was to meet with her to sign the paperwork, he called her to say that he had changed his mind about the property altogether and didn’t want to buy it at any price. At this point, it wouldn’t have surprised me if Ted and Tina were emotionally spent and stressed beyond belief, but when I asked them how they felt, they both said that they were okay. Tina said that she knew the house would sell and that she wasn’t going to get stressed about the timing of the sale because she had no control over that. She went on to say that there are much bigger problems in the world than selling a house.

Lesson 7: It’s okay to try to negotiate for a little more money, but be willing to accept the consequences. Every time you make a counter-offer, the other party has the option of walking away from the deal. Ask yourself if the gain is really worth the risk.

Lesson 8: With respect to real estate transactions, if it’s not in writing, it doesn’t exist. The fact that the other agent told us that her client had agreed to the higher price before he changed his mind carried no legal weight.

Lesson 9: Try not to get stressed when you’re buying or selling real estate. No one is going to get sick or die. Keep things in perspective.

The fourth offer was for a reasonably fair price. This buyer stuck to his opening price and wasn’t willing to negotiate. The price wasn’t satisfactory to Ted and Tina so there was no deal.

Lesson 10: Not all buyers are willing to negotiate. Some may offer their best price right off the bat. Remember this in the context of Lesson 7. Every time you don’t accept an offer and make a counter-offer instead, you run the risk of losing that buyer.

Offer number five. (Finally.) This offer initially had a low price, low deposit, long closing date and two conditions. We were able to negotiate a higher price, larger deposit, earlier closing date and removal of the conditions. Tina and Ted were satisfied with the terms which we were able to negotiate and accepted this offer.

Lesson 11: Be as patient as you can given your circumstances. Things will work out.

Lesson 12: Hire an agent who truly cares about you, has your best interests at heart and is willing to put in the time to make sure that things work out as well as possible for YOU! It’s much easier for your agent to do a quick deal and move on to the next client than it is to spend more time with you.

After all was said and done, Ted and Tina were an absolute pleasure to work with. They were polite, considerate and respectful of us and each other while going through a difficult time in their lives. I have rarely seen this level of civility displayed in other divorce situations. It was an honour and a privilege to represent two such fine people.

The Information Age: With modern technology, members of the public are able to look at homes and examine real estate data online. Because of the information people can now access, at times it seems as though everyone thinks they’re a real estate expert. The problem is that while many have access to the information, very few know how to analyze and interpret it correctly. This makes me think that it might be more accurate to say that we’re living in The Age of Misinformation. When I see a sale price that is unusually high, it’s not uncommon to note that the buyer either wasn’t represented by his or her own
agent or was represented by an agent who has not done much work in the area. Without expert advice, there are a lot of people making uninformed decisions which can lead to higher prices. Tip: Get real expert advice unless you’re really an expert or have money to burn.

Not just an expert, a REAL expert: Going online makes it much easier for realtors to look at homes in parts of the city in which they wouldn’t normally work. Without expertise in a particular area, it’s easy to misjudge values and counsel your client to pay too much for a home. It’s also easy for agents to get caught up in the moment and encourage their clients to pay too much for a home when in a bidding war. Your agent’s advice might affect
the price you pay, which affects the market as a whole. Tip: Choose your agent carefully.

There’s no time like the present: The Now Generation is now here. Most everybody seems to want everything as soon as possible because we’re all extremely busy. Many buyers are willing to pay premiums for homes that are already renovated so they can move in without doing any work themselves (even if this means paying an extra $50,000 for a renovation that would cost $25,000 to do) or are willing to buy homes that don’t really fit
their criteria because they’re tired of looking. I suppose their rationale is that time is money, but this type of thinking can lead to higher prices. Tips: If you’re selling, modernize and prepare your home as much as possible (staging needn’t be expensive and can work wonders). If you’re buying, good things come to those that wait.

More renovations: Almost every agent in central Toronto will tell you that they would love to see more homes for sale because they have more buyers than sellers. Unfortunately, it doesn’t appear that supply will increase any time soon. In fact, I believe supply will start to decrease even further over the next few years because of a trend towards renovating more and moving less. Renovating is expensive and disruptive, but so is moving. If you love your location, why change it? Just keep your location and upgrade your home. As a result, supply may actually begin to decrease relative to the present demand, which will put even more upward pressure on prices. Tip: Be prepared to move quickly when you find the right home because it may be a while before you see something similar.

Misleading media reports: On Thursday, August 4, 2011, one of the headlines on the front page of the Globe and Mail read “Cooling home prices stoke fears amid economic recovery”. On that night, Corinne was involved in a multiple offer situation with 15 offers. The ensuing article went on to mention, amongst other things, that “the number sold dropped 21 per cent in July from June, and prices edged 0.1 percent lower”. This journalist must never have heard of the summer market because this is what happens almost every year. It seems as though the media states that the market is cooling or the bubble is bursting several times a year, when, in my opinion as someone who is in the market every
day, the market has only cooled once during the past 14 years. Still, there are those who base their decisions on this type of information, which explains why some prices don’t make sense. Tip: Don’t believe everything you read.

Low interest rates: There isn’t really much to say about low interest rates, other than that they’ve added fuel to the fire created by the other factors that have stimulated demand and influenced prices. It looks like interest rates will remain low for the next while, but even if they rise, chances are they won’t increase enough to put a damper on the market. Tips: Don’t panic if rates do increase because even if they increase several points, they’ll still be extremely low from a historical point of view. Don’t overextend yourself because these rates won’t be here forever.

The future: As I write this, it’s early August and the stock markets are in turmoil. I still haven’t found a crystal ball that’s 100% accurate, but we’ve gone through economic crises several times over the past 14 years and the only time the real estate market in central Toronto has been significantly affected was in late 2008, early 2009, as mentioned above. I don’t expect the market to slow down or prices to decrease in the near future, even in the face of the current turmoil.  There’s just too much demand, coming from many different sources, for homes in central Toronto. I expect a strong fall market. If I’m wrong and the market does slow down, I doubt that prices will fall more than the 10-15% they fell in 2008-2009, as, once again, there’s just too much demand supporting the residential real estate market. At the end of the day, people always need a place to live.

At least in part because of the manner in which the above factors have stimulated demand, prices now vary much more than they used to and have become much less predictable. For
example, virtually all semi-detached homes in North Toronto used to sell within a $10,000 range, more or less, but their prices may now vary by as much as $100,000. This unpredictability makes it more difficult to make informed decisions. How can you determine the amount to spend on your new home when the price of your current home can vary so much? This brings me back to the first tip – get real expert advice.

Although countless legal texts and court cases involvethis subject, it’s a topic that most people, including real estate agents,prefer to avoid. Who can blame them? It doesn’t happen that often, it’s difficult to explain and it’s the type of thing that we think (and hope) will never happen to us.

The reality, though, is that it is not a subject to be avoided. Especially if you’re a real estate agent whose clients will depend on your advice and skill to help them if their deal doesn’t close. Fortunately for my clients, I’m very familiar with this subject because I spent a lot of time on it when I practiced law.

There are no statistics recording the percentage of deals that don’t close, but it seems to me that it has been happening with greater frequency lately. Whereas I was only involved in one deal that failed to close during my first eighteen years in the business (my clients rightly decided to back out of a deal when a new survey showed that the property they were buying was not nearly as large as the sellers claimed it was), in the past year I’ve been involved in three deals that either didn’t close or had complicated issues that needed to be resolved to permit closing to take place. There are probably a million things that can go wrong with a deal, but I’ll tell you about the three problems that arose in deals with which I was involved in the past year just to give you an idea of the types of things that can go wrong. (Names and addresses have been intentionally omitted as a matter of personal
privacy.)

Deal A: My clients sold their home in February with a June closing. In April, the buyers’ agent called me to say that his clients hadn’t sold their own home so they wanted our deal cancelled and their deposit returned. Simple as that. I told him that it was not as simple as that because his clients had entered into a firm and binding legal agreement and could not just change their minds without suffering the consequences. I suggested that he have the buyers’ lawyer contact the sellers’ lawyer to discuss a resolution. My clients needed the funds from this deal to pay for the new home they had bought. If this deal didn’t close, they wouldn’t have been able to afford their new home and, presumably, the sellers of their new home wouldn’t have been able to afford their new home and so on down the line. When one deal doesn’t close, it often causes a domino effect that can injure many parties and result in many lawsuits being initiated. In this deal, the lawyers agreed that the
sellers would keep $70,000 of the $100,000 deposit and would let the buyers out of the deal. We then put my clients’ home back on the market and sold it almost immediately for $24,000 less than the original sale price. This $24,000 loss was more than compensated for by the $70,000 of deposit money which my clients retained, but I’m sure they would have preferred to live without the stress of their deal falling through and the hassle of having to put it on the market again. (In case you’re wondering, in most cases real estate agents only get paid when a deal closes, so in a case like this, we list and sell the house twice and get paid once.)

Deal B: Corinne and I were hired by a seller who selected us partly because there were potential issues with the sale and she thought it would be helpful to have an agent with legal experience on her side in case something went awry. Very prescient of her. There were two offers for this home (remember this). The better offer of $1,000,000 was accepted. The buyer provided an uncertified deposit cheque with his offer and, pursuant to
the agreement, was required to deliver a certified deposit cheque the next day. This type of arrangement is not at all unusual. What was unusual was that the buyer’s agent called the next day to say “My client has changed his mind. Let me know when I can pick up the uncertified cheque.” Well, as in Deal A, you don’t just get to change your mind. It’s not as simple as that. Following protocol, Corinne went to the bank to try to get the cheque certified, but the buyer, trying to protect his losses, had called the bank and given instructions to stop payment on the cheque. Our client probably could have sued on the agreement and on the cheque, but that could have been a long and costly process which
wasn’t necessarily in her best interests. The ideal result would have been for the buyer to complete the sale for the agreed upon amount of $1,000,000. The second best result would have been to obtain an offer from another buyer for $1,000,000, but given the interest level already exhibited in the property, we were of the opinion that this was unlikely to happen, with one exception. The second buyer’s agent had called to say that her client was still interested in the property. We informed her that it was possible that the first offer might fall through and suggested to her that, if her client was willing to increase his price to $1,000,000, he might wish to submit an offer at that price conditional
on the first offer falling through. That way, if the first offer did in fact fall through, the seller might just be willing to accept the second offer without putting the property back on the market because there would be no shortfall in price since both offers were for $1,000,000. The agent for the second buyer followed our suggestion and, as it turned out, the first offer fell through and the second buyer got the property for $1,000,000. After a couple of anxious days involving discussions with us and her lawyer, the seller was happy to have sold the home for the multiple offer price of $1,000,000.

Deal C: This deal was so complicated that someone might write a book about it one day. Essentially, in the course of the negotiations, the sellers made a passing comment that there was an upcoming committee of adjustment hearing involving a very minor matter that would be of benefit to the property. To be on the safe side and to protect my buyer clients, we put a condition in the offer allowing my clients to find out more details about the hearing so they could be satisfied that it was indeed a minor matter. When the
buyers’ lawyer looked into the hearing, she found out that while the hearing was a minor matter, it was required because of a major problem underlying title to the property. Simply put, as a result of the sellers having owned the adjacent property at the same time as the subject property and having failed to correctly sever the two properties according to the Planning Act, the sellers did not have title to their property. They had nothing to sell! The sellers and their lawyers refused to acknowledge that there was a problem. The sellers’
agent wasn’t really involved at this point. It was left to my clients’ lawyer to uncover and explain the problem to everyone. The sellers offered my clients the option of getting out of the deal and having their deposit returned to them in full, but they really liked this home and were willing to work through the difficulties to make sure the deal was completed and they received good and valid title in the process. My role in all this was to spot the red flag at the beginning, draft a clause for the offer that would protect my clients and then help
explain the process and related options to them and to communicate with their lawyer and the sellers in a manner that would keep everyone calm and focused on solving the problem at hand. It wasn’t easy because no one wanted to deal with this problem. I know that I spent more time on this deal providing “counseling and diplomacy” services after the agreement was signed than before, but sometimes that’s what’s required. Some agents follow through all the way to the end and some disappear after the sold sign goes up. I don’t for one minute consider myself to be a hero, but having the experience to understand the concepts and process involved was exceptionally helpful in insuring that this deal was
completed and my clients got the home they wanted.

So why am I telling you all this? It’s not to scare you because there’s no need to panic. Most deals close successfully. It’s because whether you’re a client to whom I’m giving detailed advice or a non-client reader of this newsletter, it has always been my goal to provide you with unbiased information that will help you to make the decisions that are right for you.

I know that some of you choose as your real estate agent someone who is your friend or relative, who sends you the most mail, who called you most recently, whose sign you see most frequently, who promises you the highest price or who charges you the lowest commission. That’s not the way I would choose a real estate agent to help me with what is really a complicated financial transaction involving large sums of my hard earned money, but we’re all different and have different ways of doing things. There’s nothing wrong with that, as long as you know what you’re doing and why you’re doing it. I’ve often mentioned that your choice of agent will have a greater impact on your results than any other factor. I’ve talked about the significant benefits of a good agent’s negotiating abilities, neighbourhood knowledge, pricing strategies, advice regarding housing options and more. Now you can add one more benefit to the list. As the market becomes more complicated, don’t you want an agent who has the experience and expertise to help you if it looks like your deal isn’t going to close?

This is as true in business as it is in our personal lives. Take the real estate business, for example (surprise, surprise). Great strides have been made to disseminate information via the internet in order to bring the market to our front doors, so to speak. Most of these innovations have created very helpful information sources if you’re thinking of buying or selling or if you’re an agent. That said, residential real estate has always been more of a people business than an information business.

Don’t get me wrong. From my perspective as an agent, I’m very pleased that real estate information has become more easily accessible to the public because this saves me time and allows me to spend more time doing one of the things which I most enjoy: analyzing this information in the context of my clients’ needs and desires to help them achieve the best results possible. While many people have access to the same information, how that information is used can make a huge difference to your result. In my opinion, this is where a good agent truly adds tremendous value.

For example, let’s say you’re looking for a home in a certain price range. On the one hand, you could find out from an online source or from an ordinary agent that there are currently 7 homes on the market that you might like. This information is marginally useful. On the other hand, if you speak to a proficient and knowledgeable agent, you could find out that none of the 7 homes fit the bill, but there are other homes that aren’t listed yet that would seem to meet your needs perfectly. Because you’ve received better advice based on the same information, you’re able to choose between buying one of the 7 homes that are for sale or waiting for a more perfect home and avoiding the expensive mistake of buying a home today that you’ll regret buying 3 months from now. This example shows that having information is one thing, but using it to your full advantage is quite another.

It’s very important to keep this in mind as we move into the future and you’re inundated with more and more information. There will be companies and agents who will try to convince you to hire them because they have all the latest “toys”. Toys are nice, but their effectiveness depends on who is playing with them. Agent A could place your home for sale on fifty different websites, but if he doesn’t have the experience and knowledge to know what the potential buyers for your home want and where they’re looking, this doesn’t really add any value. You’d be better off having Agent B place your home for sale on the one website that potential buyers for your home visit and having the features that appeal most to these buyers properly highlighted. In this case, Agent B would be combining her knowledge and experience with technology to help you achieve your goal. Her pre-listing presentation might not have been as glitzy as that of Agent A, but her result is better and, at the end of the day, it’s the result that matters.

At the same time that it’s important to keep the limitations of technology in mind, it’s also important to take advantage of its many benefits. As we start 2011, I’m pleased to be able to communicate with you via email, twitter, my blog, Facebook, LinkedIn and my talking business card. This technology is great for staying in touch and sharing useful real estate information so I’ll be tweeting about things that I think might interest you and blogging about subjects that require deeper explanations. (Go to www.michaelmeltzer.ca to check these out.) As noted, technology does not replace personal contact in a people business. That’s why I’ve decided that I’m going to spend more time communicating face to face or over the phone. (I even considered going back to my rotary phone, but ruled it out when I realized that I wouldn’t be able to use it to access my voicemail.)

Have a great 2011 and I look forward to speaking to you!

I don’t know about you, but when I read these doom and gloom headlines I get the impression that they’re suggesting a complete collapse or something very close to it. However, when you look beyond the headlines that sell the newspapers and magazines (and, indirectly, the products being advertised therein), you see that this is not the case at all. In many cases, the story behind the headline is that real estate prices might remain the same or decline slightly over the next few years. Bold and brazen headlines attract attention, but they can also detract from or misrepresent the true story. [Note: major shifts in the economy as a whole and in the real estate market have historically arisen due to circumstances which were unforeseen by most experts. While always possible, most experts feel that they’re unlikely to occur at this time because of the fundamental strength of our economy and our real estate market.]

If these predictions do in fact come true and prices do decline slightly, how exactly will this affect you and will it be as big a deal as some are making it out to be?

First, keep in mind that most predictions deal with the country as a whole and not with individual markets. The market in Toronto might remain strong while the market in Vancouver stagnates or vice versa and, more particularly, the market in central Toronto might remain strong while the outlying areas stagnate or vice versa. Second, many of these predictions involve possible price decreases of only a few percentage points and not the drastic price reductions that have occurred south of the border. To their credit, this point has been made by the writers of most of these articles.

To get a better idea of how much (or little) you should be concerned if these predictions come true, let’s look at several examples of how a price decrease might play out in real life. Assume a hypothetical decrease in price of 5% over the next few years (which is actually larger than the possible decrease which is being predicted in most cases).

If you’re thinking of buying a larger home, you should welcome any price decrease because it will reduce the spread between your existing home and your new home. How does this work? Say your existing home is worth $750,000 and your new home is worth $1,400,000. You will have to pay an additional $650,000 for your new home. If prices decline by 5%, your existing home will be worth $712,500, your new home will be worth $1,330,000 and the spread, or difference, between the two will be $617,500, resulting in a savings to you of $32,500. As long as you’ve been paying down your mortgage and have enough equity in your home to make the move, from a purely financial point of view, the decline in prices will have worked in your favour. However, you still have to decide if it’s worth the risk waiting for prices to decline and if you’re willing to continue living where you’re living for a few years in the hope of saving $32,500.

On the other hand, if you’re thinking of scaling down to a $750,000 home from your $1,400,000 home, the same decline in prices will result in you putting $32,500 less in the bank after you sell. In this case, you should ask yourself if you’re willing to accelerate your plans and move now on the chance that prices may decline, in which case you might receive an extra $32,500.

Should you be thinking of selling your $1,400,000 home in central Toronto in the next few years and moving out of the city or renting, then you’ll have to determine if you prefer to accelerate your plans and sell your home now for $1,400,000 or wait a few years and move when it’s convenient, realizing that the price might decline by $70,000 during that period.

Lastly, if you’re considering buying your first home for $750,000, you should be asking yourself if you’d prefer to continue renting on the chance that you might be able to buy the same home for $712,500 in a few years if prices decline or if you’re ready to become a homeowner now. Apart from the lifestyle decision, you should also think about how you view your home from an investment point of view. Are you concerned about its value from year to year, or is it a long term investment the value of which will fluctuate over time, but increase over the long term? Finally, given the limited supply of homes in central Toronto, you should also consider that it will likely take you some time to find a home so you might want to start looking now and see where the market goes.

Basically, it’s a question of risk and reward since prices may move up or down by any amount at any time. In its simplest form, the analysis boils down to two questions: First, is the extra amount of money that you may earn or save if prices decline worth the inconvenience of postponing or accelerating your move? Second, is it worth taking this risk because if prices increase instead of decline you’ll lose money? Personally, I believe that the demand for homes in central Toronto is still stronger than supply so prices are unlikely to move downwards significantly. However, if they do decline as some are predicting, remember that this potential decline is minor in nature and that, in most cases, you’re probably better off living your life as you like and not worrying about the real estate market.

But what if interest rates also rise? Won’t this dampen the market? Like everything else, there are varied opinions on this issue. I may be starting to sound like an eternal optimist, but when Katherine and I bought our first home in North Toronto in 1991, we locked in a 5 year rate of 11.75% and thought we were getting a great deal. The 5 year rate now sits at approximately 3.5%. The increases being predicted to interest rates are in the 1-2% range over the next couple years. If the 5 year rate increases by 2% over the next couple years, it will reach 5.5%. To put this into perspective, when prices started rising in central Toronto in 1997, the 5 year rate was at approximately 7.07%. Do you think that these small increases in interest rates might dampen the market?

To summarize, if things play out the way some are predicting, and it’s not a certainty in central Toronto, then there’s probably not much to worry about in most cases. The sky is not falling. Yes, homes may take a little longer to sell, buyers may be able to negotiate on price instead of participating in bidding wars, prices might decline a bit and interest rates might increase a bit. All in all, however, if this is what happens, life as we know it will go on and there won’t be any catastrophes as some headlines might suggest. So make sure you read the full articles and not just the headlines, keep enjoying life and cross “prepare for real estate catastrophe” off your to do list.