Season 4, Episode 1: Buyer's Remorse: as the market cools, what can buyer's do about it?

Welcome back to the podcast! It’s been a year since our last episode. Since then, we’ve been focusing on rapidly growing the team. Now that we have a great vibe going on, let’s talk about what happens when buyer regret their decisions.

Also in this episode, we talk about housing (un)affordability in Toronto, and what “affordable housing” even means.

TRANSCRIPT:

Let's go. Okay. So welcome to Broadview Table Talks. We're finally starting up the podcast again, you know if you have some older episodes that you're listening to, please ignore them all. We're starting up again. Let's do it. What are you talking about today? Episode one episode. Well, season four, I think, but episode one. All right. What are we talking about today?

We're talking about buyers remorse during a declining market.

Okay. So yeah, as you know, there's been a couple of rate drops recently that happened... rate hikes. And it's dropped affordability like two times. Mm-hmm . So people that are caught in the middle of it that have put a, you know, an agreement in place in say February, and they're closing now, which we're in June.

Are you guys seeing a lot of back out, anybody backing away from deals, anybody wanting to back away from deals?

You know, a couple buyers always ask what we think is going to happen with the market. And they're a little bit concerned because they made an offer a while ago and it's yeah.

It's not even that they wanna back out too. It's like sometimes appraisals don't appraise, right? So say you buy something for a million and a half. And you only get appraised for a mortgage of, you know, say your, your mortgage was million, half, and you only get appraised for 1.1 million, 1.2 or something.

Right. Mm-hmm you gotta come with the extra remaining 300,000 mm-hmm outta cash. And a lot of people can't do that. So actually they're closing right now.

So a period of anywhere from 30 to 90 days, and they're just looking at the news and they're saying, well, what's gonna happen. And you know, as a broker record had some of these issues already, some people have actually mentioned deals that they were gonna cancel. And what do you do? So you either go back to the table and actually, Neil, that was your question, right?

I wasn't listening. Okay. So no, essentially yeah, some people have offers on, on the table. They don't get appraised. They don't get the money you're looking for and they gotta come up with 300,000 or something or like extra cash and they can't come up with it. So they go back to the table and tell the sellers, listen, we're not gonna be able to close you.

You might have to Sue us or whatever, but it is what it is. We're, you know, we can't close. We can't get the cover the money. So we have to either renegotiate the deal or, or what do you wanna do, right? Yeah. Have you ever seen. Luckily not with any of my clients that happened in the last downturn, you know, it's the fair housing plan and I've seen it before, too in 2008, the, the tech crash or fair, whatever it was, the financial crisis, us financial crisis.

I've seen it for one of the the properties up in the suburbs where they listed it for 7 99 sold for 1.2 mm-hmm and then that same property went back on the market for 1.1. . Yeah. And then he kept on going down to 1.49. Yeah. Is that the, what happens? That story was, the buyers ended up realizing is downturn.

Now they try to somehow just get their money back, you know, not realizing that there's gonna be cost of the agents and marketing all that stuff right. In tax or whatnot, you know, land transfer tax. So they definitely, we see it. I, I haven't done it like nothing ever happened to that with my client, but it's a story that was spoken to a couple of agents.

I was. So for sure what would happen is you'd actually get sued for it. You wouldn't just lose your deposit. Many people think that you just lose your deposit. Right. And they had to come up with maybe a difference. So if it's sold for like 1.1, and then they ended up going back on the market and it's sold for 900,000, they could potentially get sued for that amount too.

Right. That's right. The difference. Yeah. That's right. The original amount and any realtor costs, any kind of, exactly. You know, anything like that, any other costs involved in it? Yeah. So it'd be pretty catastrophic. So your best bet if you're in that situation as a buyer, Renegotiate with a seller or the seller's listing agent, whatever it is.

And, you know, even worst case there's things like a VTB like vendor take backs right. So in the last downturn I got caught in one or one of my clients, one of my seller clients got caught in one. And what we did is I, I told the sellers, Hey, would you want do a VTB? So you register a mortgage on title.

whether or not you have interest on it is one thing, but then you know, you still have claims to the property as a second or, or something. Right. So if they fail to make those payments or don't pay you by the specified time, you could potentially foreclose and get that money back mm-hmm . But the sellers didn't want that.

It was too complicated. So they luckily they didn't. So we, they, I think the buyers asked for an extension and then they just put you know, luckily we had the foresight. more deposit so that it's harder for them to walk away. Mm-hmm so somehow under pressure, they came up with money. They, you know, they board on other properties and things like that.

So they were able to close mm-hmm . Yeah. Right. But there's situations like that could happen, you know? And if you're stuck in that, Renegotiate with a seller, get a lower price. If you can, if you can't then do a vendor take back or get aging from, you know, a lot of people actually think about having to go to a lenders all the time, the big five banks.

Right. You can always go to B lenders that might give you a little more flexibility in your mortgage, right. For sure. In your approvals or even go private. Yeah. Private lending for five years. Yeah. A little bit more expensive two years, right? Yeah. True. But the thing is, you, you know, everybody's always afraid of private lending, but like, it's not that bad if you're paying interest only, it's pretty much gonna the same thing.

If you're not advertising. Yeah. Your interest costs might be double, but you're not advertising the mortgage. So really, or getting like, charged like a huge suit, like, like a legal fee, you know what I mean? Exactly. So it's like that that six, 7% is cheaper than being sued and whatever. Right, right, right, right, right.

Because the downturn is essentially, it's gonna force everything. One to join a waiting game. Right. Wait for things to start uptick again. Right. Right. So you know, at the same time token, if, if prices go up right sellers, don't come to the buyer and say, Hey, I need more money or I'm not gonna close. Yeah.

That's kind of ridiculous too. Right. Exactly. Sure. Yeah. So yeah, it's unfortunate. The situation happens, but you know, the bank Canada had to control inflation. They had to tame it. It's getting outta hand. And, you know, what can we do? And unfortunately, there's some markets that are gonna get massacred and hurt, like ours, like the real estate market, cuz it's so interest rate dependent.

Yeah, exactly. For sure. Right now we're seeing buyers actually rush into the market because they've flock in some good rates, but they have a deadline to buy, buy right. With the rate holds. Right? Yep. So that that's also propping up the market. I think a lot of the rate holds have expired since the first rate hikes in March.

Right. So maybe the second rate hikes, some people are still locked in for that. And they're worried, you know I have some buyers that are actually cash only buyers. They don't even need mortgages. So they're just waiting for, for the market drop even more. If it drops, they pick up a good deal. Yeah, yeah.

Yeah. So, and, and also a lot of people are, are looking to sell and in favour of renting as well, too. Yeah. Right. Just to see the uncertainty and stuff. Right. Just because they, you know, they don't know what's gonna happen. Yeah. It feels like they're trying to buy. right. Right, right. So I think the rental market's gonna explode this year.

It already has. Yeah, exactly. Where there's has affordability issues. You're seeing bidding wars on, on rentals. Yeah. You gotta open. Yeah. Yeah. Yeah. It's weird. Like everything's going by really quick as far as what I can see. Yeah. It's funny because like, I have a friend that's looking and north side, like new market area and it's like, they purposely list like entire home for like 2,900.

I was like, okay. I then she's like, oh yeah, I listed low blah, blah, blah. You trying to get a bidding war off, lease, like, you know, did you send an offer date or something? Yeah. What, yeah, we're starting to see those again for leases. It's crazy. Yep. So, well yeah, I think even with the rising interest rates, you know, if, if prices come down, it's not gonna get any more affordable.

And that's one of the articles that was in the news today. Right? Mm-hmm so what are we gonna do? What are we gonna do? What are people gonna do for affordability roommates? Sisters, family, family, you can live with other people. You can you know, combine your, your incomes together with another person and buy it together.

Yeah. And I was just telling somebody too, that if they don't have enough money to buy something and they're in a house, say, you know, they, they need a three bedroom, four bedroom house and a suburb of kids and all that, but they only have enough to buy like a 600,000 place. Why don't you buy something, rent it out.

At least get some equity in the market and continue renting in place where you're at now. I just outside of like an investment, sorry, my throat outside. I just, outside of an investment, it kind of just sucks because I feel like it's the opposite of what's been happening recently since the pandemic.

I don't think anybody wants to shack up with anybody, you know, combining with siblings or family or, or friends, whoever just because during the pandemic, the re the, one of the reasons. Prices have shot up it's because people want more space. And then the people who have those places, you know, could price, whatever they wanted to at that point in the pandemic.

Yeah. For, for sure. I think there's less people wanting to live with other people. I was what I'm talking about. You gotta live with somebody like family or somebody that you, you know, your best friend or somebody you trust, right. Not just a random stranger to get a roommate. Exactly. Yeah. But, you know, I think we're coming kind of to the, like the Manhattan style of, of living where it's like, you're expected to live with roommate.

Yeah. You know, it's, it's uncommon to not have a roommate or you're more likely to go for a studio apartment than you were before. Right. You were by yourself. Right, right. And that there gets kind of cram too. Right. Mm-hmm like, nobody really wants to live in a studio if they don't have to, at least we don't have 10 story walkups in in Toronto, I know, right.

With no laundry, it's, laundry's an amenity. Right. Which is kind of crazy. So yeah, I think affordability is gonna be sh shrinking, but you know, on the, on the positive. As affordability shrinks. There's a lot more amenities in the city, a lot more people, a lot more things to do. And it just makes it more wonderful.

Like all these new restaurant popups that we've seen. Right. All these cool little specialty boutiques of whatever. Right. Yeah. Right. You know, world class entertainment, like that's, that's pretty, pretty cool to live in. And some people sacrifice your living space for that and affordability like, you know, corresponding affordability for sure.

And that's what we've see in places like Hong Kong, where people spend majority of their time. You know, partaking in don't businesses and, and parties and restaurants rather than staying at home. And they really only use their home to, to sleep in shower. Yeah, really, because, you know, to be honest, over there, it's cheaper to eat outside than to actually buy groceries and cook.

Yeah, for sure. At least recently with these inflation. Well in Hong Kong, I don't traditionally unless you shop at like a wet market and you get a good deal. It's really cheaper to just add, add soup. Yeah. Yeah. Going back some crab crab legs. going back too long. Bad soup. Fat soup, man. That's where I came from.

Going back to buyer's remorse. Okay. Turtle soup. Going back to buyer's remorse, talking with COVID right outside of anything like fiscal outside of anything, fiscal like. Is a good tip for anybody going through some type of buyer's remorse because this isn't just people who are closing somewhat recently, like anybody who bought it in the past year at a high compared to now is always, at least all my families talking to me about like how, how they can go through it, how they can handle it.

Personally, I mean, it it's really about. Their plans were when they initially bought the property. Right. Were they thinking about selling in the next year or two mm-hmm if they're planning on living in it or holding it as an investment, it, they shouldn't worry about it too much because like all things in life it's cyclical.

Yeah. I could see like mentally how stressful that can be. for you? I mean, I'm not a buyer right now, but the best tip I gave them at the time was like, you're in you. Have you got it? Yeah. So exactly. That's all that matters right now. Yeah. I don't think anyone was worried when they were holding onto real estate desperately during the great depression.

Mm-hmm, look at where they are now. Well, yeah, even from the last downturn in 2017 until now, like if you buy the peak of the market there, you're still up ahead. If you're looking at now in a longer time frame. Right. So I think it went out there. I don't think the issue is whether they have. The remorse of buying it because they bought it too high or whatever it is.

I think it's just more of the affordability issue. Mm-hmm if it's not appraising, you know? Yeah. If, if they're, they can't get the lending that they need to get and they have to come up with cash. Yeah. How's that gonna happen? That's a real problem. Yeah. Mm-hmm well, that's the, the same thing question that was brought up to me with my client who just recently sold.

It was the same thing as like, oh, like, you know, we sold, you know, we, we bought something a little bit more and blah, blah, blah. And I said, yeah, but back in 2017, when you bought and you guys were worried because it downturn and look, now it shot up 400 K you know what I mean? So it was, if you're holding it for the long term, you're fine.

You know, cuz obviously people still need to buy people, still need to move more immigrants are coming, you know, it just takes a little bit time. Yeah, I guess naturally, if you look at it through like an economic aspect, it's always gonna go through that, that wave of just yeah, the, the charts have it, right?

Yeah. Gabriel is always like that little dip on that phone. I do have a question during a market like this with, you know, the trajectory going downwards. Would it be prudent to use a financing condition again for our offers? Yeah, it could be, I mean, depending on the, on the situation, right? Like I'm still seeing bidding wars in some hot properties, you know, the, the lower priced freehold and, and the one bedroom condo.

Sometimes you're still seeing bidding wars. So depends how competitive it is really. But certainly I think having a financing condition to make sure that your, your ducks in a row for sure is important. And, you know, traditionally before the market got so crazy, people would use financing conditions to get appraisals done as well, too.

So they could feel guaranteed that they, they were able to lend, borrow the money they need to on the property. Cuz remember like lending is based on two things it's based on the borrows criteria and the properties criteria. So, you know, you have to meet your GDS and GDS ratios, make sure your income supports the expenses, but also that the property's worth what they say it's worth.

Yeah. Right. So yeah, certainly that's a good strategy to use a financing condition if if the situation warrants it. But in speaking specifically with buyer's remorse, you know, like yeah, it's, it's a legal contract. You can't get out of it. Like what are you gonna do? Right. Yeah. You know, every situation's different of course, and the seller might be a little bit different too.

Like I came across one from our brokerage. There was a. A seller that was older, you know, kind of near the end of life, almost in a sense where they only had a few more years to really enjoy that, that wealth that they've accumulated. And they bought it for like, nothing is paid off and things like that.

Right. So the seller was like, you know, I don't wanna go through this whole issue of suing, keeping the deposits in there for two years now, they can't sell the property and they gotta go Sue the, the buyer and all that. Mm-hmm and it just wasn't cool for what the, what the buyer did. but it is what it is, right?

Like the situation, they were lucky to, to get that right. Because most sellers don't have that option. Like if they're selling, if they're selling to buy something else, they need the money. And if they can't close on something else that they bought, because the person that bought their place can't close in it, then there's a whole ripple effect.

Yeah, exactly. You know, and a great book to read about this kind of stuff is, is Keller Williams stuff like we're in KW and all that. But the KW shift book. That's a good book to read on strategies on what happens when the market shifts, right? Like how to bullet proof, your transactions. Mm-hmm right.

And we actually, we do some of those courses as well, too. Mm-hmm but yeah. To speak with buyers remorse, like what can, what can you do really? Like, have you ever regretted anything like a meal that you just had or something, you know what I mean? Like, what are you gonna do every time you already got the restaurant?

Like, what do you, do you already have the food in your stomach? Like you can't turn back, you know, like right now. Yeah. What do you do in situations with other buyers remorse? You know, like other things that you. . I mean, there's no return policy. Yeah. No return policy. You just gonna see the, the positive side of it.

You know what I mean? Like you get through it, like you have a house now you came from a condos. So now you have a house, like, okay, I get it. You feel like you waste, but now you have a house, you know? Yeah. And that's what I've trying to have been. I've trying. I'm trying to enforce on, you know, my family that ask me those type of questions.

Like, look, you got, you got a big upgrade. No matter what the price is, you got the upgrade mm-hmm yeah, you do what it takes to get there. Yo, your family bought with us what this was like before this was before I'm talking. Like that's why I'm it? Not just people who had closed recently? I I'm talking about like just joking, choking.

No it's yeah, it is tough. It's a tough pill to swallow, but you're right. Butter. It's like a, it's like a mindset. Shift. You've gotta look at it in a different light. Yeah. What you, what did they say? Like what you focus on, change the way you look at things and the way, the way you look at change change. If you start looking at the problems, you, you forget your goals, but then you continue with your goals, then you forget your problems.

That's awesome. Yeah. That's awesome. Okay. Well what else? No, that was all my questions for that. I guess the next one would just be, what, what does affordability mean in Toronto? Fuck, man. Toronto's not gonna be affordable anymore. To be honest, I hate to say it like it's a big city. Why should it be affordable?

You know, like, yeah. Okay. We need it. Okay. I shouldn't say that we need it to be affordable because we need it to be sustainable and it can't be just a whole bunch of rich people here. Cause it's what is affordability though? Well, right now there's a, there's an argument that's happening online. That's saying, you know, what's the difference between affordability and accessibility.

It's different when something's affordable and it's different when housing's access. So what the city, city of Toronto publishes affordability rates, right? They say for one bedroom, it should be, I think it's like 13 or 1400 or something like that. And then a two bedroom is like 1800 or something.

Obviously it doesn't exist in Toronto. No, they do it based on the average income of all Toronto or whatever. However, they use the information maybe stats can or something and they take a percentage of that. I think it's like 30%. Whatever, I don't know what the formula is, but they, they do publish it.

Mm-hmm and that's what they, they based their rent geared income stuff. They that's what they based all their Toronto community housing platforms on. Yeah. And when they force projects to be affordable, to have affordable housing, they based on that. Yeah. So what doesn't mean to be affordable? It could be an overall, like it's different for everybody.

Obviously. It just depends on the income you make and you're spending, right. A lot of people don't realize they spend. A lot on random stuff, like for example's coffee, six bucks, you know what I mean? McDonald's $1. Exactly. So it's like, it depends what you do. Like you spending money 20 cents a cup. Exactly.

So is this like what you doing daily days? There you go. That's free. Is this, is this your, your life choices? You know what I mean? A lot, a lot of people, like, I, I, I speak to them and I'm just like, oh my God. Like they would spend money on like buying bottles and stuff. And they're like, oh, cool. Like. So you own couple poppies, like, no, I rent like, dude, like really, like, I'm not trying to knock anybody down, but like it's all perspective and like, yeah, like what you want and your goals in your life.

Right. If you're okay with that, you're okay with it. Perfectly fine. Nothing wrong with it, but it's just shocking, you know, like, yeah. And then I see somebody else who's like dropping like $10,000, but then he has a great business and doing this. So he bring out clients like, you know what I mean? So you kind of get an idea of like, okay.

People's like is either. You wanna be wealthy or just wanna be part-time rich, right? He can until you make it. Yeah. Well, I mean, cuz okay. So for context, Potter's fiance is a partner at a club in a prominent club in downtown Toronto restaurant club. Yep. And he's there pretty much all the time. So he gets to see the characters that come in and people that spend money and by talking to him, some people are faking it and some people are making it.

Yeah, exactly. So it's like either you're doing something and like, you know, inspiring other people or you're just doing it just cuz you're doing it. Cuz it's just social media and everything. Makes people want to be like this cool person and like, you know, dropping money on bottles, but then it kind of like ruins them in the future, you know, as everything takes back.

Yeah. As, as everything continues to go up, you don't realize it because it's not in their goal, I guess. Right. Which is fine. If you're happy with, it's happy with it, but. You know, when this is what it is. It's delayed gratification. Yeah. When is when cuz then when you realize everyone's like, oh shit, this guy is doing this, this guy's doing that.

And next thing you know, I'm still here, what am I doing? Right. I can't afford anything. You know? So it's like, but it's a lot of people stuck in that trap a lot. Yeah. It just becomes a cycle you're used to it. No, believe me. I feel like sometimes I'm in that trap. Right. Because I don't own yet. So when I was asking about affordability, I think I was kind of looking for.

Like a number almost per se. It's different for everybody. Yeah. Just because you guys threw it around a lot in, when you were talking about buyer's remorse. So I'm like, what is affordable? What is that? Well, how the banks define your affordability and how you can borrow is basically the GDS and TDS ratios.

So that's gross debt service which basically is 32%, 36% of your like, whatever percentage. It changes from time to time at bank to bank, but generally it's just called a third of your income. Mm-hmm you gross annual income before taxe. So say you make, I don't know, whatever, a hundred grand for simple numbers.

Okay. Mm-hmm so they're basically saying that with all the payments, principal, interest, taxes, maintenance, and heating, then that only can work out to 36,000 a year. So basically 3000 a month. Right? Right. And after that TDS means, if you have any other debt obligations, like car payments or credit cards, student loans, things like that, then that's your total debt service that combined with your GDS.

All your outstanding debts in your GDS can be no more than 42% or 40 something percent. Yeah. 40 something, right? Whatever rate they give you, whatever the banks is, talk to mortgage broker to give you the exact numbers or, or lender, but essentially that's what they deem as affordability for mortgages.

Right? That's in addition to that's. So whatever that number is, that's your borrow power right now. They might make exceptions, obviously like you can go a little bit higher below your G your numbers, your ratio. And then whatever else you have on down payment is what you can actually afford. Okay.

Yeah. Cool. Yeah. That pretty much wraps up that question on affordability for, I think regular, any regular person out there, you just gotta make sacrifices. Right? The question is how do you make Toronto more affordable? That's another topic we can discuss, but in the next next podcast, But yeah, everybody's aligned to the problem.

Everybody wants Toronto to be more affordable, but nobody wants to build affordable housing because think about it. Who's gonna take less money on all that risk that they gotta put on. Yep. Mm-hmm right. So it is an issue. And I think the government can do certain things that, that are a little bit different than what they're doing now that might tweak it a little bit, but you know, whatever, that's another topic.

Cool. Cool. Okay. Well, thanks for listening everybody. And catch you guys on the next podcast. Remember all the old ones before this all kind of suck. So boardwalk talks, if you want to yeah, we call boardwalk talks. So we're gonna change name to bra view table talks. Cuz right now we're sitting around a table and talking about this and they're gonna be on video.

So thanks for watching, listening. Thanks. Bye. Bye.