As most know, we have a seller’s market here in Ottawa as we close out 2018. Sales and prices are up and listing inventory is pretty scarce in most market segments.
One statistic that seems almost out of line with the strength of the market and lack of listings is the number of conditional sales that are terminated by buyers and do not go firm.
The numbers: (such as are available)
We don’t have a regular report mechanism on the amount of such sales but for the last 12-18 months, this ratio has more than doubled from 4-5% of sales to as much as 10-15%. We offer as evidence a current 7 day period where new listings have been 406 and conditional sales 304 and firm sales 370. The number of “back-on-market” listings during this period is a significant 74 or almost 20-25% in relation to the sales. This is extraordinarily and we feel the overall level is probably in the 10-15% range noted previously.
So what is causing this massive number of sales cancellations?
There are several reasons why sales fall through in any market, these including: Inspection, financing and good old fashioned buyer remorse. All 3 of these factors are enhanced in the current market.
Sellers feel they are in a strong position in this sellers’ market, so may not be as amenable to making price adjustments or fixing issues identified by inspectors, knowing there are a lot more buyers out there for their home.
Buyers accordingly, are often buying at their maximum and often feel they are paying a premium (even over paying) and therefore, some may try to renegotiate the deal price wise, without reciprocity from the seller.
Mortgage rates have risen and the new mortgage “stress test” may still be catching some buyers unawares thus resulting in buyer inability to obtain satisfactory financing.
Hurried purchase decisions:
Buyer remorse can always be a factor in the termination of conditional sales. Often caused by either irrational enthusiasm by one or more of the buyers or most likely where one buyer loves the property and the other merely likes it.
In the current environment of listing scarcity and multiple offers, buyers don’t get as much time to research a property (many only get a chance to see it once, before having to decide on an offer) and then once they have longer to think about it, they are not as enamoured with it as originally thought.
Unfortunately, a hasty purchasing decision in a rushed and stressful environment, leaves plenty of room for error and many buyers may be re-thinking the suitability of the property or re-evaluating the purchase price being paid or both. Conditional sales agreements are written in way that favours the buyer significantly and that conditional period can often end up being a “cooling off period” and buyers can be pretty subjective in their decision making on whether to firm up the deal or not.
Sellers are adversely affected by such cancellations, as they may lose some of the other buyer interest during the conditional sales period when their property is pretty much “off the market” while a buyer does their due diligence and attempts to complete their conditions. Other buyers may wonder if “ something is wrong” with the property and may therefore lose interest in it. Still others may have gone on to buy something else.
The best solution to this problem is for buyers who are well prepared and well coached with appropriate financing in hand and a good knowledge of current market value. If all of these are in place, we can hopefully optimize the current high level of sales cancellations.
Broker of Record
Oasis Realty Brokerage