Worry, buyer's remorse high as real estate market slowdown materializes
A wave of buyer's remorse is taking shape in several heated real estate markets, after housing prices started dropping and the number of sales slowed over the last two months.
Realtors and lawyers in Toronto and Vancouver say they have noticed buyers looking at what options they have to get out of a purchase and sellers hoping to ensure one goes through because conditions have shifted dramatically from the previous highs and frenzied pace.
The country experienced a 25.7 per cent drop in the number of homes sold over the last year and a 3.8 per cent slide in housing prices between March and April, the Canadian Real Estate Association said Monday. The average home price last month totalled $741,517.
Such numbers have prompted some sellers to explore lawsuits to ensure transactions move forward and other purchasers to worry about the value of pre-sale properties they bought years ago but have yet to take possession of.
“With today's real estate prices, there's really no option but to go all in and if you're going all in, and then suddenly you're realizing that perhaps you made a bad bet and there's a way out of that bet, you're going to do whatever you can to get out,” said Mark Morris, a Toronto real estate lawyer.
In recent weeks, he has seen nine cases where buyers want to back out of deals but on Monday alone was approached by three sellers keen to use legal channels to keep purchasers from walking away.
Morris doesn't call the encounters a trend because it's unclear how many other lawyers are seeing the same spate, but three queries in a day is his new record. He used to see one case of that nature every few months.
“Purchasers are looking at the existing crisis, and in the best of times, they feel they overpaid, but now they have objective proof that they've done so because markets have started to pummel and fall and really shows no signs of slowing down,” said Morris.
“Many of those buyers are faced with the option of moving forward or upping and walking.”
People get "spooked" every time the market turns and explore what they can do about deals they signed, but few end up walking away because it's hard to get out of such transactions, said Phil Sopher, CEO of Royal LePage.
He thinks the exception to this pattern came in 2020, when the COVID-19 pandemic broke out and people wanting out of transactions had so many unknowns on their side.
Most buyers trying to end a deal this year won’t be successful because there is no legal way out, but such cases are also impractical for sellers, Morris said.
“Is a seller really willing to pursue a buyer that has no assets? Is the seller really going to go through three years of courts only to find that they have a judgment that can't be pursued?” he pondered. “Are they really ready to put up the amount of money that it will take to pursue this to the ends of the earth if they're able to resell? Perhaps not.”
In cases where the buyer has put money into a seller's trust account, that money can only be released with a court action, the closing of the deal or a mutual agreement not to pursue the sale, said Morris. He's seen buyers agree to give the seller the money, if the seller mutually agrees to end the deal.
If a deal ends, brokers can sue for their lost commission but not many explore this avenue because it's "not a good look" to take legal action against a client, who might still turn to you when they try to sell the home from the failed transaction again, said Morris.
While Tirajeh Mazaheri hasn't seen legal action in Vancouver, the Coldwell Banker Prestige Realty agent has seen buyer's remorse and worry crop up among investors who purchased pre-construction homes a few years ago but have yet to take possession of them.
"A lot of those people are thinking, 'Is the market going to be able to justify this price or keep up with the price I paid and can I get this money back if I want to sell in a year?" she said.
The people who purchased in early rounds of pre-construction sales for a building are already ahead of the curve, but those who bought later will have to wait longer to break even or make a profit, she said.
Even though worry is at a high, Mazaheri and Soper agree the markets do rebound and homes are still a valuable investment.
"Anyone who bought a home in 2021 in this country, if they bought anywhere near market price, their home is going to be worth more in 2021," said Soper.
"Will it be worth more one year from now? That's harder to predict … but even a year from now the likelihood of that home being worth less than it is today is smaller."
This report by The Canadian Press was first published May 18, 2022.
MORE Business News
Even though it may seem years away, saving for retirement is a top priority among 26 per cent of Canadians aged 18 to 34, a recent survey from the Healthcare of Ontario Pension Plan found. However, 79 per cent of respondents in that age group say saving for retirement is prohibitively expensive.
The Bank of Canada's strategy of rapidly increasing its key interest rate in an effort to tackle skyrocketing inflation will likely trigger a recession, says a new study released Tuesday from the Canadian Centre for Policy Alternatives.
A new report from TD says Canadian home sales could fall by nearly one-quarter on average this year and remain low into 2023.
The Canada Day long weekend saw gas prices plummet in parts of the country, but the relief at the pumps may not stay for very long, analysts say. The decreases come after crude oil prices slid in June following the U.S. Federal Reserve's interest rate hikes, sparking fears of a recession.
As stocks continue to slump, it can be easy to let your emotions take over if you've got money invested in the market. But experts agree that there's no need to panic if you're invested in the right type of portfolio with the right level of risk.
With increasing rent prices likely to be the reality for many Canadian tenants, some may be wondering how to navigate rising costs, or whether any course of action can be taken, if any. Legal experts across the country share their advice on how to handle a rent hike.
New federal regulations to force down the greenhouse gas emissions from gasoline and diesel will cost Canadians up to 13 cents more per litre at the pump by 2030.
With inflation reaching a 40-year high, many Canadians have been left in a state of worry. Not only about the rising prices of consumer goods, but whether or not they should continue to save money. It’s not such a simple question, and it depends greatly on your circumstances, contributor Christopher Liew explains in an exclusive column for CTVNews.ca.