‘cooling off’ !!! – seriously… I needed to cool off before writing this post.
The Video link is all the written words that follow – your choice.
What’s the (provincial) government talking about doing now?
Short Version
Nothing that will bring prices down, although one proposed change will do some good.
But when it comes price, wake me when we get to ‘increasing supply’.
The final word on Vancouver (Canadian) Real Estate prices; SUPPLY
Long Version
What’s being proposed?
A consultation period – no new policy locked in place yet – and thus far policy only for BC.
The topics; A review of the blind bidding system, condition waiving in offers, and a final catch-all of ‘any other practices that may pose risks to consumers’.
Let’s start with an easy-ish one; ‘condition waiving’ which is good language that was quickly subverted in media to ‘cooling off period’.
IE ‘Cooling off periods’ are limited periods of time in which buyers can change their minds and cancel the purchase with no or diminished legal consequences’
This is not at all what is needed, proposed, or supported.
This kind of language creates needless debate. The phrase ‘cooling off period’ conjures up ridiculous hyperbole of mythical buyers running around town tying up dozen’s of properties without any consequence.
This is logistically an absurd concept to apply in reality.
But why be rational, people don’t click on the rational – we prefer outrage, injustice (real or perceived) and thus we get what we ask for; asinine exaggerations of reality.
What language should we use?
Mandatory Conditions
This is a solid term, conditions cut both ways. There is no ‘easy out’.
For instance;
1. Did the property appraise at the purchase price?
If Yes – no out.
2. Did the inspection come up clean?
If Yes – no out.
If not – how problematic?
IE no imminent health or safety hazards, and nothing exceeding half a percent of the purchase price? ($5,000 on a 1M$ purchase) – no out.
3. Is financing under terms set out in the offer approved?
If Yes – no out.
If not – prove it, in detail.
No easy outs!
Why; ‘to better protect consumers in B.C.’s real estate market’ which is long overdue in a market dealing with the fallout of subject-free (firm) offers for ten years.
As I’ve suggested in the past, there’s never ever been a better time to unload that bat infested, poly B plumbed, aluminum wired, vermiculte insulated, asbestos shingled, oil-soaked railway tie foundation (shout out New West), unremidated ex grow-op, active meth lab, home.
Today, and today only, you can buy said home/toxic dump site with a condition free offer well over the asking price.
Because tomorrow it will be gone.
This kind of legislation would change this, for the better.
Oh ya, and that nightmare property, it sold ‘over ask’…
Let’s talk about this, as it leads to the final topic;
Blind Bidding
What if we list at 1M$ and sell for $950,000?
What if we list at $900,000 and sell for $950,000?
One scenario feels a bit different than the other.
There’s an entire conversation around human psychology here.
When we talk maximum price, well it begs the question just how exactly is the max price achieved?
In today’s market, as currently regulated, a sharp Realtor will say ‘we’re gonna price it for X, don’t worry though, because we’re confident the price will in fact be X+Y and thus equal Z.
Z being what you actually wanted.
We gotta play the game.
The blind bidding game.
And the word blind is a problem today, because today is all about transparency’
And there is very little transparency in the blind bid arena we currently operate in, there are many games to be found inside the bling bidding space. Some legal, some frowned upon while still legal, and others flat out illegal…. But hey, who’s watching?
Increasingly several people are watching.
This would be that bit in the governments announcement about ‘other practices that may pose risks to consumers’. Indeed there’s lots to look at there.
But how, who is filing a complaint?
Who knows how to file one?
Who wants to file one?
What’s the upside?
Justice?
Do we even know what justice is anymore?
The issues around blind bidding are interesting in that the evidence, the peer reviewed research out there, appears to suggest that open bidding actually results in higher prices.
Human psychology, always a factor, could result in even more dramatic price spikes.
Question; has blind bidding driven prices up faster than they would have gone otherwise?
Answer; Maybe.
Question; Has blind bidding driven prices up further than they would have ultimately gone?
Answer; probably not.
Question; Would open bidding have had different results?
Answer; Likely yes, and also no.
Prices may have risen faster, and further, maybe making more room for a brief decline from truly extreme and sudden peaks. But the overall trend would likely be the same. Thanks to underlying fundamentals. IE people need places to live.
In other words, as I like to say, real estate prices are a yo-yo on an escalator.
They go up and down in small increments, from time to time, but the overall trend is steadily upward.
Due to a lack of supply, and the supply that is being built costing more per foot due to increased labour costs, material costs, and ever increasing government regulations.
The reality is that open bidding is not a real fix, not to prices.
These sorts of proposals and legislation, foreign buyers tax, vacant home taxes, the limiting of the purchasing power of CDN borrowers through an arbitrary stress test, and now tweaks to the bidding system are rarely anything by diversions from the core issues. As the escalator has just kept on trending up on the fact of all of this, hasn’t it.
The irreversible mistakes made around infrastructure spending, land use policies, and protection of fiefdoms are far tougher to fix, and so we get sideshows instead.
Policies designed to control prices miss the fundamental point taught in Economics 101.
Low supply + demand = high price
The Real Estate story boils down to one word;Supply.
Thank you.
DW