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Anxious sellers in the GTA real-estate market are reviving the ‘reverse offer’

Reverse offers and other eighties fashions such as conditional offers, escape clauses and vendor take-back mortgages are staging a revival in the GTA real estate market.

Fred Lum/The Globe and Mail

Homeowners who steep in anxiety as their house sits on the real estate market can become intensely motivated to strike a deal. They sense interest from potential buyers: Why else would they return two or three times to gaze out the dining room window or stand in the driveway for lengthy conversations with their agent? And yet, the house hunters balk at making an offer.

Some frustrated sellers are launching negotiations by submitting their own offer – to the buyers.

It's the resurgance of a strategy known as a "reverse offer," says Cameron Forbes, who is also seeing such eighties fashions as conditional offers, escape clauses and vendor take-back mortgages stage a revival in the Greater Toronto Area real estate market.

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Mr. Forbes, general manager at Re/Max Realtron Realty Inc., oversees eight offices around the Greater Toronto Area from Markham, Ont. There's no doubt the market has slowed considerably since the peak in April and prices have dropped about 20 per cent, he says, but the slide is much steeper in some areas than others.

In the 416 area code of Toronto, for example, the inventory of listings has not ballooned. At the end of August, there were 1.9 listings for each sale.

"It's actually still a seller's market," Mr. Forbes says.

Heading north to the township of King, there were 8.5 listings for every sale at the end of August. That puts King in buyer'smarket territory. The area's average price of $1.5-million is higher than many areas of the 905. The combination of luxury and distance puts it out of reach for many prospective buyers, he explains.

Richmond Hill and Newmarket are positioned in a balanced landscape, with approximately four homes available for every sale, Mr. Forbes explains.

Inexperienced real estate agents who have only seen markets go up are learning vintage tactics from the late 1980s and early nineties, but which one they employ depends on the dynamic between buyers and sellers.

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"We're coaching them on understanding that markets change and there's always opportunity," Mr. Forbes says.

The reverse offer comes into play when sellers really need to sell. Perhaps they purchased another property in the spring and then watched their own house sit idle after the market shifted. Buyers were also hesitant to make offers during months of uncertainty because there were no comparable properties selling to use as a benchmark.

"I've seen it multiple times," Mr. Forbes says. "The buyer says, 'I can't do the asking price, but I'm not sure what the seller will accept.'"

The seller who knows a potential buyer has visited a few times might make an offer below the current asking price and wait for a sign-back. Eventually, the two sides come together.

"You'd only do that when you know you've got interest," Mr. Forbes stresses.

Another method used to combat rising angst is to make an offer to purchase a property but adding the condition that the buyer must be able to sell his or her existing property.

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Mr. Forbes has seen this come into play a few times in King and Newmarket, where some sellers have been struggling.

The sellers who agree to that condition often add a clause of their own. The "escape clause" allows the seller to continue to market the house. If another bidder comes along, the first buyer has a short window to waive the original condition and complete the deal, or they must back out and free up the seller to strike a deal with buyer No. 2.

Also making a comeback among keen sellers is the "vendor take-back mortgage." In one example, a homeowner may be willing to let a house that would have sold for $2-million in the spring go for $1.8-million. But a potential buyer may not be willing to go higher than $1.6-million.

Rather than agreeing to the buyer's offer, the seller may offer a second mortgage of $200,000 for a five-year term with an interest rate of 5 per cent, for example.

The seller receives the bulk of the cash up front, and receiving the additional sum over five years is better than not receiving it at all.

"It may just bridge that gap," Mr. Forbes says. "This is a way to make that $1.8-million make sense" for the buyer, he adds.

In the city of Toronto, agents are also shifting strategies to suit the property and the area.

Jillinda Greene, an agent with Re/Max Hallmark Realty Ltd., listed a house at 9 Maughan Cres. in the Upper Beaches for sale with an asking price of $1.299-million. The property sat with no offers through an unusually inactive summer, she says, so she relisted it after the Labour Day weekend with an asking price of $999,000.

She did not set an offer date, but that seemed to cause confusion for the buyers' agents, she says, so she established a deadline for submitting bids. The house received four offers and sold for $1.205-million.

Andre Kutyan of Harvey Kalles Real Estate Ltd. is seeing few conditional offers in Toronto. He recently sold a semi-detached house near Dufferin Street and St. Clair Avenue in the $800,000 range. Of 11 offers, one was conditional on financing.

Mr. Kutyan provides a home inspection at the time of listing in an effort to encourage buyers to come in with firm offers. He is also trying to secure as large a deposit as possible from bidders in order to ensure better security for the sellers.

Mr. Kutyan recently represented the buyer in one North Toronto deal. His client won the contest by attaching a deposit of more than 5 per cent in the form of a certified cheque. That substantial deposit beat out a higher offer price from another bidder, he says.

Adrienne Warren, an economist with Bank of Nova Scotia, believes the GTA market has adjusted to the policy changes imposed by the Government of Ontario in April in an effort to cool the market.

A tentative improvement in sales in August, combined with a pullback in listings, created a more balanced market compared with the previous three months, she says.

The momentum in sales and pricing remains much stronger in the more affordable semi-detached, townhouse and condominium segments of the market, Ms. Warren adds.

In Mr. Forbes's view, some of the fresh and renewed approaches have helped the stasis of the early summer give way to a stronger late summer and a drop in inventory from July to August. He takes that as an encouraging signal for a more buoyant fall season for sales. He's not expecting prices to rebound to where they were earlier this year, but he thinks they may level off.

"Really, that whole psychology of, 'If I buy now, it may be lower next month,' is gone."

Move-up buyers are reasoning that it won't harm them to sell when the market's in a dip because they can buy in the same environment. At the end of August, a house that would have fetched $1-million at the April peak would sell for about $200,000 less, bringing it to $800,000. But if that homeowner was looking to move up, a $1.5-million house would now be going for a $300,000 discount, or $1.2-million.

Homeowners looking at trading properties are pondering whether to sell first or buy first, which marks a change from the past several years, during which people generally considered it harder to find a new home to buy than to sell an existing property.

"It's a decision now," Mr. Forbes says. In recent years, there was little debate.

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