By Penelope Graham

It’s an unfortunate scenario all good agents strive to avoid; let’s say a buyer you represent has just purchased a home at the top of their budget and participated in a bidding war to do so. To stand out from the pack, they’ve dropped their financing and inspection conditions. You’ve guided them through every step of the offer process, basing pricing strategy on solid comparable solds data for the neighbourhood. But when it comes time to confirm financing, their lender balks – they don’t agree on the home’s valuation and refuse to put up the total mortgage amount.

With precious few financial options, and potentially facing legal action from the seller, your client is between a rock and a hard place. But it’s not your offer strategy that’s at fault.

The issue is a growing disconnect between the comps used by appraisers and what buyers are actually willing to pay in some of Canada’s tightest real estate markets. As witnessed in the days of Vancouver’s double-digit market appreciation and currently in the GTA, bidding wars can pump neighbourhood prices overnight, leaving lenders’ data in the dust.

“Prices change so quickly that when appraisers are looking at the properties, they’re not as up-to-date on the market as we are,” says Carlos Moniz, a Toronto-based agent with Zoocasa Realty. “They might be pulling sales from two to three months ago, while we’re looking at sales from the same week.”

Adds Mike Bricknell, a mortgage broker at CanWise Financial: “The appraisers do not have access to the near-future closing prices, which the Realtors do. Two weeks is a realistic timeframe for the properties sold and closed.”

For agents who have real-time access to the market, a two-week disconnect is an eternity – and it’s an especially pronounced issue for high-ratio buyers. The added requirement of qualifying for mortgage default insurance can further risk a deal, as the comps used by the Canada Mortgage and Housing Corp. and private insurers may be even more obsolete.

“The service that the high-ratio insurers (CMHC, Genworth, Canada Guaranty) use tend to lag by a month or so, which could stop a deal in its tracks,” says Bricknell.

Moniz adds that it’s especially challenging when price appreciation in hot markets deviates from the usual trends. While listing prices typically rise in January, spring and fall, 2017 activity has defied seasonality. Comps have surged overnight in some cases and he’s had to evolve his strategy to keep pace.

“This year, for example, it was substantial. I had a condo that we put an offer on and all the comparable solds were in the mid-fours,” he says. “Because the market is really hot, I advised my clients, ‘We probably need to be in the high fours to be competitive.’ This was in North York at Yonge and Finch, for a two-bedroom, two-bath listed at $399,000. We were pegging it at high $400,000s based on the comparable sales over the past couple of months. It ended up selling for $615,000.”

So what kind of guidance can agents give to help clients safeguard themselves against mortgage shock?

Don’t max yourself out: The scariest thing, Moniz says, are buyers with the bare minimum jumping into – and winning – bidding wars. Armed with a pre-approval, they may think they can afford to carry the larger mortgage, but they’re most vulnerable should their lender refuse to fund them.

“Let’s say something came up and the ratio has changed a bit – they’ll be scrambling to find financing while the broker tells them, ‘You just need to come up with another $19,000.’ Well, people don’t just have that under their mattress,” he says.

“If you only have five per cent, don’t stretch yourself too thin, just get something – even if it may not be the place of your dreams – that would leave you a little money aside in case something happens.”

Time is of the essence. While Moniz posits that in a perfect world, buyers would simply save a larger down payment, that’s not a realistic approach in blistering hot markets.

“The difficulty you’ll run into is in the amount of time it takes you to save that money, the market is outpacing that,” he says. “I meet first-time buyers who say, ‘I have 10 per cent or 15 per cent down, but we’ll wait until we get to 20 per cent to avoid CMHC.’ Well, the market is appreciating at 10 to 15 per cent and an average house is $500,000. Are you saving $50,000 after tax? Probably not, so you’re probably better off getting in, paying CMHC and getting into the market earlier.”

Adjusting expectations may be a particularly tough pill to swallow for clients, especially if they started their home search with loftier goals.

“Even sitting down with people you first met three months ago, you’re now having to reassess things,” Moniz says. “You say, ‘When we first sat down – where the market was – it has changed substantially.

“Instead of going to your max budget to get what you want, make a bit of a sacrifice. If you want to live downtown, maybe go to Mississauga, where the price point is a bit lower and give yourself a bit of a cushion. If you’re going for a two bedroom, maybe go with a one bedroom and be a little more conservative. Once you’ve built a little bit of equity, then make that move in three to five years.”


  1. This is what happens during a real estate price bubble–before it bursts–not afterward. The fact is these properties are not intrinsically worth what people are willing to pay for them. The mad rush to get in on the game is in full swing. Price has little to do with value. Bidding wars always yield overpaying when ignorant-to-the-vagaries-of-overheated-markets’ purchasers walk the gangplank of wishful thinking, wishfully thinking that they too will successfully participate in the real estate gold rush. What happened during 2007-2008 will happen again; it always does.
    I was working as an appraiser during those years, and I saw the writing on the wall when most Realtors and buyers did not. Why not? Because they did not ‘want’ to see it; they did not want to believe that it would all end; they were in denial. Everyone wanted to get rich quick, and so, buying real estate became a gambling casino vehicle that one could live in.
    Whilst working as a appraiser during 2007-2008 all appraisals contained a statement within defining which way the market was trending pricewise at the time of each appraisal signing. Lenders could make up their own minds regarding whether or not to advance funds to potential buyers/refinancers; they wanted to sell money after all. Appraisers did not want to be seen as deal breakers because if so they would not be called upon for further appraisals by the lenders any more; their income stream would dry up, and that would be a no-no, so they went along for the ride and OK’d values that lenders wanted to be reflected within the appraisal documents. Mortgage brokers’ sales staffs wanted their cut of the money selling commissions as well. “Sell, sell, sell” was the mantra of the day, as it is now. “Strike while the iron is hot” ruled the psychology of the entire industry, as it does so now. “Everyone will be a winner” was the phrase of the day, as it is now…except for the losers/future losers who found/will find their properties under water during the dry season/coming dry season respectively, when they had to/have to sell or refinance at higher interest rates. Many who bought in high with little or nothing down (of their own money) simply walked away when the burden to remain financially responsible became to onerous to maintain. Their monthly payments were treated simply as rent payments on properties they were really only technically leasing/renting from their lenders. The cycle repeats itself endlessly…because…people ignorant of history refuse to learn from past boom/bust cycles. “This time will be different” they surmise. It never is.
    There is a saying which goes something like this: “Some people tend to learn from their mistakes, smart people always learn from their mistakes, but really smart people learn from others’ mistakes”. There aren’t many really smart people in this world. There will be a sell off soon…by the really smart people who are gaming the system, the short-term gamblers/investors…and prices will begin to retreat back toward their intrinsic values. The cycle will begin all over again as a new generation of ignorant-to-the-lessons-of history’s dummies emerges onto the buying scene.
    Meanwhile, the craziness goes on and the lemmings drive relentlessly, breathlessly toward the cliff edge. “Now is the time to sell” says the Realtor will dollar signs in his/her eyes. “Now is the time to buy” says the Realtor with dollar signs in his/her eyes. “Now is the time to use caution” says the Realtor/consultant/advocate with a functioning conscience within his/her makeup.

  2. is this Advertorial? Writer works/promotes the same firm (of all the members of TREB) that she finds quotes from?

Leave a Reply