This issue is becoming more common in the Toronto real estate marketplace. Is this the sellers doing or the Realtor just being incompetent? It's a bit of both. With how rapid market values are increasing these days most Realtors only need to upload a listing and bang, it sells for more than asking in less than 7 days. Well not all Toronto Mls listings sell that fast and above asking. Enter investment properties like triplexes, fourplexes and up. These are so over priced that most savvy investors will not even entertain the idea of going out to view them.
Gone are the days of buying an income producing gem that pays the initial investment back in less than 10 years.
It puzzles me how some Realtors derive value on most income producing properties currently listed on the open market, 10 years ago, granted it was a different market, no investor would purchase a investment property that was not producing a minimum 10% capitalization rate. Ten years ago seems so long ago as today's acceptable cap rate is 6%. This is due to a red hot Toronto real estate market that has increased on average of 8% per annum over the last 5 years or so.
Some of these listings don't even produce positive cash flows with 25% down, no wonder most of these listings sit on Mls for as long as 6 months or even worse never sell. The lenders are as much to blame as the Realtor in helping appraise most of these deals, this practice could lead the market in a down spin sooner rather than later.
All Toronto realtors should exercise caution when pricing any home and do proper due diligence, especially the younger agents who are not as familiar with the product. Analyzing cash flows is essential when pricing an investment property plus understanding how much money any potential buyer may have to invest into leasehold improvements to bring the property up to standards in order to increase rents. Agents who are not familiar with this practice should either be coached or refer the listing to a more experienced agent and learn throughout the process, this will only help the junior Realtor in the long run in understanding the product. Never waiver to a sellers demand on price for the fear of losing a listing.
Sellers also need to realize that over pricing a property is not the right strategy if indeed they are motivated in selling anything, let alone an investment property, the market will dictate what true value is. Even in a hot market as is here in Toronto at this moment, it's proven that properties that are overly priced won't sell, and in the end the listing becomes somewhat tarnished. If you’re a seller don't fall victim to that scenario.
If you’re a home owner and would like to know what your home is worth, please click here and fill out the contact form for a Free Market Evaluation. If you would like to speak to Vincent than please feel free to call @ 416-769-1616