Why Buyers In Toronto Are Forgoing Home Inspections And Simply Hoping For The Best
Bidding wars, frothy markets and “as is” deals all sounds like we’ve jumped back a decade in time.
If you happen to be in the market to buy a house in Toronto, you could be forgiven for thinking it’s 2007 all over again. Such is the frothiness for real estate that bidding wars are sending sales prices up into the ether, with the average price for a detached home in Canada’s largest metropolitan C$1.21 million ($905,950) as of February this year.
Prices have risen a by a third since last year and the shortage of inventory has meant that buyers are forgoing contingencies such as home inspections and often buying property sight unseen, reports Bloomberg. The frenzy means that appraisal firms are seeing a drop in business as inventory drops and buyers try to make themselves attractive so sellers with “as is” deals.
“The bottom line is we are in a shortage of supply,’’ said Tasis Giannoukakis, a Hombuyo Inc. broker based in Toronto, adding that it’s not uncommon to see bids of as much as C$200,000 over the asking price. “That pressure is what’s causing everybody to remove the conditions on an inspection.’’
DIY home improvement shows have undoubted bolstered the confidence of inspection free bidders who may feel knowledgable enough to know how to tell a leaking roof and rotted window frames when they see them. But over confidence and desperation make dangerous bedfellows. Termites, drainage, foundation issues and bad wiring can only be spotted by a professional and unless a buyer has a contractor with them to do an informal, verbal inspection when they first see the property, they could find themselves in a heap of bother. For many it’s a risk worth taking.
Of course, Toronto isn’t the only North American market with rocket fueled listing prices. Vancouver and San Francisco are also caught in a grip of over bidding with a seller’s disclosure or home inspection report having to suffice in lieu of a buyer’s inspection.
“I don’t think the trend is people don’t want to do inspections anymore — it’s somewhat being forced on them in order to compete,” Giannoukakis said. But, he added, if someone is buying a property in the million-dollar range—something far more common after the steep increase in home prices—then a few thousand dollars of potential repairs may be of little concern.
To be fair, even buyer home inspections which cost around $450 may not be able to detect a houses darkest secrets which may hide behind walls or under the ground in bad plumbing. Aging appliances and leaking toilets and pipes can easily be circumvented with the seller including a home warranty (usually around $500 a year) as part of the deal which could further encourage a buyer to forgo an inspection. In a competitive market, though, even these add ons may be unnecessary.
All brokers and agents advise home owners to get an inspection to protect themselves. But in reality real estate pros often dread them. Home inspectors have the power to scare away buyers from a deal and thus vaporize commission checks before they’ve even been cut.
In some cities where the “hand money” or “binder” can be a little as a thousand dollars for going into contract on a property, a buyer could waive their right to an inspection but still arrange to have a “friend” (ie. a contractor) take a walk through anyway. If they then see something they don’t like, the buyer could back out of the deal and lose his/her deposit. Alternatively, though in Toronto and elsewhere, buyers are closing on homes, then hiring a house inspector, crossing their fingers and hoping for the best.
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