navigating real estate 2020
Times are changing for real estate in 2020. Landowners, investors, and agents should keep an eye out for some upcoming trends and changes to deal structures.
The last few years in real estate have been a whirlwind to say the least. As the market sobers from the dizzying heights of 2016 and 2017, we continue to notice a shift in how transactions are taking place. These shifts have been noticed in financing, completion terms, and listing periods, just to name a few.
One key trend in 2019 was the changing financing climate, especially for land. Since land is typically purchased as an investment, banks not only have more stringent qualifications but they also tend to be much more cautious when markets are in limbo. In the past 18 months, more and more buyers have gotten creative with acquisition structures. We wanted to address these topics further and offer suggestions as the industry continues to face headwinds in uncertain economic times.
An example of this shift is the reemergence of Vendor Take-Back Mortgages, where the seller of the land extends a loan to the buyer for a portion of the sale price. The seller typically retains equity in the land and continues to own a percentage equal to the amount of the loan until the vendor take-back mortgage is paid in full. As banks have tightened their requirements and interest rates remain near historic lows, Vendor Take-Back Mortgages often make sense for both parties, especially in land transactions where the seller may not need immediate access to all funds from the sale. The benefit to the buyer would, of course, be the ability to get financing, while the benefit to the seller is earning additional funds through the interest on the loan.
Another interesting topic has been the resurgence of buyers providing small deposits, often less than 5%, to secure a property as the due diligence period is completed. These due diligence periods can range from a couple of weeks, up to several months, or even a year. Although these transaction structures often result in a successful sale, we’ve also encountered numerous situations where the overall market deteriorated during the due diligence period and the would-be buyer decided to forfeit the small deposit, leaving the seller in a sometimes vulnerable position and back to square one. By working with land specialists, these transactions can be structured in ways that protect your equity and improve your chances of successfully selling your property to a reputable buyer. In changing markets, the importance of working with professionals is more apparent than ever. Selling a real estate asset is a big decision, one where utmost attention should be spent combing through prospective offers, ensuring the seller’s best interest is kept in mind at all times.
If considering a sale in 2020, here are some valuable tips:
Pricing is Critical: In a changing market, it’s imperative to consider current market conditions and to price the property accordingly. In recent years, prices were climbing so quickly that even if a property was substantially overpriced, that price range was eventually reached. In our current price-sensitive market where values are hard to determine, pricing can only be based on comparable recent sales rather than perceived market direction.
Marketing Period: When marketing your development property, it’s important to ensure that it receives adequate time on the market to be properly exposed to potential buyers. As more properties sit on the market, buyers have ample time on their hands to make decisions and complete their due diligence. As a landowner, you want to ensure the property is shown in the best light and to as many prospective buyers as possible. What typically took 30-60 days on the market in recent years can now exceed six months, so it’s important that when you choose a realtor, an adequate listing period is given. By allowing your realtor some time to effectively market the property, they can then conduct any necessary property studies and communicate with city staff which then increases the probability of a successful sale.
Completion Flexibility: A completion is a date where the new buyer takes legal ownership of the property. In the past 18 months, we’ve noticed a widening range of completion lengths, ranging from a couple of weeks to several years. It’s important to communicate your expectations to your realtor as it can dramatically impact incoming offers. For example, a buyer may offer a larger purchase price in exchange for their preferred completion period.
Expertise: In the height of the market, anyone could list a property, put it on MLS, and receive offers simply based on the direction of the market. 2020 will likely prove to be quite the contrary, where in-depth knowledge of the area and development land as a whole makes all the difference. A realtor who specializes in land is consistently meeting with clients and city officials in regards to properties and areas that are ripe for development which allows them to acquire vast market knowledge from an insider perspective. By using an experienced agent with a successful track record, a landowner is more likely to get favourable terms, and of course a great price.
As more and more opinions flood the news and social media, it’s important to take the time to learn about possible scenarios that might affect you and the sale of your property.