Inspired by the series of articles "The Other Side of the Story (I-IV)"
written by Ben Myers of Fortress Real Developments I
decided to take a similar look at a fairly recent and popular article written about the Ottawa condo market
published on CBC News
Ottawa. The core message of this news piece was that the condo market
in Ottawa is over saturated and therefore prices will drop, as will the rate of
development. And from a quick glance, that's what would appear is
happening - but a little further analysis will reveal much more of the story.
In this weeks post, I'm going to analyze the CBC's articles opening
statement "there are more
condos up for sale in Ottawa than ever before - nearly 50 per-cent more than 2
years ago".
However, before I start, I think it's
important that we define "condo" so we're all on the same page.
The term "condominium" is a type of ownership; it has nothing
to do with the style of property. Many people often think "high
rise" when they hear the word "condo", but condos in Ottawa come
in all shapes and sizes; high-rises, low-rises, townhouses, stacked townhouses,
and even single family homes can be designated as a condo.
Now, let's get back to the CBC article.
It claims that the amount of condos for sale has doubled in over 2 years.
That sounds like an awfully staggering number; there must be cranes and
construction sites everywhere in the National Capital Region, right? Well,
actually, not really. There are a few key contributors to this apparent rise
of condos for sale.
Firstly, new home condos (that is condos
that have yet to be built or are in the midst of construction) are being
marketed differently than ever before. When I first started working in
this industry over 10 years ago, I would hardly ever see a real estate agent
come by my new home office - this was mainly due to the very low (bordering on
insulting) co-operating commission builders used to offer to outside real
estate agents - back then it was common for developers to offer $500-$1,000 for
a successful transaction, a far cry from the 2%, 3%, and even 4% co-operating
commissions you see today. Not only was a low commission offered, but
often the commission wasn't paid until after final closing of the property,
which in some cases could be well over a year. Now, I'm not saying that
real estate agents are only after money, but when your income is solely based
on commissions, cash flow can be an issue. And when you have to wait for
over a year to get paid that can present some serious problems - especially if
you have things like bills to pay and groceries to buy. This pay
structure was one of the main reasons there was a divide between the new home
and the resale industries - it was almost as if they were two completely
separate industries despite both falling under "real estate".
It wasn't until recently where that divide was narrowed, builders saw
that resale agents were being alienated and changed not only the co-operating
commission amount, but also the pay structure - it's now more common to see
commission payments come in two parts; half is paid when the offer is firm, and
the other half is paid when the property has been constructed and delivered to
the purchaser. This change not only brought more agents and their buyers
to new home offices, but it also enticed more agents to help builders sell
their product. And what do real estate agents primarily use to advertise
the properties they have for sale? You guessed it, MLS.
A quick search on MLS (conducted the date this blog post was published -
Nov. 1, 2013) showed that 162 of the 1,566 condominium properties on MLS have a
"year built" date of 2014 or later - that means over 10% of the condominium market
on MLS is a new home condo, a pretty substantial number considering there was
only 1 new home condo listed in 2010.
The secondary reason for this increase in
condos for sale are the number of "discount brokerages" that have
popped up in recent years - personally, I define "discount
brokerages" as brokerages who significantly reduce their commission or
offer a small flat fee to home sellers for their listing "services".
I use the term "services" loosely since their types of
brokerages don't offer much in the way of service - for their small fee or
commission they will often post your property on MLS, provide you with a few
"For Sale" and "Open House" signs and give you a few tips
on how to sell your home. You often get little to no guidance from an
actual real estate agent and you're more or less left selling your property on
your own. With the increase in popularity of these services, and the low
cost incurred, many home sellers have opted to list their property for sale
"just to see how it goes". This new option to list your home for
sale has reduced the amount of obstacles that historically stood in the way of
potential sellers and has increased the amount of properties for sale on the
market.
So does this mean that there are no more
condos (new home or resale) on the market today than there was last year?
Of course not, as Ottawa goes through its intensification of the downtown
areas and our Baby Boomers age, you will see that number climb, but not quite
at the rate the CBC article would have you believe.
Next week, in my continuation of my
analysis, I'll dissect some of the examples of Ottawa's condo market mentioned
in the CBC article.
Thanks for reading.
Taylor Bennett
Sales Representative - Bennett Property Shop Realty
www.BennettPros.com
Taylor@BennettPros.com
@OttawaTails
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