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Sunday, May 5, 2013

Unrealistic Demands

Unrealistic demands

Gazette analysis shows which Montreal areas are best and worst at pricing homes to sell
Pierre was enamoured for more than a year with the Westmount mansion’s high ceilings, marble bathrooms and river views, but the owner’s multimillion-dollar, supposedly non-negotiable asking price was just too high.
But when real estate sales slowed in late 2012 and some Westmount buyers and sellers became jittery following the election of the Parti Québécois government, Pierre, who spoke on condition that his real name not be printed, said he was finally able to buy the mansion — for $1 million below the asking price.
While a seven-figure discount is far from typical, buyers, brokers and evaluators cite examples of luxurious Westmount homes selling for up to 40 per cent below asking price at a time when the inventory of Montreal homes for sale is hitting the highest point in more than a decade.
One Westmount mansion initially listed for $4.5 million traded hands a year later in 2012 at $2.8 million.
“My general impression is that there is a huge disconnect between the listing of these homes and the reality of the market,” said Pierre, an affluent businessman.
“People keep lowering their asking prices.”
Unrealistic pricing, following years of appreciating property values, is joining fears over high household debt and tougher rules on insured mortgages as explanations for weakening Montreal Island home sales, which dropped 22 per cent during the first quarter of 2013, year over year, real estate board data show.
To test whether sellers are overestimating the value of their properties, The Gazette analyzed real estate board data for average asking and selling prices, based on about 66,000 sales of Montreal Island plexes, condos and single-family homes since 2008. The analysis suggests the gap between what owners want for their homes and the actual selling prices for their properties widens as market conditions weaken, like during the economic downturn of 2008 and 2009.
Homeowners who sold their properties on Montreal Island during the last three months of 2012 received just under 94 per cent of the average asking price — down slightly from the same quarter in 2011.
“There are many factors that explain this (the market slowdown), but the overvaluation of home prices could be a part of it,” said François Des Rosiers, a professor in the department of finance, insurance and real estate at Université Laval. “It’s very complicated.”
Indeed, while Greater Montreal property values are still expected to rise slightly in 2013, Royal LePage Real Estate Services recently predicted home prices could decline by up to five per cent this spring as sellers realize they will have to “negotiate” with buyers to sell their homes. Between 2002 and 2012, the price of a Greater Montreal home rose 103 per cent, according to the Teranet Index on House Prices.
Are Montreal sellers simply being too greedy at a time when buyers have the advantage?
“Right now, the sellers aren’t reducing their prices,” Des Rosiers said. “It could happen if the slowdown gets worse, but I’m not one who expects to see a huge drop in prices on the island of Montreal.”
The Gazette looked at the average amount owners wanted for homes sold by brokers, compared to the average sale prices for those properties, in neighbourhoods across the city. From these figures, a ratio of asking-to-selling price was calculated. The higher the ratio, the better the sellers were at getting the amount they wanted for their homes; for example, a 100-per-cent ratio meant buyers paid the full asking price for a property.
Among The Gazette’s findings:
Westmount — where single family homes sold for $163,000 below the average listing price of $1.5 million — was the area with the widest gap between what sellers wanted and what they actually got for their properties, partly because of the difficulty of finding comparable prices for the unique and expensive houses. The ratio was 90.6 per cent.
For condos, Côte St. Luc sellers fell $30,600 short from getting their average $335,453 asking price, in what was the widest gap on Montreal Island in that category. The ratio was 91.8 per cent.
With a ratio of 96.6 per cent ratio, condo sellers in the Villeray/Saint-Michel/Parc-Extension borough were the best in their housing category at getting their asking prices.
Condo sellers priced their homes more realistically for the market, on average, than owners of plexes or single-family homes, most likely because it’s easier to find prior sales of these apartments as a basis for comparison, experts say.

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