Did I ever mention that I hate change?

From as far back as I can remember, I’ve never been okay with anything new and different.

I’m a routine type of guy.  I know what I know and I like what I like.  I get accustomed to certain ways, processes, and comforts, and to uproot all that would send me into a tizzy.

Long-time TRB readers will recall the story of when my parents bought our house on Bessborough Drive in May of 1992.  I happened to the be one answering the “house phone” when my Dad called that night, looking to speak to my Mom.  I asked, “Dad, what happened?”  He simply replied, “We bought it.”

That was the first time I ever felt anxiety.

That immediate feeling in the pit of my stomach that I had only previously known from going off the top of a roller-coaster at Canada’s Wonderland was now passing through my body, from my head to my toes, as I dropped the phone and laid down on the carpet in my bedroom.

The fact that we were moving to a larger house, with a bigger yard, a deeper driveway for my hockey net, a basement rec-room for video games, and more, did not matter in the slightest.

128 Parkhurst Boulevard was the only house I had ever known.  My bedroom was the only bedroom I had ever known.  I had walked to and from school a thousand times from that address.  I knew every nook and cranny of that house.  Hell, I could even close my eyes and hear the sound that the solid wood front door made when it closed.

The thought of change absolutely terrified me.

I continued to dread moving to a new home for months, but of course, once we were a few weeks into the new house, I absolutely loved it.

You could have told me that would happen, but I would have told you that you were mistaken.

As obvious as it should have been to me, I just wasn’t willing to see it.

Change is difficult for many people, and thirty years later, I still have the same attitude as I did then.

Routine helps me in many areas of my life, but nobody among us could say that a fear of change or refusal to adapt is a good thing, across the board.

The real estate market has changed over the last two months and more change is afoot.  But as much as I can regale you with my lack of flexibility in the face of sudden changes in life, this is one area where I will personally roll out the red carpet.

I have no doubt that over the next few weeks, if not months, we will be talking about change quite a bit.

Today, I want to narrow the focus of change to discuss closing dates in our real estate market, because while we could discuss change in a dozen areas pertaining to real estate, I think it’s better to take deep dive on one topic at a time.

When the market was red-hot, these two things remained constant:

1) People bought before they sold.
2) Sellers hand-picked their closing date.

I’ve written blogs on “selling before buying” on a couple of occasions, but for the most part, I’d estimate that 95% of our clients will buy before selling.

When the market is red-hot, there are drawbacks.  Prices, competition, high-demand, low-inventory, etc.  But at least the market is efficient!  You know what to expect.  You can go out and buy a home with a set closing date, say, 60 days in advance, and be supremely confident that you will prepare, list, and sell your home well in advance of that closing date for your new property.

We also expected that the seller would simply give us a closing date, and we’d make do.  If the seller had ten offers and said, “We want an August 26th closing date,” who were you – one of ten buyers, to offer them a September 30th closing date?  I mean, you could, but you could also include two conditions in your offer, or provide a 1% deposit, or ask to include the urn on the mantle with Gramma’s ashes, since none of the above will do you any favours with the sellers.

As the market has begun to change here in Toronto, we’re seeing a lot of change with respect to closing dates, not only how buyers and sellers have changed what they want, but also how closing dates can play a role in negotiating.

This is why I said “I welcome change.”

I welcome having more tools in my arsenal and more ways to negotiate whether I’m working for the buyer or the seller.

Let’s look at a few major changes and how they play a role in our current market…

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More people are selling before buying.

There are far more implications here than just with respect to closing dates, for example, a person looking to sell before buying does not “need” to sell by a certain date, and thus could negotiate harder on the price, but I’ve always felt that the longer you’re on the market, the less leverage you have, so I’m essentially counter-arguing my own point here.

When a property owner sells first, it opens all kinds of roads toward finding that closing date.

The seller might be more flexible on closing, thinking he or she could close quickly and find a short-term rental, move to a secondary property, or move in with family or friends.  But the seller might be less flexible on closing, thinking a longer closing is necessary to facilitate that new place to live.

If the property is in demand and is listed low with an offer date, and multiple offers ensue, that seller could gain favour with potential buyers by being completely flexible with the closing date, on account of not having bought a place, and that could help buyers out immensely.  In any market, helping buyers will in turn help yourself.

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Buyers want longer closing dates.

As I noted above, in a red-hot market, buying first and selling second was easy, since you possessed a high level of confidence that you could sell your home in a week.  That meant that the average closing date was around 60-days, and most market participants took this as given.

In today’s market, buyers who have a “backup” listing to sell, in order to close on their purchase, are more concerned with that sale than they would have been in the spring.

Buyers are not looking for 90-day closings whereas they used to look for 60-days.

And when push comes to shove, some buyers aren’t taking shove lightly.

This can backfire dramatically for some sellers who don’t understand the current market.

Two weeks ago, I made an offer on a house in the $2M range for which the sellers essentially demanded a 30-day closing date.  My clients, of course, had a backup property to sell.  It was a condo that is still in high demand, but there’s absolutely no way we could agree to a 30-day closing, knowing that we’d likely need to have the property sold firm 10 days before closing in order to satisfy the lenders.

When we made our offer on the house – with a 90-day closing, it was signed back to us with a 28-day closing.  Even worse was that this was never discussed with the listing agent.  It was just sprung on us.  Topic for another day: communication.

The sellers refused to budge so we moved on.  We had no choice.

But that property is still on the market, two weeks later, so unless those sellers are going to sign the next offer back with a 14-day closing, then they were just being inflexible for the sake of being inflexible.

In the end, the buyers and the sellers lost here.  The buyer simply cannot close in such a short time period, and truth be told, I wouldn’t have recommended they consider a 40-50 day closing either.  We need to get their property prepared and staged and that takes two weeks.  I would not go to market as-is with any listing today, no matter what.  I still want to employ the same process as we always do with respect to preparation, repairs, painting, cleaning, staging, marketing et al, and that means two weeks right off the top.  Then, what if the listing takes three weeks to sell, and it’s conditional for a further week?

A 30-day closing can be a deal-breaker in this market.

Buyers don’t just want longer closing dates; they need them.

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Flexible closing dates are making a comeback.

Have you ever used an advance/postpone clause in an offer?

Here’s what one looks like:

Notwithstanding the completion date set out in this Offer, the Buyer may (advance/postpone) _ the completion date of the transaction by not more than (# of) _ days, by giving written notice of the amended completion date to the Seller or the Seller’s Solicitor at least (# of) _ days in advance of the earlier of the completion date set out herein and the amended completion date.

If you’re a seller and you have not bought yet, you might benefit from this clause.

Let’s say you sell your house today – June 15th, and you ask the buyer for a closing date of September 30th because you figure that you’ll need time to find the right house and close it, and you don’t want to be homeless!

But guess what happens?  You find the dream home next week!  So here you are, June 22nd, looking at this amazing house that you thought could take months to find.

All good, right?

But what if that seller is insisting on a 60-day closing?

The seller wants August 22nd, but if you gave them that closing date, you’d have to obtain bridge financing from August 22nd through September 30th, and that could cost a fortune!

So how can you get out ahead of this?

You use that clause!

I actually completed a transaction last week where the seller included that clause, and it helped my buyers immensely.

It didn’t help the buyers directly, however, but rather it gave me a tool with which to negotiate.

The listing agent came back to me four times for more money, and every time, I said “No.”

But the listing agent and the sellers needed something.  It didn’t matter what, at this point, but human nature is such that they risked getting in their own way out of pride.

The listing agent mentioned that the sellers had not yet bought a house and that they didn’t yet know what closing date would work for them.

Well, it sure sounded like our good friend, Mr. Flexible Closing was now making a surprise appearance!

“We can’t give you any more money, but we can offer you a clause which would allow your sellers to advance the closing date as much as 60 days with 30 days’ notice.”

This bridged the gap and we got the deal done.  A true “deal” with respect to value, I might add, and a price that I’m still giddy over.

My clients are renting, I might also add.  And at a nominal cost.  Do they care when they close?

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The Leaseback Comeback

Who’s another wily veteran making a comeback?  No, not Tom Brady, but rather the “leaseback.”

I mentioned a couple of months ago that I had a listing that was proving a little difficult, and to make matters worse, the seller wanted a longer closing and the buyer wanted a shorter closing.

Why?

Because the buyer had a below-market interest rate being held with a mortgage pre-approval!

The buyer valued the quicker closing date immensely and in order for us to get our price, we needed to offer this up.

But what would the sellers do?  Where would they go?

Nowhere.  They stayed in the house.  They simply leased the house back for one month.

A “flexible closing” is a great option but a leaseback is another tool to keep in the workbelt when negotiating.

If a buyer needs to close on August 1st but the seller needs to stay until September 1st, and neither can make the other’s date work, then simply close the deal on August 1st and let the seller lease the property back.

A word of caution, however: you can’t include this in the Agreement of Purchase & Sale.

Many lenders will balk at even a one-month leaseback, since that could deem the property to be an “investment property” and not a “primary residence.”  As silly as that sounds, I’ve been through this, and you can’t convince a lender to change their mind.

Therefore, you need to simultaneously sign the Agreement of Purchase & Sale with the August 1st closing date but also sign a one-month lease agreement.

Keep the agreements separate, on paper, but consider them one-and-the-same for your purposes.

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So there you have it: just four ways in which the significance, value, and versatility of closing dates as a part of the Agreement of Purchase & Sale have changed in the past few weeks, and the same could be said for other tenents of the offer.

Just yesterday, an agent on my team asked a listing agent, “Would you rather have $1,050,000 unconditional, or $1,075,000 conditional for five business days?”  The listing agent asked for the former, and our client paid less for the property because he made an unconditional offer.

Price will always be the most important facet of any offer, but buyers and buyer agents can benefit from bargaining over every other conceivable negotiable point in the offer, right down to the hot tub in the backyard that neither party seems to want.

What was it again that Sheryl Crow said?