Everyone can admit that the condo market has gone crazy this summer again. There have been multiple offers on almost every condo! But in order to get these multiple offers, you have to market the property more aggressively and often underprice it. After looking at some statistics on condos for sale and those that have been sold this year, tenanted units make up approximately 30% (in some areas 50%) of condos on the market. The other units being sold consist of approximately 30% owner-occupied units and approximately 30% (in some areas 40%) vacant units.
When looking at sold statistics – the balance between owner-occupied, tenanted and vacant are very similar. What is shocking is that tenanted condos are on the market for 50% longer than owner-occupied or vacant units! For example, Toronto’s Waterfront Communities (Toronto C01) have some of the most densely-populated condos in the city – of course, many of the units are tenanted. The average time to sell an owner-occupied condo is 14 days. Tenanted units, on the other hand, took 22 days to sell.
Along the Bay Street Corridor – it took on average 28 days to sell owner-occupied condos and 36 days to sell tenanted units. Numbers are similar across the city. These sold statistics don’t even include previously listed and unsold condos – I imagine that these statistics would be even more shocking!
What is even more important and even more shocking is this: the average sold price, a very important figure for investors, is 10% less for tenanted units compared to owner-occupied or vacant units. That is a lot of lost equity.
Lately, I’ve been selling a lot of tenanted condos. These experiences have presented unique situations, complications and some stressful moments. One example: this summer, I sold a beautiful 1-bedroom condo in Toronto’s West End. Luckily, the tenant was co-operative and let me tidy, clean and decorate the unit. I went above and beyond to prepare it and make it appeared to be owner-occupied. Still, it sold for 2.8% less than the exact same condo 2 weeks prior – a vacant suite. On the plus side – 2.8% less is better than 10% less, right?
What to do and how to sell tenanted properties for more?
- First, hire an experienced agent who has sold and purchased tenanted condos. That experience is priceless. It involves not only preparation of the unit and marketing, but also dealing with legal documents, the offer and terms within it, and all legal steps that need to be taken according to the Landlord & Tenant Board (LTB). What is the difference between an N11 or N12? How do you deal with an N12? How do you get an affidavit signed? All questions an experienced agent should be able to answer.When representing the buyer, what clauses should your Realtor® insert and what clauses should you advise the Landlord to accept? There are many very good clauses that protect the buyer, but in this crazy market they usually aren’t accepted. The solution? Lawyers often get involved in preparing offers and come up with clauses and statements like:
This Offer is Conditional upon the Seller providing vacant possession of the property (with tenant having moved out), failing which this Offer shall be null and void, and the deposit shall be refunded to the Buyer without any penalty.
Sorry Mr. Lawyer… this clause will not work in a strong seller’s market.
If the property is not vacant on the day of closing, the Seller agrees to let the Buyer’s lawyer hold back in trust from the balance due on closing the sum of $50,000.00 out of which the Buyer’s lawyer shall pay the Buyer the sum…
These are very good clauses and protects buyers, but what about the Landlord/Seller?
- When you hire an experienced agent, he/she will do the rest and guide through the process of selling a house. The presentation of the condo is very important: tidiness, cleanliness, good professional pictures are all priorities. There are always ways to approach even the most stubborn tenants! Start by giving them something that they would appreciate – even a month’s rent as an incentive. It is better to forego a couple of thousand upfront than to lose 10% of the sale price – it could cost you tens of thousands of dollars!
- Pricing strategy is crucial. Overpricing is the worst thing that could happen to any seller – even in a balanced market. But when you overprice a tenanted property that isn’t presented well, you may never end up selling it!
- Wait until the tenant moves out. That may sound easy, but what if the tenant doesn’t want to move out? With rental rates skyrocketing over the past few years and very strong rules being implemented by the provincial government, your current tenant is probably paying $200-$400 below market value and has no intention of moving out. Would you? Most likely, they are praying that another investor will buy the condo and keep them as a tenant. But why would any investor buy a tenanted condo in which they are making below market value in rental income? Back to the beginning. Again, the questions arise: Which form(s) to serve? The N11, N12 or something else? If an investor is buying a house or a property, can you legally serve an N12? What would be the consequence(s)? What if, on the closing date, the tenant didn’t move out? How do you get him/her out? How long will it take? Who will be paying for the legal costs? What if the Buyer takes the Seller to court? The list goes on.
How nice and sweet it must sound to invest in condos and earn a profit…
Always remember: being a landlord is not always easy money. Want a peace of mind? Hire a professional!