All three words were central to today’s blog post, and I couldn’t pick just one; hence today’s title.
I’ve noticed a new trend in Toronto real estate, and while it’s not new in a sense that it’s never happened before, the frequency with which it’s happening is certainly something we’re not accustomed to.
Real estate is an asset with no fixed value, and the red-hot Toronto market can produce different returns for the same property based on circumstance.
So let’s look at how some sellers are confused by the process, often act out of fear, and sometimes gamble with the results…
If that blog title didn’t get you stirring your coffee a little faster on a Monday morning, then I don’t know what will.
There’s nothing quite like poker chips, dice, and playing cards to get your heart racing.
Have you guys been following “Fan Duel” and “Draft Kings” in the news? These are daily fantasy sport sites, that don’t fall under the definition of “gambling” and thus aren’t regulated in the same fashion as lotteries or casinos.
It’s an amazing story, and if you haven’t heard about this yet, believe me – you will soon!
These two sites, and others like them, operate under an “exemption” to the Unlawful Internet Gambling Enforcement Act (2006), although we might call that “exemption” a “loophole.” That Act was passed by Congress with an exemption for “games” like fantasy sports, which they deemed “a game of skill, and not chance.”
But me and my buddies, playing in the 14th year of our fantasy football pool, are a bit of a different animal from the $6 Billion business that has become “Daily Fantasy Sports” a la Draft Kings and Fan Duel.
Lawmakers across the U.S. are scrambling to figure out how to address this, and with the billions of dollars at stake, and the major players that have bought part of these daily fantasy companies (many owners of professional sports teams), not to mention the teams that have “partnered” with the daily fantasy sites (the Toronto Maple Leafs partnered with Fan Duel), I think defining “gambling” is going to take a decade in the U.S. courts.
So, with that little lead-in, let’s now talk about how Toronto real estate is sold.
Consider “luck” and “skill,” as they pertain to gambling, and now think about, oh, I dunno, say, listing your house for sale at $599,000, and hoping to sell it for $700,000.
Is it luck?
Is it skill?
Or is it a little bit of both?
The eternal real estate bears, and Realtor-haters will suggest that it’s “luck,” but they’re the same ones that say, “You just need to put a sign on the lawn, and the house will sell itself.”
The house will sell itself?
Is that like Justin Trudeau saying, “The budget will balance itself?”
Yikes. Maybe I picked the wrong day to bring that one out…
In any event, my goal here today isn’t to convince you that a good Realtor has the “skill” necessary to get more for a property, and that “luck” doesn’t play a prominent role.
I want to instead shift the conversation back to the subject of today’s post, and talk about the “confusion” and “fear” that has began to creep into real estate. Only then can we return to the conversation about “gambling.”
Consider how red-hot Toronto’s market is right now, and how real estate is sold.
It’s effectively “auctioned” off, but in a blind process, unlike what you might see at Christie’s or on “Storage Wars.”
Suffice it to say, there’s a lot at stake for a seller, right?
The average price of a Toronto home is now $627,395, so yes, there is a lot at stake for a seller when selling his or her home, and it’s certainly not a process to be taken lightly.
Most of the single-family, residential houses in Toronto are sold by “holding back” offers to a certain day, often by under-pricing them with the initial list price to make them look more attractive.
Then comes the actual “offer night” itself, and for a seller who has never done this before, or hasn’t sold real estate in a long time, perhaps the process can be confusing.
A seller might want a simple answer to a simple question: “What is my house worth?”
But in this market, “a house is worth what somebody is willing to pay for it.” So how can you really know what a house is worth BEFORE it’s sold?
It’s nuts. The logic in that, or the lack thereof, is just plain nuts.
But you see – that’s where the fear plays into things!
The confusion about market value creates a fear for sellers and listing agents alike, since to be perfectly honest, many of them have no clue what they’re doing.
Then eventually, comes the gambling, since in cases like this, there is no “skill” involved, but rather, it’s left to “luck.”
So now allow me to tell you the following story, where I’ll change the names, dates, and prices, but for which this account is wholly accurate.
A short while ago, a property came onto the market for $695,000, and I didn’t notice it because I wasn’t really in the market for that particular property. The house sat on the market for 18 days.
Toward the end of those 18 days, a met a new client who was looking for a property exactly like this one, and low and behold, by the time I started to look on his behalf, this particular property was up for sale for $588,800, on the market for three days.
The property, of course, had a “hold back” on offers for nine days, but it was clear what had happened here – they listed for $695,000, the house didn’t sell, so they enacted good ole’ “plan-b,” and re-listed for $588,800, with a hold-back on offers.
Of course, I facetiously refer to “plan-b,” since I don’t believe you get a second chance to make a first impression in real estate, but that’s a topic for another day.
My client liked the house, and said he wanted to make an offer. But alas – that damned “offer night” thing!
I called the listing agent, hoping to use some logic and common sense, and be very straightforward. But unfortunately for some agents fear is a driving force in their business, and this guy talked himself out of a deal.
I asked him, “So the house was up for $695,000 and didn’t sell, and now you’re doing the whole ‘under pricing’ thing with the offer date, so let me ask you this: what does your seller want for the property?”
It’s a pretty simple, fair question, right? But do you think, in a million years, he’d reason with me?
“Well, he wants to see what the market will give him,” the agent told me.
“The market gave him 18 days, unsold, at $695,000,” I told him, trying not be rude, but rather straightforward. “I have a buyer who will make an offer on this house tonight if you give me a number that is to his liking.”
Give me a number. What could be more simple than that?
But many agents out there are filled with fear.
Fear of playing their hand.
Fear of being played.
Fear of losing.
Fear of making a mistake.
Where there’s a lack of skill, things are often left to chance. Or “luck” as you might have it.
“I would assume the ‘magic number’ is somewhere between $588,800 and $695,000, correct?” I asked the agent. He agreed. “So what is that number?” I asked him again.
There was a long pause, and he said, “There’s no number,” he said. “My client is going to see what comes to him on offer night.”
Goddamit. Remember when we used to price things at market value, and a “list price” meant something? Remember when two agents would work together to get a deal done? Now one agent just gets in the way of both agents, and the deal itself.
I told him, “It could be $620,000, $650,000, $670,000 – it could be anything. But what I’m saying to you is that I will put an offer in tonight with my client, unconditional, if you give me a number, and my client likes it.”
As you might guess, the agent was too afraid to play along.
I finally asked him a question to which the only answer is “yes,” just to see how he’d respond, and said, “What if I brought you an offer for $695,000 tonight? Would your client accept it?”
Nah. Not for this guy.
He stuttered and said, “Well he might get that on offer night, so we wouldn’t be looking at that offer tonight.”
And that’s where the gambling comes into play.
Think about it – this house was on the market for $695,000 for 18 days, and the house was unsold. On day #17 of that listing, they probably would have jumped at an offer of $680,000. So here I am, asking him a simple question about whether he’d take $695,000, now that it’s listed at $588,800, and he can’t get past his own confusion and fear to say “yes.”
So what happened next? Well, naturally we gave him an offer! That night, we emailed over an unconditional offer for $680,000, with a 3-hour irrevocable, and guess what?”
They turned it down.
They said they wanted to wait until “offer night.”
Even though they would have jumped at an offer of $680,000 when they were sitting on the market at $695,000 for 18 days, for some unknown reason, they turned this down, now that the house was priced at $588,800.
My honest feeling here is that the agent and the seller were scared. They didn’t know what to do, so they did nothing. They didn’t want to make a mistake, so they didn’t act.
My client went out that weekend and bought a house two streets over (it too had an offer date, but we submitted a bully offer and it was accepted), and so we didn’t really pay attention to the “offer night” for our confused, scared, gambling friends, listed at $588,800.
But three days later, the $588,800 listing was terminated, and the house came back on the market at $690,000.
That’s right – $10,000 more than we had offered, $5,000 less than their original list price, and $101,200 more than they had just been listed at.
What an absolutely ridiculous game.
And what an epic waste of time!
On “offer night,” there were five offers on that house, and while I don’t know what the highest offer was, I can guarantee it wasn’t $680,000!
Five buyers and Five agents wasted their time, and a whole lot more will waste time dealing with this ridiculous agent, and his ridiculous seller.
It’s unfortunate that these pricing games are allowed, but I don’t see any alternative. We can debate “rules” of pricing and selling real estate another time, but the take-away from today’s blog post is that a lot of people are “afraid” of today’s market.
I’ve seen this a lot lately. The listing and re-listing of properties, at various prices, with various “strategies,” is borne out of fear of not knowing the market, and not really knowing the best way to proceed.
It’s like those two roads that diverged in the woods. Except you don’t take the one road, but rather you go a wee-bit up the first road, then turn around and go back to take the second road a wee-bit, and then turn around yet again.
With all that is at stake when selling real estate in today’s market, I suppose I understand the confusion, and I know that can lead to fear.
But when fear leads to gambling, and giving way to random luck, then maybe it’s time to consider why you didn’t take the “skill” path from the get-go…