Under-pricing, setting an offer date, and having no idea what price to expect? You call that a “strategy?”
That’s what my cynical side would say, after reading the title of today’s blog.
But if you’re a buyer, or a seller, in this Fall 2017 market, you need to understand that there are currently three pricing strategies being employed by sellers.
And if you happen to be that seller, about to list, you had better make sure you think long and hard about which strategy you’re going to use…
Alright, so maybe that’s not exactly the right photo for this blog post.
A guy at a whiteboard, in front of charts, graphs, stacks of money, and buildings with rain clouds over them?
Wait…..he’s also wearing a suit, so provided he’s also got a pocket square, and shoes with no socks, he might be your typical 2017 real estate agent…
Perhaps my choice in photo this Monday morning isn’t perfect, but if you’re a seller in the fall 2017 market, you had better make sure your listing strategy is.
Despite what you read, or want to believe, the Toronto real estate market is still hot……in some areas……in some price points……at certain times of the week…
It’s a mixed bag. There’s no other way of stating it.
In this market, I’ve seen properties sell for far less than they should have, and I’ve been thankful to represent the buyer in a few of those transactions. And then I’ve seen some properties sell for far more than they ever should have, with 12, 15, or 18 offers – reminiscent of the spring.
I’ve also seen comical pricing “strategies” blow up in sellers’ faces, and sometimes, work like magic.
Case in point, there was a house listed for sale in the west end for $1,089,000, with a “hold back” on offers. The house did not sell, and was re-listed at $1,299,000. The house didn’t sell at that price either, and the seller decided to employ the under-listing “strategy” once again, and listed this time at $1,049,000.
The damn house sold for $1,330,000, with 13 offers.
It made no sense.
I want to find that buyer and say, “Hey, do you realize that when the house was listed for two weeks at $1,299,000, you could have probably bought it for like $1,270,000? You just paid $1,330,000 for no reason.”
Well, there was a reason, I suppose, and that was the presence of 13 offers.
But that never should have happened. Never, ever, ever.
Are buyers’ memories that short? Do they not ask their agents, “Has this house been listed for sale before?”
How can you take a house that was sitting on the market at $1,299,000, list low at $1,049,000 and hold back offers, and then produce 13 offers and $1,330,000? It defies logic. It can only be the result of uninformed, untrained, buyers and buyer agents.
That, and a lot of emotion on offer night.
While there are isolated cases like this one, for the most part, I’m not seeing the whole “re-listing” thing work.
Recall that in the spring of 2017, when the market began to slow in late-April, and through May, and June, probably 40-50% of houses that were under-listed with an “offer night” were re-listed at a higher price after a failed offer night.
I would like to think we’ve learned from our mistakes, and so far this fall, we’ve seen different strategies employed.
While any seller, can take any number of different paths in this market, I’m seeing three distinct “strategies” for pricing and attracting offers in this market.
If they seem familiar, it’s because we’ve discussed them before.
But let’s look at all three in the context of a seller choosing from the set, and then look at ways in which the strategies have worked, and haven’t.
1) Holding Back Offers
If it ain’t broke, don’t fix it. Right?
That’s what a lot of listing agents, and sellers, are thinking in this market.
But a lot of listing agents and sellers felt that way in the spring market, and got stung.
We’re still seeing most freehold properties listed with “offer dates,” and the degree of under-listing varies.
So we can basically divide this #1 strategy into (a) and (b):
a) under-price and hold back offers
b) price at fair market value and hold back offers.
Why the two different strategies within a strategy?
Well it’s simple: you’re hedging your bet.
Many sellers in this market are dead afraid of under-pricing and holding back offers, like was done in the spring.
Tell a seller of a house worth $1.2M that you want to price at $969,900 and set an offer night for next Wednesday, and many of them don’t have the stomach for it.
But tell a seller that you know, unequivocally, that the house is worth exactly $1,200,000.00, no more, no less, and they’ll have a hard time accepting that.
Then when the seller received a full-priced, unconditional offer for $1,200,000 only three hours after the property hits the market, and the most natural reaction is to ask, “Did I under-price this house?”
Most sellers will think, “Am I leaving money on the table?”
How can they not!
Most sellers are pessimistic by nature. Instead of saying, “Oh goodie, I have a full-priced, unconditional offer for my home, I’m so happy,” the average seller will undoubtedly wonder, “Why is this happening so fast? What’s wrong here?”
And it’s for that reason that many properties are being listed at fair market value, with a hold-back on offers.
As I write this, I’m discussing a particular house with a client, listed at $1,399,000, that I don’t think is worth a penny more than the list price. Offers are due tomorrow night, and I’ve told her – this house isn’t going to get five offers. If the house receives, say, two offers, it doesn’t mean it’s selling for $1.5 Million, like it would have in the spring.
Listing at fair market value and still having an “offer night” leaves the door open to potentially getting multiple bids, just in case the seller is always going to wonder, “What could have happened?” but more importantly, it means if you don’t get any offers, you don’t have to re-list 10-15% higher after your failed offer night, and signal to the market that you’re “one of those sellers,” and risk having the market ignore your home.
So, what then of strategy 1(a)?
It’s still happening, a lot. More so than 1(b), but 1(b) is something new and different, and 1(a) is just the same-old, same-old, from the past decade.
I’ve seen two properties so far this fall break the 150% sale-to-list barrier, but both were comically under-listed, and I suspect the listing agents had no clue what the properties were worth, so they didn’t even bother trying to figure it out. Both properties were fixer-uppers, and those are hard to price. So both agents said, “Screw this,” and simply picked a price that wasn’t in the same realm as any reasonable estimate, then picked an “offer night” from the calendar, and sat back and let the market price the home for them.
If it ain’t broke, don’t fix it.
There are still a lot of houses and condos that necessitate the “list-low, hold back” strategy. But there are a lot of properties that don’t, and they’re being re-listed higher. We’re also seeing houses listed artificially low that do get offers, but where the seller doesn’t get enough, and those houses too are being re-listed higher.
I recall a house in Bloor West that was listed at $1,089,000, and then was re-listed at $1,349,000. But the rub here is – there were six offers on this house! They just weren’t high enough. Imagine somebody showing up with an offer for $1,275,000, and a certified cheque for $80,000, and being turned away?
That house has now been on the market at the “new” price for a month…
2) Offers Any Time, With Extended Irrevocable
I suppose we could break this down into an (a), (b), and (c) as well.
24, 48, or the dreaded 72 hours irrevocable.
I wrote about this on my blog a while back, and interestingly enough, an agent I ran into last week had read it.
I was showing a house to clients that had no offer date; we saw it the same day it hit the market.
We walked through, dodging 2-3 other groups of buyers, and kept looking at each other saying, “Is this too good to be true?”
Listed at $1,149,900, this house was a true “box-ticker,” since it checked all the boxes, and more. Everything my clients wanted, this house had, but it also had two-car parking, even though they only needed one, and a host of other features that we didn’t think we’d find in this area, at this price.
I called the agent around 7pm after our viewing and said I was bringing an offer, and asked if she could work with the offer that night, and she said, “I need 48 hours irrevocable – I know, your fave, right?”
Another loyal TRB reader, what can I say?
I told her, “The listing doesn’t say anything about 48 hours! What’s up?”
She said the listing was supposed to say “48 hours,” and she changed it on the spot.
Now I’m not blaming the agent here. I know this agent, she’s a very high producer, and is truly “one of the good ones” in our industry. She told me she had the sellers sign the “Seller Direction Form” along with the listing, so it’s not like I could force the sellers’ hand here and push a full-price offer with a 4-hour irrevocable here. This listing did require a 48-hour irrevocable, as per the seller’s instructions, even if it didn’t specify that on the listing for a couple of hours.
Sometimes, you just don’t have a move.
So my clients agreed to submit an offer, good for 48 hours, knowing full well we’d be in competition at some point.
The next morning, there were two other offers registered, and the agent said they would sit down to look at them on Friday night.
By Friday night, there were nine offers in total, and the house sold for $200,000 over asking.
Was this planned all along?
Was this the strategy by the listing agent and the sellers?
Probably. And maybe not at the same time.
There’s absolutely nothing to suggest this house was worth the eventual sale price; not a single comparable sale from the last six months that could point to this value.
So were the sellers expecting this sale price?
I don’t think so. I think the plan here was to avoid the hoopla of an “offer night” a week after the listing, and avoid sending a message to the market that the sellers are looking for a bidding war. So put the property on the market, ask for two days for a “marketing period” if you want to use that term, and then see what’s what.
In the end, the strategy worked, and you could argue it worked better than an offer night would have, since interested buyers could have found other homes over the next 6-7 days.
3) Offers Really, Truly, Any Time
What a novel concept. Are we pricing at fair market value too?
Well, I suppose it depends on the property.
Throughout the GTA, in every area, and in every price point, you’re going to see just about every strategy you can think of, and hybrids of those as well.
I’ve seen a lot of condos in the downtown core listed low with “hold backs” on offers, but I’ve also seen a lot of those properties re-listed higher a week later. I think if you have a 2-bed, 2-bath with a terrace at the Candy Factory Lofts, then the strategy makes sense. Otherwise, I don’t like it.
I’ve told you this a few times throughout the fall market, but my strategy when it comes to listing condos: price high, offers any time.
Does that really work, you ask?
Yes. Yes it does.
In fact, I’ve used this strategy for most of my smaller condo listings this fall, and it’s worked to perfection.
Three times now, I’ve set a new price-per-square foot record in the building, which you might say is the market, and you might say is the strategy.
But either way, I believe there are so many buyers who don’t want to wait for an offer night, don’t want to be in competition, or don’t want either, that when they do see a condo listed for sale, with offers any time, they basically decide in advance, “If I like this in the first thirty seconds, I’m buying it.”
And that’s what’s happened.
Take a $485,000 condo, price it at $529,900 with “offers any time” and don’t ask for a 24-hour irrevocability, and you truly are employing the “catch more flies with honey” strategy.
Sure, an agent might call you and ask, “Where the hell did you get this price from?”
But five minutes after that, another agent is going to call and ask you, “Are there any offers yet? Can you work with an offer tonight? Can you send the Status Certificate over so I can have an unconditional offer prepared in advance?”
Just as the bully offer was all the rage in the freehold market in the spring, the “first horse to the trough gets to eat” school of thinking is dominating the 1-bedroom condo market.
And I truly believe that you can over-price, advertise “offers anytime,” and do better than you ever would with an offer date.
So there you have it, folks.
This is a complex market, and it’s even more unpredictable than the spring.
In the spring, we had trouble predicting how high a given sale price would be.
This fall, we’re trying to make sense of whether a given property will sell the first time around or not.
And I believe it all comes down to the strategy employed for pricing and offers.
All three of the above strategies can lead to success, and all three can lead to failure.
It’s up to the seller, and the listing agent, to ensure the right strategy is employed…