One step forward, two steps back.
I’ve written about re-listing at a higher price several times this Fall, but how can I stop writing about it when it keeps happening?
To be honest, I wasn’t exactly sure what I was going to write for Tuesday’s blog post.
It was Monday night and I had just finished watching Drew Brees torch the Giants for FIVE touchdowns on Monday Night Football – vaulting my fantasy football team into the playoffs, and when I sat down to go over the evening’s emails, one in particular stood out.
It dealt with a subject matter that you might accuse me of writing about far too often, but it just seemed to push me over the boiling point.
One of my clients emailed me a couple of properties he was interested in, and added a note: “This one was listed at $599,000, but is now listed at $638,888. Gotta love this seller!”
He was able to laugh it off, but I wasn’t.
I’m sick and tired of seeing the same thing – a greedy, entitled seller and an arrogant wish-granting listing agent, get together and list a property with wild dreams of obtaining multiple offers and selling the home for over the asking price. And when “offer day” comes and goes, they either get offers that aren’t to their liking, or they get ZERO offers, and then they re-list the property higher the next day.
I know – I’m beating this horse to death and beyond, right?
Have you all grown tired of hearing about this?
Well I, for one, am damn tired of seeing it. And to be perfectly honest – I think this is just the beginning.
We’ve established the what, and to some extent, we’ve established the how, so perhaps let’s take a look at the why.
Why would a seller re-list his or her property at a higher price when that seller was unable to achieve a price that was lower the first time around?
If you ask me, it’s a pie that’s made up of a dash of ignorance, a pinch of naivety, a heaping table-spoon of arrogance, a solid quarter-cup of misguidance from the listing agent, and then its topped with an insatiable amount of “I know best.”
Some people blame the listing agents for “buying” the listing in the first place. If a house is worth $700,000, and the seller interviews two potential listing agents, do you think that the seller might list with the one that says, “I’ll get you $750,000 for your house?” Perhaps. So if the listing agent “under-prices” at $689,000, which is 1.4% under fair market value (hardly enough to spark a bidding war), and the house doesn’t receive any offers, he has no choice but to save face and re-list the property at $750,000.
But if the house was only worth $700,000 in the first place, why did he tell his sellers he could get them $750,000? Well, real estate is a tough business, and some people would do anything to get their name on a sign…
But let’s take step backward for a moment and ask what should be a rhetorical question: “What is a house truly worth?”
Well, isn’t it worth what somebody is willing to pay for it?
I would have to say ‘yes.’ But, I would also have to say, ‘no.’
You see, if I was working with a young couple who had a “ten year plan,” and wanted to purchase a house that was worth $700,000, I would advise them to bid $720,000 in a multiple offer situation if I knew with absolute certainty that it would get them the house. Why? Because ten years from now, it’s not going to matter if they paid $720,000 or $700,000, and this way, they’re going to end up with a house tonight! If they truly wanted the home, they can afford to pay 3% more for the home.
On the flip side, a house is not worth what somebody is not willing to pay for it.
Does that make sense?
Take the situation that I wrote about last week where the seller priced the home at $799,000, didn’t get an offer, and then raised the price to $833,100.
Nobody was willing to pay $799,000, so why would ANYBODY pay $833,100?
A house is “worth what somebody is willing to pay for it,” and I concede that. But I also believe that “a house is not worth what somebody is unwilling to pay for it.” How could I argue any different?
Some sellers are so delusional and stubborn that they refuse to accept this fact.
And along with delusions often comes another common enemy: entitlement.
Continuing with the situation above, I spoke with the listing agent for that property who told me, “The seller has a lot of money in this property. He needs to sell. But he will only sell for a good price.”
So now it’s my job to ensure that your seller doesn’t lose money?
The seller likely has a break-even point of just under $800,000, and figured that listing at $799,000 would bring him a windfall of offers. When it didn’t, he figured he’d list at $833,100 and wait out the storm. Soon, that magical buyer would come along and pay a price that nobody else was willing to pay, and MORE!
But after the cost of financing the project and staging the property start to burn a hole in his pocket, he decides that he needs out, now!
So he re-lists at $729,000, and figures that all the happy little elves in the village will bring him that magical bounty that he so covets.
And God forbid – somebody had the audacity to offer $750,000 for this home, listed at $729,000, the listing agent and the seller would rip the cooperating agent in pieces and ask, “Don’t you know what this house is worth?”
Sellers have grown to be exceptionally entitled, and they feel that if they want something in this real estate market, that they should receive it.
I think it’s been so long since anybody actually lost money on Toronto real estate, that people are starting to get a bit loopy.
We’ve seen an upward-trending market for seventeen years now, and it doesn’t really show any signs of stopping. Things might cool off a little, and I, for one, wouldn’t mind a period of stagnant growth so we can all catch our breath, but sellers this fall aren’t having any of it.
This fall, many sellers have expected that everything good that has happened in the past couple years is going to happen to them. They’re going to get good weather for open houses, they’re going to see a 5% increase from the spring market, they’re going to get multiple offers on their home, and it’s only going to take seven days to sell the house. They’re also going to get to pick their closing date, and they plan on taking all the light-bulbs with them when they vacate the property.
Anything less than this is called a “failure.” And it’s also unfair.
Yes, it’s unfair! It’s so tragically unfair that a seller only gets $700,000 for the house that he purchased two years ago for $600,000 and put zero work into! It’s unfair that he only got one offer for the asking price and didn’t get eleven offers like that guy he read about in the paper!
GOODBYE, CRUEL WORLD!
But I’m not just complaining here; I actually do have a solution.
My solution is going to sound radical, and it might take you a few moments to comprehend what I’m saying. So if you need to – put this blog post on hold, walk around your office, say hello to Becky, the cute girl from Human Resources, and then go back to your computer.
Are you ready for my solution? Here it is:
Start listing properties at fair market value once again.
There. I said it.
Phew! That was a serious load off my chest. So whaddya think?
Remember the days when sellers would list their properties at $599,000, hoping to get $599,000? Maybe we can bring those days back!
When the market was furiously hot, it was common to list a $599,000 house at $539,00o, and bring in $630,000 for the property. But this didn’t happen ALL the time; just when the property was located in a desirable area, was effectively staged, marketed, and listed when very little competition for the property existed.
Those sellers that chose to list at $589,000 or $599,000 this fall and still expect $630,000 for their homes were all left disappointed, but they got what they deserved. And when they re-listed their homes at $639,900, they failed to see the error in their ways! Their homes were never worth that in the first place!
Many sellers today have trouble distinguishing between the beautiful, A+ homes, and their own homes. Because it’s the A+ homes that get multiple offers and sell for over the asking price. Sure, we’ve had hot-pockets (not the disgusting food by McCain) in the market where the B+ homes have got the odd multiple-offer situation, but that’s far from the norm.
Today’s seller has come to expect multiple offers, but when did expectations become so lofty?
It’s like winning the football game isn’t good enough anymore. You want to win by twenty-one points! You want to be up by two touchdowns by the half!
I’m going to keep tabs on this new “trend” in our market, and I wonder how and if things will change moving forward and into the New Year. But in the meantime, don’t be surprised if I come back to this point next month. Or, next week…