You did what? Did you just say that?
If two wrongs don’t make a right, maybe three do?
Here’s a story I wish I didn’t have to tell…
I feel a little guilty telling this story, but at the end of the day, the participants are not my clients, did not hire me, and having met them for only forty minutes or so, I don’t feel as though I can’t tell a story whereby I change the names/dates/places/numbers, even if it involves them…
This experience was a head-scratcher, and had me saying, “Ummm….what?” far too many times.
I should have known right from the get-go how it was going to turn out, but I really, truly hoped that the “sellers” of this east-end house would do the right thing. I put “sellers” in quotations because they are sellers in theory only, as the story will detail…
A few weeks back, I received a phone call from a very nice young lady who wanted help selling her house in the east-end.
She and her husband were splitting up, and the obvious first task in the process was to sell the house.
She asked me to find all the sales on her street in the past two years, but as luck would have it, my MLS query pulled up only one house: theirs.
In two years, this is the only sale on your street? Your house is the last house to sell?
Wait – you’ve only owned this house for a year?
Why didn’t you tell me this at the onset?
Well, I suppose we all know what challenges lay ahead…
I met with the young couple, and I immediately saw why she was leaving him. “Good for her,” I thought. It’s not easy to make that decision, but in the space of a forty-minute meeting, her husband put her down, snapped at her, and talked down to her about 6-8 times. The way he snapped seem to make her jumpy, and I felt like telling her, “I think you’re doing the right thing.”
They bought the house for $380,000 one year ago, so the first thing I said to them was, “You know that you’re going to have a tough time coming out ahead, right?”
Unfortunately, they didn’t see it that way.
“A guy I know says that he would pay $450,000 for this house! He said to call him!”
If that were really true, which it’s clearly not, then why did you call me? Why don’t you just sell to him for $450,000 – an 18.4% annualized return in an area that’s likely gone up about 3-4%, and call it a day?
And therein lies the problem – this area they lived in had likely only appreciated about 3-4%, and even if you assumed a 5% increase, it would still only put their house around $399,000.
There are disposition costs associated with the sale of any asset, and real estate is no different.
The very first topic of conversation this day, and pretty much any time I meet potential sellers, is the commission rate, which is 5%.
As I told these sellers, some people work for 6%, some work for 3.5%. Some work for $1.00. But I work for 5%, and I spent a good ten minutes discussing who I am, what I do, who my company is, and why they should hire me. I actually told them, “Either list with me at 5% or list with the guy at $1.00 – but be very weary of the fly-by-nights who work for 3.5%. They’re more dangerous than the guys at $1.00!”
We discussed the area that they lived in, the agents that work in it, and ultimately they said they wanted an “aggressive downtown/midtown agent” to work the heck out of their suburbia home. I thought they were doing the right thing, and thus we moved the discussion to price.
I told them that if they listed the house at $419,900, and got an offer in that ballpark, that they could get out with their commissions and land transfer tax paid, and maybe even with some money in their pockets.
At the end of the day, I can’t help the fact that two people want to sell real estate inside of 12 months, and I can’t help the fact that there’s costs associated with doing so. Hey – I wish it was easier on them, and I wish their house was worth more! But I can only work with what I’m given.
We discussed pricing, and the husband kept working up the ladder – “What about $429,900? What about $439,900?”
He wanted to list the house at $449,900, and I very honestly and bluntly said, “There’s no point. Your listing won’t even exist at that price. You paid $380,000 for the house last year, and every agent and every buyer knows that.”
What else am I supposed to say?
I told them that $419,900 was the price, and that I would market the property to investors looking for income (there was a basement apartment and they lived in the ‘owner’s suite’) as this would be the most likely demographic for the home.
We agreed to meet again one week later and sign the paperwork, and as I was leaving, I told them “You should talk to your mortgage broker about the break-fees, as they’re going to be high.”
That’s when the husband told me, “Oh don’t worry, we’re pretty sure it’s only like a couple-grand.”
How do you figure? This really worried me! I told them, “Why don’t you call the mortgage broker or bank and get a printed, signed statement with your break-fees? It’s one thing for them to tell you; it’s another thing for them to actually show you.”
Fast-forward one week, and I’m about two hours away from going to sign the listing papers, when I get an email from the seller, in short, “David – you were right about the mortgage break fees, thanks so much for getting us to clarify. It’s going to be very expensive to break our mortgage, and therefore we’re going to list it with another agent who will work for a reduced commission. Thanks again.”
Hey, I’m not complaining because I lost out on the business. This wasn’t exactly my target area, but to be honest, I felt so bad for this young lady and the situation that she was in, and I really wanted to help. I just didn’t understand the logic behind saving $4,000 in commission and listing with a crappy agent who might get $25,000 less for the house. We discussed the commission, services, brokerages, and everything in between, and I thought they saw the trade-off. I just wanted to help; call me naive…
Earlier this week, I checked MLS to see if the listing was up yet – and it was!
Guess what day it came out? Saturday.
You listed on a Saturday? I wrote a blog post about this once; I can’t understand why an agent would list a property on a Saturday when nobody is looking at hot-sheets, new-listings, and updates. Why not wait until Monday when agents are busy in their offices?
Well, I soon realized that the day of the listing was the smallest of their problems. They didn’t take my advice and list at $419,900, nor did they list at $429,900, or even $439,900.
No, they listed the house that they purchased for $380,000 one year ago for a whopping $499,000!
Yes, that’s right – a 32% increase over what they paid!
Man, I felt bad seeing this. Honestly – it’s not the business I “lost” that I’m upset about, but rather the fact that this lady wants out of her marriage and out of her house, and she’s never going to get out when the house is listed at this price.
You can advertise all you want, and drop flyers from the sky, but you’ll never find somebody to pay $25.00 for a twenty-dollar-bill.
The agent they listed with was…..ummm…..”questionable” to say the least. They might be saving 1% or even 2%, but what do you get for that? No service, no experience, and judging from the listing price – no honesty or guidance.
But wait – there’s more!
The listing said, “Seller offering $3,000 bonus to assume existing mortgage.”
The existing mortgage is at 3.89% and current rates are at 2.99%.
Over the course of a 25-year-mortgage, this difference amounts to almost $60,000!
Who the heck would pay $3,000 for a $60,000 future obligation?
Who gave them this idea?
Sellers need guidance and good advice – ALL sellers, even the most savvy. It was clear that these sellers didn’t understand simple numbers, and simple logic. Nobody is going to assume an existing mortgage for a paltry $3,000 ‘bonus’ when they can save $60,000 by going to any bank or mortgage broker.
I feel guilty, to be honest.
I feel guilty that I’m not working for these people and showing them how real estate is actually bought and sold in Toronto.
Their listing doesn’t even exist. It may be on MLS, but it’s about 25% over-priced, and as you might expect – there are no photos.
No photos? I thought even the worst agents in the city would still take blurry photos on their Blackberries!
How can you sell an over-priced house with no photos or marketing, where you want the buyer to assume a massively inferior mortgage?
You can’t. It’s that simple.
Ummm….what are they going to do now?
My guess: stay on the market until Christmas at $499,000, and then re-list in January at the same price.
Trust me – it’s not the first time I’ve seen this happen…