Are You Naive?

Because if you are, you probably don’t stand a chance in Toronto’s real estate market today!

I don’t mean to name-call, or be insensitive, but a lot of the buyer pool who absolutely refuse to accept current market conditions are simply never going to be successful in their property searches…

Naive

Remember the movie Reality Bites?

A cult-classic from the early 90’s, in my opinion, that starred young versions of Winona Ryder, Ethan Hawke, Ben Stiller, Janeane Garofolo, Steve Zahn, and an unknown Renee Zellweger.

The best line from that movie, of which there are many, had to be “Did you know that ‘Evian’ spelled backwards is ‘Naive’?”

I’m sure you’ve all heard that line before, but I don’t think it had appeared in popular culture before Reality Bites.

“Naive” can be many things to many different people.

It can be cute to some, if that person is naive in a funny, carefree sort of way.

And it can be offensive to others, if that person is naive in a way detrimental to him or herself, or others.

When I speak of naivety as it pertains to the buyer pool in Toronto’s real estate market, it can often be a combination of both of the above.

Some people really are naive when they arrive in Toronto, just having paid $290/month for a sub-lease off campus in Waterloo, looking to pay $700/month for a gorgeous waterfront condo in Toronto.  Hey, it happens, and not everybody is a real estate expert.

But then some people are deliberately naive, to a fault, when they decide that they’re going to not only make their own rules in the world of Toronto real estate, but also to try and live in a dream world that simply doesn’t exist.  I simply can’t provide a kinder description than that; sometimes, people just want to close their eyes and ‘hope.’

Let me give you an example…

Last week, I received a cold-call from a potential buyer who found me on Toronto Realty Blog, and who said she liked my honest approach, and she felt she would be a good fit with me.  She was direct, and said that she wasn’t a huge fan of Realtors in general (that’s fine, she certainly isn’t alone!), but that she needed help finding a home in Roncesvalles, and she did see the value in working with a buyer agent.

But she was very emphatic in one point in particular, saying several times, “I absolutely refuse to take part in those stupid bidding wars.”

Believe me, that’s not the first time I’ve heard that, and really – who could blame her?

I told her, “Well, you call it a ‘bidding war,’ and I call it a ‘multiple offer scenario.’  It’s six of one, half-dozen of the other.  It’s semantics, really, but it’s all the same.”

I went a step further, and added, “I mean, you could go as far as to simply call a bidding war, ‘reality,’ in this market, that is.  I wish it weren’t so, but unfortunately, it is.”

She didn’t agree.

“Well David, what I’m telling you is that I’m not going to make that my reality.  I refuse to take part in a bidding war.”

This is where your average Realtor is at a crossroads.  On the one hand, you want to turn this cold-caller into a a client, so you don’t want to turn them off; especially never having met them and established rapport.  On the other hand, you don’t want to give them false hope, and support their incorrect views and understanding of the market.

I feel as though many Realtors will do anything to get a meeting with a potential lead, and this is where many Realtors would give in, and simply say, “Totally cool – whatever you want to do, that’s what we’ll do!”   But I want to dig deeper, provide my insight, and try and come to a meeting of the minds.

So I asked a question which wasn’t meant to be condescending, but rather lead to the identification of current market conditions: “What kind of house are you looking for?  Are you looking for a fixer-upper that nobody else will touch?  Or something languishing on the market?”

She replied, “No, not at all.  We’re not really looking to do any work to the house.  I mean, we don’t need luxury, but at the same time, we want move-in ready.  We’d paint, perhaps, and maybe do some smaller updates over time, like hardwood floors, or appliances, but yeah, we’re looking for move-in ready as we both work a lot.”

It’s as I suspected, and so I was honest: “Well, I think you’re going to end up in competition for the kind of house you’re looking for.”

Again, she reiterated, and in a very calm and polite manner, “Well, just keep in mind, we are NOT, under any circumstances prepared to ‘bid’ on a home.”

So I finally got to the crux of the matter and said my piece, which is something I say to every single buyer, for a freehold property, when I first start meeting with them:

“The Toronto real estate market, specifically for single-family dwellings, is hot, and has been for about seventeen years.  Demand outstrips supply, and there is a lot of interest in virtually every home that comes onto the market.  You need to accept, right from the onset, that you WILL be in competition for a house, at one point or another.  With all those people looking, you would be somewhat naive to think you’re the ONLY person in Toronto looking at a given home.”

And that’s it.  I hope this isn’t coming off as rude – the word “naive,” and all.  But that’s as best as I can put it.

There’s no arguing with that logic: you would be naive to think you’re the ONLY person looking at a given home.

I guess I could say it differently, or sugar-coat it, but this isn’t meant to be rude; it’s meant to be to the point.

If a 3-bed, 2-bath semi-detached house comes onto the market on Hanna Road in Leaside tomorrow for $649,000, do you think that you will be the ONLY person who wants to make an offer?

If a renovated Victorian rowhouse comes onto the market on Withrow Avenue in Riverdale tomorrow for $799,000, do you think that you’ll be the ONLY person who looks at this house and decides to proceed?

Absolutely not.

Right?  Is there any arguing with that?  Stop me now if you disagree!

So, logically it follows that if you think you’re the only person who would be looking at one of these houses, you might be a little naive.

And so that is how I describe current market conditions to my new buyer clients.

I’m upfront and honest right out of the gates.  I tell them that for every $599,900 house that hits the market in Leslieville, there will be 500 buyers who see the listing online, 50 buyers that view it in person, 10 buyers that contemplate an offer, and 4-6 that proceed with one on “offer night.”

This is the way it is, and we can’t change it no matter how hard we close our eyes, grit our teeth, and hope and pray.

There are exceptions to the rule.  Not EVERY house in Toronto gets multiple offers; that’s not what I’m saying.  But you know the exceptions, right?  That house – that run-down, beaten-up house that’s listed with the agent from St. Catharines, has no photos on MLS, is priced at $688,800 when it’s worth about $600,000 on a good day, and only allows viewings from 4-8pm on Tues/Thurs/Fri.  That’s the exception to the rule, most of the time.

A “nice” house in Toronto, that’s listed with a good brokerage, is prepared for sale, has dotted the i’s and crossed the t’s, and has been well-marketed is likely going to attract multiple offers if it’s in a good neighbourhood and under $800K.

The bulk of my buyers are looking for houses under $800K, and so the first conversation we have when we start working together is, “Be prepared to compete against other buyers for a nice house that you’re interested in buying.”

View this however you like.  Read the above as, “Be prepared to be in a bidding war with other bidders,” if you want to.

And I’m sure that the average anonymous commenter on an online newspaper article would read this and say, “Look at this Realtor!  What a jerk!  He’s openly writing about how he pushes his clients into bidding wars!  THIS is why the price of real estate is so high!  It’s a**holes like this that are to blame – saying that you have to win a bidding war to buy a house!”

Again, translate it however you’d like.

I’m sure we all wish that there were several great houses available for every potential buyer, and we could all take our time, and have our pick.  But that’s just not the case, so why would I allow a buyer to think that?  How would I be helping them if I propped up their fantasies?

Bottom line: you’d be naive to think you’re the only one interested in a house that’s up for sale, so it follows that competition for houses in this marketplace is natural.

You’re free to hate the game, but you can’t hate the player.

I’m just telling it how it is.

23 Comments

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  1. Rebecca says:

    There’s a difference between being IN a bidding war and going too high above your price that you can afford and going into a bidding war and walking away when you hit your top price.

  2. young & foolish says:

    Perhaps it’s better to rent and wait then …. sentiment does change, even with RE. Prices will adjust when rates go higher (already happening). So, keep your shorts on and don’t be naive.

  3. George says:

    I would have said, “You don’t want to be offering on a property that no one else wants.”

  4. Devore says:

    I think you should have made the distinction between “bidding war” and “multiple offers”. In a market with such limited listings and so many people looking, even if they’re just unrealistic looky-loos, it is going to be an extraordinary happening to have a decent house in a nice area priced well that only one buyer will be interested in. Most sellers and agents know what the market is. There will be holdback on offers. Maybe there is more to the conversation than you are letting on, but “it is what it is, take it or leave it” doesn’t seem to be the best approach to converting such an inflexible potential client.

  5. Paully says:

    When every potential buyer finally steps back from the fray, then maybe things will settle down to a more realistic reality. As long as idiots keep wanting to overpay, then idiots will have to keep overpaying in order to “win” the house. I am with your prospect 100%. Walk away from any bidding war. Every bidding war that you participate in raises the future price that you will ultimately pay for your house when you do buy. That is self-defeating lunacy.

    For what it is worth, I think the idiotic Miller Toronto Land Transfer Tax is limiting supply of resale houses in Toronto. Limited resale supply is supporting the crazy valuations. It is time to get rid of the Miller Tax! If someone wants/needs to move to be closer to work/family/friends/whatever, they should not have to pay some ridiculous multi-thousand-dollar tax for that privilege.

    1. @ Paully

      I hear you, and I understand the frustration, but what do you do if you want to buy a house? Do you want 3-5 years for the impending crash that everyone has talked about for the last decade?

      I’m trying to differentiate here between a true “bidding war” and a typical multiple offer situation. The lady who called me did not distinguish between the two. Any house that had competition, was, in her opinion, a “bidding war.” She refused to be involved in competition on any house, and I told her it would be impossible to buy in Toronto without accepting that at one point or another, you’d be facing competition.

    2. Mike Danton says:

      Then you will Rent.

      And that is all.

      Good bye, I go now.

      1. JoBu says:

        Go then.

    3. jeff316 says:

      1) Bidding wars don’t drive up prices. Buyers do. And buyers can drive up prices regardless of how the sale process proceeds.

      2) The Land Transfer Tax is not limiting the supply of resale houses at all. LTT doesn’t affect home listings because sellers don’t pay the tax.

      What the LTT is doing is, for better or for worse, is helping to eradicate the concept of the “starter home”. (Although the LTT is just one of many factors making the starter home less attractive.)

  6. Al says:

    Good For you David. When you tell em like it is everyone will be better in the end, whether they see it or not.

  7. jeff316 says:

    Well put. I might have missed it, but what was her response?

    1. 2sides says:

      David’s still working on her – I think this story is to be continued…
      Somewhere out there she is writing her own blog post…

    2. ScottyP says:

      I’m assuming that she took her business elsewhere. Most people have difficulty seeing the light, even when it’s being shone square in their eyes….

      But do tell, David. I’m sure it was a response worth sharing.

      1. @ ScottyP

        No, not at all.

        Believe me, I’m not in the business of turning people away. But I have to be honest, and I have to educate them on current market conditions.

        This lady hadn’t transacted in real esatate in twelve years, and the market has changed.

        We’re in contact, and she read my blog post and emailed back to make a minor concession (something to the extent of “Okay, I get it…”), and I’m going to find her a property this fall. But in order to get into Roncesvalles, she knows she’ll have to look for a fixer-upper, something over-priced that’s sitting on the market, or something with no set “offer date” that we’ll have to jump on the very first day.

  8. Jason says:

    “Bottom line: you’d be naive to think you’re the only one interested in a house that’s up for sale, so it follows that competition for houses in this marketplace is natural.”

    I believe it would be naive to think that you can’t purchase a house without a bidding war. It’s entirely dependent on the market you’re buying in.

    1. ScottyP says:

      The point is, in *this* market, right now, you can’t purchase a quality home without multiple offers.

      I’m sure that should market conditions change in 2017 in, say, Stoufville, David will be flexible enough to alter his viewpoint.

  9. Huuk says:

    I agree with SamZell…the problem is not Multiple Offers, its Bidding Wars, and they are not the same thing.
    You know the horror stories; 10 people waiting in cars, 3 buyers get kept to keep bidding and at the end its an emotional competition to see who ‘wins’ the house.
    Multiple offers should not pit buyers against each other to bid up the price of the house. It should be a one shot, highest (or best) offer takes it. No going back to the well for multiple bidding rounds. THAT is what has given Realtors a bad name…the sleazy games where the unregulated rules are made up on the spot.
    Call it semantics or naivety if you will, but Multiple Offers and Bidding Wars are not the same thing

    1. @ Huuk

      You’re right – the idea of “back and forth, back and forth, back and forth” is, in fact, a bidding war.

      I know the agents that handle offers that way, and I don’t advise my clients to offer on those homes.

      9/10 times, it’s a “one shot deal,” and the top two are sent back to improve if they’re within 1-2% of each other.

      But to have two people increase their offers $5,000 at a time, eight times, IS a bidding war.

      You’re right – we need to differentiate between “bidding war” and “multiple offers.” My point is that you’d be hard-pressed to find a family home in Toronto that won’t attract multiple offers, in THIS market.

  10. Joe Q. says:

    The best single statement that could be used to cure this kind of naivite is that “the listing price of a home is not the same as its actual market value”.

  11. SamZell says:

    David: It is a matter of semantics, but also a point of reference for the woman you were speaking with. I am not privy to the whole conversation, but it appears what she was trying to get at was that she didn’t want to be used like a pinata while putting an offer in for a house. Without offending here, another line of reasoning would have been to just suggest she needed to set a hard upper limit on any offers, and you would, if possible, use that as your ‘top bid’ in the event you could submit a lower offer first round. End of day, i think she would pay X, but she just didn’t want to get into a situation where it was a ‘let’s bid X plus because we need to beat the last two offers’ situation.

    1. Jewel says:

      I was thinking along the same lines as I was reading this post. To me being in a multiple offer situation and being in a bidding war are two different things. I think its possible to be in the first while refusing to engage in the second. Put your best offer forward but be prepared to walk away if offers are sent back.

      1. Mike Danton says:

        When you want girl, you pay more, and you get.

        It is same thing.

    2. Mike Danton says:

      she was cheap wench.

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