Really?
Urband legend? Or reality?
Oh – it’s reality! This actually happened earlier this week as a stupidly-underpriced house received thirty-three offers and likely left a lot of buyers feeling really silly once it sold for far more than they had ever considered offering…
Patrick Roy wore #33 for the Montreal Canadiens and Colorado Avalanche for his entire 18-year career.
33 is the temperature at which water boils, according to the Newton scale.
“Thirty-three” is a song by the Smashing Pumpkins, although not a particularly good one.
Jesus Christ was 33 years old when he died…
But as of today, the number “33” will forever have a new meaning in my mind.
I’ve heard some amazing real estate stories over the past few years, but nothing quite like the house that received thirty-three offers the other night.
It was truly uncanny.
And, it was truly ridiculous.
Certain questions come to mind such as, “Why would you ever submit an offer with 32 competitors?” Or “How would you feel being the buyer that out-bid 32 other people?”
But before we address those questions, let’s analyze how and why this situation transpired in the first place.
If you listed a property for sale at $1.00, do you think you’d have significant interest?
Sure, you could draw in 33 offers. Or you might scare people away because the price is so utterly ridiculous.
If you listed a $400,000 property at $299,000, do you think you’d have significant interest? I think that you would, but a lot of that interest would be misguided.
Many buyers and many agents don’t do their homework, and if you saw a property that was “worth” around $400,000, listed for $299,000, I would hope that you could immediately identify the situation for what it is.
Unfortunately, some buyers don’t. There are buyers out there that might actually think they have a shot at getting this property for $299,000, or even worse – $290,000.
A house in the west end, for which I cannot provide the address as the deal has not closed, was listed last week for $499,000. There was an offer date of Tuesday, January 25th.
This house was not worth anywhere close to $499,000, but somebody thought that it might be a good idea to list it there.
Personally, I don’t subscribe to these tactics. I’m many things, and I have many faults, but I’m certainly not without integrity.
If I had a client ask me to list their house for $1.00, I might consider doing it. But if I had a client with a $625,000 – $650,000 house ask me to list it for $499,000, I wouldn’t do it.
As I explained to the (soon to be) greedy sellers of a neighbouring property last week as I presented my offer up against nine others, we are playing with peoples lives and their emotions. Purchasing a home is one of the largest and most stressful decisions anybody will ever make, and yet many sellers and agents alike will run the offer process without a single ounce of compassion.
Receiving fourteen offers on your condo and sending ALL fourteen offers back to “improve” is without compassion. As an agent or a seller, you know very well that 10-12 of those offers have no shot, but instead of letting the agents go home to their families and letting the potential buyers down softly, you send them all off on frivolous journeys that do nothing but waste time and toy with emotions.
But I digress…..perhaps for another blog post…
The house that was listed for $499,000 was situated on an incredible 50 x 110 foot lot, and had been completely renovated. It was a bungalow, so while you might assume that developers would be interested in purchasing the land and sub-dividing the property to build two houses, I think the house was “done” enough that the end-users would be able to pay more than the builders.
The house was a 3-bedroom, 4-bathroom property with two bedrooms in the basement – every inch of the house showing to its maximum potential. The bathrooms were renovated, and while the kitchen wasn’t quite 2011 standards, it surely couldn’t have been more than 5-6 years old.
The backyard was enormous and was fully landscaped with interlocking stone patio off the large back deck, and there was even a walk-out from the basement.
For what it was – this was a fantastic home.
But it wasn’t worth $499,000…
In June of 2010, a house sold just down the street for $478,000. But aside from the prices themselves, there was no comparison to be drawn.
For starters, this lot was 44 x 110 feet so not only were the house and property smaller, but there was no way that a developer could ever sub-divide the lot.
The house had 3-bedrooms, and 1-bathroom, so clearly it didn’t compare to the one that just sold this week.
But most importantly, this house was being sold in “As Is” condition since it needed substantial work. If I had to guess, I’d say that the owner/renovator/speculator/developer had started gutting this house and eventually ran out of money.
If this house sold for $478,000, in “as-is” condition, one year ago, on a 44, x 110 foot lot, with only one bathroom and in need of a complete renovation, then how the heck could this other house that is fully renovated on a 50 x 110 lot be listed at $499,000?
Because somebody decided to play games.
To turn House-A into House-B might cost you $100,000 – $150,000. But also consider the different lot size, and then add in an emotional premium for a buyer who is looking for that “perfect” house, or for somebody that puts a price on not having to live through a renovation, and you can see where House-B is worth well over $600,000.
The house sold for $678,000, with thirty-three offers.
So listing at $499,000 is absolutely ridiculous, right?
Well even though I don’t agree with the pricing strategy/tactic, I think we also have to lay blame with the buyers and their agents for not doing their homework.
If any of the thirty-three offers were under $600,000, then those buyers should give their heads a shake.
As I’ve been telling my clients lately, there are no “great deals” in this city of ours. We’re in a very hot market, and it’s been this way for almost a decade. I’m not going to say that prices are going “Up, Up, Up,” but I will say that our market is far to efficient for a “great deal” to fall through the cracks.
If shares of Apple are selling for $343 per share, can you really hold out hope that you’ll be able to find somebody willing to part with theirs for $310? The market is far too efficient to let that happen.
And while real estate isn’t as exact a science, it’s not that far off when you have every list/sale recorded and distributed for all to see.
I wonder how many of the thirty-three offers were less than $550,000? We know there had to be some, but how many?
And a better question is: “What were these people thinking?”
Did they think something like, “Well, we know that the awful, disgusting, gutted house down the street on a smaller lot sold for $478,000 a year ago, and we know that there’s likely a $150,000 difference in the two houses, soooooo………let’s offer $550,000”?
Is that rational?
Or is that a dream?
I guess the point I’m trying to make is this: If you were to list a house for $1.00, I think somewhere out there is a buyer who might be willing to offer $2.50 for it.
We were taught from a very early age that four-letter words are bad, and the word “wish” has no purpose in real estate.
I fear that many of the thirty-three offers were complete pipe-dreams, and the buyers thought “Well, there’s no harm in trying.”
But that’s where they’re wrong! Because there is harm in trying a $550,000 offer for a $650,000 house that sells for $678,000! Your offer had no business being submitted, and all it did was increase the eventual sale price and cause everybody else to waste a lot more time!
You can’t wish your way to victory in this real estate market, and while I disagree with the tactic of listing this property at $499,000, I also disagree with any and every buyer who submitted a useless offer that was either borne out of lack of knowledge and research, or a wish on a shooting star…
Stan
at 8:34 am
David,
Totally agree with you…so many younger, often first-time buyers see listing on MLS in their price range, only to find out that the seller “underpriced” to “spark a bidding war. “Love the Apple Stock comparison.
I’d like to hear your thoughts on how you advise your seller clients to handle these situations -pitfalls, things to watch out for when receiving offers. Last year, we sold a condo and we weren’t trying to underprice (to be honest, I think our agent goofed) but we received multiple offers and it sold for about 10% over list. On the advice of our agent, we turned down the highest offer as it was the only one with a condition -subject to review of the condo’s status certificate -our agent advised that this amounted to a blanket “get out of jail free” card if they changed their mind. And because the offers were presented in person, we happened to know that with these particular buyers -a married couple -one really liked the place, while the other was luke warm. So we turned down an extra $10k or so, for the security of an offer with no conditions. Pretty good advice I think -all things considering…
David Fleming
at 9:29 am
@ Stan
Two things to consider here:
1) A buyer should NEVER go into multiple offers with a condition. If it’s a house – you do a pre home inspection. Pay $400 and accept that this money is lost if you don’t get the home. If it’s a condo – get a status certificate in advance and review it with your lawyer. Buyers often cheap out because they don’t want to spend the money to protect their potential $500,000 asset…
2) A seller should NEVER accept a conditional offer in multiples. Your term “get out of jail free card” rings true. If the buyer walked, you’d have to relist the property and do the whole process over, and you’d lose some of those buyers that offered on your property that have either bought elsewhere or don’t want to go through it again. The only exception – I’ve never had a condo deal fall through on status. If you have a status condition and there’s no issues with the building (less than five years old, no pending work orders, etc), then you could accept that deal and feel safe knowing that the buyers are likely genuine.
Good points – thanks for bringing this up!
meow
at 10:17 am
Dave, I think you are coddling young new buyers a bit too much. It’s a big bad world out there and they better get used to it. What’s with all this “compassion” stuff? Have you turned into the Dalai Lama all of a sudden?
Your quote:
“Because there is harm in trying a $550,000 offer for a $650,000 house that sells for $678,000! Your offer had no business being submitted, and all it did was increase the eventual sale price”
All it did was increase the eventual sale price……yep, that sounds pretty darn good from the sellers perspective.
J
at 11:00 am
Dave, I gotta disagree with you here in that the seller/seller agent did anything really wrong or unethical here.
A) Who cares about compassion? You’re trying to sell your house for the highest price, not make friends or not hurt feelings. Besides, if someone was emotionally attached to the house, they’re going to be disappointed if they bid $677,000 and lost OR if they bid $501,000 and lost. If anything, I’d be happier losing by a lot than a little.
B) It’s not like this was a 1 br + den condo in cityplace where there’s been at least a dozen comparable sales in the last year. As you said, the best comparison was a fixer-upper that sold for $20,000 less right at the end of the peak of the market.
That said, unless by some slim chance those 14 buyers or whatever were all close and over $600,000 bit of a waste of time for everyone to send all but maybe 2-3 back.
George
at 6:56 pm
I don’t have a problem with this tactic, as smarmy as it may seem. What I would have a problem with is if someone listed their house for sale at $500,000, received an offer for $550,000, and then rejected it with no other offers on the table because they felt their house was really worth $600,000.
David Fleming
at 7:08 pm
@ George
That happens all the time…
Angry Blog Stalker
at 11:19 am
on a completely unrelated side note… you disabled davidfleming.ca… for shame! now i have to re-do my bookmark
Boo Urns!
Craig
at 6:03 pm
When we were looking at homes in Bloor West Village in the summer of 2009 we ran into all sorts of underpriced homes set up for multiple bids. We got our first shock on our first offer when the home went for $110k over asking. Then the next 5 homes we bid on all had similar results until we actually lucked out and got a fixer upper at the listed price as we moved quickly and their agent wasn’t from the city so wasn’t sure what to expect.
Regardless, my solution for this problem is that an agent can ONLY get commission up to the point of the listed price. They can underprice all they want but won’t receive any commission past the listing price.
I agree it’s all about getting the maximum value for your home but I believe most homes go for what they should in most cases, but it’s really a waste of time for all those uninformed agents/buyers who think they have a shot at a home when it will actually sell for $100k more than what they can afford. I also felt it was a real emotional rollercoaster as I saw other couples looking at homes, and already planning out what they would do with the place, when in fact they had no hope at all.
Joe Q.
at 3:15 pm
I know of a property where the seller (a realtor looking to do a flip) put it on the market for $490k, took offers, rejected them all and told the buyers’ agents that we wouldn’t look at offers under $590k.
The seller ended up keeping the house and is renting it out at a price-to-rent of ~22 based on his asking price. Better luck next time, I guess.
Rob
at 11:20 am
You’re an idiot.
You’re main concern with multiple offers is that you can’t home home to your family and have to do actual work. If only making your $10,000 commission was easier….whaaaaaa whaaaa whaaaaaa.
Here’s an idea genius. Say I put the first offer in, I have no idea that 11 other offers are going to come in. I really want the place, I would want the opportunity to improve my offer!!! I know that means work for you….I know I know, actual work sucks.
Keep in mind the buyer doesn’t have to improve the offer……the buyer can walk away. Then you’ll be able to make it home in time to watch American Idol. Douche bag.
David Fleming
at 1:53 pm
@ Rob
You are completely missing the point.
I am advocating for the consumer, against greed, and against poor and unfair business practices. You should only wish there were more Realtors like me.
This has nothing to do with American Idol, which I’m sure your mother was booted from for trying to get into Simon Cowell’s trailer, on account of her living in a trailer all of her life…