The term itself doesn’t sound all that pleasant, or safe.  But then again, I guess it depends on how sharp the knife is?

“Catch A Falling Knife”

Most people know this idiom, however, it has different meanings to different people.

Some consider this to mean “buying a risky investment.”

I wouldn’t agree.

Some believe it means “buying an asset on the way down,” which holds true, but doesn’t quite capture the full effect of the phrase.

Others believe this is about “making up losses on an investment that’s quickly declined in value,” but that assumes you already own the asset.

A translation from Investopedia says the phrase means, “waiting for the price of an asset to bottom out before buying it.”  I think that’s the best explanation.

Where the idiom goes awry, in my opinion, is that nobody wants to catch a falling knife.  There’s no benefit, despite the risk.

So the saying, I believe, would have originally come with the word: don’t.  As in, don’t try.

“Don’t try to catch a falling knife.”

There’s no upside.

Although in the stock market or the real estate market, there is.

If the market is falling, some believe they have the intuition necessary to know when to buy back in; when the market has hit bottom.  If the market is rising, those same people might believe they have the superpowers necessary to know when the market has hit the peak, and thus when to sell.

Over the long-term, the real estate market will always rise in Toronto.  Whether it’s inflation or simply the nature of the asset, it will always rise higher.

Stocks, on the other hand, don’t have the same guarantee.  Companies can go bankrupt.  Companies can be bought.  Stocks can split.  It’s just not the same comparison.

I think the phrase, “Don’t try to catch a falling knife” assumes far more risk in the equities market than the real estate market, but people will continue to use this phrase to describe both.

In the current Toronto real estate market, many people are beginning to make their predictions, prognostications, educated guesses, and complete shots in the dark about when the Toronto market will rebound.

Define “rebound,” first and foremost.

When will the GTA average surpass the $1,334,554 recorded in February of 2022?  Likely not for a year or more.  Some will say longer.  Others will say much longer.

When will the 416 average surpass the $1,243,070 recorded at the “peak” in April of 2022?  Who knows, but it will be much sooner than the point at which the GTA average surpasses $1,334,554, and that’s simply due to the rapid ascent – and subsequent descent, of the value of properties in the suburbs.

As a buyer, trying to catch a falling knife in the real estate market comes with less risk than a person attempting the same thing in the equities market, since the real estate buyer has an actual use for the purchase, ie. a home in which to live.  There’s no question that September buyers will happily purchase at prices discounted from February, even though they know there’s a 50/50 chance that the property could be worth less in October or November.

But what I want to discuss today is what’s going through the minds of sellers.

And since a TRB reader challenged me via email last week, and said, “David, you continuously talk about the ‘decline in the suburbs’ but you’re not giving any examples of what’s happening in the 416,” I’ve decided to use a downtown Toronto condo as an example.

The 416 market has not been immune to the market decline.

On paper, the average condo price in the 416 is down 10.5%, March to July.  This comes with caveats, or course, one being that it’s summer, but regardless, we all know that a condo the downtown core, the 416, or the GTA is worth less today than in March.

So what are sellers doing?

How are they handling the decline?

It really depends on the seller, and of course, the agent.

I spoke to a client on Friday who said she had bought a house in the United States in which to retire, and that while she knows the market has declined since we last spoke in March, she’s ready to sell in September.

That was easy.  She did my job for me!  She said, “David, let’s have the tough conversation now and talk about price.”

I told her that the condo is down from about $1,400,000 to the low-$1,300,000 range, and she said, “Okay then.”

That was that.

Not everybody can be so accepting, however.

Then again, many people simply get caught – wait for it – trying to catch a falling knife.

In a seller’s case, it’s the opposite, really.  They’re trying not to “chase the market,” as we say.

As a seller, you need to get out ahead of where the market is going.

Think about a professional football player; a quarterback.  Think about his relationship with the wide receiver.

When you go to the park with your buddies, you throw the ball to them.  You look at them, they look at you, and you throw it to them.  Easy, right?

A professional quarterback throws the ball nowhere near the receiver.  He throws the ball to where the receiver is going.  The receiver starts on the left side of the field, and is running into the centre of the field at a high speed, so the quarterback throws the ball there.

That’s what sellers need to do in a falling market.

They need to see where the market is going, and target that.

It’s much, much easier said than done, especially when the market is in the midst of changing.

So let’s work through an example of a condo that is now on its ninth listing since March and look at the strategies involved.

Disclaimer here, of course: I am not permitted to give out sold prices, advertise a competitor’s listing, or disparage a competitor’s listing, so I’ve blacked out the address of this property.  I would also add that I’m not attempting to slag the owners or agents of this property.  This is simply for educational purposes.

The condo was first listed for sale on March 31st, 2022:

We were still in a relatively hot condo market at the time, and this condo was listed for $1,100,000 with an offer date set for Wednesday, April 6th.

It’s a gorgeous unit, no doubt about it.

The location is great, the building is very popular, and the space is fantastic.  There’s a huge terrace, high ceilings, and it’s a soft loft style.

If I had a client for this unit at the time, I would have happily sold this unit to them!

But the unit didn’t sell on offer night.

So it was re-listed on April 7th, the day after the scheduled offer date of April 6th:

The new listing was for $1,320,000, although this says $1,278,000 because that was a price reduction at a later date.

We don’t know if they received any offers when listed at $1,100,000 with an “offer date,” and if so, how much they were for.

But we do know that they re-listed $220,000 higher.

Eventually, they reduced to $1,278,000, as you can see from the listing above.

The property sat on the market for 27 days.

On May 4th, they re-listed:

They re-listed at the same price of $1,278,000.

This is what we call “re-running the listing” and TRREB doesn’t like it.  We all do it though.  It’s a way to re-start the “days on market” but more importantly, to get fresh eyes on the listing.

The property was on the market for 13 more days on this, their third listing.

On May 18th, the property was re-listed, now for a fourth time:

At $1,199,900, they reduced by $78,100.  That’s substantial.  That would have, could have, should have moved the market.

But it didn’t.

22 more days went by for this, their fourth listing.

Somewhere around the two-month mark, either the sellers or the agent, or both, decided to try a different strategy.

We’ve seen this discussed many times before on TRB, right?

We all know where this was going?

On June 9th, they re-listed for $999,999, with an offer date:

This was now their fifth listing and their second attempt at an “offer night.”

This time, the property was listed $100,000 lower than during the first “offer night,” but would that move the market?

I suppose it depends on the seller’s expectations.

The average 416 condo price in March, when they first listed, was $831,531, and now in June, it sat at $771,267.  That’s a 7.2% decline.  Now, for a downtown condo that also happens to be a hot loft, maybe the decline is 4-5%.  Even still, this condo, if it was “worth” $1,200,000 on March 31st, was now worth $50-60K less.

So did the second offer night work?

No.

The property was re-listed at the same $1,199,900 that they were at before the second attempt at an offer date:

This was their sixth listing.

June 15th meant they had been on the market for 77 days.

This listing noted, “3% Commission To Co-Op Agent If Sold By June 30.”

They were trying to get creative and offer more money to buyer agents, which is something that many listing agents have done in this market.  In fact, there’s a high-volume east-end agent who is offering 3% on all of his or her listings right now.

In this case, the bonus commission didn’t work, and the price wasn’t well received.

This listing lasted for 18 days.

The listing was terminated on July 3rd, but the property wasn’t re-listed right away, like it had been every time before.

Why?

Because the sellers switched agents!

On July 21st, the property was re-listed with a different brokerage, a reduced price, and this market their seventh listing:

Now at $1,124,900, they were about $25,000 higher than their first list price, which of course, was apparently “low” to solicit multiple offers on their “offer night.”

Three months had passed!

The market had declined.

I’m seeing a lot of properties selling for a price equal to where they were first listed, months before, at their “low” price.

Ironic, right?

Also note that the property was listed as a 1-plus-den, and not a 2-bedroom.  Perhaps the new listing agent figured that buyers were being turned off by the idea of a true second bedroom, only to find a den.  The classic “bait-and-switch” never fails to disappoint.

Speaking of disappointing, this listing lasted for 21 days and was termianted.

Here is the eighth listing which came out on August 11th:

Now down to $1,000,900, it seems like these sellers are finally ready to move the property!

It takes guts and a come-to-Jesus moment do drop your price by $125,000.

However, it turns out that this was just a big misunderstanding.

This listing was terminated, same day.

And then this listing came out:

Ah!

Somebody inputted the price incorrectly!

It wasn’t $1,000,900, but rather $1,099,900.  That’s a spicy meatball right there, folks!

This was probably the last thing these sellers needed, now entering their fifth month on the market, but perhaps now they’re priced appropriately?

This $1,099,900 list price is the same price at which they made their debut on March 31st, before they raised the price $220,000.

Would they have sold on March 31st for $1,099,900?  In my professional opinion, yes, they would have.  That would have been a fantastic price at that time.

But the market was different.  That was March.  We’re now in August.

Hindsight is 20/20, and while many of you will call out the actions of these sellers, who knew, on March 31st, where this market would be on August 15th?

This is, however, a classic case of “chasing the market.”

They never got ahead of the market so they never gave themselves a chance to sell.  They were reactive instead of proactive.  They waited instead of anticipating.

I’m sure there are many other examples of this, but having seen that pricing-typo last week when the new listing came out, this one definitely caught my eye.

Whether the market rebounds in the fall, and whether your definition of “rebound” is the same as mine, it’s paramount that would-be condo and home sellers recognize the current market conditions rather than focusing on the ones in the rear-view mirror.

It’s as easy as catching a falling knife, right?