No, I don’t mean the movie with Alicia Silverstone which was destined to become a “cult classic,” but instead gave us a short-lived TV spin-off…
I’m talking about the owner and the agent for a house in Cabbagetown which was for sale last week and caused a huge stir in the industry.
The crazy part is, they didn’t think they were doing anything wrong!
While the days of “bidding wars” and “multiple offers” are seemingly behind us, we still do get the occasional property that draws more than its intended share of interest, and multiple offers do happen on occasion.
In a “down market,” I’m sure it would surprise some members of the general public to hear of all the properties that sell after one day on the market, for full asking price, or perhaps even at a small premium if two buyers happen to be interested.
We’ve come a long way in the last year since sellers and their agents were severely underpricing properties to try and attract buyers who had no business submitting offers in the first place.
Take a house worth $500,000, for example. By pricing it at $449,000, you might get 3-4 buyers who never had a hope in hell of buying it, who offer under or around the artificial $449,00 asking price. All this does is make the buyer who was willing to pay $510,000, end up paying $540,000 to make sure he “wins.”
Thank God those days are over……right?
A house came onto the market last week in prime Cabbagetown for a mere $419,000.
The house was in “original condition,” meaning “awful condition,” and needed a gut-renovation. The lady currently living there had been born in the house, raised in the house, and then willed the house by her parents. Oh I should mention – she’s 85 years old!
But it’s still a 2 1/2 storey, 5-bedroom house with a full basement, and there would definitely be a buyer for this house in any market.
Here’s the tricky part, however: early indications would have priced this house around $550,000 even in its current condition. I spoke to several agents who felt that the house might even be worth more!
So what are we missing here?
Why is the house underpriced by over $100,000?
Well, if you ask the agent and the seller, they would both tell you that the house was accurately priced.
One agent in my office met the seller, and like a pessimistic old lady, she muttered, “I hope we’re able to sell this house. I hope we can find a buyer. I’d really like to get an offer and sell it.” Just picture the old lady taking about 20 seconds to spit out that sentence…
The agent himself played coy, and said that he thought the house needed “too much work” and that in these turbulent times and in this “tough market,” nobody really knows if there’s a buyer out there willing to pay the money, do the work, and inhabit the house.
Oh, there’s a buyer out there.
In fact, there are about a hundred at that price!
I didn’t see this house, so all of my observations should be prefaced with “an agent in my office told me that…” Apparently, there were so many showings booked on this property and so many people going in and out of the house that it was virtually a 24/7 open house for the three days in which it was on the market.
Everybody kept asking about the price, and the listing agent kept saying he was so “surprised” by all the interest in the property!
Back when multiple offers were a virtual certainty, a listing would come out and in the instructions it would say, “Offers kindly received March 25th @ 6:30PM.” This way, everybody knew when offers would take place, how long they had to get their affairs in order, and of course the date on which the property would sell.
But with this house in Cabbagetown, there was no set offer date.
So agents had to register an offer as soon as they showed the property and their clients showed interest in order to avoid being left out of the process.
Well, TEN agents brought offers on the property.
After the first offer was presented by an agent who was going to purchase the property himself and renovate it, the old lady remarked, “You mean to tell me that you’re going to give me a half-million-dollars for my house?”
She was speechless.
The old lady sat there with her massive magnifying glass looking at prices on another NINE offers, and with good coaching from her agent, she didn’t mutter another word.
“It was complete chaos,” said an agent in my office who presented one of the ten offers.
“The poor thing. She had to sit through ten offer presentations. I was number five, and by that point she didn’t even recognize her own listing agent!”
I’ll be honest, I held in my laughter when I heard that.
But I couldn’t believe what happened next.
The listing agent, who was genuinely of the belief that he had accurately priced the house, ended up sending back SIX of the offers for “improvement.”
The nerve of him.
Either he had possessed some shrewed tactics all along, or he was a fast learner!
He might not have had much faith in the house and finding a buyer for it, but once he received ten offers, he got greedy….for his client, of course.
Most of the agents balked at the idea of “improving” their offers, but in the end, somebody paid 152% of the list price, or $635,000.
Majority of the agents who showed and/or had an offer on the house felt that the listing agent was way off base with both his pricing and the way he treated his client. The poor woman sat through five hours of offer presentations and negotiations, for what must have seemed like the longest night of her life.
And the “poor woman” who once remarked to her next-door neighbor, “I’ve been told I could get as much as four-hundred-thousand dollars for this ole’ house,” walked away with $200,000 more than the asking price, and probably close to $100,000 more than the house was actually worth.
It’s tough to say what any house is “worth” in this market, but most of my colleagues firmly believe that this house is NOT worth $635,000.
Try telling that to the listing agent.
Or, the old lady who probably doesn’t even remember that she sold her house…Back To Top Back To Comments
at 1:44 pm
Your story is very intriguing and it’s a great indication that the housing market is indeed a pillar of strength within Toronto and GTA economy. It is quite evident that, In this town, there is always a buyer if the price is right. Which contrasts to a lot of anecdotal evidence in certain US cities where lots will drop to $1.00 without buyers picking them up.
I can understand that the listing agent might have not had a clue as to what he was doing. However my question to you is whether the strategy of underpricing a house is considered to be “frowned upon”/flatout wrong in the real estate business and why if it is.
Also, another further comment I have is I see a lot of listings out there that have asking prices of probably 10% MORE than they should be (in my opinion ,of course, with consideration of the current recession). This is an action that I would consider as being even more clueless than underpricing a house. (I am aware that there are some sellers that demand listing prices for their houses to be set to their own magic number) However a lot of these agents are still overpricing average looking houses/lots, without any real charm to them at all, for some insane reason. These houses sit on the lot for 90+ DOM until finally the seller smartens up and tells the agents sell at any price within the next month. The agent then grudgingly has to keep sliding the price lower and lower; quicker and quicker to try and attract potential buyers but by that time the property isn’t even “hot” anymore. Eventually there will be a buyer seeing the desperation in their price slides and send in an offer that is much lower price than market value anyway.
What I feel about these type of agents is that they are trying to artificially hold the market at a higher value. Which is obviously isn’t happening because these houses just aren’t selling. Moreover they are doing their clients a great disservice by turning away offers that come within that 10% range(no written slideback offer to prove the agent communicated with the seller). They aren’t giving them the genuine idea of what all the offers coming in are like. In the end the client suffers with paying the mortgage on an empty house for x amount of months AND selling below market which could be 5% of the value or more. The realtor maybe ends up losing only 2.5% of the difference in price from ave. market value. No matter what, he will get paid a substantial amount for lousy service.
Now, if you underprice your house in this downturn environment you get more people to actually visiting the house and see it in person. Then, if they like it they are free to bid whatever they are willing to pay for it. Which is which fits the description of a free market perfectly. Sure you might get some people liking the house and end up paying MORE than the current average market value. But this will usually happen once in a blue moon especially in a recession. In the end, the market corrects itself quicker and the metrics will reveal a much more accurate picture.
Sure the old lady may have gone through a shaking week, however she came up on top $100,000 richer. Even if I hit that age I’d gladly be frightened for a week with the upside of receiving 100,000 year 2060 dollars. However I must say that such a big difference from the “idea” of what was market value can also be considered as an anomaly.
Sorry for the long rambling but my point is that I cannot understand why it would be completely wrong to underprice in the current climate where a lot of people are scared to buy a house anyway. However, If an agent were to convince their client to try underpricing out of greed when the economy is stable(slowly growing), I can see how that would be considered as unethical.