It’s a free world, but sometimes I don’t understand the moves and decisions people make.
Last week, I reviewed multiple offers on two properties I had listed for sale, and both experiences made me shake my head…
The last time I wrote a blog post along these lines, I took a lot of heat from my readers.
I believe I wrote about a property in the west end that received thirty-three offers, and I surmised that twenty of those offers weren’t worth the paper they were printed on.
I think the property was listed at something like $489,000, and it sold for around $750,000. I suggested that of the thirty-three offers, surely 12-15 of them were for under $600,000, and based on comparable sales (and using common sense), there was no way in hell the property was going to sell for less than $700,000, let alone $600,000.
Many of my readers complained with my thought process, claiming that if somebody wanted to offer $400,000, they should be able to.
I’m not saying there should be a law banning them from offering $1.00, if they so desire, but rather I think that many buyers and agents alike lack the common sense necessary to keep them from wasting their own time.
For example, I reviewed offers last week on a property listed at $369,900, where there were seven offers.
The property sold for $411,000, and there was never any question as to whether it would receive multiple offers; just how many.
Of the seven offers, one of them was for $364,000.
This is what I’m talking about when I say that some buyers and agents lack any rationale for their decisions, whatsoever.
One of two thought processes went through the buyer’s head, and it’s only these two thought processes that form the entire option set:
1) “I think that this property, listed at $369,900, with six competing offers, has a chance of selling at under asking. I think that maybe the other six people who submitted offers also think that this property is not worth the asking price, and therefore I believe that my under-list offer stands a chance in competition.”
2) “I don’t have a hope in hell of getting this property, but I’m going to submit this offer anyways because the Internet is down at my house right now and if I can’t play World At War online with strangers, then I may as well find my entertainment elsewhere.”
Either way, this person is an absolute moron.
Even worse, this person’s Realtor should not be in the business.
Again – this is where I took some flak two years ago when I wrote a post along these lines.
Some readers felt that “there’s always a chance!” But these readers should be out scratching lottery tickets instead of reading my blog.
With SEVEN offers on a property, there is a 0% chance that it will sell for under asking.
This was a basic property, in an entry level price-point, that has no complications whatsoever.
This was not a commercial property that has all kinds of questions surrounding it, where you might expect to see seven ‘bids’ with varying clauses and conditions.
This wasn’t a complicated transaction with teams of lawyers pouring over the documents.
This was a typical transaction, of which hundreds are undertaken every day in Toronto, and I see no reason why a buyer would assume, hope, or wain for that “off chance” that six equally inept buyers and agents submit equally terrible offers.
There is no logic behind submitting a $364,000 offer on a $369,900 property that has seven offers on it.
None.
And while I welcome feedback from my readers, I think you’d be hard-pressed to convince me otherwise.
I took offers on a another listing of mine last week and this situation proved to be even more bizarre.
The property was listed at $299,900 and there were multiple offers.
Almost all of the offers were “clean,” meaning no conditions – no condition on financing, and no condition on a review of the condominium’s Status Certificate, but one offer was conditional.
No, it was not conditional on financing.
No, it was not conditional on the status review.
Believe it or not, this offer was conditional on the sale of the buyer’s own property!
Wow!
I haven’t seen that condition in years!
Where is the logic in that offer?
Why can’t common sense prevail in the mind of the buyer or the buyer’s agent?
Here is the thought process that’s involved on the buyer’s part:
“Well, I know you have several offers to choose from, and I know that these could be unconditional, but we’d like to buy your property and tie it up for 30 days while we attempt to sell our small 2-bedroom bungalow in Milton, Ontario. No, you won’t have any input or influence on that sale, and no, you really won’t know anything for 30 days. But we’d like you to blindly put your faith in another agent’s ability to sell a property in another city, in a weaker market, where properties could take months to sell, and we’re not going to give you any guarantees whatsoever with respect to your own property.”
Is that fair?
Did that just about sum it up?
I have NEVER worked on a real estate transaction that contained this clause. I’ve only seen it once before, and the clause was contained in an offer for a house that had been sitting on the market for three months. Even then, we didn’t take the offer seriously.
In the case last week, the property had been on the market for six days, and there were multiple offers.
What was the buyer thinking?
I suppose if the buyer offered one-hundred-jillion-gazillion dollars, then maybe we’d look at the offer.
But there’s simply no guarantee that the buyer could sell his or her home, and thirty days was the timeframe in which we wanted to close the transaction – not wait to see if we actually had a deal!
Let’s assume we had offers of $300,000, $310,000, $320,000, and $330,000 – conditional on the sale of the buyer’s home, I’d advise my clients 100 times out of 100 to take the $320,000 firm deal. Even if the $330,000 deal was conditional on financing and review of the status certificate, I still would advise my clients to take the $320,000 firm.
Otherwise, you’re just a riverboat gambler and you may as well put all your money on green-38.
Sure, you might firm up the deal down the road, but there are no guarantees. Your bank needs a firm sale in order for you to get financing if you’re purchasing a new property, and you don’t want to go through the whole listing process again to try and solicit multiple offers. It never turns out the same the second time around.
The crazy part about this situation is that the buyers were a little taken aback by how vehemently against their offer we were! They didn’t think it was an issue to sell a property, conditional on the sale of somebody else’s home! “This happens all the time back home,” they said. Where’s that? Windsor? Nepean? Oh – Milton, right. Well, Milton is not Toronto, and if I were a Milton agent, I likely wouldn’t look at this clause either.
I think it falls back on the Realtor to educate his or her clients.
If the buyers are from out of town and don’t understand the Toronto market, then the Toronto agent needs to break it down for them.
That offer had a 0.00% chance of being accepted, and all it did was help to increase the price that was eventually paid for the property via the highest offer. As the listing agent, I’m not complaining. I’ll take ten stupid offers as long as the eleventh one is good, because the eleventh offer will be based on the presence of ten competing offers.
But as far as the industry as a whole is concerned, I feel as if many Realtors will help their clients “go through the process” as if it’s some sort of meaningless test with no consequences.
If there are six offers on a house listed at $599,000, and four of those offers are from buyers who just “want the experience” and happen to offer $550,000 conditional on water turning into wine, then the two serious buyers will end up paying $20,000 – $30,000 more for the property.
As a Realtor, part of my service is being honest, knowledgable, and guiding my clients. If my client wants to offer $500,000 on a property listed at $699,000, I’ll tell them, “That’s ridiculous. It’s a waste of time.” I owe my clients that!
If my client wants to offer under-asking when there are ten offers, I’ll tell them, “The market doesn’t work that way. I wish it did, I really do. I wish I could get you this property for under market value but it’s just not possible. Let’s lay off, you go home and relax, and remember that tomorrow is another day.”
What’s the alternative?
Offering $20,000 under-asking and watching the property sell for $70,000 over asking? What does that accomplish? And how does the outcome differ from expectations?
Hey – I know my approach isn’t for everybody. But the people who work with me want the straight and narrow, and it’s the only way I know.
I wonder how the industry would work if everybody thought like that. Efficient? Or a complete disaster? 🙂
CD
at 9:36 am
I’m surprised by how many morons there are out there.
JG
at 10:48 am
Dumb question – sure:
to the clients asking under, in multiple bid’s situation – do those clients
know there are multiple bids?
Or are they blind to it, and are just throwing their hat in the ring?
If the clients are aware of multiple bids, and the property has just hit the
market – then i agree with you.
If they do not realize there are mutliple bids, then sure, their just low balling –
Which again, is a waste of everyones’ time. But, there will always be
those people out there low balling offers with hopes of one day it landing.
David Fleming
at 11:21 am
@ JG
No doubt about it – the buyer and the cooperating agent know there are multiple offers.
When I received that offer for $5,000 under asking last week, the agent presented in person. I very politely said, “Is your client aware that there are six competing offers on the property?” I wasn’t being condescending – just doing my job. The agent said, “Yes, he’s aware,” and I said, “Great, well let’s have a look through the rest of the offer, shall we?” I gave that agent as much time as I gave every other agent.
Joe Q.
at 10:58 am
The way to solve all these “common sense” problems is to sell homes at open auction (all interested buyers gather in one room at once and bid openly until the home is sold). It beats the closed and opaque system we have today and gets rid of the greedy seller / low-balling buyer issue at a stroke.
lui
at 11:49 am
Joe are you nuts,putting agents together in a small room is like putting pitbulls in a ring and let go at it and wait for the last person standing.
Joe Q.
at 8:20 pm
It’s not so crazy — this is the way homes are sold in Australia. It need not be agents doing the bidding.
The fact is that the system in Canada, as it stands now, has the potential for considerable abuse.
Darren
at 9:11 am
The Australian system is horrible. I certainty wouldn’t want to see that here.
Kyle
at 5:01 pm
Open auctions are great for commodities that have been standardized into contracts and terms and which are governed and guaranteed by an exchange. But for homes where each is completely unique and where each and every transaction is unique (different closing dates, different conditions, different schedules/certificates, etc) auctions simply don’t make sense. Not to mention they too can be subject to manipulation (i.e. planting bidders). Also as far as i’m concerned someone waving a paddle in the air is a far cry from a signed agreement with a certified deposit in my hand.
Joe Q.
at 8:52 am
So let the sellers state their conditions. That’s what ends up happening in a hot market (where there are bidding wars) anyway. Somehow a country of 22 million, with similar demographics to our own, is able to make this system work. Yes, shill bidders are a possibility, but at least the buyer knows (numerically) what he is up against.
Kyle
at 11:22 am
Said country of 22 million, with the same demographics as our own, also tend to eat yeast sludge smeared on bread. My point – just cause Australians choose to do something one way, certainly doesn’t make it better.
What you are proposing eliminates 2 of the most crucial abilities a party in a transaction has. The counter offer, and time. Any system that eliminates the ability to negotiate and which forces parties to make decisions in minutes, rather than hours, is completely ill-suited to large, emotional and often complex transactions.
The auction system also exists here, however it accounts for a ridiculously minuscule percentage of transactions. Mostly receiverships, estate settlements, and foreclosures. If such a system were so superior, wouldn’t it own the market? And if you believe it to be such an ” agency-killer” how come you aren’t out there taking full advantage of this incredible business opportunity by creating such a service?
Joe Q.
at 3:40 pm
Fine, then let the auction take place over a week rather than an hour, but at least open the process up — have everyone gather in the same room at once, or do it electronically, as others have mentioned.
If such a system were so superior, wouldn’t it own the market? And if you believe it to be such an ” agency-killer” how come you aren’t out there taking full advantage of this incredible business opportunity by creating such a service?
I’m not involved in the Real Estate business and am not interested in being an “agency killer”. Just pointing out a possible solution to the lack of transparency in the multiple offer system as it operates today.
JG
at 11:31 am
Phenomenal – in that case – there was a serious lack of common sense. And you’re right, the realestate agent should have advised their client what a waste of time their offer was. Maybe business is slow for the agent.
And to add – who in this market in Toronto, goes in and offers under asking.
Just a serious waste of time for all parties involved. At least they get the prize of being the first offer in the waste basket!
Craig
at 12:27 pm
Isn’t some of this a by-product of realtors under-listing homes to attract more buyers? If so, hard to feel bad for the selling agent. The buyers agent should know better but I think with many occupations, there’s some good ones, and many bad ones.
Kyle
at 12:55 pm
For the most part i agree. What i don’t necessarily agree with is the notion that more decoy bidders, (for lack of a better name) equates to a higher final sale price. I think most people set a maximum they will offer, regardless if there are 5 other bidders or 50. In fact when there are too many registered bidders, it may actually turn off real potential buyers.
Joe Q.
at 8:26 pm
David, do you have any sense of the prevalence of phantom bids in the market these days? There was a big kerfuffle about this a few years ago and IIRC an agent got smacked with a hefty fine, but you don’t hear much about it any more…
Ralph Cramdown
at 10:56 pm
I love how the best the buyers’ agents — supposedly experts in market valuation — can do is count noses and suggest bidding ask plus $5,000 per nose plus a bit. And that the buyers, likely stretched such that the payments on an extra $30k will curtail their lifestyle, throw down those extra Chases like they’re bidding on a Riopelle.
Another lesson to take from this is that in nearby Milton, which just last year was on fire, a conditional-on-sale clause is now considered normal. Think about it.
Chuck
at 1:38 am
Ralph, no offense but you don’t know what you’re talking about when it comes to Milton.
I do 70+ transactions a year in that marketplace, and the condition on sale is NOT the norm. In fact, I have only seen a handful of homes accept that condition in town.
Outside the urban areas in the countryside, that’s a different story. Homes take a lot longer to sell in those areas, and it’s far more common with rural property.
We don’t get 10+ offer situations like Toronto, where I worked for many years, but quite often there are 2-4 offers on the good properties.
Geoff
at 8:38 am
Although I agree an auction (Raising paddles, etc) makes little sense in a real estate transaction, allowing all the realtors who have brought in an offer to be in the same room during the offer presentation would have the same effect of being transparent.
PS Milton being on fire is the bizarre aspect of the scenario above… 😉
MKultra
at 1:19 pm
I’d imagine something ideal would be an electronic system with long term (eg 1 week) auctions, not an old fashioned paddle and fast talkey afair 🙂
Actually, I think that would be a splendid idea myself.
Jeff316
at 9:47 am
I’m not so sure I agree. From what we’ve been told, we won a multiple-bid situation with an under-asking offer on price simply because unlike the offers that were slightly above asking, we had no conditions. In some situations, it is worth the shot.
Pen
at 6:40 pm
David, since this would have made a great ‘Friday Rant, you must have a good one lined up. I enjoy reading your blog because you dare to say what so many of us dare not. Most times I absolutely agree with you and sometimes not so much, but that’s what makes this trade so wonderful when the differing personalities face-off across the negotiations table.
You are 100% correct, the buyer’s representative has to educate their client, that’s why they hire us. The client is the boss however and the REALTOR as the employee must follow the client’s lawful instruction. In this vein I posit these questions as food for thought, no need to answer:
If after vehemently making your case to your buyer client that their offer is likely not to be accepted and they told you to present it, would you say no?
Should REALTORS tell their clients what they should or should not do, or should they advise and guide them only?
Sarah
at 10:23 am
I have to ask, if someone is anticipating about $750 000 for their property, exactly what purpose is served by listing that property at $489 000?
They don’t want that for their property. They want almost twice that. Why pretend? People in the market for a $489 000 property simply are NOT in the market for a $750 000 property. That is a vastly different range.
It seems like Toronto properties should not even bother with a listing price. Just share the address and details and let people do the CMA they have to do anyway as a listing price is useless.
David Fleming
at 11:51 am
@ Sarah
Well I think that seller is anticipating $650,000 for their property, and the $750,000 is the result of rampant under-pricing and the subsequent bidding war.
Look at it this way: if you think your property is “worth” around $425,000 – $430,000, listing the property at $399,000 will bring in buyers who have a price ceiling of $400,000 and wouldn’t find the listing if it were priced at $429,000. If you get a few “dummy offers” at $399,000, $405,000, etc, then the thinking is that the person willing to pay $430,000 for the property might pay $450,000 based on the “eight offers” submitted on the property.
I don’t like the blind multiple offer process, but I don’t see it changing.
Sarah
at 1:20 pm
Thanks for the reply.
It is an ugly process, and you’re right, it’s not going to change as long as there is a sellers’ market in this city.
I just found the difference between listing price and market value in the example to be particularly extreme as, assuming that person wanted $650 000, they listed for about $160 000 less than the place was worth, and that’s not just underpricing by a little.
Joe Q.
at 3:44 pm
I agree with Sarah here — the rampant under-pricing is more than a bit ridiculous. Why not just set a “starting bid” and maybe a reserve price and let the potential buyers have at it in the open?
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