I’m about to open a can of worms here, but this can needs to be opened.
Then it needs to be examined by all the real estate bodies in existence, and active buyer-agents should have a look inside too in order to prepare themselves for what’s going on out there right now.
We all know that properties in Toronto are usually under-listed at a price that the seller won’t actually accept, with an unofficial auction we call “offer night.”
But what if there was no offer night? What if the property was listed at a price that the seller would never, ever, consider accepting?
For as long as I’ve been in the real estate business, properties have been listed and sold with “offer nights.”
It seems like a completely reasonable way to sell real estate in a hot market.
List a property for sale, and review offers on a given day, at a given time.
It’s smart.
It ensures the property is exposed to the market for a long enough period of time that all the interested parties are able to view it.
Whether you’re a frustrated buyer, a real estate bear, or just have a hate-on for real estate and real estate agents, you simply can’t deny that exposing the property to the market for 6-8 days makes sense.
Now, throw the “under-listing” into the equation, and you have a legitimate beef.
The public doesn’t like it, and I don’t blame them.
But for as long as I’ve been in this business, properties have been under-listed, and along with the set “offer night,” we’ve had a form of blind auction that results in houses selling for way more than the asking price.
The spread between the list price and the sale price has grown in recent years.
I remember the first time I was in multiple offers – it was September of 2004.
A bungalow in Leaside was listed at $429,900, there were 12 offers, we bid $465,000, and the house sold for $480,000.
Imagine if there were 12 offers on any $429,900 listing today? $480,000 would probably be in the middle of the pack.
But I also remember being in multiple offers for a house listed at $459,900, and we were the high bidder at $470,000, with two competing offers.
As the years went by, prices rose, but so too did the number of offers, and the spread between list-and-sale.
And somewhere along the way, list prices became completely detached from reality.
We used to see houses sell for $100,000 over asking, and then in the spring of 2015, that number doubled. I remember a quote I gave to Sue Pigg from the Toronto Star around that time: “Two-hundred-thousand-over is the new one-hundred-thousand-over.”
It was just nuts.
Houses listed at $600,000 were selling for $800,000! We had never seen anything like it!
But the absolute pinnacle of insanity hit in early 2017, when houses were being just stupidly under-listed, and the sale-to-list ratios were eye-popping. It wasn’t uncommon to see a house listed at $699,900, and sell for $1,100,000. 170% of list price – that became a “thing.”
The problem, of course, was that listing agents were under-listing to the point of hysteria. Maybe because nobody knew what anything was worth, and maybe because listing low really did bring in more dummy offers from, well, dummies.
As much as I hate the under-listing, I will say this: nobody really thinks that $699,900 house is going to sell for $699,900.
Why? Because we know via the presence of the text, “Offers Reviewed On Tuesday, May 30th At 7:00pm, Please Register By 5:00pm,” that the property is being auctioned off, and the list price is merely a starting price.
Like I said – hate it if you want, but that’s the way it is, and only the completely uninformed and naive would be caught off guard by this.
Now as I said in the intro, what if a property was listed for sale – under-listed, with no offer date, advertising “offers anytime,” and continued to sit on the market? What would that signal to buyers and other market participants?
Last week, I went to show a property listed for sale in the west end for $978,800.
The property had been listed for sale for 12 days, which is an eternity in this market.
In the Broker’s Remarks of the listing, it read, “Offers Anytime.”
Pretty, simple, right?
In this really strange market right now, we’re seeing a lot of properties listed with a hold-back on offers, and subsequent “offer night,” and then not selling, and being re-listed higher.
But we’re also seeing properties listed with “offers anytime.”
I went to see this property with my client, and we absolutely loved it.
It was detached, fully renovated, and done so very tastefully, and with great workmanship.
There was no parking space, and it was directly across from a school, and only about eight houses in from a main street, but there had to be some drawbacks, considering it was under $1,000,000.
We acted on it quickly – we submitted an offer for just under the $978,800 list price (why not try for a couple thousand, we thought?), and eagerly waited for an answer.
The agent sent me a text message and let me know that there was an offer in sign-back; from the seller to the buyer. Thus we had no option but to wait, cross our fingers, and hope that the buyer didn’t accept the seller’s sign back.
As luck would have it, that’s exactly what happened.
The agent texted me (remember when people used to phone each other?) and let me know that the door was open for us to act.
I gave him a call just to feel him out and told him that we had no issue paying the full list price, or even higher, if the other offer was still in play.
That’s when things got weird.
His response contained a bit of a chuckle, as he said, “Huhyeah, um, well, that isn’t going to do it.”
“What isn’t going to do it?” I asked. You’re at $979K, on the market for almost two weeks, and we’d to go a mill. What am I missing here?” I asked.
“Do you know what market you’re working in?” he asked. That’s something I usually say to people, not the other way around.
“What am I missing? Tell me, please.” I told him.
And that’s when he dropped this bomb on me: “We’re looking for $1.3 Million for this house.”
What the $*%&?
What was I missing?
This house was on the market for 12 days, no offer date, offers any time.
Right?
Is there something new in the market that I’m missing? A new way of selling houses?
Maybe, as I was about to learn…
“I don’t understand,” I told the listing agent. “You’re sitting on the market – you have no offer date, right?”
“No, there’s no offer date,” he told me, “We’re ready to look at offers any time.”
“Then what the hell is with the price?” I asked him.
“Everybody does it,” he told me. “That’s just our starter price,” he explained.
This made absolutely no sense to me. I’ve been working in this market for thirteen years, and I’ve seen everything there is to see. But this was something new, and different, and it made zero sense.
“We need to expose the property to the market as best as we can,” the listing agent told me. “We need bodies through that house; we need eyes on it. We need business cards on the counter, and we need a buyer frenzy.”
“But you haven’t set an offer date,” I told him. “That’s what we do – bring the listing out at an artificially-low price, hold back offers, and have an unofficial auction.”
“That’s not what we’re doing here,” he told me. “We’re looking at offers anytime, but we know what we want, and we want $1.3M. The offer that was in play earlier – we signed that back at the price we wanted.”
I thought long and hard about what I was about to say next, since I’m not a fan of burning bridges, but I couldn’t resist.
“How in the world are you not guilty of false advertising?” I asked him. “You’re listed $300,000 lower than what you’ll accept, and this isn’t a ‘list low, hold an offer night’ strategy. I have no idea what you’re doing. What do the sellers think?”
That’s when things got more interesting, as he told me, “Well, I guess at this point I should probably inform you that I have an interest in the property.”
Now is the time for that?
That’s supposed to be disclosed on MLS! There’s a form for that – “Form 161: Registrant’s Disclosure of Interest in Property.”
That’s supposed to be signed by the registrant (agent) and uploaded to the MLS listing.
And after further investigation, this guy didn’t “have an interest” in the property; I’m pretty sure he owned the whole thing. The name on title was an incorporation, of which he is the sole director.
In any event, his interest in the property wasn’t the issue here – it only exacerbated the situation, which I recapped by asking, “So you’re on the market for $978,800, but you’re looking for $1.3M, you have no offer night, and you’re not telling people that you’re looking for $1.3M, right? You’re just letting agents and buyers waste their time by going through the house, making an offer, and then you’ll sign their offer back for $1.3M, and tell them you own the property?”
Amazingly, he said, “Well if we listed at $1.3M, we wouldn’t get as many showings. We don’t want to scare people away.”
Right.
So instead, you’re just going to lie to them, waste their time, and in the end, make them look like fools.
I was a fool for making an offer on this property at the price I did.
But how the hell was I supposed to know otherwise?
This property has now been on the market for 16 days, unsold, with offers anytime.
It is listed for sale for $978,800.
But the property may not be purchased for any price remotely close to that number.
Ladies and gentlemen, how the HELL is this not false advertising?
That question is rhetorical, since it’s blatant false advertising.
But given that this is going on, and broker-managers are letting their agents do it, maybe the question isn’t rhetorical. Maybe organized real estate is okay with this?
In my mind, it’s false advertising, plain and simple.
If you have an offer date set, you’re telling the market that you expect multiple offers, and essentially admitting that you’re under-listed as a means to an end.
I get that. And so does the buyer pool, even if they don’t like it.
But are we really going to start listing properties for sale for prices that we have no intention of accepting, and simply trying to “trick” people into coming to see it?
Maybe this was a one-off.
I hope to God this was a one-off.
But as is often the case in real estate, when agents see something like this, instead of condemning it and filing a complaint, they wonder, “Can this work for my listing too?”
I’ll be sure to update this post when the property sells. I’m keeping a sharp eye on this one…
natrx
at 10:08 am
Nope.. this is happening. Sellers are in denial of what’s happened. The rug has been pulled under for now. It could also be “I’m going to see what I can get” and therefore not motivated.
Also, in houses, there is definitely Endowment Bias. It’s worth more in my procession. My house is worth $1 Mil… but if you had it.. it would only be worth $800k.
There is also the thought that it prices hit that number before.. it’ll hit it again in no time. There’s just an adjustment period.
Professor
at 2:46 pm
@natrx Spot on. What happens next is either a tumble in prices as speculators such as the one encountered by David rush to sell before prices go down even further, or this’ll just be a pause in the market and things will heat up again. Who knows which one it’ll be…roll the dice…
Contemplation_State
at 8:36 am
Wow, you were right in hindsight. A huge tumble happened in spring 2017!
Ralph Cramdown
at 10:30 am
Some of these posts really leave me puzzled. You’re a busy agent working in the Toronto market. The seller is also an agent working in the same market. And your opinions of value (or at least, where a deal might be struck) differed by 30% for a run-of-the-mill house with no hard to price charms or blemishes? Even if fair value came down right in the middle, you’d be off by 15%, and he’d be off by 12%. Some market!
jeff316
at 11:13 am
I’m confused. “Under-pricing” with an offer date is OK, and “under-pricing” without an offer date is false advertizing?
Negotiator
at 3:27 pm
Yea David’s ability to justify one and be completely flummoxed by the other is sort of silly. Clearly here the seller wanted people to bid over asking, he just didn’t want to set an offer date. I don’t see what’s so wrong with it given that under-pricing every property is basically par for the course at this point.
Jane
at 3:39 pm
I see a huge problem with this.
It’s just flat out lying. At least when there’s an offer date you know the seller is looking for and banking on more money.
Maybe people are so frustrated with the market that they’re not seeing a difference here???
jeff316
at 3:51 pm
I don’t get the difference at all. The lack of an offer date is a red herring being used to cover up the misreading of the situation. I hate to say this, but David’s post makes absolutely no sense given his previous acceptances of under pricing. If it’s so bad, then it can’t just be bad when it suits us.
Too Good To Be True
at 8:45 pm
I’m scratching my head over this one. Most of the value of the agent’s service in this crazy market (and buyers are paying tens of thousands of dollars for this service) is in knowing exactly how much a house should be worth. Let’s assume the comps would suggest 1.2M if the seller was not too greedy; so neither the buyer’s agent nor the buyer had thought to question in advance why was the house so massively underpriced?
If I knew a house is way underlisted for no obvious reason, I’d run, not walk, away. There are plenty of others and I don’t want do discover the particular flavor of skeletons in these closets. I’ve passed on listings with much less cause.
Condodweller
at 3:49 pm
Exactly. Any significant underpricing is false advertisement whether there is an offer date or not. You can’t exactly expect David to admit on his blog that he, along with thousands of agents, has been guilty of false advertisement for years now can you?
Jennifer
at 3:07 pm
Exactly this. The difference makes no sense. Both are false advertising and are aimed at bringing a higher number than justified. Either way, your list price should be in and around what you are willing to accept. There is a house right now in Riverside that was listed for 999,999 and didn’t sell on offer night was just relisted for 1,500,000 (the listing agent I think is the owner but not sure). That’s a ludicrous difference. Total false advertising, which David says is allowed for “auctions”. Waste of everyone’s time.
Jack
at 11:14 am
There is nothing wrong with having “offer nights”=auctions. The problem is that the auctions are blind. I am told that in Australia houses are sold by open auctions, and it works just fine. Everyone interested in buying gets together at the advertised time and place, and they bid in an open ascending price auction. The buyer who wins the auction signs the contract right there and leaves a deposit. Perhaps someone familiar with the Australian system can enlighten us.
As for the list prices in the Toronto market, nobody takes them seriously, because they have no legal meaning. I can list my house for sale for one million, have an offer night where I get multiple offers all the way to two million, and at that point I can say “forget it, I change my mind, I am not selling”.
In contrast, in an auction system the “list price” has a clear meaning. It is the starting price for the auction.
A
at 11:53 am
For one thing, I think whether there is an offer date should be part of all MLS listings. It is such standard info that one should not have to contact the LA to obtain.
Maybe we should have a rule that says here is the listing price but here are the conditions the seller is willing to accept?
Tom
at 1:19 pm
Whatever happened to market research and due diligence? I was waiting for the part of story where you mention the sale history of neighboring properties. Did you really think market value for this specific property was less than a mill.?
You cant expect the seller or the agent (with or without interest in the property) sell just because days on market is greater than a certain number.
I would categorize this post as a random rant…
best,
Tom
XO
at 5:04 pm
Rants are some of the best posts on here!!
Whatever happened to the Friday rant??
Bring it back!!
Libertarian
at 3:40 pm
As the other commenters have noted, this is another example of how real estate in this city is now the wild, wild west. Even the theme of “Toronto is a global city, so of course it’s expensive” has been turned on its head after what’s happened the last few years. Nobody knows what anything’s worth. Everybody thinks theirs is worth more, just because. Registrants blatantly breaking rules. Industry oversight non-existent.
This seller created his own one-man shop. He’s the agent, the owner, probably the contractor, and who knows, maybe even a lawyer. He wants to be compensated for all of those roles, but nobody knows how much that compensation should be!
I’m glad that I’m not a participant in what’s going on right now.
Jim
at 3:45 pm
This agent doesn’t understand that this is bad marketing. I would feel cheated and would question every listing his brokerage has.
I could understand if this agent was new, naive, and starving, but, he purposely done things that is unethical. It seems that he runs a building and flip business on the side.
It would have been better if over listed and was “talked” down.
Condodweller
at 4:02 pm
David, you can’t have it both ways. Agents have been driving up prices by creating a frenzy for years and now that you are on the receiving end of it, you are crying foul on an open forum. At least the agent has told you what the real asking price is which should simplify things.
You have two choices 1. pay the asking price if your client want’s the house or 2. move on to the next one…. (well there is a third but no need to over complicate things now.)
RPG
at 5:03 pm
This thread has become one theme: “Is there a difference or not?”
I think people are quick to condemn David and suggest he’s talking out of both sides of his mouth, but let’s not forget that he’s the only agent talking about it, and has been all along.
I do see a difference in the situations and I can’t see how anybody could argue the contrary unless they’re just so fed up with real estate practises that they don’t care.
Having an offer date means the listing price is the stating price. Entertaining offers anytime means the list price is going to be considered. That’s how I read this.
I think offer nights are the lesser of two evils a, an organized chaos, or some version of the same thing.
Jack
at 7:44 pm
It seems there may be something fishy in this particular situation, with the seller not being entirely transparent about the ownership etc.
But putting that aside, a list price is a list price, whether there is an offer night or not. In both cases list price doesn’t mean anything. It certainly is not a starting price for the bidding. My opinion is that the list price SHOULD mean something, that it SHOULD be the starting price for buy offers, but it is not in the common practice of buying and selling homes in Toronto. You (the buyer) can offer me (the seller) double or triple the list price, and I can still say “not enough”; nobody can make me accept. I don’t like it and you may not like it, but that’s where we are.
So, if you are in the market to buy, just ignore the list prices. Do your own research.
Joel
at 10:07 am
I agree with this, but when I look on relator.ca it should have an Asterix beside the price or a note the same as open house sat 2-3 that says offers Wednesday 7pm.
This would let anyone browsing know which properties have offer nights and when. Realtors controlling this info is annoying and not the best way to do this. They are making more busy work for them selves.
Ralph Cramdown
at 1:01 pm
“I do see a difference in the situations and I can’t see how anybody could argue the contrary unless they’re just so fed up with real estate practises that they don’t care.”
That’s probably it right there. To me, the #1 question in this issue is “was it listed low enough to obviously be a price at which the seller wasn’t going to sell?” In which case it would be similar to listing at $1. But really, agents have been known to fabricate or exaggerate everything else on MLS except the cooperation percentage (that field is Holy, but see “marketing charges”). How many times have you seen a property priced on MLS that wasn’t actually for sale except as part of a larger assembly?
But the secondary issue is that after all the bad behaviour we’ve seen, especially in Ontario and BC, but elsewhere as well, it seems a little late to stand up and say “now this, THIS is going TOO FAR!” I mean really. A month ago, it came out that some agents were charging at the door for entry into pre-sales centres, and the self regulatory agency’s response? “You should really get a receipt, and don’t forget to get a hand stamp.”
The thing to remember is that the real estate industry is self-governing. It puts up with all this because it doesn’t mind a bit. If TREB members think RECO is too lax, there’s nothing stopping TREB from enforcing stricter discipline on its members than the provincial regulator imposes.
WB
at 6:41 pm
How about going back to a time before their were lock boxes for keys and the seller agent had to be present for showings? Then the seller agent would see how he is wasting the buyer and his agent’s time.
Mark Baum
at 9:00 pm
I like that used car dealers are portrayed as shady, but in Ontario when they advertise a used car for sale – the only thing that can be charged above the advertised price is Licensing and HST. No artificially pricing low to try and procure a bidding war.
Dealers can get fined if they sell for more than advertised, a lot more than can be said for the real estate industry.
LC
at 1:32 am
Whether you have offer date or not it should be illegal to advertise anything at certain price and only accept higher price than advertised.
The listed price should be the maximum people should pay as in all industries except the real estate. Why is that false advertising doesn’t seem to apply in real estate? What if you went to Porsche dealer to buy $150,000 911 being advertised but they refuse to sell for less than $200,000 since this is the last one they have in stock white colour? There should be class action law suits and government regulation on this.
Free Country
at 10:56 pm
Thanks for this story David – I laughed out loud, twice. Two things:
1. Can you please name this agent, so we — and all your colleagues in the real estate business – will know to avoid him?!? Something tells me that of course the rules of your professional guild do not allow such naming and shaming. If so, can you at least notify your regulator?
2. Some markets work very differently from Toronto. In London England a few years ago (not sure if this is still the case), people put their properties on the market at wildly over-inflated offer prices. Yes, a property worth say GBP 600,000 would be put on the market for GBP 750,000 asking. Why? There are so many Russians, Chinese, Arabs and other buying property with more money than sense, people just figure, what do they have to lose? Let’s see if I get some buyer who doesn’t need a mortgage and is so rich they’ll just buy this flat in mansion house for loads more than it’s worth. There was no penalty for being on the market too long or growing stale.