There’s nothing to stop a home-owner from listing his or her house at $749,900, getting six offers, turning them all away, and then re-listing at $899,900 the next day.
The public hates it, and although many won’t admit it, Realtors are tired of it as well.
Is there a solution?
Or can we just accept the pricing chaos in Toronto’s real estate market that has simply been accepted as “the norm?”
“What are they – runnin’ some kinda scam here?”
That’s what a client’s father asked me the other day when I had to explain to him that the condo we were looking at, priced at $424,900, was re-listed at $450,000 after we had offered $424,900 on the “offer night.”
“That can’t be legal, can it?” he asked, somewhat afraid of the answer, I might assume.
I had the unfortunate task of telling him that it was legal, and that it happens all the time.
This was not an exceptionally unique condo either. It was a nice place, great location, but far from the kind of property you’d expect to see for sale with a “hold back” on offers. I’ll be the first to admit that it was probably worth more than the $424,900 we had offered, but if the sellers wanted $450,000, then why in God’s name didn’t they just list it there in the first place?
That’s the question that the public has been asking for years, as they’ve grown tired of seeing houses listed at $799,900, as the ensuing “guessing game” takes place.
“There should be some sorta rule where the seller has to accept the offer if their price is met,” my client’s father told me.
While I understand his frustration, two wrong’s don’t make a right.
You can’t eliminate a bad practice by instituting a second one. You simply can’t make rules that “force” a seller to accept an offer, and then when you consider that the price is just one facet of the offer, and that deposit amount, closing date, inclusions/exclusions, clauses, and conditions are a part of the deal, then how does a rule oversee all this and “force” a seller to accept a given price?
Unfortunately, the only solution is: if you don’t like the game, don’t play.
If you don’t want to be involved with an under-priced property, where offers are being “held back,” then don’t. Nobody is forcing you – the buyer, to partake.
However, when you consider that this is how most houses are sold, you really can’t opt out, or you’ll be left on the sidelines.
I think the bait-and-switch is part of the public’s frustration, but it’s also the idea that property sellers in today’s market aren’t really showing what their true “asking prices” are.
Last week, I made an offer on a house for my buyer clients, which was listed at $849,000, with a hold-back on offers.
For some reason, and I have no idea why, I just had this “feeling” that we would have the only offer on “offer night.” The house was probably worth about $950,000, but I just felt as though with the house only being on the market for five days, and being listed over Thanksgiving long weekend, there might not be enough buyers out there to result in multiple offers.
I prepared my clients will in advance for the situation that I knew was going to happen.
I told them, “The seller paid $650,000 for this house, and then paid land transfer tax, he’s paying Realtor fees on the sale, and there’s no way this renovation could have cost less than $150,000.”
“I honestly don’t expect them to accept an offer of list-price, if we have the only offer.”
It’s crazy, isn’t it?
Imagine a house listed at $849,000; you walk in there and give them $849,000, and they look at you like you’re insane.
But that’s exactly what happened…
I met the listing agent – a guy running his own one-man brokerage that I’d never heard of, along with the builder/seller, and his family.
I brought a $60,000 certified deposit cheque, and presented my offer of $849,000 – the asking price, which was unconditional, and had a closing date of only three weeks – attractive to the seller, since the house was vacant.
The listing agent started asking questions like a defence lawyer who was slowly building a case: “How many houses have your clients seen? What other houses have they seen? Are they first time buyers? Are they from Toronto? Do they know a lot about this neighbourhood?”
I knew exactly where he was going with this, but I let him continue as I wanted to be as polite as possible, and not set off the seller, who already had his arms folded across his chest.
The listing agent asked me to excuse myself from the room as they discussed, and when I returned, he gave me that phrase that I hate more than anything else in the real estate industry:
As you’re aware, this property was set up for multiple offers.
Goddam. I just shook my head as I typed that…
I leaned into the table and feigned, “I don’t understand. Do you have multiple offers?”
I wasn’t trying to be condescending, but I did want to get my point across.
“No, we don’t,” he said. “But the list price reflects the multiple offer strategy.”
Oh, that’s it!
It’s a STRATEGY!
And all along I thought that most Realtors just have no clue what a property is worth, and the sellers are afraid of leaving money on the table, so in the hottest bull-market in our country’s history, sellers just routinely under-price as it results in multiple offers!
I wasn’t aware this was a “strategy.”
In any case, I told the listing agent, “It doesn’t seem as though this ‘strategy’ worked.”
That’s when the seller chimed in and said, “That may be true, but we have a different strategy – a plan-b. We can re-list this tomorrow at a new price, and take our time. We’re not in any hurry.”
And you know what?
He’s right.
There’s nothing to stop him from re-listing again tomorrow, and there’s nothing to stop any seller from trying “Strategy A,” and then moving on to “Strategy B.”
I levelled with the seller and the agent, and said, “There are four million people in the city of Toronto, and every single person who is interested in buying your house at $849,000, or less, is here, in this room, tonight. It’s just me, guys. Just me.”
“For now,” the seller said.
And again, he was right.
At the risk of wasting any more time, I turned to the seller, addressed him by name, and said, “John, what do you want for your house?”
It’s such a simple question, isn’t it?
If you were in a market in another country, and you picked up a little wooden figurine, you’d ask the vendor, “How much do you want for this?” That vendor would then tell you the price, and you’d either purchase the item, or not.
But alas, we live in a different world! The bizarre world of real estate in Toronto in 2014.
Before the seller could even open his mouth, the agent put his arm out to stop him, looked at me and said, “Why would we tell you that?”
WHY?
WHYYYYY????
Because you have a good for sale, and I’d like to know the sale price of said good!
Geez. I feel like I’m on crazy pills here.
“I will give you money, and you will give me the item for sale. Okay? How much money do I need to give you to get the good in return?”
What’s wrong with that logic?
The listing agent said, “We’re going to terminate this listing and re-list the property next week, as our strategy-b will commence. At that time, we’ll……..’remove the cover,’ and show the market what our true asking price is.”
I replied, “Or, because I’m sitting here, in front of you, with a sixty-thousand-dollar deposit cheque, representing a buyer interested in purchasing your home, you could tell me that price now.”
I thought that made perfect sense.
The listing agent just looked at me and said, “We’re not going to do that.”
I ignored him, looked at the seller, and said, “John, what do you want for this house?”
The listing agent popped in again and said, “We’ll do a sign-back. We can give you a sign-back. How about that?”
I said, “Or, you could just tell me the price that you’re going to sign back at, and we can save ten minutes, and some ink in that pen.”
“No,” he said. “We’ll do a sign back.”
Since this was the only way I was going to get their number, I said, “Sure, what the heck. I don’t mind,” and I was asked to leave the room again so they could whisper as a team.
I returned to find my offer of $849,000 signed back at $935,000.
I asked the seller, “John, do you think that my clients are going to bid against themselves to the tune of $85,000?”
Amazingly, he said, “No, probably not. But we have no reason not to sign back.”
I thanked them for their time, wished them luck, and we parted ways.
The property was re-listed – on Saturday, for some reason, at $949,000.
Don’t get me wrong – I think this house is worth the price they’re asking. Had they come out at $979,900 the first time around, perhaps they could have done even better after a week, or a month (it would also help to have “marketing” for the property, and not have it listed with a one-man-show, but I digress…)
This experience was like a long, drawn-out, slow-motion explanation of how crazy the pricing in Toronto’s housing market actually is.
Imagine asking somebody, “How much do you want for this house?” and having them refuse to answer. It simply defies everything we know about a market of buyers and sellers, exchanging goods and services for financial consideration.
But that’s our market, and that’s what we’ve got.
RECO, TREB, OREA, CREA, The Competition Bureau, The RCMP – there is no legislative body that can step in and somehow rule, “If you’re a seller, and you get offered the price that you have asked, then you must sell.”
It will never happen, and for good reason, even if the result is frustrating beyond belief.
As I said before, I feel as though many sellers and listing agents don’t know what their properties are worth, and fear is a reason why people under-list, and hold back offers; they’re afraid of losing out. They’re afraid of selling for more than they could have got, with a different “strategy,” and with nothing to stop them from re-listing, again, and again, and again, we see this as the result quite often.
As with rising real estate prices, shoddy construction in new condos, and a host of other issues that plague the industry, we simply have to accept listing/re-listing as an unavoidable norm.
Unless……of course…….somebody out there has a better idea?
Amral
at 7:37 am
If possible let us know the final selling price later
Appraiser
at 8:42 am
@ David: You stated above:
“Don’t get me wrong – I think this house is worth the price they’re asking.” (Which is now $949,000).
Your clients had an opportunity to purchase the home for the sign-back price of $935,000, which by your own estimation is within the range of market value. (P.S. a sign-back is a counter offer, I fail to see how you can accurately depict accepting the sign-back as “bidding against” oneself).
So who’s to blame here? The sellers for employing a potentially flawed selling strategy, or your clients for only willing to pay well below market price for the home?
Chroscklh
at 9:44 am
I think Appraiser makes the sense. The David clients upset no get house below value. He say “bird in hand, home owner – you COULD relist, take extra week or take low-ball offer today. Your choice” – he choice indeed. He relist. You could say one guy show up offer night, only one guy interest but maybe other offer night – sunny day, leafs no play – 3 guy show up. Or 8 guy, maybe? Unless expert opinion say house no worth 900k$. In a way, I somewhat like that seller have freedom to rethink strategy or use stupid strategy. For largest asset, no want think too many restrictions. In my town, list for farm at 27,000,000,000,000 Kuzo (165,000 Euro) sold for 2,700,000,000,000 Kuzo (16,500 Euro) because list agent forget zero (common when dealing with number in trillions). But advertise price is law. But law is also that agent get dunk in frozen river for every dollar lost.
Geoff
at 10:32 am
But Appraiser… They were the entire population of the market. They offered $849K. That’s by definition the market price. If I were the buyers and loved it, I might have accepted a signback of $859K. But up another $75K from that? I’m gonna go look a little longer and think about it more before I drop $75K and have to kick my own ass later.
I mean I like my old trombone, and sure I might want and believe and hope that it’s worth $2,000,000,000,000 dollars.. .but if all I get is one person interested in buying it at my garage sale for $1, well guess what. The market has spoken.
Appraiser
at 4:50 pm
@ Geoff: I beg to differ my friend. Market price is not “defined” by an unaccepted offer to purchase.
Mike
at 5:46 pm
Appraiser is correct, market price is not defined by an unaccepted offer to purchase, that would be market value. Market value is what the top price the market price is willing to pay. Market price is a price in which a transaction is agreed to.
David Fleming states in the story that the price was low because, “The seller paid $650,000 for this house, and then paid land transfer tax, he’s paying Realtor fees on the sale, and there’s no way this renovation could have cost less than $150,000”. However a market value is agnostic to the seller’s costs.
The Seller’s agent is at fault here, they’ve wasted everyone’s time (including their own) and caused unnecessary stress fro the seller. I’m guessing the Seller didn’t sleep well knowing that his house didn’t sell at a price below his cost. If the seller had construction financing then I’m sure they are getting several worried calls from the lender and have severely impacted their future opportunities for borrowing.
The problem is that some crappy agent will end up selling this house to their client at a price above what was offered by David Fleming’s client. Good agents will point out that the house didn’t sell, for whatever reason, and re-listed at a higher price.. Unfortunately out of 40,000 agents in the GTA, only a small percentage of them are good agents.
Geoff
at 10:11 am
Interesting. So I guess theoretically, some items have no market price? (IE Seller refuses to sell at any price?)
Mike
at 1:16 pm
@Geoff- in a word, yes. Take for example the Mona Lisa, it’s considered “priceless” but is insured for it’s market value. Market value in this case is what experts fell that the painting would achieve if put up for sale but not the price the gallery would accept if offered.
jeff316
at 1:47 pm
Hadn’t thought of it like that. My house is probably worth x on the market but to be honest I’d need x + 200 000$ to accept a sale of it right now. Great point.
Boris
at 2:12 pm
Something is only worth what someone else will pay for it.
So David’s stated # isn’t important.
David Fleming
at 10:34 am
@ Appraiser
We could have accepted that offer of $935,000.
Or we could have walked out, kept leverage on our side, shown some backbone, and set the table to get it at $925,000, or less, 2-3 days later.
There’s more to the story here.
Appraiser
at 11:48 am
@ David:
I look forward to the rest of the story. However,
there is no reason to believe that you also could have counter-offered below $935,000 on offer night and ended up with the house at a lower price. Walking away and building “leverage” also left your clients vulnerable to having the home bought out from under them by someone else. I’m guessing that didn’t happen and everything worked out for the best for your clients, but perhaps only in hindsight.
Boris
at 2:12 pm
Appraiser, you are a massive vagina.
Joe Q.
at 11:01 am
I am inclined to agree with Geoff here. Perhaps replace “market price” or “market value” in Appraiser’s post with “typical market value”, because at first reading, this story seems to indicate that the actual market value of the home was misjudged. I look forward to Part 2.
bianca
at 11:07 am
Let us know the final selling price. Thanks.
Joe Q.
at 11:08 am
A couple of thoughts.
One is that there is a common element of “wasted time” in these pricing-strategy stories, in which (in aggregate) a lot of time is spent by agents, sellers, buyers, in negotiating their way through the process. I am reminded of the story from Lawrence Park earlier this year with the 72 bidders on the fixer-upper home. The monetary value of all this time is absolutely staggering, when you think about it.
A second thought is that, from David’s story, it sounds like the house for sale was a flip, and I wonder if situations like the one David describes are more or less common with flips than they are with owner-occupied family homes.
nancie
at 11:17 am
It would be much clearer and therefore much less frustrating for everyone to set the selling price at one dollar if the “strategy” is simply to obtain multiple offers and sell to highest bidder. If they don’t receive what they want so be it. They don’t have to sell but then they have no sale. A property as we all know is what someone is willing to pay for it.
A list price of $799k if the market value $900 for example is not a real price. It ramps up the interest, the number of bidders and the selling price. Even worse, it allows Realtors to advertise “sold over asking” and report their over asking sales stats! Whats with that???!!!
Full disclosure if the process I say!
Joe Q.
at 12:12 pm
I do agree that crowing about sales “over-asking” is ridiculous given what we know about the legal significance of list prices. In many cases, of course, the “list price” is more akin to a “suggested opening bid”. But “Sold for 110% of Suggested Opening Bid!” doesn’t have quite the same ring to it.
Tom
at 11:42 am
The fact is that the Toronto market is so jacked up (mostly on hot air and hype) that even sellers don’t know how much their houses are worth. That’s why “strategies” are invented to try and “play” the market. What a sad reality.
Libertarian
at 12:35 pm
David – I saw your comments in the Reuters article from last week. I hope that the predictions in that article aren’t entirely accurate….that would be a sad future in this city with so many condo towers being junk. I know that you’ve been saying this stuff for years, so perhaps things might be starting to change.
If anyone wants to read it….
http://in.reuters.com/article/2014/10/13/canada-economy-condominiums-idINL2N0RR20H20141013
Kyle
at 12:36 pm
The seller has a number in mind, the buyer has a number in mind. If there’s overlap then there’s a deal to be done. I think it’s more productive to keep your eye on the prize, what we are talking about is price discovery (with emphasis on the first word over the second). The objective of which should be firmly focused on unearthing the price itself (i.e. whether there is price overlap in what both sides consider fair), and not the “hows” of the discovery process (i.e. the strstegies and the spurned feelings as both sides try not to take a penny less than what the other side was willing to accept).
Marina
at 1:43 pm
The trick with toronto real estate is that there is huge short-term market variance – the same house can sell for 50 k more or less in the space of a few weeks depending on weather, holidays, and what else is happening in the immediate neighborhood. So it’s easy for sellers to convince themselves they are just unlucky and should wait.
Ed
at 1:55 pm
David, a fair question is what were your buyer clients willing to pay for the house had there been multiple offers? Or you could say what did they think was the fair price of the home?
You yourself said that you did not the sellers would accept $849,000.
Ed
at 2:21 pm
@ David Fleming.
had you been representing the seller, other than being prepared for the possibility of only ONE offer, how would you have handled this any different?
Huuk
at 2:29 pm
If you are listing a house $100K under your desired selling price, it might as well be listed at $1.00. Why not just have a structured auction?!?
I do not understand why this has not taken off in Toronto. Start the bidding at $1, or $100,000 or $500,000. Market the auction with a minimum deposit required ($50K?) and have everyone register in advance. No one wants to lose a house they love for less than 0.5%…which in most case is a couple thousand dollars. The sellers would do very well, and the buyers would have nothing to complain about except that someone else is ‘crazy’ to pay more than they are willing to.
Problem solved!
Cedric
at 3:21 pm
I wonder though how often there is only 0.5% difference between the high bidder and 2nd highest? I suppose in a structured auction, there is a chance of “leaving money on the table” since the winning bidder only needs to outbid the 2nd highest by the “bid increment”.
When bids are sealed, someone who really really really wants the property needs to put up a bid that he thinks no one can beat… and I’m guessing there are times where this could be in the order of tens of thousands more than the actual 2nd highest bid?
Rick
at 8:05 pm
The solution to this problem is to use a Vickrey auction (or second-price sealed bid auction), where everyone submits sealed bids, but the winner (whoever submits the highest bid) actually pays the *second highest bid*. The biggest advantage to this is that it encourages people to bid their true value for the good – you could bid a crazy high number if you wanted to, but since the winning bid cannot influence the actual price paid, and you could theoretically be on the hook for paying your crazy high bid less one dollar (if that was the second highest price), you are better off just bidding your true value for the item.
Brennan
at 9:07 am
Again, the problem with these solutions is that unlike the auction of say a painting, a house offer comes with all sorts of other conditions that a seller must consider (closing date, deposit, home inspections, etc, etc). The highest dollar amount offered isn’t always the best offer.
Huuk
at 9:42 am
@Cedric – The 0.5% on an average Toronto house of $950K (Sept number) is $4,750. That’s a fair ballpark for the range of an bidding war, even though the exact number would be impossible to come up with. If the second place bidder knew the exact amount they were behind, especially in an open, competitive environment of an auction, the number could keep rising without sealed bid rounds. It was be a fascinating sociological experiment, if nothing else.
@Rick – A Vickrey auction would work too, as long as two or three bidders didn’t all place exaggerated top bids, thus inflating the ‘second highest bid’.
@Brennan – If all conditions were specified prior to the start of the auction, say a pre-done home inspection by a reputable company, a 60 close (take it or leave it) and a fixed $50K deposit, the auction would be exactly like for a Painting or any other Asset with a tangible market value.
Rick
at 10:47 am
If you feel strongly about non-price components of a bid, you can either a) stipulate a package of conditions as a part of your “offering” under the auction process (i.e. by bidding, you are agreeing to said conditions), or b) don’t run an auction if you feel these other components are worth more to you than achieving the highest price. In certain instances (i.e. you are selling a especially unique property) then an auction process might not be the right call. But if you’re selling a more commoditized product (downtown 1 bedroom condo in something like Aura), I feel that an auction process has significant advantages.
This whole notion of “pricing for multiples” seems absurd to me. If we want to have an auction, then just actually have an auction and be done with it. If we want to have a series of negotiations where we trade dollars for other things, then by all means, lets do so.
jeff316
at 11:13 am
This all seems a bit goofy. We’re suggesting that sellers run a Vickrey auction system that
– is largely incompatible with non-monetary conditions (as they’re not easily definable and often change given the dynamics of the bidding process)
– doesn’t let them choose the highest valuation even where there is a willing buyer
– actually encourages and maximizes the impact of fake bids
I’m still wondering what problem we’re trying to solve here.
Rick
at 11:52 am
At this point, it is all a theoretical exercise. My point is that if you are going for straight value maximization (dollars above everything else), then you should just go and run an actual auction. If you think that non-monetary considerations (e.g. closing date) are important enough to negotiate over and potentially give up value to secure, then a straight auction is probably not the right call.
Kyle
at 10:02 am
Have any of you auction proponents ever put your own house up for sale?
Rick
at 10:48 am
Yes I have – twice. I don’t see how that is relevant.
Kyle
at 11:33 am
As a seller you have the option of going the auction route to sell your home. If you instead chose to list and take offers (be it “offers any time” or offers at a given time), then it’s pretty obvious how my question is relevant.
Rick
at 11:46 am
Not really. If you feel that non-price considerations are important enough to negotiate over then an auction isn’t going to help. My point was that if you want to maximize value over all else, you should actually just run an auction instead of this charade of drastically underpricing in the hopes of attracting multiple offers.
Huuk
at 11:49 am
@Kyle – Nope, never sold. Bought once around XMas in a buyers market with no competition. Obviously have many friends and family who have sold in TO. A bunch have wanted to go the auction route but chickened out due to the inherent risk. In Australia, its common practice in hot markets that are very similar to GTA to have auctions. http://www.sellmycastle.com.au/articles/selling-property-by-auction-the-pros-cons/95/#.
In David’s above story, where the seller picked a price that clearly he was not willing to take if offered, a well marketed auction would have made far more sense.
Kyle
at 12:16 pm
That’s my point, auctions sound like such a great idea (it is an option that’s available here and now, though few choose it), until it is your own house and think more fulsomely about the inherent risks that it just might not maximize your sale price. The reality is this, even the current strategy of under-pricing goes through periods where it losses its effectiveness for a variety of reasons: buyers sometimes just get burned out and need a break from bidding, there are times when your target buyers just aren’t around in the numbers they usually are, and yes there have even been times in history when it wasn’t a sellers’ market with buyers lined up around the corner. I’ve sold 3 of my homes, and given that i’m the one writing the cheques for both Realtors’ time, there wasn’t a single time where i didn’t want to be in the driver’s seat. You can do that when you list: you can hold off offers and then turn around and take a bully, you can say offers anytime and then try your hardest to drum up another one before it expires, and yes you can hold off offers and relist if you don’t like what you get. Some of those strategies work while others may backfire, but those are choices that are available when you list. None of which exist in an auction.
dazed and confused
at 5:22 pm
the Toronto market is a auction the list price is the starting bidders price.
Brennan
at 4:17 pm
I’m guessing the property you’re talking about is 15 Hastings Ave near Queen and Leslie????
Fedup
at 12:15 am
David “chroschlh” Fleming.
Chroscklh
at 9:50 am
Hey FedEx, its C-H-R-O-S-C-K-L-H; u know learn spell in western educate system? Thank u for suggest I the David. We both have smouldering good look but I the much taller.
Paully
at 6:38 am
Whatever angle you view it from — it is a very unhealthy market that would allow and encourage these kinds of wacky behaviours.
People could choose en-masse to not participate and that would clean things up quickly, but that does not happen. The craziness continues.
Brennan
at 9:20 am
I notice this house was just re-listed for a third time. Now asking $934,900, which is less than they had signed back for.