One step forward, two steps back.
I’ve written about re-listing at a higher price several times this Fall, but how can I stop writing about it when it keeps happening?
To be honest, I wasn’t exactly sure what I was going to write for Tuesday’s blog post.
It was Monday night and I had just finished watching Drew Brees torch the Giants for FIVE touchdowns on Monday Night Football – vaulting my fantasy football team into the playoffs, and when I sat down to go over the evening’s emails, one in particular stood out.
It dealt with a subject matter that you might accuse me of writing about far too often, but it just seemed to push me over the boiling point.
One of my clients emailed me a couple of properties he was interested in, and added a note: “This one was listed at $599,000, but is now listed at $638,888. Gotta love this seller!”
He was able to laugh it off, but I wasn’t.
I’m sick and tired of seeing the same thing – a greedy, entitled seller and an arrogant wish-granting listing agent, get together and list a property with wild dreams of obtaining multiple offers and selling the home for over the asking price. And when “offer day” comes and goes, they either get offers that aren’t to their liking, or they get ZERO offers, and then they re-list the property higher the next day.
I know – I’m beating this horse to death and beyond, right?
Have you all grown tired of hearing about this?
Well I, for one, am damn tired of seeing it. And to be perfectly honest – I think this is just the beginning.
We’ve established the what, and to some extent, we’ve established the how, so perhaps let’s take a look at the why.
Why would a seller re-list his or her property at a higher price when that seller was unable to achieve a price that was lower the first time around?
If you ask me, it’s a pie that’s made up of a dash of ignorance, a pinch of naivety, a heaping table-spoon of arrogance, a solid quarter-cup of misguidance from the listing agent, and then its topped with an insatiable amount of “I know best.”
Some people blame the listing agents for “buying” the listing in the first place. If a house is worth $700,000, and the seller interviews two potential listing agents, do you think that the seller might list with the one that says, “I’ll get you $750,000 for your house?” Perhaps. So if the listing agent “under-prices” at $689,000, which is 1.4% under fair market value (hardly enough to spark a bidding war), and the house doesn’t receive any offers, he has no choice but to save face and re-list the property at $750,000.
But if the house was only worth $700,000 in the first place, why did he tell his sellers he could get them $750,000? Well, real estate is a tough business, and some people would do anything to get their name on a sign…
But let’s take step backward for a moment and ask what should be a rhetorical question: “What is a house truly worth?”
Well, isn’t it worth what somebody is willing to pay for it?
I would have to say ‘yes.’ But, I would also have to say, ‘no.’
You see, if I was working with a young couple who had a “ten year plan,” and wanted to purchase a house that was worth $700,000, I would advise them to bid $720,000 in a multiple offer situation if I knew with absolute certainty that it would get them the house. Why? Because ten years from now, it’s not going to matter if they paid $720,000 or $700,000, and this way, they’re going to end up with a house tonight! If they truly wanted the home, they can afford to pay 3% more for the home.
On the flip side, a house is not worth what somebody is not willing to pay for it.
Does that make sense?
Take the situation that I wrote about last week where the seller priced the home at $799,000, didn’t get an offer, and then raised the price to $833,100.
Nobody was willing to pay $799,000, so why would ANYBODY pay $833,100?
A house is “worth what somebody is willing to pay for it,” and I concede that. But I also believe that “a house is not worth what somebody is unwilling to pay for it.” How could I argue any different?
Some sellers are so delusional and stubborn that they refuse to accept this fact.
And along with delusions often comes another common enemy: entitlement.
Continuing with the situation above, I spoke with the listing agent for that property who told me, “The seller has a lot of money in this property. He needs to sell. But he will only sell for a good price.”
Right.
So now it’s my job to ensure that your seller doesn’t lose money?
The seller likely has a break-even point of just under $800,000, and figured that listing at $799,000 would bring him a windfall of offers. When it didn’t, he figured he’d list at $833,100 and wait out the storm. Soon, that magical buyer would come along and pay a price that nobody else was willing to pay, and MORE!
But after the cost of financing the project and staging the property start to burn a hole in his pocket, he decides that he needs out, now!
So he re-lists at $729,000, and figures that all the happy little elves in the village will bring him that magical bounty that he so covets.
And God forbid – somebody had the audacity to offer $750,000 for this home, listed at $729,000, the listing agent and the seller would rip the cooperating agent in pieces and ask, “Don’t you know what this house is worth?”
Sellers have grown to be exceptionally entitled, and they feel that if they want something in this real estate market, that they should receive it.
I think it’s been so long since anybody actually lost money on Toronto real estate, that people are starting to get a bit loopy.
We’ve seen an upward-trending market for seventeen years now, and it doesn’t really show any signs of stopping. Things might cool off a little, and I, for one, wouldn’t mind a period of stagnant growth so we can all catch our breath, but sellers this fall aren’t having any of it.
This fall, many sellers have expected that everything good that has happened in the past couple years is going to happen to them. They’re going to get good weather for open houses, they’re going to see a 5% increase from the spring market, they’re going to get multiple offers on their home, and it’s only going to take seven days to sell the house. They’re also going to get to pick their closing date, and they plan on taking all the light-bulbs with them when they vacate the property.
Anything less than this is called a “failure.” And it’s also unfair.
Yes, it’s unfair! It’s so tragically unfair that a seller only gets $700,000 for the house that he purchased two years ago for $600,000 and put zero work into! It’s unfair that he only got one offer for the asking price and didn’t get eleven offers like that guy he read about in the paper!
GOODBYE, CRUEL WORLD!
But I’m not just complaining here; I actually do have a solution.
My solution is going to sound radical, and it might take you a few moments to comprehend what I’m saying. So if you need to – put this blog post on hold, walk around your office, say hello to Becky, the cute girl from Human Resources, and then go back to your computer.
Are you ready for my solution? Here it is:
Start listing properties at fair market value once again.
There. I said it.
Phew! That was a serious load off my chest. So whaddya think?
Remember the days when sellers would list their properties at $599,000, hoping to get $599,000? Maybe we can bring those days back!
When the market was furiously hot, it was common to list a $599,000 house at $539,00o, and bring in $630,000 for the property. But this didn’t happen ALL the time; just when the property was located in a desirable area, was effectively staged, marketed, and listed when very little competition for the property existed.
Those sellers that chose to list at $589,000 or $599,000 this fall and still expect $630,000 for their homes were all left disappointed, but they got what they deserved. And when they re-listed their homes at $639,900, they failed to see the error in their ways! Their homes were never worth that in the first place!
Many sellers today have trouble distinguishing between the beautiful, A+ homes, and their own homes. Because it’s the A+ homes that get multiple offers and sell for over the asking price. Sure, we’ve had hot-pockets (not the disgusting food by McCain) in the market where the B+ homes have got the odd multiple-offer situation, but that’s far from the norm.
Today’s seller has come to expect multiple offers, but when did expectations become so lofty?
It’s like winning the football game isn’t good enough anymore. You want to win by twenty-one points! You want to be up by two touchdowns by the half!
I’m going to keep tabs on this new “trend” in our market, and I wonder how and if things will change moving forward and into the New Year. But in the meantime, don’t be surprised if I come back to this point next month. Or, next week…
Joe Q.
at 9:26 pm
David — the logical thing to do would be to look at the fate of these re-listed homes. Do they sell for the new asking price? Or do they not sell at all?
In any case, aren’t these higher price re-listings usually just a case of bidding wars failing to produce the expected windfall? The property would then be re-listed above the highest bid price to avoid charges of false advertising or anti-competitive behaviour. You wrote a great post about this very issue back in January of last year.
https://torontorealtyblog.com/archives/false-advertising/2501
David Fleming
at 12:01 pm
@ Joe Q
Of the last four properties that have “bothered me” enough to blog about it, all four are still on the market.
I feel really bad for one couple – they have two small children and I think ordinarilly, they’d be excited about upcoming Christmas holidays, playing in the snow, etc. Instead, their house is rotting on the market with no end in sight. They could have sold their property on “offer night” for just over asking (I know this to be a fact) but instead, they raised their price by 6%, and it has now been four weeks. I also know that these people have bought another home, and NEED to sell this one to close. If things don’t work out soon – they’re going to have to firesale the property around Christmas time. What kind of “strategy” is that?
Potato
at 1:40 am
Hot pockets are Nestle, pizza pockets are McCain.
Other than that, what can I say? It’s been a sellers’ market for too long. It will take a while for some to adjust.
Ralph Cramdown
at 8:25 am
Here’s a radical idea: Publish stats of agents, showing who habitually overprices, stages failed bidding wars, leaves product moldering on the market too long… Then the sellers could decide. But noooo, it’s “Ask people you know what agent they recommend.”
You know it’s End Times when even the agents who’ve never been through a bust before are praying for a soft landing.
NCYer
at 8:37 am
Yes I too would like to see the outcomes to these “greedy” seller situations.
Pen
at 10:34 am
The audacity to suggest such a thing. Listing well under market value has been around for so long now it’s probably the only way many know how to go about selling real estate. I wonder if that’s the skill being promoted in REALTOR e-school these days? Having to actually think about a marketing strategy and learn the fine art of negotiating could drive many into a state of apoplexy.
Shame on you David! =)
Kyle
at 11:36 am
I’m going to play devil’s advocate here. I actually don’t see anything wrong here. If seller’s and their agents want to play pricing games and take risks with their listings, so be it. Greed and fear, risk and reward are what make free markets function properly. The market will determine whether their strategies fail or not. And ultimately the sellers and their agents are the ones to bare the brunt of their failures. If a seller/listing agent wants to be greedy and take unwise risks, i don’t see any problem with that. I say let them, just sit back and enjoy the train wreck.
David Fleming
at 11:57 am
@ Kyle
I always say, “This blog only works when people are split on issues,” and I was kind of hoping that somebody would put forth a contrarian viewpoint.
Train wreck, it is!
Gypsy
at 1:10 pm
I have been looking at http://guava.ca/ every day new listings.
I see what you say.
Do we have a similar site like http://guava.ca/ for Mississauga.
Thanks.
Joe Q.
at 9:50 pm
To my knowledge there’s nothing else like guava.ca for the rest of the GTA. Also note that guava.ca only posts new detached / semi / townhouse listings (no condos).
jeff316
at 1:55 pm
Like Kyle I don’t see what’s so bad about this, although it is definitely unfortunate for the owners and an irritant for buyers.
What I think would be interesting is assessing how many of these relists are products of being so egregiously underpriced that it scares off buyers in the first place, only to be relisted closer to market value?
George
at 3:37 pm
It’s a game of information. The sellers/agents don’t want to reveal exactly what amount they are willing to accept because they want to leave open the possibility that someone will overpay for a property. This is a problem for the buyers because it wastes their time, either looking at or bidding on a mis-priced property. Once buyers realize their time is being wasted, they are more likely to ignore the property and find something else to bid on. In that situation, everyone loses.
If sellers were satisfied receiving exactly what their property was worth, they would put their property up for auction. Unfortunately, they are inherently greedy, and that’s why the game is played the way it is.
Joe Q.
at 7:06 pm
Agreed. In extreme cases, one wonders what the purpose of the asking price is. Maybe those “$1” Oakville McMansion sellers were on to something!
CraigB
at 7:36 pm
Can’t believe they raised the price on that semi (assuming it’s the one on a street named after a girl, very near to another street named after a girl).
My solution way back when bidding wars were a regular occurence was that listing agents ONLY get commission on what the home is listed for on MLS. Reduces the ploy of underlisting to drive up interest to get over-asking. List a house for what it’s realistically worth, not artificially under-pricing to drive interest.
Chuck
at 9:13 pm
I wonder if that happened, if you’d see a bunch of agents OVERLISTING properties so they can make an extra few bucks. 🙂
I couldn’t see that working out well for anybody… but I appreciate and respect the outside the box thinking!
Craig
at 9:52 am
I should say, “up to what it’s listed for”. So if they list for $699k, and sell for $650k, they get commission on $650k. If it sells for $750k, they get commission on $699k.
In reality, a real estate agent is supposed to be a professional who are paid well to know the market. Shouldn’t they then know closely what a home is worth and thus price it appropriately. If they don’t know, and underprice it, they lose commission. If they over-price it and it doesn’t sell, they could lose the business, or at the very least, can’t have theier website filled with “SOLD – Over-asking” advertisements.
Gypsy
at 8:13 am
Hi David
I wrote a comment with a address for a website that lists everyday new listings and I asked you if there is a similar site for Mississauga. Can you tell why you removed it? Thanks
David Fleming
at 12:28 pm
@ Gypsy
Sorry – we have pretty intense spam filters and yet 10-15 still find their way through every day. I’ve restored your comment! I’ll have a look at the site.
Kyle
at 9:51 am
Buyers that feel that this “problem” needs a “solution”, need to understand the way the system works. Since the seller pays the entire comission, he/she gets to call the shots. Their motivation is maximizing their sale price, not miminimizing the frustration for potential buyers. If they want to have a $1 listing to induce a cattle call, that’s their prerogative, if they want to change the listing price up, then down, then up again that too is their prerogative. Of course there are risks involved, but the consequences are theirs to bare. Maybe if the buyers were to pay half the comission then they can start demanding concessions, like making the process less frustrating or more transparent, but so long as the seller is paying the whole comission, i think he/she should be free to completely disregard the buyer’s feelings and do whatever he/she thinks will get them top dollar.
David Fleming
at 12:31 pm
@ Kyle
Very well said. A truly “free market” comes without restrictions and outside influences, and seller should be able to list as they see fit, even if it’s to their peril.
When I complain about their actions, I’m not in any way suggesting that their practices should be somehow “disallowed.” I don’t think my posts came off that way.
But I have trouble understanding the thought process that goes into such decisions. If something fails 95% of the time, then why follow along?
Kyle
at 1:12 pm
I wasn’t directing my comment at your post David. I agreee 100% that such strategies are half-baked, but on the bright side, its the nustos that add depth to the market.
I am actually directing my comment at those that believe there is something fundamentally wrong with allowing these pricing strategies, and who believe we should change the way agents are compensated to act as a disincentive, or who naively believe that an auction market is the better way. Seriously an auction? If you lose a house at an auction are you really going to feel better than if you lost at a bidding war? And more importantly if you won a house at an auction, and then had to PAY THE BUYER’S PREMIUM, would you really feel better than if you won at a bidding war and the SELLER PAID THE COMMISSION? Seriously, come on!?!?!
Sporsch
at 9:11 am
Great comments Kyle & Dave…As Kyle pointed out, I think most of us realize that David is certainly not suggesting that sellers’ behaviour be curtailed -he’s pointing out how sellers often screw themselves with these actions…
Joe Q.
at 9:46 pm
Sellers are entitled to do whatever they want, as long as it’s legal. But in a system where the asking price for a home has no real meaning other than as a marketing tool, and multiple-offer situations are essentially sealed-bid auctions anyway, you start to wonder if there might be room for a little more transparency in the process.
Scott
at 5:18 pm
These sellers (and their agents) are like bad traffic: Thousands of man-hours going to waste every month, with no solution in sight….
waqasalirealtor
at 2:50 pm
this eqaution defines the seller mind and how much time he got to sell the property.waqasalirealtor