A good friend of mine and an avid TRB reader told me the other day, “You don’t respond to your commenters often enough.”
Huh. Okay.
I sort of thought I did, but perhaps she was right?
“You only seem to respond when they comment about haircuts, hockey cards, or Yellowstone.”
And that’s about the point where I realized that perhaps she’s right.
I vehemently defended myself and said that the average blog post takes two hours to write, plus we’re in the thick of an insane spring market, I’ve had four listings generate a combined 41 offers in the past two days, and I’m working with buyers, and planning ahead for further listings. So while I try my best to check up on the comments now and again, I can’t live on the forum.
I realized, however, that I really only read the comments when I have down-time, ie. five minutes waiting for a client outside a property. Combine that with the fact that I don’t like typing anything longer than a few words on my iPhone, and I often pick the “low-hanging fruit” of the comments, ie. those about haircuts, hockey cards, or Yellowstone…
I don’t want the readers to think that I’m dodging questions, although to be fair, how could anybody think that, given the behind-the-scenes stories I tell and topics I’ve addressed which no other agent would.
There’s been talk of a “better system” in real estate for a long, long time. And while I’ve addressed this before, I did write Monday’s blog knowing that I’ve essentially written that same piece about seven or eight times over the years, so there’s no reason that we can’t discuss one of the largest points of criticism in our “system” yet again.
Is under-pricing in Toronto’s real estate market unfair?
Some say that it is.
So, since the group seems to be quite talkative, based on Monday’s blog, why not have this discussion today?
A reader commented last week that I haven’t addressed that “the system is broken.”
I think the system is flawed, but it’s not broken, and that’s because it’s impossible to define what “broken” is.
In our current real estate “system,” there is one simple facet of the process that ensures it’s not broken: the highest offer prevails.
I’ve mused in the past few weeks that an overwhelming number of people in society today are confusing political systems with economic systems.
We live in a time and are governed by a political system that’s obsessed with equality, which is a good thing, and a long time coming! But equality of opportunity and equality of outcome are two different things. For everybody to truly have equal is simply not possible in today’s economic system, and economic systems are shaped by political ones.
Many people who cannot afford what they want to own or purchase believe that the economic system is unfair. They use words like “should” quite often. People “should” be able to afford to live in this city! Real estate “should” not cost as much as it does. But in order for that to be true, we would have to allow the government to significantly overhaul and regulate, almost to the point of controlling and owning, all real property. So while people might aspire to live in a democratic, free society, from a political perspective, they’re unconsciously and unknowingly asking for an economic system that is more akin to communism.
What is “fair” is up for debate, but people continue to talk about real estate as though “fairness” ought to be the deciding factor in who lives where.
Unless we are truly electing to move toward a fully planned economy, and understand the repercussions of this choice, we must accept that capitalism is still rooted in competition, which is bound to bear winners and losers, despite any government intervention.
So crack your knuckles, and tear apart what I just said. But for now, I’m moving on…
I’ve read a lot lately about how “unfair” the tactic of under-pricing is, but as I have written over and over through the years, it’s only unfair because many buyers who participate in the process are uneducated, and/or work with unqualified buyer agents.
Case in point: I listed a property this week for $499,900, with an offer date, and yes, this property was under-priced.
What signal does the buyer pool need here to understand the true or potential value of this property?
For starters, they need merely look around at what’s happening in the market. Properties are listed with offer dates and sell in multiple offers, over asking. Ergo, this one will too, and thus the $499,900 list price does, in fact, represent an under-priced property.
But secondly, buyers can simply look at what has sold.
Let’s say the identical model to this unit had sold a few months ago for $596,000. Does the buyer, or the buyer agent, need to know anything more than that, in order to understand that the $499,900 list price is simply a list price, and nothing more?
When sixteen offers are registered on the property, why does not one, but two buyers submit offers of $499,900?
Tell me. I’m dying to know.
Tell me how this “system” is unfair.
To suggest that it was unfair to list this condo at $499,900, with an offer date, and tell buyers to submit their offer on Monday, March 29th, is seeking to level the playing field so flat that it defies physics and reaches into an alternate dimension. It also absolves the buyer pool and their agents of any and all personal responsibility, financial literacy, or intelligence even approaching average.
So is there a number, or a percentage, which an agent can list a property for, below market value, which is fair?
That condo sold for $628,000, by the way. Is it “fair” to list it at $599,900, but not $499,900?
Alright, but what about the argument that I wouldn’t have attained $628,000 if I had listed at $599,900. Now what?
Now is it time to claim that “Real estate agents are driving up the price of real estate with their unfair under-pricing?”
Sure. Okay. I’ll buy that for a dollar.
But isn’t it more fair (no pun intended), or apt, to suggest that buyers are driving up the price of real estate?
And of those buyers, who is more responsible: the dummy buyers who made offers at or near the list price, or the buyer who paid the highest price in the end?
For the record, there were four bids over $600,000. So this person didn’t “overpay,” if a property is worth what somebody’s willing to pay for it, and, what four other people are just-about going to pay for it.
Last week, this article ran in the Globe & Mail:
“Eager Sellers, Zealous Buyers Driving Up Home Prices In Toronto”
This article was emailed to me by four different blog readers, all of whom wanted to know what I thought.
So I told them.
And then, I realized that I should share it with all of you…
Here’s the meat of the article which requires our discussion today:
Some real estate agents do set unrealistically low asking prices in order to draw attention and whip up a frenzy of bidding. Mr. Christensen is one of many veteran agents who lament the practice.
Recent examples abound of properties listed in the $899,000 or $999,000 range that receive premiums of $400,000 or more. In the segment between $1.5-million and $2-million, sellers are often rewarded with an added $600,000 or so.
Mr. Christensen stresses that agents are obliged to work in the best interests of their clients and, for many, it’s difficult to coach buyers who are thinking of entering such unbalanced competitions.
“My problem is I have lots of people who want to buy. Any marketplace has to be fair or people lose confidence in it.”
Mr. Christensen believes that setting an asking price of 10 per cent or so below market value seems like a sensible strategy to him if a seller hopes to draw multiple offers.
Full disclosure: I don’t know the agent quoted, nor have I worked with him. So let’s assume for the sake of this discussion that these comments were made by Joe Average.
This comment is problematic:
“Any marketplace has to be fair or people lose confidence in it.”
We certainly can’t define “fair” in a general sense.
We can’t really explain “fair” to our children in terms of what an appropriate bed-time is, without admitting, to some extent, that there’s a discretionary and arbitrary element to it.
So what about “fair” as it pertains to the pricing and selling of real estate?
This comment makes the assumption that we can define “fair” in a real estate sense, and I honestly don’t think we can.
Then this:
“Mr. Christensen believes that setting an asking price of 10 per cent or so below market value seems like a sensible strategy to him if a seller hopes to draw multiple offers.”
Okay, isn’t this simply Mr. Christensen’s opinion?
It says he “believes,” and not that he “defines.”
And what Mr. Christensen believes is a “sensible” strategy is not sensible across the board, for every seller, for every property.
To suggest as much is ordaining Mr. Christensen as all-knowing God, and I don’t think that’s sensible. Do you?
So here is any similar listing agent’s Jerry Maguire moment: start pricing your properties 10% below what your clients will accept. Take that house and list it for $900,000, and when the pre-emptive offer comes in for $1,000,001, your sellers are obligated to take it.
Is that sensible?
More to the point, would that agent really obtain the highest price for the seller? And if not, then where is this agent’s value, other than, perhaps, being loved by the buyer community?
Remember, you can’t have it both ways. You can’t be a buyer and want a system that ensures you pay less, but be a seller, and want a system that ensures you receive more. The problem is: most people are naive and ignorant to their own hypocrisy.
Now, let’s say that by listing that $1,000,000 house at $900,000, with a sensible and “fair” under-pricing of 10%, you end up selling for $1,000,000.
But let’s also say that another agent, in a parallell universe, lists that house for $749,900 and ends up selling for $1,070,000.
What’s fair?
What’s unfair?
To many buyers in today’s real estate market, “fair” simply means “more affordable” or “cheaper.”
But if that’s how we’re going to label “fair,” then I fail to understand how we’re not heading to an economic system that is rooted in a level of equality that only a planned economy can produce.
Who’s job is it to define “fair” in terms of the actions of a seller?
Who’s job is it to define “fair” in terms of the morals and ethics of a seller?
If that seller wants to price at $749,900, to try to muster up more competition, is this not fair in our current economic system, which is, in fact, capitalism?
Competition is one of the hallmarks of capitalism.
What’s wrong with competition?
Can you imagine what the 100-metre dash would be like if only Usain Bolt ran the race? We know he’s going to win, so why bother putting nine guys on a track with him, let alone go through four heats, after Olympic qualifiers?
So what’s wrong with listing a house at $749,900 and seeing how people compete for it?
The entire buyer pool has access to the same information, and that is, by definition, “fair.” That makes all buyers equal in a sense.
Now, what about listing that house at $699,900 and seeing how people compete for it?
What about $599,900?
What about $499,900?
Well, I think it’s stupid to list a $1,000,000 house for $499,900, but that’s merely my opinion. My opinion is not binding, nor do I think that it should be, or that my opinion should be legislated into practice in our industry.
I also think that listing this house at $499,900 might backfire, and the seller might not get buyers who want to play this stupid game.
Ah, there it is!
Capitalism, free-market, and choice!
If I price this house at $1, and I don’t get the interest I need to get over $1,000,000, then my strategy failed.
That’s the competition that exists in our system, for better or for worse.
So if an agent lists this house for $900,000 and is able to sell it for $1,000,000, but another agent lists the house for $749,900 and gets $1,070,000 for it, but another agent lists the house for $499,900 and gets zero bids, then isn’t this the market at work?
There’s one constant in all three scenarios which I think, undeniably, makes this system “fair.”
Do you know what it is?
Buyers decide on what to bid.
That’s right. In all three cases, with three different listing prices, it’s the buyers that decide what they want to bid, or not.
And that is why the action, strategy, or tactic of under-pricing is not unfair.
If a buyer pays more for the house because there’s more competition, then that’s his problem.
And if there’s more competition because buyers are stupid and make offers that have no merit, then that’s their problem.
So what do we do?
Legislate against stupidity?
Because that’s where all of this is headed if people continue to suggest that under-pricing is “unfair.”
If a guy were to stick a paperclip into an electrical outlet, you might suggest his action is stupid. But would you legislate against it?
Then what?
Legislate against all stupid, naive, uninformed actions?
Why did somebody submit an offer of $499,900, on a property listed for $499,900, which attracted sixteen offers, for which there is a recent comparable sale approaching $600,000?
If you want blame the listing agent and the seller for under-pricing, and not the buyer for making the offer, then we’d better remove all electrical outlets in the city to avoid people sticking paperclips in them.
As always, the comments section belongs to the TRB readers. Discuss what you want.
Today, I wrote about the “unfairness” of under-pricing, so I challenge the naysayers to stick to the topic at hand, and avoid the strawman argument of bringing other aspects of the sale process under the microscope.
May the best argument about the fairness or unfairness of under-pricing, win. I just hope everybody gets a fair shot…
JPR
at 6:50 am
I view under-pricing the equivalent of a $1 starting bid on eBay (similar to what you highlighted in a post few weeks back – using the purchase of your collectible hockey card as an example). However, the key difference being that eBay listings are not a blind auction, unlike the way real estate is being transacted in Toronto. This is less about ‘personal responsibility, financial literacy, or intelligence’ and more to do with a system designed to promote FOMO. If the old adage that ‘a property is worth what a someone’s willing to pay’ holds true, then why not pull back the curtain?
A brokerage being able to disclose how many offers are registered on a property without disclosing price really serves no other purpose than to instill FOMO – akin to a blind eBay listing only showing the number of bids but not the current bid price.
Surely if the market forces of supply-demand are the drivers of the parabolic price action we’re witnessing, then sellers would receive top dollar regardless, no?
I have no issue with under-pricing so long as there’s transparency built into the system. Let the highest price take home the trophy but not by keeping perspective buyers/bidders in the dark. That doesn’t eliminate competition – “buyers (still) decide on what to bid.”
Jimbo
at 8:52 am
My 2 cents on what happens if all buyers are aware of the offer prices going in: The top two or three keep bidding when they realise they are hundreds away from each other. This would drive the price up more. The richest person would get the property and not the person that wants it most and is willing to go high at the start.
It may also drive 20 offers away when they see a bid much higher than their offer, but at the end of the day the big fish will fight and bid each other to the actual top price.
Right now, buyers are paying higher and lower than what the max would be, but more often than not I believe that price to be lower.
Just look to Australia, the market there is crazy with the open bidding system. So to recap, yes the top two offers will be closer to each other, which will look like someone isn’t overpaying, but the top offer will most likely be higher than the closed system bid.
JPR
at 9:30 am
You’re not wrong – I used to go to live auctions during my undergrad days as a side hustle and have witnessed the ‘dick swinging contests’ first hand.
However, I don’t necessarily agree that today’s buyers are paying lower than what their max would be. Each buyer is stretching themselves to the limit- perhaps not initially – but after losing out on a few properties they realize they have no choice.
The top 2-3 offers are usually asked to improve either way, so not sure if ‘the person who wants it the most’ has any better odds unless said individual is able to back up their desire with $$$. I know David has commented that ‘stink offers’….i.e. those that have no choice of being accepted….drive up competition but this latter point baffles me: if I’m making a $1M+ acquisition, the last thing that would sway my decision is whether there are 5 registered offers or 25. I’ll do my research upfront, set a limit, and bid accordingly.
Without transparency, as David highlighted in a post a few weeks ago, there’s no regulation stopping the selling agent from going back to the already HIGHEST bidder, after they’ve clearly won, and STILL asking them to improve their offer.
Geoff
at 12:55 pm
and yet ther’es more to an offer than price – there’s conditions, closing dates and deposit cheques. Most people take the offer that’s highest, and they should take the offer that’s most likely to close (unless there’s truly no downside to it not closing, like they’re selling everything and moving back in with their parents).
Julia Openbids.ca
at 6:43 am
So true. The current Real Estate market needs transparency. While it won’t fix the problem of demand/supply issue and we don’t know how exactly it influences the prices in general, we can make sure that the access to pertinent information is shared with all parties involved so the process can be ethical and fair.
Potato
at 7:52 am
“The entire buyer pool has access to the same information…”
No they don’t. TREB explicitly suppresses sale prices and competing bids. Only buyers who sign up for third party sites — which TREB is actively shutting down — or who get a halfway decent agent early in the process can access actual sold prices. And only the minority of agents who have sales listings in an area can see what the range of bids looks like to say which sale prices had support from multiple competitive bids and which were crazy outliers (unless you have a secret bids database we’re unaware of). Otherwise if potential buyers are watching MLS.ca to try to prepare and educate themselves, all they see are listing prices, see that a place is listed in the same range as what others were listed for before, and can be forgiven for thinking the list price bears some resemblance to reality. Indeed, if you’re not following blogs like this, you may be think your agent is trying to gaslight you when you see a listing with an asking price right in line with others you’ve seen on MLS but your agent says to get the place you’ll have to go in with a bid hundreds of thousands of dollars higher.
Laurie
at 10:01 am
But in your example, you’re blaming the system for people’s choices. If they choose a less than halfway decent agent and they don’t do their own research and due diligence on such a major purchase that’s not the real estate industry having a problem, that’s a lazy person problem.
Is under pricing unfair? No. Is the government agency blocking necessary information and not regulating or certifying agents to make sure they’re ethical and even remotely decent at their job? Hm… maybe that’s the system we need to fix.
Libertarian
at 10:52 am
I agree with Potato, who is talking about the bidding system. This sentence in particular:
“And only the minority of agents who have sales listings in an area can see what the range of bids looks like to say which sale prices had support from multiple competitive bids and which were crazy outliers (unless you have a secret bids database we’re unaware of). ”
The public does not know how many bids were placed on each house and at what price. That’s controlled by TRREB, CREA, RECO, etc. Heck, even the people bidding on the same house don’t know what the other is bidding.
David talks about competition is capitalism, but the bidding system is a monopoly, which is not capitalism.
Condodweller
at 1:57 pm
I also agree with this. I would expect that this is the type of proprietary information that gives a good selling agent a competitive advantage in obtaining the highest price for their client. It will never be disclosed.
The best the buyer can do is to try and analyze the sold data in the area and try to determine how much of an outlier the last data was. But of course, this would require that all buyers did this and didn’t overbid according to the last crazy price.
While the process is fair, the way it works isn’t. The only thing fair about it is that one day a buyer becomes a seller and hopefully will benefit from being on the other side of the equation.
Tak Loo
at 6:49 am
Excellent points.
What can the general public do to change the monopoly and bring transparency to the bidding process. I really do think we ought to do something. The system is rigged against the buyer.
It is shocking that there are no regulations to prevent the agent from asking to improve the highest offer. I don’t understand why the agencies – treb, reco, etc don’t change that.
Condodweller
at 9:57 am
Your only defense is if you are a good poker player. If you can sense your offer is the highest you can choose to not improve. If you were in fact the highest offer, it would stand to reason that they will accept it.
Raise your hand if you were asked to raise your offer only to have it accepted when you didn’t.
I would point blank ask the agent if mine was the highest. It should be easy to detect the guilt if it was.
Rick
at 3:03 pm
The proprietary systems are set up to make you use the realtors, period.
R
at 1:59 pm
There’s also a reason the government doesn’t allow things like bait and switch pricing, and there are advertising standards.
It’s not the wild west, caveat emptor at all costs…
Marmota
at 6:41 am
My agent regularly sends me MLS links with sold prices for properties we are interested in, recently sold, or I lost a hid for. It even includes a list/sold ratio.
In fact, it has the full listing history. We see those who underlist, don’t get what they want, and relist with a new higher price… All the time
London Agent
at 1:21 pm
You’re right, not everyone has access to the same “insider” information…. but they could. Find an agent that will educate you, help you through the process, and do their job to find the information that you need to make an informed decision that works for you.
Julia Openbids.ca
at 7:06 am
There’s one simple way to allow buyers to make data-based decisions – it’s a transparent and open way of bidding and the access to view competing offers. It seems like realtors try to artificially make themselves useful. But all these “insider” tricks are not required when the process is transparent and fair.
hoob
at 8:15 am
I think it’s merely a side effect of all the Frank Leo generation of RE agents who want to maximize the ROI on their “SoLD ovEr AsKInG!” signs gathering dust in their storage units.
Julia
at 8:11 pm
The Frank Leo ads are brilliant – he knows exactly who his demographic is – the widowed older lady sitting on a gold mine of a property. I can just imagine him swooping in with a twinkle in his eye and dimpled smile and locking down that listing while chatting about Matlock or Colombo or whatever ladies of a certain age watch these days. At least this is what I imagine his MO is. LOL
Appraiser
at 8:24 am
Demand continues to overwhelm supply, but the problem is the offer process?
As long as we keep focusing on the symptoms, we will never get to the cure.
Build baby build!
Karolina
at 8:53 am
Further to your example, David of receiving 16 offers. Why would so many buyers still be so blind or uneducated? If you know the recent sales of $599,000 why would you put anything less than this. The market is hot. If you wanted to snap a property for a discount you should have done it last fall/winter. That boat has sailed. Why would that agent even bother submitting an offer for $499,000 if they are up against 15 other offers? What is wrong with some agents’ mentality. I would be embarrassed to tell my buyer go ahead let’s see what happens @ $499,000.
Ed
at 9:29 am
To Karolina’s comment ‘ If you know the recent sales of $599,000 why would you put anything less than this.’
Although that may have been the last sale price on a comparable unit it does not necessarily set the bar as far as sales price for all comparables going forward.
The bid and sale of $599,000 may have been an outlier and directly as a result of a blind auction and or an uninformed buyer and buyer’s agent.
I would tend to agree with JPR above that the ‘fairest way’ would be an open bidding system but that only works if there is a set closing date, no conditions, etc. Obviously though this won’t work for all buyers or sellers.
Karolina
at 10:32 am
Yes, Ed, I agree with you. But this price is as low as it gets in Toronto. With market being so busy, and interest being so low, you cannot get a discount on a purchase when her competing with 15 buyers. This was probably an entry level 1 bedroom condo and in a great neighborhood. If recent sales around the area and in the building show similar amounts of $599,000 then you wasting people’s time putting an offer of $499,000. If there was only 1or 2 offers or none, then go ahead and put your desired amount and try your luck. At the end of the day, for this scenario, 16 bids were put forth with 4 other willing buyers to purchase in $600,000+.
BHT
at 5:24 pm
when working with new clients unfamiliar with the pricing techniques in toronto, sometimes you have to lose one by “doing it their way” so they will trust you on your advice to put together something more reasonable next time. You also get to say “i told you it would sell for X based on Y” – if the buyer is smart, they listen next time.
but i do understand this contributes to the # of offers. Its up to the agent to gauge their client properly. If their max budget is 499k, its a waste of effort, but if their budget is say 650k, then you know you can get them up there once they know the ropes.
Buyers themselves can sometimes be their greatest obstacle
Tak Loo
at 6:55 am
Agreed – my agent did this so that I could understand and experience the bidding process.
On the other side, it is also a way for an agent to build trust with their client. From my cynical perspective, wouldn’t every agent want to buy for the maximum price possible so they can get max commission? I realize that for example 2% of an extra 50k only means an additional thousand dollars which may not be a lot on a single deal but over a period of time and many deals, that can easily add up.
Jane
at 9:15 am
Amen to this!! My husband and I were bidding on houses earlier this year and every time there would be eight offers, or ten offers, or fifteen offers. Initially we were discouraged but our agent always said, “Don’t worry, half of them are throw-aways.” I always wondered why! Why would somebody bid the list price when they know they’re going to lose? Why would anybody do anything in life without a chance of being successful?
PL
at 10:27 am
When sixteen offers are registered on the property, why does not one, but two buyers submit offers of $499,900? (a) it costs the buyer nothing to put in an offer, (b) that’s what they can afford, and (c) maybe a miracle will happen.
Karolina
at 10:39 am
Yes, you are correct. Except you are just increasing the competition and if I really wanted the place, I would now put a higher asking price knowing there is 16 bids vs let’s say 8. In the end, more people putting in offers CAN sometimes correlate to a perceived higher demand and create bigger competition. Ultimately, price goes up.
We don’t know what the condo would sell for if there was only 5 buyers putting in the bid. The ultimate price may have been lower vs when you are competing with so many buyers as in this scenario that David summarized.
JL
at 11:30 am
This is what I don’t get: why is there an assumption that “more bids” automatically means “the winning price has to be higher” IF we know that so many are throwaway bids? So if you’re bidding on a house and you and your agent think its reasonably worth $1M to you with 5 other bidders, and then you realize there are 5 more bids come through late (obviously with no visibility as to what $ they are), why would you consider increasing your offer? Sure, one of those extra 5 bids could be high, but they could all be junk too.
If we accept that junk bids are the majority of all bids, the number of bids on a property really shouldn’t be driving an increase to the offer price. Unless its all psychological?
Karolina
at 12:42 pm
Yes, I think a lot of it is emotional/ psychological. Just ask yourself. How confident will you feel if you are going against 1 other offer (50/50?) how confident do you feel if you are going against 6 offers, 12 offers, 18 offers? Many buyers told me that they simply walk away once they hear there is more than 5+ offers, they just don’t want to compete.
Condodweller
at 1:31 pm
I don’t get it either. It’s got to be psychological/emotional. I’m sure there is some correlation between the number of offers and the winning bid but I’m certain it’s not linear.
R
at 1:56 pm
You know what would be fun? Get an agent and have them put in low ball offers on every single listing. You never know and it doesn’t cost you a dime!
It’s only a matter of time before some tech or smarter agency model comes in and “fixes” the industry like Uber, Spotify, Amazon and Netflix did to legacy models.
https://www.properly.ca
Properly’s Sale Assurance acts as a temporary replacement for a traditional sale, allowing you to get firm financing to buy your next home without needing to sell – or even list – your current home first.
This seems to be the latest. I’m not sure exactly how it works, but certainly seems to be addressing a need an pain point.
BHT
at 5:27 pm
all sounds fine and dandy in a sellers market
Id like to see that business model thrive in a tougher buyers market (if we ever see one lol)
R
at 10:33 am
It may be “fair”, but it’s lazy, inefficient and counter-productive.
Most agents are lazy and setting a random price far below what may be fair market price isn’t as much as a strategy but the easiest way to do the least amount of work. All the offers below the sale price are equally the result of lazy agents who rightly figure it can’t hurt to throw a number out there as there is zero downside.
The amount of time wasted by the system is incredible. Buyers waste time browsing MLS only to be uninformed on the actual market values when they only see selling prices, agents waste time back and forth with other agents in a 20 offer situation. Sellers waste time dealing with showings to people who will never be buyers. It’s a loss for everyone.
Do you really think people look forward to buying or selling when it’s such a well known pain in the ass? You know how Amazon took over the world? They made it easy to buy. One click. Easy checkout. Transparent pricing and free shipping. Make it easier and more enjoyable to buy and sell and I’d bet you’d actually be able to make more. Have you seen how much it costs now to order uber eats delivery? I might pay $30 in tips, service charges and taxes on top of a $50 Terroni order, but it’s a pleasure to eat at home and I’d do it again.
Organized real estate saying the system is fine is exactly like the record industry saying downloading is a fad, taxi drivers thinking that ripping people off and picking and choosing fares is totally OK, and Hollywood expecting people will still buy Wonder Woman 1984 for $25 to watch at home.
Nobody is a fan of the system, and by your frustration with “stupid offers” it sounds like you aren’t either. Yet you always want to play the “don’t hate the player, hate the system”?
The system may be “fair”, but doesn’t mean it’s good, and you can’t say you are different than the other agents if you only do the same as everyone else while waving your hand around.
Den
at 10:58 am
Thank you. All these real estate agents saying the same thing trying to justify the utter crap that is taking place. When their industry gets uberized not one person will feel sorry for them. I personally cant wait. I hope for their sake they have already made enough money by then. I cant believe “intelligent” people would actually defend this madness
JL
at 11:53 am
There is a perception that the system is unfair because it appears designed in such a way, through its blind processes and asymmetrical information, so as to maximize the benefit to the seller.
In multiple offer situations you routinely appear to get the winning bid well above the 2nd place bid, solely because the buyers feel that’s the only way they can ensure the purchase for themselves. I wouldn’t categorize this as “fair” because the buyer was willing to pay or valued the property at that amount; they are simply knowingly paying a premium on the price just to be able to successfully navigate the system (a premium that they otherwise wouldn’t necessarily have to pay), and I think most would consider this an economic inefficiency favoring the seller.
As for undervaluing, at best the list prices can be considered misleading or causing undue confusion. Yes, with a good buyer agent you can counteract and navigate through it, but it almost seems a bit like working just to mitigate the confusion created by the selling side. We’ve heard many stories of sellers refusing over-asking prices, buyers never quite knowing what the seller actually wants, wasted time and efforts bidding, etc.
I’ve noted this several times before, but the buying public still appears to mistakenly consider the list price if not as the real asking price, then at least as some form of anchor hinting at how much higher the seller wants to go. If this is all over the map and no longer meaningful, then a list of $1 would at least make this clear to everyone from the start.
Condodweller
at 1:05 pm
” In multiple offer situations you routinely appear to get the winning bid well above the 2nd place bid, solely because the buyers feel that’s the only way they can ensure the purchase for themselves. I wouldn’t categorize this as “fair” because the buyer was willing to pay or valued the property at that amount; they are simply knowingly paying a premium on the price just to be able to successfully navigate the system (a premium that they otherwise wouldn’t necessarily have to pay)”
I have mentioned this in the past and I also said that this is why I don’t believe a property is worth what somebody is willing to pay for it.
This is what is going to open us to a “correction/crash”. When the music stops, people will realize the gap between the “intrinsic value” vs price paid and that they can’t or won’t have to pay a premium anymore and this will work in reverse.
The worst part is that with time the required amount by which you need to overpay in order to secure the property increases because now you need to increase the amount by which someone else overpaid to really be sure to secure the property.
The other R
at 12:23 pm
Buyers can say it’s unfair but I would ask why? Is it because they don’t have the market information available to understand market conditions (via their agent, third party web-sites, their own research)? Or is it because the buyer doesn’t have a handle on their wants and needs?
I want to own a 2-bedroom semi in Leslieville with a parking pad but because it doesn’t fit my need to stay within my budget, is this unfair? I would say no because I could decide to look in a different part of the city, I could consider a condo, I could revisit my budget and decide I’m okay to be house poor. Bottom line, as a homebuyer I have to figure out what I need vs what I want and be willing to make some sacrifices along the way.
I recently purchased a new property but ahead of my search, I also made sure I had the information I needed along the way. I signed up for one of those sites where I could see sales data. I met with a few agents and actually spoke to them about market conditions in the areas I was targeting. Ultimately I chose to work with an agent who’s been active in the market and who gave me a few things to consider (location, type of property, number of rooms vs. usable space). The information and knowledge was/is invaluable as I was able to firm up a purchase on a property that met all my needs and even some of my wants within a couple of weeks of kicking off my home search.
To all those buyers who say under-pricing is unfair, I have a question for you. What would you offer if all of a sudden every seller in the GTA decided to list their property at $20 million dollars regardless if it was a 400 square foot bachelor looking at a wall or a 10,000 square foot multi-bedroom, multi-bath property in the Bridle Path?
EastYorker
at 2:16 pm
Ask the winning buyer if the pricing is fair.
Was told when I bought my house bid what you feel comfortable. What its worth to me. With the caveat that if it goes for a dollar more there are no regrets.
As for buyers and agents who don’t look into sold prices or comparables. Its the biggest purchase one will ever make why would you skimp on anything ?
What would the talk be if this was a buyers market ?
BHT
at 5:33 pm
If it were a buyers market, there wouldn’t be any talk.
Which is why this topic surfaces every time we are deep in sellers market territory with extremely low MOI. About a “broken” or “unfair” system – that nobody seems to have an issue with when the market is more balanced. But of course, cant have a more balanced market without fixing supply or cutting affordability with interest rates – neither of which seem to be happening at any meaningful rate.
Shana
at 9:06 am
We have a system where the number of bids is supposed to reflect the level of demand. Yet pricing strategies are to maximize the number of bids. Overall, how artificially inflated is the level of demand for real estate here? Is the buyer pool truly growing, or is it lacking direction? And what’s the real mismatch in volume between the buyer pool and seller pool?
It becomes challenging to ascertain how deep of a sellers market we’re really in, and what the level of demand for real estate truly is. How do regulators and city planners determine what growth in supply is needed? What level of interference would balance the market? Without understanding the degree of mismatch, we can’t estimate the risk of a downturn in prices, or the risk/benefit of political interventions. And buyers can’t make an informed valuation decision without understanding these risks. These are the factors that create market vulnerability, which can harm everyone.
Steve
at 9:39 pm
Lately, I have been contemplating buying a condo …. selling my freehold house, and downsizing. But then I look at the prices, the condo fees, and consider the size of most apartments (less than 1000 sq. ft.) and become discouraged. Prices are so high, I wonder why more people just don’t opt to rent.
As for blind bidding, I think it is fair enough. Put in your best offer, or what you want to pay, and if you lose, walk away. There will always be another sale.
Robert
at 9:45 pm
Underpricing is FALSE advertisement! And I don’t think that anyone would argue that it puts extra fuel to burning fire! Why agents underlist? Because they know they would get “better price”. This environment creates FOMO and people bid crazy amounts just to “guarantee” they get the house. Worst part is that “overpaying ” sets a new price level in neighborhood or condo. Next person has to bid over “last comparable price” in neighborhood to secure the purchase. This creates feedback loop and unsustainable price acceleration.
Agents know this so they use this technique to create panic in the market.
When they receive 30 offers – big chunk of them would be below market value. Agents need those quantities to create sense of panic for top bidders and let them overpay! And it goes on to next property!
If you want bidding process- make it transparent! Also if house is set for bidding – why not specify it in public description??? Of course agents don’t do it because they know that this would reduce amount of offers!
I’m not saying that this is only cause for current madness, but it’s definitely one of the big ingredients for frenzy!
Robert
at 9:51 pm
There are plenty of examples where difference between first and second offer is over 100k! And like I say – it’s not just a problem for person who placed this bid. It’s also problem for next sales in neighborhood because of new price level!
All it does is generation of FOMO and rapid price increases that would not be as rapid if deliberate underpricing was punished as false advertisement!
Rick
at 3:10 pm
I agree but you can’t completely ignore the buyers willing to bid blindly at any price. The agents and the industry set up the buyers and the buyers don’t do their own Due Diligence. I see it like a kid that just wants want they want no matter the costs or harm in the future. The buyers, supposedly adults, don’t think about does this make sense to purchase at this price. The problem is the agents know how dumb most buyers are.
Steve
at 8:39 am
In any market the price of something is the combination of:
a) What somebody is willing to sell it for.
b) What somebody is willing to pay for it.
In the real estate market there is no transparency on either, as the listing price that constitutes (a) is an increasingly fictitious value that the seller probably wouldn’t actually sell for even if it was the only offer they got and there is no visibility into (b) until after it’s sold.
So this system is “fair” because all buyers face the same level of information asymmetry but it feels like the fairness aspect is really just a convenient strawman to deflect from the lack of transparency during the bidding process and in the real estate industry as a whole.
Appraiser
at 10:05 am
It is the market that is out of balance and unfair.
Oh yeah the lowly multitudes clamouring for a rung on the property ladder.
What is the market telling us?
Is it saying that prior to the pandemic, housing was seriously under-priced?
Or that otherwise perfectly rational human beings are in fact full of FOMO and just wack?
Chris
at 11:01 am
“S&P 500 breaks above 4,000 milestone as bull market barrels on”
https://www.bnnbloomberg.ca/s-p-500-breaks-above-4-000-milestone-as-bull-market-barrels-on-1.1585335
What is the stock market telling us?
Is it saying that prior to the pandemic, equities were seriously under-priced?
Appraiser
at 11:35 am
Not a single original thought.
Chris
at 12:06 pm
Not a single original rebuttal.
Average Joe
at 10:29 pm
“Oh yeah the lowly multitudes clamouring for a rung on the property ladder.”
Aren’t these your clients? Seriously, what is wrong with you….
EastYorker
at 10:31 am
Define “Overpaying” ?
When I bought my house I paid what I thought it was worth to me. After looking for over two years I found one with all the features and layout I wanted that was close to family. After the deal closed I found out some of the other bidders and what they offered. Not only was I highest I was way past the others. Considering how long it took me to find this place and that were no others listed at the time I consider it a deal. I may never move from this house so now I consider my “Overpayment” pointless.
Chris
at 12:05 pm
“We may be going out on a limb here but it seems like a strong limb. Here’s what regulators could do to Canada’s housing market this month or next”
https://www.ratespy.com/stricter-housing-rules-brace-for-impact-033118187
London Agent
at 1:19 pm
As has been said before, there is nothing “unfair” about the current system we operate within. It’s frustrating when people want to cry sour grapes because of their own experience within said system without acknowledging the role they played to create that outcome or experience.
People exclaiming that the system is unfair because housing prices have skyrocketed or that they can’t afford to buy need to wrap their heads around a few important things:
1. We are in a seller’s market that is extremely unbalanced and automatically creates favour in a seller’s interest. You, the buyer, are at a disadvantage and there is nothing you can do to change that. Accept it, get over it and move on. Or don’t. Keep complaining and see where that will lead you in 10, 20, 30 years from now.
2. It is not unfair that another person is willing to pay more for a home than you are, or are able to.
3. It is not unfair for the seller to want the most amount of money for their prized asset nor is it unfair for them to “play the system” and generate as much interest as they can on the open market.
Thus, we have the system that is in place and is proven to provide the seller with their desired outcome.
To those that want to see this system overhauled or changed to a more transparent process, what is the goal here? Lower housing prices? Won’t happen. Do you think that a buyer who sees the price they need to offer in order to win won’t do so? If anything, once a buyer can see it, they’re going to go for it. Thinking that this will take FOMO out of the equation is moronic, if anything this will lead to more emotional offers.
Thinking that a transparent system is needed to “level the playing field” or “provide the same information to all buyers” is pandering to the lowest common denominator. There is no denying that this job takes skill, some have it and some (most) don’t. As a buyer or seller, you have the ability to work with somebody who knows what they are doing. This is fair. Choosing to hire an agent that does this part time, or just got their license, or is your cousin/best friend/long lost twin, is just that: A CHOICE.
So if you feel like you are missing out on some part of this process, or some information that could have helped you, market information, etc. Just know that there is somebody out there that can provide that information to you and is happy to do it.
I feel like I could go on for hours but let’s end it here.
Anthony M
at 9:02 pm
Unethical behaviour of real estate agents is not capitalism. Telling someone to improve an offer because the next one is ‘close’, when its not, is straight up dishonesty.
You agents should be forced to enter all bids into a system. And you should only be allowed to go back to the top two/three if the offers are within a set, publicly know range.
Keith
at 2:05 pm
Harsh reality in this blog post. The customer can’t win, unless they can afford to wait for a “balanced” market – they could be waiting a very long time. Imagine being a potential move up buyer today.
You sell your property, a process of tossing bloody meat into pool of starving sharks. After congratulating your agent on extracting what seems like a huge price for your home, you are then in the buyer position. Anecdotally, some people participate in dozens of bidding wars, and miss out every time. Second place or worse is meaningless in this scenario. The psychological pain, the anxiety and frustration. You start off looking for your dream home – and the market runs away on a daily basis. Soon you compromise on must haves, just to stay in the market. Tons of collateral damage from a highly unbalanced market.
Agents don’t make the market, the buyers and sellers do. Times like these it’s best to not participate unless you have considerable financial resources, and the very best agent you can find. Don’t fall in love with a property, but wasn’t that the point in the first place?
M
at 7:59 pm
How much is this an issue with the bidding process, and how much is this just frustration with a prolonged seller’s market? If the process was the same, but properties were sitting for a month with only two low ball offers I don’t think people would be as upset. I feel the much more interesting question though is how much freedom an owner should have in choosing a listing strategy. Clearly a few people here seem to think the system is broken, but should an owner not be allowed to sell their property however they wish to? And if not, what regulations or limitations should be put in place that don’t unreasonable infringe on a sellers rights, whatever those may be.
Bryan
at 6:58 am
You can’t list a car for sale for one price and then sell it for a higher price. It is against the law. Why is it okay to do that with a house?
If you want to discuss fair, have a blog on agent compensation. Paying an agent 20k plus to sell your home and then another 20k for an agent to find a buyer is criminal. Try listing at 1 percent buyers fee and see what happens. Nothing, as the Sharks feed the Sharks. Why wouldn’t am agent want someone to bid on a house well over asking price when it puts money in their pocket. Where there needs to be changes is in the outdated compensation model agents live on.
In no world that makes sense should an agent ever make more than doctors, lawyers, nurses or the like. Remembet this, you only need a GED to be an agent.
How Agent control over the market is why the discount listing companies don’t work.
Mark
at 7:58 pm
Definately have to agree with these points Bryan.
There are great agents that have worked the market at its highest and hottest and through the really lean years that lasted almost a decade. The best agents simply won’t entertain the multiple offer circus, but greed is preveiling out there , accompanied by very shady business practices, I hope with more inventory things level out a bit.
I should reveal that in with such a market, my son did purchase a property PRIVATELY, knocking on a door with a disposable bin!! Great TRUSTED realeste lawyer worked on the offer (25 years with him), that seen to it the deal was iron clad and both parties were happy. Fair market value and saved about 50 THOUSAND on the deal. No CIRCUS!!
I’m sure the most successful and ethical realtors will come out on top, but for now, with no transparency on these bids all buyers are chum for these sharks that do not have an ounce of ethical awareness in them. BUYERS AND SELLERS have got to wise up. Yes, sellers too. The undermarket stategy can backfire, they list property way too low at 599 or 699 and end up with multiples that are still UNDER VALUE, and agent sells it, leaving money on the table, just to get it over with? Not a good look either.
See what happens in the near future. Should be interesting.
Michael
at 11:42 am
The big issue at hand is financing. How can a young couple overbid on a house that is going to sell at 100k over asking when the bank won’t finance it? It favours the rich. No other industry does this. Nobody has to over bid on a car, or groceries, or anything else. If a house is for sale and I am interested, I should be able to put in a bid on that day and not have to wait on multiple bids. Then it’s up to the seller to accept or decline the bid. Under pricing is dishonest. If sellers want bidding wars they should auction their houses and forget about real estate listings.
Caprice
at 12:00 pm
Some March numbers out thanks to Ivan Gorbadei
– GTA Average about to hit $1.1M
– Toronto condos above $700K
https://twitter.com/IGorbadei/status/1377618026720342017
VM
at 12:45 pm
I would argue that there are three things about this system that are unfair:
1) In just about every other area of commerce, someone’s asking price is a starting point from which you negotiate down. And if you really want the thing, then you offer them their full asking price and if you are the first to turn up with the money, you get the thing.
e.g. go and shop for a used car. Whether it’s a $20K Honda CR-V or a $200K Lamborghini, if you show up with a bank draft for the asking price, taxes, and a few hundred dollars of BS fees, you expect the seller to hand it over to you, not to laugh at you and say “oh, yes, I put $20K in my AutoTrader ad but you should have known $26K is what this car is worth, why did you waste my time with this insulting offer?”
Same thing with random stuff on Kijiji that is rare and/or seemingly underpriced – as soon as you see the ad, your response is “I’ll take it at your asking price. How soon can I pick it up?” And if you think it’s overpriced, your response is “will you take 20% below your asking price for this?”
The norm in commerce is that the seller is the one that indicates at what price they would be prepared to do business. Prospective buyers either agree or counter offer a lower price.
So there’s something very, very, very odd about a seller posting a price in a system that, once upon a time, was designed for this, but now it is to be “understood” that this price is fiction and in fact, the seller will be insulted if you offer that price.
2) This system is basically an auction without the transparency. With an old fashioned auction, eBay, etc., each bidder is in the room, they know exactly what everyone else is offering, and they bid accordingly.
Here, you have a system where you have no idea what anyone else is bidding. House is listed at $1M but that’s meaningless. If you think it’s worth $1.3M and somebody else offers $1.32M, unless you get invited to improve your offer, too bad, so sad, try again on the next house.
Eventually, it encourages FOMO recklessness – if you can get financing for $1.6M, you bid $1.6M and if the next highest bid was $1.58M, great, but if the next highest-bid was $1.4M, the informational asymmetry means the seller pockets $150-200K more than they should have and you just bought a house for more than it’s worth (since presumably, its true value is how much you can sell it for, and the next highest bidder thought it was worth $200K less than you just paid)
Basically, to the benefit of sellers, this system encourages people who lost out on ten properties to make desperate offers on the eleventh that may be completely disconnected from what anybody else in the market is offering.
3) Because this system is extremely opaque and sale prices are not public, this system causes people to waste their time and/or be misled. Take someone from out of town. They see a listing for a property of a type they might be interested in. It says $500K asking price. The public listing on realtor.ca doesn’t mention anything about offer dates or anything. Two weeks later, they see the property sold. So they presume “okay, this type of property sells for at most $500K”. Until they are serious enough about actually moving/buying that they reach out to an agent who will explain to them how that property actually sold for $700K, they are going to be completely misled.
It wouldn’t surprise me if you even had people accepting jobs, moving to a temporary rental place in the new town, etc, and it’s only when they start their ‘serious’ search to buy a more permanent property that they are informed that the financial parameters they were operating based on (the only publicly available ones) are complete fiction.
If the properties were listed with a question mark as the asking price, or if the actual sale prices were publicized, this would be avoided, but there seems to be something unfair about a system that will completely mislead you until you are serious enough about buying that you actually reach out to an agent.
Again, this is much less fair than your typical auction. If I am curious about the value of something on eBay, their system will tell me actual sale prices for previous similar items and I can condition my expectations accordingly. Here, you’re just supposed to magically know everything is fiction, therefore the sooner you pick up your phone and talk to an agent, the better.
I can tell you that I saw this first-hand when my parents were thinking about moving to the GTA – they were casually looking at listings and presuming the asking price was roughly the price they could get a similar condo for, and it took a lot of yelling to try and explain “no, in this town, the thing you saw listed for $600K actually sold for $800-850K.” It is not an intuitive system unless you’ve been reading TRB for a decade.
K
at 11:04 pm
I totally agree with these points. I think to agents like David it’s obvious because they’re so used to this context, but for a first time buyer the way real estate is sold right now is so different from how literally anything else they’ve bought is sold, where the advertised price is relevant and you will buy at or below that price (and sellers could get in trouble for false advertising if they expected more). Add in the fact that the system is severely lacking in transparency in a number of ways, where a) you have to know that you need to look for the information in the first place and b) it’s not always readily available, and is often deliberately obfuscated or omitted by those in charge, and it’s hardly surprising new buyers are confused and unhappy with the process.
Condodweller
at 3:11 pm
The globe had an interesting article on teaching principal residences:
https://www.theglobeandmail.com/business/commentary/article-why-a-capital-gains-tax-on-principal-residences-wont-help-to-cool-the/
Their take is that it will actually reduce supply as people try to avoid the tax. He also thinks that realistically, only future gains can/should be taxed.
Condodweller
at 3:12 pm
Teaching=taxing. Another swipe error lol.
Caprice
at 10:12 am
Interesting take on how NOT underlisting by the market average can backfire for sellers, because of buyers’ assumptions:
http://oshawaexpress.ca/are-real-estate-asking-prices-for-real-or-fishing-expeditions/
Condodweller
at 12:32 pm
It seems this subject of blind bidding has found its way to the media. This is the first I see it mentioned to at least slow down price increases.
“They also call for measures that would eliminate blind bidding in real estate transactions, so that buyers could make more competitive offers rather than overreaching to win and setting new expectations for the market.”
https://nowtoronto.com/lifestyle/real-estate/a-bungalow-is-listed-on-the-toronto-real-estate-market-for-nearly-3-million
Geoff
at 12:56 pm
what I find most hilarous about that article is that they’re talking about someone moving ‘from the sticks’ to Oshawa.
Oshawa is the sticks.
Lisa
at 4:26 am
It’s always interesting to read contents that are related to our niche. Targeting the current issue of the real estate industry is wise, it’s good that someone spoke about this. In my opinion, underpricing is surely unfair considering the current situation of our world. Would love to see more content like this!
We’ve also made content about this topic on our website: https://scottandlisahomes.com/ please do check it out. Thank you!
Pete
at 7:54 am
My guess at why people think the current under-list strategy is “unfair” is because it is essentially creating an auction type situation without the actual structure of an auction. You list at $499,999 and people put in bids higher than that. Fair enough. But there is no compulsion for the buyer to actually sell to the highest bidder, as there would be in a normal auction. So people are bidding in good faith, but if the buyer expects $1Million and they only end up with $850K, they don’t have to sell, they’ve wasted everyone’s time with their strategy, and the whole good faith angle is out the window. I think a system of “Offers over $XXX ” would be better. You set the minimum the seller would take and then let people bid, with the highest bidder winning. Then everyone is dealing in good faith and not playing games.
Montreal Real Estate
at 6:15 am
This is an exceptional post that is loaded up with such countless helpful pieces. Much thanks to you for being so nitty gritty in the business land in Abbotsford.
Rick
at 2:57 pm
How about this scenario? A house is under priced and you get an offer on it at full asking price with a typical contract (not that there is one) but in general terms and the seller waits days or week waiting for other offers and gets a higher price with similar terms. Does the first buyer not have legal recourse due to the fact the seller/agent never planned on selling at the listed price and using first over as leverage for a higher price. The house was listed for a price, an offer made at the price requested by listing and the terms are generally common. I believe there may be legal recourse in this case. Not in the case where seller gets multiple offers on same day, next day or so.
Kaushik G
at 3:36 am
I agree with you. It’s the concept of “free market” where price is determined by supply and demand. List price is just a number. Actual sale price is driven by the market.
Tim Major
at 12:37 pm
I think listing your house at whatever you want is your right. But I believe that if you sell your house for more than 10% above your asking price there should be additional tax that you pay that goes directly to fund housing projects. This will encourage agents to list this price closer to the true market value.
viper
at 12:32 am
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