If you don’t know what “One Dollar, Bob” refers to, then you clearly were not a child of the 80’s.
Having said that, I associate watching The Price Is Right with being a kid watching morning television, but it is an adult show, after all!
Bidding $1 in “Contestant’s Row” might get you up on stage playing Plinko, but bidding $1 on a house in Toronto gets you nowhere. Even if the agent offers it as a “rare opportunity” in the media. Let’s talk about the house at 11 Edith Avenue…
“The Price Is Right” was the greatest game show ever, was it not?
I know, I know – Jeopardy is probably the most famous, and longest running. But those questions are hard!
If you want to play along at home, and relate to the contestants, then TPIR is the show for you!
Then again, sometimes you play at a level above the contestants.
I learned this when I was 8-years-old.
I was so frustrated to see the contestants in “Contestant’s Row” messing up the whole $1 bid.
You know how it works, right?
A dining room set comes up for bid, and it’s probably worth $700, or $800, or maybe $900.
If the three people ahead of you go nuts, and bid $1,600, $1700, and $1,800, then you bid “one dollar,” thereby assuring you’re the lowest, since any bids OVER the actual retail price are eliminated.
And then there’s the idea of “cutting somebody off,” ie. they bid $700 and you bid $701, thereby ensuring they’re eliminated unless the actual retail price is exactly $700.
But then, every so often, you get a person who doesn’t understand how it works.
Somebody bids $700, and the next genius bids $699.
That genius has no clue what’s going on.
And at 8-years-old, while eating my Special-K at 11:00am on the Friday of a “P.A. Day,” I would yell and scream at the TV.
I couldn’t believe these people! It was such a simple concept, and yet they couldn’t grasp it.
So you can clearly see the parallel I’m going to draw here.
Bidding $1 on The Price Is Right is strategic, if you do it right.
Listing a house for $1 in the Toronto real estate market can be strategic, but in practice, it’s a gimmick, it’s a last resort, and I think it actually turns buyers away.
You all know I’m not supposed to give out sold prices, disparage a competitor, advertise listings that aren’t mine, etc. Lots of rules, some which have merit, and some which don’t.
But today, I’m going all out. The address of the property in question: 11 Edith Avenue.
This property was written about several times over the past week, and I hate that because I have a real estate license, I can’t openly opine about it; good or bad.
The property has now sold, and the word is out. So what the hell. Here’s my take…
This property wast first listed for sale in March of this year for $899,900, and there was a “hold back” on offers. Clearly the listing agent thought he was sitting on gold mine.
The property didn’t sell, and it was re-listed in April for $799,900, again, with a hold-back on offers.
It didn’t sell that time around, but who knows whether they got any offers or not. Who knows, on the other hand, whether the $799,900 list price was “low” in the agent’s mind, and set to entice buyers. Who knows whether the sellers would have accepted the list price!
So when all else fails in the real estate market, and sellers and agents can’t manipulate the buyer pool to their liking, they often do something crazy: like list the property for one dollar.
Here’s the listing history:
As you can see, the property just sold for $655,000.
So accuse me of telling you that Darth Vader is Luke Skywalker’s father before you even see the movie, but I don’t know if the actual sale price is the story here.
The story is whether or not this “strategy” is a gimmick, or whether it has merit.
The story is whether this sort of thing should be allowed, or whether it’s false advertising.
Here’s the remarks section from the MLS listing:
So yes, I would agree with you if you said that this is poorly written.
In fact, I’d agree with you if you said it was pathetically written.
“Missing This Means Missing A Lot.”
“A Real Gift For Some Lucky Buyer.”
“All Da Info On MLS Is Deemed 2 B Correct.”
That last one was written like a 14-year-old girl texted it to her besty.
Or, maybe my cynicism is running rampant.
Maybe this is a cool, chic, and different way of marketing.
Maybe it’s an attempt 2 B dif’rnt.
I think I could make an argument either way, so in the spirit of debate, let me do that.
Argument FOR:
The listing agent did nothing wrong here.
He listed the property for sale at $1.00, but with a hold-back on offers. This happens all the time in Toronto; properties are virtually listed for a dollar every day, when a $900,000 house is listed for $699,900.
It’s stupid. But it’s legal, and it happens all the time.
The agent listing at $1.00 isn’t really different, in my opinion, from that $900K house being listed for $699K. Once you’re significantly under fair market value, and the buyer pool is aware that that the list price is a “starting bid,” then what does it matter what that number really is?
And that’s the key here – that the buyer pool is aware.
If some sorry fool feels that this house is really available for $1.00, then that’s their problem.
Buyer beware. The courts have always held it.
And in a red-hot real estate market, if a naive buyer wants to cry foul because he or she didn’t do their homework, then maybe they should have hired a top agent instead of using their cousin from Niagara Falls.
When you go on Ebay and see a $4,000 purse listed for $1.00, you know that’s a starting bid. So how is real estate any different?
The listing agent said in the remarks, “No Pre Emptive Offers.”
So this isn’t a case of somebody lighting a fire and running away from it. This is what the park ranger calls a “controlled burn.”
If you don’t like the game, then don’t play. But don’t try and change the rules that everybody else are playing by.
Argument AGAINST:
It’s a gimmick.
And it’s absolutely pathetic.
This is a case of somebody who over-valued his own house, and tried multiple times to sell it, all resulting in abject failure, and who then set the professional bar as low as possible.
Any house listed for $1.00 is going to get more laughs and shakes of the head than it will get genuine piques of interest, so this agent really just shot himself in the foot.
He took down the “FOR SALE” sign and put one up that said “I’m Nuts.”
But more to the point, it’s just not fair.
It’s misleading, and it’s a classic bait-and-switch that would be illegal in other industries, but for some reason, is hunky-dory in real estate.
–
Feel free to add to either argument, if you wish.
But as much as I’d hate to admit this, I feel the first argument holds more weight. Maybe that’s why my second argument came up so short!
The whole notion of what is “fair” just doesn’t hold water.
I don’t think there was anything misleading about this.
Nobody really thought that this house was available for sale for $1.00, did they?
Maybe the same folks who bought all those CD’s for one penny each back in 1992, thinking there was no catch?
I don’t love the gimmick, and I honestly do think that it turned more people away than it helped reel in, but I truly don’t see a difference between listing at $1.00, and listing a $1.2M house for $899,900.
Under-priced is under-priced.
And if you’re going to hold an “offer night” then this concept of “fairness” ultimately prevails, since every interested buyer gets to come to the table at the same time.
Unfair would be if you offered the house to one person for $1.00, and to the next person for $655,000.
But to list for $1.00, in an auction-style, and then review any and all offers at the same time? No. Not unfair. A lot of things, but not unfair.
The Toronto Star’s Dan Takema wrote a good article about the sale HERE last week. In the article he reveals that the seller “would not take less than $700,000.”
Well, in the end, the seller looks ridiculous for causing much ado about nothing with this $1.00 listing, since he did sell for less than $700,000, and it wasn’t even close – $655,000 in the end.
To me, this just reeks of somebody that doesn’t understand the market.
People incorrectly use the term “bidding war” more than any other in real estate.
A true bidding war occurs on a house when you have no idea what the house is going to sell for, and multiple parties bid, with multiple rounds, and eventually – with somebody paying more than he or she ever thought they would.
A bidding war is not a house listed at $899,900, then $1.00, which sells for $655,000.
There’s no “war” present.
People aren’t “bidding” on this house. They’re just taking a stab at it, since the seller has demonstrated that he’s completely unpredictable.
Now the last point I will make here is that the listing contained this:
“Best Offer Wins For Sure 100% On 5/18/2016.”
What if the seller did not elect to sell the house, to the best offer, on 5/18/2016?
What if nobody wanted to play in this farce?
What if only two people came forward, and the highest offer was $500,000, and the seller didn’t take it?
Would there be ANY repercussions?
Edward Keenan is one of Toronto’s best columnists. I remember working on a real estate piece with him back when I wrote for The Grid years ago. Or maybe it was Eye Weekly? Time flies…
In any event, Mr. Keenan wrote a piece called “Toronto Real Estate Gimmickry Hits The Limit Of Our Patience,” and he calls out this practice of under-listing in a way that no Toronto journalist or columnist ever has.
He calls the practice “a fiction bordering on fraud.”
His second-last line packs the most punch:
“Asking prices are not expected prices, they aren’t minimum prices, they aren’t prices at all. They are just numbers chosen to attract attention.”
And while I don’t agree with the entirely of Mr. Keenan’s piece, I do agree that the idea of a listing price being a “number” in today’s market, and not a “price,” is spot-on.
So for buyers out there, my advice is simple: any energy you expend complaining about the way properties are sold, is energy you’re taking away from your search.
Real estate has no fixed value, and is not like a share of stock, that’s easy to price along with millions of others, all the same.
So do your homework, run your comparables, see competing properties, and figure out what you think the house is worth, and what it’s going to sell for, and ignore the list prices; whether they’re “close” to the value, or the equivalent of what a lemonade costs at McDonald’s…
jeff316
at 10:10 am
The Star understands that for their market empathy sells better than analysis. The blurb about The Bay aside, Keenan is the first major columnist to finally get this issue – he recognizes that this is an emotional problem rather than an economic one.
Marina
at 11:01 am
I’m a sample size of one, but for me, $1 pricing would elicit a lower offer.
Even if you ignore the previous listing prices, $1 to me means the seller has no rational idea of the price (s)he wants.
Generally I expect most houses to be ~10-20% under-priced with a hold-back in the hopes that multiple offers will push the price higher than that 10-20%. Sometimes it works, sometimes it sells right where I’d expect it.
But with $1, I expect a total sh*t show, and it also makes me wonder what the seller is hiding.
Kyle
at 11:27 am
At the risk of over-generalization the most delusional, unreasonable and irrational sellers in this city pretty much always tend to be one of the following: FSBO, discount brokerage client or $1 listers. I wouldn’t waste my time making an offer on any such properties.
daniel
at 11:45 am
I think a botched listing can be a great opportunity to score a deal, provided you get into the process once they’ve exhausted themselves with their own BS. I think a lot of people are turned off by the $1 gimmick which reduces the open house attendance, reduces the number of bids, and thereby reduces the price.
All that said, you’re certainly going to encounter sellers who want twice what their properties worth and end taking years to sell. On the other hand, going after appropriately priced listings in Toronto you’re likely to lose a bunch of bidding wars to desperate buyers, so i’m not sure there’s a pain free way to buy.
GinaTO
at 1:08 pm
Aaaaaahhhhh finally! I couldn’t wait for you to write about it 🙂 In the end, it all comes down to the agent from Brampton expecting a big piece of that sweet Toronto real estate money. I live in the neighbourhood, and had he priced the house at $655K to begin with, I believe it would have sold easily, because it’s about what it’s worth given the comparables in the ‘hood, and the balance between the positives and the drawbacks of the house itself. Would have saved himself time, grief and possible mortgage payments. But hey, exposure is worth something, right?!? (sarcasm)
Joe Q.
at 2:16 pm
David — The quote you provided from the Keenan article is spot-on. It correctly calls out “asking prices” for what they are — marketing tools with no other legal or commercial significance.
Beth
at 7:53 pm
Absolutely BANG on!!! Love your blog!
Pete
at 9:12 am
I’d hazard a guess that the asking prices lie is one of the key factors that make people hate real estate agents. No other segment would be allowed to have a list price of $500K and then refuse to accept that price. If the real estate boards brought in rules around pricing, they’d go a long way to restoring the integrity people think they lack.
Kyle
at 10:40 am
“…the asking prices lie is one of the key factors that make people hate real estate agents. ”
Correction, when you say “people”, you really only mean frustrated buyers. The real estate agent’s client (i.e. the seller for whom the agent is serving) probably doesn’t hate real estate agents at all.
The real problem is your definition of integrity assumes that the selling agent owes the buying public some sort of transparency into their pricing. This is pure fallacy and naivete. The true test of integrity is how the selling agent serves his client, not how he serves the buying public – full stop.
Ralph Cramdown
at 11:37 pm
You don’t think some sellers resent cutting a mid five figure commission cheque to some yokel who underprices their house by 20%, turns it into a cattle stockyard with 200 showings, and sells it six days later in a circus? It’s hard to see the value in such ‘service,’ other than access to MLS.
Keep in mind that in saner markets, a prime piece of many agents’ pitches is that they know how to price your house correctly.
Kyle
at 2:05 pm
Actually most of the people i know, who’ve paid five figure commissions (myself included), would do or have done it again.
Ralph Cramdown
at 3:47 am
So you paid a big chunk of cash to sell something that kept going up in price after you sold it, and you’ve no regrets? Unless you used the money to buy something that went up even faster, more than enough to justify the opportunity cost lost in the commission, that’s pretty strange.
Kyle
at 6:49 am
Four years ago I sold a 2.5 storey semi and bought a 3 storey detached. Which has risen by over 500k, so trust me I have no regrets whatsoever. Those who keep waiting for the crash on the other hand…
Ralph Cramdown
at 9:37 am
Unless you had an unusual Toronto 2.5 storey semi and/or an unusual Toronto 3 storey detached, I think you just proved my point.
Kyle
at 12:44 pm
How do you figure that? Sure, my semi would have continued to appreciate (my guess is probably around 250K) , but not nearly as fast as the detached has (over 500k). Staying put to “save” 45k in commissions would have costs me over 200k in tax free gains.
Ralph Cramdown
at 4:55 pm
Because TREB says that semis have increased by a greater percentage than detached in the 416 over the past four years. You spent $45k to trade into an asset with a lower rate of appreciation.
You seem to be confusing the absolute dollar amount of appreciation that you got (by making a bigger investment) with the rate. Keeping the semi and buying a second one would have been the better move. Buying the S&P 500 would have worked out even better, even after paying capital gains taxes, unless you’re in the top bracket.
Ralph Cramdown
at 5:07 pm
Correction: Given the decline of the loonie, an unhedged US stock investment would have worked out better for all taxpayers. For a currency hedged fund, my above comment applies.
Kyle
at 7:17 pm
You seem to be confused about what your point is. Your point was that people resent paying five digit commissions not that they resent buying a detached house. But also the reason for moving was I needed more space, so unless I plan to split my family among two semis, or plan on being homeless so I can buy US stocks, their performance couldn’t be more irrelevant.
Ralph Cramdown
at 7:29 pm
Sorry, my mistake. You made it sound like you had money.
Kyle
at 8:43 pm
Oh of course Ralph. Silly me, i forgot that all those with unlimited funds live in multiple semis, and rotate out of their detached house to capture short term stock market gains, lest they regret a few basis points in opportunity cost.
Joe Q.
at 1:34 pm
Actually I think that Pete has a very valid point, in that surveys typically show the real-estate agent community (as a group) scoring pretty low among the public for perceived honesty / ethics. In the same ballpark as lawyers, business execs, etc.
While the vast majority of agents do conduct themselves with honesty and integrity, perceptions are set at the margins, which is what Pete may be alluding to.
Kyle
at 1:59 pm
Actually perceptions are set from one’s own (often limited and myopic) perspective. So what if a survey shows some people (many of whom have never actually paid a real estate agent commission) don’t like real estate agents?
Interesting the comparison to Lawyers. Should Defence Lawyers throw trials to make the public happy, just so that they can improve the Law Society’s survey scores? I’m certain most people loath criminal defence Lawyers, but if those same people were defendants in a trial i’m just as certain they would want their Lawyer to be looking out for their interest, even if the public would prefer to see a guilty verdict.
jeff316
at 5:05 pm
We’ve covered on this website a number of times that other segments do refuse to accept offered-at prices. This is not unique to real estate. It’s just way closer to our hearts and lives and very juicy for the press.
I do agree, however, that low listing price practices make buyers think less of real estate agents. Of course, that’s based on their own internal biases that negotiating is negative when it is not in their self-interest. I think Kyle is right that sellers have few complaints.
Joel
at 3:59 pm
In reading this article and Keenans’ I thought that it would be interesting if the government wanted to change this practice they would put a mandatory (non-waivable) 48 hour cooling down period for anyone that signed a real estate deal for over asking price.
I think if this was put in place it would only be the most desirable places that received over asking bids. This would give an incentive to sellers to price their homes appropriately and have the chance to lose a sale if listed with a gimmick such as this.
Anyone have any thoughts on this?
Kyle
at 4:42 pm
I don’t really see why the Government needs to protect buyers from themselves. If a buyer willingly puts in an offer above asking, then why should the seller have to wait in limbo for 48 hours (during which his house is basically off the market), before finding out whether he has a firm deal or needs to start all over again? That said, if there was a minimum non-refundable deposit that the buyer would have to forfeit if he opted out, then maybe i could see some merit to this idea.
Joel
at 5:36 pm
A large portion of what the government does is to protect people from themselves. The government protects people from making large investments with a cool off period and ensures that all other industries follow advertising guidelines.
Kyle
at 6:09 pm
Most cooling off periods are for for situations where the buyer is in a situation where he is pressured (e.g. Time shares, water heaters, etc) or lacks representation (e.g. New condo sales centre). I don’t think a buyer working with an agent willfully registering a bid applies. As well what’s to stop a buyer from making an offer on five different houses over a 47 hour period and then rescinding four of the offers in the final hour?
Joel
at 7:32 pm
I have purchased a home and found it very high pressure. Especially when bids are getting sent back. I get that you don’t like the idea, but buying in today’s market is high pressure.
I think when you have to put a $50K bank draft down on each house you are offering on, that would likely be a deterrent to most in placing over asking offers on 5 houses at once.
I am not saying this is a perfect way to handle this, but it does put some onus on the listing agent and seller to decide what they want for their home. If prices were more realistically advertised a lot of the media fluff would be taken away from the industry and those who can’t afford homes would realize that much quicker and not need to put in countless offers at listing price or $10,000 over.
jeff316
at 7:49 pm
But why is the pressure you feel as a buyer more important than the pressure felt by a seller?
Is it really that bad that some people wasted their times bidding on houses they could afford? Particularly when they could have avoided the situation by getting a better agent?
jeff316
at 5:02 pm
I think our society has shown that we are willing to pay premiums to feel better about our purchases. That’s the issue in Keenan’s article – making people feel better about how much they paid/bid in comparison to other buyers – and not so much giving people an out. The solution doesn’t match the problem.
To be fair, we have cooling down periods for much smaller purchases. I think the difference is that if you opt out of a water heater sold to you at the door it’s no big deal in an economic sense. Giving everyone a 48- (why not 24?36?52?112?) hour period to opt out of such a large purchase would throw the market for a real loop. I could only see it working if sellers got a similar window to decline the agreement, even if that means they sell it to a higher bidder.
Plus, in a hot market buyers would just waive their ability to get out of the sale as a purchase condition. In a cold market, buyers would use the threat of getting out of the sale as a means to knock more money off the price.
Joel
at 5:45 pm
48 hour is standard for financial decision, thus why I said that. I don’t think that it would throw the market for a loop, but rather create more realistic pricing from the sellers and their agents.
This would only be if the offer was over listing, which I can see that we would soon have the opposite problem of everything being over listed. I don’t think it would throw the market off, but rather change how agents market properties.
That is why a put non-waivable in there.
Perhaps this idea is not practical, but it is good to open up discussion. Besides the media I don’t think anyone likes the current system.
jeff316
at 7:47 pm
I have to admit that, while I get the psychology of wanting to validate your valuation by knowing that you only beat your competitor by a small amount, I will never understand why buyers seem to think that over-pricing is ok but under pricing bad.
I’d much rather negotiate up from a seller’s floor (even a fake one) with my max as my upper limit than negotiate down from a sellers max until I reach my upper limit.
It’s a recipe for price increases. It just shows how this is about emotion and not about protecting consumers, saving money or or stalling unsustainable price growth. If this is pandemonium, just wait til every 750k house is listed at 950k.
I think it is unlikely that government would ever make such a condition non-waivable, but in the event they did it would just drive hot listings to private sales which feature even less regulation.
I have to honestly say that, while imperfect, I think the current system is pretty good. It lets sellers have options in pricing and sales strategy while putting the onus on buyers to come to their own valuation on a property that meets their needs/wants/budget, independent of other people’s valuations pressuring them into changing their internal calculus.
Our system empowers savvy, strategic buyers. And maybe the crux of the issue here is that most buyers are not savvy or strategic.
(As an aside, I’m interested in learning what decisions I have a 48 hour window for outside of high pressure situations like Kyle mentioned.)
toronto416
at 12:13 am
11 Edith Avenue was the listing agent’s own home:
https://www.thestar.com/news/gta/2016/05/17/bidding-starts-at-1-for-toronto-house.html