Famous last words, right?
Fool me once, shame on you. Fool me twice, and, well, you know how the saying goes.
I’m going to tell you about two very similar situations, in which a seller tried a different “strategy” that was so transparent it’s pathetic, but where in the end, the fools lined up to partake.
I pity the fool that pays more for something today, than he or she could have paid two days ago. If you think it can’t happen in this real estate market, think again…
Did you know that Mr. T, born “Laurence Tureaud,” worked as a bodyguard for almost ten years?
During the 1970’s Mr. T protected Muhammad Ali, Steve McQueen, Michael Jackson, and a host of other A-list celebrities, before finally getting spotted by Sylvester Stallone in a strongman competition, and getting his big break for Rocky III.
Is there a bigger line that came out of the 1980’s than “I pity da foo?”
Don’t be confused: “Dy-no-mite” from Good Times, and “da plane, da plane, boss” from Fantasy Island were both in the late 1970’s…
“I pity da foo” had a good run, and even a comeback in 2006 with a reality TV show called, as you might have assumed, “I Pity The Fool.”
It lasted six episodes before being cancelled…
In my business, I pity a lot of fools. And there’s good reason for it.
“A fool and his money are soon parted,” goes one saying.
I’ve always pitied the folks lining up in pre-construction sale centres to be the very first to buy a condo they’re going to lose money on. That’s been going on for quite some time, and now I’m starting to see my prophecies displayed out in the open, as I’ve had clients buy 1-year-old condos where the seller takes a $30-$40K net loss. I have a colleague with a $449,000 listing, for which the seller is in for $508,000, plus closing/disposition costs.
But that’s a topic for another day…
Today, I wanted to talk about fools who just get completely and utterly taken.
Think about this: you walk in to Baskin Robbins (or whatever ritzy gelato place uses soy milk…), and you get one scoop of Rocky Road, on a sugar cone, and eat it with glee.
You then find out that this scoop of ice cream had fallen on the floor, and they put it back on the cone, and you ate it.
Would you feel like a fool?
Would you feel taken advantage of – like somebody put one over on you?
In today’s real estate market, where information is readily available at your finger-tips, and where every buyer has the tools at their disposal to be savvy and informed, I’m seeing buyers (via their agents), make foolish purchase decisions that make no sense.
Specifically: paying more for a condo today, than you could have yesterday.
It’s the oldest trick in the book, and I never thought it would work: if your listing isn’t selling, then under-price it, and hold-back offers to try and get multiples.
Can that REALLY work today?
Oh yes, it can.
My clients and I went to see a condo last weekend that was listed at $449,900, and we liked it a lot. It was in an older building, and the unit needed some work, but despite the higher maintenance fees, and the lurking renovation cost, the price made sense.
There was one catch, however! The property was previously listed for $499,900, and didn’t sell. It was on the market for almost two months, with no price reduction, and it didn’t sell.
So let’s look at a $499,900 condo that isn’t selling, just for a moment. What is that condo actually “worth?” I have to think that after 30 days, you’re looking at a reduction to at least $489,900, and possibly lower. After 60 days, you’re looking at $469,900, and as low as $449,900.
So when my clients and I went into the unit and saw it at $449,900, we figured it was fairly priced, and that if it were available at that price, we’d consider it.
BUT WAIT!
The new-new price of $449,900 was simply the bait. The listing agents were holding-back offers, and hoping for multiple offers.
“That would never happen,” I told my clients, but as soon as those words left my mouth, I began to question whether it was possible.
“A sucker is born every day,” said P.T. Barnum. And in today’s real estate market, despite all the information out there, the suckers and the fools seem to partner up, and get taken.
On the night of offers, I told my clients that we should buy the unit if we had the only offer, and that we shouldn’t bother submitting an offer if there are multiples.
It’s true that I only get paid when I sell properties, and I don’t get paid to talk my clients out of buying, but that’s what I do, and that’s how I look after my clients.
By 6pm, there were no offers registered, so I told my clients we should make a move. We put together an offer of $449,900, conditional on a review of the Status Certificate (you can’t have a condition on a house in multiple offers and be successful, but you can in an older condo where the seller and listing agent should be expecting it), and we hoped for the best!
As luck would have it, two other buyers came to the table, and the game was over for us.
I told the listing agent, “Just throw our offer in the trash, and best of luck tonight.”
I guess she didn’t believe me, because she emailed me an hour later to say, “We’re sending all the offers back, and giving you a chance to improve.”
What a complete joke.
Don’t get me wrong – the listing agent was doing her job, and a fantastic job at that! She’s working for her seller, and taking advantage of the other two agents and buyers, who are clearly fools.
But I wrote back and said, “We’re out, and we were never really in,” and my clients and I picked up our search the next day.
As for the other two buyers? Well, the sale price hasn’t been published yet, so this is just speculation, but I have to think that with THREE offers, the eventual “winner” paid high $400’s for this condo.
And THAT is absolutely foolish.
The buyer is a fool, and the buyer agent is a sucker, because they could have had this property a month ago for close to $450,000 and instead, they likely paid a good sum more than that.
I say “likely” and “probably,” and you guys are reading this thinking, “Yeah, well, you’re just speculating.”
That’s true, but I have a second story that really hammers home how foolish some buyers can be…
A condo listed in my neck of the woods was on the market for 38 days at $439,000, and it sat, and sat, and sat.
It was a great unit, but nobody was biting.
I took clients through there and told them, “It’s been on the market for a month now, and I have to think the sellers would be negotiable. There’s no leverage on their side, and the market is CLEARLY telling them it’s not worth what they’re asking.”
We didn’t have a lot of interest in the place anyways, but that’s besides the point.
Sure enough, that same unit came onto the market last week for $399,900, with the good ‘ole “hold-back” on offers, and I laughed out loud.
What a joke!
How foolish do you think people are?
This unit sat and ROTTED on the market for five weeks, unsold, and now they’re doing the old bait-and-switch? They’re hoping that by pricing it low, and attractively, that buyers would be duped into lining up and getting into a bidding war for the condo?
I was convinced that nobody would fall for this.
Nobody was going to pay over, say, $425,000 for this condo, just because it was listed low, when they could have had it at that price when it was listed high.
I was going to call the listing agent and ask him, “How much does your client really want for this place?” Or more specifically, “Would your client sell for $399,900 if he or she only got one offer?” But I figured, why bother?
I honestly forgot about this unit for a few days, until I was looking at other units in the building and saw it missing from MLS.
I figured that they had just terminated the listing, but alas, I was wrong.
So work with me here, folks – tell me what you think this unit sold for.
Listed at $439,900, it sat on the market, unsold, for five weeks.
Listed at $399,900, it sold.
Any guesses?
If you took the time to guess, I’d say you were low.
$460,000.
That’s right – somebody paid $20,000 more than the unit was previously listed for, and likely $40,000 more than they could have purchased it for, because, well, they’re complete FOOLS.
Whichever buyer agent led his or her client down this path should be tarred and feathered.
How do you explain this to your clients when they find out (and they will find out…) that the unit was listed for $439,900 only a week earlier, and you somehow were convinced to pay $460,000 for it?
Fools.
Suckers.
Morons.
This drives me insane.
I don’t know what bothers me more: that somebody paid $40K more than they should have for this property, or that the listing agent’s strategy worked!
And let’s not compare this to the market for single-family homes, where multiple offers are simply expected. Those are one-shot-deals, where the property sells that night.
With these two condo situations, we’re essentially talking about a $2 hot dog sitting on a vendor’s cart, overnight, that nobody would buy after the Jays game, only to see somebody pay $3 for it the next day.
Did the buyer of this $460,000 condo not ask to see the history of the property?
Can you imagine the buyer agent saying, “Oh, ummmm…..geez……it looks like it was up for sale for $439,900 for five weeks, and never sold.”
Shouldn’t the only two words out of the buyer’s mouth be “you’re” and “fired”?
Folks, a sucker is born every day.
And a fool and his money are soon parted.
It’s just such a shame when in this age of readily available information, we see people doing such foolish, foolish things….
–
Have a great long weekend, everybody! 🙂
Wow!
at 8:52 am
Long time lurker, first time poster.
If the $439k unit is the one I’m thinking about, I am completely and utterly shocked!
Kudos to the listing agent for getting this price for the seller.
Potato
at 10:22 am
As an outsider, it’s hard to see the difference between a listing that gets a bidding frenzy and sells way above comparables and one that gets a bidding frenzy and sells way above comparables after having been previously listed in a way that did not create a multiple offer situation. In both cases you can make the case that there was a valuation failure by the buyers and the buyers’ agent; and in both cases the buyers’ agent can say something like “hey, I don’t work in tomorrow’s market or yesterday’s market, I work in today’s market. And today, there’s competition for this place so we’ve got to pay up to put my clients in their dream home and not lose out.”
Amelia Haynes
at 10:38 am
Well said Potato.
Amelia Haynes
at 10:37 am
How do you know the buyer reps in your examples didn’t discuss the history of the property with their buyers? Buyers disregard good advice all the time. And maybe, just maybe, the buyer who got the property was happy that they got it and okay with the price too.
Libertarian
at 11:32 am
This is what happens when you have 40,000 real estate agents in the GTA. Homeowners who are selling are just waiting for that one idiot to come along and pay an inflated price. Now, most agents are like David and would keep their buyer clients far away from that listing. But I’m sure that there are one or two agents desperate for a paycheque who would be willing to put their clients through a bidding war. As Potato wrote above, their excuse would be that these things happen in today’s market.
My question is: does the buyer have any recourse against their agent?
Appraiser
at 12:34 pm
@Libertarian: I’m having difficulty deciphering your analysis. Tell me, would such events occur if there were only 35,000 Realtors? How about 20,000? What’s the magic number that will rid us of such desperation?
Recourse for what exactly? Recourse for putting one’s signature on a contract that the bad, desperate Realtor made me sign?
Joe Q.
at 2:50 pm
Perhaps it is not the absolute number of Realtors, but the per capita number of Realtors. David has previously outlined that a very large fraction of of licenced Realtors in the GTA do only a couple of deals each year. Toronto also seems to have a large number of Realtors per capita compared to other big Canadian cities.
Amelia Haynes
at 4:36 pm
Nice … 🙂
Libertarian
at 5:25 pm
David wrote that the agents who recommended that their clients purchase these condos at those prices should be fired. I simply agree with him.
People are told to hire real estate agents because they are true professionals who understand all the ins and outs of the market and can provided the best advice to a client. Please explain to me how the agents in the examples cited by David did that? Is it the client’s fault that they didn’t research the history of the unit? Isn’t that the agent’s job? If it’s not, why would anyone work with an agent?
People have been fighting CREA and MLS now for a while to break up their monopolies. If real estate agents can act this atrociously, we should break up the monopolies.
Happy Thanksgiving everyone!
Appraiser
at 6:13 pm
@ Libertarian:
Sadly, your argument only gets weaker. Your original thesis (which you are now dancing around), was that there are simply too many agents.
Now you’ve decided to toss in a red-herring about a supposed monopoly (huh?) that “people” (nameless, of course) have been fighting against, which somehow encourages “atrocious behaviour”.
So what exactly is your point? Is it the bad apples in the business, some mythical bad-ass monopoly controlled by the nefarious real estate industry, or merely an over abundance of agents that we should be concerned about?
Please enlighten us.
Mike
at 12:40 am
I think they point was very clear, you just chose to focus on the wrong part of the comment. The problem is that when you have 40,000 people chasing the same carrot you’re going to have people who don’t always act in the best interest of their clients. No, it’s not a function of the actual number but in the fact that there probably more licensed agents in the area then there are probably transactions in a given year. Meaning that the licencing process is too easy.
If you increased minimum level to become licensed then you would most certainly decrease the number of agents. The agents that would be licensed would be of a higher quality and you would be less likely to see the problem described in the post.
jeff316
at 3:06 pm
Whether you have 400, 4000 or 40 000 people chasing the carrot you will always have people who act unethically or do a poor job.
The idea of reducing the pool of real estate agents through improved licensing standards will not necessarily improve the experience of clients and may not improve the quality of agents.
Real estate is about the intangibles – knowledge, analysis, strategy and ethics – things you can’t regulate or license.
Joe Q.
at 9:31 am
Agreed that you can’t regulate or license strategy or analysis. Knowledge can be tested for, though, and ethics can be policed — if the processes (and the will to engage them) are there.
jeff316
at 10:55 am
I was going after knowledge of the market, which you can’t test for, but I agree you can educate and certify for knowledge of the law, procedure, best practices.
jeff316
at 10:23 am
Plus, many of the ethical complaints are of the he said she said stuff that can’t be policed. The line between a real estate agent “pressuring” a client to accept an offer versus reliably informing the client the a presented offer is the best they’ll ever get is unpoliceable.
I’m not against improved licensing but it really won’t result in any substantial changes other than potentially reducing pressure to reduce commissions.
Cliff
at 12:28 pm
I would love to run into one of these buyers when I put my unit on the market. Believe me..I need all the help I can get.
Steve
at 3:50 pm
Buyers need to do their homework … ha!
jimbo
at 8:23 pm
Well Mr bush couldn’t figure out the ending….. CREA needs to provide a viewpoint.ca type servic .
Paully
at 7:23 am
Stories like this really support our need for better information sites like Zillow, where you can easily find all of the various listing and sale prices without the risk of some of the key information being filtered or missed by an unethical or incompetent agent.
Amelia Haynes
at 9:34 am
The hoops you have to jump through to become an MD are extensive, but we still see a lot of bad doctors.
The consumer of real estate services has to take responsibility for the agent they choose to represent them. The pubic feels vulnerable to shitty agents because they dismiss the job as “non work” and don’t have a clue what Realtors actually do. They think they know it all (as is a human quality) yet they have a very limited understanding of how the market works.
I am pessimistic that any regulation or deregulation of the industry is going to protect the public from their own poor choices.
jeff316
at 3:07 pm
I think the issue here is less about quality of the profession and more about the restrictions in a BRA. You don’t want a BRA that is so restrictive that clients get stuck with terrible realtor estate agents, but you also don’t want one that’s so loosey-goosey that real estate agents get fleeced by clients. It’s a tough situation.
jeff316
at 3:10 pm
“I am pessimistic that any regulation or deregulation of the industry is going to protect the public from their own poor choices.”
This!
Appraiser
at 1:33 pm
Reading some of the posts here reminds of this quote:
“There is always an easy solution to every problem – neat, plausible, and wrong.”
– H. L. Mencken
Kyle
at 7:29 pm
I’ve had nothing but good experiences with the 8 different Realtors I’ve transacted with over my lifetime and everyone I know who’s actually transacted, speak very highly of their Realtors. This suggests to me that the Realtor critics I often hear slagging the profession are either very bad at choosing Realtors or more likely have never actually worked with one and therefore don’t have any real basis for their criticisms.
Joe Q.
at 9:37 am
An alternative explanation is that while they chose their Realtor(s) well, they ended up interacting with other Realtors (acting for the other party in a transaction or attempted transaction) that left negative impressions.
Kyle
at 11:03 am
I think that explains David’s situation. I know he is a Realtor, cooperates with Realtors every day and has used the services of other Realtors. I’m not calling his credibility in question. He often commends Realtors that he comes across as often as he condemns, but he does so based on REAL experience. What i am wondering is just how much REAL experience those that i often hear making negative comments about the profession have behind their views. I often read comments (often written in a very authoritative way to boot) about how there are too many Realtors, the licensing is too easy, RECO is too lenient, Realtors are lazy, greedy, self-serving, unprofessional, etc, which quite frankly doesn’t jive at all with what i know most people’s experiences to be. So i’m just curious to know, how much of this negative view is based in fact and how much is based in conjecture and recycled second and third hand anecdotes pulled out of one’s bum?
Joe Q.
at 11:23 am
Kyle, I think in this case it’s probably just a question of competing anecdotes or conjectures. No-one is really arguing based on “fact”, though some people clearly have better anecdotes, or more of them. The possible exceptions being cases where quantitative data is provided (sales patterns) or comprehensive records are available (legal issues).
HRHRFord
at 10:27 pm
Kudos to David for stepping back from the situation. Gee, David, you actually care about your client! You know what we call agents who get clients to buy everything in sight without regard to the actual value of the asset? Chairman’s Council Member. I don’t see a Gold Badge beside your name. Maybe you should think about that. Gold Badge..do right by client…Gold Badge…do right by client… I’m kidding.
Seriously, the buyer agent is going to get a big fat commission cheque and a pat on the back from their sales manager, and they’re going to go out and do the same thing again tomorrow.
Shades of Alec Baldwin/Mitch&Murray….
rupeshino
at 3:08 am
great idea