I’ve written posts like this one before many times.
Every time that I do, a detractor or two will conclude that the post was written out of spite or jealousy, not giving me enough credit, after all these years, to simply tell it like it is.
In the past, these stories are usually from the other side of the table: the would-be seller.
How many times have I told you about a seller who had illusions of grandeur, absurd expectations, or both?
As I said, there’s always a comment reading, “You’re pissed because you didn’t get the listing,” perhaps ignoring the fact that I turned down the business, or a comment saying, “You just want an easy sale because you’re a salesman,” which might be fair, if the story were about somebody else.
In this case, the story is about a would-be buyer, a couple, in fact. Two young dreamers who are caught up in a real estate market complex beyond comprehension. Two people that I tried to help, unsuccessfully, as you might assume from this story.
This story is a cautionary tale for would-be buyers out there, whether because they are slow to adapt, slow to accept, choose to hear what they want to hear, or only see what they want to see. As you can imagine, this behaviour is rampant in our city, and has been for some time.
Last week, a friend of mine connected me on email to a young couple who I’ll call Patrick and Britney. The friend said a few kind words about myself and my experience, and the old, “I’ll leave it to you guys to connect.”
I set up a call with Patrick and Britney for the next day.
They seemed like every other buyer couple out there: stuck working from home, excited to start their real estate search, and eager to chat.
They told me, “We’re going to speak to a few real estate agents today, and we want to make a quick decision on who to work with because there’s a property we want to see immediately!”
I told them that was fine, and that it’s not uncommon for buyers or sellers to want to speak to multiple agents. I always tell people, “You shouldn’t just talk to me, talk to somebody else too,” even if they are intent on only speaking to me. What’s the downside for them, really? If they find somebody they like better, more power to them. If they hate everybody they speak to, then they’ll be that much more comfortable working with me.
I told Patrick and Britney that while our mutual friend knows me well, Patrick and Britney do not. So I explained that there’s more to me than experience or the kind words our mutual friend bestowed upon me. I wanted them to know that from as a working real estate philosophy, I’m brutally honest, I don’t bullshit buyers or sellers, and often buyers and sellers aren’t ready for that.
Then I asked the obvious follow-up question: “What’s the property you want to see?”
They told me, and I knew the property as I had already seen it. Listed at $849,900, it was an absolute stunner! The price-floor had to be $1,100,000 here, and there could be $1.2M upside, who knows.
I then asked them, “What’s your budget?”
They said, “Ideally, $800,000, but we could go up to $900,000 for the right property.”
I said, “Sorry guys, but you can’t afford this property. It’s listed at $849,900 but it’s super under-priced. This is a $1.1M house all day long, and while it could go to $1.2M, or maybe in a crazy turn of events, it only sells for $1.050M, but you guys are way, way out of it here.”
There was dead silence on the other end of the line.
I’ve been in this situation many times before, so I gave them an honest line I’ve also used quite often: “I’m sorry to be the man who tells the kid there’s no Santa Claus.”
No laugh. None.
I said, “Why don’t we talk a little bit about your wants and needs, shall we?”
The conversation started with the hammer – that they couldn’t afford their dream home, but I usually prefer to start speaking to a new buyer about the market in general, then discuss their budget, then their wants/needs, then locations, and finally ask about the compromises they’d be willing to make.
“Real estate is all about trade-offs,” I always tell new buyers. “If you don’t have an unlimited budget, at some point, you’re going to have to weigh one feature of a home against another, and decide which to forego.”
It’s a good method for determining where you want to be, and in what type of property you ought to be looking for.
The real estate equation, as I have written before, is a throwback to high school math when we learned that A + B = C. In real estate, use property, location, and price as the A, B, and C, and understand that if two variables are known to you, then the third is pre-determined.
If you want a 3-bed, 2-bath, semi-detached house in Leaside, price is determined for you. In this case, $1,400,000.
If you want a 3-bed, 2-bath, semi-detached house, anywhere, but for $900,000, then location is determined for you. In this case, I’d be looking both east and west of the central core, since you’ll be hard-pressed to find options centrally.
In the last case, if you want to spend $2,000,000 on a 4-bed, 4-bath house, I can tell you where you’ll find those options.
I always explain this to new buyers, as I did with Patrick and Britney on the phone.
Then, I went into the trade-offs.
First and foremost, detached or semi-detached? Few people in their $800-$900K price range will demand a detached, so this is the easiest compromise to make, and they were more than willing.
2-bed, 3-bed, or 4-bed? They didn’t need a 4-bedroom, but 2-bedrooms was a no-go.
Parking? Can you do without it? Street parking? A private driveway is the Holy Grail, and a 2-car garage off the back laneway is common but costly. Front pad parking? Mutal driveway leading to backyard parking? Patrick and Britney said that parking was an “absolute must-have.”
How many bathrooms?
Does the basement have to be finished?
Can you do with a small backyard?
Any predisposition to certain lot widths or depths?
Real estate is all about compromises and trade-offs, and I felt we had a productive conversation. In the end, they said they wanted a 3-bed, 3-bath, with parking, a finished basement, a backyard, and something that didn’t need any work.
Well, for $800,000, that would be impossible anywhere in the central core.
You all know this, right? You, the readers? Whether you read every single day, or whether you’re relatively new to real estate, you are probably tuned-in enough to know, right?
I’m acutely aware of just how difficult it is to come into the Toronto market, with zero knowledge, and adapt on the fly.
Rarely do I speak with would-be buyers for the first time and see them demonstrate the knowledge and understanding of the market that is necessary to transact in Toronto, but it’s my job to provide them with exactly that.
As our conversation went on, Patrick and Britney came back to that house they had mentioned initially – the one listed at $849,900. I explained that a 3-bed, 4-bath, fully-renovated, with 2-car parking, and a self-contained basement unit renting for $1,500/month, wasn’t an $800,000 – $900,000 proposition. They said that made them sad, and that they had hoped to go see it immediately.
I further explained, that price aside, they didn’t have a mortgage pre-approval yet and that a house like this would end up with 8-10 offers and their offer would have to be unconditional to be considered even if they could afford it.
I described some areas of the city where they could get a 3-bed, 3-bath with parking and a green backyard for $800,000, and introduced them to the concept of a condo townhouse, but they said that didn’t really interest them.
The conversation was obviously getting more difficult, and I felt that they were simply seeing what they wanted to see. They saw their glorious future in a dream home but conveniently looked away from the associated cost.
I asked them if they had any questions for me, and Britney said, “What would you say is the most difficult task for a new buyer?”
Great question, and I answered, “Acceptance.”
I explained that most buyers come into the process with misconceptions about the market, whether it’s pricing, how properties sell, the process, etc. Acceptance of pricing, process, and market realities, is really, really tough.
Britney asked me to expand on that, and I further explained that there’s so much noise out there. From your parents, your colleagues, or other agents you speak to. There’s so much misinformation, and ultimately you need to tune out all the noise to be successful.
“For example,” I expained, “You mentioned you’re going to speak to multiple agents. Somewhere out there is an agent who will hear you say that you want to see that $849,900 house and simply respond, ‘great, let’s go!’ But this is dangerous. This would mean the agent either has no experience and can’t price a home, or as is often the case, just wants to get you out there working with he or she, and get you signed up.”
Britney asked me to elaborate on this point, so I said, “Well, you picked a $1.1 – $1.2M house, and I told you that you can’t afford it, and encouraged you to move on. I risk alienating you by doing so, and perhaps you won’t want to work with me as a result. But at least I know I’m doing right by you, and that’s what’s important to me. The next agent might simply take you to see the home, tell you that you can afford it, have you make a conditional offer for $870,000 on offer night, only to lose to a $1,200,000 bid. In the end, he or she is simply trying to get you to work together, have you sign a Buyer Representation Agreement, and become a client.”
This was a lot of information to process, so there wasn’t much on the other end of the line. I recognize that not everybody can go from zero to one-hundred in an instant, but honesty has always been my policy, and I like explaining the ins and outs of the industry at the onset so that buyers and sellers know what to look for.
In this case, I knew these two green buyers would undoubtedly run into an agent, or two, who would waste their time, get them excited about properties they can’t afford, all as a means to an end. Agents do this all the time. You would be shocked. Or maybe you wouldn’t be…
“I just need them to get beat up,” agents say, as it pertains to letting their clients make stupid offers, only to be embarrassed, and look for comfort in the arms of that agent. Some agents call this “breaking in the buyers.”
I don’t share that philosophy.
I believe in honesty, education, and a learning process.
I spent a good twenty-five minutes on the phone with Britney and Patrick, and I felt we had covered a lot of ground. At the end of the call, Britney asked Patrick if he had anything to ask, and he said, “No, I’m good. I guess I’m just sitting here working on my acceptance.”
I wasn’t sure if that was a shot at me, or if that was a joke, or what. But I didn’t think it was to be taken at face value, however. And thus I wasn’t surprised with the end result…
That night, I sent Britney and Patrick a few emails with sales of properties in areas that they could get into in their price range. This is always a helpful way to start – look at what has sold, in order to know what to be on the lookout for as you move forward! I sent them some 3-bed, 3-bath condo townhouses in a few different areas, as well as some properties up in the Rockcliffe-Smythe area, and it’s not uncommon to find some value under $900,000 deep in the east end, but again, what they were looking for would be really, really tough to find!
The next morning, Britney responded to my email and said, “Thanks for these properties, but we’re going to work with another agent.”
As expected, of course. I knew all along that these guys were just seeing what they wanted to see, and that they would ultimately listen to a person who told them what they wanted to hear.
Our mutual friend called me that afternoon and said, “Hey, great job with Britney and Patrick!”
I thought he was being facetious, but he added, “I hear you guys checked out a place this morning and are making an offer?”
I laughed.
“Not me, pal,” I told him.
“But they said they just saw a place and were making an offer, I assumed it was with you,” he replied.
He then gave me the address of the house, which, as you guessed it, was the one listed for $849,900…
“Sorry man, I am not ‘the chosen one,'” I told my friend.
“But they were so excited,” he said. “I just talked to them, they said they were making an offer for $850,000 and it was right in their wheelhouse…”
“Probably conditional, too,” I told him. “Offers are next week anyway.”
My friend sounded as dumbfounded as Britney and Patrick were during our phone call.
“So who took them this morning?” he asked.
I told him that I wasn’t sure.
Then I told him the ironic part was, I had basically said to Patrick and Britney, “If you want an agent who will waste your time, tell you you can afford this place, and get you excited only to disappoint you in the end, there are lots of those agents out there, go find one…”
…and they DID!
They were only seeing what they wanted to see, and nobody was going to set their sights in another direction. I tried, but it was to no avail.
In the end, I genuinely feel bad for buyers like this. Whether they make an offer on this property and get blown out, or not, the fact is: they found an agent who had no problem telling them what they wanted to hear, and I know those agents. They’re out for themselves. They know the game: find a naive buyer, string them along, let them suffer, break them in, sell them, pocket a commission. It makes me sick.
I’ve seen this, time and time again.
And I’ve been on the other side of the table, as a listing agent, seeing a buyer-agent present an offer for the list price, with two conditions, up against a dozen other offers, only to have that agent tell me, “I just need these buyers to get beat up a bit, soften them, break them in, ya know?”
Oh, I know.
But when buyers come to me at the start of their search, I tell them that those buyers exist out there, as do the agents, and caution them about becoming one.
As the story above goes, not all of them listen.
Some buyers just can’t help themselves from seeing only that which they want to see…
Appraiser
at 7:55 am
“Jiminy Cricket! Sales for the first half of January are way up on last year – almost double for condos. And remember last year started out hot. Last 3 Jans (1st – 15th):
416 Condos: 350, 429, 822
416 Freeholds: 172, 183, 316”
https://twitter.com/areacode416?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Eauthor
Jenn
at 8:21 am
David what are your thoughts on buyers who work with a family member who is real estate agent but in like Niagara Falls? Or who work with the family friend? One of my friends is doing this right now and they’ve been looking since the fall. They’ve made like a dozen offers or something and they always come up empty.
David Fleming
at 11:38 am
@ Jenn
Well, your question was somewhat leading, but I would agree with your theme.
I get a lot of what I call “second-hand” clients who worked with agents previously, many of whom were working with that proverbial family friend, or family member from Barrie et al. There are obviously some amazing agents out there who, of course, have families! So yes, working with a family member can be tremendously beneficial. But the story of “I was working with my friend’s mother from Hamilton” never work out. At least not from what I can see, because I inherit a lot of these folks.
Appraiser
at 9:20 am
Hands up all of those who did NOT have their HELOC pulled by the bank last year as predicted by the noted (if not world-renowned) empty theorist – Ben Rabidoux.
Here’s a sort-of apology from Ben: Note that the mea culpa comes right at the start of the podcast. Just to get it out of the way ‘ya know.
Plus, Rabidoux is now predicting an all-time record spring for the real estate market.
Oh no.
https://www.youtube.com/watch?v=b-JYXZZ7eDQ&feature=youtu.be
Jimbo
at 9:45 am
Imagine having the qualities where you’re able to tell the truth and admit fault. Tough one for people to understand, but needed in our society
Sean
at 1:02 pm
Hey David, thank you for your all your commentary on the RE market. Today’s article was well written and succinct.
Chris
at 9:53 am
Hands up all of those who got caught in the stock market bull-trap last year as predicted by appraiser.
Your hard-on for hating Rabidoux is distracting you from the fact that most of what he’s saying is reasonable and logical. Stimulus outstripped lost income and supported asset valuations. There continues to be significant damage to the labour market and our economy.
And it won’t at all be surprising if Canadian real estate prints record YoY appreciation figures come Spring, particularly as the denominator in that equation will be March/April 2020 when prices were down.
Similarly, if the stock market doesn’t move at all between now and late March, here’s what the YoY appreciation will be, since it’ll be compared against the lows of the market during the first wave of COVID:
S&P500: +68.42%
NASDAQ: +91.13%
DJI: +66.69%
TSX: +59.93%
David Fleming
at 11:38 am
@ Appraiser
Is it time for another TRB interview with Ben?
Appraiser
at 12:38 pm
Why not?
I’ve been trying to teach Ben and his disciples the ropes now for over a decade.
Looks like he / they are finally catching on.
But sure invite him on. Still love to hear him prattle.
For starters, why not ask him about the time he used to pass himself off as a professor in a “small Ontario university”…but I digress.
David Fleming
at 3:12 pm
@ Appraiser
Ben says he’s game to do another video interview for TRB, but only if you join us!
What do you think?
Professional Shanker
at 3:54 pm
I would watch that….ratings would spike!
Thomas
at 4:46 pm
Things are heating up!! Please do it!
J G
at 6:33 pm
Why not both Appariser and Chris? Then both bulls and bears will watch it!
Appraiser
at 6:58 pm
Thank you for the gracious invitation.
However, to be frank, the first thought that came to mind was the Woody Allen line in Annie Hall.
“I would never want to belong to any club that would have someone like me for a member”
For now the “asshole” wishes to remain anonymous.
Ben Rabidoux
at 7:25 pm
You’re not anonymous, Appraiser (aka RM). I’m just choosing not to dox you in spite of the false, malicious, and defamatory comments you’ve made lately. Get on the call and let’s discuss. Or reach out to me personally and let’s figure how to be a little more civil to each other going forward.
Chris
at 9:10 pm
Well, now I really want to see the two of them duke it out on the call!
David Fleming
at 9:21 am
Wow! This took a turn…
From Ben’s last comment, it sounds like you guys – Appraiser and Ben, know each other offline. You guys are both allies; Appraiser here on TRB as the #1 or #1a commenter, and Ben as a friend and colleague. Perhaps we can call a truce here on TRB?
ChT
at 10:49 am
@David Fleming Smooth move…
Condodweller
at 12:26 pm
See, this is why I love reality TV, or real life. You just can’t make this stuff up.
Ben Rabidoux
at 2:31 pm
Happy to call a truce just as soon as RM gets on a call, apologizes for the false and defamatory remarks he’s made here, and discusses his views in a civil, rational manner. If he chooses to continue his cowardly behaviour of making false statements while hiding behind a pseudonym, I’ll dox and consider other remedies. I have thick skin. Criticize all you want, but don’t make false statements and attack me on that basis. Enough is enough, RM.
Sirgruper
at 9:41 am
Makes sense everything you say but how do they know you are truth and the others are noise? For you it’s easy but for someone outside the field it’s tough. Think of the person with a terrible medical diagnosis and finding the one specialist who says, no I have a solution for you. Tough to say no. You are 100% right but to truly save them you also could have, after your heart to heart talk, offered to show them the property and place their offer and had a great “I told you moment” and from then on, they would know you were the truth. I probably wouldn’t do this either as you are busy and you know it’s a waste of time but it might be an interesting experiment for the next time; and there will be a next time.
Did you post yet your article on buying a small assembly? Thought you mentioned it. Love to know your thoughts of how to buy without blowing the bank and the deal.
Daniel
at 9:53 am
You wrote a story last fall from the seller’s side. “Take Your Medicine” from September.
Can you tell us what happened to that seller? Broad-reaching implications here.
David Fleming
at 11:39 am
@ Daniel
The property was listed for $699,900, reduced to $659,900, but hasn’t sold. It’s been up for 3 1/2 months now.
What are the “implications” of that?
UW
at 9:53 am
Good read. I’m really curious to know who much the property ended up selling for.
Marty
at 11:17 am
Best line:
“They said that made them sad…”
Professional Shanker
at 12:22 pm
In the end, I genuinely feel bad for buyers like this.
I would not if I were you – ability to grasp reality should be a prerequisite for everyone. They got the agent they deserved.
The best advise for FTBs right now would be to sit the next month or couple months out while monitoring sales and let the market stabilize and for some supply to come onto the market.
Appraiser
at 12:50 pm
Waiting for supply in this market for the next month or two will be like Waiting for Godot.
The supply that is coming on board is being absorbed rapidly and will continue for several months.
Just like Rabidoux said.
Professional Shanker
at 3:48 pm
In that case it would be prudent to just take a step back until market equilibrium of demand/supply comes back.
If someone wanted a detached (move up, etc.), they had 2018, 2019 and 2020 to buy with ample supply, no point of jamming in a purchase in a bidding wat in early 2021.
Appraiser what’s the strategy to sell one of your SFH rentals – price it low and holdback offers, no time like the current to get a king’s ransom! Good luck
J G
at 2:27 pm
https://www.680news.com/video/2021/01/14/toronto-sees-record-population-decline/
Toronto population decline, ooops
Also, 416 condo rent still dropping.
Chris
at 3:13 pm
Probably related to this:
“Toronto’s rental vacancy rate hit 50-year high in Q4
Toronto’s rental apartment vacancy rate climbed to a 50-year high of 5.7 per cent in the fourth quarter of 2020, according to the latest data from real estate company Urbanation.”
https://www.bnnbloomberg.ca/toronto-s-rental-vacancy-rate-hit-50-year-high-in-q4-1.1550210
Whaaa?
at 11:17 pm
Why “ooops”???
EastYorker
at 3:02 pm
Curious what the result is or will be ?
Joel
at 3:59 pm
Please update us with the sales price on offer night.
Condodweller
at 12:30 pm
This reminds me of Warren Buffet’s comment about explaining the value of buying good companies at beaten down prices and how some people just don’t get it. Those who do, will understand after about a 20 minute explanation, and those who don’t, will never do.
AK
at 1:16 pm
“Acceptance”. True true true!
I had a lot of trouble with this. The way we transact real estate in this city is absurd – lots of amusing commentary and even a video about this on this very blog!
But in the end, if you want to buy here, acceptance is key. Play the game.
I eventually got there – took me a while though, and cost me some money too (by taking a while). I feel sorry for this couple. But they’ll get there eventually too. Maybe after wasting time / getting blown out on this house.
J G
at 1:23 pm
Exactly, after once or twice they’ll learn. They are just rookies.
Angie M.
at 1:50 pm
It’s stories like this that always makes we wonder what the state of real estate would look like if it were conducted as open auctions instead of the mystique-ladened “offer night”. For example, if this house gets 10 offers and they are all prices within the range of 850k – 950k, is that house still worth the 1.1mil? Does it only get to 1.1mil because of some realtor’s finessing by going back to the top two bids and playing them blindly against one another while withholding information? Doesn’t market value include what the buyer is willing to pay as well as what the seller is asking? Could it be possible that opening up the process could even bring higher prices as well as lower?