It’s a shame that I have to follow up Wednesday’s touching story with a completely opposite experience on Thursday.
But we’re in a market where sellers continuously think they know best, often to their own demise…
I knew this was going to happen.
I just knew it!
In fact, I told my colleagues this was going to happen on Wednesday afternoon, and I even went as far as to tell my own clients that this was going to happen!
As my colleague put it, “Sometimes, you just don’t want to be right.”
What is “it?”
What happened?
Well, it’s a common affliction that is affecting many of today’s sellers in Toronto; not the smart ones, mind you, who know you get one chance to make a first impression, who know you get top dollar the first time you list, and who know that above all, you just can’t fool the market.
Let me start from the beginning…
A house came onto the market in the west end last week, and my clients, Chad and Stephanie, fell in love with it.
When we first met, they said that they were leaning towards buying a house, but were also interested in condos, and I told them, “If you can afford a freehold home in Toronto, then buy one, and don’t look back.”
They’re in that really difficult $500,000 – $600,000 price point, which unfortunately has become “entry level” in the central core, but we found a house that was fully-renovated (a “gut,” if you will), on a very small lot but with enough room to grow, priced at $499,900.
We knew it wasn’t going to sell for $499,900, of course, but even at, say, $550,000, it was still well within Chad & Stephanie’s budget.
The house next door had sold for $600,000 even last year, and it too had been listed at $499,900.
My colleague had listed that house, so I had intimate knowledge of the process, but I also leaned on him for advice, as he said the house he sold was slightly better.
That didn’t seem to matter to the listing agent and the seller of the house Chad & Stephanie were looking at. They actually put in the listing “See house next door for comparable sale,” and the listing agent was telling everybody at the open house, as soon as they walked inside, “The house next door sold for $600,000 last year.”
I told Chad & Stephanie that I expected 3-4 offers, and that the house would sell for around $550,000.
They did their due diligence – a pre-home inspection, and a mortgage pre-approval, and we were ready to buy a house on “offer night.”
We registered our offer at 9am on the day of offers, and by 7pm, there were four in total.
We met at Starbucks, and signed an offer for $555,088.
The price, in my mind, was good for both parties.
I knew that the sellers were looking for more than $600,000, since the house next door sold for that price last year, but I also knew that even if this house wasn’t as good as the one next door, the precedent has been met, and Chad & Stephanie were getting a fantastic house, at a decent price.
Of course, I was very skeptical of how this offer process would play out, and I told Chad & Stephanie as much.
I just had, to put it bluntly, a “feeling.”
All day at my office, where my colleagues and I discussed our evening plans (one colleague was offering on a semi-detached house in Davisville Village that ended up having 9 offers; another was offering on a townhouse at $1.3 Million that had 3 offers), I kept saying, “I know what’s going to happen, I just know it.”
I couldn’t shake this feeling.
My gut doesn’t lie, and I just knew that the following was going to transpire:
1) There would be 3-4 offers
2) We would offer around $550K and be the highest offer
3) The sellers were going to feel hard-done-by, and reject them all
I just knew it.
I just freaking knew it!
I told my buyers when we were at Starbucks, “There are three options a seller has when receiving an offer: they can accept it, reject it, or sign it back.” I further explained, “In this case, with four offers being submitted, they can accept the highest, sign one back, or in a rare case – reject them all.”
But I had this feeling, and so I had to be honest with my buyers. So I told them, “Guys, I think there’s an outside shot that the sellers might reject all four offers here, since we know they want $600,000 or more for the house. Just be ready for that situation, if it were to arise. It’s exceptionally rare, but sometimes, the seller knows best.”
I presented my offer at 7:00pm, and then proceeded to hide in the bushes and watch the other agents come and go, as I always do…
At 7:30pm, the listing agent called me and gave me the usual racket, “Your offer is fantastic, great closing date, thanks for bringing a certified deposit cheque, but you know, it all comes down to the price! I think if you came up a little bit, you know what? You’d probably get the house.”
I was sitting in my car, listening to the Jays lose yet another game, and I candidly replied, “I appreciate your heads-up, but my clients are very happy with their $555,088 offer, and if somebody wants to pay more for it, we’ll still sleep well tonight. I’m ready and willing to bring that cheque back to the house if you want to move forward with our offer.”
He was a super-nice guy, and he was only doing his job, so I really don’t fault him at all when he asked, “How did your buyers come up with their price, from a strategic perspective? I mean, the comparable sales in the area…”
I cut him off. Not rudely, but I just sort of interjected.
“Right, right, the comparable sales,” I said, “I know what you mean. The house next door? The one that sold for $600,000 last year? It’s interesting that you bring that up, because my colleague at Bosley Real Estate had the listing, and he told me today that there were five offers on the property, and four were under $550,000, and one was from a guy who’s pregnant, nagging, hormonal wife told him ‘Don’t come home without that house tonight,’ so he blew everybody out of the water with his $600,000 offer.”
How can you possibly respond to that?
“I’m not sure if your clients saw that house, but with all due respect – and I do love your clients’ house, the one next door was a much better product. Maybe $50K better, maybe $20K better, but we’re not comparing apples to apples.”
He was a really nice guy, and I think his sellers had him over a barrel here. I could tell he didn’t want to hang up, but I didn’t give him a choice. “I’m here when you need me,” I said.
A half hour later, I got the call that I knew was coming.
I knew it!
I just freaking knew it!
“David,” he said, with some frustration in his voice, “My sellers have decided not to work with any of the four offers. They’re just not happy with them, and they think they deserve more for their house.”
Deserve
Need
Want
Hope
These are some of the worst words in real estate, and I would imagine these sellers were saying them over and over again.
“I’m so confused,” I feigned. “What’s the strategy from here?”
“Well, I think we’re going to take a break,” he said. “We’ll take a step back, take a breather, and really just consider our options.”
I finally broke the routine and gave this young guy a suggestion:
“Have your clients look at 123 Smith Street, 12 Main Street, and 789 ABC Street,” I said. (clearly I can’t give out the real addresses on this blog).
“These are two classic examples of sellers who list their properties, hold back offers, get offers, and then decide that they were hard-done-by, and re-list higher. All three of these properties are running jokes in the real estate industry, and all three owners could have sold on offer night for fair market value, but chose not to.”
I don’t think the listing agent wanted to go down this road, but he probably didn’t have a choice.
There’s so much risk involved with under-pricing your home, expecting to get multiple offers, AND expecting to get 125% of the asking price. Boom or bust.
The sellers for this home simply assumed that they could stick a sign on the lawn, under-price, and collect a jackpot on “offer night” as has been done so many times before. They’ll likely re-list over $600K, spend 5-6 weeks on the market before an eventual price reduction, and, if they think they truly know best, maybe try it at $499,000 with a hold-back on offers again in July, or September, or whenever.
Yeah, the seller knows best.
“Knowing is half the battle.”
If they say it in a 1980’s kid’s cartoon, then it must be true…
Marina
at 9:35 am
I think part of the problem is that real estate is so timing sensitive. I sitll remember your story a few years back about your clients that nabbed a Leaside bungalow for 100K under market, mostly because of weather.
So I think sellers sometimes feel like they might have missed the timing (legitimate or not).
In my case, when we bought our house, I was pretty certain that if our seller had waited another 2 months, she could have gotten an extra 50K, but it worked out for us. And she sold her house when she wanted.
Maybe the real question is, are sellers selling just to “test the market” or do they really want to sell? Sounds like the sellers in your story just wanted to cash out, and will likely screw themselves over because of it.
AsianSensation
at 10:07 am
It’s good you shut down the 600K faux-valuation with inside knowledge of the previous deal.
One agent showed me high valuations of condos in a neighboring building prior to me submitting a lower offer.
It wasn’t an apples to apples comparison by any means so why use that as a benchmark?
Stay outta my bushes!
George
at 10:27 am
I would wait for it to be re-listed and then offer $555,087 out of spite. Either that or I would just egg it a couple of times on Halloween.
Paully
at 5:33 pm
No, they should offer $50,000 less the next time. They might not get the deal, but they’ll get a nice warm feeling!
George
at 9:23 am
Well I’m assuming they still want to buy the house.
Vlad
at 10:57 am
David, please keep us posted when this place goes back up.
johnny chase
at 5:37 pm
At the end of the day, maybe they don’t want to sell if they can’t get a certain price.
Dave, If I told you that I wanted $600K for this house or I won’t sell, what would your strategy be? List at $499 or at $600? Or would you say it would never happen and not take the listing?
I think your making assumption about the movitation of the sellers. You might be right in thinking they NEED to sell, but what if they don’t?
jeff316
at 7:12 pm
Agreed. The that assumption of need is one that buyers and their agents too often make. It’s only worth what buyers will pay for it when that value is the same as what seller’s are willing to take.
I think stories like this provide a cool insider’s view of the real estate market in Toronto. That’s why this blog is so interesting day-in, day-out. But this article is very one-sided.
The “need/deserve” goes both ways. Expecting to sell it for 600 000$ no more ridiculous than expecting to sell for 558 000$ when it’s pretty clear to all involved what the sellers are looking for and why. If they want to wait it out for the next stressed, hormonal, desperate expecting husband, all the power to them.
The risk goes both ways too. Sure, the sellers might end up getting 530 000$ or something lower when they re-list at a later date. But there’s also risk for the buyer, that they end up spending $600 000 or $558 000 on something they’re not as hot on.
In the end, it is an example of two failures – the seller’s agent for not persuading their client to have realistic pricing expectations and the buyer’s agent for not persuading the seller’s agent of the accuracy of his value or their inability to get the price they want later on. In the end, neither client got the result they wanted.
That’s not meant to be a dig at all to anyone involved, just an observation of an integral part of the real estate process.
Geoff
at 2:06 pm
I think the main point is that ‘needs’ and ‘wants’ need to be firmly matched with reality. It’s not my problem as a buyer if the seller ‘needs’ $100K to break even on his vastly over-improved house. This works the same way as when I watch those property shows where people say they want a centrally located, 4 bedroom detached house for $340,000. I want a lot of things. Reality is, the price is the price.
David Fleming
at 7:57 pm
@ Johnny Chase
It’s a very valid question.
I think the onus is on the listing agent to educate the seller. If I walked into a house and I knew, based on my experience and knowledge, and my ‘gut,’ that this house would never see a sniff of $600K, I would tell them that, emphatically. If they said, “We NEED $600K,” I would tell them that I’m very sorry, but it would never happen.
From there, agents take one of two roads.
The first road is what most agents do: take the listing no matter what, at any price.
The second road would involve a bit of risk, on the part of the agent, that the seller balks and lists the property with somebody else, but it’s the road I would take. I would tell the sellers, “You won’t get $600K for this property. But I’ll list it at $599,000 for you, if you sign a post-dated price reduction right now, for 28 days into the future, to bring the price down to $564,900.” It might sound like a jerk move to you, but I’d be doing the seller a serious disservice if I said, “No problem – list with me, and we’ll get $600K.” I’d also be wasting my time if I took this listing if the seller said, “I will NEVER sell for less than $600K.”
I want to work with people that value my experience, advice, and hard work. And if somebody wants to list a house for 110% of fair market value and sit, wait, and hope it sells – more power to them.