Well I was going to publish a blog about visitor parking spaces in downtown condos, but I was told that’s “too boring” for a Friday.
So, here is more fuel to the existing fire about under-pricing properties in Toronto and the potential fraud that exists in doing so…
The debate rages on…
This entire week, we’ve been unable to move past last Friday’s conversation about the process of under-listing properties in Toronto, creating bidding wars, and the ethics of Realtors, sellers, advisors, and everybody involved.
I’ve taken my share of heat over the issue, both by those who actually read what I have to say, and by those who just group me in with everybody else.
That’s what frustrates me the most about this is that readers and nay-sayers will draw their own conclusions based on words that they, themselves put in my mouth!
I see this all the time with the comments on my articles in The Grid. I’ll write something, and people will skim the article, then complain about ten different things I didn’t even say. On Thursday, for example, I wrote about “the condo lifestyle,” suggesting that if you’re in your “earning years,” you might benefit from a low maintenance condo rather than a high maintenance house. I named examples – trapping raccoons, fixing a leaky roof, shovelling snow, etc. But the typical Grid-reader, who is always looking to complain about something, posts back with “This guy doesn’t realize that condo roofs leak too!”
They missed my point entirely. And to write back and explain it, again, would be futile.
I see this a lot on my blog as well, but the readership is a little more refined.
Every time I stick my neck out, however, and put something in print that is controversial or provocative, I run the risk of having my words taken out of context, and/or used against me.
Case in point: I’ve been complaining about the whole “under-pricing and hold-back” game for years, but when I put this into print and describe how the game is played, I get jumped on and accused of being unethical for having the audacity to work in an industry where this exists.
One reader commented: “Are you joking? A realtor who knowingly participates in a scheme he believes is unethical is even worse than the “ones” who believe what they do is not fraud.”
Soooo……should I quit my job? Should I go wait tables at Jack Astor’s instead? Can you show me a single industry on the planet that is full of 100% ethical people governed by 100% ethical rules? Even charities and fundraising initiatives come under fire for poor accounting and questionable expenditures…
So my colleagues ask me, “Why don’t you just leave this alone and move on?”
Well, because that would be a cop-out.
My entire business model is predicated on being different from all other Realtors; I’m brutally honest to a fault, I take sides, I have likes and dislikes instead of just selling anything and everything, and I sweep nothing under the rug.
So let’s add another element to the discussion from last week.
Here are the buzz-words that have been thrown around:
-under pricing
-misleading advertising
-bidding war
-predatory lending
-fraud
Fraud is a tough one to swallow, because I don’t know what constitutes fraudulent activity in real estate.
But let’s have a look at something I’ve been keeping close tabs on for the last couple weeks, and keep in mind – this will score me points with the readers that respect my honesty and forthrightness, but cause those people who don’t even read what I say to simply attack me all over again.
A newly-registered building in the Queen West area has seen dozens of listings hit the market over the last few months, and one seller and his Realtor are trying to do something…..different.
They listed their 1-bedroom-plus-den condo for sale for $359,900 in January of 2012, and it sat on the market with no price reduction for seven weeks.
In March, they decided to change their strategy.
They listed the property for $159,900, and held-back offers.
I was very frustrated when I first saw this listing hit the market, as I knew what was going to happen in advance. I made a note of this, and decided to keep track of every development, because I knew that one day, I’d be blogging about it.
“Offer Day” came, and there were sixteen offers, as per the receptionist at the listing brokerage when I called.
Sixteen offers.
Sixteen buyers (possibly 32 if they were couples), sixteen agents, sixteen lawyers, sixteen mortgage brokers, sixteen sets of eager parents, sixteen sets of colleagues, friends, and family – all involved in this absolute farce.
Fraudulent farce? Who’s to say…
To (almost) nobody’s surprise, the listing was terminated, and the property was re-listed this week at $358,888.
So tell me: is what the seller and his listing agent did, unethical? Is it illegal? Is it a crime?
If it is any of the following, to whom and where should we direct our objections?
I ask again, as I did last week: do we complain to CREA, OREA, and TREB? To the Competition Bureau? To the police?
But the problem with this story, if you perceive it as such, is that there is actually nothing wrong and nothing illegal about these practices. There are no rules at the real estate board levels to prevent a seller from doing this. The only issue I think this raises is “Misleading Advertising,” which it clearly is.
The seller did what he had to do as per false advertising guidelines – he terminated the listing of $159,900 and re-listed at $358,888, which was likely higher than the highest offer he received.
Did he waste a lot of people’s time?
Yes he did.
But the point one of my reader’s raised last week is this: nobody was forcing these people to partake.
Surely the buyers and their agents are also to blame for this charade, no?
Do you think that I would EVER consider getting my clients involved in this mess? Not a chance.
And I’m happy to say that not one of my buyers is naive enough to tell me, “Hey David, I’m so excited – I found a condo priced at $159,900! I think this could be the one!”
So who do we blame for this debacle?
It’s so easy to blame the seller and his agent. They’re the one that set this process in motion!
But personally, I’m fed up with inexperienced, naive Realtors who either don’t have the knowledge necessary to spot a disaster when it’s right in front of them, or don’t have the guts to stand up to their clients and say, “Do you really want to get involved with a sixteen-offer melee over a condo that is $200,000 under-priced?”
So many Realtors are afraid of upsetting their clients or losing them by actually being honest, and doing their job!
What value does a Realtor have if he or she can’t advise their clients not to do something that’s to their detriment?
Because you know – you just KNOW that somebody offered $250,000 on this condo! And you know a whole slew of people offered around $300,000, when all along, we know the seller wanted $350,000 or more. Why did these people get involved, and why didn’t their agents advise them against doing so?
Any Realtor who suggested that his or her client submit a bid on this property has not earned his or her licence. Oh, wait, I forgot – there are no qualifications to get a real estate licence. Just a beating pulse, and a few thousand dollars.
So am I adding fuel to this fire?
Or am I just providing a contrarian viewpoint and trying to get through to the real-estate-haters out there that fail to realize a market is made up of sellers AND buyers, and is overseen by an elected government?
Blog reader jeff316 said it best:
Is someone forcing private lending institutions to lend to borrowers?
Is someone forcing borrowers to lend this money?
Is someone forcing borrowers that lend this money to spend all they can get their hands on?
Is someone forcing people to bid above asking on properties?
The answer to all of these is no. We are the voters who elect government that set policy. We are the consumers whose habits, preferences and consumption trends drive market demand. We are the borrowers that borrow money. We are the sellers and the buyers that make the bids and close the transactions. We are to blame.
Buyers and sellers, in any market, are ultimately responsible for setting pricing.
In a truly free market, prices are wholly dependant on supply and demand, and the interaction of buyers and sellers.
Sure, sellers are to blame for under-pricing, misleading advertising, and sparking bidding wars.
But buyers are just as equally responsible for getting involved.
So for all the real-estate-haters that post on my blog, or other blogs, just consider the other side of this equation for only a moment. Everybody wants one person to blame for the lack of available housing in our city, whether they own a house, or not.
But there isn’t one person to blame, nor is there one industry, ie. Realtors.
The sad truth is that everybody is to blame.
And I will simply not be convinced otherwise…
Addendum: I’d love to move on from this topic next week! I have other ideas and other topics, but we keep coming back here over and over and over. There are 50+ comments on last Friday’s rant and I’m sure it’ll keep going, but I think I’m done on this topic. You all know how I feel.
Ralph Cramdown
at 9:10 am
I think there’s some key points here. Hot market, condo, sixteen offers. Many condos in this city are as close to fungible as real estate ever gets. Buyers are indifferent whether they get one a floor further up for a few thousand more or one further down for a few thou less; it’s all the same to them. There’s lots of sales to use for comps, so any reasonably competent agent should be able to come up with a market price for most units.
This seller wants, apparently, to sell — but not for market price. She’s hoping to find that one special idiot out there who hired his sister in law the agent from Brampton, er, Markham, for advice. Someone who’s willing to overpay because there’s eights in the price.
I can understand someone who’s got a unique property being willing to sell, at a price. Entertaining offers, as it were. But at the point where you get sixteen offers on a bog-standard condo and turn them all down…
What self-respecting agent WOULDN’T say “Look, I did as instructed and got you sixteen offers. If you don’t accept one of them, I’m firing you as a client. You’ll maybe only do four deals in your life, and you can afford to look like an idiot, but as a professional whose name will be on this listing for all time, I can’t. So decide.” Right, precious few agents would say that.
Maybe all the buyers’ agents should get together and sue the listing agent for $1,000 each for wasting their time through misrepresentation, on the above theory that people who won’t sell in such conditions don’t really have their units for sale.
You can help, David, by publishing the name of the agent once the listing is off the market.
Phil
at 11:17 am
The law itself is flawed.
There is nothing wrong about holding offers. However, the seller should bear some risk by doing so. The law should require the seller to sell the property to the highest bidder if he decides to hold offers, much like what we do on Ebay. In this way, I am sure most sellers and agents will be less keen on playing this game and wasting everyone’s time.
Joe Q.
at 3:50 pm
I agree with some of this in principle (although the details of implementation would be messy — closing dates, conditions, etc.)
David is correct that buyers and sellers ultimately set pricing, but it is really the ability to offer properties for sale at a certain price, then refuse offers at that price or even far above, that distorts the market and turns it into a “game”.
Pen
at 7:43 pm
Phil, requiring the home seller to sell to the highest bidder is not viable in a society such as ours. Aside from the obvious issues with other terms and conditions as I noted in David’s blog of last week, the law cannot fairly discriminate between sellers of homes and those who would sell their used cars or even their garage sale junk. Nor can it possibly prescribe that in a buyer’s market or even if there is only one bidder in a seller’s market, that the seller has to settle for $2 if that is the maximum offer. Setting a reserve won’t work either as it would be set high unless of course you would subscribe to mandating the calculation of that number as well.
If at all your solution was considered, the legal system would also have to hold the buyers to the fire and not allow them to renegotiate a lower priced based on conditions of any sort and to ensure that if for any reason they fail to close, they would automatically have to cough up the purchase price. The latter would require far more odious measures than any half sane person not living in a communist country would want when it comes to real estate sales agreements.
Unfortunately buyers tend to see only their side of the equation until they sit in the seller’s seat that is. Would you when it comes time to sell that home which you purchased for $2 as highest bidder embrace your philosophy?
Time is only wasted by those who pursue a property which they ought to know is not within their financial grasp.
jeff316
at 6:49 pm
Well said. The concept of forcing someone to sell is not workable.
Plus, this idea that in ‘true’ or online auctions the final price is always honoured is false. It is easy to get out of the sale on eBay if the highest bid] doesn’t meet your (the seller’s) expectations. And it is not uncommon for items sold at auction to not meet reserves or conditions and end up not selling for the final bid, depending on the auction model and the materials in question.
I understand why it gets people worked up but sometimes I’m still surprised at how much energy is misdirected toward the multiple bid issue.
Joe Q.
at 10:59 am
You’ve introduced a massive strawman by suggesting that Phil would force buyers to accept bids below their asking price. Do you honestly think that was what he meant?
jeff316
at 11:37 am
If you force buyers to accept bids at or above their asking price, you end up flipping the situation from purposeful under-pricing to purposeful over-pricing.
Joe Q.
at 3:51 pm
Yes, but it gets rid of the attention-seeking and self-congratulatory behaviour (not to mention the market frenzy) that is associated with deliberately listing properties far below fair market value.
jeff316
at 9:34 am
So we’re going to legislate transactions, restrict choice, tell sellers what they msut accept and force them to sell (which is different than every other item sold in the market), replacing the current problem with another problem that has just as many negative implications, all to get rid of market frenzy and “attention-seeking and self-congratulatory behaviour?”
Think about the negative implications of over-pricing and mandatory sale provisions. If we think it’s a shitshow now, just wait til everyone starts listing at well-above ‘fair market value’ and someone tried to get out of a forced sale of their property.
The first question to ask when assessing a public policy issue is “what is the problem”. Under-pricing is not the problem. The problem is high demand and lack of supply. Under-pricing is a byproduct.
Kyle
at 4:47 pm
There is absolutely no need for these so called “solutions” that people are proposing, because there isn’t actually anything broken about under-pricing or multiple offers. The only problem, is when buyers who have lost out aren’t able to re-calibrate their expectations with the reality of the market. If you’re constantly getting beat by 5% or more, than you’re probably shopping in the wrong snack bracket. And if you don’t adjust your expectations, then you really only have yourself to blame for wasting your own time and putting yourself through emotional stress. Of course there are crazy sellers that play games, but the market almost always makes them pay dearly, for not accepting the highest bid on offer night.
Pen
at 11:36 pm
Okay, let’s run with your strawman of a strawman argument Joe Q.
Phil didn’t mean to insinuate that a seller should accept the highest bid which in my scenario happens to be the only bid and for an amount of $2.
So, where highball Phil objects to sellers not accepting the highest bid above asking price, you’re either suggesting that there are no lowball Phils who, conversely, being the highest bidder with an amount well below asking, wouldn’t object to being sent packing and then cry foul? Or are you suggesting that lowball Phil ought not be given the same legal credibility as highball Phil?
What exactly would your recommended change to the law be in order to enact a balanced judgment which ensures that any buyer with the highest offer is not discriminated against?
Joe Q.
at 11:14 am
An alternative would be to a set a limit on how often the same property could be listed on MLS (barring certain situations where financing falls through, etc.)
Joe Q.
at 4:00 pm
David wrote: “In a truly free market, prices are wholly dependant on supply and demand, and the interaction of buyers and sellers.”
While this is true, I’m not sure that we actually operate in a truly free market — quite simply because the vast majority of people borrow money to buy their homes, and the terms under which they’re able to get that money are ultimately set by the government. This sometimes leads to distortions.
As an example, “Canadian Mortgage Trends” reported in March that some lenders offer better rates to buyers with smaller down-payments, due to the relative ease of insuring and re-packaging these mortgages. So relatively higher-risk borrowers end up getting a better deal than lower-risk borrowers. A distortion if I’ve ever seen one.
Joe Q.
at 11:18 am
David, here are two recent bits of news that are probably worthy of a blog post themselves.
(1) The “famous” bungalow on Dudley Ave. in Willowdale (which sold for $1.2M to an overseas “student”) is now up for rent on MLS for $2,500/mo.
(2) A Scotiabank report recently quoted an estimate that about 25% of downtown condos in the biggest Canadian cities are unoccupied. I was surprised at how large that figure is.
Big City Beer Budget
at 9:25 am
Here’s a listing you might enjoy from Ottawa!
MLS 828115
Listing: $299,900.
Description: “NOTE:The Seller will CONSIDER offers of $320,000 or higher before the no presentation deadline.”
Would be interesting to see how many bidders they’ve turned off who would have submitted an offer for $315,000 and potentially driven the price up for others offering.