The Other Side Of The Table

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8 minute read

June 24, 2020

“The market is dead.”

“Were in a pandemic.”

“CMHC is forecasting a 9-18% drop in home prices.”

“The major banks all agree that prices are going to drop.”

“Maybe the seller really needs to sell.”

“The owners have been there since 1982, the house doesn’t owe them anything.”

“It’s Father’s Day; maybe the buyers are all busy?”

The list of potential reasons why a house might not sell for as much as it would have, could have, or more specifically – you wanted it to, runs deep.  But as I continue to explain to some wishful buyers out there, none of these self-created excuses for the market are relevant.

I understand the logic, to some extent.

For starters, we are coming out of a worldwide pandemic.  We watched our city shut down as we all quarantined and self-isolated.  It’s very possible that, given all that we’ve been through, the real estate market could provide for some financial opportunities.

Then consider that the government and major banks are forecasting declines in real estate prices, and I can see why buyers are optimistic.

But if we look at the first point – specifically the idea that a pandemic could negatively affect the real estate market, we need merely look at what’s going on in the market to realize, in mere seconds, that this simply isn’t the case.

So while I don’t fault buyers for thinking we’re in a weak market because they’re reading as much in the newspapers, I do think that wishful buyers, who are informed, diligent, and active, lack a legitimate reason for their, maybes.

We can maybe ourselves crazy.  It just doesn’t change what’s going to happen in the market.  Maybe leads to fantasy.

I’ve had a lot of maybes as of late.  Maybe the buyer pool will sit this one out?  Not likely.  And nine offers later, that maybe was beyond fantasy.

Maybe our offer of the list price gets us sent back, and we can negotiate from there?  Nope.  That’s now how it works.

This is a very tricky market, and we’re a little more than two months removed from a time when properties were discounted, and when some buyers out there did get a deal.

The action for single-family freehold last week and into this week has been downright furious, and on Tuesday morning, two properties were the talk of the real estate industry.

45 Armstrong Avenue received twenty-eight offers.

383 Sunnyside Avenue received twenty-five offers.

And those are merely two that I know of, since I showed them both, and was included on the email updates from BrokerBay.  I’m certain there were other listings throughout the city that received multiple offers well into the double-digits, teens, and beyond.

As you know, archaic TREB rules prohibit me from disclosing the sold prices of these two homes, so you can merely search one of the websites that TREB hasn’t sued out of existence, and see the prices for yourselves.

What many buyers would want to know in this situation is simply, what did those offers look like?

Let’s say you had a listing at $899,900 that sold for $1,375,000, amid 26 offers.

What’s the breakdown of those offers?

Not just the price, but the terms and conditions?

How are they reviewed?  What is the process like?

This is where buyers are completely in the dark, and I feel as though this leads many buyers to create their own ideas, in their minds, of how the process would, could, or should work.

A client of mine the other day suggested that he wanted to make an offer, in competition, well below list and then “start negotiating.”  Through no fault of his own, he was not aware of how the process works.  I explained that if there were six or eight offers on the property, the seller would accept the top offer, or perhaps send back the top two.  A buyer, in a seller’s market, can’t make a call on how the process should or could work.  In this case, the buyer can’t simply say that he wants to “start low” and then “negotiate” with the seller.

We had a recent listing that “only” attracted seven offers, albeit in a much higher price point.  As I reviewed the offers with the sellers, I couldn’t help but think this very review, and this very conversation we were having would be an excellent seminar for buyers in what goes on behind the scenes on an offer night.

Of course, these seminars aren’t taught anywhere.  Much of the process of selling real estate is done in a cloak-and-dagger manner, as one of my clients recently put it.

So how about I walk you through those seven offers?  Surely the buyers among you will learn a thing or two?

I reviewed the offers in order of price and term, not intentionally attempting to dramatize the process and add mystique and suspense for the sellers, but rather because I think it makes the most sense.

The listing was $1,798,000, and the sellers were out of the house for good, and flexible on closing.

Our first offer was for the $1,800,000 list price, with a $90,000 deposit (bank draft with the offer).

The agent who submitted the offer added the note “this is their first time offering on a house,” and he told me as much when we chatted.  I think he felt a bit sheepish submitting the offer, and as an agent who has been in the business for quite some time, who has a great name and reputation, perhaps he wanted to get out ahead of it.

Offers were at 7:00pm, his offer was submitted around 6:30pm, and so I made sure to call him around 7:20pm, as soon as we had collected the offers, to let him “go” for the night.  There’s nothing worse than being kept for hours and hours on end, when you know there’s no chance.

In every multiple offer process, there’s always an offer or two like this one.

Our second offer was for $1,801,000 with a $90,000 deposit (no cheque) and a five-day condition on financing.

This agent told me mid-day, “I’m bringing you an offer, but it’s not going to be competitive,” and he was correct in terms of both price and the condition.

There is a zero-percent chance that a conditional offer is going to be accepted amid seven offers, on offer night, unless the price is astronomically high.  Every seller has his or her own risk threshold here. ie. would you take the highest offer on your home for $1,375,000 with a five-day condition, or would you take the second-highest at $1,360,000 that’s unconditional?  I’d take the latter, and I think 99% of people would agree.

Our third offer was for $1,862,000 with a deposit of $180,000 (bank draft with the offer).  The agent was a really nice guy who kept in touch all week, built rapport, and was a pleasure to work with.  His clients didn’t have the cash, unfortunately.  But other than having a few too many clauses in the schedule (during multiple offers, you really want to keep your offer as clean as possible to help your cause), the offer was clean, the price was reasonable, given the comparables, and the agent did his job.

The fourth offer was for $1,880,000 with a $100,000 deposit (bank draft with the offer), and a ten-business-day condition on financing.

The agent added in her email something about her client’s “starting bid.”

Here’s where you run the risk of making a massive mistake.

In our offer instructions, we had told agents to bring their best offer as there was no guarantee of a “second round,” and it was the seller’s intention to accept the highest offer.  Those were their words, and we were conveying this to agents.

And yet this buyer decided that he wanted to provide a “starting bid,” probably for fear of over-bidding, which, of course, he didn’t do.  Not even close.

I called the agent immediately, with no reason not to, and told her, “Your offer has zero chance of being accepted with that ten-day condition on financing.”

She told me “not to worry” and that the buyer had a pre-approval, was on solid financial footing, and could possibly even pay cash.  This was utterly bizarre, and I asked why the hell he needed the condition.  She said, “He doesn’t need it, he just wants it.  He wants to feel safe.”

This is where a buyer really needs an agent who can tell them what’s up.

I would tell my buyer, until I’m blue in the face, that they’re wasting their time with this offer.  I would do so without any fear of angering the client, and losing their business, because it’s in the client’s best interest for me to be truthful and helpful.  Agents who let their clients make mistakes like this are doing them a terrible disservice.

I asked the agent if she would mind if I gave her some unsolicited advice, and she agreed.

“Your client is never going to buy a home in Toronto, amid seven offers, with a condition.  A ten-day condition, nonetheless.  He will never be successful, I’m just telling you this to try to help!”

She explained again that he “really wanted to feel safe,” so I gave up.

And as a listing agent, this raises an even bigger red flag for me.  The buyer who wants a condition that he doesn’t need, “to be safe,” is one I think might simply change his mind during his ridiculous ten business day conditional period.  I would never work with an offer like this.

Our fifth offer was for $1,900,000 with a $200,000 deposit (bank draft with the offer).  Great offer, but no dice.

Our sixth offer was for $1,950,018 with a $100,000 deposit (bank draft with the offer), and a letter from the buyer that reduced the sellers to tears.  Literally.

This made it really, really tough on them.  It was a family home, and many memories would remain in that home forever.  The idea of selling the home to the “right buyer” applied in this case, whereas it rarely does in our market.

Our sixth offer was for $1,995,000 with a $150,000 deposit (bank draft with the offer), and yet another personal letter from the buyer, this one hand-written!  By now, the sellers were in tears, perhaps not only because of the price for which they were about to sell their home, or because of the two letters, but because they really, truly cared about the fact that one of these two nice buyers wasn’t going to get the house.

They obviously signed the $1,995,000 offer, but kept copies of both the personal letters.

In the end, we had seven offers, five unconditional, and six with bank drafts attached.  Two were “throw-aways,” three were in the “muddled-middle,” and two were “contenders.”

This is how the sale process looks from the “other side of the table.”

Many of you, reading this, have been there and done that.  Many of you, reading this, have done it with myself!

But many of you have recently found yourselves on the other side, as buyers.  Perhaps one or two of you was in on a 25-offer melee recently, wondering how in the hell the process looks from the sell-side.

If you’ve got twenty-five offers on a property, 5-6 of them are throw-aways, right off the bat.  Maybe more.  You’d be shocked at the idea of a buyer offering the list price, amid twenty-something competing offers, for a property that sells 40% over list, but it happens.

If you’ve got twenty-five offers on a property, 7-8 of them are above throw-away level, but still less than should ever be offered for this property, based on comparable sales.  You wonder why these folks bothered, but perhaps understand that not all buyer agents know what they’re doing, and maybe, just maybe, the “under-listing” strategy is to blame.

If you’ve got twenty-five offers on a property, 5-6 of them are in the “muddled middle,” which in this case isn’t really a middle, since there are always so many offers weighing you down at the bottom.

And last but not least, if you’ve got twenty-five offers on a property, 4-5 of them are “contenders.”  Often, there is one that is way out ahead, and in its own category.  But more often than not, you’ve got four or five buyers that know what the property is worth, and then want it bad enough to offer a little more.

That is how the sale process looks from “the other side of the table.”

To the buyers out there: use this for good and not evil.  I encourage you to learn from this so that you can move foreward, rather than let this frustrate you so that you take a step back.

It’s the end of June and the freehold market is absolutley on fire.  I expect this to continue into a summer that will basically serve as a “make-up-date” for the weeks that we lost in March/April…

Written By David Fleming

David Fleming is the author of Toronto Realty Blog, founded in 2007. He combined his passion for writing and real estate to create a space for honest information and two-way communication in a complex and dynamic market. David is a licensed Broker and the Broker of Record for Bosley – Toronto Realty Group

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39 Comments

  1. Thomas

    at 6:46 am

    A buyer should make an offer that he is comfortable with financially or otherwise. Period

    1. Michael

      at 10:10 am

      @ Thomas

      Should a buyer make an offer of $1,000,000 on a $1,200,000 listing that has 9 offers and is going to sell for $1,500,000, if that’s what he is comfortable with?

      1. Thomas

        at 10:16 am

        The first thing we need is to make the whole process transparent. That will allow every buyer to make informed decisions on how much they offer instead of speculating. At the moment, there is a lot of mysticism around the whole process. It doesn have to be like this! It is also important to understand that every buyer has a different perspective\need. I think that buyers are not looking enough at the data they have at hand. The prices for similar houses sold in the area is not very hard to find now. And if somebody wants it so much so that they are prepared to pay way over prevailing market rates, let them have it!

      2. Thomas

        at 10:27 am

        My grouse is that the process in its is designed to feed FOMO

      3. Thomas

        at 2:38 pm

        And of course, a transparent process is good for both buyers and sellers

  2. Appraiser

    at 7:21 am

    “Well the @CMHC_ca doom and gloom outlook didn’t last long. Apparently GTA home prices are expected to “rebound sooner, starting in late 2020″ – rebound from what I don’t know. Prices are at pre-COVID levels and up nearly 15% over last year.” ~John Pasalis

    Illustrating clearly for all to see the difference between empty theories and reality.

    1. J G

      at 8:17 am

      Not 416 condo, Feb 727k, June 677k.

  3. Appraiser

    at 7:36 am

    “If interim data from home-price tracker HouseSigma is indicative, there’s a chance median GTA home prices could hit a record in June. Who would’ve thought that when the &#!+ hit the fan in March? CMHC expects “resale sales and prices to rebound in 2022,” but admits it can’t accurately forecast with so many unknowns. Its deputy economist says we might need to “wait another six months or more to see definitive trends.” It’ll take even longer to know if CMHC’s now-infamous prediction of a 9% to 18% home price slide is on the mark.”

    https://twitter.com/RateSpy?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Eauthor

    1. J G

      at 7:57 am

      Freeholds doing well, condo investors who bought recently are getting creamed.

      1. Clifford

        at 8:20 am

        Condo investors who bought recently and have to sell. People forget that last part. If you bought recently you’re not looking to sell. Ride the wave until prices rebound. Also house prices are way up but if you don’t have to sell it means nothing.

        The investors who bought recently with the intentions of selling are flippers and flippers get creamed all the time in a hot or poor market.

      2. J G

        at 8:50 am

        “Need to sell” is a loose term. If you’re negative $200/month cash flow, do you need to sell? What about negative $300/month cash flow?

        Regardless they are in a tough spot. “Ride it out” – easy to say, emotional toll of a losing investment is difficult for most people to handle. The situation in the condo market could go on for a while.

        1. Clifford

          at 2:47 pm

          Are you saying that all of a sudden investors cash flow instantly decreases because rents have decreased? News to me. My rents are the exact same and my cahsflow remains unchanged. It’s not like the renant suddenly reduces the rent they’re paying. There is a lease. You need a better example than -200 cashflow on a temporary setback in the market. Demand is currently on hold until we return back to some sort of normalcy which is likely next year. Our friend Trudeau has already committed to hyper immigration. Demand is going to go right back up.

          1. Chris

            at 3:14 pm

            “Our friend Trudeau has already committed to hyper immigration.”

            While Immigration Minister Marco Mendicino did state that they continue to be guided by the 2020 immigration levels plan, Deputy Immigration Minister Catrina Tapley said it was doubtful this target would be met. Remains to be seen what the plan is for 2021, as Mendicino said an update would be provided in the Fall.

            CIBC’s take on the topic:

            “The government probably won’t try to make up those losses by increasing immigration targets after restrictions are lifted, but the flow should return. Others entering on student visas tend to cluster around the September fall term, so missing the September 2020 start of classes
            could provide a more lasting hit to population growth well into next year.

            We’ve shown before that population growth has represented virtually all of the increases in household spending since the beginning of 2019. As a result, with immigration being held back and the unemployment
            rate looking set to remain elevated throughout the next year, both housing markets and consumer spending, the former stalwarts of Canadian GDP growth, will still be limping in 2021.”

            https://economics.cibccm.com/economicsweb/cds?ID=11215&TYPE=EC_PDF

        2. J G

          at 4:35 pm

          I said recent investors, so many for rent listings for condos.

          My guess is you probably have a couple of condos yourself, of course it’s in your interest to make people think it’s a good investment right now, lol Appraiser 2.0

          1. Clifford

            at 6:31 pm

            I don’t gain anything from making the post I made. No one here is going to be convinced….so lets stop that nonsense now. David is a realtor, are you saying he’s incapable of being objective because he’s in the business? Then why do you even post here? Since we’re making assumptions, can I assume that you’re a priced out renter and have a vested interest in lower rents and lower real estate prices? If I wanted to have a childish discussion I could go to the many youtube comment sections of bulls vs bears and post there.

            “condo investors who bought recently are getting creamed”. How recently are we talking? Investors who bought 6 months ago likely already have leases. Investors who bought 3 months ago bought during the worst possible time so they already calculated the lower rents into their budgets. Are you talking resale or precon?

            A temporary drop of $200 will cream a flipper, not someone who is buying for long term. Rents will go back up once things get back to normal. Will they be as insane as previously? That will take time but people will be travelling again and students will be going back to school. If an investor is getting “creamed” by a $200 decrease in rent for 6 months to a year (provided we use your example that every investor’s rental income drops instantly by $200) then I’d say that is a minuscule number. Think about the example you used.

            I’m bearish on real estate so your accusation of me being this real estate bull was low quality at best.

          2. J G

            at 9:15 pm

            Dude, I don’t know why you’re writing a novel. My argument is simple, rent is down (due to covid and wfh), which is bad for investors. 416 condo is already pricey so it’s gonna get hit.

            Of course everyone has their own agenda, a lot of people here are bulls who work in the industry. Based on your previous posts, you definitely seem like a bull.

            And no I’m not a renter being priced out. I’m a stock bull who like to rebuttal RE perma bulls trying to convince young people RE is the best/only investment strategy.

  4. Verbal Kint

    at 1:23 pm

    Because every seller wants to hear you drone on about the uncompetitive, no-hopers before they find out the numbers on the top offers!

    Do you get many clients who are assertive enough to to tell you to skip the crap and get to the point, or do those types tend to gravitate to more efficient agents?

    1. Jennifer

      at 12:02 pm

      how do you know he droned on? he has to present every offer. the process could have only taken a minute or so.

      1. Verbal Kint

        at 4:59 pm

        Does the man strike you as a model of brevity and concision? It’d be like watching the Oscars. “Coming up after the break, the offer with the best original screenplay…”

        1. Professional Shanker

          at 11:56 pm

          Verbal what did David ever do to you? Seriously, we all need some context here, the hatred/envy/whatever you want to call it, runs deep!

          If you weren’t so witty people would hate you more.

  5. Joel

    at 1:52 pm

    What percentage of houses that are coming out now are selling with an offer night? Even anecdotally?

  6. Kukusik

    at 3:54 pm

    Last week we decided not to bid on the house with listing price of $999,000 because it already got 6 offers. Our maximum was $1,050,000 only. And the next day we learned that the house was sold for $1,030,000.

    1. Andre

      at 9:37 pm

      You jumping In would have pushed it $25K-$50K above that, to start, and even then the bidding war process would have possibly pushed it higher.

    1. Chris

      at 6:54 pm

      Agreed that 2020 is done for.

      However, I’m less sure of 2021/2022. While Canada is doing a good job controlling Covid-19, many other countries around the world are not. Further, there is a general consensus among experts that reducing our unemployment rate will be a slow and gradual process.

      Put those two things together, and I just don’t see how any politician who wants to keep their job allows continued high levels of immigration, at least until there is a vaccine and our national economy is back on solid footing.

      Particularly as Canadians seemed to have mixed feelings on immigration even before the pandemic, when unemployment was very low:

      https://globalnews.ca/news/5397306/canada-immigration-poll/

      1. Clifford

        at 3:58 pm

        I mean, they want to increase immigration…will COVID stop it? We’ll see. I can’t see COVID being an issue to the point where borders are still closed in 2022.

        1. Chris

          at 4:55 pm

          I would place my money on CIBC’s call that “the government probably won’t try to make up those losses by increasing immigration targets after restrictions are lifted”.

          Covid-19 is, if anything, accelerating around the world right now. Who knows what the picture looks like in 2022, but for the foreseeable future, hard to imagine our borders are opened wide anytime soon.

          And again, until the unemployment rate is substantially reduced, I don’t see Canadians being overly supportive of higher immigration targets.

  7. jeanmarc

    at 7:37 am

    David, those two properties you mentioned above, the prices are mind boggling (over listing). Any buyer (not just first time buyers) will have a heck of time trying to buy in this market. The one on Sunnyside didn’t mention any parking (wow). So much for the pandemic.

    1. condodweller

      at 3:36 pm

      Both sold for about $500k above the housesigma estimate. Looking at the prior listing for Sunnyside they made significant updates including a basement apartment.

      The Armstrong one looks like it’s out of a magazine. The single photo of the outside on the previous listing looks downright scary. They must have invested a significant amount to make it look like the current photos. They also added a basement apartment plus a roof top terrace/patio whatever those are called. I can easily see how a couple of buyers who have the means fell in love with it and went crazy on the bidding.

      David, I’m curious, when you see these kind of jaw dropping updates does the seller provide any sort of information on the designer/contractor to verify the job was done properly? I am super conservative and I would prefer to buy an untouched house and do the reno myself to ensure it’s done correctly unless I can get a good comfort level that it was done by a reputable contractor.

      1. David Fleming

        at 3:44 pm

        @ jeanmarc & condodweller

        If a house is worth $1,350,000 on an average day, and it’s priced at $979,000, and sells for $1,416,000, then what is the take-away?

        Are you more blown away by how many dumb buyers submitted offers under $1,350,000, regardless of the low list price?

        Or are you more blown away by the property selling for over $1,400,000?

        I was not familiar with the “House Sigma Estimator” until now. This tool is bizarre. It’s way low in some cases, and way high in others. There’s no bullishness or bearishness; it seems to just be randomized.

        1. jeanmarc

          at 4:38 pm

          David, initially, given the price spread, I would have been blown away with such a large difference. But the buyer agent/buyer “should” have done their due diligence regarding what the range should be for such a property in that
          area plus whatever extra if there were multiple offers. In this case, the low price and hold back lead to that many offers. I can guess 90% of those dumb offers were less than the range ($1,350,000) and/or with conditions.

        2. condodweller

          at 11:22 pm

          I don’t know the comps but I would always want to find out what the house is “worth” on paper and go from there. I mostly look at condos on housesigma and I have found the estimates pretty accurate generally. Of course they can only work with historical data and can’t factor in hundreds of thousands of dollars worth of updates.

          Not much blows me away in RE after the last few years with the possible exception of how much debt people are willing to take on to buy a home.

      2. jeanmarc

        at 4:51 pm

        I am sure there were some anxious bidding for the select serious buyers from the list of potential bidders. Some do not want to go through the hassle of renovating so they buy the finished product. I personally have bought both custom built (finished product) and need to reno type home before. All depends on your “stage in life” and
        your tolerance dealing with contractors.

        1. condodweller

          at 11:28 pm

          Custom built homes are different from an amateur owner prepping a home for sale. We have seen some examples in David’s Friday musings over the years.

          I can understand someone wanting a completed home, all I’m asking is if there is a way to separate good vs. bad. The last thing I would want is expensive problems coming out of the woodwork, literally, after I bid my house into the stratosphere.

          But again, I don’t know the comps so if the price blew away previous records by say 400k, that may make sense if they increased the value of the house by that much with the reno.

          1. jeanmarc

            at 7:31 am

            Price appreciation is a mix of both the reno and demand. Bidding wars will always skew the final price.

          2. Not Harold

            at 11:46 am

            At 1.4 you’ll see a mix in terms of information provided as it’s in the starter/next step price range (crazy, but it’s Toronto). The better sellers will provide names of contractors/manufacturers and copies of invoices. Many won’t since they cheaped out (IKEA! cabinets… labour by this random guy around the corner…)

            At higher price points you’ll see full details of what was done, by who, and the prices, along with the inspection report. There aren’t as many corner cutters and bad renos (though still some horror stories) and far more people will see a point to emphasize and demonstrate quality,

  8. Fearless Freep

    at 7:01 pm

    Gerald O’Hara: “Do you mean to tell me, Katie Scarlett, that Tara, that land, doesn’t mean anything to you? Why, land is the only thing in the world worth workin’ for, worth fightin’ for, worth dyin’ for, because it’s the only thing that lasts.”

    1. Bal

      at 10:43 pm

      Lol…..nothing is worth dying for..life is precious…..

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