If a property came onto the market today for $599,900, you went to look at it, and you were quite interested, how much would you offer?
The answer on the tip of your tongue is probably: “It depends.”
Of course it depends! It depends on a multitude of factors.
What type of market are we in? Is this property in a hot location or building? Is it under-priced for an “offer night?” Has it been re-listed before? And above all, how do you value the property?
The answer to this question might also depend on your age and/or your level of cynicism.
You’ve probably heard this one before: ask a child and an adult, “How do you get an elephant inside a refrigerator?”
The adult is likely to ponder the question, look for a trick, and eventually come up with a complicated answer.
The child is more likely to say, “Open the door, and put the elephant inside.”
Sometimes, simplicity prevails.
So the simple answer to my question about how much to offer on that new $599,000 listing is: “Whatever you want.”
Last week, an agent on my team said there was a new listing that his clients were interested in, priced at $1,599,900, with offers ‘any time,’ and he asked, “What’s the least I can offer on this?”
I asked how long the property had been listed, and he said, “It came out this morning.”
It doesn’t matter if that property is a heaping pile of crap or if it’s massively over-priced, or both; it’s very tough to make a compelling argument that the seller should look at an offer below the list price, after mere hours of hitting the market.
The listing agent has all the leverage here.
Any offer on that property that’s below the list price and the listing agent can say, “Umm, thanks…….but we just listed today.”
As a buyer’s agent, you can grovel, you can cite comparable sales, you can talk about the market conditions, and you can get a Harvard-educated, MENSA-member to explain why the property is worth less than $1,599,900, but the comeback from the listing agent will ultimately remain, “We just listed today.”
In this situation, the listing agent and the seller have all the leverage and there’s just no way to work around it.
This doesn’t preclude my colleague from offering $1,550,000, or less, if he wants. But we know what the listing agent is going to say.
“We just came onto the market today.”
“We’ve had a ton of interest already.”
“I’ve got nine showings booked and it’s only been a few hours.”
“Two agents have already asked for a copy of the home inspection.”
“I got a cold call on the for-sale sign today, and I’m showing it to them tomorrow.”
And on, and on, and on. There are too many comebacks; the leverage is too high in the sell-side’s favour.
Whether there’s demand or not, a good listing agent will know to at least feign that there is. And truth be told, when your listing is new, you have leverage no matter the market conditions. And you always will.
Last month, I had a listing that I didn’t think was going to do very well. Market conditions aside, it was in a building that has a spotty track record and units aren’t exactly flying off the shelves.
After four days, I had only one showing.
But as is often the case in this crazy world of real estate, that one showing turned into an offer!
The offer was well under the list price, as I knew it would be, but I was still only four days on the market. This listing was still relatively new.
So then, with tough market conditions and a tough listing, did I jump at the offer?
I used my leverage.
I told the buyer’s agent, “We’re barely four days on the market and I’ve had a slew of showings. Three agents have called and asked or a copy of the condominium’s status certificate and two have told me they think they could have an offer by the weekend.”
Then, I acted self-interested: “Plus, I want to have an open house this weekend! I want to get my signs and my name out there. Why would I sell this before I can do that?”
Of course, that’s not true. I don’t do open houses personally, although my team does. But when you specifically act self-interested, the agent on the other end of the conversation has a lot less to work with!
You can call this “playing poker” if you want, and yes, I was gambling. I was bluffing.
But because of the relationship between leverage and days-on-market, I had the upper hand.
He didn’t know that I didn’t have any showings. He didn’t know that I had no interest. All he knew was that I was only four days on the market, and that I sounded like an asshole who didn’t want to sell the property because I wanted to promote myself that weekend.
When we signed the offer back just under the list price, the buyer accepted, and we sold the condo for way more than we should have.
The relationship between leverage and days-on-market sounds like common sense, but it’s not. At least, not always.
And in some situations, it doesn’t work the way you would expect.
A few weeks ago, a condo came onto the market for $589,900.
I flagged this condo for a couple of investor clients and decided to take a wait-and-see approach.
The property sat on the market for fourteen days, without a sale, then the listing was terminated.
The property was re-listed but the price made little sense: $589,900.
You’re on the market for two weeks, no sale, and you re-list at the same price?
This is merely case of “re-starting the days-on-market,” since the listing appears as new on MLS, with days-on-market at zero, even though it’s the same property at the same price.
I showed the condo to an investor after it was on the market with the “new” listing for three days.
We liked it. The rental yield would be much better than average in this market, the unit was in great shape, and turnkey, and she said she could see one of her kids living here in a decade if they choose to attend university in Toronto. So we figured we’d give it another week and then maybe offer $550,000 and see what kind of response that would get.
$550,000 on a $589,900 listing? Yeah, sure, why not?
If we’re talking twenty-one days on market, and the second listing, what’s wrong with $40K under list as a starting offer?
We didn’t get our chance, however.
Because the very next night, my iPhone buzzed, and it was an email saying that there was a registered offer on the condo.
But two hours later, another email noted a second registered offer on the condo.
Now, let’s all put our thinking caps on, shall we?
This condo is listed for $589,900.
It’s been on the market for four days, but this is the second listing, so it’s really been on the market for eighteen days. This would have, could have, should have sold for well under the list price, if it were going to sell at all, just given the days on market.
So what did it end up selling for?
How in the world is that possible, right?
Had my client offered $589,900 on the spot that day, the seller would have accepted. I mean, seventeen days on market, right? Of course they would take the list price.
Had my client offered $585,000, or $580,000, I think it’s almost certain the seller would have accepted. Again, just look at the days on market.
I even believe that had we offered $550,000, negotiated, and signed the offer back a few times, we could have potentially got this condo for $570,000.
But it sold for $605,000.
Because there were two buyers, one clearly got overzealous, and sometimes, the market doesn’t act the way that it should.
Should. Huh. I mentioned at the onset that this is one of our “famous last words” in real estate, and we’d all be in trouble if we took everything in our market for granted.
Just because something should happen, doesn’t mean it will.
A rational, logical approach to our market would allow us to believe, “If it should have, then it would have.”
If a property really, truly should have sold by now, then it would have. Hard stop.
If you believe in the “efficient market hypothesis,” then quite clearly, any property that should have sold, would have sold.
But the problem with that theory, the word “should,” and the idea that leverage will always be higher or lower depending on the days-on-market is that not all real estate agents are the same.
In fact, some agents are incredible and some are God-awful.
A great agent will be able to create leverage where there is none.
A poor agent will fail to realize leverage when it’s present.
Then you throw in luck as well as the self-interest that is present when a buyer agent wants to get a deal done, to get him or herself, paid, and you can see why the relationship between leverage and days-on-market doesn’t always play out the way that it should.
Of course, there’s another fly in the ointment here: stupidity.
At the end of this story, you might call it “greed,” but let’s assume it’s somewhere in between.
A house is listed in the midtown area in the late spring for $1,699,000.
The house sits, as it should, because it’s over-priced.
The house is re-listed after six weeks for, wait for it…………$1,699,000.
“If at first you don’t succeed, try, try again,” goes the saying, but the adage doesn’t tell us, at what price.
Suffice it to say, as the market declined, this house looked more and more ridiculous at $1,699,000.
The property was taken off the market at the end of the summer.
But what’s old is new again, pardon the over-use of idioms here, because it was re-listed after Labour Day.
At what price, you ask?
Some you might call this greed, others might call it stupidity, and others will say, “David, so what if this person is sticking to his list price? What’s the problem? Maybe he doesn’t want to sell for less than that!”
Sure, okay, I’ll buy that.
If a home-owner hasn’t already bought, then he or she doesn’t “need” to sell.
But if that home-owner really, truly wants to sell, then any rational person would see that after multiple months and multiple listings at the same price, the house just isn’t going to sell.
A few weeks into the fall listing, an agent on my team showed the property.
He offered $1,500,000.
“It must be fun to offer $200,000 below the list price, right?” I chided him.
Our agent was kind, courteous, and respectful with the listing agent, but found a way to nicely convey, “You’ve been on the market for, like, a hundred days…..”
He got a sign-back of $1,660,000.
Now, you might ask, “That’s $40,000 under the list price, what’s wrong with that?” But then you’d be falling into the listing agent’s trap, because when a property is this over-priced, any sign-back this high is essentially attempting to “pay you with your own money.”
Our side came up to $1,550,000, which is honestly what that house is worth, and what did the seller do?
He rejected it.
No sign-back. Nothing.
The answer we got was, “Let’s see where this is in a couple of weeks.”
Our client ended up buying another house, and in a “couple of weeks,” this listing will just be that much more stale.
As the days-on-market rack up, the eventual sale price of this house will go down.
Or at least, it should.
Because maybe this seller doesn’t need to sell.
Or maybe a new-buyer lands in Toronto, via the moon, says, “Oh, this is nice,” and makes a full-price offer.
Like I said: bad agents, luck, and stupidity are the three things that undermine the relationship that should exist between leverage and days-on-market, and all three of those things are ever-present in our market.
If you’re a buyer, keep all this in mind, and make sure you end up on the right side of the equation.
If you’re a seller, also keep this in mind, try to remain rational and reasonable if you do need to sell, as well as if you truly want to sell, and realize that “I’ll wait as long as it takes” is an awful, sure-to-fail mindset in almost any market, but especially in a balanced or buyer’s market.
On another note: is it really October?
When are those TRREB stats coming out?