Last week, I had the pleasure of working with two of Toronto real estate’s finest agents; one lady who owns a ‘hood on the east side, and one fine gal who’s a pillar of a community out west.
Both experiences reminded me how wonderful it is to work with true professionals, but sadly, it also reminded me how rare those opportunities are.
On the east side, my clients submitted a bully offer that was a whopping $525,000 over the $1.2M asking price, which seems like a lot, only, in this market, it really isn’t.
My clients had already lost four offers in this market: one on an offer night, one on a bully offer, then another on an offer night, then another when our bully offer wasn’t entertained.
Our offer was “going to be worked with,” which meant that it was “going to be accepted,” provided nobody came in and beat us.
But between 9am and 10:30am, six other competing offers came in, and one had us beat.
How much were we beat by? Was it a $10,000 heart-breaker? Or a $50,000 crushing?
Nope.
It was a $155,000 pulverizing.
Pretend that you know nothing about the Toronto real estate market here, just for a moment, and read this:
Our offer of $500,000 over the ‘asking’ price was defeated by an offer of $680,000 over the ‘asking’ price.
If you randomly landed in Toronto and didn’t know where you were, wouldn’t the above actions seem odd to you?
Out west, last week, I was working with another veteran of the industry on yet another bully offer. This house was listed for a mere $1.5M, and we only went $460,000 over the list price to nab this detached gem.
A great deal, I do believe.
While you might suggest that $460,000 over the ‘asking’ price isn’t really a deal, I can assure you that on an offer night, this could have gone for $2,100,000, and my buyers would have been priced out.
In conversations with this agent, we started talking about “under-pricing” and the origins of the “holdback on offers.”
“It started in 1996,” she told me.
Then she told me the brokerage who started it, or so legend holds.
I know you want to know who, but I’m going to keep this under wraps because nobody really has any proof of who, where, and how this all started.
“I got into the business in 2004,” I told her, “And this is just how it was. Offer nights on about half of all freehold listings out there.”
Half. That’s rich, eh? Now it’s all, or just about.
“But they weren’t selling that much over the list price,” she said, which I completely agreed with.
“I remember a house in Leaside being listed for $399,900, getting six offers, and selling for $431,500,” I told her.
And it’s true. That’s how it used to work.
Somewhere along the way, the amount that buyers would pay, over the asking price, increased. This was partially due to appreciation in the market, partially due to the increased home prices leading to higher absolute over-ask prices, and partially due to listing agents under-listing even more.
Somewhere in the early-2010’s, we started to see $100,000 over the list price become normal.
That lasted for a while, but eventually, it wasn’t enough.
January of 2016, I was quoted in this Globe & Mail column:
“Toronto House Hunters Jumping Into The Market Early In 2016”
Here’s a throwback to 2016 which will show you just how far our market has come:
At 271 Monarch Park Ave., Mr. Fleming’s clients were not the successful bidders. The house was listed with an asking price of $535,000 and sold for $705,010, or $170,010 above asking.
Mr. Fleming emphasizes that the houses in the above examples had asking prices that were substantially below what comparable properties are selling for, so the hefty premiums to the asking price reflect what the buyers believe the house is actually worth.
Asking prices are farther from market value than ever, he says.
“In reality, they’ve become even more insignificant than they have been in previous years,” he says. “Two hundred thousand over is the new one hundred thousand over – people don’t bat an eye at offering two hundred over any more.”
Many of the properties attracting attention right now aren’t necessarily special, he says, except “any house in Toronto right now is special because it’s a house.”
Wow, remember when semi-detached houses on Monarch Park were only $700K?
But aside from lamenting a market that’s seemingly doubled in the past five years, my point was to look at my off-the-cuff remark about sale prices: two hundred thousand over is the new one hundred thousand over.
I remember that like it was yesterday.
Once upon a time, those $499,900 houses were going for $605,000.
But a short while later, those $699,900 listings were selling over $900,000.
This sounds like nothing for those folks who are entering, or watching, the market today. Especially as I just described above how a client of mine lost with their $525,000-over-asking offer to a larger bid that trumped them by $155,000. But I remember this time vividly. I remember trying to make sense of a market where properties were selling for $200,000 over asking. Boy, times have changed…
Case in point: I was having a conversation this week with clients who will be listing their house for sale in the next few weeks. They wanted to talk about pricing strategy, given what’s been happening in their area over the last two weeks.
We looked at the comparable sales and shook our heads.
$500,000 over list
$493,800 over list
$384,500 over list
$370,000 over list
$327,000 over list
$225,000 over list
Soooo……….what do we do?
The angry, frustrated, idealistic Torontonian says, “Hey, David, here’s an idea: why don’t you list this property at what it’s actually worth?”
First of all, um, no. I’m not going to attempt to change the industry at the expense of my clients.
But second of all, what is this property actually worth?
I don’t know. Does anybody?
I asked an agent last week if I could bring her a $1,500,000 bully offer on her listing, asking, “Do you think that does it? What do you think it’s worth?” She replied, “How would I know? How would anybody, in this market?”
And that’s the problem for just about everybody, whether you’re a seller trying to set expectations, a listing agent trying to strategize, or a buyer agent trying to advise your clients.
My seller-clients and I were mulling about two different list prices, but imagine trying to figure out what your home is “worth” and then deciding whether to work backwards by $500,000 or $400,000?
It’s nuts, right?
This isn’t “normal,” is it?
I wrote a scathing post last Friday in which I ripped a gent named “Greg” who represents the entitlement that I feel is plaguing society in 2021. The comments were mixed, as they usually are, with many people taking my side, and others adding their two cents to the contrary.
Here’s a comment that is worth noting:
Average Joe is arguing that we can’t really refer to current conditions as “the market,” and this is worth discussing.
On the one hand, this is the market. There’s no denying it, and to do so simply puts you in Greg’s position, trying to rationalize your purchase in 2022 when prices have increased yet again.
On the other hand, we have to admit that there’s nothing “normal” about this. It’s a new normal. It’s an accepted normal. But if we separate ourselves from 2021 market conditions for just a moment, surely we can admit that to call this “normal” is absurd, right?
Houses selling for $500,000 over asking?
40 offers on a single home?
What’s “normal” about that?
Average Joe mentions taxpayer-funded credit expansion, and others have taken note of the interest rate environment. There are reasons for these market conditions, but on their own, I still don’t believe they’re fully responsible. I still believe the “problem” in our market comes down to supply and demand. There are far too many people that want to buy, relative to those that want to sell. We aren’t seeing any new freehold properties built in the core, since we have no land on which to build them. What happens in another market where there’s a finite amount of product, and it’s not readily available?
No, this may not be “normal” by definition, but it certainly is the norm.
So where does all of this leave a seller, in March of 2021, trying to price his or her home?
It leaves that seller taking cues from the market, normal or not, and following suit.
My sellers will likely list their home for sale at a price that’s between $400,000 and $500,000 below what we think is the actual value, based on comparable sales. To any rational person outside of Toronto, this would seem risky. However, the massive irony is: it’s far more risky to NOT price this way.
And where does that leave us?
Are we just lemmings, following one-another to and fro?
In a sense, yes. But if the top-notch properties in this area are all selling for $400,000 to $500,000 above the list price, then to price our home $190,000 below its value would confuse the buyer pool, and more importantly, push aside those buyers at the lower end who submit the “dummy offers” that listing agents need to get top dollar from the real buyers.
Nobody likes hearing that. But it doesn’t mean I’m not going to say it.
I mean, when 60 players get invited to training camp to compete for 20 positions on a team, we always know that 40 of those players are going home, right? So why bother inviting the bottom ten, twenty, or thirty? Because it creates competition!
Now, having said all of this – about rampant under-pricing, the “dummy bids” we covet, and all the games we play when pricing and selling real estate, surely there’s a line that can’t be crossed, right?
I mean, surely, at some point, the buyer pool will revolt?
Not possible, you think. Not in this market, you say. Buyers don’t have the luxury of being idealistic and putting the greater good ahead of their own needs, you opine.
I’m inclined to agree, however, I’m always on the lookout for that time when organized real estate crosses the line because I know there must be a line, even in this market.
And folks, I think I found the line.
I think it’s here, in this listing:
What in sweet hell is this?
It’s a gimmick, first and foremost. We know that.
But it’s also something that’s made to sound like it benefits the buyer when in reality, it doesn’t.
So let’s get this straight: buyers submit a “sealed bid,” which isn’t really a thing, since offers are done electronically now and there’s no way that hand-delivered, offers in envelopes are going to make a comeack for this night. Then the buyer with the highest bid “wins” and only pays what the second-highest bid price was.
Well, aside from the logistics here, which I noted above, there are a few other obvious issues.
First of all, if the highest bidder wins, and pays what the second-highest bid price was, then a new offer must be drawn up for both parties to sign. So there’s no “winning bid” here, but rather an invitation to participate in a new offer.
Secondly, what about other terms? What if the highest bidder had a $50,000 deposit “upon acceptance” and a June 5th closing, but the second-highest bidder had a $100,000 deposit “herewith” in the form of a bank draft, and a May 3rd closing date, which is what the seller requested? Then how does the new offer look when drawn up?
It seems to me, even if this stupid farce takes place, and works, the buyer and seller have a lot more to talk about other than the price.
My third point would be that there’s nothing binding here. If the highest-bidder “wins” and is told he or she may pay the price of the second-highest bid, that buyer can turn and walk away.
Next, what’s to stop the highest bid from being accepted? What’s to stop the seller and the listing agent from just saying “screw it,” and forgetting this system they’ve put in place, and accepting the highest offer?
Nothing. Absolutely nothing is stopping them. Just because this “process” is noted on the MLS listing doesn’t mean it’s binding.
Last, but not least, the seller is under no obligation whatsoever to sell his or her house that night. When a house is listed for $1,299,900 and the seller gets two offers of $1,350,000 and $1,401,000, that seller is free to turn down both offers and re-list at $1,499,900 the next day, as we see all the time.
This house is listed for sale at $2,888,000.
It was first listed for $3,780,000 in March of 2020, and was reduced mutliple times throughout the course of that listing, eventually expiring at $3,380,000.
It was re-listed in Julyfor $3,300,000 and sat for two months.
Then in September, a new listing appeared at a higher price of $3,399,000
Now here we are at $2,888,000 with this ridiculous offer game.
So let’s say a buyer bids $3,000,000 and another bids $2,900,000. A third bids the list price of $2,888,000, just because that’s how it happens sometimes.
What happens next?
The “winning” bidder with the $3,000,000 offer pays the second-highest price of $2,900,000?
Not in a million years.
That listing is terminated, and it’s re-listed next week for $3,399,000.
This is the point where the buyers out there start to revolt. If this ridiculous game became commonplace, our market would swallow itself like a black hole and just turn into nothing.
This is the dumbest listing “strategy” I have ever seen in my 17 years in the business. It’s the most obnoxious and the most unprofessional, and while calling somebody else’s strategy “unprofessional” when I’m talking about listing a house for $500,000 under fair market value, is a bit of the pot calling the kettle black, my house will sell on offer night. I’m essentially putting my house out there at $1 and allowing the market to determine value. This farce detailed above is a gimmick and a game and there’s almost no chance these sellers are sincere. I don’t trust their “sealed bid” nonsense, nor do I think there’s anything to stop them from lying about the second-highest bid, since I’m sure they won’t show it!
I can’t even believe I’m entertaining this hypothetical, it’s just so outlandish.
So, tell me I’m no better for listing a $700,000 condo at $599,900 and setting an offer date, but I argue that’s completely different and it’s an accepted practice with a buyer and seller pool who understand the process.
But if this insane highest/second-highest, sealed-bid mumbo-jumbo found its way into a second listing, then a third, then a hybrid model appeared and so on, it would be the beginning of the end for this market as we know it.
I’ll follow up next week and tell you how their “bidding” night went…
R
at 8:57 am
You don’t know pricing on the bull side to win a bully offer.
*didn’t you say any agent bringing loser bully offers so much less than the winning price were idiots, a few blogs ago?
You can’t pick pricing on the sell side to determine a price.
But the system is just fine?
When agents do nothing but set selling prices at $1 (what you’ve said you’ve effectively done), and just submit as much as possible to buy without regard for pricing/value, why do we need agents? Why can’t this just be an automated auction system like eBay?
Oh right- it’s so complicated with different terms and conditions.
Problem solved. Remove those options. Every house for sale must include an inspection. Make a government service if needed like cars. Every house is 60 days closing. No financing conditions allowed. If too much of a broad brush, create 3 categories- Type A, as above, Type B, no inspections, 45 days close, conditional on financing (entry level), Type C- “As is”, 30 day close, no conditions (for tear downs/developers). Seller decides what category.
If you go into a shop and buy something retail, you don’t worry about conditions or clauses. Why does real estate have to be any different?
100% agents and organized real estate will be replaced by an automatic system or app soon enough when there is zero added value and consumers demand better.
“But if this insane highest/second-highest, sealed-bid mumbo-jumbo found its way into a second listing, then a third, then a hybrid model appeared and so on, it would be the beginning of the end for this market as we know it.”
I can’t tell if this is sarcastic or not. I’m guessing someone back in 1996 said this about the under listing strategy, and now look, it’s “the market”. The second bid thing may be stupid, but at least it’s innovative and if you can’t innovate and you just do what everyone else is doing, why bother?
Appraiser
at 9:27 am
I have been awaiting the imminent death of organized real estate officially now for 35 years.
From the time I first obtained my real estate licence in 1986 (a five-week schoolroom OREA crash course, at the time), I was assured every year that that the job of realtor would soon disappear.
It was always for the same sure-fire reason too.
Some new technology will replace it.
Don't Trust In The Process
at 3:26 pm
@Appraiser + Angie M.
All the technology in the world won’t do a damn thing if the existing rules inherently corrupt the game. David has mocked RECO’s ambiguous rules for a while now and the message between the lines (perhaps inadvertent?) is clear.
My Info
at 7:34 pm
Surely something has to change for better for the younger generations as the growth of home prices cannot possibly outpace salary infinitely. I am grateful that my older kid just got into the market last year, won in a fierce bidding war in Feb precovid. While we rejoice, we can’t help but to wonder for other young people, or our younger kid, what will be the market like in a couple of years, let alone in the future. I understand it is a scenario where buyer wishes to pay only for what it’s needed to get a home while seller wishes to get top dollars for their home etc. Surely there must be aspirations by all parties involve to produce ways to help future home buyers. I prefer a win win situation :))
My Info
at 7:44 pm
Surely something has to change for better for the younger generations as the growth of home prices cannot possibly outpace salaries infinitely. I am grateful that my older kid just got into the market last year, won in a fierce bidding war in Feb precovid. While we rejoice, we can’t help but to wonder for other young people, or our younger kid, what will be the market like in a couple of years, let alone in the future. I understand it is a scenario where buyer wishes to pay only for what it’s needed to get a home while seller wishes to get top dollars for their home etc. Surely there must be aspirations by all parties involved to produce ways to help future home buyers. I prefer a win win situation :))
Angie M.
at 11:16 am
There are smarter people out there to figure out how to change the game. The fun thing about ambiguous rules is that loopholes can be found from both sides if you are smart enough. And I think technology is beginning to bring change – just look at the access to sales data that you can now find online. It’s a small change, but when information shifts from the haves to the have-nots, balance of power can shift. Just look at GameStop, lol.
Average Joe
at 4:38 pm
Even a broken clock is right twice a day, and real estate might be closing in on the 11th hour. There was no e-commerce in 1986 but there sure is now.
Angie M.
at 11:07 am
Amen. I can’t wait for the disruptor of the real estate industry. Where’s my Uber for property buying?
R
at 6:25 pm
Right?
Who is more hated, real estate agents or Taxi drivers?
Angie M.
at 11:05 am
It’s not even about that per se. Real estate agents will still have a role to play. But the way I transact nowadays with all the tech disruption is about having more autonomy and transparency in the process. In my Uber I know the route the driver is taking me and how much it’ll cost before I even agree to the ride. With more access to RE information and big data, why can’t I have more autonomy and transparency in the process instead on relying on the interaction of middle agents who bury themselves in jargon and tactics? Especially, as is so often noted in this blog, all agents are not considered equal. That’s what I enjoy about this blog – it’s a peak behind the curtain – and the more I see, the more I realize that an agent is part coordination and part performance.
Sinaman
at 7:34 am
Agents are a joke. My 6 month old can do just as good of a job than these agents. What value add do they bring? Do they advise you not to buy when market looks forthy? Do they model interest rates? Predict price movements? No to all of them. They’re nothing more than a representative that have interest tied to the seller.
Does anyone not see a problem with this?
at 9:03 am
So a guy pays $150K more than any other buyer and sets a new watermark for renovated semi’s in Playter. Almost $2M for a 1500 sf semi,
This is just another reason for over inflated real estate prices. Its not just interest rates. its not just lack of govt intervention. Its not just the bank of mom and dad. And its not just supply & demand as David suggests.
The system is imperfect. One might even say its rigged… purposefully designed to mislead, utilize emotion and unprepared and unqualified advisors as part of the process.
I wonder how those buyers feel when they read your story this morning.
Love the writing Dave,
Does anyone not see a problem with this?
at 9:18 am
And although I haven’t thought about it that much, the gimmickie Second Priced Sealed Bid Auction is really no different than the under listing by $500K.
Both are designed confuse, bewilder and take advantage of emotional buyers and inexperienced agents.
I really see no difference.
Appraiser
at 9:42 am
From a sellers point of view I have no problem whatsoever.
If you feel confused, bewildered or taken advantage of – get a better agent.
Average Joe
at 4:44 pm
Or maybe we should just regulate all the crappy agents and behavior out of existence. I assume showing up to a hospital, riding an elevator or boarding a flight that the involved professionals actually know what they are doing.
Marty
at 10:20 am
I can’t get all too worked up by “the dumbest listing ‘strategy’ I have ever seen in my 17 years in the business”.
Of course, I’d be fine if you were required to deliver your sealed bid in an inflated balloon, that will then be attached to a wall with all the others, and the seller will throw one dart to pick the winner. In fact I’m positive this idea would get gonzo press coverage.
You seem to be concerned the seller could/would change the rules after the bids are in – but I think that also applies to the system you employ.
Appraiser
at 10:47 am
“Statistics released today by the Canadian Real Estate Association (CREA) show national home sales set another all-time record in February 2021.
National home sales rose 6.6% on a month-over-month (m-o-m) basis in February.
Actual (not seasonally adjusted) activity was up 39.2% year-over-year (y-o-y).
The number of newly listed properties rebounded by 15.7% from January to February.
The MLS® Home Price Index (HPI) jumped 3.3% m-o-m and was up 17.3% y-o-y.
The actual (not seasonally adjusted) national average sale price posted a 25% y-o-y gain in February. https://creastats.crea.ca/en-CA/
Kyle
at 11:34 am
Supply is so scarce that Sellers could add a clause that says Buyers and their Agents must present their offers in person, wearing donkey costumes and they would still get a bidding war. All of these ideas about how to change the rules aren’t going to do a thing to change that dynamic.
You can hate the players and you can hate the game, but at the end of the day, those things are all just symptoms of the real problem. And that problem is scarcity.
Average Joe
at 1:50 pm
Canada is a resource rich country with ultra-low population density, high education rates, and very high immigration. We have no shortage of land, lumber or labor and our real estate market sucks in capital at a rate that is almost unmatched. The market as currently organized has completely failed to provide what people want/need despite having all the inputs in abundance.
Kyle
at 3:12 pm
I totally agree on many of these points. Despite seemingly having all the ingredients to be able to create more housing options, there is still an order of magnitude more Buyers than there are Sellers. And it has been that way for decades. Each year demand grows, while there simply isn’t any elasticity of supply, that leads to scarcity, which leads to our current situation.
Unless we address the barriers that allow us to expand supply, like the Yellow Belt, NIMBYs, huge development charges, massive delays and lead times with Planning, we are going to have to just accept the supply and demand imbalance that comes with it.
Mardig Bidanian
at 3:11 am
Actually a lot of the country is actualy uninhabitable. Canada’s population is actually concentrated in densly populated pockets for a reason.
Don't Trust In The Process
at 3:24 pm
These stories you tell are so fascinating, and in many instances, hilarious (dashed with a bit of weeping for anyone who’s a buyer). But the inescapable conclusion of every single story is that the entire system is in dire need of MORE REGULATION AND TRANSPARENCY.
What’s the funniest about this post is that by downplaying the government’s role in creating this mess, you’ve actually redirected the spotlight to yourself as a realtor. I get that as a listing agent you do whatever it takes to get the highest price for your client. I get that RECO rules are so vague that practically nothing is prohibited. I’m hating the game, not the player.
We can debate day and night about what specific measures would have the most impact, but it’s way past time for SOMETHING to be done. And as much as you’d vehemently disagree, reigning in realtors would be a huge step forward. Perhaps requiring a fixed fee for agents no matter the sale price. Mandatory financing and inspection conditions. A fixed closing date period. Open disclosure of all unsuccessful bids received. Public auction process.
None of these measures prevent the seller from walking away at any point. But it certainly improves the game and makes it more equal for both sides.
Otherwise… you better get ready for that black hole.
Joel
at 5:14 pm
Here are some problems with everything you posted:
Requiring a fixed fee for agents no matter the sale price – You are taking away the incentive for an agent to be good. The reason we pay top talent everywhere is because they are the top at what they do. I want an agent that has an incentive to work hard and get me the most money when I am selling. You want that as well if you are selling.
Mandatory financing and inspection conditions – If I have $2million cash and want to buy a house and you need a financing condition, why should we be treated with equal offers. We are not, the all cash offer, does not need to have an inspections, does not need to get financing and therefore is a better offer. No need to cater to the lowest common denominator, this would only work against a seller.
A fixed closing date – This solves nothing and is needlessly complicated. Allow people to adjust closing dates and reflect the change in their pricing. Want a quicker or longer close, that works out to $X a week and adjust vs other offers from there.
Open disclosure of all unsuccessful bids received – You would need all buyers to sign a waiver that their information will be shared. What happens when someone doesn’t want their information shared to the public domain? Do we really need everyone to be able to see the offers we have put in forever?
Public Auction – This has driven up prices in Australia where it is prevalent, so probably the opposite of what you are hoping for. It does nothing positive for the purchasing experience. Currently you offer what you are willing to pay, if you have the highest offer with best terms you get the home, if you don’t the person who did gets it.
It’s frustrating when you are trying to buy (I went through about 8 offers before buying) but it comes down to someone else willing to spend more than you for the home, a decision you make and a decision that person has made.
If it all comes crashing down and there are 10 houses listed for every qualified buyer, then the buyers will be very happy. Supply vs demand.
R
at 6:42 pm
Fixed fees provide lack of incentive? If 2.5% is the incentive, do you really think an agent works that much harder to get a seller +$100,000 to make another $2500 (gross, before splitting with the agency)?
Wouldn’t it make more sense at least if the % was determined after they did the job like a tip at a restaurant? You don’t decide when you order if you are tipping 25%.
What about a sliding scale that holds an agent accountable? It’s too easy for an agent to get a listing promising $X then 2 weeks later to pull out all the BS excuses (it’s the changing market, well you know the buyers are looking for more bedrooms, the location…) to convince a seller to accept a lower number, or hold tight for longer.
What if the agent and buyer agrees on a target selling price (irrespective of listing price) and the agent gets a bonus % increased commission scaled by the amount over or decreased commission for the amount sold under?
Joel
at 7:14 pm
Lots of discount agents, cash back agents and purplebricks. If you don’t think a realtors service is worth the 2.5%, there are plenty of other models out there. I personally think a top agent with very good staging, marketing and strategy is worth 2.5%.
R
at 5:59 am
A monkey could sell a house with no marketing or pricing knowledge and make the same 2.5%. I don’t see the incentive.
Do you actually think you “get” more experience or knowledge or marketing from an agent if you sell a $1M house than if you sell a $600K condo? Why are you paying more?
What do you really get for 2.5% and are agents really giving you everything or the bare minimum?
David, how much marketing dollars do you spend for your commission? What will you do/don’t do for a listing? Videos? Ads? Drone photos? 3D walk through? Print brochure? Stand alone website? Full staging? Minor Renos?
Will you buy my house like Leo’s Gold System if you don’t sell?
No way every agent getting the same commission is doing everything for every listing and like being a “top” agent means something.
Every agent on a billboard is a top agent yet somehow there was decided there’s a ceiling to commission? If an agent is so good why not charge 3%? 4%?
jeff316
at 2:56 pm
Thank you Joel. The changes always seem simple…but only if you’re a frustrated buyer.
R
at 6:37 pm
Let’s consider the flip side- if you reset the game, and no longer need the “players”, how much better could the system be?
What do agents actually do?
In the old days, they knew the market comps. Now you have data that can tell you far more than any individual agent and with greater specificity.
In the old days, agents could be the only one to reach a bunch of people, unless you wanted to take an ad out in the back of the newspaper. Now anyone can run an ad on social media now and reach more people than MLS, for less. (And don’t get me started how poorly most agents know social media….)
In the old days, agents could advise on pricing and negotiation. As mentioned above, there is no pricing strategy in most sales. Listing $500K under ask I can’t believe is that much better than listing $400 under ask or for $1. Price is irrelevant.
Marketing? Agents can’t design their way out of a stock photo pasted on a flyer printed at Kinkos.
I’m not suggesting it should be all FSBO, but the traditional model I think is so far broken it’s stupid.
The same way that Uber put traditional taxis out of the market when every joe could blindly follow a GPS to get anywhere and newer, better cars enticed drivers with the bonus of convenience from an app, technology will make realtors obsolete.
Marty
at 9:53 pm
I can agree with much of this.
But buying or selling s house is not an Uber ride. People want an agent to lean on, provide advice, be their second-thoughts. You don’t need that with a $22 Uber ride.
Shana
at 4:59 pm
I think you hit the nail on the head.
More transparency can only help an honest valuation system.
Some “bubbly” states in Australia created a law that if a seller rejects an offer, then the seller must relist the property at a price higher than what they rejected. It helped. Australia also uses public auction, which places some risk on the seller. If the seller doesn’t like the auction’s top bid, they have some assurance that most interested parties would have made it to the auction and seen the competing bids, and they’re unlikely to get a better bid. To reject the top bid, they are rejecting all bids and relisting for what could be fewer potential buyers next time. In some states the seller must identify the auction starting point on top of which they would accept offers.
There is a huge economic cost to the underpricing strategy. 70 people wasting their time viewing properties they can’t possibly purchase, 30 of them wasting additional time just to be “dummy bids”. This adds up to a lot of unproductive manhours.
I like the idea of making financing and inspection conditions unwaivable rights. It evens the risk level between those trying to get a foot in the door, and those with extensive holdings, without affecting sale price. If anything, it could allow first time buyers to offer more, with the sense of security that they don’t need to hold back as much contingency funds. It doesn’t advantage or disadvantage investors, but it provides an equal level of risk for the purchase opportunity, and therefore the process doesn’t discriminate by class.
Seller inspections also won’t provide any liability protection for a buyer, as they weren’t performed on behalf of the buyer, and this is a far larger risk to a first time buyer maxing out their credit than it is to a more leveraged investor.
jeff316
at 2:58 pm
Bloomberg, last week: “Housing Booms in Australia As Prices Surge Most in 17 Years”
So…how did it help in Australia? Australia is possibly one of the few examples that is worse than Canada. Denying that their approach is not a part of that is just intellectually convenient.
Condodweller
at 3:40 pm
Here’s the actual quote I probably butchered in the past which applies here, and I think most recently I left off the most important last part about knowing the difference:
“Lord, grant me the strength to accept the things I cannot change,
the courage to change the things I can,
and the wisdom to know the difference.”
― Reinhold Niebuhr
I didn’t comment on Friday’s post because this sort of rant, regardless of how true it might be, brings out the absolute worst in people. Just like people need to accept the market for what it is, others need to accept that it is totally frustrating to the average person who would simply like to buy a home at some point and go on with their daily lives. What’s the benefit of homeowners who were smart/lucky enough to buy a home earlier/at a lower price complaining about others complaining that they did not?
We have beaten this horse to death about fair pricing, I guess the fact it comes up again proves that things are getting out of hand again. I saw several headlines with the word bubble this weekend and I’m guessing we’ll see more as prices escalate.
Angie M.
at 11:54 am
I wouldn’t even argue that it’s fair pricing (although that is another issue that needs to be addressed). Let the prices do what they want based on the conditions of the market and the sale. It’s about playing as fair and as level a game as possible. If I want to pay 500k over asking, then that’s my decision. But at least be transparent enough to know why I’m paying 500k over asking.
And perhaps, with transparency and time, knowledge of what is or isn’t a “fair” price will become known – whether that is up or whether that is down. And if not “fair”, we will at least know the “true” market value.
Condodweller
at 6:15 pm
By fair pricing, I meant the listing price, not the final selling price.
Yes, it’s completely your choice what you are willing to pay. However, what you are willing to pay shouldn’t be confused with what it is actually worth.
To use David’s example again, if a better unit sold for $650k a month ago, then reason would suggest that your place is worth about the same. A bully offer of $680k is already paying about $30k more than it’s worth. Someone paying $720k is simply nuts. This is what frustrating people that there are people out there that are so frustrated by having lost multiple offers that they feel the need to bid crazy amounts in order to “win”.
I have no problems with you wanting to overpay, but wouldn’t you feel better with a better process where you should be able to pay significantly less for the same house? Also, if you paid $500k above list, you probably overpaid by the amount you paid less the reasonable value of the house. If it was underlisted by $300k you overpaid by $200k. The other problem with this is there are people out there like yourself who have the means to throw an extra few hundred thousand at a house to secure it. Most people can’t do that.
Average Joe
at 4:24 pm
I’m sure when it gets bad enough politicians will have no problem throwing the industry under the bus claiming realtors and developers are taking advantage of the situation and young families. Many people on this board must realize this which is why Greg got under everyone’s skin by ‘snitching’ to the media. Otherwise who would really care what he thinks because they don’t have to represent him or sell to him. Organized real estate is becoming the new OPEC with lots of money but few public friends.
For those not in the business, it’s hard to understand why there are strict advertising rules for things like airline ticket pricing and used car offers but for the largest purchase of their life they are simply left to the wolves of Glengarry Glen Ross.
Price discovery is hard, but plenty of things are bought and sold at a predetermined price. Sometimes the price is set high and then negotiated down, but auctions tend to exist on the margins of the market: High-end or rare items of little practical value (art and vintage cars or fashion) or low-end oddball junk like the contents of a storage unit. Most things people care about or actually need just get purchased at or near the displayed ticket price.
If realtors can’t or won’t do price discovery to maximize value at a set price, there isn’t much left to justify high commissions. Without the market knowledge and advisory service the auction process can just be centralized and people can look at the comparables themselves through a common search engine and decide what they should bid. This already happens with classic cars and buyers can have public dialog with sellers, bids are shown real time and all certification and documentation is uploaded. The platform will let buyers and sellers search the history of all similar sales and display the analytics. People spend hundreds of thousands of dollars there without the need for any agents or brokers, and if most home buyers saw the level of transparency and disclosure available to bid on an old Datsun vs. what they have to deal with buying a home they’d cry.
And as for the much maligned “throw-away” bids – those have value. They tell you how many buyers were willing to transact at different price points. If more units were to become available for sale, those offers would be the clearing price. You insist on running an auction and then complain that you have to look at bids below a price you should have just set in the first place.
Joel
at 4:57 pm
Airline tickets and used cars are commodities. If I want to sell my house for top dollar, should the government be able to tell me how I can market and sell it?
If 50 people want to purchase my home should I not be able to sell it the way I want and at the price I want. Want to buy a home at list price, buy a new build from a developer. Want to buy an existing home in an established neighbourhood, pay market price.
If you want to do the opposite, we can list every semi at $3 million and allow offers at any time. The sellers are still setting the price, by the maximum they are willing to pay.
Don't Trust In The Process
at 5:20 pm
@Joel
Sounds like you’re missing the point if your takeaway was that prices needed to be capped. Classic car auctions are not capped by the system, they are capped by (free market) buyer demand because buyers make better-informed decisions, unlike Canadian RE where realtors gatekeep the data and apps like Zolo only scratch the surface – not to mention TRREB’s war against Bungol. Nobody is talking about restricting sellers from selling at the price they want.
Joel
at 5:44 pm
Use housesigma. Info is available there.
If your whole point was that the sold prices should be searchable to the public, then I completely agree.
Above, avg Joe is suggesting the selling agent should be setting the price and that it is their realtors value to do so. I disagree as it is the realtors value to bring the seller the most money and best terms.
Average Joe
at 5:39 pm
Land is also a commodity, and it’s the only component of real estate that really appreciates in value. The building sitting on it is a consumer durable. And since a huge swath of Toronto is only zoned for detached houses, and people need to live somewhere, that pretty much makes those a commodity as well.
You aren’t likely selling your home privately – you’re using a licensed and (lightly) regulated brokerage service who follows a set of (largely ignored) marketing rules like other retail industries have to.
And your house isn’t some island – you’re benefiting from a lot of service connections, roads, transit, parks, schools and regulations that prevent someone from building a nuclear waste facility next door to you. You’re also benefiting from policies allowing an influx of people or their money to come here who want to buy it – many places around the world don’t allow this at all. You’re also benefiting from the government paying a lot of people not to work, changing the accounting and credit rules to allow mortgage deferrals, paying employers to keep people on payrolls, lowering the average immigrant intake acceptance score, buying massive amounts of bond debt and backstopping mortgage risk through insurance.
But who cares about everyone else, right? You’ve got yours.
Joel
at 7:07 pm
Really confused by your response and am not following the logic of your points.
Yes, I pay taxes in the form of income, property and sales.
“”You’re also benefiting from policies allowing an influx of people or their money to come here who want to buy it – many places around the world don’t allow this at all. You’re also benefiting from the government paying a lot of people not to work, changing the accounting and credit rules to allow mortgage deferrals, paying employers to keep people on payrolls, lowering the average immigrant intake acceptance score”
You seem to have a problem with Canada’s immigration policy and are concerned about how it impacts your affordability?
Average Joe
at 8:38 pm
You asked if the government should be allowed to tell you how to market and sell your home, and I responded with a list of other helpful things the government does to keep your home valuable and desirable. Since they have helped make your neighborhood and country a nice place for you to live, and are funded and elected by basically everyone, I don’t see why they can’t help make it a nice place for others to make a home by putting some boundries around how properties are bought and sold.
As I mentioned in my original post referenced in the article, I own a house and an investment portfolio. I have directly benefited from most of the policies implemented in the past year. I still have friends and relatives who are struggling that I care about, and they’re not stupid just because they made different choices than me. Or were born too late (like my children eventually). Or had other priorities instead of obsessing over how real estate works. If the government didn’t step in, my family would be the ones under water on our mortgage and retirement accounts.
See, you’ve highlighted the problem right there in your reply. You assumed I must personally be having affordability problems because in your world, noone else matters. Devoid of all empathy and real estate is becoming a faceless tradable commodity instead of a home for families to live. And I gave many policy examples – if you want to singularly focus on immigration and depict it in a solely negative fashion you can have that discussion elsewhere. Almost all Canadians originate from immigrants including folks who had hard working immigrant parents like myself. Let’s keep it civil, shall we? Moving on.
The threat of everyone listing their semi at $3M is just laughable. Agents aren’t listing properties for $1 to start the auction for good reason. They are trying to sell false hope to get people emotionally invested and to get into more search results under a certain price category. It’s 100% false advertising and it’s banned in almost every other industry. If you were to advertise a mattress or cookware at a deep discount and can’t demonstrate any have sold at the original price you pay a fine as a retailer. If you are pricing a Harley to move you better have had one at that price. The practice of lying in your ad to get people in the door shouldn’t exist anywhere. The $999K special detached is just hacky sales trickery and one of many factors causing aggravation on all sides of these transactions. It’s one thing if someone swoops in to sweeten the offer above list, but listing an asking price without any intention of accepting it is bad faith.
Joel
at 9:13 pm
A average Joe below (can’t respond to your comment for some reason)
All of the services you listed are by the government for the population, whether they own a home or not.
Based on your comments it is not your affordability, it is your friends and families affordability that you are worried about. I have plenty of empathy, but really don’t understand what you think the government should do. If we make desirable properties cheaper, then more people can afford them and the competition is more fierce.
If you want more government or subsidized housing, then that is a completely different conversation. Forcing down the price of privately owned assets is not the same as providing housing for those who need assistance.
Your argument about the advertised pricing of a mass produced product vs a finite product does not work, I hope you understand the fallacy in it.
Chris
at 9:20 pm
Average Joe, great points all around.
The inflation of asset valuations over the past 12 months, and widening wealth inequality should be a concern to all of us.
Let’s not kid ourselves, the acceleration of home prices across the country, as well as soaring stock prices (TSX is up 59% year-over-year as of today), have been bolstered by extremely loose monetary and fiscal policy.
It’s been a boon for those with assets and investments, which also happen to be the ones most likely to have maintained their incomes through the pandemic. For those with lower incomes, who were more likely to have lost their jobs, and few or no assets, the benefits have been much sparser.
Average Joe
at 10:41 pm
@Joel
Everyone pays for services they may or may not use, but owning property near desirable public services nets you an additional asset value even if you don’t use them. That value compounds over time and gets recovered when you sell. Maybe everyone can use the beach, but if you own property near it, you’re benefiting from any upkeep and capital projects more than others. And as is often the case in Toronto, property owners greatly benefit by using the political apparatus to block many projects that may help others – especially ones which may improve density.
There’s a lot of suggestions on zoning or transit or permits or how to build the missing middle. I’m a layperson so I’m not going to be coming up with proposals and details – if I could just do the policy over coffee what would that say about everyone involved? If the government has decided to grow grow grow then they have to figure out how to do it. And those benefiting the most are going to have to make some small sacrifices so we live in a nice stable society.
I just don’t agree on the finite product argument. Either set a price and sell it that way or just say it’s an auction and start the bidding at zero. Noone understands the market anymore or what the seller actually wants because the current system is chaos. It’s intentionally deceptive. If everyone just said they want $3M for a semi upfront people could get on with their lives instead of driving all over town submitting bids for the trash can wondering what will become of their family. Or people can stop moving here because apparently the tiny island of Canada has run out of desirable land. Agents like it the way it is now because you’re forced to use them to navigate through all the turbulence so I don’t expect much from David but crocodile tears for buyers.
JL
at 11:46 am
“Agents aren’t listing properties for $1 to start the auction for good reason.”
I agree, and mentioned something similar a few weeks ago. The point that the public is missing is that listing prices are completely meaningless; if properties were listed at $1 you would at least get rid of that misleading “false hope” element that’s driving a lot of the complaints and disappointment afterwards.
Joel
at 12:26 pm
@ average Joe
Some people will live by the beach or by the subway or by a large park and will pay for the privilege to do so. That is what happens in a free market. The most desirable parcels of land have the most competition and result in the highest price.
By setting the price a $1 million for a house you want $1.4 million for you are having an auction. We as a society know that the house is not going to sell for $1 million.
What the seller wants is the most money from the sale of their home. If you had an open auction the seller also wouldn’t start the auction by saying “I would like at least $1.4 million for this home”. They would run the auction and the selling price would be the highest someone was willing to bid, the same as it is now.
Condodweller
at 5:56 pm
@Joel “They would run the auction and the selling price would be the highest someone was willing to bid, the same as it is now.”
Not exactly. If you had an open auction you’d only have to bid $1 more than the next highest bid to “win”. In our current system, people are “winning” by tens or probably even hundreds of thousands of dollars simply because they have no clue what the highest bid is, and in their effort to make sure they win they bid crazy amounts. This has the effect of prices rising much faster than they normally would.
J
at 10:49 pm
David, you recently purchased that Alex Connell hockey card on eBay using a system that’s not unlike the gimmicky bidding process described above. Instead of paying your actual bid of $800, you ended up paying just $637 (the second highest bid + $10).
Libertarian
at 10:33 am
I was thinking the same thing. Yes, it is a bit gimmicky, but I’m sure with a few tweaks it would work much better than the current system. That’s all people are asking for – improve the current system.
Nobody expects David and his clients to be the guinea pigs for that. The industry should implement.
I waiting for the day when the 5% commission is being vilified again. With prices soaring again, that 5% is a lot of money. David’s ultimate nightmare – more and more part-time agents are drawn to the industry because of all the money you can make from a couple of deals.
Condodweller
at 6:02 pm
I like this idea. Lower the commission in order to eliminate the get rich quick wannabe crowd. This would raise the barrier to entry and good agents can generate the volume to make a good living without fleecing their clients.
It’s not just that selling a 600k condo requires the same amount of work as selling a 2 million house but that prices are many multiples of what they were when the 5% commission was put in place.
Cool Koshur
at 8:07 pm
Perception vs Reality….Toronto is no New York.
Remote work is not permanent. Eventually employers will want their employees to come to office. If your job can be done remotely then no one is stopping these employers from hiring staff in India to perform these jobs from there. Only jobs left will be available are minimum wage retail jobs.
Canadians will have all wealth tied up in homes and paying for these homes all their lives with no jobs to keep up with these prices. Our government is not complaining since this circus generates inflated property taxes revenue for them.
I don’t want to sound pessimistic. This will end badly.
Matt swagger
at 10:45 pm
If the market decides it’s self then automate it and get a real job 😉