Under-pricing, setting an offer date, and having no idea what price to expect? You call that a “strategy?”
That’s what my cynical side would say, after reading the title of today’s blog.
But if you’re a buyer, or a seller, in this Fall 2017 market, you need to understand that there are currently three pricing strategies being employed by sellers.
And if you happen to be that seller, about to list, you had better make sure you think long and hard about which strategy you’re going to use…
Alright, so maybe that’s not exactly the right photo for this blog post.
A guy at a whiteboard, in front of charts, graphs, stacks of money, and buildings with rain clouds over them?
Wait…..he’s also wearing a suit, so provided he’s also got a pocket square, and shoes with no socks, he might be your typical 2017 real estate agent…
Perhaps my choice in photo this Monday morning isn’t perfect, but if you’re a seller in the fall 2017 market, you had better make sure your listing strategy is.
Despite what you read, or want to believe, the Toronto real estate market is still hot……in some areas……in some price points……at certain times of the week…
It’s a mixed bag. There’s no other way of stating it.
In this market, I’ve seen properties sell for far less than they should have, and I’ve been thankful to represent the buyer in a few of those transactions. And then I’ve seen some properties sell for far more than they ever should have, with 12, 15, or 18 offers – reminiscent of the spring.
I’ve also seen comical pricing “strategies” blow up in sellers’ faces, and sometimes, work like magic.
Case in point, there was a house listed for sale in the west end for $1,089,000, with a “hold back” on offers. The house did not sell, and was re-listed at $1,299,000. The house didn’t sell at that price either, and the seller decided to employ the under-listing “strategy” once again, and listed this time at $1,049,000.
The damn house sold for $1,330,000, with 13 offers.
It made no sense.
I want to find that buyer and say, “Hey, do you realize that when the house was listed for two weeks at $1,299,000, you could have probably bought it for like $1,270,000? You just paid $1,330,000 for no reason.”
Well, there was a reason, I suppose, and that was the presence of 13 offers.
But that never should have happened. Never, ever, ever.
Are buyers’ memories that short? Do they not ask their agents, “Has this house been listed for sale before?”
How can you take a house that was sitting on the market at $1,299,000, list low at $1,049,000 and hold back offers, and then produce 13 offers and $1,330,000? It defies logic. It can only be the result of uninformed, untrained, buyers and buyer agents.
That, and a lot of emotion on offer night.
While there are isolated cases like this one, for the most part, I’m not seeing the whole “re-listing” thing work.
Recall that in the spring of 2017, when the market began to slow in late-April, and through May, and June, probably 40-50% of houses that were under-listed with an “offer night” were re-listed at a higher price after a failed offer night.
I would like to think we’ve learned from our mistakes, and so far this fall, we’ve seen different strategies employed.
While any seller, can take any number of different paths in this market, I’m seeing three distinct “strategies” for pricing and attracting offers in this market.
If they seem familiar, it’s because we’ve discussed them before.
But let’s look at all three in the context of a seller choosing from the set, and then look at ways in which the strategies have worked, and haven’t.
1) Holding Back Offers
If it ain’t broke, don’t fix it. Right?
That’s what a lot of listing agents, and sellers, are thinking in this market.
But a lot of listing agents and sellers felt that way in the spring market, and got stung.
We’re still seeing most freehold properties listed with “offer dates,” and the degree of under-listing varies.
So we can basically divide this #1 strategy into (a) and (b):
a) under-price and hold back offers
b) price at fair market value and hold back offers.
Why the two different strategies within a strategy?
Well it’s simple: you’re hedging your bet.
Many sellers in this market are dead afraid of under-pricing and holding back offers, like was done in the spring.
Tell a seller of a house worth $1.2M that you want to price at $969,900 and set an offer night for next Wednesday, and many of them don’t have the stomach for it.
But tell a seller that you know, unequivocally, that the house is worth exactly $1,200,000.00, no more, no less, and they’ll have a hard time accepting that.
Then when the seller received a full-priced, unconditional offer for $1,200,000 only three hours after the property hits the market, and the most natural reaction is to ask, “Did I under-price this house?”
Most sellers will think, “Am I leaving money on the table?”
How can they not!
Most sellers are pessimistic by nature. Instead of saying, “Oh goodie, I have a full-priced, unconditional offer for my home, I’m so happy,” the average seller will undoubtedly wonder, “Why is this happening so fast? What’s wrong here?”
And it’s for that reason that many properties are being listed at fair market value, with a hold-back on offers.
As I write this, I’m discussing a particular house with a client, listed at $1,399,000, that I don’t think is worth a penny more than the list price. Offers are due tomorrow night, and I’ve told her – this house isn’t going to get five offers. If the house receives, say, two offers, it doesn’t mean it’s selling for $1.5 Million, like it would have in the spring.
Listing at fair market value and still having an “offer night” leaves the door open to potentially getting multiple bids, just in case the seller is always going to wonder, “What could have happened?” but more importantly, it means if you don’t get any offers, you don’t have to re-list 10-15% higher after your failed offer night, and signal to the market that you’re “one of those sellers,” and risk having the market ignore your home.
So, what then of strategy 1(a)?
It’s still happening, a lot. More so than 1(b), but 1(b) is something new and different, and 1(a) is just the same-old, same-old, from the past decade.
I’ve seen two properties so far this fall break the 150% sale-to-list barrier, but both were comically under-listed, and I suspect the listing agents had no clue what the properties were worth, so they didn’t even bother trying to figure it out. Both properties were fixer-uppers, and those are hard to price. So both agents said, “Screw this,” and simply picked a price that wasn’t in the same realm as any reasonable estimate, then picked an “offer night” from the calendar, and sat back and let the market price the home for them.
If it ain’t broke, don’t fix it.
There are still a lot of houses and condos that necessitate the “list-low, hold back” strategy. But there are a lot of properties that don’t, and they’re being re-listed higher. We’re also seeing houses listed artificially low that do get offers, but where the seller doesn’t get enough, and those houses too are being re-listed higher.
I recall a house in Bloor West that was listed at $1,089,000, and then was re-listed at $1,349,000. But the rub here is – there were six offers on this house! They just weren’t high enough. Imagine somebody showing up with an offer for $1,275,000, and a certified cheque for $80,000, and being turned away?
That house has now been on the market at the “new” price for a month…
2) Offers Any Time, With Extended Irrevocable
I suppose we could break this down into an (a), (b), and (c) as well.
24, 48, or the dreaded 72 hours irrevocable.
I wrote about this on my blog a while back, and interestingly enough, an agent I ran into last week had read it.
I was showing a house to clients that had no offer date; we saw it the same day it hit the market.
We walked through, dodging 2-3 other groups of buyers, and kept looking at each other saying, “Is this too good to be true?”
Listed at $1,149,900, this house was a true “box-ticker,” since it checked all the boxes, and more. Everything my clients wanted, this house had, but it also had two-car parking, even though they only needed one, and a host of other features that we didn’t think we’d find in this area, at this price.
I called the agent around 7pm after our viewing and said I was bringing an offer, and asked if she could work with the offer that night, and she said, “I need 48 hours irrevocable – I know, your fave, right?”
Another loyal TRB reader, what can I say?
I told her, “The listing doesn’t say anything about 48 hours! What’s up?”
She said the listing was supposed to say “48 hours,” and she changed it on the spot.
Now I’m not blaming the agent here. I know this agent, she’s a very high producer, and is truly “one of the good ones” in our industry. She told me she had the sellers sign the “Seller Direction Form” along with the listing, so it’s not like I could force the sellers’ hand here and push a full-price offer with a 4-hour irrevocable here. This listing did require a 48-hour irrevocable, as per the seller’s instructions, even if it didn’t specify that on the listing for a couple of hours.
Sometimes, you just don’t have a move.
So my clients agreed to submit an offer, good for 48 hours, knowing full well we’d be in competition at some point.
The next morning, there were two other offers registered, and the agent said they would sit down to look at them on Friday night.
By Friday night, there were nine offers in total, and the house sold for $200,000 over asking.
Was this planned all along?
Was this the strategy by the listing agent and the sellers?
Probably. And maybe not at the same time.
There’s absolutely nothing to suggest this house was worth the eventual sale price; not a single comparable sale from the last six months that could point to this value.
So were the sellers expecting this sale price?
I don’t think so. I think the plan here was to avoid the hoopla of an “offer night” a week after the listing, and avoid sending a message to the market that the sellers are looking for a bidding war. So put the property on the market, ask for two days for a “marketing period” if you want to use that term, and then see what’s what.
In the end, the strategy worked, and you could argue it worked better than an offer night would have, since interested buyers could have found other homes over the next 6-7 days.
3) Offers Really, Truly, Any Time
What a novel concept. Are we pricing at fair market value too?
Well, I suppose it depends on the property.
Throughout the GTA, in every area, and in every price point, you’re going to see just about every strategy you can think of, and hybrids of those as well.
I’ve seen a lot of condos in the downtown core listed low with “hold backs” on offers, but I’ve also seen a lot of those properties re-listed higher a week later. I think if you have a 2-bed, 2-bath with a terrace at the Candy Factory Lofts, then the strategy makes sense. Otherwise, I don’t like it.
I’ve told you this a few times throughout the fall market, but my strategy when it comes to listing condos: price high, offers any time.
Does that really work, you ask?
Yes. Yes it does.
In fact, I’ve used this strategy for most of my smaller condo listings this fall, and it’s worked to perfection.
Three times now, I’ve set a new price-per-square foot record in the building, which you might say is the market, and you might say is the strategy.
But either way, I believe there are so many buyers who don’t want to wait for an offer night, don’t want to be in competition, or don’t want either, that when they do see a condo listed for sale, with offers any time, they basically decide in advance, “If I like this in the first thirty seconds, I’m buying it.”
And that’s what’s happened.
Take a $485,000 condo, price it at $529,900 with “offers any time” and don’t ask for a 24-hour irrevocability, and you truly are employing the “catch more flies with honey” strategy.
Sure, an agent might call you and ask, “Where the hell did you get this price from?”
But five minutes after that, another agent is going to call and ask you, “Are there any offers yet? Can you work with an offer tonight? Can you send the Status Certificate over so I can have an unconditional offer prepared in advance?”
Just as the bully offer was all the rage in the freehold market in the spring, the “first horse to the trough gets to eat” school of thinking is dominating the 1-bedroom condo market.
And I truly believe that you can over-price, advertise “offers anytime,” and do better than you ever would with an offer date.
So there you have it, folks.
This is a complex market, and it’s even more unpredictable than the spring.
In the spring, we had trouble predicting how high a given sale price would be.
This fall, we’re trying to make sense of whether a given property will sell the first time around or not.
And I believe it all comes down to the strategy employed for pricing and offers.
All three of the above strategies can lead to success, and all three can lead to failure.
It’s up to the seller, and the listing agent, to ensure the right strategy is employed…
at 10:31 am
It is interesting what is going on. But suffice to say, it’s generally stabilized in most area, More prime Toronto still being ‘hot’ as young couples now really know they have a chance to stay close to the city, but also knowing listings won’t be snapped up.
at 4:58 pm
I’m not trying to be obstreperous, honest…
What advantage do your buyers get by being the first to submit, with a 48 hour irrevocable? How are your buyers worse off (indeed, not better off) if, when presented with the surprise 48-hour request, you instead say “I have interested clients, lemmeknowifyagetanoffer,” and they keep shopping in the meantime? What is the benefit to your clients of being the stalking horse?
at 11:12 pm
Ralph based on my thoughts above, I would say you never know if it will be an advantage or not and maybe it does come down to the seller’s flexibility.
If they are highly flexible, maybe they use offer 1 as nothing more than a reference point & say “good, we will wait for 10% more than that.”
If they are not flexible, maybe they negotiate with you.
Seems like you never know, so might as well try. I don’t know.
at 10:47 pm
Sold our starter home 4 years ago. Market was hot but not 2016/Q1-2017 blazing scorching hot.
Our strategy was too conservative BECAUSE a comparable but slightly better house with an offer night same as ours was listed for 10% under ours. They sucked in all the shoppers, and 20+ bids. We had zero.
We could have re-set the offer night, shuffled the deck a bit, but before we knew it, a buyer wanted it. We sold the following day at 0.6% under list to some smart buyers. We were happy… 99.4% happy… but looking back we are certain that on the right night, maybe just the following week, we COULD have been 105% happy if we had just picked a different week. It was at the very least possible. I think we left some money on the table… not life changing money… but some money.
But what if it was life-changing money… say $100K of tax free dollars*… wouldn’t one be willing to go all over the map with strategy until you sell it for it’s max potential?
If someone is willing to pay $1.27 on day one and is the only offer… isn’t it natural to think that you COULD get $1.37 in a few weeks? Sure, if 20 bids come in on day 1 and the max bid is $1.27, then it is reasonable to say the market has spoken as loud as it will and you should take it and go.
But if you have any flexibility… why would anyone ever take the FIRST and ONLY offer on day 1… or even day 3 – regardless of list price or initial strategy? Unless of course it is a completely ridiculously above any reasonable estimation of value offer, wouldn’t you want to give the market the full chance to speak?
Back to my example.. Why did we take our first buyer on day 2? We didn’t have a ton of flexibility, we negotiated with them a bit first, and we didn’t think we were leaving life changing money on the table…
So… the point… maybe in this market there are more sellers with more flexibility combined with much higher stakes… (and to compound things, more buyers who think the market is ripe for a deal). Anecdotally that fits I think. And if that were me I wouldn’t rush to sell either. And if my agent told me “This is our ONE strategy… and if it doesn’t work the way we envision it, we sell ASAP anyways”, I would fire them. I’d say we will take as many at bats with different approaches required to hit a home run because I am not letting the sale price be determined by the day or week we list.
And Hence…. annoying as hell for buyers… for certain. And I feel bad for them. But the process has been hard on buyers for years and years so it’s not much of a change there.
In any case, the market should be confused (gov’t/bank changes), and the behaviours of sellers doesn’t seem surprising, even if it’s annoying/ not right out of the standard operating procedures.
*Let us not argue relative value of money from one person to the next and for simplicity stick to the fact that $100K is $100K (20% of a your kid’s condo) and $15K is $15K (the price of a locker). i.e. $100K >>>>> $15K.
at 11:36 pm
Could also use interchangeably: Flexible or stubborn or patient for the magic number only
… which maybe means there’s less honest inventory out there than we think… but that’s bull interpretation only of course , wink wink
at 7:09 am
If you want to think of it as the stock market assuming high number of investors, you’re looking at some profit taking before year end.
at 12:08 pm
Agreed. I don’t find this whole “list low, relist high” to be as offensive as some seem to, particularly with such a valuable and one-in-a-lifetime asset. Don’t like that practice? Then move on, or lowball them to really freak them out.
at 2:11 pm
You are just thinking of it from the seller’s perspective, if you were a buyer and/or their representative agent – then I suspect you would think it is just a big waste of time even to freak them out!
at 8:57 am
David, do you ever see the Toronto housing market taking a dive, like how it happened in the 1980’s?
at 1:27 pm
I am not trying to speak for David, but based on his previous writings and his outlook, I think he might say something like this.
“Do you ever see” is a loaded question as there are many technically possible yet unlikely events that could crash the Toronto housing market (most of which would take down a lot of other markets as well).
Anything is possible, as are all potential paths forward for the market. The best you can do is assign probabilities of these events happening and act accordingly.
I’m bullish on Toronto in general long term (the city and its real estate), but even I would not load up on 10 income properties at these prices leveraged up to my throat. If I was in position to buy one property at these prices with the down payment representing 10-20% of my investment portfolio and I had a long time horizon and the time to tend to it, I certainly would.
at 2:41 pm
Thank you for your response I appreciated it, but I really want to hear David’s opinion on the subject.
at 2:45 pm
at 2:45 pm