Throwing Your Hat In The Ring

Condos

4 minute read

March 3, 2010

Would you submit an offer on a property when there are multiple offers, and you know in your heart that you have no chance in hell of winning?

I wouldn’t, but a lot of buyers out there would….and do.

I think it’s a mistake to just throw your hat in the ring, and I’ll tell you why…

hats.jpg

I’m going to tell you the following story, and I hope you don’t hate me.

Understand that I did what I did because it was the right thing to do, and not because I’m a jerk.

In early January, I was working with a girl named “Mabye” who was looking to buy an entry level condo.  Mabye wasn’t just looking for any condo, however, she wanted to live in the ever-so-popular “Liberty Village” area.

Mabye was pre-approved for a purchase of $275,000 through her mortgage broker, and thus we began looking at properties in and around her price range.  As I do with all my new buyers, I made sure to thoroughly explain current market conditions to her.  I showed her past sales for units in Liberty Village where sale prices exceeded list prices, and informed her that for every Mabye that is looking for a 1-bedroom starter condo in Liberty Village, there is a Madeline, a Melissa, a Meghan, and a couple of Matildas.

A condo came onto the market at $279,000, and Mabye decided that “this was the one.”  We even brought her parents in from Milton to have a look.

I showed Mabye the comparables and explained that this condo would probably fetch $300,000 when offers were reviewed, and she seemed to understand.

But on offer night, and with four offers already registered, she shook up the world worse than Muhammad Ali when she proclaimed, “I’d like to offer $275,000.”

I smiled at first, as I thought she must be kidding.  She was 27 years old and had a Masters in Psychology so I assumed she was anything but naive.

But she reiterated her desire to offer less than the asking price despite the presence of four competing offers.

I tried my best to convey to her that this condo would likely fetch $305,000 or more, but she was incorrigible.

She claimed, “I just wanna throw my hat in the ring; see what happens!”

I already knew what was going to happen.  Why go through the motions?

So I did something bold, that I would do again ten times out of ten: I refused to submit her offer.

She wanted to submit an offer of $275,000 on a property listed at $279,000 that had four offers and would likely sell for over $300,000.

I wasn’t going to do it.

I told her my reasons why, obviously, “You have exactly 0.00% chance of getting this property for $275,000, so there is no point in submitting this offer.”

And more to the point, all it would do is help to artificially drive up the price!

With four offers, perhaps the top dog would offer $300,000.  But if Mabye threw her hat in the ring with her BS offer to make it five, I think the top dog would end up paying $305,000.

A friend of mine said, “What’s the problem?  Submit the offer, keep your client happy, and keep your client, period!”

I just didn’t see it that way.  I thought that submitting what amounted to a dummy offer might not be unethical, per se, but it was certainly a crummy thing to do.

In the end, I told Mabye, “I’m sorry if you disagree with my approach, and while there are probably thousands of other Realtors out there that would love to submit this offer for you, I won’t do it.”

And she dumped me.

My friend told me, “You’re a moron.  You just lost a buyer because of your ‘integrity’ as you see it.”

I disagree.

Mabye was never a buyer.

If she wanted to run around town offering less-than-asking on properties with 4-5 offers, then she wasn’t actually going to buy something, and I would rather spend my time working with buyers that would actually buy.

I am, after all, trying to make sales, as a salesman…

But I also didn’t feel very good about needlessly driving up the price of real estate in an already competitive market.

Last week, something incredible happened in my building: the unit exactly ten floors up from me received twenty-one offers.

Call me vain, but on the first day of every month, I make a “NET WORTH” statement that lists all my assets and liabilities so that I can keep track of my finances.  I have pegged my condo value at $335,000 and it has remained unchanged for about six months.

The unit ten floors up from me is the exact same floor plan as mine, however, as has been noted on this blog about once per month for the last three years, I have an awe-inspiring 440 square foot private terrace.  THAT is the major difference between my unit and the one ten floors up from me.

Well, I also have substantial upgrades such as:
-Crown Moulding (2007)
-Hardwood Flooring (2008)
-Berber Carpet (2008)
-Slate Kitchen Tile (2009)
-New Washer/Dryer & Built-In shelves (2009)
-All Around Awesomeness (2007 – 2010 inclusive)

If the condo ten floors up from me sold for $333,000, I can’t even fathom what my place is worth with the 440 square foot terrace and the upgrades.  How about $375,000?  I digress…

My point about the twenty-one offers is this: How many of those offers had no purpose being submitted?

Listed at $279,000, and with a recent comparable selling for $320,000, how many of those offers were pointless?

How many buyers simple mailed it in?  How many just threw their hats in the ring?

If you were under $300,000, it was pointless.  I’d say maybe 5-6 of the twenty-one were under $300,000.

If you were under $310,000, you should have known better.  I’d say probably 10-12 of the twenty-one were under $310,000.

How many serious buyers were there for this condo?  Maybe 4-5.

And that is the problem with our market: too many buyers are just throwing their hats in the ring.  They’re mailing it in!  They’re driving the price up for the serious buyers.

Some of these buyers are so stubborn and so ego-driven that they can’t see past their own dreams.

Maybe that’s why they throw their hats in the ring – their heads inflate with illusions of grandeur and the damn hat no longer fits on their head…

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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8 Comments

  1. LC

    at 2:20 pm

    I don’t think you made a foolish move. Chances are this woman will not be buying a condo anytime soon…even if prices drop, she will always been aiming low trying to find the bottom. I can’t say I blame her for trying, but she’ll go through a few agents anyways in her quest. You probably weren’t the first, and you definitely won’t be the last.

  2. marc

    at 3:21 pm

    David – You are looking at it with the wrong perspective. What about the sellers/selling agent purposely underlisting the properties and witholding offers for a week? How is that any different? That is the root of the problem. If i go to the gas station and it says $1.00/L, that’s what im paying. They don’t ask me to wait a week to pay for it, bid it up and expect $1.30/L in return. List your property at fair market value, that will save alot of time for both buyers and sellers.

  3. buk

    at 5:29 pm

    Interesting read, but I think you are laying the blame on the wrong side. What about the sellers and selling agents that are purposely under listing their units and withholding offers for a week? Is that not the root of the problem? If I go buy a banana @ Loblaws for $0.99, they don’t ask me to wait a week to buy it and then proceed to bid on it and expect me to pay $1.30. How about agents listing units at fair market price? In your scenario, your client would have never bid on the unit if it was listed at $300k. Granted it was naïve of her to go in below asking, however it is human nature to get that “deal”.

  4. Adam

    at 6:44 pm

    I think it shows complete disrespect throwing out offers like that. It’s such a waste of time for everyone involved in an already tense situation. I think you did the right thing, and besides, who is anyone to argue with you, it’s your commission.
    Maybe if she wants a place for under list, she should be looking in Mississauga or Brampton. Or just wait for the big correction to happen in Toronto all the naysayers are predicting!

  5. buk

    at 11:17 pm

    sorry about the double post! didn’t see my original post there.

  6. FrankyB

    at 11:43 am

    I agree that both the low-ball offers and artificially-low asking prices are at the very least annoying and at worse disingenuous and unethical. I saw a house once where the asking price was clearly too low and the listing agent was laughing at bidders and saying, “Yeah I’m really sorry, but not really. I know this is just a ridiculous listing price, but what can you do, that’s the market”. The house ended up selling for 25% above asking.

    Here is a potentially-crazy suggestion (up for debate):

    What if you were forced to re-open bidding to everyone at a revised listing price, for at least, say, 48 hours, if your top offer was 10% above the original asking price? Would that curb chronic under-listing? Would it somehow hurt buyers and/or sellers (other than sellers no longer benefiting from the lack of transparency)?

    I am not sure we can do something similar for offers lower than 10% of the asking price because it may unduely prejudice sellers and expose them as having a weak hand, but also food for thought.

    Reactions welcome.

  7. mike

    at 11:48 am

    here’s the deal, take the 2.5 % commission off the table from the seller, and negotiate a price to charge your purchasing clients.

    Show up at the “offer stage” and say, your commission is 0% and that you have worked out compensation with your client. All of a sudden your time has value, and you can charge your clients that are serious buyers, not just kicking tires.

    Times are about to change for RE agents, why not be on the cutting edge.?

  8. George

    at 7:39 pm

    The only additional thing I would consider if I was in the writer’s position is that Maybe would get a chance to make her first offer. After you make one offer, subsequent offers become easier and you become more comfortable with how the game is played. She won’t become a buyer until she learns what to bid, and she will have a better chance of learning that if she actively participates in the bidding process. Sometimes getting blown away is a good wake up call.

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