If you haven’t heard about this yet, I’m actually quite surprised.
It was on Facebook all last week, every Realtor, buyer, seller, and likely even their mothers were talking about it.
A house in Toronto was listed at $699,000, received 72 offers, and sold for $1,365,888. That was 195% of the asking price, and the house was priced at only 51% of the eventual sale price.
Let’s examine exactly what happened here…
RECO rules prohibit me from providing sale information for properties that have not closed, as well as disparaging a competitor and/or a competitor’s property, and unauthorized advertising of a competitor’s property without permission.
Because of this, I will simply refer to the subject property of this blog as “the property,” and tell you that it sold somewhere on Planet Earth.
I’m sure you can figure out where it is, and I’m sure half of you already know, but even though www.tosolds.com and Zoocasa are breaking RECO rules and getting away with it, I’m still going to err on the side of caution.
I would see a tremendous amount of irony for me getting in trouble with RECO for writing this blog, when the protagonist in the story is getting crucified by the public and complaints are being launched by the dozens and yet there will be no repercussions.
Anyways, here goes…
Last week, a house (on Planet Earth….) was listed for $699,000, and it immediately raised eyebrows.
It was a builder-lot if I’ve ever seen one, and essentially it was land value only.
I figured it was worth about $1.1M, but I asked my colleagues who actively farm the area what they thought. Here’s what one colleague said:
“The land is worth at least 1mil. (NAME) and I tried to bully it for 750K this morning:) The agent said he’s already had 27 showings booked in less than 2 hrs on MLS and 2 offers (sight unseen). He’s gonna waste so many people’s time.”
I got a few emails from blog readers asking about the property as well, and even people not in the market figured this house was worth over $1M.
The $699,000 list price, according to most people, was just stupid.
But before I go any further, I want to make three very important points about the listing, the strategy taken, and the listing agent who is coming under fire:
1) There is nothing illegal about the list price.
2) There is nothing unethical about the list price, nor did it break any rules.
3) The listing agent did an absolutely fantastic job for his client – the seller, in getting potentially $150,000 (subject to opinion) more than fair market value for the property.
Disagree if you want, but those are the facts.
You can complain all you want, but the listing agent did nothing wrong, and worked within the rules as they are set out.
Having said that, the public is pissed, and I know that as I write this (Monday at 12:20pm), both the Toronto Star and the Globe & Mail are writing stories about the sale of this house, which will probably beat me to the punch as I get this up for Tuesday.
This is a story, and it’s a big one.
I don’t believe I’ve ever seen a house sell for almost 200% of the asking price, nor have I seen a house with 72 offers.
So what happened here?
The way I see it, there are multiple parties to “blame,” if you want to take that stance:
1) The Seller
2) The Listing Agent
3) The Buyers
4) The Buyer Agents
5) Anybody Else
Let’s go through these one at a time.
1) The Seller.
In today’s market, a seller is free to set the price as he or she sees fit.
If the seller wanted to list at $699,000, there’s no problem with that.
If the seller wanted to list at $1, there’s no problem with that either.
If the seller wanted to say “no” to all seventy-two offers, then re-list the next day, he or she could have done that as well.
There’s nothing wrong or illegal with the actions taken by the seller, whether you want to blame the seller for this mess or not. As I’m going to suggest when we look at points #3-5, I think other people are more to blame.
But it’s certainly unsettling to see a seller fully willing to waste this many people’s time, and make such a ridiculous farce of the offer process.
2) The Listing Agent
The listing agent acted on behalf of his client – the seller, and did a fantastic job.
You could argue that this property was “worth” $1,200,000, and in the end, it sold for $1,365,000.
Unreal job.
As for the process, sure, it could have been handled differently, and yes, this could certainly represent a new low point for organized real estate, and it makes all of us Realtors look bad.
But if this house was listed at $1,299,000, I don’t think it would have sold.
If it was listed at $999,000, would it still have sold for $1,365,000? I guess we’ll never know.
Nobody likes what the listing agent did here, including myself. But if you don’t like the game, then don’t play. Blame the seller and the listing agent if you want, but they wouldn’t have played the game if they didn’t have anybody to play with.
3) The Buyers
Here’s where the real blame lays, in my opinion.
The buyers who engaged in this fiasco should be ridiculed for doing so.
The buyers who offered $699,000, when the house is worth over $1.2M, should be dragged out into the street and shot.
If you’re a buyer, and you want to get involved with a house that has seventy-two offers, then give your head a shake. Ask yourself why you want to get involved in this melee, and you’ll likely come to one conclusion: “I just really hope I get it.”
Hope?
You hope?
“Hope” is the worst word in real estate. Because in this market, there is no hope. There is no luck. There is only reality.
And if you offered $900,000 on this house, don’t tell me, “I offered $200,000 over the asking price, so it had to count for something.”
Wrong.
If you did your homework, you would know that this was a $1.1M, or $1.2M, or $1.3M house. Your $900,000 offer was tantamount to offering $200,000 below the asking price, had this house been anything close to accurately priced.
Of the SEVENTY-TWO offers on this house, I’m willing to bet there were some folks at $710,000, or $750,000, or $770,000, or $800,000…..etc., etc.
These folks had no business submitting offers, but they did so anyways, either because they “hoped” they would win the lottery, or because….
4) The Buyer Agents
It’s one thing for a buyer to be clueless, inexperienced, and lacking the basic knowledge necessary to refrain from offering $850,000 on this house, but it’s another thing entirely for the buyer agents to get involved.
There are 40,000 Realtors working in Toronto, and much of the general public believes that they are all equal.
If a buyer agent advised his or her client to go ahead and offer $750,000 or $800,000 or basically anything below $1,000,000 on this house that sold for $1,365,888, then that agent should not be working in this industry.
That agent is worthless.
That agent has no value whatsoever, and that agent having clients is a real shocker to me.
So go ahead and work with some loser who offers you a rebate on his or her commission. Go ahead and work with an agent who puts in a solid 12-hour work week. Go ahead and work with your cousin from Ajax when you’re buying in midtown Toronto, or with your buddy who spent six years partying in Europe and has now been a licensed Realtor for three months.
The result?
Your agent sends you a listing for a house priced at $699,000, you offer $850,000, and you lose by a mere HALF-MILLION DOLLARS.
Inexperienced buyer agents are to blame for much of what is going on in Toronto right now. They’re driving up the prices by allowing their clients to be clueless (see Monday’s blog post….), and make offers that don’t have a hope in hell of being accepted.
5) Anybody Else
Your mortgage broker should have known.
Your mother should have known.
Your Starbucks barista should have known.
Anybody in their right mind should have known that this house, listed at $699,000, was going to sell for over $1,200,000.
And if anybody standing by and watching, held his or her tongue, then that person is to blame as well.
–
There’s part of this story that I left out, because it skews the fact that buyers and their agents are just as much to blame for this mess as the listing agent and the seller, but this story would be incomplete without pointing out the following:
i) The listing agent had five of his own offers.
ii) The listing agent “double-ended” the deal (provided the buyer for his own listing)
I’m not going to comment on these two points, because I’m sure you can draw your own conclusions.
Statistically speaking, each offer had a 1/72, or a 1.4% chance of being accepted.
So as I said – draw your own conclusions. But I’m not going to comment.
I said it at the onset, and I’ll say it again: The listing agent did a fantastic job for his/her client by getting $1,365,888 for this property.
That isn’t a point to debate.
If you don’t like the process, fine.
If you don’t like the outcome, fine.
But there’s nothing in the “rules” to prohibit anything like this from happening again tomorrow.
So perhaps we should add a sixth party to our list:
6) Organized Real Estate
Surely with more regulations in the industry, things like this wouldn’t happen, or would happen with less frequency.
Maybe dual agency (multiple representation) shouldn’t be allowed.
Maybe there should be a stringent set of rules for reviewing multiple offers.
Maybe there’s a way to punish under-pricing homes in Toronto.
But so long as there aren’t any rules to prohibit the actions we outlined above, I honestly don’t see anything changing…
joel
at 8:39 am
Did the listing agent do a good job for his buyer client?
With double representation he should be looking after both, or rather this practice should be banned as it is unethical.
Jason H
at 8:43 am
So I agree with most of what you said with some exceptions:
“But it’s certainly unsettling to see a seller fully willing to waste this many people’s time, and make such a ridiculous farce of the offer process.”
Actually buyers and (real estate agents) should know enough to know this property was way under priced. It’s not the fault of the seller or the seller’s agent in my eyes – such is life with competition.
Otherwise the rest of your post eludes to exactly what I just stated.
Paully
at 8:57 am
Wow, 72 offers and the listing agent had the good fortune to also represent the buyer! Awesome! He should buy a lottery ticket today too!
71 people have succeeded in substantially raising the eventual price that they will have to pay to buy in the same area! Brilliant!
Appraiser
at 9:07 am
The concept that what the industy requires is a stringent set of new rules regarding multiple offers is marvellous; so let’s hear them.
It must be assumed that everything was done ethically and above board, otherwise bring forth the allegations and evidence. What’s that I hear…crickets?
The idea that you can legislate honesty by introducing more rules is erroneous.
As for outlawing dual agency, it must be remembered that multiple represenation applies to the entire brokerage, including all branch offices and sales represenatatives. Not ‘gonna happen.
With 72 bidders (or 172 for that matter), it’s clear that there was only ever going to be one “winner” in this story. So sour grapes aside, I think it’s important to remember that it’s not so much the rules governing multiple offers that are the culprits here, it’s the market. If there were more SFH’s to choose from…well, you can guess the rest.
But, there aren’t. Tough.
vap57
at 12:12 am
It is late, and I’m tired so my apologies. What the crap are SFH’s? You had me till then, and you go and screw up your entire argument by adding something that goes right over my head.
ScottyP
at 10:08 am
Single Family Homes.
Joe Q.
at 10:15 am
I think David has summarized the issue well. I have a couple of additional comments.
(1) Joel raises the point that, in this case, the listing agent’s client was not just the seller, but also the successful buyer (and apparently four other unsuccessful ones). Obviously the client who was paying (most directly) is the one whose interests were best served by this deal.
(2) Just based on back-of-the-envelope calculations, the amount of wasted time involved with this transaction is staggering. If we assume that 50 of the 72 bids had no chance, and that each of those bids involved two hours of work (just plucking that number out), that’s 100 person-hours of wasted time for one transaction. Two and a half standard work weeks. Clearly there are many Realtors with a lot of time on their hands.
(3) Whether the seller’s / listing agent’s actions cross into the “unethical” is a matter of opinion. But transactions like these certainly don’t do anything to improve the reputation of Realtors as a group (who already get low marks for trustworthiness and integrity).
johnny chase
at 5:05 pm
“(1) Joel raises the point that, in this case, the listing agent’s client was not just the seller, but also the successful buyer (and apparently four other unsuccessful ones). Obviously the client who was paying (most directly) is the one whose interests were best served by this deal.”
Actually this is incorrect. The buyer was not a client… technically he was likely a customer. There is a big difference according to TREB.
Joe Q.
at 12:53 am
Interesting. A way to get around potential ethical issues around multiple agency? “You can have lots of customers, but only one client”?
Kyle
at 10:23 am
I have no sympathy for any of the buyers and buyers’ agents if they weren’t within 5% of the eventual price. This is a lesson in pricing and market value that they clearly needed, so i wouldn’t necessarily call it a waste of their time, in fact for the dumb agents that brought sub 1M offers this schooling was probably time very well spent, and hopefully they won’t be so dumb next time around.
http://www.thestar.com/business/2014/04/28/lawrence_park_fixer_upper_gets_72_offers_goes_for_195_per_cent_of_asking.html
Kaan Speeracy
at 10:39 am
I agree with most of the article David and I wouldn’t have such an issue with the Listing Agent if he did NOT end up winning on the Buyer side as well. It should be pointed out that this Agent works out at Kingston Rd and Morningside and I have been told he only does a handful of deals each year…definitely not one of the successful experts in the Lawrence Park area where this house was located. He was quoted in The Star saying that “Usually, he prefers to meet face to face with bidding agents for 15 minutes or so to enable them time to make their spiel on behalf of their buyers” but changed plans due to number of offers….BULLS**T! From Day 1 he had it made clear in the listing that he is only accepting offers via fax or email. He was also quoted to say “We expected in the $1.1 million range..”. So the ultimate question is “How does an out-of-area Agent who priced a home at $699K and expected around $1.1M, come up with the winning bid (5 out of 72 chance) of $1.365M”. Add to this that no other Agents were allowed to present and that his office had all other offers in their possession to review beforehand. Just playing the Devil’s Advocate here but if he did use his power/access to get his Buyer the winning bid, he wasted the time and efforts of the other 67 Buyers and their Agents and should be ashamed.
Stacey
at 1:52 pm
This is not an angle I considered, but I now fully agree…
Jim Smith
at 12:15 pm
The fact that the listing agent had 5 of his own offers was what really jumped out at me. I’d be curious about when those offers were placed – specifically if they were early on in the process to drive the start of the bidding war.
Seems easy enough to game the system unless I am missing something. Under list a property, have some of your clients register phantom offers to create an artificial demand and multiple offer situation (even if one does not develop naturally), and ride the frenzy to an overly inflated selling price.
I would love to see an open bidding system mandated where all offers are available for other agents to see.
Appraiser
at 1:06 pm
Wow that’s quite the wild, baseless, moronic speculation there @Jim Smith.
After all, as everyone knows, Realtors have easy access to 4 or 5 clients who are willing to participate in contract fraud, risk jail time and end up with a criminal record on their behalf. Yikes!
P.S. An open bidding system is called an auction and is perfectly legal in Canada.
Jason H
at 2:49 pm
I think there is some marketing fraud going on now:
“Sold at 195% over asking!” <— FRAUD
Kaan Speeracy
at 2:58 pm
there has always been Agents trying a $1 Listing (auction) which would be 1,365,000% over asking so NO, this is NOT FRAUD! Setting the List Price is a completely subjective process and usually has no relation to actual market value (i.e. what someone is willing to pay for it). The ONLY shady thing here is the Listing Agent having access to all submitted offers and not allowing personal presentations AND THEN winning the bid with his Buyer…the only thing that could be implemented by the Board is some kind of sealed bid process (when the Listing Agent demands fax/email offers only) AND/OR not allowing Buyer Agents to deny presenting their offers in person…do you agree with that at lease Appraiser?
Kaan Speeracy
at 3:02 pm
sorry, last line should read “…AND/OR not be able to deny Buyer Agents the opportunity to present their offers in person”.
Appraiser
at 4:21 pm
Since the advent of buyer representation, offers presented in person have gone the way of the Dodo bird for the most part. And besides, it’s up to the seller to decide, not the Board. Plus, I’m not sure why it makes any difference whether or not the offer is presented in person. In this case with 72 offers, the process would have taken 2 days or more to complete after all of the how-dee-do’s, handshakes small talk etc. Not practical.
P.S. Re: “Sealed bids”
All offers presented on the standard forms are deemed to be signed under seal. If on the other hand you were referring to “sealed envelope”, I still don’t see the difference.
Jason H
at 7:21 am
Actually to me it is fraud.. It’s the same thing as vendors who say items are on sale and markup the list price to have it on sale for the same price as if it weren’t.
It should not be used as a marketing scheme because most people are functionally illiterate and believe the marketing. It’s kinda how condo developers sell condo’s as good investments at the pre-construction phase.
So yes to me.. Fraud.
Jim Smith
at 3:38 pm
Is it illegal for those 5 or 6 clients put in a perfectly legal offer on the property? One that would never in a million years be accepted? Say, an offer at asking price conditional on financing and a home inspection? Serious question by the way – I don’t know the answer. There is nothing wrong with the offer itself, but is there more to it if done with the guidance of a realtor?
And i wouldn’t call it baseless or moronic, there are plenty of articles about phantom bids in Toronto floating around, and even an old blog post on the topic on this site.
Kyle
at 4:06 pm
When an agent underprices by 500K, it really isn’t necessary for him to collude with 5 of his clients (with whom he presumably would like to preserve some semblance of a reputation) to put in phantom bids for fear there won’t be enough demand.
Appraiser
at 4:26 pm
Since the advent of buyer representation, offers presented in person have gone the way of the Dodo bird for the most part. And besides, it’s up to the seller to decide, not the Board. Plus, I’m not sure why it makes any difference whether or not the offer is presented in person. In this case with 72 offers, the process would have taken 2 days or more to complete after all of the how-dee-do’s, handshakes small talk etc. Not practical.
P.S. Re: “Sealed bids”
All offers presented on the standard forms are deemed to be signed under seal. If on the other hand you were referring to “sealed envelope”, I still don’t see the difference.
Appraiser
at 4:53 pm
@ Jim Smith: If the intention is fraudulent…it’s fraud!
FroJo
at 1:57 pm
OFF TOPIC-ish: Will there be an iconic transaction that represents the acme or nadir or tipping point for the present market? Has there been such a transaction in the past (late 80s / early 90s)? Or is it just a collection of observations over time that properties have been not been selling above $X (or, as now, you’ll never find anything under $Y million in that area)?
The invisible hand is made up of a multitude of small decisions, I know, and these are naive questions and this is definitely the wrong forum.
J
at 3:36 pm
I don’t understand people who decide to make an offer on a house after they hear that there are already 30, 40, 50+ offers! Also, Glencairn west of Yonge is Lytton Park isn’t it, not Lawrence Park. BTW, I live in the area on a similarly sized lot and I’ve had builders knock on the door and offer $1.2M for our lot.
J
at 4:49 pm
Oh, I wanted to add that a few months ago, a 25 foot building lot with mutual drive sold for $1.2M so this price isn’t so far out of line. I do think that these prices are ridiculous overall, but that’s a different story!
Frank
at 6:18 pm
I think Appraiser was the agents!!!
Mortgage Broker
at 9:10 am
The whole issue about the listing price is really how the final sale price is advertised to the public by the media . That is the bullshit part about real estate in Toronto and what suckers newbies into over bidding on homes. They actually think it’s cool now to blow money on a house and say they “won a bid”. Meanwhile they will get roasted in the long run when rates head back up to 6% and prices correct. Oh and $2 litre gas pretty soon for your leased Merc.
My biggest concern is the whole percent of list price advertising. Considering many listings start higher than the actual price it sold from. Lots of houses have been reduced 5 times in a year, yet you dont see an ad saying ” sold at 50% of original list price 1 year ago”.
The market and the media are geared to over hype sales of homes in “nicer” hoods. Sucking in the noobs for multiple offers. The whole business is like a carnival now and realtors know it and take advantage of it. Can’t really blame them though, there’s money to be made off stupid buyers.
M
at 5:01 pm
Dead right. A property can be reduced several times…then sold. The selling price is then “98% of asking!!, etc…” I think very painful days are ahead of us. Educating the majority of Canadians about the true value of a dollar or actual asset value will be a brutal process.
George
at 11:00 am
Did the listing agent really do a “fantastic job” for the seller, or did he somehow leave money on the table by not enabling an environment where competing bidders could eventually outbid his own buyers?
Paully
at 12:41 pm
In a situation like this one with so many high offers, shouldn’t the listing agent announce to all the bidders at the end of the offer presentations that the highest unconditional bid is now $1,365,888? Then they could give everyone thirty minutes to come up with a higher offer, or they will accept the previous high bid.
It gives all participants a fair knowledge of the best bid and an opportunity to go in for more. I know it is greedy, but wouldn’t that maximize the potential sale amount for the vendor?
Lulu
at 1:23 pm
I see nothing wrong on the asking price or what not,it’s a tactic afterall, only thing put me off is the LA double ended the deal, and this is so so bad and unethical, this is so not fair to other 71 buyers and their agents when the LA can see all the offers and the winning bid is his own buyer, clearly a conflict of interest.
I think the rule should change, no more double end deal, enough is enough!
Kyle
at 1:56 pm
100% agree there’s nothing wrong with the tactic and it has been in common practice for so long in this city that you’d have to have been born yesterday not to realize the listing price of this house is meaningless.
When i read the Star article the part copied below struck me as being pretty sketch. One has to wonder why an independent broker handled his other buyer clients, except the one that actually won, which he presented himself, could it be because he wrote the offer price in after seeing everyone else’s offer?
“Even then, Hutton said he was shocked by the number of offers — so many that he insisted on having realtors just email them in or drop them off at his office before the 7 p.m. Sunday deadline…But Hutton said he had a third party, an independent broker from his office, handle all the bids with the exception of the winning bid, which he brought to the table himself.”
Lulu
at 2:40 pm
Real Estate is an art form, don’t we all agree at some point? I think Hutton himself play this drama roll really well to a point he think this can fool all the audiences. Funny enough he GOT all the attention and talking point maybe or probably all over Toronto if not the whole GTA. This could be good or bad in his future career, who knows, maybe next month or few months down the road, a house with 300% of asking price top the headline news and this one become elementary.
I’m stocking up my popcorn, and you guys?
Ed
at 3:50 pm
Hi David,
I hope you don’t mind me asking a question here.
With regards to the current market conditions we have with SFH in the 416 area and the manner in which homes are listed is the Sellers agent providing value, or more specifically value equal to 2.5% of the selling price?
Let’s use this sale as an example.
The sellers, or listing agent, posted this home well under it’s expected selling price. I see nothing wrong with that and it appears to be a very common practice especially in the more desirable hoods.
So lets say the home was listed on April 11th, and accepting offers on the 22nd. And in between there was a open house or two.
Because of the strategy at play we can conclude that come April 22 there will be multiple offers on the property and maybe or maybe not certain offers may get sent back to try and bump them.
So far so good.
My question is has the sellers agent and broker earned their half of the $68,294 commission payed by the seller? Keeping in mind that the strategy behind this sale ensured that the whole process was complete within about two weeks.
Should there be another commission model in place for sales such as this?
Or does the whole commission model need a rethink in the GTA?
rr
at 5:18 pm
The way I see it is that 71(the bidders that lost) of 72 bidders were the winners. The party that won the bid is the idiot and the looser!!
Sabrina
at 10:13 am
In the last stretch of my pursuit of a real estaste licence. Write the exam for COURSE 3 on Sat May 3. I have spent a lot of time over the last 6 months studying and immersing myself in all things real esate. But most of it at this point is theory, and my own interest to be informed. I fully realize that in practice , on the front line of this or any other industry is where the real learning happens.
But with regard to the transaction you refer to in this post, it raises just so many questions for me , from someone who has just spent many, many hours trying to learn and understand how the real estate business operates.
So David, or anyone else , could you answer or Comment on a few questions from an interested student.
In Toronto at the present time the whole concept of an accurate appraisal,( the so very important aspect of selling a house, according to everything I have been studying) would seem to me to be meaningless and unnecessary.
An accurate appraisal and establishing a saleable list price ( supposedly one of the important functions of a good real estate agent ) , along with good marketing and strong people skills ( also honesty, integrity and disclosure) is a main focus in all the courses. How is any of that relevant in the current Toronto market ?
To me this transaction is better described as ” an auction” with a minimum bid. And from what I have learned you don’t even neen a real estate licence to auction off houses!!
To me just too many people are being negatively affected by transactions such as this . The view that he got the best price for his client and that is his job, at what cost ? I think the industry needs to play a role in stopping this. Listing a house for what it is worth and working to promote and sell it in an open process is a reasonable expectation. The procees in this instance and I guess many others , seems like a game of some sort. And the winners in this case , will be losers down the road because what comes around goes around a lot of the time.
Ed
at 4:21 pm
Sabrina it sounds like you might be in for a rude awakening in your chosen new field.
Best of luck.
C Sandi
at 5:07 pm
Hi David. On your article you say “RECO rules prohibit me from providing sale information for properties that have not closed”. My understanding is that RECO’s prohibits all real estate agents from disclosing the sale price of home whether the sale has closed or not. The only way agents are allowed to disclose information is by receiving a request (such as an email or phone call) from a prospect.
John
at 4:50 pm
“The buyers who offered $699,000, when the house is worth over $1.2M, should be dragged out into the street and shot.”
What an idiotic thing to say, they have every right to make whatever offer they want, saying they should get shot for it simply shows how much of a moron you are.