Where Do You Turn After You’ve Turned Down The Highest Offer?

Business

10 minute read

August 13, 2021

Do you watch basketball?

I don’t.

follow pretty much every sport there is because I’m a stats junkie, and I keep a 200-page book of statistics by my bed which is what I read at night when I can’t sleep.  That book is comprised of printed Excel spreadsheets that I have made myself and continuously update.  Sure, I’ve got all the big sports covered.  But you want winners of major tennis championships dating back 120 years?  It’s in there.  Formula One Championship winners?  Got that too.

Lately, I’ve been following the business of sports as closely as the sports themselves, and when it comes to basketball, I can’t believe the money that’s being thrown around.

Steph Curry just signed for $54 Million per year.  That’s nuts.

The highest salary in the NFL is $45 Million, which is that of Patrick Mahomes.  There is way more money in football, but there are 54 players on an NFL roster compared to maybe a dozen in basketball.

The crazy thing about basketball is that the average players make obscene money!  There have been 217 free-agent signings so far this year and the average salary is $9,000,429 per year!

Who in the world is John Collins and why is he making $25,000,000 per year?  It’s crazy.

But every so often, you hear about a player that would have, could have, should have taken the money and run, but didn’t.

This year’s loveable loser is a chap named Dennis Schroder, who played point guard for the Los Angeles Lakers last season.  I have never heard of him, and I was surprised to see that he actually started all sixty-one games in which he appeared.  Playing with LeBron James surely inflates your statistics and sense of self-worth, no?  Los Angeles provided him with a contract extension offer of $84,000,000 over four years, or $21,000,000 per year, but he turned it down, thinking he could do better on the free-agent market.

Huh?

More than $21,000,000 per year?

Okay, sure.  You know best!  I mean, I have never heard of him so who am I to suggest he couldn’t obtain the $100-$120 Million that he was reportedly looking for over four or five years.

Yesterday, Dennis Schroder signed a free-agent deal with the Boston Celtics.

Wanna know how much it was for?

Oh, this is the juicy part!  This is why you’ve been reading!

Ready?

$5.9 Million.

Dennis Schroder signed a 1-year deal for $5.9 Million after turning down $84 Million, and let’s not forget that NBA contracts are guaranteed.

His only hope is that he plays out of his mind this year and then somebody offers him $30 Million per year next summer, otherwise, this is one of the worst instances of “players knowing best” and it will go down in history.

I feel for the guy.  I’m sure he had an agent and a dozen family members all advising him on what to do, and they were probably pumping his tires and telling him how great he was.  But at the end of the day, it’s his decision, and he made a really, really poor one.

Hindsight is 20/20, I know.  But greed that leads to hindsight is something different.

This week, an interesting article came out in the National Post:

“The Great Real Estate Cool-Down Has Come”
Danny Sinopoli
August 11th, 2021

The subheading reads, “Sellers turning down offers in hopes of a better one: Be warned.  We’ve entered an adjustment phase.”

First of all, I don’t think that a “cool down has come.”

We’re in summer.  Hello?

Every year, the average home price drops from June to July and July to August (see: any previous blog I’ve ever written…), and sales drop substantially.

To suggest that the “cool down has come,” as in, the market ahead is going to reflect the currently somewhat cooler market, is in my opinion, foolish.

You could call this a sample size error if you’d like but I think it’s more a case of recency bias.  By the same logic, you could point to a January-to-February average home price increase of 5.5% and forecast a 66% year-over-year appreciation ahead.

But let’s ignore the forecasting for a moment and focus on the rest of the article which will explain my Dennis Schroder story above.

From the article:

During the first week of August, a home seller in Hamilton received a purchase offer amounting to $100,000 above the asking price. But rather than thank the real estate gods for their munificence, the Steeltown homeowner rejected the bid, convinced that a better one was just around the corner. It was the latest instance, says Rob Golfi, the realtor whose office attempted to broker the deal, of how inflated expectations in still-hot-but-cooling Canadian markets such as the GTA are causing home sellers to miss out on otherwise profitable exchanges. As Golfi recalled the Hamilton case in an interview recently, the property in question remained unsold.

“Many [sellers] are realizing weeks later that they botched a great offer and regret becoming overly confident and unsatisfied with the offers they declined,” says Golfi, whose firm, RE/MAX Escarpment Golfi Realty Inc., is a leading brokerage in the territory stretching from Halton Region to Niagara.

He adds, “It’s difficult for sellers to understand that we are now in an adjustment phase.”

Knock on wood, but only once in my career have I represented a seller who turned down an offer only to sell for less, and they turned down a verbal pre-emptive offer that was never on paper, so I think we get an asterisk on that one.

I’m not saying it can’t happen, but I am saying that it’s never happened to me, and I think a lot of agents can make the same claim.

On Wednesday, I talked about the price of conditional offers and a seller’s risk tolerance in accepting a higher offer with a condition over a condition-free bid that’s for slightly less money.

Today, let’s discuss the idea of turning down an offer and selling for less later on.

My first question and discussion point is this: where do you get your ‘target price’ from?

If you own Unit #2301 in a particular building and Unit #2201 just happened to sell last month, then alright, we’ve got ourselves a realistic target.  But if you’re going to be responsible, you simply must have a sample size of more than one, right?

All too often, we hear about a seller turning down “a high offer” in either stories like the National Post article or anecdotes from our office chats and it’s usually because they picked one sale as a comparable latched on to it.

If you had sales for the same condo of $526,000, $531,000, $522,000, and then $560,000, what do you expect?  I feel as though few sellers out there can look past that juicy $560,000 sale, and thus it becomes their floor.  In reality, the $526,000 sale led to a $531,000 sale, but the next man up didn’t beat that $531,000 sale; in fact, he sold for $522,000.  So where does today’s seller get off ‘demanding’ a $560,000 price floor?

More often than not, the sellers who turn down offers and never see another one like it have simply set their sights too high.  And as I’ve argued many times before, I blame listings agents for not laying the groundwork.

I had a call this week with a prospective condo-seller who had their property listed earlier this spring with another agent.  They tried the condo at $899,900 with an offer date and it didn’t sell.  They then re-listed it at $1,199,900 and let it sit for almost four months.  They asked me, “What can you do for us?”

I told them that I could do something that their last agent didn’t, and they were intrigued.

But when I said, “I can tell you that you’re absolutely delusional about the price expectation,” I think I might have lost them.

There was absolutely, positively, nothing to justify their $1,199,900 listing price.  Previous sales might have pushed this unit up toward the $1,100,000 mark on a good day.  Like, on the best day of your life!  But what they were asking was insane.

Amazingly, they told me that they had an offer for $1,100,000, with no conditions, but the buyer said, “This is a take it or leave it, we’re not open to negotiations,” and the sellers decided to leave it.

I was aghast.  Honestly, this place wasn’t worth $1.1 Million.  It just wasn’t.  And maybe the reason they got this offer was that they were so damn over-priced in the first place, and the buyer thought, “If I get this for $100,000 under list price, it means I’m getting a deal.”

I asked why they didn’t consider the offer, and the husband said, “It was way too low.  It was a HUNDRED thousand dollars below our asking price.”

I explained that if he was listed at $1,299,900, then it would be two-hundred-thousand below his asking price.  And if he was listed at $1,699,900, then it would be five-hundred-thousand below his asking price!

He wasn’t amused.  He said that I wasn’t taking his “plight” seriously.

Plight?

Man, this guy turned down an offer that was more than his place was worth, and he then sat on the market for three months, and he’s talking about plight?

I explained that his listing price was arbitrary at best and no reflection of the current market value.

He then said, “What kind of buyer doesn’t negotiate?”

I explained that he got emotional and decided that he didn’t like the buyer or the situation, and let that cloud his judgment.

Eventually, the sellers told me that they wanted to list for “at least” $1,199,900 this fall, so I wished them good luck and I hope they’re able to move the condo in the end.

My point is that, more often than not, the sellers who turn down offers only to never see that price again were either incredibly over-priced to begin with, or had ridiculous expectations, or both.  And more often than not, that’s based on one sale that they’ve hand-picked, while ignoring other evidence that the property could be worth less.

The National Post article uses the word “greed” to explain this phenomenon.

Personally, I think “stupidity” is more apt.  But if that sounds rude or insensitive, then perhaps I can rephrase to say that inexperience combined with being stubborn and having tunnel vision can often come off as greed when poor decisions are made, but it’s not always just about the money.

My second question today: how long would it take you to come to your senses?

Some sellers always believe there’s “another buyer out there.”  It doesn’t matter the property, the market temperature, the length of time listed for sale, or the interest level (or lack thereof).  Some sellers fall back on this idea that there’s a “right” buyer out there, and it’s only a matter of time.

I have this argument about time with many sellers.

Sellers say things like, “I’ll wait as long as it takes to get my price,” and I remind them that there’s an inverse relationship between days on the market and leverage.  The longer you’re listed for, the less leverage you have.  For a $799,900 condo, with no offer date, you’ve got all the power in the world in the first three or four days.  Once you’re past one week on the market, you’ll have a tough time getting the full list price.  After a month on the market, you’re going to start getting offers in the $750,000 range from people hoping to land the propety for $770,000 or below.

The seller that turns down an offer, and then starts to see lower offers, will have to go through the motions before becoming sensible.  It’s like the stages of grief, and it starts with denial.  A seller who turns down $1,500,000 but then sees a subsequent offer come in for $1,450,000 will say something like, “These buyers are clueless,” and that “The agent doesn’t know what he’s doing.”  Try telling that seller that the market has spoken and this is what the property is worth, and that seller might fall back on, “There’s a right buyer out there for my house, and this buyer isn’t it.”

For sellers who have bought a new property, firm, and need to have their existing property sold in order to obtain a bridge loan, the decision may ultimately be made for them.  Where those sellers get into trouble is when they simply refuse.

That leads to my next question: when does a seller go nuclear?

Let’s say that a person buys a new house on March 30th with an August 15th closing date, for $2,500,000.

The seller figures that there’s no rush to list, and that he wants to ride the market appreciation.  He plans to list in mid-June when the weather is great and the market is peaking.

The seller “knows” his house is worth $1,600,000, as he’s hand-picked some convenient comparable sales, and his real estate agent fed him exaclty the price he wanted, in order to get the listing.

By mid-June, the market has cooled significantly.  Everybody has bought, it seems!  The number of showings are way down and so many people are up north every weekend, that it almost feels like the market is asleep.  But listings are actually up.

The seller lists at $1,299,900 and amazingly, gets a bully offer for $1,550,000!  Showings were way, way down, so this was an incredible result!  But the seller refuses to sell for less than his neighbour sold for in March, because his neighbour didn’t have his hand-laid marble tile in the foyer, and his hot tub recessed into the back deck, and of course, the built-in bar in the basement.

Offer day comes, and it’s crickets!  They get two offers, the highest of which is $1,350,000.

It’s a nightmare.

But the seller isn’t fazed.  He re-lists for $1,599,900 the next day.

It’s only June, right?

But the property sits for a full month before somebody offers $1,500,000 on July 15th.  Closing is 30 days away, and the listing agent advises the seller to accept the offer, but the seller doesn’t budge.  He wants $1,600,000, and he’s already been offered $1,550,000 anyhow.

Property sits for another two weeks before they receive an offer for $1,450,000 on July 30th.

The seller is supposed to close on the new house on August 15th and needs to have the existing house sold firm by then.

But the seller refuses.

Instead, the seller calls his agent and says, “I need you to get me out of my purchase.”

This is an example of going nuclear.  And while I have never seen this happen or even had a colleague encounter this, it’s happened.  Because when it does, these people sue each other and it ends up in a Bob Aaron article in the Toronto Star.

This is the worst-case scenario for a seller who sees lower and lower offers coming in on a property.

It’s human nature, after all.  How easy do you think it would be to accept an offer for $1,450,000 when you’ve turned down $1,550,000?

The crazy part is, the seller may have paid $820,000 for that damn house.  That is where this goes from “stupidity” to “greed.”

The National Post article made news of something that rarely ever happens, but there’s some good lines here, such as this one:

“They’re listening to their friends and family and not listening to the realtor. They’re seeing what their neighbours got for their homes in March and April and they’re saying, ‘I want that. I want more than that. My home is worth what they got if not more.’

Sometimes, pointing out that “nuclear” option and the worst-case scenario is a good way of adding a bit of context to the message.  Or at least, that’s my way of doing it.

I still think the National Post article is wrong on the diea of the “cool down” in the market, but I think they’re reporting on Ontario, since something like this is completely inaccurate:

…the gradual decline in home prices since the springtime peak has less to do with the typical summer real estate lull than a return to more realistic valuations.

Um, no.  Come talk to me in the third week of September and we’ll see how that quote ages!

Alright folks, that’s it for me!  I’m off next week for another attempt at a vacation, even though that means laptop, wireless mouse, HD webcam, ear buds, and a stack of note-pads, not to mention my trusty old-fashioned leather day-planner which I refuse to replace with this thing called “technology.”

I’ve got a couple of blogs scheduled for next week which I think you’ll like.

Riddle me this: what can Michael Jordan tell us about the Toronto real estate “bubble?”  Find out on Monday!

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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9 Comments

  1. Pingback: Best Real Estate Agent In GTA – Where Do You Turn After You’ve Turned Down The Highest Offer? – Toronto Realty Blog
  2. Steve

    at 8:07 am

    The missing piece in the Dennis Schroder saga is that in between that Lakers extension offer and his free agency he absolutely stunk it up in the playoffs. Guy bet on himself and lost.

  3. Appraiser

    at 8:12 am

    Excellent article David. And timely.

    After 36 years in real estate, I can report that overpricing one’s property remains the absolute worst decision a seller can make.

    Had a frank discussion about pricing with my daughter and son-in-law last week as they prepared to list their townhouse for sale with a good local agent. They close on a brand new build in October, so no time to go nuclear. They priced it right.

    Long story short, the place sold in one day for over asking. More importantly – they got $273,000 more than they paid for the townhouse 3.5 years ago. This narrowed the gap in sale price between their old 1100 sq. ft. townhouse and their brand new 2,700 sq. ft. detached home to a mere $112,000. I’d say that’s a win.

    A quick and definitive sale has value, especially when you MUST sell.

    No need for greed.

    1. Appraiser

      at 8:16 am

      P.S. I also became a grandpa on May 1st. Wow!

      Have a great “holiday” David.

      1. Jenn

        at 10:09 am

        Congratulations!!!

        1. Appraiser

          at 10:30 am

          Thanks

  4. Ed

    at 8:36 am

    Wow, today’s post sounds an awful lot like my sale in May of 2017.
    The house was listed just after the Liberal government introduced new rules in order to cool the red hot housing market. Where as other listings in the neighbourhood were getting over 100 showings in March and April we ended up getting only 13.
    Offer night comes around and there was 6 offers, the top two were for 1M and 983K.
    I didn’t feel good about the 1M offer because the deposit was only 5,000 and the buyer was needing to sell there place and I was witnessing a cooling market, the 983K offer was clean.
    The buyer’s agents suggested there might be be more money to be had so we sent them both back. The buyer’s agent for the 1M offer goes back to the car where the couple is waiting and relays the info and the couple end up having a fight right there at the end of the cul-de-sac and the wife takes off in the car leaving the husband there with the agent. The 983K offer stood pat and by the time we got back to them the next day lost interest.
    Long story short we re-listed at a price that would have been suitable for the red hot March market, then dropped the price to $988,000 and finally accepted $963,000.
    Looking back it is easy to see all the mistakes now but at the time the market had changed so suddenly and there is a lot of emotion involved.
    To this day though I never felt good about the 1M offer with the weak deposit (and watching the couple fight on the street) and truly felt that the $983K was the one we let get away. So in the end this ended up being a $20,000 mistake.

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Pick5 is a weekly series comparing and analyzing five residential properties based on price, style, location, and neighbourhood.

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