TorontoRealtyBlog

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…

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