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…“wouldn’t this represent a great opportunity?” asks the sleazy salesperson.

I’m picturing Marge Simpson trying to sell “the murder house” to poor Ned and Maude Flanders.

No, but seriously, couldn’t a stigmatized Property represent a great opportunity?

“David must be having a slow month,” you’re assuming.  “He’s probably got some meth lab coming up for sale and he’s just trying to grease the……..tray.”

Alright, let me tell you a story…

Claire and Andrew are shopping for a house with their agent, Brian.

They’ve been consistently looking at houses that are selling in the $1.2 – $1.4M range, broadly speaking.  The listing prices are all over the place, but they’re getting advice from Brian on where each property should be selling, and they’ve got a somewhat efficient system.

The last house they bid on was listed for $999,900 and they felt it could sell upwards of $1,400,000, but they were only able to Offer their max: $1,300,000.  The house received eight offers and sold for $1,355,000.

They were crushed.

If they could have paid $1,355,000, they would have!  They loved the house but, they were only pre-approved for $1,300,000 and there was nothing they could do.

They had now made three offers and lost three times.

Brian kept telling them, “This is how the market works, you put your best foot forward,” but they were seriously discouraged.

Two weeks later, right after a long weekend, a house came out in their target search area for $1,249,000, with an offer date, and they got really excited until they realized that they probably couldn’t afford it.

“This one has a $1,400,000 floor, “Brian told Claire and Andrew.  There’s just no way.

Nevertheless, the three of them went to see the house and, naturally, they loved it.

The couple spoke to Claire’s father who agreed, only for this house, to float them an extra $50,000 so they could bid up to $1,350,000 and actually get into the game.

Brian thought they had no chance, but agreed to prepare.

On the offer day, Claire and Andrew went and got a bank draft for the deposit and readied themselves to bid at 6:00pm.

They had been through this grind before.  There’s never any offers at 9:00am, or 11:00am, or sometimes even by 3:00pm.  Then magically, at 5:30pm, there are eight offers registered in a half-hour window.

Claire and Andrew always liked to be organized and prepared so they were in the habit of having Brian send the listing agent the Form 801: Offer Summary Document first thing in the morning, which they did again this time around.

Then they patiently waited through the day, through the afternoon, and into the early evening.

At 5:30pm, they still had the only offer registered.

At 5:45pm, it was only them.

And at 6:00pm when offers were supposed to be submitted, Claire and Andrew still had the only offer registered.

Brian called them at 6:02pm.

“Guys, this is amazing!  We have the only offer registered!”

There was silence on the phone.

“Hello? Brian asked.

Andrew spoke up.  “Yeah, we’re here.  We’re just………processing.”

More silence, and then Claire said, “Isn’t this weird?”

Brian said, “What do you mean weird?”

You know where this is going, right?

If you don’t, just think of human nature, for a moment.

What was Claire about to ask?

“Brian, do you think there’s something wrong with the house?”

Tell me that you can’t see this happening, but trust me when I say that it does.  All the time.

It’s human nature.

We want what we want, but we want everybody else to want it too.

And when they don’t, we question why.

Brian said, “Claire, there’s nothing wrong with the house.  This is just a great turn of events for us.”

Andrew then said, “Something doesn’t add up here.  This house is seemingly better than all the others we’ve looked at.  It’s priced low.  But they didn’t get offers.  This doesn’t make sense.”

What was Brian supposed to say to that?

What could he say?

In theory, Andrew was right.  Inferior properties had been selling for more than this property was listed for, and some were going way, way over!

“We just lucked out,” Brian said.  “Win some, lose some, and we’re about to win one!”

Brian suggested they get their offer in asap and hope that nobody else registered, but Andrew and Claire said, “We want to chat quickly and get back to you.”

That chat wasn’t quick.  In fact, it took over an hour.  And by 7:00pm, when Andrew and Claire called Brian back, they had some interesting news.

“We’re going to hold off on this one,” Andrew said, to Brian’s complete dismay.

“It doesn’t feel right,” he added.

Brian said, “I don’t understand!  We were ready to go to $1,350,000 for a house that, absolutely, positively, should sell for $1,400,000 or more.  Now because nobody is bidding against you, there’s suddenly something wrong with the house?  And you don’t want it for $1,249,000?”

It made no sense.

In actual fact, it makes not sense.  Past, present, or future; this situation never makes any sense and yet it’s quite common.

The story is, as they say in the movies, “based on true events,” because I’ve heard of this happening so many times and it just happened to a colleague of mine last week.  I’ve heard this same story so many times, I can’t even begin to count.  And while I’ve never had clients actually pull out of an offer like the situation above, I’ve had clients pause, think, reflect, analyze, discuss their fears, and almost move on.

But how could I let that happen?  Especially when it would be for all the wrong reasons…

“STIGMA” is defined as a mark of disgrace associated with a particular circumstance, quality, or person

In the world of real estate, we usually think a “stigmatized property” is one where somebody died or where the police busted a grow-op.

But “stigma,” per the definition above, can mean any so-called “mark of disgrace.”

Imagine a property that could have, should have, would have received eight offers, but only received one?

Unbeknownst to the buyers in the story above, Claire and Andrew, they just stigmatized the very property in which they were interested.  There was absolutely nothing wrong with the property.  In fact, they were in a very enviable position, with no competition!  But they got in their own heads, created a stigma, and then grew to fear the stigma that they themselves created.

In real estate, we often use the term “the buyer’s curse” to explain two situations:

1) Finding the dream property the very first time you head out to look.  It’s what everybody wants, and yet it’s a curse because buyers think, “This is happening too fast,” or, “I can’t buy the first house I see!”

2) Preparing for competition on a house and finding you’re the only buyer.  It’s what everybody wants, and yet you can’t help but fear that there’s something wrong.  There’s something you’re missing.  There must be a reason why you’re the only buyer at the table.  Buyers would feel more comfortable if two, three, or ten other buyers were competing.  They want that reassurance, and often they’re willing to pay for it!

Both situations are examples of the buyer creating a problem where there isn’t one.

Both situations are examples of the buyer getting in their own way by allowing an intangible to affect their decision-making process.

I’ve written about “stigma” in real estate several times before.

I had to go back to the archives and look…

January 14th, 2015, I wrote: “Stigmatized Properties: The Onus Is On Who?”

But this blog dealt with stigmas like murders, or suicides, or the idea of “a haunted house,” which, amazingly, RECO used as an example of what agents must disclose.

Most people think “stigma” and they think exactly that; something intangible about the property and yet something awful.

But what I’m talking about today is a different kind of stigma.

It’s still the same “mark of disgrace associated with a particular circumstance,” but in this case, the circumstance is PRICE.

Take a look at the listing history for this property:

Now, tell me this property didn’t become stigmatized somewhere along the way, for absolutely no good reason.

This is what I’m talking about.

With all due respect to ghosts, the idea of a discount on a property, because the house is haunted, is just as foolish as the idea of a discount on a property because it’s been listed too many times.

And yet, this property didn’t sell – because it was listed too many times.

It looks ridiculous, right?

They basically terminated this listing every week, or two, or three, and re-listed at the same price.

Why a listing agent is allowed to do this, is also a topic for another day.  And we seem to be gathering a lot of those…

But the point is: if you’re a buyer and you’re active on MLS, and you see this house listed over and over, at what point do you think there’s something wrong with it?

If you’re a buyer agent, and you see this house listed over and over, at what point do you think there’s something wrong with it?

If you’re a neighbour, and you see the “FOR SALE” sign up on the lawn for a month, two months, ten months, and past a year, at what point do you think there’s something wrong with it?

The fact that the house finally sold after it was “under-priced” at $699,000 and subsequently sold for $777,000 is comical and perhaps ironic, but not central to the story.

The fact that, ten years later, this house is listed for $1,699,900 goes to show you that, despite the property taking a year to sell, the market doesn’t care about that in the long run.

The buyers of that house in 2023 got an incredible deal because of the price stigma that existed.

From the time that this house was listed in November of 2012 to the time that it finally sold in October of 2013, the average GTA home price increased by 14.7%.  So even if this house was worth, say, $750,000 in November of 2012 when it was listed at $829,000, it still would have been worth over $860,000 in October of 2013 when it sold for $777,000.

The fact is, this house was “worth” way, way more than $777,000 when it sold in October of 2013.

But the property was stigmatized, and the market ignored it.

In the same way that Claire and Andrew decided, in the story above, that having no competition on a house that was seemingly priced for multiple offers meant there was something wrong with the house, the buyer pool in 2013 decided there was something wrong with that $799,000 house simply because it had been listed for so long.

I have one more story that really takes the cake, and it’s a cake that I personally tasted.

A beautiful new west-end house sold for $2,800,000 in early 2022.

It was one of two new builds, side-by-side, that a developer was looking to break the bank on.

The first house that sold for $2,800,000 was sold off market, and it was intended to set the tone for the second house.

The second house was listed for sale on the open market but this time with a different strategy, listed at $2,399,000, with an offer date.

The developer was clearly looking to use the first sale as a springboard and his listing agent told everybody about it.

On offer night, nine offers were submitted on this incredible house!  But an odd thing happened; a thing that rarely ever happens in a red-hot market where nine buyers are vying for a home: the highest offer was conditional.

What’s a seller to do?

Does the seller accept the conditional offer and the small risk that the buyer doesn’t go firm, but with the upside of the higher price?

Or does the seller accept the second-highest offer that was unconditional, but take less money?

The developer decided to walk the first path and he sold the house conditional on financing for five business days.

Lo and behold, the deal did not firm up.  I would estimate that 98% of my conditional sales, on the listing-side, have gone firm over the years, so this is really, really rare.

After the deal officially fell through and the deposit was returned to the buyer, the developer went back to the second-highest bidder, which is the natural first move in this situation.  But instead of saying, “Can you please bring your offer back, and we will happily accept,” the developer’s agent said, “We need you to come up in price and match the highest offer.”

Greed.  And stupidity.  Plain and simple.

And while today’s story is about stigma, perhaps greed and stupidy are also topics for another day…

The second buyer balked, then walked, as one probably should in that case.

No matter for the developer, right?  He simply re-listed the house the next day for $2,999,999 and figured the property would sell itself.

I learned through the grapevine that the conditionally-accepted offer was for $2,950,000, and the second highest offer was for $2,850,000, for what it’s worth.

The property sat on the market though, as interest rates began to increase and eventually, the spring market came to an end.

Soon after, the property was re-listed for $2,899,999, but it continued to sit.

This was now less than the conditional offer that had fallen through, and slightly more than the second-highest offer that the developer should have worked with.

The property was re-listed two more times at $2,899,999 through the summer and then at $2,788,888 in the fall.

The listing agent and the seller switched strategies later that fall, trying the listing at $2,299,000, with an offer date, but that was never going to work.

So they re-listed at $2,790,900, perhaps not realizing that they actually just raised the price from where it was just two weeks prior.

The property sat on the market right through Christmas and to the end of 2023.

And you don’t have to be good at math to realize that the carrying cost, specifically mortgage interest and/or a construction loan, property taxes, utilities, and maintenance, had to be in the tens-of-thousands for this house which was now on the market for eight months after they had it conditionally sold.

Oh, and they were now listed for sale $60,000 lower than the firm offer they turned down eight months prior.

The calendar turned to 2023 and they re-listed, this time for $2,695,000.

But no takers.

This exceptional, gorgeous house, in a prime location, where the identical house next door had sold for $2,800,000, was sitting on the market at $2,695,000.

Sure, interest rates were higher and the average home price had declined, but not by that much in this location.

And as the market began to climb in February and into March, this house continued to sit, even as it was re-listed for $2,595,000.

It had just been listed way, way too many times.

Too many pricing games.  Too many “offer dates” for the same damn house, as yet another offer date materialized, with the house listed for $2,295,000, with an offer date, but that obviously didn’t work, so the house was re-listed at $2,595,000 again.

Finally, the house was listed for $2,495,000.  A pittance, if you will.  And trust me because I know first-hand.

You see, I sold the other house for $2,800,000 next door to long-time clients of mine who were ecstatic to get into the neighbourhood, in a brand new house.

My clients and I were quite excited when the twin house next door received nine offers and sold for $150,000 more than they had paid, albeit, conditionally.  And then we had to watch the developer and his agent royally screw it up, and learn they could have sold firm for more than my clients had paid.

We watched the debacle unfold for the next twelve months.  It was infuriating.

I had never seen a case of property stigma like this before, and we all just watched, shaking our heads at every subsequent move that the seller and his agent made.

Then a few weeks ago, another client of mine who had been looking in the area but in a lower price point, sent me the listing.

It had just been listed for $2,495,000.

He said, “What’s wrong with this house?  What am I missing here?”

So what did I tell him?

“Nothing.”

Because that’s the answer.

Nothing.

It’s basically a $2,750,000 house that’s been brutally stigmatized by a year’s worth of mismanagement, now listed for $2,495,000.

I told them the entire story that I just told you guys, but with far more detail, and guess what happened next?

We bought the damn house.

Sure, they too were nervous.  They needed convincing.  They too needed to understand price stigma and what it can do.

But they saw opportunity.  They saw a house that the buyer pool had shunned simply because the listing agent and the seller made a cornucopia of mistakes across twelve calendar months, when all the while, the intrinsic value of the house was far greater.

I don’t use the word “steal” very often, but how else can I possibly describe this?

Call me biased because I sold both houses, but it was coincidental and not intentional.  And the fact that I’m telling this story today shows you I’m willing to put my money where my mouth is, especially when it comes to price stigma.

The concept is just insane.

How can investor psychology cause us to make such irrational decisions, or misprice assets against our better judgment?

Just as Claire and Andrew refused to bid on a house because nobody else came to the table, and they figured that something must be wrong with it, there are buyers out there that look at houses that have been sitting on the market and say, “There’s got to be a problem here.”

For what it’s worth, the listing agent of the “second house” in the story above told me that he valued it at $2,750,000.  He also used the word “stigma,” over and over, in all of our conversations.  But I told him that he didn’t need to convince me as I knew first hand.

Then I said, “Hey, actually, this might make a great story for my blog one day…..”

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