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Have you seen the television series The Americans?

It’s alright.  I mean, if you really, really need something to watch.

I watched the first two seasons years and years ago and then finally gave up on it.

Small spoiler alert here, but one that you’ll find out in the first episode: one of the Russian spies who poses as an American is living right next door to the FBI agent who is hunting him.

Imagine that?

Poor guy!

Just imagine being the sucker who is spending thousands of hours searching for a person who was literally right next door to you the whole time!

Imagine the hindsight?

How could you not know?  How did you miss the signs?  How could you be so oblivious and in your own world as to not see what was blatantly in front of your face?

Excuse the comparison to Russian spies here as I finish my real estate analogy, but I’m always really confused and really surprised when I see properties next-door to one another listing one day apart, or worse, on the same day!

What was your first clue?

When the moving van pulled up two weeks ago and your neighbours took out eighty-six plastic totes, did you not think they might be preparing to sell?

When the painters were on site for three days last week, did you wonder why the neighbours were improving the house?

And when the guys and gals in suits, holding pleather portfolios and forcing fake smiles were coming in and out of the house, didn’t you wonder if those were real estate agents?

I mean, forget the staging truck, right?

But how in the WORLD can two sets of property owners mess this up?

You would think it doesn’t happen that often, if at all.  But time and time again, I’ll log onto MLS one day and see it:

157 Smith Street
159 Smith Street

Both Listed for sale on the same day!

It’s madness!

And at least if you live in a condo, you can say that you had no way of knowing, or seeing the proverbial signs that a Russian spy lives next door.

But when you live in a house, how can you not know?

I was driving my pimp ride with the windows down and the tunes up, last week, and I happened to see this:

Those are two semi-detached houses, which are attached, and fit our definition of “two neighbours, side-by-side, selling at the same time.”

One was listed for sale on September 19th.

The other was listed for sale on September 21st.

Two days apart!

So did the neighbours not know?  Or were they aware and they figured they may as well list at the same time?

For what it’s worth, one property has sold, and the other remains available for sale, but it must be tough to put your house on the Market while your neighbour is selling too, right?  More to the point, does a “SOLD” sign on the lawn next door make the “FOR SALE” sign less attractive?

There is a psychological element to this, in my opinion.

People innately want what can’t have, or are attracted to that which is difficult to obtain.  On the flip side, something that is readily available and often in abundance isn’t quite as enticing.

It’s just human nature to put a value on scarcity or to discount a surplus.

This theory was put on full display last month when I was preparing a listing for sale on the east side.

My clients told me that the house next door, which was under construction, was going to come to market in the same time period as our listing, and that just wasn’t an option for me.

I found out who the listing agent was and I called her.

She said that, yes, her clients were also preparing to go to market, but noted that we had two very different houses.

Ours was a 3-bed, 2-bath and was going to be $1,250,000 – $1,300,000.  Hers was a 3-bed, 4-bath, fully renovated, and was going to be around $1,700,000.

But she and I both knew that the optics of two “FOR SALE” signs, side-by-side, wouldn’t look good.

“We don’t want buyers to feel like the whole street is for sale,” she said to me.

She’s been in the business for at least 10-15 years and she understands.

“We can’t have this look like a Florida sub-division where every other house is for sale,” she remarked, as she literally took the words right out of my mouth.

Even though our buyer pool was going to be different and the two houses wouldn’t directly compete, neither of us liked how this would look and “feel.”

“One of us needs to go first, and the other needs to wait,” she suggested, and of course, I suggested that she be the one to wait.

She laughed.

But I added, “Hey, listen, we already have our ‘COMING SOON’ sign on the lawn, so I’m not being unfair here; I’m being logical.”

She agreed.

So we put our house up for sale and sold it on the offer night six days later, and as I was placing the “SOLD” rider on top of the sign, she had her stagers preparing her listing for sale.

That is how agents should work in this market, but it’s not always possible.

Sometimes, it just comes down to bad luck.  Maybe coincidence?

Take these two houses, for example:

The house on the left was listed for sale for $3,990,000 on June 13th, 2013.  It’s a new-build on a 32 x 135 foot lot, 4-beds, 5-baths.

The house on the right is also a new-build on a 32 x 135 foot lot, and also a 4-bedroom home, albeit with a 6th bathroom.

These houses are, for all intents and purposes, identical offerings.

They have different exteriors and thus perhaps “curb appeal” plays a role, and the interior layouts are essentially the same square footage, but might have moderately different layouts.  The finishes are different throughout, but neither can brag that there are gold-plated doorknobs to the other merely having bronze.

So when the house on the right was listed for sale in August, was it listed for the same price?  Just shy of $4 Million?

Nope.

It was listed for $3,690,000.

That’s $300,000 less than the “twin” house next door.

But it’s the same offering, right?  So why not list for the same price?

Well, I would argue that the house on the left hadn’t sold – listed at $3,990,000, after fifty-three days on the market, so the owner of the house on the right opted to list lower.

Much lower.

$300,000 lower.

If we were in a red-hot market, then the two neighbours could essentially collaborate (FYI, “conspire” is not a synonym…) and decide to hold their prices equal.  But the summer wasn’t red-hot; it was tepid.  And the owner of the second house decided to list at a price that would seemingly result in a sale.

To date, that hasn’t worked.

And while the owner of the second house on the right re-listed last month for $3,888,000, representing a $102,000 reduction, it’s still not nearly enough to move the needle, either on its own, or up against an identical offering next door for $3,690,000.

In this case, I’m not suggesting that these two owners could have discussed in advance and hashed things out like I did with the agent who was listing her property next door to mine, in the previous story.  But I am drawing attention to this case because it shows the very basics of supply and demand at work.

Now, what about the condo world where you don’t necessarily know that your next-door neighbour is planning to sell?  Or worse – when the person one floor below or above you, with the identical floor plan as yours, lists at the same time?

This recently happened and I was watching in great anticipation, popcorn and all, to see how it would turn out.

Unit #202 in this building was listed for $1,229,900 on September 12th.

Unit #302, which is the identical floor plan, was listed the next day for $1,189,900; on September 13th.

Now, first and foremost, did #302 list $40,000 lower, as a strategy?

Were they planning a different, ie. higher price, only to think, “Oh no, we have competition,” then decide to list lower?

Or was this $1,189,900 listing price reflective of their market analysis all along?

Did the owners and the agent for #202 think that they had better finishes?  Better marketing?  Or a better agent to get the property sold for more?

In the end, the market seemed to think that the lower-priced offering was more attractive, or, let’s say that the market didn’t value the better finishes in #202 as much as the $40,000 price difference suggested they were worth, and #302 sold first, on September 21st, for $1,175,000.

Amazingly, #202 also sold for $1,175,000, just eight days later on September 29th.

On the one hand, this demonstrates an extremely efficient market, since the units sold for the same price.

On the other hand, if there really was a difference in value (say, the owner of #202 paid way more to the builder for upgrades), then the market wasn’t efficient, as #202 should have commanded a premium.

This might have simply been a case of the only buyer for #202 saying, “Take it or leave it.”

Either way, the competition from two identical properties took significant leverage away from the sellers.

Now, how about this one:

Oh, snap!

Two identical units, one floor apart, same day, same price!

Alright, well, it’s a $99 difference but can we admit that this is essentially the exact same offering?

And no surprise, since this is one of the least-popular and most notorious buildings in the city, neither unit sold.  One listing was suspended and the other was terminated.

Was the problem here that two units were competing, one floor apart?

No.

It was more than likely the price as well as the building, but the two units competing certainly didn’t help.

Let’s say that you’re a seller and a buyer offers you $650,000 as a “take it or leave it.”  In an ordinary market, for a unique property, the seller might think, “They’re bluffing; they’ll be back.”  But when the same condo is listed for sale one floor above or below, the buyer has that built in leverage: “If you don’t take my offer, I’ll just deal with the other seller.”

Now, let me show you one last example.

What if two sellers were offering the identical condo for sale, at the same time, at essentially the same price, save for one important difference.

See if you catch it here:

Do you see?

I kind of gave it away, since I edit all these screenshots from MLS but I left the “PK” in this time.

Unit 1304 is the same as Unit 1704 but unit #1704 has a parking space.

So in this case, does the competition hurt the sellers?

In an odd way, I think it helps.

It’s sort of like how there are always gas stations at three of four corners of a major intersection.  Your gut reaction would be, “That’s bad because it means so much competition,” but as I was taught on my first day of Economics 1S03 in September of 1998, this is a case where the revenue might be split three ways, but you’re going to see five or six times as much business as a result of saturating that corner with gas stations.

Perhaps the same is true for the above?

If you like this condo and this layout, it’s almost an “a-la-carte” offering in that you may choose to purchase the unit with parking, or not.

Sure, one unit is four floors higher, but I know this view and there’s absolutely zero difference here.  You’re looking out at a neighbouring building either way, so it doesn’t matter if you see Jimmy on the balcony of his 13th floor condo across the lane, or if you see Carla on the 17th floor balcony of her unit across the lane.

In this case, we would expect the parking space to be “worth” $71,000, or the difference in sale price.

If you really want to get into the whole, “developers charge $2,500 per floor in pre-construction,” then call it a $10,000 difference for that “view,” and the parking is worth $61,000.

But here’s perhaps an exception to the rule because I do believe that the second unit helped the first one sell, since the first unit listed for sale, sold after the second.

If you happen to have seen any examples of this on your street or in your area, please share!

Or better yet, if you’ve been active in other markets (love the 1980’s stories!) and had your home for sale “against” a neighbour’s, we would love to hear about it.

The post What If Your Next-Door Neighbour Is Selling Too? appeared first on Toronto Realty Blog.