Given the scarcity of listings in the Toronto market these days its understandable that we touch on the topic of multiple offers from time to time. It’s probably because no two scenarios are ever the same but last week, at our weekly Mastermind session, the question turned the multiple offer topic around. When listing a property is there an optimum number of offers that our pricing should attract? We went around the room to get everyone’s opinion on the matter.
History dictates that we only need one good offer to sell a home so theoretically we should price the home to attract that one buyer. Unfortunately (or fortunately) the cards are stacked in favour of the Seller so even pricing fairly can lead to two or three or even four offers because there is just no sure way to predict how desperate a buyer might be but the question remains, do we try to price to get one offer or do we under price to attract multiple offers and hopefully push up the price for the buyer? (and if so, by how much?). If the choice is to under price to create excitement then how low do you go and how many offers are you hoping to attract? We had several opinions on the topic because pricing really is a moving target. The answers ranged from 2 to 10 offers.
There is a slippery slope to all this if you are a Seller, and I have written in the past about a seller who only got one offer on her property on offer night and was totally annoyed with the agent despite getting full price. The fact remains that underpricing can be dangerous. Sometimes we price a home thinking we have determined perfect market value and then we are hit with multiple offers. Sometimes we list under market value and get only one offer if at all, and then there are those cowboys who list hundreds of thousands under value and hope to generate 50 or 60 offers. But not getting an offer on offer night puts an agent on the defensive right away. The client is looking to you for answers. Where are all the offers? What’s wrong with my house? In this hot market why isn’t my house selling for over list price? Simply put, there are just too many variables to know for sure and it could be as simple as it’s raining or the buyers couldn’t get baby sitters.
So when it comes to the list price, know your competition and nail the market value. Under price just a little to create some interest but not a flood of buyers. Take the guesswork out of the listing and have the home inspection done well in advance.
In the end, everyone should know that it’s the Seller who determines the final list price but it is up to the agent to conduct an in-depth market evaluation and then determine the right strategy to get the Seller the most money.
mark mclean is the Broker/Manager at the Bosley Real Estate Queen St W office and President-Elect for the Toronto Real Estate Board. The opinions expressed here do not reflect the opinions of TREB or Bosley RE.
I had an interesting conversation with one of the agents in my office yesterday. He is a strong producing agent who is feeling rather frustrated with all the multiple offers going on. Since January he has been in ten such scenarios and lost all ten. If it weren’t for his listings I’m not sure I would be able to talk him off the ledge. Multiple offers seem to be the focus of a lot of discussions around the office (see today’s article in The Star on winning a bidding war, http://bit.ly/HBlh7b ) and while we often talk about Buyer fatigue, the new malady might just be Agent fatigue.
I might just have the answer for winning more offer presentations. It is so simple yet so genius. Sell your clients a FSBO property. Let’s face it, Agents stay away from FSBO’s. They’re not supposed to, but we all know they do. At our company we devote part of our training to dealing with private sellers because, while still a very small segment of the market, agents will come across them from time to time and need to know how to negotiate with a private seller. We should also recognize that, for the most part, FSBO’s aren’t flying off the shelf. Personally, I’ve passed the same three large round blue and green directional FSBO signs for the last 2 months. (Interesting how FSBO’s don’t need to adhere to city bylaws regarding open house signs isn’t it?). It reminded me of an interesting situation one of my agents had a few months ago. She had been working with a buyer for a few weeks and after several failed offers they found the perfect home for sale being offered privately. My agent talked to the sellers and managed to organize the showing with her clients. The house was for sale for $749,000 but her research showed that it was easily worth $850,000 and that under normal conditions (read; massive bidding wars) the house could reach into the $900k range. The sellers said they were trying to get a bidding war going. The instructions clearly stated that all offers were to go to the Seller’s lawyer. My agent’s clients were interested in the house so she called the lawyer to ask if there were any offers registered. His response was “yes, we have an offer on the table for $745,000”. Fabulous. Well it turned out perfectly for one buyer. Sadly it was not ours. That’s a story for another day. The point of this is to illustrate that it is not always in a Seller’s best interest to go it alone.
Let me state unequivocally that I am not against people selling homes themselves. There are lots of situations where involving a Realtor just doesn’t make sense. In a 2010 NAR survey of buyers and sellers, about half of the FSBO sales typically occur when the seller knows the buyer. Here are some other interesting points from the survey;
• Over 60% of all FSBO’s sell for 10% or more below the market than if they had they had sold after obtaining the services of a Realtor®
• Over 65% of FSBO’s end up in some sort of litigation or legal dispute ending up in court or arbitration and costing them more than the expected savings of selling on their own
• Most FSBO’s take longer to sell than if they had listed with a Broker
What’s the take away here? While the NAR report talks specifically about a very difficult U.S. real estate market, there are some interesting things to talk about with potential FSBO sellers and buyers; namely pricing and future litigation. Remember, if you are offering on a FSBO or mere posting listing it is extrememly important that you offer no advise to the seller. To do so puts you in an assumed multiple representation role. If the Seller asks “what should I sign it back at?” your response should simply be ” I am representing my client and as such I cannot offer you any advise”.
Naturally I would love to hear any stories you might have regarding your experiences with dealing with FSBO’s or mere postings.
Last week I wrote a post about an agent who intentionally listed a home nearly $200K under asking in order to generate offers. That in itself was pretty irresponsible, but what made the story become ground zero for the greater symptom was his bragging about his office betting on how many offers he was going to receive. I think we would all agree that his comments, forever available on-line, will go down as the most obnoxious in the history of Real Estate. It occurred to me that this type of sheer insanity would be the perfect time to drag that agent in front of a professional standards committee. Perhaps boards, Like TREB, need to make sure this type of thing doesn’t happen again. Just a thought.
Then again, there are situations when agents get it wrong…..way wrong. Despite all logic a house sells for what best can be described as “crazy money”. Accountants will tell you that numbers don’t lie….except in Toronto real estate where a competitive market analysis seems to have little or no meaning . It is important to distinguish between the two scenarios of our white-hot market. It is happening with more frequency and homes that defy pricing logic are leaving some of the best agents in the city scratching their heads. So it begs the question; if experienced agents are having a hard time negotiating these turbulent waters, how the heck are new agents coping? 20+ years ago an agent proved his or her worth by surviving in a recessionary environment. Today, an agent has to survive in a market that could best be described as a feeding frenzy. strangely, while equally challenging, their survival will be based on a different skill set.
As any coach will tell you, real estate is a numbers game. If you want to achieve income X you simply work backwards to determine how many deals you need to make based on statistical averages. For example; if you want to sell 10 properties you will probably need to have 400 meaningful real estate conversations. In a more or less balanced market that seems like a fair assessment. But today, having 400 meaningful conversations may only mean that you get to the negotiation table 10 times. At that table there may be as many as 15 other realtors. Your odds of success have just dropped dramatically. So what are the keys to improving your chances;
- Knowledge of the market is critical. With so much going on in the world today, our market can be affected by the mood of the financial markets in Europe.
- Develop relationships with the agents who work in your neighbourhood. Visit their listings, follow-up after each sale and get an understanding of the back story.
- Ask the listing agent lots of questions like how they arrived at the price. If they aren’t from the area, they may not know what you know and that could play to your advantage.
- Talk to the agents in your office who work the area. They may have extra insight into the situation.
- Sharpen your skills by practicing and fine tuning your delivery. Sometimes a minor change in how you say something will make all the difference.
- Arrive at the presentation on time and with a pristine offer. You would be surprised how many agents show up with offers that look like chicken scratch.
- Keep your offer as clean as possible. Conditional offers have no place in a multiple offer situation, so make sure your buyer’s financing is in place and you have done a home inspection.
- Have a certified check with you. No excuses.
- Look successful. Address the sellers in a professional matter and leave your ego in the car. Being courteous, and connected to the seller will go a long way.
While there is no guarantee that these few suggestions will help you succeed at the negotiation table, I do believe they will increase your odds and in today’s market every little bit helps.
Have a great week and, as always, I welcome your contributions. If you have other ideas please let me know.