Despite all we hear in the media about multiple offers and the hot Toronto Market, there are still lots of houses that aren’t flying off the shelves. In fact there are plenty of properties, condos excluded, that seem to be just sitting around. We have one great listing in our office that is a total surprise with 36 showings in 2 weeks but no offers. Now it may be a tad overpriced but it is at least within spitting distance. So apparently it’s not just the sellers who are frustrated. Agents are feeling it too. Well last week’s Mastermind touched on the interesting topic of submitting an offer that is lower than a Seller’s expectation, also known as a ”low ball” offer. First of all, how low does an offer have to be before you consider it a lowball? As an example, lets say we are talking about a $600,000 house. Is a low ball $580k or is it $520K? The short answer, of course, is that it depends. If every house on the street has sold for $525-530K then a $520K offer is not far off the mark, but if those houses are selling for $599-625k then yes, $520k is a bit of a stinker (presuming the market has not changed). So I wonder if low ball offers are really about perception.
The reality is that during the course of your career you will inevitably either show up at an offer table with what will be perceived as a “low ball” offer or you will be on the receiving end of one. How you play out the offer will determine if you win or lose. Here’s the thing. We are all capable of coming up with a fair price. There are a lot of tools at our disposal. But generally homes are priced too high because eith the seller assumes his home has more value than a similar home or the agent has priced it high in order to get the listing. As a listing agent you have to decide; A. Is this a listing worth taking in the first place? B. How much over market value does the Seller want to list for? C. Can I convince agents to submit an offer on this over priced listing? D. Will I be able to convince the Seller after a few weeks on the market that the house is overpriced? E. If someone submits a low offer (actually a good offer) am I capable of convincing the Seller that it is worth accepting? F. How much is this listing going to cost me in terms of time and money? These are all serious questions to consider at your initial Seller interview.
On the buy side, you have done your homework. You have looked at all the comparable homes, in fact you have the experience of actually touring previous sold homes and had even sold one just a few houses away. If anyone knows the true value of this listing it is you and the buyer has hired you to get him that house at fair market value. The only problem is that the house is listed $100K over the previous sale and it has been on the market for two and a half months. The Sellers paid to much in a bidding war last year, they renovated a bathroom and put on a new roof and now they are getting divorced. It’s time to put your skills to the test. There is no question that you face an uphill battle. The Sellers are not willing to be the only couple in the city (in the past 15 years) to lose money in real estate. Is there a solution to this insurmountable problem?
As Joe Friday said, all you can do is present the facts, “just the facts”. Here is the market, here is the buyer, and here is the money. There is no room to interpret it any differently yet there are a few things you can do to cushion the obvious blow to the Seller’s ego.
1. Try to present the offer in person. A low offer delivered by fax is just not going to work in your favour.
2. Be empathetic. Understand the Seller’s pain without seeming contrite.
3. Offer a long irrevocable time to let the Sellers come to grips with your offer on their own terms.
4. Talk about the appraisal function and how the sale might not meet financing conditions at their price.
5. Convince the Sellers that the Buyers are willing to make concessions on certain items in the house.
6. Be willing to let the offer lapse and try again later.
Hopefully a little time to digest the offer is all a stubborn Seller needs. What is it they say….time heals all wounds? If you have been in real estate over 20 years then you know that it IS possible to lose money in real estate and losing money is likely to stir a bigger emotional response than making money.
The opinions of this Blog do not neccessarily represent the opinions of Bosley Real Estate.
There used to be an old saying that the toughest sellers were real estate agents. I’m not really sure why, maybe it is because they are so close to the daily minutia of the market that they can easily pick apart the competition. But lately I’m not so sure. This week I came across two interesting situations. In the first, A client called the agent crazy for suggesting a list price that was $80,000 lower than what he expected. The agent, a seasoned veteran with lots of experience in the neighbourhood under is belt was nearly shown the door. In the second situation a Seller was distraught that her house only sold for full asking price, with one offer. How did things get out of whack so quickly? When did the public stop trusting an agent’s research? For starters, Toronto has enjoyed one of the longest periods of sustained property appreciation ever. That has led to the belief that prices will never come down. Clearly there is a disconnect in place. On one side, the media is hitting everyone over the head with reports saying the market is cooling rapidly but on the other side, some sellers are refusing to believe that news has anything to do with them or their property. So I question whether we, as agents, are doing our job?
The truth is that when we are called in to evaluate a home, our job is to 1. Provide a range that the property should sell for given current market conditions and based on historical data of past sales. 2. Determine a strategy to employ that would best suit the situation in order to provide the maximum exposure to buyers. As easy as it seems, it’s not. Subtle nuances in the market play a huge role in the evaluation process. Property assessment roles may tell you what the house down the street sold for, but it doesn’t mention the Wolf stove and custom kitchen or that the house’s foundation is collapsing. More importantly, assessment roles don’t tell you that one house sold in a Buyer’s market and another sold in a Seller’s market. All that critically important information comes from the grunt work an agent does as part of their daily routine. It cannot be replaced.
A while back I wrote about market value, you can read it here http://bit.ly/Quk3S0 So the question we should be asking our clients is Do you want me to tell you what you want to hear or do you want the truth? Setting expectations ahead of time should be our primary goal. In the case of the “only one offer” the agent did a great job of telling the client not to expect multiple offers in the first place. If it happens it is a gift. She also came prepared with a full competitive analysis of the neighbourhood and showed the client, after the sale, that they should take comfort in the fact that they set a new “high water mark” on the street. For the client who wanted to list at a higher price, the agent was able to clearly demonstrate how he arrived at his price in a way that left his client’s emotional attachment at the door.
It reminds me of the story one of our agents told about an agent who booked an appointment for 7pm on a house that was vacant and had no power. Our agent told her she couldn’t go in after 5pm because it was too dangerous, to which she said she only worked after 6pm because she had, what she called, “a regular job”. Am I the only person out there that believes you can’t do this job part-time?
Happy Wednesday. We had a great Mastermind this morning and I’ve been chomping at the bit to get this one down. Great turn out, great conversation. If you missed it you missed a great discussion on the market. Seriously, this is the kind of stuff that makes you a great agent. You simply cannot get a better (and unbiased) opinion of the market.
So, a few weeks ago I wrote a blog about how the crazy market was making us bad negotiators. Check it out here;http://realtylaboratory.com/2012/04/24/are-you-a-skilled-persuader-or-a-trusted-negotiator/ The thought was that with so many offers coming to the table, agents who were winning were just showing up with clean offers and a bigger bag of money. But from the conversation with agents today it seems like the art of negotiation is building momentum. Don’t get me wrong, we are still seeing multiple offers but there have been some interesting surprises. Agents are reporting that some good houses are not selling on offer night while others unexpectedly are. This week alone we had a bully offer and a couple of multiple offers. So,what’s up with this seemingly bipolar market? Perhaps our group can offer a little insight.
The housing market isn’t slowing down because of mortgage rates, or demand. In fact one of the biggest worries to economists, household debt, seems to be lessening. So why the build up of listings? It could be as simple as “The Spring Market” or it could be more complicated. Perhaps what we are seeing is a self correction. It might be that buyers appetite for multiple offers is waning or it might be that buyers are watching Vancouver and waiting for prices to start dropping here in Toronto. In our weekly meetings we often do a short survey with the agents on buyers and sellers. I pose simple questions like how many people are getting a listing sometime in the next month and how many good “A” type buyers are you working with. 6 months ago it was 10 to 12 buyers per new listing, today its more like 5 to 7. While not an exact science, it is a good barometer of the market. Our group also suspects that the condo market and the housing market are decoupling. Simply speaking, these two markets are acting differently. The $600k homes are selling but the $600k condos are not moving as fast. A few noteworthy condominium projects have been cancelled or postponed and that in itself may be enough to act as a pressure valve for the white-hot new construction market. Finally there is a notion that the European Debt Crisis may be having an impact on the higher end homes. The explanation is simple. Wealthy buyers are feeling the pressure of a flat stock market. That means they are taking longer to invest substantial amounts of money into new properties. Here is a recent update to this post; As of the first week of July 2012 There were 14 freehold houses in C01 for sale between $600-$700K compared to 88 condominiums. Ave sq ft of a house was 1600 square feet including basement while the average of a similar priced condo was only 950 square feet.
I don’t have a crystal ball, but I believe that things should settle down just in time for the Fall market. In the meantime what does this mean for us? It means working harder. It means talking to other agents, setting clearer expectations with our sellers, having a solid understanding of our market or neighbourhood, and being better negotiators. Above all, stay focused. Hey, why not consider starting your own Mastermind group.