File this Mastermind post under the heading “Scratch Your Head Part Two”. Last week I talked about a market that defies logic, see http://bit.ly/zCZYeP , well if there was ever any further proof, we talked about one of the strangest stories we have heard in a long time. If you didn’t make it to mastermind this week you missed a great example on how not to price a house.
A few weeks ago an agent in our office listed a home for $549k. The research showed that he priced the home pretty close to market value. Despite that, he received eight offers and sold the house for $725k, exactly $176k over asking. Given the current market conditions, I suppose we can only be mildly surprised, but the story gets even more interesting. A week later, the neighbour puts his house on the market. It is a similar house but has two distinct advantages, it has a bigger garage and a better kitchen. The house gets listed for $589k through a different brokerage. Despite the fact that seven people lost out on the house next door, the house did not sell on offer night. Ultimately the listing agent found his own buyer and the home sold after 13 days on the market, for $7k under the asking price.
What gives? How is it possible that two similar houses, located next door to each other, selling a week apart, can sell for a difference of over $140k? While the story is shocking, some of the more experienced agents that attended our Mastermind session have seen it happen before and certainly our hearts go out to the second sellers. So here is our best explanation. The first house got caught up in what the Roman’s called “auctio febris” also known as “auction fever”. When the second house came on the market, the people who came to view it probably felt that the sellers were expecting significantly more and made the judgement call that it either wasn’t worth the money or they didn’t want to get into a heated bidding war.
Without speaking to the listing agent, it is impossible to get the full picture but from a purely casual observer point of view, it seemed that there were some lost opportunities along the way. Our agent wondered why the agent for the second house didn’t call him to find out who the other 7 agents who missed out on the first house were. I have mentioned it in previous posts, it is critical to have good relationships with agents in your neighbourhood so that you can share information. Finally, we all agreed that if the first house was actually worth the eventual sale price then the agent probably should have listed it for $719K and not held back offers. The logic behind that strategy is simple. The value has already been established so setting the price significantly under “market Value” was off-putting to potential buyers. Once again proof that the pricing a home is not as easy as it seems.
As usual, I look forward to your comments, so please drop me a line when you can. RealtyLab works because we all share great stories. Have a great week!
If someone gave you $100k tax-free, what would you do? Go on a trip around the world? Buy a new car? Maybe quit your job and go back to school? Now let me ask you; what would you do if you lost $100k because your agent screwed up? If you are like most people you would probably start by screaming and pulling out your hair. Of course, I am talking about bully offers. This is the second time I have written about it. You can check out another article hear, http://bit.ly/yadRHu but this post talks about what happens when bully offers go bad.
Here is the story. The names have been changed to protect the guilty and I modified the price. Agent Liz lists a stunning home in downtown Toronto for $1.2m and decides, with the seller, to hold back offers. On the first day of the listing Agent Bob shows the house to his client who is absolutely in love with the home. Bob’s client lost out the night before on a $1.3m house that needed several hundred thousand dollars in renovation so when he saw Agent Liz’s house he figured he could go as high as 1.6m. He tells Agent Bob that he wants to bid high on the house and that he has been approved by his bank. Agent Bob calls Agent Liz and tells her that he will be coming to the table on offer night and asks that he be kept in the loop should anything develop before offer night. Agent Liz agrees. The next day, the house is reported sold by Agent Jay in a bully offer for $1.5m. Agent Bob is furious. He calls Agent Liz who tells him that there were too many people to call and the bully offer had a very tight irrevocable time.
Okay, now the house is sold firm, but sadly the damage is done. If she is smart, Agent Liz will do anything in her power to keep the news of the other offer quiet, but, if it got out what recourse would the seller have? Naturally he might launch a lawsuit against the agent and complain to The Real Estate Council of Ontario and in a worst case scenario, Agent Liz might be responsible for the difference between Agent Bob’s offer and the accepted price. Most likely however, she would be fined for not contacting any of the agents that had shown the property. In this case, there are two things to consider; first, the seller accepted the bully offer of his own free will. Second, it would be very difficult to prove that Agent Bob’s client would have actually bought Agent Liz’s listing for what he said he would pay. Remember, there is nothing as constant as change, and who is to say that on offer night, Agent Bob’s client simply changed his mind.
So, how do agents, on both sides, protect themselves? First of all, any listing agent should recognize that if you are going to be entertaining a bully offer you are under a greater responsibility to ensure you give everyone an opportunity to play the game. Missing one or two phone calls can cost you your commission. In a discussion about this event, one of the agents in my office said that she keeps an email log of every agent who has shown her listing so that if a bully offer appears she can send out a quick group email. In response to Agent Liz’s comment about the tight irrevocable time, she should have told Agent Jay that she needed more time to reach the seller and discuss their options. While Agent Jay might be a little irked at the delay it is important to recognize that he isn’t going away. His clients want the house. Agent Liz lost control of the situation. How could Agent Bob better protected himself? One simple move, have his client sign an offer right away and get it registered with the Agent Liz’s office. I have always been a proponent of registering quickly. Not only does it guarantee a seat at the negotiation table, it can scare away those buyers who don’t want to be in a bidding war.
The current market in Toronto is hyper competitive these days. With anywhere from 5 to 15 buyers for every listing, it is understandable that bully offers have found their way onto the real estate landscape. Knowing your role, on both sides, will minimize your risk to you and your client. As usual, I look forward to your views, comments and concerns. This post may not represent the views of Bosley Real Estate.