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February 1, 2012

4

A Tale of Two Listings

by mark mclean

Here’s a question for you; when is it okay to list a home $200,000 below market value? If you say never then….. ding ding ding….. you are a winner.  Let’s face it, an agent lists a house grossly undervalued to drum up multiple offers and that process is nothing short of inconsiderate, underhanded and unprofessional. Of course, the neighbours talk, perhaps the media pick up on it, and the agent sends out just sold cards exclaiming “look at me, I’m so great because my  listing sold for 140% of asking price”. We are not doing ourselves any favours people. When you have 15 people at the offer table, 14 of them have given up time with their families because the agent has given them a glimmer of hope that a particular house is within their financial reach. Perhaps the flyer should say “Hire me; I don’t know how to price a house so I guarantee a line-up of buyers”. Maybe that is the type of honesty needed, or maybe we have to shame those agents that utilize this practice. The reality is that we hear a lot about it because it makes good reading. I’m particularly fond of the recent article in The Star  http://www.thestar.com/article/1122690–mimico-house-sells-200-000-over-asking-in-31-person-bidding-war-in-hot-toronto-real-estate-market#article  about the house in Mimico that sold for $200K over asking. The listing agent said that he expected 20+ offers. His comment is a classic misconception of reality, “I bet 25-plus bids. I thought if it didn’t break 20, I wasn’t doing my job.” I would say he wasn’t doing his job at all. Having 31 people showing up to bid on a house,  is plain and simply, wrong. The article received 28 comments mostly talking about the house being listed to low to begin with. Not surprisingly, no one wrote in to say the agent did a great job.

 The other day an agent in our office was presenting an offer on a property in Toronto’s West end. The house was listed in the low $500’s but his research said that it was worth mid $700’s. The agent was pretty blunt about his approach and as a result there were 15 offers. I would have to agree with Bert Archer’s recent story in The Standard which calls this charade bad business. You can read his article here. http://www.torontostandard.com/business/sold-350000-over-asking/   Yes, it is bad business to set false hopes on unsuspecting buyers. But don’t think the party will continue. While the practice of listing low to spark bidding wars is perfectly legal, it is only a matter of time before banks and in particular CMHC start taking a hard look at this charade.

 Purposely listing a house wildly under value is, in my opinion the exception, not the rule. Let’s look at another scenario, one that is more the norm of today’s market, but is not sexy enough to report on. The public should know that professional agents who do their research, have a solid grasp of property values, and understand what it will take to sell a home, can, from time to time get it wrong too. Well, actually, it’s not that they get it wrong it’s more that they can’t put a value on a buyer’s motivation. One house sells for $459K and the identical house sells a month or two later for $509K. How is that possible? The answer is simple; the second buyer wanted that home bad enough to pay the price. At the root of the problem is availability. It is the common gripe of agents today. In this week’s meeting I conducted a very unscientific poll on the market. I simply asked how many agents were working with buyers and how many were working with sellers. The result; buyers outnumbered sellers 3 to 1. So how can that be? What is stopping people from selling? Uncertainty in Europe and growing consumer debt seem to be balanced against stunningly low-interest rates and a reasonably solid Canadian economy.  As one agent suggested; maybe it’s a chicken and egg thing. Maybe there aren’t houses to sell because potential sellers want to buy first.

 Okay, the truth is that it is good practice to list a little low. On a million dollar listing, you should list around $989K because a little competition is a good thing. But, as some of my best agents would tell you, pricing is a moving target. As much as our research might indicate, that million dollar house could go for a lot more. THAT is free enterprise at work. Let’s also remember that buyers aren’t overpaying for houses, they are paying over-asking. There is one thing that I disagree with Archer on. He says that prices are set by the agent. Wrong. Our job is to present sellers with the facts and nothing but the facts. Past sales, market conditions, competition, and our knowledge allow us to act as trusted advisors. At the end of the day, it’s the seller who sets the price and signs the contract. I would suggest that it is the ill-informed agent who sets the price intentionally low because he or she doesn’t have the depth of knowledge to get even marginally close to value.

The opinion expressed here may not be the opinion of Bosley Real Estate Ltd.

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4 Comments Post a comment
  1. Feb 2 2012

    Well said! Nothing worse than watching your clients excited about a house you know they aren’t going to win…and dealing with the aftermath. It’s time for real estate 2.0.

    Reply
  2. Feb 15 2012

    Homesellers want to see a lot of attention on their property, plus it makes the agent look like a superhero… so it’s tempting to underprice to get a lot of juice on the property. Unfortunately, those bidders won’t make it all the way through to the final price showdown. Agents need to educate home sellers that they don’t need dozens of bids, they just need one sale.

    Reply
    • Feb 15 2012

      And it is important to not that the house is only worth what someone will pay. Right? Welcome back by the way. Were you away? we haven’t interacted in a while. You should consider coming to REBarCamp in Toronto. May 1st.

      Reply
  3. Mar 13 2012

    Great article Mark, well said. I just wonder how many of these drasticly low listing prices are actually mistakes and not well intended strategies. As you pointed out, a listing price just slightly under the market would probably produce an adequate amount of interest and excellent sale prices.

    Reply

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