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.
Check out the latest guest post from my good friend and stellar Real Estate coach Suze Cumming. If you haven’t already, please check her out and subscribe to her blog because it is awesome. Suze has trained many top agents in Canada and is responsible for my of the successful agents at Bosley Real Estate. You can check out her website http://www.thenatureofrealestate.com/
How do you get good at pricing homes? Twice now I’ve lost a listing because my price was wrong. Once it was too high and the other time it was too low and the house ended up selling for $40k more than I thought. I am not only losing the listings, I’m starting to second guess myself all the time. Is there a course or something that I can take?
Pricing matters in real estate and unfortunately, it’s not an exact science. By definition, market value is uncertain as it estimates the value based on what we think buyers and sellers will agree on. To make this estimate, we look at what different buyers were willing to pay for different properties in the recent past. There are a lot of variables in this process and this creates a large margin for error.
Let’s look at the formal definition of market value:
“The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue influence”
I recommend that you keep a copy of this definition with your listing presentation material. It will help you focus on what you are trying to estimate when you are pricing homes and it will help your potential clients understand that your price is an estimate based on factors that we cannot always determine accurately.
The most difficult thing about market value is that it can change very quickly. It can jump up if there are several buyers desperate to get a home in a certain neighbourhood and there is nothing for sale. It can drop significantly due to changes in the economy, world news, threats, rumours, and such. Many of these things are beyond our ability to predict.
I had several listings when the World Trade Center Disaster occurred and their value changed significantly in an instant.
To get good at pricing, understand the definition and then practice. Inspect as many homes as you can in your market place. Estimate what you feel they will sell for. Think deeply about how buyers will perceive this product in this market at this time. Make notes about what you think the home will sell for and why you think that. Then go back when these homes sell and see how accurate you were. If you are way off, speak with your broker or other agents in your marketplace to uncover what information you are missing when estimating values.
I use to underestimate home prices on busy streets. It was my own personal bias because I really value quiet and couldn’t imagine living with the traffic noise. As a result, I only ever sold one home on a busy street in 28 years in the business and I felt guilty about it. (They are still living happily on Mt. Pleasant Avenue in Toronto after 16 years). It’s challenging to keep our biases out of the process but awareness and practice will get you there.
A course on pricing? Good idea. I’ll work on it.
Columnist, The Nature of 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?