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How Bad Do You Want It?
Despite the softening market, some houses are still generating bidding wars. Are homebuyers being duped? By Bert Archer
Pick a number: buyers hate bidding wars, which heavily favour the seller, but most agents—who benefit from higher prices—love them
Image credit: Amedeo de Palma
Nothing illustrates the madness of Toronto real estate better than the bidding war—the absurd hype inducer that has defined the market for the past half-decade. In May, around the time that Toronto realized a 10 per cent drop in housing sales was an indicator of a softening market, not an anomaly, Melinda Rogers (daughter of Ted) paid more than $2 million over asking for 8 Old Forest Hill Road. That sale seemed an appropriately ridiculous end point to the boom. But, amazingly, bidding wars haven’t gone away. All across the city, buyers continue to get pulled into what agents euphemistically call multiple offer situations. Over a sample 10 days last August, 10 per cent of Toronto homes went for more than their listing price.
If you’ve even flirted with buying in the past five years, you know how it works. The seller lists a house, often for much less than it’s worth, and more than one person wants it. The other bidders are offering as much as they can afford, but you don’t know whether the range is $5,000 above asking or $100,000. If you win, you never know whether you paid too much. If you lose, you never know if another $1,000 would have clinched it. This post-boom bidding bubble is unique to Toronto. In Vancouver, a market as hot as ours was, multiple offers have pretty much disappeared. The same goes for Chicago. Australia goes one further and forbids the blind bid. It’s all done in the open, by live auction, which may leave buyers vulnerable to getting caught up in the moment, but it at least has the advantage of transparency.
No other market operates in the dark—the stock market, the commodities market, the art market. Why, when it comes to the biggest investment we’re ever likely to make, are we willing to make blind offers against competition we’re only ever vaguely aware of? Because agents love it, for one. Buyers, however, do not. In a system that’s meant to be balanced between buyer and seller, bidding wars put a heavy thumb on the seller’s side of the scale. The fact that it’s done covertly is bad enough, but on the few occasions that the veil has been lifted, either by a trenchant agent or an angry bidder, any number of unsavoury things begin to scurry away from the light. One bidder I spoke with “strengthened” his first offer to thousands over asking, but was urged to up it again. When he walked away instead, the agent confessed his bid had been the highest all along. And there’s nothing in the current system to prevent an agent from telling a buyer there are eight bids when there are only two.
It’s in the Toronto Real Estate Board’s interest to maintain the frenzy—it makes for good stats—but they’re getting a lot of heat from disgruntled buyers. TREB’s response has been to provide a form for sellers to sign stating how many offers have been made. Still, the bidder would have to do their own digging, either though backdoor channels at the listing agent’s brokerage or with a full-on complaint to the Real Estate Council of Ontario to find out what’s what. Most often, they’re too preoccupied with finding the next place to bother. And common sense is a better weapon. In the current market, deliberate underpricing is a risky business. Last April, Omar Ibrahim, a self-described flipper, listed his Riverdale house, bought for $342,000, at $1. While it got a lot of media attention, the stunt backfired (the house still took two months to sell, for $385,000). Maybe he did us all a huge favour.
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I think Bert is slightly disconnected! Real Estate Agents do relish at the thought of bidding wars or the process. Before slandering a group, put yourself in the shoes of a Realtor. Representing a Seller that has multiple offers can be stressful for all,and unpleasant to turn away disappointed buyers. Then that Seller faces the same process when he becomes a Buyer. Then starts the cycle of running to show homes, lost bids, and fatigued buyers. Everyone feels loss of control. As an Agent for 18 yrs. I hate the lack of disclosure in this process. I would welcome an open online registration process somewhat like stock bidders have in place. We(Agents) however are also victims of this archaic process. We would welcome a better system, it is not our greed that is keeping it from change, for Agents personally do not benefit, it is in fact more work for us, and a bittersweet conclusion! Lay blame where it belongs, with REBBA.
October 9, 2008 | by avtaylorAlice Taylor, Royal Lepage Your Community
416-969-7172, alice@alicetaylor.com
When I saw this article come into my inbox, I thought it would shed some light on the reality of the real estate buying process and even show some positivity (for a change) that Toronto's real estate market is still resilient despite what is happening elsewhere. As I read the article, I shook my head in disbelief at how subjective and grossly incorrect the writer's views are in contrast to reality.
I concur with Alice's comments above that Realtors do NOT relish the current offer process (sorry, Alice, I knew what you meant... you were likely banging away furiously on the keyboard, as I am now!). To suggest that Realtors enjoy the idea of forcing clients into a situation where they feel like they may be overpaying is not my idea of customer service and forming a trusting, long-lasting relationship. Any Realtor who expects to be successful and have longevity in the business will agree.
On the selling side, it is often the homeowners themselves that are expecting to sell above market value and enjoy greater profits, because it happened to someone they know. This puts pressure on their Realtor to deliver similar results and hence use the underpricing tactic to achieve this. In a seller's market, it's the buyers who dictate the market price based on who wants the property the most. The same thing you would see at an art auction. I agree, one can end up overpaying without proper guidance, but in the end it is the buyer's decision, not their Realtor's, on how to spend their money.
As for transparency of the number of offers, Realtors are required by law to disclose this. I prefer to provide the names of the Realtors involved in the offer process, so that any buyer's agent can verify this for themselves. This lends to my credibility in the eyes of my peers and also protects me from the possibility of complaints. When you consider the financial penalties and possible risk of losing your license entirely, it just doesn't make any sense to be deceitful.
Bert, your article is going to rub a lot of Realtors the wrong way and also inaccurately casts a negative view of Toronto's real estate market to those who are not in the know. Next time you write an article about real estate, please take the time to get the facts (and cite your sources) to deliver the TRUTH rather than sell negativity just because it makes a good read. Call me an idealist, but isn't it the truth that makes for good journalism?
Al Daimee
October 9, 2008 | by aldaimeeRoyal LePage Real Estate Services Ltd., Downtown Branch
416-737-5612
al@TOPofTO.com
We went through a situation where I feel there was a bogus offer presented the same day we put the offer in on our house last December. The house had been on the market for 50 days with no offers. We decided to bring in a building inspector before we made an offer so we could present an offer with no conditions. That night our agent went to present the offer and there was another agent there, from the same office as the selling agent, presenting an offer first. Our agent was told their offer was $150,000 more than ours, with conditions on financing and inspection, and that the buyers were "Dentists". Our agent told us that the sellers agent told her all this information because the sellers really liked us and wanted us to have the house. They wanted us to bring our offer up $125,000. We decided to walk. The next day they called and wanted us to bring the offer up by $100,000. We decided to bring it up by $50,000. The sellers came back with a price $75,000 above our original asking. We walked again. The next day we got a call saying they would accept our offer $50,000 more than our original offer. Looking back, I think I paid $50,000 too much. I just don't understand why they wouldn't take the other offer if it was legitimate. They had already gone through an inspection with us. They were "Dentists" so the financing would not have been an issue. The whole thing seemed a bit fishy. It was like they were trying to start a bidding war because they new we liked the house.
Later in the new year, we did sale our house in a legitimate bidding war, for over asking. But we had a great product fully renovated and did have a low asking price to draw in multiple buyers. We sold for $20,000 over asking. Which is about $9,000 under what we would have listed for if we were not going to try for a bidding war.
Ultimately, if both sellers and buyers want a fair and realistic price for the property, the house will sell.
October 10, 2008 | by sheryleMy $1 listing "BA" was NOT an intended publicity stunt!!! Do your DUE DILIGENCE as a reporter before you deliver a message to people!! I did list my Riverdale property for a desirable/fair/competitive market price...there were no takers, so, I lowered my price 3 "@#^%&*" times, AND STILL NO TAKERS!!! Only then I decided to list for $1, simply as an innocent request to seek additional information from the market to assist in determining the house value!!! I didn't just wake up one morning from a CAFE BAR IN AMSTERDAM and decide to create a stunt by pricing my home for $1..And just for the record, neither me nor my realtor contacted the press about my $1 House..They contacted me!!!! I didn't need the media to help me sell my house. And finally, my $1 House was only on the market for 7 days, not months as you mentioned!! People, hear the truth FIRSTHAND!!!!There was NO initial deliberate underpricing of my house, as "BA" mentioned!! NOTHING, NOTHING BACKFIRED BUDDY!!!!!!!!!!
October 14, 2008 | by omar7266PEACE OUT!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Omar Ibrahim
omarloveslife@yahoo.com
647.831.6831
NOTE TO READERS: Toronto Life has learned that Omar Ibrahim’s house did not, as reported, stay on the market for five months. This fact has been corrected in the above text and a correction will appear in the December print edition.
October 15, 2008 | by AdministratorOmar... nice try, but you're totally unconvincing and without credibility. If your $1 listing was serious, than you should have been willing to take an offer of $2. Since you weren't willing to take such an offer, clearly your listing was a publicity stunt.
Enjoy the crashing market,
November 2, 2008 | by PoppingBubblesPopping Bubbles
This is the second Toronto Life article that blames Real Estate Professionals & Mortgage Company's for poor decisions that consumers make. (Mortgage Slaves by Rachel Giese, From the March 2008 issue)
I only have one question.
"How come I haven't heard in the news about Realtors & Mortgage Brokers that put a gun to people's heads and force them to sign these contracts?"
December 29, 2008 | by DeePee