September 2019: Real Estate & Home Ownership In Canada By HousePorn’s Steven Fudge

How Realtors Create Multiple Offers & Bidding Wars For Canadian Real Estate

 

 

So here's an observation from me, to you: This Autumn, realtors are listing properties for sums which are lower than they might have listed last year, or prior. In this climate, if the objective is to create competition and have buyers blindly compete one has to set the list price really really low. This makes the sale prices seem shockingly high and suggest the market is roaring. This is only partly true. Yes, the demand for freehold houses in the original City of Toronto continues to outstrip supply, but the final sale prices are not necessarily exceeding the values they might have secured in the Spring 2017 Toronto real estate peak. At best they're in line with them, although there are exceptions, which I'll post about in the next week or two. 

Also, the demand for freehold houses is most intense for properties worth less than $1.5mil. As you move beyond that price threshold, the competition is less fierce. Values are still solid, but a property may take more time to sell. This isn't always the case for properties in Triple AAA locations (on the subway line, in neighbourhoods with great schools, and near village amenities), or if the property is in exceptional condition (there are a lot of Buyers who will pay a premium for top tier houses), has great proportions and character (vintage homes or a design pedigree are hot), or is large (a property that offers space a family can grow into over time appeals to buyers looking for that 25 year home). The best of the best will always get snapped up. But that doesn't mean every property will!

Let's look at how you might leverage a 'holdback on offers' strategy, increasing the probability of a bidding war and achieving the price you desire!

 

 

Your home's highest value isn’t as simple as picking a list price based on comparable sales, then sitting back and waiting for Buyers to flock to you with the sum you desire. Although in the original City of Toronto (opposed to the GTA) we remain in a Seller’s market, there is some fickleness as the landscape has shifted a little bit over the last year. Now it is even more important than ever for Sellers to consider their selling strategy before listing their property for sale.

Success (which in this case means getting top dollar and a swift sale) is more likely to occur if you’ve done your research and if you are well-informed about the nuances and influences of the current market in Toronto. This is definitely an essential component of executing a 'holdback on offers' strategy.

 

 

For a Seller with a desirable property that offers broad appeal to their target market(s) and the potential of multiple Buyers interested in their property, choosing the list price isn’t necessarily a straightforward formula of using comparable listings and recent sales. It’s about positioning your property aggressively in a market where the perception of availability is limited.

Setting a low list price attracts both the Buyers who see the possibility of scoring 'a deal', as well as the Buyers who have been actively trying to secure a property in a market where - in many parts of the City of Toronto - demand exceeds supply. This hinges on the psychological “fear of missing out”. Sellers taking this approach set their list price aggressively low to attract a larger pool of buyers, suggesting value while creating urgency by setting a deadline with a holdback offer date. They might also open the door to very motivated Buyers by offering the possibility of considering a pre-emptive offer (also known as a bully offer) before the holdback offer date. Setting a holdback on offers is a bit like setting up a running start for purchase, with lots of space between the list price and what you as a Seller really wants. It’s the momentum created by that gap and urgency that frequently garners the sum that you desire, or perhaps even surpasses it.

Click here to read my past post on the complexity of pricing houses and condominiums in The Snakes And Ladders Of Under Pricing Property.

 

 

You - the Seller - ideally want to get X amount of dollars for your home. How do you do that? You can list at the sum you want and hope that there will be multiple Buyers and that your home will fetch what you want. While that does certainly happen in Toronto on a frequent basis, there is the possibility the property will sit and not sell, or that you may have to field offers below what you’d like to receive.

If your motivation is to facilitate a quick sale - because of some urgency (relocation, divorce, financial or health difficulties, you're part of an estate sale, or you've purchased another property, for example), pricing competitively below market value will fuel a faster sale and, potentially, see the property arrive at the same - or higher - selling price faster. Enter the holdback on offers strategy.

There are certain conditions that make a holdback on offers strategy favourable. Firstly, you need to be offering a property which is desired in any market. The property itself should be polished, in a coveted location and have the hallmark “too good to be true” price that signals your intent as the Seller and your realtor’s strategy. If the property needs work, or is situated in a less desirable area, it may be more difficult to attract enough Buyers to incite a bidding war. Unless, of course, the list price is sufficiently below low market to catch attention. That low list price is critical. "Low" is relative, meaning that it should be a sum which demonstrates that you understand market conditions (and not those $1 listings you see occasionally which confuses Buyers).

What's essential here is that you, as the Seller, have to be amenable to listing your home at a lower amount which isn’t always as easy as it sounds. It does indeed seem counterintuitive to list your home low in order to fetch a high price, but that's the framework that is necessary to trigger the desired bidding war. If you don’t, you are really setting yourself up for failure with this particular strategy and are better off to list at, or slightly above, market value and allow time to find the right Buyer.

One other detail. As a Seller, you need to decide if you want to set a specific 'holdback on offer date' to receive offers, or whether you are open to consider a pre-emptive - or bully - offer which in itself can be a bit of a roll of the dice. My recommendation would depend on a number of variables specific to you, your circumstance, and your property but, for the record I do not encourage Sellers to consider pre-emptive (or bully) offers. In fact, there have only been two occasions in my career where my Sellers considered - and sold - by accepting a pre-emptive bid. 

In any market, a holdback on offers strategy can prove very lucrative for Sellers, but it isn’t without its risk. For instance, search-weary Buyers could be discouraged in participating in what may very well become a bidding war of bully offers. You also run the risk of no one making the offer that you want and having to relist, which can potentially damage the perception of value and accuracy of price. That said, there potential upside as well; it really comes down to following a smart strategy.

 

 

From my experience, the closer the list price is to its value, the less likely it will go into competition as Buyers are fearful the Sellers will want a sum even higher than what's it is worth. That's why it's important to have a list price which signals it's below market value, which more or less announces your strategy to your target market and lets them react accordingly.

So how is it that a low list price gets this chain reaction in motion? First, it's important to understand that by choosing a low list price you're removing yourself, as the Seller, from the negotiating equation. Instead of Buyers negotiating with you, you're forcing Buyers to reconcile their own value of your property when vying against other Buyers blindly with no knowledge of anyone else's offers. I talked about how Buyers reconcile value in this post: Maslow’s Hierarchy Of Needs And Toronto Real Estate For Buyers.

By taking the list low approach, you encourage more interest which fuels more offers, which is an essential component of pushing the end value up. Going low as well will signal to other realtors that this is the strategy that is in play, and they can advise their Buyers how to proceed to successfully close the deal (while helping achieve your desired price).

It’s a symbiotic relationship that goes beyond supply and demand that leverages the temperament of the market. 

 

 

As I’ve mentioned, it does indeed seem counter-intuitive to list low to push value up, but I’ve seen this happen on numerous occasions recently in Toronto’s Real Estate Trenches.

Two years ago, I was in a bidding war against 14 other buyers on a home in Danforth Village. The list price was $889,000 and it sold for $1.2mil - a sum which aligned close to the peak values of spring 2017. Three weeks prior I was in a bidding war with a home near Monarch Park on The Danforth where the list price was $749,000 and it spiked over $1mil with 17 offers.

My observations of real estate transactions in Fall 2019 have been not as drastic, but not dissimilar. In past years - think 2016 and 2017 - bidding wars were sending prices soaring. After the government intervention of 2018, multiple offer scenarios aren't quite as frenetic. Buyers are slightly more wary, as Toronto's real estate market finds it's feet again, and, more importantly, they no longer have as much buying power as they used to (thanks to interest rate hikes and the introduction of new mortgage stress tests.)

We recently sold a small two-bedroom worker's cottage in Cabbagetown which we had listed for $799,000. We gratefully received 8 offers, and the ensuing competition pushed the selling price to just under a million dollars. The Seller was extremely pleased!! Take a look at the property here: An Enchanting Cabbagetown Cottage On Alpha Avenue.

 

 

What is the bottom line?

A successful holdback on offers strategy needs to be based both on market data and marketing acumen. When you can most directly connect your target market to your produc with minimal distraction, while creating a sense of value and urgency, your chances of success are substantially higher.

 


 

Here's some of my blogs which demonstrate the critical process by which I analyze and dissect all the faceted layers of housing and home:

Gentrification, Densification, And The History Of Toronto Real Estate

The Psychology Of Real Estate, Housing & Home

Everything You Considered But Never Asked Dear Urbaneer

 


 

Contact me - Steve Fudge the purveyor of Houseporn.ca and the proprietor of Urbaneer.com at -  steve@urbaneer.com for more info!

~ Posted by Steven Fudge, the purveyor of houseporn.ca and proprietor of Urbaneer.com, a division of Bosley Real Estate Ltd., Brokerage.

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