85 offers on a single property in Mississauga earlier this week. That is a wild headline. Buyers lined up outside the property in the hopes of finding their next home during what I will assume was a 6 to 8 day listing period. Over that span of time, 300 groups of buyers, their Realtors, and likely children, paraded through the property as part of a non stop train of hopes and dreams. That’s a lot of people, a very busy listing and the most intriguing real estate story of 2024 (so far).
Now, when I read the headline “85 offers” or “house sold for 35% over list price” or “300 showings in one week” my mind goes in another direction. 84 losing offers. 299 unsuccessful showings. And what was the list price to begin with? Is 35% even impressive? My sceptical side says “probably not”. I have a few more questions and actual points to make, but I have to say something else first.
This blog post is not a discussion about how real estate is sold, marketed, priced etc. here in the province of Ontario, or Canada as a whole. There are a lot of people who would read the headlines above and think “they shouldn’t be allowed to do that, it’s not fair!” Unfortunately, those folks will be continually disappointed as instances such as this one in Mississauga continue to happen across Ontario in a real estate market that his heavily undersupplied and in constant demand. So let us not discuss what a fair practice is, is not, should be, or could be. Instead, let’s accept the market for what it is and how it operates currently.
What is this blog post about then? This:
People need to demand more from their Realtors.
85 offers shouldn’t happen, ever. Regardless of how the property is priced or how amazing the property is, there should never be 85 buyers competing with one another. Why? Because buyers should be better educated than that. Who’s responsibility is that? It is their chosen Realtor’s responsibility. And so when I hear that 85 buyers submitted offers for 1 property, I can say, confidently, that a large majority of those buyers did not receive good service, information or education from their Realtor.
I would further be willing to say that half of those buyers (probably) had no business even looking at the property. Hell, of the 300 showings that were booked, half of those probably shouldn’t have occurred. And I point my finger exclusively at the Realtors who allowed this to happen.
Don’t get me wrong, the buyers themselves are not blameless, but very much less so than the professional that they have chosen to work with. Buyers are emotional, hopeful, and (should be) much less experienced with the real estate market than a licensed Realtor. That is not always the case, sadly, but there will always be licensed agents that have no idea what they are doing.
But you have to do what your clients want!!! That is true. A Realtor is required to follow a client’s direction so long as it is lawful. So if a buyer is hell bent on writing a doomed offer for the above property, their representative has to oblige. However, an informed, logical, reasonable person should never get to the point of writing an offer that has absolutely zero chance of being successful. Allow me to explain.
A property is listed on a Tuesday for $749,900. Throughout the day, many buyers view the listing online, discuss it with their family and their agent, and then decide how they would like to proceed. A lot of these conversations probably look like this:
Buyer 1: This seems like a really good deal compared to other homes in the area that we have viewed online/in person!
Buyer 2: You’re right! I wonder why it is priced so low. Maybe there is something wrong with the home.
Agent: Great question, buyers! Thank you for involving me in this discussion. These folks have chosen to employ a “list low, hold back offers strategy” in hopes of attracting as much attention as they can over the next 7 days and then reviewing all offers from interested parties at one time. In doing this, they hope to create competition and achieve a higher sale price than simply listing at what they perceive as true market value. All offers are to be submitted at (blank time) on (blank day).
Buyer 1: hmmm, are they allowed to do that? It doesn’t seem fair. We would offer them list price today if the house looks like it does online!
Agent: Yes, the seller is allowed to employ a strategy like this so long as they follow the rules such as notifying agents of number of offers, allowing competing buyers to improve their offers etc.
Buyer 2: Okay, so this is allowed. I’m not sure I like the sounds of it though. Do we really want to be caught up in a “bidding war”?
Buyer 1: But, what if we can get the house for a really good price? It is listed so far below what comparable homes have been selling for! It could be a good opportunity.
Agent: If we are going to view this home, you need to be prepared for the process that is going to unfold. If their strategy is successful, and there are multiple competing buyers, homes that are sold in this fashion often set pricing records and are sold without conditions such as home inspections and financing periods. If this isn’t something you are prepared to participate in, we should focus our attention elsewhere. If you feel like you are up for it, we need to put a plan together and talk more about how to proceed.
End scene.
At this point, the group will either decide to further prepare for the journey ahead, or step back because that is not something they are interested in participating in. In a scenario such as this, where a home is listed 100’s of thousands of dollars under it’s market value (which we will get to in a second) if the buyers aren’t willing to submit an offer well above list price (in line with market value or slightly above) and without conditions, then it’s best to walk away, forget about the house and focus on something that will sell in a manner that they are comfortable with.
However, a lot won’t. They will try to justify why this time, the house won’t be sold over list price and with no conditions. Why this time, the seller will choose to sell to somebody that will really love the home but didn’t offer the most money. Why this time, every other buyer will exercise their power in this scenario and say “we refuse to participate”. Buyers will say things like “you never know!” “There’s no harm in submitting an offer!” “I heard that somebody bought a house for way less than the highest offer because the seller really wanted them to have the house, that could be us!”
All of these are misguided and naïve excuses. You do know what is going to happen. There is harm in submitting a “loser” offer. And no reasonable seller is going to forego thousands of dollars for the sake of choosing a great buyer. It would be really nice if they did! But they won’t. I’ve never seen it happen and I don’t know of anyone in London that has experienced that either.
Who’s responsibility is it to educate their client and talk them through all of these emotions, thoughts and hopes? Their Realtor. A lot of them do nothing and let their client run the show. Where’s the value in that? I suppose some buyers think they know everything about the market and all they need is a paper pusher that will give them a hefty chunk of their commission (if they are ever successful, unlikely) at the end of the day. But those folks fall into the misguided category outlined above. A real professional is somebody that you can rely on to help you through this process to your end goal of finding your next home. Somebody who you trust and rely on. If you don’t have that, you’re missing out.
Let’s return to Mississauga circa a few days ago. If these 85 buyers had a Realtor that could educate them, at least 60 of them would not have submitted offers. At least, maybe more. In any multiple offer scenario, regardless if it is 3 buyers competing or 85, there are always a bunch of “loser” offers. Offers that should never have been written, usually because they are too low, or they are conditional on x, y or z. At least half of the offers submitted in most cases are loser offers. I guarantee there are a handful of the 85 offers that were written below list price even though the buyers knew they were competing with 84 other people. More of them would have included conditions. Why? Because the buyer said “well, you never know!” And their agent did nothing to educate them or because the agent truly did not know what the house was worth or was likely to sell for.
So here we have a bunch of people who may have not had the conversation or been informed that this house was in all likelihood going to sell for hundreds of thousands of dollars more than the list price or they had an idea that might happen, but went for it anyway. What a waste of time! And guess what those 60+ loser offers did? They pushed the real buyers into a more competitive position where they probably did every last thing they could to be successful. Would this house have sold for the price it did if there were only 25 offers? Maybe, maybe not. But for every buyer that says “there’s no harm in trying” there really is. More competition leads to higher prices, you’re just shooting yourself in the foot for the next home that you want to make an offer on.
Here’s how this should have gone:
Buyer 1: okay, we understand what this process is going to look like and we are prepared to submit a strong offer if we like the home. But what is a strong offer? The house is listed at $749,900. What will it sell for?
Agent: great question! What will the home sell for is very difficult to answer. However, I have looked at all comparable sales that are relevant to assessing the property’s current market value and I believe it is worth $950,000.
Buyer 2: that makes a lot more sense. Thank you for doing that research for us, now we have an idea of where this could end up. So do you think an offer of $950,000 will take it?
Agent: it really depends on how this week goes and the level of interest. If there aren’t very many offers, it could be less. If there are a lot of offers, it could be more. Often times, a very interested buyer will pay a premium on top of market value to ensure they get the house which then sets a precedent for future sales. If buyers believe we are in an ascending market and house prices are going to continue going up, smart buyers know that buying early is better than buying later.
Buyer 1: okay so we can go look at the home, knowing that the house is worth around $950,000 but could sell for more or less depending on how the offer process works out. Let’s do it!
Agent: fantastic, I will make arrangements for us to view the home. I’m glad we had this chat and that we are all on the same page now.
End scene.
This agent provided value to their clients by educating them on the process as well as the market value of the home based on comparable sales that would be an important factor in deciding how much to offer on this home. Very well done! A novice won’t do any of that. They will say okay, when do you want to see the home, providing no value, giving zero education and wasting their clients’ time. Pathetic.
Unfortunately, we have too many licensed agents that fall into the latter category. Maybe the buyer is uneducated themselves and doesn’t know what to look for in a representative. But there needs to be a higher standard for professionals in our industry and it starts with educating consumers.
I want to add a caveat to all of this: no Realtor has a crystal ball, but good Realtors have experience in the field and can form educated opinions on the value of a home and read a multiple offer scenario to give their client an edge. Nobody wins every multiple offer scenario, but a lot of Realtors lose every multiple offer scenario.
One last thing for the readers who are still thinking “oh but you never know!”. Trust me, I know. Not one time has a house sold in multiple offers for less than my client was willing to pay. Not once did the seller accept an offer and leave my client thinking “I would have paid more”. Find yourself somebody that you trust and will provide you value. It’s a complicated market out there and everyone deserves to have good help.
Comments