Rocket Science! – Toronto Realty Blog
Many of you have seen my now-infamous video of comparing pre-construction condo sales to buying pre-sale jeans.
I always find that when I’m having trouble getting a point across, whether that’s because those on the receiving end are dense, or because the subject matter is complicated, I am more successful coming up with an analogy or a metaphor.
In my pre-construction jeans video, I acted out a sketch where somebody goes to buy jeans, only to find that they’re not buying jeans then and there, but rather jeans to be made in the future, but they can’t try them on, can’t touch or see the jeans, and there’s no guarantee as to the quality of the jeans, when the jeans will be ready, or if the jeans will ever be made. Oh, and the pre-sale jeans cost more than actual tangible jeans that are right in front of you.
We don’t buy jeans like this. So why do people buy condos like this?
I’m selling an entire portfolio of condos down on Abell Street and Lisgar Street, and we’ve separated some parking spaces and some lockers from the units, deciding to sell this parking space with that unit, or that one unit doesn’t need three lockers, so we’ll sell two of those along with two other units.
The confusion this has caused is just astounding.
Imagine a real estate agent who sees a condo listing on MLS, sees that there’s one parking space and one locker, but then finds two lockers deeded with the unit in Land Registry. When I tell this agent, “We’re only selling one locker,” his head explodes.
Boom.
Brains everywhere.
Impossible to comprehend!
“But…..but…..there are two lockers with this unit,” he says.
“We are selling one locker,” I explain.
“But…….Land Registry shows two lockers,” he replies. “This unit should come with two lockers.”
This went on for a full minute. And I realized that I needed to use a metaphor to get through to him, ergo….
“…Okay, so I have THREE apples in my hands. Three of them. I extend my right hand and offer you ONE apple. That means I have two apples left. I am keeping those two apples. I am offering you ONE apple.”
He understood.
Sometimes in this business, situations are made out to be rocket science when they are anything but.
Case in point: how we price houses and condos for sale. It’s been this way for quite some time, and you would think that the market participants are used to it. But whether it’s the buyers just entering the fray or the agents who have supposedly been doing this for decades, many market participants still come up empty when trying to figure it all out.
Let’s say there’s a condo for sale for $439,900 with an “offer date” set for next Tuesday.
Let’s say the exact same model sold last week for $525,000 and two weeks ago for $522,550.
What do you think this condo is worth? What do you think it could, would, should sell for?
This is not rocket science, and yet the market and its participants continue to make it out to be.
Let me tell you a story about a recent listing that is not meant to shame or demean anybody involved, but simply meant to demonstrate my point. It is through this story that you, the reader, may not only gain knowledge about the market but also understand how many participants remain frustrated and ultimately unsuccessful in their endeavors.
Sound fair?
Clients of mine were looking to upsize to a 2-bed, 2-bath condo with more space so they could both work from home, after amazingly spending nine years in the 1-bed, 1-bath condo that I sold them (one of them, now with a partner…) back in 2012.
As is usually the case in this market, we did our research on what the existing condo could sell for, then ventured out to look for that upsize condo. I would estimate that 95% of my clients buy first, then sell their existing property.
We eventually found a gorgeous condo townhouse that would triple their existing space and pulled the trigger immediately.
The two most recent comparable sales for their existing condo were $630,000 in May, on a $639,000 list price, on the market for 7 days, and $636,000 on a $534,900 list price in July.
So it would seem like we have a price range, no?
Both of these units were on very high floors with great views and ours was on a lower floor facing a different direction. But we did what we always do: we cleaned, painted, fixed a few things here and there, then emptied the condo, staged it with our only stager, photographed it with our only photographer, and put a fantastic look on the place!
When it came to pricing, we could have done just about anything.
Try it really low at $499,900, with an offer date, to get the foot traffic through?
List at $599,900 to ensure we set a “floor,” but still hold back offers?
$529,900, $549,900, $514,900, $569,900…
We debated at least six or seven prices at great length, but ultimately we settled on $529,900.
I recognize that a large percentage of the buyer pool, or real estate onlookers for that matter, don’t like the way that real estate is priced and sold, so hearing me talk “strategy” might rub you the wrong way. That’s fair. But it is what it is, and this is how the market has worked since 2003-04 when I got into the business, so be it.
We listed the property for sale at $529,900 and showings began to take place.
The best time for an agent to bring a pre-emptive offer is usually the first night of the listing, since it’s when the seller is the most anxious, the fewest showings have been booked, and if the listing is going to be a huge success, the seller usually doesn’t know it yet.
But I didn’t recieve a pre-emptive offer on the first night. Or the second. Or the third.
In fact, it wasn’t until Saturday that an agent called me and said, “I’m going to be sending you a pre-emptive offer,” and I told her I would look at it.
That’s what I always say. “I’ll look at it.” Too many buyer agents get excited and hear, “Sounds good, I’m happy to work with it,” and automatically take that to mean that their offer will be accepted. I simply tell agents, “I’ll have a look when I receive it,” or something to that effect.
Soon after, the email hit my inbox.
There was a nice note about the buyer and how she intended to use the space, and the agent added, “We hope you will accept our offer and we look forward to hearing from you.”
Given that we were listed at $529,900 and the two most recent comparable sales were for $630,000 and $636,000, what would you expect this offer to be?
At $636,000, we’d accept. Maybe even $630,000, given we hadn’t received nearly as many showings as we expected.
But the offer wasn’t even in that stratosphere.
In fact, it was off by about six-figures.
The offer was for $540,000.
What’s more is that it was conditional on a lawyer’s review of the condominium’s status certificate, and the buyer had not submitted a deposit cheque with the offer.
If I’m going to forego my scheduled “offer date” and accept a pre-emptive offer, 98% of the time, I will insist on a bank draft or certified cheque. Reason being, if you move your offer night, and you accept an offer, but the buyer doesn’t show up the next day with the deposit, then you’ve screwed up your entire listing. You can never gain that momentum back again. The only time I would accept a pre-emptive offer without a deposit is if it’s an agent that I know extremely well and have worked with before.
If I’m going to forego my scheduled “offer date” and accept a pre-emptive offer, 0.00% of the time would I do so if that offer was conditional. I touched on this in Monday’s blog. It defies logic how a buyer agent can’t understand this. I’m most certainly going to sell unconditionally on offer night, so why blow up my listing and offer process for a conditional offer?
But most importantly, if I’m going to forego my scheduled “offer date” and accept a pre-emptive offer, it has to be for a price that makes sense.
$540,000 made no sense. Less than zero, if that’s a possibility, and not just a book by Bret Easton Ellis…
I called the agent and she sounded very chipper. Like, so happy it almost made me want to be overbearingly-nice when I told her what came next.
“Jenny,” I started, “I appreicate the offer, the pre-emptive strategy and the aggressiveness, and the efforts on your part, but you’re off a ways on price,” I told her.
“How much?” Jenny asked.
Ordinarily, I wouldn’t answer. But anybody who submits a conditional pre-emptive offer with no deposit, at this price, isn’t going to be a player on offer night.
“About six-figures,” I told her.
She laughed.
“Oh, come on now,” she said.
“Have you looked at the comparable sales?” I asked her, as though the question was rhetorical.
Amazingly, the question may not have been rhetorical, because her non-answer, blame-deflecting response told me it was possible she may have taken five seconds to log into MLS and type in the property address.
“Well……you priced this at $529,900, David!” she said.
I see. It was my fault.
As with everything else in life, there’s no self-reflection anymore. No sense of self-responsibility.
“Jenny, I could have priced this at $1.00. It’s the Toronto condo market. $529,900, $549,900, $499,900, it doesn’t change the value of the property; the range of values in which this condo could or should sell. But that range is not in the area of $540,000.”
She began to debate me a little, but I headed her off at the pass.
“Jenny, aside from the price, your offer is conditional,” I said.
“Yes, but only for two days,” she pleaded, as though it mattered in the slightest. “Two days, David. It’s not ten business days,” she added, as though anybody makes an offer conditional on review of the status certificate for ten business days.
“There’s really no such thing as a conditional bully offer,” I told her.
“But David,” she continued to plead, “There are a LOT of problem buildings in downtown Toronto! A lot of status certificates aren’t cutting the mustard and lawyers are rejecting them!”
Whether or not this is true, or a slight overreaction, or a sales pitch, I still had to set her straight.
“That may be true, Jenny. But that’s why the listings reads ‘status certificate available, email listing agent for copy,’ and why you could have the lawyer review the status and then submit an unconditional offer that stands a chance of being reviewed before the offer date.”
I didn’t think that was unreasonable.
I want to climb into the minds of some agents. I want to look around. I want to see how the wheel turns, and understand why they feel that a seller would forego a scheduled offer date to work with a CONDITIONAL offer.
Honestly, folks, this isn’t rocket science.
Jenny sighed and said, “Fine, do you want to send me the status certificate and I can have our lawyer review it before offer night?”
I emailed Jenny the status certificate.
That was the last time that I ever heard from her.
On offer night, we received five offers.
Four were over $600,000.
We accepted a bid of $638,000 for the condo which was fantastic, all things considered. It was a great price compared to the two most recent sales, especially as they were on higher floors. But considering the lower number of showings on the condo, we were all estatic.
The offer we accepted was unconditional.
And there was a bank draft in hand.
The buyer agent representing the successful buyers is somebody who I have worked with several times in the past, who has been around for probably twenty years if I had to guess. I’m sure he too might admit that what he did wasn’t rocket science, but then again, compared to some of the other efforts, it was.
I suppose that if I look into my heart, I can see how tough the Toronto real estate market is for buyers, and that perhaps not everybody can afford to pay fair market value for properties. But what somebody wants to pay and what the property is worth are mutually exclusive.
I’m sitting here on Tuesday night reviewing offers on two listings: one house and one condo. In both cases, I have great bids that are clearly being submitted by agents and buyers who know what competing properties have sold for, and who happen to have a pulse on the market, and then I have really poor bids that make no absolutely no sense at all.
Pricing real estate is not rocket science.
So why do we make it out to be?
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