The Story That Nobody Wants To Hear – Toronto Realty Blog
This is the story that nobody wants to hear, or, it’s the story that everybody wants to hear.
It depends on where you find yourself on the real estate ladder, and to a certain extent, how you feel about the industry and the market in general.
For some folks that already own a home and have no plans to move, they won’t care about what I’m about to write. Too-bad, so-sad. Stop complaining, you sad-sack buyers!
For other existing home-owners, empathy flows from their fingertips to the comments section on the blog, as they talk about what’s “fair.”
As Toronto Realty Blog approaches its fourteenth birthday, and knowing that I’ve never shied away from controversy, this post might be the most notorious yet. I don’t expect the actual contents of this post to be controversial, but rather I do expect this post to spawn endless discussion about “the system” of buying and selling real estate, even more so than we’ve already done this year.
Last week, I talked with a well-known Toronto reporter for about an hour, essentially losing track of what’s on the record, and what’s off. Just two guys chatting about the business of real estate, the system, regulations (or lack thereof…) and potential changes. During this discussion, we touched on transparency, auctions, disclosures, regulations, and all kinds of ideas on what, if anything could change when it comes to how we sell real estate, but also why it could or should change.
Everywhere you look, there’s talk about real estate. Every newspaper, every evening local newscast, and all over social media. Most of the news these days seems to be about sad people who can’t afford what they want. Case in point:
“Canada’s Housing Market Is Hurting Your Brain, But You Don’t Have To Lose Your Head Over It”
Just another article about a sad, 30-year-old couple who can’t afford what they want.
No mention of how many trips to Costa Rica they’ve taken in the last decade, how much avocado toast they’ve eaten, or what type of Peloton membership they have. Just a photo of them looking sad, now on the Internet forever.
With every story like this comes a conversation about the way real estate is sold with the underlying question of fairness.
So today, let me tell you a story that will keep you talking about this forever.
A couple of months ago, a long-time blog reader contacted me about selling his downtown condo.
This unit was nothing special; just a 1-bed, 1-bath, 500 square footer, like oh-so-many others out there.
It was in one of my favourite buildings, and in my favourite downtown location, but the building is approaching two decades old and while it certainly has fans, I think a lot of the younger buyers prefer new.
I told my client that the unit was “worth” $550,000 but that I would get him more.
At $550,000, this was a whopping $1,100 per square foot! Not unreasonable as far as the market goes, but for a 16-year-old building? In this market, anything is possible.
I had the seller move out for good, then we cleaned the condo, staged it, and went through the same process as we do with all of our listings.
The place looked amazing!
We listed at $499,900, and I told my client that we were going to get $600,000 for the place.
Imagine that?
$1,200 per square foot?
Well, if you don’t set your sights high enough, your goals will be too easy to attain.
When this property was on the market, I had two other condos for sale as well. Between the three listings, I had over 200 showings, which meant that my iPhone buzzed just about every ten minutes for a week.
This property had a whopping 102 showings in six days. I don’t know if that’s a record for one of my condo listings, but it damn-near might be.
We received a pre-emptive offer for $575,000 on the first day of the listing, and while this would have been an exceptional price two weeks before we listed, the market had moved well past this.
We received another pre-emptive offer for $530,000 from some agent that had no idea what she was doing (the offer was conditional…), and another one for $550,500.
Through the week that this property was listed, I probably fielded fifty calls from agents, some with valid questions, but most of them asking things that Google could have answered in thirty seconds or less.
Offer day came, and it was a busy one…
10:10am, my first offer came in. It was for $591,000 with a $35,000 deposit cheque and no conditions.
It was odd that an agent would actually submit an offer at 10:10am, when offers were at 3:00pm, but I suppose this agent realized that there was no point in waiting until 4:00pm since it was going to have offers no matter what.
At $591,000, we were off to a great start.
11:08am, I received a Form 801 from a second agent.
11:16am, I received a Form 801 from a third agent.
1:37pm, I received a full offer from a fourth agent. This offer was for $560,000 with a $20,000 deposit, conditional for five business days on home inspection and five business days on a review of the status certificate. This was odd for multiple reasons. I mean, the fact that an agent was submitting a conditional offer among multiple offers, aka “a guaranteed loser-offer,” was odd. But this agent had asked for a copy of the status certificate six days prior. Not only that, who does a home inspection on a condo?
2:03pm, I received another full offer from a fifth agent. This offer was for $607,000 with a $30,350 deposit and no conditions.
I knew this agent and her team and I liked working with them. If I were to pick a lead horse, it would have been her.
It was only 2pm but I had already surpassed my $600,000 goal. I knew we would get there! But what I didn’t know was just how much company we would have…
At 2:07pm, a sixth agent came to the table with an offer for $590,000 with a $50,000 deposit and no conditions.
At 2:38pm, a seventh agent appeared. Her offer was for $600,000 with a $20,000 deposit and no conditions.
At 2:42pm, another agent, this one making it eight, submitted an offer for $599,900 with a $30,000 deposit, conditional on financing.
At 2:50pm, we received our ninth offer, this one for $600,000 with a $30,500 deposit and no conditions.
At 2:57pm, the agent who had registered at 11:08am submitted his offer for $605,000 with a $31,000 deposit and no conditions.
At 3:02pm, the agent who had registered at 11:16am submitted his offer for $600,530 with a $30,000 deposit and no conditions.
At 3:03pm, we got our tenth offer, this one for $600,000 with a $30,000 deposit and no conditions.
Like clockwork, I have an extra-large Tim Horton’s coffee at my desk every morning at 9:00am.
And almost as routine, I head out around 2:30 or 3:00pm every day to get a second coffee, this one usually just a medium.
With ten offers in hand, I asked Chris if he wanted to walk up to Timmy’s with me and along we went on our merry way.
I told him that I had a bunch of offers on this listing “around” $600,000, and I had no idea who the winner would be.
We had a few right at $600,000, one $5K over, one $7K over.
Not bad.
My phone buzzed as we were halfway to Tim’s, and it was an eleventh offer!
I opened it on my phone and just scrolled down to the price, knowing that I had four people at $600,000, and I had somebody $5K over and somebody $7K over.
There it was: $11,000.
Our new lead horse!
The last offer submitted and it was the highest, what are the odds?
We walked into Tim Horton’s, grabbed our order, and headed out. But something in there jolted my subconscious. Maybe it was the sign that specified the number of people allowed in the building, it was the price of a combo meal, or some other number on the wall, somewhere. But suddenly I was thinking about that $11,000 and I said, “Wait a minute…”
“What the…..”
I basically threw my coffee at Chris, as if to say, “Hold this!” Then I pulled out my phone and opened that email back up.
$11,000, I was thinking.
But that’s not what I was looking for.
I was looking for the full offer price, and after some tapping, scrolling, and zooming, I found it.
This offer wasn’t for $611,000.
It was for $711,000.
What the?
I swear, when I first laid eyes on this figure, as we were walking up the street, dodging dump trucks and construction workers, I wasn’t really looking for anything but how much over $600,000 this offer was going to be. Maybe my mind was one step ahead. But all I really saw was that $11,000. It just never computed and was never absorbed, that the $11,000 was accompanied by $700,000, not $600,000.
“That has to be a typo,” Chris said to me, as I was thinking the same thing.
What was I supposed to do now?
Could I ask this agent if this was a typo? That would send up a red flag, right?
I got back to my office and looked at the figures in my spreadsheet.
If you want to throw out the $560,000 offer, just to say we did, we had offers of $590,000, $591,000, $599,900, $600,000, $600,000, $600,530, $605,000, and $607,000.
I’ve never had so many offers so close together. And as much as I would love to say that I’d just ask the $605,000 and $607,000 if this was their “best and final” offer, or if they wanted to improve (which they both would), with offers this close together, I would probably have asked them all.
Three offers at $600K? Those agents would kill me the next day if I didn’t let them improve $5,000, $10,000, or $15,000. The general public would love it if we simply “chose the highest,” regardless of the spread, but trust me when I say that every one of those agents would want the chance to improve. And in any normal real estate universe, I would have given them all the chance.
But in this alternate, bizarro universe I found myself in today, asking agents to improve wouldn’t be necessary because I had an offer of $711,000.
I was able to stealthfully determine that this was, in fact, the intended offer price from that agent, and then I called my seller, who just about had a heart attack.
The discussion was pretty quick, as you might assume.
My client signed the offer, I sent an executed copy to the buyer’s agent, and he drove the deposit right over to my office.
I made sure I updated MLS by 4:30pm just to make it official.
I’ve been in this business for seventeen years but I have never experienced anything like this.
And to be quite honest, I took almost no pleasure in this sale.
I was happy for my client, of course. He basically just won the lottery.
But I felt bad. I felt a little dirty.
I did absolutely nothing wrong. I didn’t send anybody back to improve their offers; I merely accepted the highest offer presented.
But I felt so uneasy about this massive overpayment, and yes, it was an overpayment!
“A property is worth what somebody is willing to pay for it,” goes the saying that we all trumpet, like good company men and women. The story I told last week, about that absurd bully offer for $1,600,000 that turned into a sale of $1,630,000 – remember that one? Well, there was a competing offer for $1,615,000, so even though the price was absurd, and my sellers there felt like they won the lottery too, I could argue that the house was worth $1,630,000 because of the competition.
But imagine paying $711,000 for a condo when the next highest offer was $607,000? And there were five other offers within seven grand of that figure?
So here’s the part where the public says, “We can’t continue to do ‘blind bidding,’ it’s not fair.”
Here’s the part where there are calls for change, and where people say that the system doesn’t work.
“This buyer could have paid $615,000 for that condo! Blind bidding is driving up the price of real estate!”
I can already hear the cries.
But was this situation unfair?
Try to convince me that it was.
From my standpoint, everything through this process was the very definition of fair.
All the buyers had an opportunity to view the property, which wasn’t sold out from under them via “bully offer” before the scheduled list date.
All the buyers had the opportunity to select their own representation, they were all free to submit an offer with terms and conditions of their choosing, by their own free will.
None of the buyers were lied to, and nobody was forced to bid against themselves.
How is this situation unfair?
Does this situation suck?
Yeah, it does.
I feel bad for that buyer, and I have no idea what the buyer or the agent were thinking.
The buyer paid $1,422 per square foot for that condo and I was getting calls and emails from other agents for days on end, some asking, “What happened???” and others asking if the price was a typo.
But is this unfair?
Is this story the reason why “somebody” needs to “do something” about the way real estate is sold?
Is this the story the very reason why we need the federal government to step in and take control of real estate, facilitating the sale of every single property in the country?
Or is this just what happens in a free market?
You all know how I feel about personal responsibility and financial literacy, both of which are at an all-time low in 2021, as people need/want/crave/deserve/demand more, more, and more, when all the while, taking less and less responsibility for their own actions. Every successive article on sad buyers in the GTA underscores this.
But are we at a point where we need to protect real estate buyers from themselves?
What if somebody had submitted an offer of $800,000 on that condo? Or a million? Do we need measures in place to stop people from doing stupid things?
I would wager that more than half of the general public, reading this blog, would argue that the system needs to change because it allowed this person to overpay.
But I would wager that less than a quarter of the TRB readers would argue the same, and that, of course, is due to either the level of intelligence of the TRB readers, or the collective lack of education and logic among the general public out there today. Take your pick.
I don’t think the topic of “fairness” in real estate is going anywhere.
Nor are critiques of our “system.”
And with every dummy that says, “We should, um, like, tot-ally do what the Austrians do in Australia up there, like, um with those uh bidding auctions on the front lawns and stuff,” the discussion will continue to gather momentum, sadly, but surely.
As always, I welcome your feedback below.
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