And that’s the last time you should read past a headline like that.

By Bert Archer – TorontoStandard.com

Have you ever read one of those stories about a house selling for hundreds of thousands of dollars over asking? You’ve probably at least noticed the multi-zeroed headlines.

I hate those stories.

Comment: Well at least you are stating your bias at the beginning. At least now we know that all of your complaints that follow are because you are jealous of people with bigger and nicer houses than you have.

I hate them because they’re a reminder that some folks have a lot more money to spend than I do. I hate them because they’re the same sort of story as the $10-million-wedding stories, meant to elicit an unhealthy admixture of envy and disdain in us. But I mostly hate them because they’re bad journalism, and they don’t do the real estate biz much good, either.

The reason to read such a story would be because it promises insight into the real estate market. If houses are going over asking, it implies the market is doing well and that it might be a good time to sell your house. If they’re going under-asking, as a Grid bit this week said, that might mean the market is not doing so well and it might be good time to buy a house. Both are good for real estate agents, who represent both buyers and sellers, which is why they feed this sort of information to journalists. When it’s an instance of things going for more than they were listed for, it also makes the agent in question look like he’s done exemplary work for his client, and that he is, therefore, a good agent, one you might want to hire yourself the next time you have a house to sell. When it goes for less, that mostly just means the price was improperly set (sometimes by intransigent sellers who refuse to admit the true value of their property), or the marketing ill-executed.

Comment: We do not “feed” anything to journalists. They call us when they have story ideas.

And thank you for pointing out that prices are set by sellers and sometimes they want to set them too high.

Lastly, asking prices are just that – the price they are asking for. As with many things, people make offers that are less. Most properties in the GTA go for less than asking, that is why the average % of list is not over 100%. Like Kijiji, anyone who wants something you have there will always offer you less. Does not mean you set the price wrong, it is just the way it works.

But as every real estate agent knows, and as every buyer, seller and journalist should know, listing prices are for the most part set by agents. And agents are salespeople, the same breed that came up with the 99 at the end of a price to make things seem cheaper. Setting a house’s price below market value drums up buzz, setting up the same sort of false scenario as clubs that don’t let anyone in to create long lines out front. As long as we continue to fall for it, they’ll continue to do it.

Comment: Actually it was shopkeepers in the 1930s who invented the 99 cents. They did it to prevent their cashiers from pocketing money, as it forced them to open the till to give change.

But yes, setting prices way below market value is not cool. Too low and you just get a ton of offers, most of which are junk. You waste a lot of people’s time. Set it close to market value, just a little below that. Then you get fewer offers, but more of them will be serious. And if people do not understand the whole bidding war thing, it has been going on for a good 5 years now, it is not a new thing. Get used to it, as long as listings are down (as they are), then we are going to have more buyers than sellers and thus people will fight for the best properties.

Though perfectly legal and ethical (neither the Toronto Real Estate Board nor the Real Estate Council of Ontario governs this sort of thing), the practice is a disservice to everyone but the agent. It makes potential buyers think they might get a deal, when in fact sellers who agree to the under-pricing often have reserve prices, phantom numbers known only to them and their agent, below which they will not sell. It makes agents look like they’re doing an amazing sales job, when all they’re really doing is knocking $100,000 off the listing price, and that does a disservice to future sellers who base their decision on what agent to hire on their percentage-of-asking stats, which find their way onto every listing sheet after a sale is completed. And don’t ever forget, anyone who is either buying or selling a house is paying these agents a lot of money for their services and supposed salesmanship, often tens of thousands of dollars in the form of commissions or prices elevated to compensate for those commissions.

Comment: Actually, both the Toronto Real Estate Board and the Real Estate Council of Ontario have rules and procedures for multiple offers. From the form that needs be signed to hold offers on a certain date, to the way the listing is worded. The way the bids are handled, what is said, all of it is very strictly controlled.

Prices are not jacked up to pay commissions. We get paid a lot less now than we did 10 years ago, or even more. It used to be that 6% was the lowest, with 3% to each side. Now, listing agents are lucky to get 2.5% with many get less than half of that. Sellers usually offer 2.5% to buying agents, but I see more 2.25% and even 2% these days. Sure, we get paid, but so does the seller. And if I can get you the price you want – or more – is that not worth paying for? Try it yourself, go nuts, do the private sale thing. But I guarantee you, 99% of the time I will get you a higher price in a shorter period of time. And that is what you are paying for. And if I can get you $800,000 for your house, is it really that awful to get paid $8,000-16,000 for my efforts? You still pocket $784-792,000 for the house you paid $193,000 for back in 1991.

And prices are not always dropped to spark bids. I think 1 of 10 houses on my street in the past year has sold under asking. And many of them were not set for bids, with an offer date and fake low price. My house for instance, it is a great one. We saw it the morning it was listed, as did another couple. We both made offers. Just happened across the street from me. But is because people love this street and really want to live here. The prices do not go WAY over asking (I think we paid $11,100 over), but we do get these skirmishes. Some agents create them, some happen organically. But that is the way the market works, as we have both said repeatedly.

This charade also does the general public no good, because it sends messages that actually have very little or nothing at all to do with the market. And this is where it can get really serious, at least in aggregate terms, because the residential real estate market is a game of shadows. If people think the market is soft, the market gets soft, because the market is defined by what people are willing to pay. This is what happened during the American and British crashes in 2007 and 2008. Toronto saw its real estate stats drop, not because anything especially nasty was happening to our economy, which did pretty well throughout the whole thing, not being dependent on nearly as many fissures and weaknesses as those other two economies were. Our market dipped largely because people were worried about it dipping. So whenever these over-asking or under-asking stories become a trend, often simply because the people writing them need to fill some space and there isn’t a whole lot else happening to write about, it can have concrete, Heisenbergian effects on the market they’re covering.

Comment: As with any openly traded market, such as the stock market. When people think things are on the upswing, the index rises. When investors are gloomy, the index drops. Welcome to market economics. But it is not just what people are told or what they think. The crash and burn of the Toronto real estate market has been predicted for years now, yet it keeps on rolling. The press would have us believe that a US-style crash is going to happen tomorrow. Yet, we set record sales numbers. The market is what it is, it is driven by 100,000 odd sales every year, with 200,000 buyers and sellers (never mind the friends and family giving advice or helping out) and another 200,000 real estate agents. That is a huge number of people dictating prices and sales volumes.

Meaning is forever perched on a precipice in the mass media, buffeted by winds from all sides, from corporate interests represented by marketers and PR firms, to individual journalists just looking for a cool headline or a new or provocative hook or turn of phrase.

Comment: Bert – YOU are the press! Why not use the power you wield to discuss things rationally, rather than complain about prices being too high, greedy sellers or underhanded real estate agents.

There are a whole lot of people out there whose sole job it is to convince us that things are other than they are: that we can get an iPad for $29.87 because they’re “overstocked,”or that “whole wheat” and “free range” are the same as “whole grain” and “pasture-raised.” Unless there’s some serious subterfuge–like agents buying their own listings after withholding them from proper market exposure – houses sell for what they’re worth. It’s pretty close to axiomatic. There are no deals. We rely on things like newspapers and television news to cut through the nonsense, not amplify it. Which is why it mightn’t be a bad idea to email the station or paper next time you see one of these stories, with your own complaint or a link to this story. Let them know you’re not falling for it anymore.

Comment: Where can I get an iPad for $29.87? I’ll take 10! Right, there is no such thing. And you are right, there are no deals. I have to tell someone that every day – it kind of sucks. Trust me, I hate having to tell people that what they want costs more than they can afford. I hate showing people tiny houses, or ones that need work. I want to be able to give everyone their dream home, really I do. But that is not the way the world works. You work with what you have and you make the best of it.

—————————————————————————————————–
Contact the Jeffrey Team for more information – 416-388-1960

Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
—————————————————————————————————–

sold over asking

Related posts:

1. Real estate gets the Obama boost ‘If every­one waits until the spring, we’ll be back in...
2. Spring Market Begins Spring has hit the Toronto real estate market and properties...
3. The New Deal: Status Update — Sold Before making a big purchase - and a condo is...
4. A change in the wind The chal­lenge is to set the right ask­ing price By Car­olyn...
5. Bidding wars make a comeback House sales for the first two weeks in May were...