Tony Wong – Toronto Star

When it came time to sell his newly renovated property in Toronto’s upscale Bloor West Village, Christopher Lecomte had one stipulation: “No games.”

He knew the home, with a flagstone walkway and Muskoka-styled porch, would be highly sought after. But the last thing he wanted to do was create a stressful auction-style environment for the sale of the property.

“I didn’t want to artificially stimulate a bidding war by underpricing the home and then waiting a week to take offers. I think that whole attitude is killing the market,” says Lecomte. “Nobody wins that way.”

In a market where listings are down significantly compared with those of a year earlier, it has become standard practice for some agents to try to stimulate multiple offers for a property.

The controversial marketing method has caused frustration with buyers and agents. And it has also created something of a backlash by those who say it is misleading, if not unethical.

Comment: It can be, but it depends on how it is done. Sometimes there is a lot of interest in a property and holding off on offers allows everyone who wants it a chance to see it and potentially make an offer. It is not always about pumping up the price.

But the tide may be turning. Some vendors like Lecomte are deciding not to participate. And some buyers are avoiding properties that seem deliberately underpriced.

So far, the resistance has been left to a handful of agents and buyers. But some hope the trickle of defiance will pave the way for a saner market. Recent housing indicators show that sales are likely to cool in the second half of the year. For now, though, the Toronto market remains heated, compounded by a drought of listings and historically low interest rates, as analysts forecast a tough spring market for buyers.

Comment: And that is part of the problem – a lack of listings makes for limited supply in a time of massive demand. Thus each and every listing has more than one buyer after it.

A fixer-upper in the city’s tony Forest Hill neighbourhood, for example, sold last month in “as is” condition for $2.7 million, more than $200,000 over the list price.

The multiple-offer strategy goes like this: For highly sought-after neighbourhoods, agents in Toronto may deliberately underprice a home to attract more buyers. After holding an open house, they refuse to take bids till a week later. The hope is to create an auction mentality that will cause buyers to bid higher. The situation has gotten so out of hand that the Star reported recently that some buyers were sending flowers, chocolates and even videos of their babies to woo vendors.

Comment: They do not always underprice it, sometimes they just make offers wait so that everyone gets a fair chance to bid on th property. And it is not always about getting a higher price. Setting an offer date gets the house sold faster, meaning a week of showings as opposed to potentially having hundreds of people tromping through the seller’s house for a month or more. Why should the seller have to be put out for longer just to avoid buyers having to bid?

But Lecomte and his agent, Mike Donia, decided to price their property at market value, and take offers as soon as the property was listed on the Multiple Listing Service.

Comment: Why this property is being mentioned is beyond me, it sold in December. And 12.5% of Donia’s current listings are asking for bids. He is not the angel he is making himself out to be.

“We decided to do it the old-fashioned way,” says Donia. “I’m a real estate agent, not an auctioneer. I think the market has become pretty obscene. If I go to Future Shop to buy a TV, they don’t tell me to come back in five days and bid on it, but this seems to be the same modus operandi all over Toronto. It’s stupid.”

Comment: Except Future Shop has 100 of that TV, so there is enough supply. Not the same with real estate, especially not now when listings are cut almost in half.

Donia decided to take it a step further by advertising that his listing was fairly priced: “Best of all, no games, offers accepted anytime.”

Donia isn’t the only agent who thinks underpricing is harming the market.

Realtor Thomas Cook has complained to the Toronto Real Estate Board, describing it as the “lazy agent’s way of having to deal with a listing for only seven days.”

Comment: That is so wrong. It has nothing to do with being a lazy agent. Sellers see bidding wars all the time and they want one on their house. They want more money. They want fewer showings. They want no conditions. It has nothing to do with agents being lazy. It is a quick and easy way for a seller to sell their home for top dollar and in the fastest time. That is our job as real estate agents, to get sellers the most money in the shortest time.

He says the practice is detrimental to both sellers and buyers. Some buyers end up wasting their time on a property they shouldn’t have bothered bidding on in the first place since it was never in their price range, and sellers don’t necessarily get a better price, he says.

Comment: That is the job of the buyers agent, to educate their clients on what properties they can afford. If the agent thinks the price will go above their clients budget, then they should tell them not to bid. I tell clients not to get involved unless there is a good chance of them being able to give the highest bid.

“There is a lot of wasted effort,” says Cook. “Think of all the unnecessary home inspections alone.”

Comment: What? In bidding wars, there are almost always no conditions, thus no home inspections. And if there are, then only the winning bidder has one. That makes no sense whatsoever.

As a result, he advises his vendors to price the property at market value and add an additional 3 to 5% for negotiation room. “This is a much more honest way of doing things.”

Vendors don’t always get a better price even if there are more eyeballs on the home, because only several of the potential customers will be able to afford the true price in the first place, argues Cook.

“You’re just wasting everyone else’s time, not to mention the emotional toll on the buyer.”

Comment: Then do not take them to homes they cannot afford, it is that simple.

Buyers such as Richmond Hill’s Daniel Austin, who purchased a home last year, says he refused to bid on properties that seemed obviously underpriced.

“Deliberate underpricing is unethical, non-transparent and downright dirty,” he says.

Comment: Underpricing is dumb, because it does attract people who cannot afford the property. But that is not a part of all multiple offers.

Austin argues that the practice keeps prices artificially high in the market. While it serves the vendor well initially, that vendor will have to parlay their profits into buying the next house, which they may also have to buy on a multiple-offer, creating unsustainable prices, he says.

“The only result of this practice is higher sales commissions,” says Austin.

Comment: Come on, that is an old and tired argument. When prices go up $20,000, the buyer’s agent might get an extra $500 and the listing agent less. The amount our commissions go up is so little that it is moot. Sure, he house may go for 104% of asking, so we get 4% more. Wow, a whole 4% more… that is SO much…

The strategy isn’t for every situation. In a down market the practice doesn’t work because nobody would show up on the day offers are taken, and the vendor would be left with an unsold property.

But other agents say underpricing a home can work, especially in a market with a lack of listings. The strategy may end up attracting buyers who would not otherwise have looked at the property because it was at a higher price point.

“The point is to get your vendor the most money possible,” said one agent who didn’t want his name used. “Isn’t that our duty?”

Comment: Exactly. I will use my name and say it is true.

The Toronto Real Estate Board has said that vendors have a right to list their homes at whatever price they choose.

“TREB (and others) do not have a right to interfere in a market driven function,” the organization told the Star in an earlier email.

Michael Polzler, executive vice-president of ReMax Ontario-Atlantic Canada, the largest franchisor in the province, says it is virtually impossible to police an underpricing strategy.

“It’s a free market. The reality is you can price your home for any figure you want,” says Polzler. “It’s what’s allowed within the rules, so there’s little anyone can do except choose not to participate if they want to.”

Comment: And that is our job, do what our clients ask us to do. If they ask for bids, they get bids. If I refuse to do it for them, they will just find another agent who will.

David Eva, an executive at a wind power company who purchased Lecomte’s Rivercrest Rd. home, says he is thankful he didn’t have to go through a bidding war.

“It was certainly a cleaner, faster, and more enjoyable process without the unnecessary stress,” says Eva. He paid $1,107,000, or $8,000 over the list price of $1,099,000.

Comment: Wait a second… there were no other bids yet the buyer paid over asking? That makes no sense.

Donia argues that the home went for slightly more than a comparably sized home on the same street that was for sale at the same time. The vendor on that home tried to incite a bidding war by taking offers at a later date.

That home listed for $1,050,000 and sold with two competing offers for $1,100,400.

Comment: So the buyer of this house paid more just to avoid the bidding war on the other house. So it doesn’t matter, the seller got more because of the bidding war down the street.

“I think it just shows that people will buy the home at market value, and they appreciate it when they don’t have to jump through hoops,” says Donia. “I’ve never had a client say I’m glad I got caught in a bidding war.”

Comment: What do his sellers say, though?

Lecomte says even though the market is still doing well, he didn’t want to pursue the underpricing strategy. A former vice-president of finance for a media company, he says he is proud of his work on the home, and didn’t want to push potential buyers away. He also encouraged potential purchasers to get their own home inspection.

“You’re making such a major purchase, it’s silly not to take your time and get it right,” he says.

Most analysts expect that bidding wars will likely continue for the first half of 2010. Stricter mortgage rules introduced this month by the federal government will likely have some buyers trying to qualify for financing before April 19.

However, as interest rates move up in the second half of the year followed by more listings, and the introduction of the Harmonized Sales Tax in Ontario, market activity is expected to cool. That should theoretically make bidding wars less of an issue.

But Donia says that is already happening from buyers who are fed up with the practice.

“More and more people are walking away and realizing that it’s stupid to get in a pissing match for a house. And you know what? They’re right.”

Comment: And for every one that walks away, 5 do not. And properties still get 14 offers on them. There are just too many buyers and not enough properties. Until that changes, 80% of buyers can walk away from bidding wars, but there will still be 3 buyers making offers.

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