March 16th, 2019 | Housing Markets
You Might As Well Give It a Shot, Right? Wrong!
It’s Spring(ish)! The birds are out, the weather is warming and the Toronto real estate market is at it again – offer deadline season baby!
Here we go.
Every year at this time the same cycle continues. At least for the last decade (during my time) anyway. November and December saw things slowing down, with Seller’s going into (holiday) hibernation and Buyers taking a “let’s wait until the new year” approach.
As we head into January and February, the Buyers resurfaced as Seller’s started to make plans to list their homes for sale. But, as is always the case, inventory is inevitably slower to hit the market – slower that is, relative to the demand for that same inventory – simply put, it takes longer to prep a home for sale vs. getting pre-approved for purchase (see our Blog on The 4 Seasons of Nature vs. Real Estate in Toronto). And so, yet again, we have a supply vs. demand issue in Toronto (and the GTA) – especially pronounced as you get closer to the Toronto core.
Bottom line – we have had and continue to have way more demand than supply for housing in the Greater Toronto Area – each and every year around this time.
So, what happens? Well, you get a situation where Seller’s & their Agents can’t 100% accurately predict the exact (market) value of their home.
But why?
Well, I’ve always said that market value is dependent on 2 things, namely, the OBJECTIVE value of your home plus the SUBJECTIVE value of your home.
Break it down baby:
- OBJECTIVE value – this is the value of your home as compared to comparable sales in your immediate area over the last 3 months (3 months – NOT longer – ask me why if you’re curious)
- SUBJECTIVE value – this is the value of your home as dictated by the Buyer(s) – i.e. what do they like about your home specifically and how much are they willing to pay for it (neighbourhood, school district, charm & character etc.)
Objective is easy(ish). Using metrics, we can derive the present market value of a client’s home – done!
Subjective is not so easy. While metrics are fine and dandy, subjective value has little to do with data and everything to do with the Buyer pool out at the time of sale. For example: Buyers who have lost week after week into February and who are “sick of it” and willing to “pay whatever it takes”, or Buyers who “must get into this school district” as part of their hard requirements, and so on. Therefore, it is much harder to estimate the subjective demand, while one Buyer might be willing to pay a little bit more for a particular feature of a home, another might pay no mind or perhaps be willing to pay even more than the previous Buyer – and so it goes.
And so – since Agents aim to please & sell a home for the HIGHEST possible price for the Seller clients, they opt to put homes up for sale on “offer deadlines.” Thereby, allowing the market to dictate the SUBJECTIVE component of market value – the more Buyers that come to the table on “offer night,” the greater the likelihood for another seasonalized Toronto real estate news headline the next day.
So why is it bad to “try” for every home you like?!?
Well, let me start by saying it’s not bad, it’s horrible! It’s annoying. It’s a waste of time for everyone involved, the Buyer, the Seller, the Agents, the everyone… and here’s why:
Think of an offer night.
It’s a blind bid auction. Imagine 10 offers for a said property. Offer 1 doesn’t know the details of offers 2 through 10, no more than offer 10 knows the details of offers 1 through 9. And so, everyone relies on a market valuation of the home they’re bidding on, and … yes, their subjective component – i.e. how much that particular Buyer (i.e. Buyer 1 or Buyer 10) is willing to pay for that home.
Meaning, if I as a Buyer’s Agent, run a CMA (Comparable Market Analysis) and suggest to my Buyer that a home listed at $999,000 is actually worth $1,150,000 (based on present market SOLD date), it’s up to my Buyer to accept this valuation, decide they’ll go to this mark, a bit higher or a bit lower.
Here’s where the problem occurs…
Buyer’s who aren’t willing to go to the true market value (i.e. not willing to pay the $1,150,000).
Remember, the Seller does NOT HAVE TO SELL on an offer date if they don’t like the offer(s) received – simply as that.
Further, it’s obvious that the Seller has also had a CMA (evaluation) done on their home prior to going to market. In all likelihood, the Seller knows their home is worth in/around the $1,150,000.00 mark. So, why in the world would they sell it for less than that??? Especially if they have multiple offers?!
Buyers who don’t understand this or choose to simply ignore this fact lose, lose time and time again, once, twice, ten times. And I’ve seen it across the board. Ironically, they are digging their own graves.
Remember that Buyer 1 doesn’t see Buyer 10’s offer details and Buyer 10 doesn’t see Buyer 1’s. So, it is safe to assume that every Buyer at the table likely thinks the other guy is willing to pay what I am. Therefore, say of the 10 offers you have a spread that looks kind of like this (if it were 100% transparent)…
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- Offer 1 – offering $1,025,000.00
- 2 to 7 – all offering between $1,100,000.00 to $1,150,000.00
- And offers 8 to 10 – all offering between $1,140,000.00 to $1,170,000.00
Well guess what happens, in Round 1, everyone presents.
Come Round 2, most of the time, you see Agents send a good number (if not all) of the offers back – “we are giving everyone a chance to improve their offers” – you are told (by your Agent).
Ok – so think now … think about what’s happening, break it down!
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- Offer 1 – offering $1,025,000.00, was never (EVER) even willing to go to the suggested market value of $1,150,000.00 and so, they improve to $1,045,000.00
- 2 to 7 – all offering between $1,100,000.00 to $1,150,000.00. These guys improve, a few stay at their current, but a few go up a bit more (let’s say max up to $1,170,00.00)
- And offers 8 to 10 – all offering between $1,140,000.00 to $1,170,000.00. Here come the nut bags. These guys start competing – not only against offers 1 through 7 and each other, but literally compete against themselves! The people offering $1,170,000.00 have no choice, but to assume the worst, namely, somebody has my number or has my number beat – I’m improving! These people go up to $1,210,000.00!!!
Can you hear it? Water cooler talk centered around the most recent Toronto Life or Blog TO article – “North Riverdale Home Sells for $210K Over Asking!!!!”
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- “This is our 5th loss!”
- “I can’t believe this – who would pay $1,210,000.00 for that piece of crap!”
- “This is crazy, man, I’m sick of this!”
Well, guess what?! All of you Buyers who have the “we might as well try” attitude have just contributed to the exact thing that you’re complaining about. By virtue of the fact that you offered on a home that you were NEVER willing to pay market price for. You suggested to each and every REAL BUYER that you were a REAL PLAYER – but you weren’t – NOT FOR THAT HOME! You bid up the value – and whether knowingly or unknowingly – ignorance does not help you in the Toronto market. And now, next week, when you’re out, the next home you deem fit to bid on is going to 100% use this last sale as their nearest COMPARABLE SALE – $60,000 over the market value of $1,150,000.
Believe me, had only Buyer’s 8-10 bid, that home would have sold in and around the $1,150,000 mark – period!
So, in effect, it is not just the Seller’s “greed” that drives the market forward, and quickly at that. It is wishful thinking by Buyers who are uneducated or working with Agents who do not curb their appetite to bite off more than they can chew.
Sorry if I’m being blunt – but this is the Toronto real estate market. You want an Agent to HELP YOU, not hinder you by having you bid on properties you can’t afford, demotivating you each and every time, wasting time, and simply promoting an accelerated growth of an already aggressive market!
My advice:
- Understand your requirements.
- Be realistic.
- If you can’t find what you’re looking for at the onset – it’s either because there isn’t enough inventory, your budget is too low OR your expectations to high.
- Reset and regroup when necessary.
- DON’T BID ON PROPERTIES YOU CANNOT AFFORD.
- Be consistent and patient – but don’t have a “I need all 10/10 of my requirements met” attitude (unless you have an unlimited budget).
If you follow the above advice, you will be fine!
If you don’t, you will likely fall victim to a long, annoying, soul sucking purchasing experience, that will render you another one of Toronto’s disgruntled real estate casualties.
Hope this has been helpful – happy to chat further if you’d like – you know where to find me. 😉
