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 $498,900, 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: $12,000.
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 $12,000 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.
$12,000, 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 $612,000.
It was for $712,000.
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 $12,000. It just never computed and was never absorbed, that the $12,000 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 $712,000.
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 $712,000 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.
Jimbo
at 7:14 am
Probably a buyer that had lost on a bunch of other sales. Looked at something that could push their budget, but have a chance at winning. Then bid their maximum to end the process.
If this was open bidding, maybe they would’ve paid less, or more than likely a person with bigger pockets would’ve out bid their maximum.
Francesca
at 7:45 am
Could also be an out of town buyer who didn’t think much about overpaying so much? Let’s not forget Toronto is very expensive by CDN standards but still cheap compared to other large cosmopolitan cities like London and NYC.
I think all these articles lately about buyers frustrated with the real estate market and with the blind bidding process may be a prediction of the government intervening somehow soon to change the way things are done. Maybe an auction style bidding system in the Australian style may happen here eventually that’s a bit more transparent.
As per personal experience, I mentioned in a comment a few weeks ago that my parents sold their detached house in North York a month ago for significantly over asking (yes the listing price was purposely low to attract interest as per the realtor’s strategy). There were 17 offers on my parents house and the buyer ended up offering 160 k more than the last two closest bids and a whole 200k more than the most recent comparable sale on their street, which was actually a nicer house. Why did they overpay by 200k? I guess they wanted the house badly enough and thought if they planned to stay there for a very long time what’s an extra 200k when in a year possibly the house will be worth that much more? I think that’s the thinking when a lot of people overpay that condo/house prices can only appreciate exponentially so as long as you aren’t selling it in less than 5 or so years you won’t lose money or you didn’t really over pay for it either. It’s absurd to think like that but I’m sure lots of people do.
jeanmarc
at 8:50 am
Love it!!! “what’s another $200K when in a year it’s worth a lot more”.
Heather & Mike CORY
at 7:49 am
Hey there…. Heather Cory here…. From Royal LePage In Touch Realty, in Coldwater ON
we sell Cottages and I love your blog…. This recent article is bang on….. I have to ask….
We have our own listing magazine…. and we would love this article to publish? Thousands of people read it online that they subscribe free for with our approval. Also, we print every week for each weekend in our own print shop our magazine and put it at locations near Hwy 400 in Port Severn and the neighbourhood marinas near the lake systems weekly.
Most of the people that pick up our magazine is from the GTA and Golden Horseshoe.
Let me know thank you Heather Cory 7057151381
Professional Shanker
at 11:04 am
Marketing spam I think – perhaps I should use them to buy a cottage?
DDofG
at 10:45 pm
Well, I know who I will absolutely never use for a real estate transaction.
jeanmarc
at 8:06 am
Majority of the bids will always come in line as “reasonable” above the asking. Sounds like this buyer was determined to win the battle regardless of paying over $1,400+ a sq foot. I really wonder how lenders are appraising the value of overbid properties like this or maybe he/she paid cash from gains in the stock market? 🙂
J G
at 8:51 am
It would be funny if the deal doesn’t close because lender doesn’t appraise it the same way.
(not funny for David of course).
I have much better arrangements for the gains I make in the stock market 🙂
Bal
at 11:29 am
I am very much sure that the deal is closed otherwise David would not have written this article…lol…
Sirgruper
at 4:11 pm
Good question. Love to know the answer
Ed
at 8:31 am
“Lucky Buyer Wins Bidding War”
Marty
at 9:21 am
YES, there is your headline! Love it, Ed.
J G
at 8:36 am
All I know is 416 condo is STILL below Feb 2020 highs, but stock markets have surged much higher than Feb 2020 mark.
But hey, congrats to the seller for finding a dumb buyer!
Marty
at 9:19 am
I have absolutely no problem with “the system”.
Because, for one thing, I don’t see anything stating that sellers or buyers have to use a Realtor, or the MLS system. Many sales, of course, do not use either.
I say carry on. The buyer did not pay one penny more than they offered, and the seller elected the highest bidder.
Another very good article, David. I’m not sure why it should be controversial.
Sirgruper
at 4:14 pm
Paying too much or paying too little has nothing to do with fairness. Its whether a process is on the up and up and that all information is available if all due diligence is done. There have been many a seller who in retrospect sold way too low but no tears for them.
EastYorker
at 9:45 am
Curious to know what the buyer was thinking ? What happens on this buyers side after the sale ? We know that you would have advised your buyer/client to pay X. But with an open mind ?
Personally, I wouldn’t want to know what the other prices were. Only if mine was enough.
Joel
at 10:08 am
Do you see an average price per square in freeholds, for lot size and square footage per area?
I find it a bit odd we don’t see that metric outside of condos in Toronto.
Libertarian
at 10:17 am
There was nothing wrong in this scenario. The buyer overpaid of course, whether that was their own doing or the recommendation of the buyer agent.
The question for me is what this price will do for upcoming sales. Now every seller is going to expect that price. More importantly, buyer agents are going to tell their buyers to bid that amount. One outlier should not reset the market.
JL
at 10:20 am
I’d wager on one of:
1) Foreign money prioritizing winning the bid over getting a good deal (perhaps needs place immediately, or just doesn’t care about an extra $100K?)
2) Desperate buyer who had enough of the search process and just went all-in to end it.
If it was open bidding it likely wouldn’t have changed the outcome because I can’t imagine anyone would have been prepared to “improve” by $100K, but the buyer may not have needed to go as high as $700K to win the property. This in turn would not have inflated comparables for future sales, and in turn, fed into the cycle of price escalation and FOMO. To David’s point, no quick fix to situations like this, but perhaps incremental changes can make incremental improvements.
Keith
at 11:02 am
Any time there is a difference in access to information in a market, consumers will be ripped off. It’s as old as business itself. The Rothschild family had the fastest carrier pigeons in the world, and knew the outcome of the Battle of Waterloo before anyone else. They bought British bonds and sold French bonds, and added to their fortune.
The fact that a process is called “blind bidding” tells you that people are being denied access to essential information about the property. The real estate industry is ruthlessly exploiting that lack of information to run up prices based on FOMO and buyer fatigue. By the way, just because something isn’t against the rules, or the law, doesn’t mean that it isn’t totally sketchy, unethical and bad for society.
There is a duty to get the best price for a property for the seller. There is also a regulatory role that markets need to serve all the people, not just one side. This real life example certainly exposes a broken process.
Angie M.
at 12:42 pm
I second this. This is where his argument of “fairness” is missing the point. Fairness in the definition of Fair Market Value is that both buyers and sellers have access to the same information. If Buyer X saw Buyer A, B, and C’s bid for 600ish, and Buyer X still decided to bid 712k, then that’s fair.
Joel
at 4:14 pm
The information they all have access to is past sold listings and market data. That is enough to make your own decision on pricing.
Knowing what the others are bidding is not a part of this and then begins an endless loop of people increasing their bids by a small amount.
Bryan
at 5:10 pm
You can tell the replies that are by agents.
Joel
at 11:17 pm
I am not an agent, but I take responsibility for the amount that I offer on a property based on the information that is available.
If houseigma and other sites were not easily accessible then I would have more of a problem with the system. At this point, if you and your agent can’t figure out a reasonable price then that is on you. If this is just someone looking to buy and didn’t care to get a deal, then they will be happy with the purchaase.
Condodweller
at 11:30 am
@Joel figuring out the price is step one. What’s impossible to predict is if/when a yahoo will come along for whom money is no object and bids $300k over the price both you and her figured out. If you really really want the house because you missed out on the last 5 and this is your perfect forever home do you bid $400k over to be sure? Or do you bid $150k over the determined price? If you offer $150k over and said yahoo doesn’t show up you win, let’s say by at least $50k. But if she does show up you lose. If you offer $400k over and she doesn’t show you overpaid by at least $200k but probably $300k. This lack of transparency is the problem. No doubt sellers love this.
What I like about this though is that agents often brag about how much over asking, or even “real value” they got when realistically they have no control over it whatsoever since they don’t control whether or not this yahoo will show up or not.
BTW when I sold my first place my agent did exactly that. Except back then $30k over asking was a big deal when properties were listed at realistic prices. Even in multiple offer situations, people didn’t go crazy and when they were sent back to improve they only increased by a couple of thousand $$.
Keith
at 12:08 am
If the information available was sufficient, then the winning bid would not be so much higher than all the rest. In a market with so many buyers, it’s clear that the spread on the winning bid should be relatively small. The “inefficiency” of the pricing in these transactions speaks to a flawed process. The market process is being subverted.
CB
at 2:53 pm
But potential buyers don’t have access to all of this data without an agent.. so one cannot claim that the market is free or efficient.
Jeff316
at 11:43 am
Exactly. Joel understands it. Knowing what others are bidding is not about determining the value of the property to you. It’s not about economic efficiency. It’s about making you feel better about your valuation comparable to others. That’s about emotion.
Intellgient, dilligent and disciplined buyers are rewarded by the current system.
Al
at 11:10 am
What’s wrong with an avocado toast? Honestly? I almost feel guilty as I’m eating one while typing this…
: )
John Doe
at 11:13 am
This is the first time you have one offer that was 16% better than the second place offer?
Personally I find that hard to believe… I mean I believe you but I thought that would happen once per year.
Condodweller
at 11:57 am
It’s interesting that prices are poking above 700k now but majority of 500-600sqft downtown units still go between 600-700k. To be specific 77 the bottom half 44 the upper half. 23 above 700k and 2 above 800k. I find most of the above 700k ones are still premium units in some way. Either has parking, large balcony/terrace, large den that can be used as a bedroom, prime location, high floor etc..
If this building is a favourite of David’s that means it’s a good building with good amenities with low maintenance which is also worth a premium if the agent is knowledgeable about these things. I once asked an agent which downtown building he would recommend as a qualifying question and his response was oh, they’re all the same.
This is not all that crazy if that “500 square footer” was closer to 600 and in a desirable building. You can look at it as all the other bidders underbid because they offered what they thought a similar unit might be worth and simply didn’t account for the building. This agent may have known it was desirable and that’s why they bid high in order to secure it. Often a large gap means the person overbid but there is another side to the coin if everyone else underbid. If that wasn’t the case then the seller got lucky. I just realized using the info David gave away the size was closer to 500sqft in which case the seller got really lucky.
My preferred method would be a silent auction with the feature of adding a few minutes to the clock after each bid past the deadline. This is used in some car auction sites and I think it is very fair. You have sufficient time to think it over without losing out to a sniper bot.
BTW my main issue with this process is not that people needlessly overpay but that it needlessly raises prices for everyone. If things get out of hand it destabilizes the market and that’s when bad things happen that nobody wants.
jeanmarc
at 12:52 pm
“BTW my main issue with this process is not that people needlessly overpay but that it needlessly raises prices for everyone. If things get out of hand it destabilizes the market and that’s when bad things happen that nobody wants.”
Exactly. It’s getting there and without some sort of intervention or stabilization of the market, it will price out a lot of people who are legitimately trying to buy a place just to live (i.e. your own kids, your grand kids, etc.). The shenanigans will increase and more complaints to RECO.
Bryan
at 11:59 am
Let’s try this scenario. The buyer’s agent has had to show these clients 15 other condos, lost two offers, and now has spent maybe 20 hours with these clients. (Being generous). Now they find a place they really like. Agent is now thinking I really want to get paid. Buyer’s agent is a great salesperson. Let’s put in a really high offer in so not only can I get paid, but that extra 100k should add about 2.5k to my already sick commission of 15k. It’s all about making money in a free market, right?
A free market means all the participants have all of the information and a price is determined by reaching equilibrium of supply and demand. If a stock broker, who gets commission, worked in a system like the real estate world, how do you think the markets would function. If you called your broker and said you want to buy Amazon stock as the stock is running today, and your broker puts in a bid price 20 percent over is that legit? No.
Real estate is the one product you can see the price that is advertised, but that’s not really the price. Try this with cars and you will be fined and may even go to jail.
This is not about maximising profit just for the seller, but the real estate industry is maximizing profit for the agents ahead of buyer’s.
Consumer protection laws are to protect consumers as they can’t be expected to know everything. What is reasonably practicable? Not this.
Sirgruper
at 4:23 pm
The Buyer and Seller don’t need the same information to be fair in real estate or socks. I am sure when Buffet pulls the trigger, he knows more than 99.99% of the market. So does an educated buyer in real estate or any product. Ever bought a diamond? Now that’s a tough market, where the vendor knows it all and the consumer will never know the “fair” price. “Fair” should stay with Templeton (Esoteric reference)
Bryan
at 5:23 pm
The true definition of a fair market is everyone having the same information. Even for socks. Granted, that is not reality but go back to my example of your broker putting in a bid 20 percent over market so you “definitely get the stock”. What kind of self-serving process is that? List the property on the high-end and if the market thinks it’s fair they will get the price. Maybe everytime an agent goes to the store, goes to buy a car, or any good, they change the price at the check-out. Let’s say that when people were buying toilet paper during the beginning of the pandemic, the cashier yelled out that this person was willing to pay the listed price…. But the person behind said they would pay more and were sold the goods. Underlisting is scam and goes against every fundimemtal consumer protection ideal society should have.
Adrian
at 7:36 pm
Ok but also… those goods are homogeneous and houses aren’t. Even when you have comps pricing a house is an art not a science.
Joel
at 11:20 pm
So you would have no problem if this condo was listed at $1 million and 6 people offered $600K and one offered $712K?
marmota
at 5:39 pm
This is a great point I had not thought of before!
daniel b
at 9:58 am
interestingly, when you buy these things online, different people see different prices. when you buy in real life, you don’t know what other places are selling them for without visiting all the different places.
Not disagreeing with your underlying point that information asymetry distorts the market, however, it exists in most markets to some degree or another.
Jeff316
at 11:48 am
The toiler paper scenario you just described applies to many products, including auctions.
Your idea of a “fair market” is not reality. Do you have all the information when you go to buy a hamburger? A car? Nope.
Average Joe
at 12:01 pm
The Toronto market is moving up in tandem with every other developed country – adding money to the system adds “demand”. People who were locked out have more liquidity, low rates pull demand forward, and well-to-do people are hedging against inflation. Canadian property markets have jumped the most because we are flowing the most money into the system from overseas and domestic policy/credit.
This looks to me like the start of a rotation away from high-priced and low-yielding single family homes into units mere mortals can qualify for and investors can pile into relatively cheaply. Real estate customers are now fully trained to understand that the number one key to success in acquiring a property is to already own a property. Any property. What you do at your job doesn’t matter anymore as long as you are a property owner.
Why doesn’t it matter? It’s right there in David’s post – people should not be spending money at restaurants, or in the travel and entertainment sectors. Those sectors of the economy should be wound-up and everyone should be fired so that more capital can be available for property ownership. 40% of investment share isn’t enough, we need to try to hit 100% of capital flowing into residential real estate.
And customers should stop complaining about prices because they should enjoy spending most of their investment capital and disposable income on things that don’t meet their needs and expectations. Speaking personally, I love when my expenses skyrocket and the features and quality dramatically decline. It’s almost as exciting as buying unprofitable investments at all-time highs. It’s just shocking that anyone could be upset about a declining standard of living. We should just roll the clock all the way back to the good old days of the land-centric economy.
Bryan
at 12:08 pm
Don’t worry, the agents will still make lots of money as that is what is important. Caviar and champagne anyone?
Average Joe
at 1:20 pm
Agents would say let them eat cake, but now we’re going to fire all the bakers and build subdivisions on the Class 1 farmland.
Prices are high because there’s no such thing as a buy-side real estate agent. Both agents are working the sell-side and split the profits. The listing agent sells their clients on the highest price for the least amount of work. The buyers agent is incentivised in exactly the same way and sells their client on taking the most lucrative deal. I can’t imagine hiring a defense attorney or tax accountant who gets paid more based on how much of my money they give away. Or maybe companies should pay managers bonuses based on how much their department spends.
I remember shopping for my house and my agent (who I really do like) reminded me I was getting great value for his services because the seller pays his fee. But where does the seller get their money from? Fleecing buyers is the whole business model.
I don’t know if the Australian auction would actually reduce prices in the short term because there are so many other factors and one of the lower bidders might have been just as stupid and gone to $750K. They’ll probably do that on the next property. But the argument for doing it is we take a step towards eliminating the mostly useless buyside agents. That service should just be a flat advisory fee or probably just an analytics/research/booking portal you pay a subscription for. Eventually there’s a standardized way to sell a property which can be mostly automated and regulated and that eliminates all the “creative” marketing tactics you’d need from the sell-side agent.
Doesn’t fix the long-term supply-demand mess but cleans up the marketplace. Won’t happen anytime soon though because the government gets to book the brokers fees as GDP contributions.
Appraiser
at 4:09 pm
From what I understand champagne and caviar go best with sour grapes.
Average Joe
at 6:21 pm
I’m sure your charms will be appreciated during the inevitable wave of populism and I’m glad you’re so delighted to accelerate the processes. You should look into why one of the world’s largest property markets doesn’t allow the private ownership of land, and how their government came to acquire all of it. Too bad you turned down the invitation from Ben to explain to us how all this should work. Here’s some food for thought:
Winston Churchill: “The landlord who happens to own a plot of land on the outskirts of a great city … watches the busy population around him making the city larger, richer, more convenient. .. and all the while sits and does nothing. Roads are made … services are improved … water is brought from reservoirs one hundred miles off in the mountains and -all the while the landlord sits still … To not one of these improvements does the landlord monopolist contribute and yet by every one of them the value of his land is enhanced … At last the land becomes ripe for sale – that means the price is too tempting to be resisted any longer … In fact you may say that the unearned increment … is reaped by the land monopolist in exact proportion not to the service, but to the disservice done.”
Adam Smith: “As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce.”
“[Landlords] are the only one of the three orders whose revenue costs them neither labour nor care, but comes to them, as it were, of its own accord, and independent of any plan or project of their own. That indolence, which is the natural effect of the ease and security of their situation, renders them too often, not only ignorant, but incapable of that application of mind”
jeanmarc
at 3:02 pm
The return of the New condo market in DT Toronto is almost back to pre-pandemic levels.
https://www.bnnbloomberg.ca/new-toronto-condo-sales-near-pre-pandemic-levels-1.1598590
Bal
at 4:04 pm
when everything else is returned to pre-pendmaic level …i think it about time also for interest rates to go ore pendmaic level ….????
Condodweller
at 7:26 pm
“Shaun Hildebrand, president of Urbanation, explained that the soaring suburban house prices played a role in this condo market rebound.”
No doubt people will be turning to condos if they can’t afford the next step on the ladder. I got an add from Tridel for a 1000sqft condo with a similar size terrace in the West for 1.4 mil. Same size with regular balcony is about 1.1mil. ready in 2025 I think.
Thomas
at 3:12 pm
In the meanwhile,
https://www.realtor.ca/real-estate/23126232/467-1st-conc-line-wheatley-wheatley
Kate
at 7:09 pm
The Canadian real estate market appears to reflect our current descent into that of a banana republic, having
more in common with a third world market place than that of a stable developed country.
Al
at 11:32 am
Who’s in the stable developed country league is atm by your definition?
https://www.bbc.com/news/uk-wales-56854458
Had to shorten this link: https://bit.ly/3tmWJMJ
https://www.cnbc.com/2021/04/13/when-is-the-housing-market-going-to-crash-consumers-ask.html
https://www.abc.net.au/news/2021-02-27/policy-ideas-to-solve-national-housing-crisis-australia/13185064
Anna
at 11:33 pm
well i had to go do some snooping to find out more about this unit. looks like they definitely paid over according to the comps, but then again, not THAT much over… plus, there’s parking! I mean, definitely 50K over though. Definitely. But then, maybe they made 500K off a GME trade in January, so really, not such a big deal right?
best part of this for me is that i bought a unit recently in the building under construction which you can see from this building’s balcony… paying ~1K/sqft. i’m pretty pleased. keep up the comps in the neighbourhood, sir!
JG
at 9:44 am
I see nothing wrong here. The process you followed and laid out was completely fair. The only thing out of sorts is – the buying agent: did they do a disservice to their buyer? Perhaps their buyer is extremely wealthy and $712k is a paltry amount!? Or at the end of the day, the buyer agent performed as expected and got their buyer into the real estate market with this purchase. Every 7yrs we go through some nutty highs & lows in the realty market. This too we will get through.
Condodweller
at 11:47 am
“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,”
So can we put this to bed now and agree that the price paid does not equal the value i.e. what it’s worth?
I mean in business you hear the saying that the price is fair as long as you receive more value than what you paid. Transferring that logic to RE would suggest that price does not equal worth.
Regarding fairness, I have said before the process is fair, in theory, but not in practice. Unless you can square a circle and say a fair process can produce an unfair price.
The fact even a battle hardened agent like David felt “dirty” after this suggests that it is not fair. Trust your gut.
Al
at 1:12 pm
May look like a good deal in a year from now. So the “overpayment” won’t matter anymore and David can put his mind on ease again…
George
at 10:17 pm
This is very well stated and especially this: “But are we at a point where we need to protect real estate buyers from themselves?”. Visible bids auction style actually bid up prices faster than in blind situations the majority of the time. The Buyers are actually calling the shots regardless of how informed they are, but their overwhelming FOMO is creating chaos and then they blame everyone but themselves.
Nick
at 8:26 am
The US turned a blind eye on home appraisals and regulations because of greed, which resulted in a housing bubble in the late 2000’s. Canada is falling into the same trap and wondering how people are going to be able to pay these $1M+ mortgages in a few years if rates go up and wages stay the same. Employers aren’t exactly handing out raises to match the cost of housing.
There is a level of greed fueling this behaviour by preying on folks that are desperate for space and willing to overextend. A few ideas would be for the government to step in and tighten lending requirements, make home inspections mandatory, require independent appraisals for every property, and regulate how properties are listed by realtors.
Personally, I’ve experience this greed having spent the past year trying to buy a detached home in Mimico and losing all hope after several offers. My wife and I recently turned to the condo market to buy a larger space for our growing family and got aggressive with a bid $250k over ask and lost.
Reflecting on this, I’m glad we lost and we’ll be sitting on the sidelines hoping regulations are put in place and smarter heads prevail. That and the fact Condo inventory is far greater than inventory of detached homes.
We shouldn’t be panic buying Condos because unlike detached homes, there will be plenty of other options to choose from. Especially with the number of new condo buildings going up and lack of people moving to the city.
desmond
at 10:23 am
It may not be unfair, but blind biding tends to make the market more volatile and risky by inducing panic buying, driving up price in very short period of time, which in turn forces the government to take measures to regulate and then the market crash. This frenzy means winning lottery for some, but many more suffer. Not good to the society as a whole.
George
at 1:53 pm
How do you think open visible bidding will go? I own a manufacturing business and we go to auction for equipment purchases. I will say without a doubt that the incremental bid increases to win the auction get bidders caught up in a moment to win the auction thus producing higher prices. This is with corporations that have strict budgets. Also when we go to tender to bid on jobs, there is pressure to win the contract and thus produces contracts that are too low $ wise and then quality and service gets compromised. Everyone complaining about blind bidding on Real Estate is clearly a Buyer. Everyone rejoicing is currently a Seller. The problem is more with the Buyer than anything. Not the Realtor, not the Seller…Just the Buyer…well and the Government for taking too long to push more housing starts through quickly.
jeff316
at 11:51 am
Well put. The idea that open auctions will cut prices is the opinion of someone that’s never attended an auction and doesn’t understand that auctions are expressly designed to drive up prices. Those blind bid scenarios where someone wins aby $175,000 over the next bid? In an auction, that might just keep going and going and going. Needing to know the price paid by others is an emotional salve, not an economic tool.
Sean
at 3:33 pm
Free market? How is it a free market when all the information is projected and kept secret by TERB? A real free market would be fair. What we have today is anything but a free market.
Chris
at 8:07 pm
“Or is this just what happens in a free market?”
lol, free market? Let’s get rid of government-backed mortgage insurance, capital gains exemption for primary residences, Bank of Canada buying government bonds to stop the ‘free market’ from setting interest rates and all the other government policies to endlessly prop up housing values (e.g. government taking on 10% equity stake for first time homebuyers and mortgage deferrals).
If the housing market were more ‘free’ there would be a lot less talk of unfairness in other areas.
Gary
at 9:38 am
As soon as I saw the free market comment I stopped reading. The banks HAD to offer mortgage payment deferrals….basically the only COVID initiative that happened quickly with our government. It is anything but free.
LuckySOB
at 10:12 am
Totally fair, yes. I dont think many believe you as to your sympathy for the buyer, however. And more and more, I hear RE agents being referred to as parasites, and I cant help but agree.
tony sbrocchi
at 9:05 am
We as Realtors always have the option to have our sellers clients agree to disclosing offer details in a multiple situation. If you really felt bad about the overpaying, your client and you could have done something. Unfortunately greed always wins.
Motogonif
at 11:32 am
A market takes both buyers AND sellers. Show me a seller who wants to end blind bidding and I’ll show you a liar, a communist, or both.
The stock market has fully transparent bidding, but that doesn’t stop people from ‘over-paying’ there either and stocks selling for way more than many people feel they are ‘worth’. Gamestop, anyone?
Whole thing is a phoney issue used by demagogues too stupid to see the certainty of the unintended consequences.
Magda
at 8:28 pm
No, we don’t need to own property. But we do need a roof over our heads and basic housing is an essential need and human right that every fully employed individual should have access to. So no, the situation in Toronto is not unfair. It is inhumane.
Vincent Benjamin
at 5:11 pm
The TO Real Estate prices are quite crazy and I do wonder who can afford these mortgages or where is all of this money coming from? The average person surely does not stand a chance to own a home. That being said we bought outside of TO and in some ways I am happy. As we paid it off in 12 yrs. The next problem is to downsize and where to move with these crazy prices. I do think that these prices are coming from investment money and from China. So what to do? My hand are up in the air on this issue.