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REAL ESTATE
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What a difference a seasonmakes! Back inApril, I wrote about the impact of
the toughwinter on our real estatemarket. I predicted that wewould see
a rebound in themarket due to pent-up demand and strongmarket fundamentals.
That certainly came to pass as youwill note from the detailedmarket
report on the upcoming pages. Inmany key categorieswe experienced
something rarely seen in our area. Multiple offers.
To take it one step further, we sawmultiple offers not only
on new listings, but on re-priced listings aswell.
There isanoldexpression inrealestate -
“Youcan’t underprice reales-
tate, because themarket will always correct you.” Certainlywe have
seen this for thepast numberof years inprimary real estatemarkets like
Torontowhere real estate professionalswill routinely list property for
less than theirestimateof truemarket value inanattempt to solicitabid-
dingwar. Wehaveall heard the stories. 80offersononehome, and
final contract prices hundreds of thousands of dollars over asking.
Here…not somuch.
However, the rise inmultipleoffershasbeennoticeable. Thekey factor
seems tobeprice. So far,notmanypeoplehave tried tosolicitabidding
war by tryinga lower thanperceivedmarket priceon their real estate
as an initial offering inourmarket. However, theones that seem tobe
pricedappropriately to themarket get immediate interest and subse-
quent offers. If theyare lucky,multipleoffers.
Oneof thehardest jobsweasREALTORS have ispricingproperty. The
simple reason is that allwecando isestimatewhatwebelieve tobe the
rangeofmarket value. Market value iscustomarilydescribedaswhat a
willingSellerwill accept fromawilling
Buyer, free of duress, with adequate
timeexposed to themarket andassum-
ing theproperty is beingmarketed ina
manner consistent with attracting the
maximum number of potential Buyers.
As aguide, we sometimes turn towhat
we call apricingpyramidas shown in
theadjacent info-graphic.
Howyoupriceyourhomedirectly impactshowmanybuyers, showings
andoffers you attract, and ultimately on how easily it sells. Thepyra-
mid’s centre represents theestimateof fairmarket valuewhere reason-
able percentages of buyers will view, and potentially purchase.
Underpricingshouldattractagreaterpercentageofbuyers,and incon-
trast, overpricinga lesser percentage. Here comes the bigproblem:
This isnot simplemath.
Findinganexact match for aproperty that has sold ina fair andopen
process is tough. Inourmarket, it isunlikely thatahome that is identical
inall material respects toa homeweare trying topricewill have sold
withinavery short timeperiod in theexact same locationas the subject
property. This would be deemed directly comparable. Instead, we
have tomakemasses of adjustments onproperties that may have had
comparableattributes. Importantly, theSellerhasa role toplayaswell.
AskanyREALTOR if theyhaveever takena listing that theyconsider to
be overpriced. Youwill, I think, get a universal affirmative answer to
thatquestion. So thenextquestion is: “Whydowedo that”?While there
aremany reasons, I suspect that the2most prevalent are1) theknowl-
edge that wedo not set theprice, themarket does and there can cer-
tainlybevagaries inopinionsof value, and2) fearof losing the listing.
Tome, the first reason is legitimate, but canonlyaccount for a reason-
abledifferentialbetweenanopinionand the listprice. The second rea-
son can adversely affect both the REALTOR and the Seller. The
consequences of overpricingapropertyaremany. It canmakeother
comparablepropertiesmoreattractive relatively,and thereforehelp to
sell your competition’s home. It will ensure that fewer buyers respond
tomarketingand, fewer REALTORS show your property, leading toa
likelihoodof fewer seriousoffers. Inflatedprices can lead tomortgage
rejectionswhere financingconditions failonappraisal. As for reductions
over time, it is generallyaccepted that reducingprice laterwon’t gen-
erateasmuch interest as if youprice right from the start.
Therearealwaysexceptions to therule.
In2008,we saw volumes drop inour
market to theextent thatwe could rea-
sonablyassume that therewere some
properties that justdidnothavesufficient
interested Buyers to warrant a listing
evenata“reasonable”price.However,
weasREALTORSgetsurprisedeveryso
often when something sells for more
thanweanticipated. Itcouldbe that the
correct Buyer for agivenpieceof real estate is just sitting in thewings. It
couldbe that themarket valuesacertain featuremore thanweanticipate.
As I said…this isnotmath. Even reallygoodAACIaccreditedappraisers
areonlygivinganestimateofmarket valuewhen theydoanappraisal.
Certainly,noREALTORshouldbe in thebusinessofundersellingrealestate.
Wedoour best tobea trustedadvisorwhen it comes toour relationship
withour clients, and there isnoquestion that aSellerwillweigh theirper-
sonalopinionsandneedswhenpricing their realestate.
Themarketwill speak tous though. Ifahomehasbeen for sale for500
days, andall partiesagree thatwehavedoneour job inexposing it to
themarket, thenpriceMUSTbeconsidereda factor in the lackofa suc-
cessful sale. We, as trustedadvisors, should consider ourselves duty-
bound topoint thisout toourSellers,and jointly formaplanofaction to
move forwardor risk the listing sittingon theperipheryOFF themarket
rather thanbeing trulyON themarket.
☛
DesmondvonTeichman
Broker of Record, Owner, Royal LePage
LocationsNorthRealty, Brokerage
By
MARKET
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