On Monday, a house in the Yonge/Lawrence area received 72 offers after over 1,000 showings in one week. It was listed at $699K and sold for $1,366,000. That’s 195% over-asking.
1 – The listing price was admittedly artificially low. According to the Toronto Star, nothing in that neighbourhood has sold for the listing price ($699K) in 10-15 years. 80% of the offers were over $1 million. The listing agent himself told the media: “We expected in the $1.1 million range, but the market pushed it.” In what other industry could a product be knowingly priced at nearly half of its assumed worth to fool a buyer into paying more than it’s worth????
2 – The Seller’s agent also represented the winning Buyer. What didn’t make it into the newspapers, is that the Listing Agent was actually representing at least 5 Buyers AND the Seller. While it is completely legal for an agent to represent both sides of a sale and multiple Buyers for the same house at the same time (don’t even get me started on that), it does beg the question: did the winning Buyer have information that the other Buyers did not? Were they at an unfair advantage? We’ll never know – but we’ll always wonder.
3 – The Listing Agent enticed the Seller to pick one of his clients’ offers by reducing his commission. When one agent represents both a Buyer and a Seller (referred to as “double-ending a sale”), they stand to make twice as much commission, so discounts are often offered to the Seller. It’s called a collateral agreement, is completely legal and this agent did properly disclose it. It does of course put all the other Buyers at a disadvantage and many brokerages (mine included) do not allow collateral agreements in the event of a bidding war so that everybody is on a level playing field.
And so I ask…..
Was the Seller well-represented? The Seller took a massive risk in under-pricing their property by that much and while it appears that they got substantially more than what they thought the house was worth, massive risks still exist. The successful Buyer still needs to get financing (which is likely dependent on a bank appraising the house for $1.366). And of course the Seller needs to hope that the Buyer doesn’t back-out of the sale when they read in the Toronto Star what their agent (the same person as the Seller’s agent) actually thought the house was worth $1.1.
Was the winning Buyer well represented? We don’t know what type of agreement the winning Buyer had with the agent or what the legal obligations of that relationship were, and we don’t know what type of advice they were given, so I don’t want to make any assumptions or conclusions (or get sued). I do know however that it’s always complicated when one agent represents both a Buyer and a Seller and it gets far messier when there are multiple offers.
Were the non-winning Buyers well treated? The Buyers spent time looking at the property, paid for certified deposit cheques and many likely spent money ($400-$700) on a home inspection. A lot of them probably got bad advice from their agents and thought they could actually get that house with their under-market $800K offer. And what the Buyers probably don’t realize, is they unknowingly participated in a game that will drive up prices in the neighbourhood such that they probably can’t afford to live there anymore. They were duped into playing a game they had no hope of winning and were used as pawns to drive up the price.
How does the Agent look? The Listing Agent probably thinks he did a great job (I hope he doesn’t send out “sold 195% over-asking” postcards). Personally, I don’t think misunderstanding the market value of a house, disrespecting Buyers, wasting the time of 71 Buyers and their agents and putting your Seller in risky situations is anything to be proud of.
How does the real estate industry look? Ridiculous. Unethical. Uninformed. I’m frankly ashamed and embarrassed.
It’s Time to Start Respecting the Buyer
1. The pricing games need to stop. While there’s no way to stop pent-up market demand from driving a price higher than the asking price, listing a property hundreds of thousands below what you admittedly believe it’s worth is JUST WRONG.
2. The Real Estate Council of Ontario needs to develop and enforce rules about Bidding Wars that protect the consumer (rather than the REALTOR). I’d love to see a rule that prevents a Listing Agent from also representing the Buyer during a bidding war, or at minimum, mandatory broker involvement. I’d also love to see a ban on collateral agreements in multiple offer situations.
3. Agents who represent Buyers need to better understand market value and start educating their Buyers. Encouraging Buyers to put in offers that don’t reflect true value contributes to inflated prices and is a waste of everybody’s time. Buyers deserve to work with agents who know what a house is actually worth and are giving good advice.
End of rant.