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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.
If I’m a selling my home I could care less about any buyers at all my number one is me. If my agent works for me the last thing we should care about is respecting buyers our number one goal is $$$$$$ and satisfying me.
Maybe all these buyers should get agents who know what they are doing instead of complain and complain all the time.
I guarantee if you ask the owner of the home you mentioned he is very grateful of his salespersons job and end result.
Melanie Piche says:
If it actually closes, then yes, the seller will be happy. But there are HUGE risks for him, and if the house doesn’t appraise at $1.366 he’s going to be unhappy.
Thank you for this piece, Melanie- as a mortgage broker who spends his Saturdays and Sundays arduously revising client pre approvals in the midst of these bidding wars, I could not agree more that the practice of under listing needs to be regulated, or abolished entirely. I have spent countless hours advising my clients (someone has to be the voice of reason!) on the risks and consequences of over bidding. I have seen many cases where the subsequent appraisal has not supported the purchase price and has forced the buyer to either pony up a larger down payment, or lose their deposit entirely. Especially on high ratio deals where CMHC or Genworth are concerned.
Be cautious, people!
And if it does not close the listing agent can get on the phone and get one of the other top offers to pay just as much or almost as much. David Fleming called, he wants his shtick back.
Bill, tomorrow you will be that buyer and then you will come back here and delete your useless comment.
Bill you’re a jerk. Go suck an egg. You’ll be on the buying end some day, loser.
This situation is insane, and the situation and frenzy caused by the tactics absolutely lead to situations where people land in houses they cannot afford. An appropriate level of control over situations like this to ensure the buyers, sellers and agents are all protected would be at minimum prudent. People need to ask themselves how fun these million dollar mortgages will be to carry once interest rates rise, and their mortgages are up for renewal…
This agent should be investigated. This sale of this property was incredibly absurd and really shows off the dirty unethical tactics that many real estate agents resort to. They are totally exploiting our hot market and making home buying even more difficult and expensive, thus artificially inflating property values.
As someone who will be looking to purchase a house in the near future this makes me very mad. I hope the buyer recind their offer (and others as well) or the bank not approve their mortgage based on what the property is actually worth as they way overpaid, but also importantly their agent didn’t represent in their best interest.
The buyer should request to see all the other offers. If he’s the only one bidding at 1.3 there’s something fishy but if everybody is bidding in the same neibourhood that’s probably what the fair market value is and bank will likely approve it. The law already protects the buyer, the problem is that it currently is a sellers market. Fundamentally, if the cost of borrow remains low, people will continue borrowing.
Its exactly why you should have a competent Realtor on your side as a buyer. I didn’t really care to look into the details of the sale fore this post. Currently in the immediate area renovated homes on lots with similar lot area are starting at $1,459,000. So about $100k in renovations – if you have a good contractor who’s not going to gauge you then you could likely renovate for $200k – $1,550,000 all in. Not to bad for that area. The media is creating the hype over all these bidding wars. Very rarely does a buyer “overpay” for a property….the next listing in asking price – renovated in the area after the $1,459K is asking $1,650k. Why even bother with an asking price? The only things that matter are 1) how much a buyer is willing pay and 2) Will the Seller accept that amount for the property. IMHO we could just offer properties “for sale” with no asking price. It would up to the buyer to “offer” and if they have a competent REALTOR by their side their offer should be inline with current market values based on recent comparable sales.
Doug Bowman says:
More than sent back to school, this Realtor needs to be reprimanded and sanctioned.
1. As soon as Listing Realtor has an offer from his own client, he must remove himself from negotiations. In Alberta, the broker steps in and represents the Seller, the Realtor his buyer. I’ve also been told to accept offers as is, not contact buyer reps to see if they will come up, remove conditions, etc. Not sure how this is in seller’s best interest, but rules are rules.
2. Realtor must declare the existence of other offers to all other buyers and appoint other Realtors to represent his other 4 offers. His buyers would be very unhappy to know he is representing four other buyers at the same time.
3. List price as “suggested starting price for negotiations”. This apparently is normal practice in the GTA, but I’ve never seen it here in Calgary.
4. Delaying opening of offers – every Realtor knows this is a tactic. What does assessment or title show as value? That info coupled with current market info indicates ‘reasonable’ fair market value. Anyone involved, Buyer/Seller/Agent all know what is happening and decides to play or not play according to their desire for the property and ability to pay. If Realtor is not forthrght about the situation his buyers should report him and find a new Realtor. Especially if this guy is a hotshot, local expert, big name, etc.
5. If deal falls through on appraisal, the buyer will likely get their deposit back and property will be back on the market. And the Realtor will call the next closest offer and see if that buyer can make it work, and around we go…
6. For an indication of seller sentiment, see first comment.
7. If you want rules enforced, someone from the Public has to complain. Only public complaints are taken seriously by boards. Members are treated like children and told to get along….
Thanks for raising the subject in such an insightful and well reasoned way.
I pray Bill is not in Business or has kids to teach. He believes ethics, morality mean Jack Sh*t in business. If you have to be unethical and exploit the ignorant, so be it, as long as he gets ahead. Look up scumbag in dictionary, it will say “see Bill”. Excellent article and I believe The Real Estate Council of Ontario is turning a blind eye and doing nothing. I have witnesses the above happening in Newmarket/Aurora for the last two years. 90% of the time it is the same ethnic group. Don’t the honest ethical Realtors have a voice about correct business practises and professionalism. The whole industry looks like a bunch of dirtbag scammers because of a certain group of pathetic individuals. The Real Estate Industry is shooting themselves in the foot by doing nothing about pricing games. Yes if your ignorant and don’t do homework, to bad so sad, but individuals time is still wasted and all Realtors lose societal respect. No wonder there is growing pressure for more transparency and options in Real Estate. Cannot come soon enough!