Serious Question: How would you feel if, after scouring the marketplace for your favorite pair of jeans, you arrive at the checkout and find that the price is actually 50% more than what was posted?
Way (wayaaaaay) back when I first entered the profession, we moved. I was somewhat familiar with the neighborhood but, like any good Realtor entering a new area, I quickly got up to speed with house types, recent activity, historical trends and all the fun that goes along with exploring a new neighborhood (something I still to this day love to do). The market was in recovery, but some pockets were faring better than others – and ours was one of them. The number of sales seemed steadier than some other less gentrified parts of the city, and prices seemed quite strong. This reflected a healthy demand quotient – meaning plenty of people wanted to live there. My background as an accountant means I love to analyze numbers, so getting familiar with the metrics of our new hood was actually fun – for me. As with any area, some realtors and their brokerages seemed to dominate the landscape. I got familiar with those as well since I knew I’d be encountering them in my travels. One trend seemed to really jump out at me. Despite the variety of home styles, sizes and their overall conditions, many of the houses that were selling all seemed to have one thing in common: their list price. In this case, it was $399,000. The final sale prices were all over the map, but the original list prices seemed to be almost identical. I was intrigued. Was this some kind of fluke? Were all these homes actually the same – even though the buyers of them had all attached wildly different values to them?? If so, why were some selling only 5% above the list price, whereas others were selling at jaw dropping premiums of 50% or more? I dove right in. It didn’t take long to realize that, in most cases, there was no relationship between the list price and the sale price. None. Small 2 bedroom semis with no parking – many of which were actually worth exactly or somewhere around $399,000 – were selling for just that. All good. Others though – larger 3 bedrooms with finished basements, parking and/or extensively renovated, for example, were selling for much more. And there were a lot of these scenarios. Some of the agents I spoke to said that the market was really taking off and they were finding it hard to price their listings, so this strategy seemed like a good way to attract lots of attention (i.e. multiple interested parties) and they could reassure their sellers by saying “We’ll let the market decide the final price.” Given my love of numbers and all the training I had gone through about the importance of pricing ( Big shout out to Alex, Susan and David ! ), I quickly adopted a more cynical view of this practice. I decided that they simply had no idea how to price a property. What I found especially odd was that most of the final sale prices were actually in line with homes that had also recently sold, but that had been properly priced – that is, closer to what they were actually worth. Let’s face it, you’re only going to sell to one buyer so, while a little competition is exciting and can simply reflects current market dynamics, why not take the time to price it accurately and negotiate towards what it’s really worth? I mean, isn’t that one of the main reasons for hiring a Realtor? Call me old fashioned, but the negotiation is still the best part of this job. It’s where I get to engage with a colleague and their client while faithfully representing and protecting mine. Even when everything is going swimmingly, I get to look at the whites of their eyes, thank them for bringing us an offer and then pray to God they follow through and close. Seriously, forget market dynamics – I do this each and every time.
Fast forward to 2021 and not a whole lot has changed – well, except for that magic price point. Lately, instead of $399,000 we are seeing $999,000. And, make no mistake, this has been happening all along. Take September here in Toronto for instance. Our MLS data tells me there were 127 sales in September with a list price at 999K (or, in some cases $999,999 – so clever!). Of those, only 11 actually sold at or below the asking price. So, let’s assume they were appropriately priced and that this is approximately what they were worth. That leaves 116 (ONE HUNDRED AND SIXTEEN) or 91% of the properties in question that were priced below one million dollars but that actually sold for considerably more.
In this case, 57 of those 116 other sales sold above $1.2M (or at least 20% above asking).
13 sold above $1.3M (that’s at least 30% above asking)
8 sold for $1.4M or higher and 2 even sold for $1.5M or higher (at least 50% above asking)
Are you seeing any pattern here? In fairness, every now and then a sale price takes everyone by surprise – like, I mean everyone. But we are talking about the occasional exception or outlier. Once you get into a pattern of 20-50% and over asking, I think it might be time for a refresher on pricing.
While it may look cute to see SOLD signs with a little smiley face and caveat boasting that it “SOLD OVER ASKING”, it certainly doesn’t look as cute to the Buyers who felt duped into believing the property was actually within reach. Nor is it any kind of fun for their Realtors who have to race ahead and pre price every such listing that gets in front of their Buyer clients in order to get ahead of things and not waste time visiting properties priced at $999,000 that are actually worth $1,500,000. (Side Rant: Sorry but, if you sold a $1.5M home by pricing it at $999K, please know that any one of my three cats could have done the same thing by chasing a toy mouse across my keyboard. So maybe dial back the hubris.)
What’s really best for the Seller?
Ask some of the listing agents behind this practice and they’ll likely all say something similar: “I’m just doing what’s best for my Seller – getting them the best price in the shortest amount of time.” Fair enough. However, in a hot market like the one Toronto has enjoyed off and on for years now, pricing it fairly and accurately achieves so much more. Consider this:
A) It sends all kind of positive messages to the market like respecting the time of the buyers and their agents – both of whom will arrive feeling much more eager and interested in doing business with you (now and later).
B) Transparency and setting realistic expectations is good for business. It also says you took the time to hire a professional who knows what they are doing and is qualified to negotiate – which means you’re probably pretty nice to deal with too. Plus, you may find it sells just as quickly and to someone who is more confident about proceeding (see A above)
C) Your listing agent is a reflection of you. If you hire someone who is known for being transparent, hard-working and trustworthy, you will likely see lots more action at your open house and beyond (see A and B above)
It’s s free country, so do whatever you think is best – so long as it’s legal. But, think long and hard about the optics of pricing. Don’t forget to recall your own experience when you were buying. One thing I’ve noticed is all buyers HATE multiple offers and blind bidding. Until they become Sellers. Then a lot of them say “How can we do THAT?” (I call this revenge pricing). Also, don’t overlook the risks. Yes, even in a hot market the 999 Special carries some risk. If the property doesn’t sell on the offer date you imposed, you are left in a bit of a pickle. You either need to come clean and raise the price closer to what you actually expected, or hold out hope you can still secure multiple offers – just on a different date and, maybe not the forty you were promised, but still more than one. Hopefully. Either way, you may end up selling for less than what you might have gotten if you had just priced it right the first time. On the bright side, at least it will still be higher than the 999 Special, right? Fingers crossed!