A couple of weeks ago a $500,000 Kingston house sold for more than $175,000 over the asking price. So I think it’s fair to say that it’s a bit mad out there.
I don’t know what to make of sales like that. It’s become really hard, damn near impossible, to predict the sale price of houses once there are competing offers registered. I mean, how do you put a dollar figure on desperation? Inventory is still low and demand is correspondingly high; there are plenty of good people out there willing to pay more than they normally might for a decent house.
And even though I’m an arts guy, raised around novels good and bad, and scrawled shitty doggerel on beer coasters through most of university, and even though I’ve spent plenty of years broke and writing grant applications with a chewed down Bic ballpoint, I do understand the way economics work. I respect (albeit often grudgingly) the irresistibility of market forces as I watch these mad sales getting posted with a mix of shock and awe.
But still. I mean, come on. $150,000 over? Really? What exactly is going on?
Well, truth is, that particular house was seriously underpriced. We realtors talked about it in the office hallways in the days before offers were to be considered. How much would it fetch? How many people would step forth? Do you have an offer yourself, we asked each other.
We’re not fools. We all knew the strategy: price the house really low, draw a crowd, inspire a hatful of offers which would theoretically drive up the selling price. That’s what the sellers wanted, after all. Just doing our job, mate, the listing realtor would likely say, if challenged. And deliver it with a shrug, probably. And on most fronts you can’t argue with that.
But that glib response doesn’t quite sit right with me. And this isn’t just jealousy. This isn’t me wishing I could sell all my listings in a week, for more than asking, with little time expended and little spent in the way of advertising either. I do just fine, thank you very much. It’s just that I’m pretty sure I don’t want to work that way.
We price our listings at market value. We spend a lot of time going over the data. Analysing square footage and condition and location, all the neighbourhood sales. It takes us longer than we’d like to put together a report for any seller who calls us. Pushing a week is about average. And that’s too much time, probably, when we’re told over and again at the sales meetings that making someone wait an hour is a death sentence in this crazy business.
But here’s the thing: you see our ad in the newspaper and you can be sure that the price we’ve attached to the listing is our best estimate of the present market value of the property. That doesn’t mean it won’t sell for more or less, of course, but all the evidence points to the same number we’ve attached to the house (evidence that’s been batted around in our office for days like some feathered shuttlecock until it finally gives up the ghost and collapses on the floor at our feet: Fine, you got me!)
Most of our listings still sell for above the asking price. But that’s just the way it is out there right now. I think, though, that when our sign goes on the lawn, other agents know that the listing price is a well-considered one. That if we’re ever hauled into Realtor Court and asked to defend ourselves, we could pull out the pricing paperwork and we’d be okay; we’d make it home for dinner with our families.
And in my opinion that’s the way it should be. In this time of real estate madness consumers need to be able to trust the major parts of the industry machine. And surely the actual listing price is the most crucial of those parts. To use a real estate analogy, it’s the foundation upon which everything rests (and relies). You give me an accurate listing price and I can decide for myself how much above that I’m willing to pay. If, for instance, I know that in the last three years prices in Kingston have gone up an average of 8% per year, then perhaps I’ll be willing to pay 10% over the listing price if I’m in competition (and if I trust the listing price). I’ll know, at least, that if present trends extend into the future, then in just a year and a bit my house will be worth what I paid for it. Maybe I can find solace in that math, and I can sleep at night. I will know that I was in receipt of all the facts and I did all I could. That’s not a bad place to be.
But you price a house too low and a few different things happen.
First, the math is suddenly impossible for a buyer. If you don’t know the market worth of a house then you’ve got no reasonable starting point. You can’t devise your own strategy, or calculate your own exposure to risk. In my opinion it’s a realtor’s job to set the table as accurately and professionally as possible. To use his or her expertise (and access to all the sales data), to establish the right price for a house. Realtors have fought tooth and nail to keep that sales data from the public. I think they therefore have a responsibility to use the numbers responsibly. You start picking listing prices out of thin air and the MLS® system starts to lose some of its integrity.
Secondly, you get up the hopes of good people who don’t really stand a chance. I’ve written dozens of offers for people in those circumstances. I’ve prepared them as best I can, shown them the comps, but they can’t help but see the depressed listing price and begin to dream. Every house priced this way becomes a lottery ticket. And you can imagine how discouraging it still is to call those clients after the auction closes, having to tell them they’ve been outbid by ten, twenty, thirty, even a hundred thousand dollars. And that news comes, remember, after they’ve already extended themselves beyond the amount they really wanted to spend, and after they’ve lost sleep, and also lost a week they could have used to view other homes properly priced. A week when they took themselves out of the market because a listing agent planted some false hope in their heads, and did it knowing it would drive up the total number of offers and with any luck also drive up the selling price. Which in turn drives up the price of the next house on the street to be sold. (And eventually prices people out of the neighbourhoods they want to live in.)
I’m not a fan of the strategy. It begins after all with a tease, some numerical sleight of hand, a promise of more than a buyer can afford. And while I think there are plenty of places and times to think and act creatively in the real estate business, this just doesn’t feel to me like one of them. Price the damn house properly. Its what we’re trained to do. Because if you don’t do that, what unfolds next, of course, is a wild, untutored sort of bidding war. It’s a playbook that’s being employed more often every week, and has become the go-to strategy for some.
Truth be told, it’s a much more depressing unfolding than it is an exciting sort of theatre. And that house? The one that began this little tirade? Well it sold for pretty much exactly what it was worth. The only difference being that the low offering price tortured a lot of people for a few days. Life expectancies were diminished and a dark cynicism bloomed in all the empty spaces left behind.
Again: I don’t like it. It’s as simple (or as complicated) as that.