MY RANT: Why Under-pricing Serves No One!

iStock_000005534652XSmallIn the Toronto Star today there is an article about a Detached House in the Junction area of Toronto that had 40 Offers on it. Listed at $419,000, estimated by other agents to be truly worth $550,000, it sold for $601,000 due the excitement of the moment. I don’t know or work the area but can easily judge that house to be drastically undervalued just on paper, no matter what condition.

Under-pricing serves no one in my mind and here is why:

There was a group of Buyers and their agents who were led astray by having a house marketed at what they they thought they could afford….but it was way out of their snack bracket. The number of offers coming from those who could reasonably afford between $400,000 and $550,000 should never have hit the offer table. It was unfair to them and their agents to be in a game that was not one they could come close to winning…

No matter what the Media tells you, buyer agents do not like going out night after night to put in offers that they know their clients cannot afford. They all feel manipulated and it creates a lot of tension in the relationship between the agent and their client. The Media loves to print those few stories where this occurs but it leads the public to think that all offers are multiples….and that agents love this process. Please remember that if there are 15 offers, there are 14 agents and their clients who do not get the house….If the playing field is level that is great but a good 10 of those agents and their clients were never in the ballpark to begin.

When people tell me of houses selling with 15 offers at  10-15% over asking, I think that the listing agent did not do their due diligence. I know right away that at least ten of those offers should not have bothered coming to the table. There are many ways to establish the proper price of a house. I am constantly asked by colleagues to give them pricing feedback as are most agents. There are comparable sales in the neighborhood for a start. To double check my opinions of value I look at the previous sale price of the subject property and view it in terms of the change in market place since purchase plus adding costing for improvements. Obviously I give more weight to the view-able improvements rather than maintenance money spent.

Most of the time, if a listing has three, four or five offers then it is still well priced and there are three, four or five Buyers in the marketplace that can afford the property, at the same time. A Healthy market. It then becomes about who wants it more. I always encourage my Buyers to make sure it is because of the house and not their ego that they are offering more, but also warn them that the next house to come to the market will be based on the price they were unwilling to pay…It is totally their call however…

Under-pricing creates a circus where few are well served, some make mistakes and some times the house sells for so much over market value that it does not appraise for financing and could threaten the closing of the transaction, and God forbid if the market softens.

In my humble opinion, under-pricing serves no one!

Total Disclosure:

In total disclosure however, this situation happened to me once: It was Summer and I was asked to market and sell an Estate Sale. It was on a quiet street at Bathurst and Eglinton. I asked two other agents from the neighborhood who worked for competitors to come and help me price the property. The three of us came up with the same price but because I believe that Estate Sales should be allowed time on the market, we held of offers for one week from the date showings started. There were a few approaches by neighbors with Bully offers for $100,000 over asking but the Estate decided that because they wanted to keep all beneficiaries aware that they due diligence was being done, that they would wait till the offer date.

All of us were shocked when, on offer day, there were 13 offers and the house sold for way over what the “Bully offers” had offered. It turns out that for some of the Buyers, being within walking distance to a Religious Centre to be built was worth the extra expense… It turned out to be an almost un-measurable factor that caught everyone by surprise…me, the selling agent and the Sellers. I do blame myself for not having dome more research done the religious route but at that time the Center was only being proposed within the Community itself and not in the Public Domain.

Read the article in the Toronto Star.

3 Responses

  1. Nan Levitt

    Thank you Richard – this is excellent. I had a similar situation last year with a rather unusual house. I had 3 other agents help me evaluate the house, came up with a reasonable listing price and it sold with 10 offers for almost $200K over asking – turns out the REALLY REALLY wanted the house, financing was no object (first house I’ve sold where it didn’t have a ‘real’ kitchen). But I resent agents that deliberately under-value properties where anyone can see it’s too low. And hose about the pressure that reviewing 40 offers puts on the seller?? How can they fairly evaluate all of them? And it just makes everyone look greedy. I was watching this listing since it came on the market and the agent was interviewed in the press. Goes with the other bright spark that deliberately under-listed the house out here in Etobicoke last year (or 2 years ago??) and he stated that if he didn’t get 30 offers (or was it 40??) then he didn’t feel he was doing his job.

  2. Mike Rap

    Great post Richard! I agree wholeheartedly. There is so much confusion in the market from Buyer’s and we wonder why? A quick search reveals detached 2 1/2 storey’s in that area this year…lowest one sold for $650,000. Yes the house in question needed work. But so did the bungalow on the street that sold for over $500,000. The wrong message is being sent to Buyers.

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