Tuesday, August 5, 2008

Home buyers still face bidding wars

Even as the real estate market softens, vendors still offer conspicuously undervalued homes in some neighbourhoods.

Listing properties below the market value has become a common practice in the Toronto area over the past five years – creating a bidding-war mentality for buyers. Even with sales down, the market cooling dramatically and active listings up by 22 per cent compared with last year, multiple offers continue in some highly sought-after areas.

That's because sales remain high in historical terms, even if they're not at the record highs of 2007. Prices continue to rise, albeit at a much slower pace than last year.

While houses sit on the market longer with more inventory available in the Greater Toronto Area, most of the multiple offers are taking place in pockets of the central city still coveted by buyers. But under-listing properties has created a backlash, not just among frustrated consumers, but also from some agents who say the practice is undermining the profession.

Cook says under-listing tactics often become a waste of time for both buyers and sellers.
"I was at one listing recently where there were 19 bids on one property. That's 19 people who have to call their mortgage broker, maybe get a house inspection, take time off work and pay for babysitters," Cook says. "The problem with listings today is that the list price means nothing."

Realtor Duncan Fremlin, who is also concerned about the underpricing of homes, says sometimes the marketing of a home at a lower price can be flat out dishonest.

He remembers one home in Riverdale being listed as a "Riverdale home at Pickering prices."
"That's a downright lie," Fremlin says. "The truth is, it may be listed at a Pickering price," but the home will sell for far more than that.

The first half of the year has seen six consecutive months of declining sales compared with 2007, and some observers say that agents who consistently use the underpricing strategy may see it become less effective if the cooling continues. "You might see a lot of agents with egg on their faces if they try and create an auction and nobody shows up," Fremlin says.

So far this year, while many homes are still going for more than the listing price, there have been no outsized shockers such as the Beach-area home that sold for $1.9 million last July, more than $600,000 above asking. Proponents of underpricing say the Beach case is spectacular proof the strategy can work in the right circumstances by generating a heated contest between motivated buyers.

But Cook and her husband Thomas, who is also a realtor, say the practice should be stopped outright in good and bad markets. They have complained to the Toronto Real Estate Board saying the practice of deliberately under-listing homes and holding off an offer for seven days is harmful to the industry.

"It is the lazy agent's way of having to deal with a listing for only seven days," Cook says.
The agent may end up "looking like a hero," she says, for putting the property on the market below market value, allowing showings, taking offers and selling the home in just a week But she says it does the client a huge disservice and may not get the best price.

"It's detrimental to the seller. You might have 19 bids, but only two people can really afford the house, because you've attracted everyone else who can't with a lower listing, so it's completely artificial," Cook says. "And of course the house is going to sell over asking – because it's underpriced in the first place."

It's also unfair to the potential buyers who waste time looking at homes they can't afford, she says.

The Toronto Real Estate Board, meanwhile, says there's little it can do to restrict the listing price an agent might place on a property.

"Auctions, bidding wars and the various ways of marketing properties are driven by the marketplace," board president Maureen O'Neill said in a written response to questions by the Star. "TREB (and others) do not have the right to interfere with a market-driven function."
However, perhaps in an effort to quell concerns, the board this April implemented a new rule that says listings placed on the MLS should be available immediately for showings, inspections and registration of offers. In other words, you can't place a home on the market and only have showings a week later.

Cook's husband, Thomas, says the rule doesn't go far enough. "The rule should read that the listing should be immediately available for presentation of offers as well," he says.
"That would end up stopping the one-day-auction mentality that agents try to create."
Cook says he wants a return to the tried and true method of pricing a home properly.
"Whatever happened to the old method of doing a proper appraisal, listing it at 2 to 5 per cent above market value, open a listing up for showings and taking offers as soon as they come in? It's much fairer for the buyers, opens up the sellers to get the best possible price, and takes the false hype out of the marketplace."

Toronto Star

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