When it comes to buying some properties in Toronto right now, you need to put up your mitts and get ready to battle. We hear so much about the bidding wars and the resulting out-of-this world sold prices on Toronto homes. Neighbours are thrilled. Buyers are depressed. Even if you are the lucky buyer to land a property in a bidding war, you fear that you have paid way more than market value after getting caught up in the spirit of the battle.
The truth of the matter is, many properties don't sell this way. In fact, there are properties that do sell for what I consider less than their market value. It's very rare in this current market, but it can happen. And it usually has to do with less-than-stellar marketing of a property. So, just how does this happen in Toronto? How can you possibly land a deal as a buyer or avoid becoming the owner of a house that sells for under value as a seller? Well, here are my thoughts on why some properties sell below market value.
1. The Commission Gap. Many sellers do not understand what is going to attract the most buyers. They focus on saving money by asking the selling agent for a reduced commission. Fair enough, it is your prerogative to negotiate. But be careful. If, as a seller, you only offers 2% to the buyer agent for bringing in the buyer when the overwhelming norm is 2.5%, then the buyer may be on the hook for the extra .5% if the buyer is in a contract with a real estate sales person where he or she are to be compensated 2.5%. Buyers have enough to pay for while buying a home including land transfer tax and lawyers. The last thing they want is an additional cost .5% to make up for the shortfall the seller isn't offering. So, the seller can lose a lot of potential buyers this way, and receive a lower price on their property, a price even less than the .5% they are trying to save.
2. Dreaming too Big. When a seller is ready to sell his or her home, they may interview a few agents to see who would be best suited for them. It's a good practice. I recommend it. When the seller should be focusing on the marketing plan that will yield the best price for their home, they sometimes fall victim to the real estate agent who promises the highest price. The problem with a home priced higher than everything in the building or the neighbourhood is that it tends to help sell the more reasonable priced homes nearby. So, you are overlooked as a seller. Your property receives few visits and your home may not sell for weeks. Then, after enough time, the property becomes stale, and you either need to reduce your price or accept a low ball offer. It's not always a poor strategy to list higher with the knowledge that you may accept something less. But if you are expecting a certain number out of wack for your neighbourhood, without anything extraordinary about your home, then you are doing yourself a disservice.
3. Doing It Alone. First of all, I'm not down on these For-Sale-By-Owner (FSBO) folks. I think some sellers can sell their home on their own, but this is a very rare breed. Most of the time, sellers do not understand what kind of work is involved, and they often don't know how to market their home, attract buyers or price their home. In Toronto, many For-Sale-By-Owners will fail. There is a reason why there are agents who focus exclusively on picking up FSBO listings. Many FSBOs cannot sell their home on their own. They often price too high or do not market it properly, even with the MLS.
So, with all those do nots, what should sellers do? Well, you need to make sure you choose a real estate salesperson who presents the best marketing plan and a selling strategy that will yield the best price for your place. When the focus is saving money or dreaming of a big price, the real focus is ignored.
Let me illustrate this by a recent experience I had with two clients. These buyers were able to obtain a house that I believe was under market value. The sellers offered less commission than the regular amount. They didn't develop a strategy for selling their home. And they did not put up any photos of the inside of their home. Most of the time when there are not photos on a listing, it's like saying the inside looks like a serial killer and a hoarder exploded from a blender. But this place looked amazing. The sellers kept it tidy and maintained it beautifully, but for whatever reason, there were no photos and you did not get a sense of how great the place was.
So, sellers, when you're ready to sell your home, look for the salesperson who offers you the best marketing strategy, not the highest price or cheapest commission.
Buyers, deals are are hard to come by in Toronto but you may want to revisit some of the stale listings that have not sold. Most will have not sold for a good reason, but there may be a few in there that have slipped through the cracks, ripe for the plucking at a lower price.