What drives housing prices? Public perception often points the finger at the real estate industry, but industry insiders know there are many other factors at play. Record-low housing inventory, stiff competition, rising prices and COVID-19 have left a disproportionate number of Canadian housing markets in strong seller’s territory, with real estate agents reporting multiple offers driving selling prices well over asking. Those wishing to attract even more attention and competition are doing so by listing properties well below market value.

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Under different circumstances, sellers would have happily welcomed the steady stream of prospective homebuyers that followed. The problem with this strategy is that, while most of these house-hunters would have qualified to purchase the home at list price, the vast majority will fall short of its actual market value. This practice results in woefully misplaced homebuying hopes, wasted efforts and an artificially inflated list price to sale price ratio. Most importantly, it increases risk to public health and safety due to COVID-19.

Last but not least, deliberately underpriced listings reflect poorly on the real estate industry.

Pent-up demand has enabled a variety of listing strategies in the market. As professionals in the real estate industry, our duty to serve our clients and meet their objectives in a responsible manner is paramount. This is even more critical when transacting during a pandemic. The onus is on agents to inform their clients of their options and the potential impacts, then stand by the strategies they choose to employ.

From a selling perspective, your clients may be tempted to underprice their home in order to generate interest, but more showings and offers does not always deliver a better outcome. And given the current pandemic, are they even willing to host the dozens of homebuyers who must see this too-good-to-be-true listing in person?

On the buying side of the transaction, agents need to educate their clients about market comparables, to ensure they have realistic expectations and eliminate false hopes and dashed “dream home” dreams.

When dealing with clients, think “SUITE”:

  1. Safety: Always prioritize safe buying and selling practices. Don’t risk your health or anyone else’s.
  2. Understanding: Thoroughly understand your clients’ desired outcome – financial and otherwise. Time spent defining “success” leads to a more satisfying and efficient experience for you and your clients.
  3. Information: Ensure your clients understand the market, their options and the consequences associated with their choices.
  4. Technology: Even before the pandemic, Re/Max agents were already leveraging digital tools to help their clients buy and sell homes.
  5. Expertise: Embrace your role as the expert and back it up with data.

As Realtors, you have a hand in influencing the buying and selling strategies you employ with your clients. Inform and advise them based on your professional experience, market knowledge, industry best practices and of course, common sense. Remember that most home sellers have not transacted in the real estate market in the last year, and as we all know, things have dramatically changed. Be your clients’ voice of reason in this challenging environment.

22 COMMENTS

  1. TOO MANY REALTORS SPOIL THE BUSINESS -Are the bidding wars happening because there are too few homes on the market, too many buyers or there are just too many Realtors or a combination of all plus ridiculously low rates. TRREB currently has approximately 56,000 Realtor members and there were 10500 sales in February. Assuming that there were 2 agents per sale that equates to about 20000 winning Realtors that had a deal in February and 36000 losers Take away the double enders and the numbers are even less. It obviously doesn’t take 56000 Realtors to sell 10000 homes. How many offers were written to sell these 10500 homes. Let’s say 10 offers for every listing sold. 8 Realtors are losers and 8 buyers were losers on every house sale. What a waste of time! So how do you win a bidding war? The Realtor that has his client’s offer accepted wins his commission but the poor buyers MAY end up paying an additional 10% or more for their dream home, but the real winner is the seller. The system has created this nightmare for consumers and Realtors. So buying a home today could be a very risky business and a drop of 30% in house prices is not out of the question. Should buyers retreat to the sidelines and wait for better days rather than continue to waste their time and help prices skyrocket to even more ridiculous levels. When prices start to fall you cannot run to the vault and cash in your house at a teller. You will go for the ride and watch your equity decrease day by day by day. Over time property markets rise and fall, but they always do fall at some point. There will be better days ahead for the SMART buyers.

    • Dear David:
      I agree with you about the numbers of Realtors. We are too many. With half of us would be more than enough. But, remember that OREA does not care if you or I sell houses and have a nice income. Their business is to issue licenses. The more the better for them, so this is like a vicious circle from which it’s imposible to escape, because they don’t tell the truth to the “aspirants”. The same concept is applicable to brokerages (more agents = more fees)
      The potential new agent “buys the story” that this business is easy: “I got a license, so I can get a Mercedes now !” (just by working few hours five days a week). And that is like a cancer to the industry: slowly it destroys the livelihood and the image of good professionals while at the same time (and in a lot of cases), providing terrible services to clients. Welcome to the 21st Century !
      And regarding what is happening in the market… they are the “rules of the day”. In a few months it could be a different story.

      • Jorge:
        You are right! Too many agents. For every house sold in the Toronto region in February there were 5 TRREB member agents. 1/2 the number would be enough and that is probably too many.

    • Making a correction on the number of agents for GTA. Number should be 59000. Population GTA 5.9 million. So that equates to 1 agent for every 100 people in GTA. Could be wrong.

  2. Way back during 1980 the Hunt brothers in the U.S.A. tried to corner the silver market. Silver prices started to skyrocket, as did gold prices. Silver had been sitting at about $5.60 an ounce for a very long time. People started buying silver futures on spec. as interest rates rose. The price rose, and rose, and rose, in concert with interest rates. Everyone thought neither would ever stop rising. I knew it would. It was purely an expectations-driven herd instinct phenomena. Mass human psychology run amuck was at work. I too bought silver. I bought three huge bars for $15,000 at the Gold Exchange in Toronto, and stored them in a vault just down the hall…and waited. Prices rose every day, until one morning they stalled. I jumped in my ’61 Corvette and highballed it from Lakefield to Toronto pronto. When I arrived the price was crashing. I ran down to the vault, pulled the three bars out, and ran back to the exchange teller. I plopped them on the counter, whereupon she punched the clock to lock in the market price. I was lucky; I made ten percent in one week. I vowed never to do something stupid like that ever again, and I never have. I gambled, and I won. Many lost their shirts.

    What’s happening now is the epitome of the herd instinct at work. People are gambling that home prices will keep rising, and by paying whatever it takes to acquire a property, they are perpetuating that fantasy. However, there is only so much money available for this insanity to continue. It will come to a screeching halt. When? Who knows. But there will be many losers, just like those unfortunate gamblers who still own silver bars purchased in 1980 at $52.00 per ounce.

    The only winners these days are retirees selling their paid-off homes and going into apartments, and some lucky Realtors who are just going along for the ride. No Realtor these days knows what the hell is going on, what the hell to tell anyone what to list at, or, offer at. Objective advice has gone out the window. Appraisers are useless, guessing, rubber-stampers. The goal posts keep moving. The goalie is absent. Insanity rules. Meanwhile, the end nears. The train is coming.

    Moral? If you are a seller, take advantage, sell high, wait/rent, then buy low, and don’t ever gamble again. Even then one would be gambling. It’s 1980 all over again.

    If you are a Realtor, make up your mind to be either honest or dishonest with your clients, and then hope dishonesty doesn’t come back to bite you in the ass after you’ve cashed that buyer’s huge commission cheque. This is a no-win situation for buyers. They’re effectively gamblers, and the stakes are getting higher by the day. Don’t even try to tell anyone what a property is worth. It’s not about value; it’s about price. If you do venture a price you will be misleading everyone. Let sellers set their prices, and then advocate for them. Let buyers do as they wish, and likewise advocate for them. Stay out of the guessing games. Let the market do its thing.

  3. As much as I appreciate the intent of this article, agents who’ve been in this business for years are openly admitting they have no clue what the market value for a property is so just throw a number on it that’s 3, 4, 5 hundred thousand less than the last sale and they’re good to go. It’s shocking to see some well known agents admit to not knowing how to arrive at market value but are brazenly and ironically publicizing that an agent who doesn’t underprice a listing by hundreds of thousands doesn’t know what they’re doing.

    Yet, if you don’t know how to calculate market value for a seller client, you damn sure also don’t know how to calculate value for a buyer client either. That ability to adequately price property has been lost in the wind thanks to the years of under-listing for multiple offers backed by a broken system that allows it.

    And now a current MLS listing within the GTA , having failed to sell using the usual known tactics is trying something new – on offer day, the highest bidder will be awarded the property – for that of the second highest offer.

    What sort of chicanery is that?

    I’m not a lawyer but it seems to me that listing rep should have at least talked to one first since it appears to border on being an offer by the seller rather than an invitation to treat and where the eventual buyer need only double or triple the offered price, attach the listing agreement to the offer to claim the victory at the expense of the second highest bidder, say take that Mr. Loser for doing the work for me and force the seller’s hand if he balks!

    Compounding that, the sport that real estate has become is taking on new levels with the advent of online sales prices. It’s loaded with real estate forums where everyone with sales access are all now expert property evaluators. One part of the game now is to predict what a property would go for, the other is publish the sold price with a declaration that they’re shocked it didn’t go for tens of thousands more.

    Some sale prices are so off the charts and just whacked that having come in second in offers losing by anywhere from $100,000 to $150, 000, I can only advise my clients to prepare for competition that may include the inept and ill-informed who just throw money at a manufactured problem caused by a broken, bloody mess of a system that’s forever competing with itself to be the least trusted industry. It’s the consequences of inept agents using horrible practices and as result, their ill-informed buyer and seller that sorry to say, between them no market pricing strategy as common sense as this article actually is is going to be of assistance unless the regulators step in.

    While the government has no right to tell the consumer how they should price, market or negotiate for a property, it’s way past time for regulators like RECO to put in place specific guidelines for doing just that when an agent is involved and clean up the industry’s continuous descent into the slimiest business practices.

    The solution is simple really all it needs is to require the listing agent to disclose their calculated market value of the property.

    RECO at least has conducted surveys about the offer practices, what they do about it as a regulator top heavy with industry insiders is a whole other story.

    • Congratulations as usual PED. You hit the nail on the head. I hope the buyer agent on any such given transaction has educated his buyer that his bank or mortgage company will require the buyer to come up with the differential in additional cash.

      Some institutions wait until just days before closing if they smell a market about to go tilt to order their appraisal or even have been known to do a second appraisal. And that all these sell over list price transactions might not appraise? Then what?

      Back in the day when I was doing relocation transactions over more than three decades the instructions were such that an offer had to include a statement that the property had to appraise for at least xyz dollars CAD, failing which the offer was null and void and the buyer deposit returned with no penalty.

      WOW! How valuable when an over the moon seller’s market goes WHOOPS! and tanks. Best hope those over the moon selling prices have 30 day closings or less because what happens 3-6 months down the road no one can predict.

      Been through several market crashes and saw some nasty results that actually saw brokerages close down and agents didn’t get paid. Everything old could be new again. And there could be strings of transactions tied end on end. WHOOPS! doesn’t begin to cover it.

      Carolyne L 🍁

  4. Grossly under-listing a property on purpose is a waste of time for everyone. I have to do a CMA for every listing my client wants to see, and then I have to tell them that none of the homes on their list are within their budget. After a while, they start to think I just don’t want to show them anything, so eventually I give in, show them the home, they offer $100,000 over asking, but are outbid by $300,000. They’re totally surprises, but I’m not.

    Does a Seller really want dozens of people through their home that can’t afford to pay what the seller expects to get, especially during a pandemic? If I’m selling my personal home, I only want people looking at it that can afford to pay what I want.

    I don’t know what the solution to this is, but what we are doing is causing buyers and buyer agents a lot of unnecessary stress. This doesn’t reflect well on us.

  5. RECO states-“First thing you need to know is this isn’t like an auction – you’re not going to have the advantage of knowing where the leading bid stands so you can respond accordingly.”
    Buyer consumers are making very bad investment decisions because of the under-pricing scams, blind bidding wars, delayed showings and coming to market soon games. If RECO/Goverment officials had any concerns for the financial safety of the buyer consumers they would bring this insanity to a halt. Real estate is not a game of chance to be played at the expense of the consumers. This market will eventually all come crashing down and the pain for real estate consumers and Realtors in some markets will be devastating. I expect most Realtors are ready for someone to ring the bell and bring common sense to the marketplace.

    • I totally agree. This market cannot sustain itself on the course it is on, and buyers are feeling like they have to offer well above asking price and subject free in order to even have a chance at winning in multiples. I have several buyers who have given up and want to wait until the insanity stops.

  6. In Manitoba, our Manitoba Brokers Act has a Clause that States: Agents May Not Knowingly Under Price For The Purpose Of Inciting A Bidding War. It doesn’t necessarily Stop Agents From Doing This, But It Is Somewhat Of A Deterrent.

  7. I know of two properties which received plenty of showings, full price offers, that were rejected, and then the property was taken off the market. Obviously either the Seller or Agent had expected multiple offers well over list price and it did not work out. It is a very difficult time for most buyers and I believe that some sellers are also being taken advantage of, especially when you see a double end of a property that was underpriced and only on the market for a couple of days.

  8. I agree, great article. The practice of undervaluing properties to attract a lot of traffic is totally irresponsible, unsafe and misleading. It’s incredible that the government, real estate board allows this practice, especially during the pandemic. We realtors have all been in the situation where we show homes and there is a line up of people to get in to see a property because they see a low list price which the seller will never accept. In fact the buyers have been mislead the sellers expect $100,000 more. A real bait and switch.
    Are these the strategies the responsible thing to do during a pandemic?

  9. Whole heartedly agree with David Davidson’s comment on article. It’s a timely article and time for realtors to take heed. Let us not forget what happened in 2017. Not long ago where we playing the same game with trying to drive multiple offers resulting in many default deals at closing. Banks will not appraise the inflated value. When are we going to learn. It’s an injustice to your buyer or seller, leaving them hanging at closing time.

  10. You lost me when you threw the Covid bit …are you saying that there should be no showings allowed . A few showings allowed or if they start to get alot of showings not allowed. Where is the proof of anyone getting Covid from a showing and died from it. Realtors have proven that the showing system is safe…The listing agents main job is to get the most amount of money for the seller. Under pricing and mulit offers is a challenge for buyer agents and their clients but they all know the property will sell above the asking price. Might just as well put a dollar for the asking price as it means nothing anymore. The thing is this strategy works to get top dollar for the seller. The seller has the right to offer the property at any price they wish. High or low. There is no way to police what sellers list for. And it is not un ethical as it is ultimately the sellers decision. In other markets agents complain about sellers over pricing and not taking their offer at what they thought was market value. This market will not last forever it will change just like the weather and then agent will be mad as sellers over price the homes and won’t take their at market offers. Just like in the past

    • Dear Terry: Even when I agree with everything written here, I TOTALLY agree with your comment. To those voices who ask for “government intervention”, I’d say do NOT invite the government to this game because they have no clue how to play. Every time they intervene, they screw someone or something. If you work for a buyer and you go to an offer presentation on the date written in the listing, thinking that you’ll get the property for the asking price or less, then there are two options: Or you are new to this planet or you didn’t do your job because you did not educate your client.
      Wouldn’t you like to sell your home for a 10% extra ? Every seller wishes the same.
      We have to do what is better for our clients but buyers and us (as buyer’s agents) have to face reality and realize that Liza Minelli’s song from Cabaret (“Money, Money”) is even more valid today than when the movie was released in the 70’s. Money doesn’t “talk” anymore: Money is YELLING VERY LOUD.

    • I agree with some points, but on listing low and getting multiple offers doesn’t always get you top dollar. I see many ?99 specials in my area getting much less than homes priced where they should be. When a builder basic 4 bed 2700 square foot home listed at $1.3mil gets $1,295,000 in 14 days, then a 5 bed 3400 square foot home completely upgraded listed at a $999k special sells for $1.2mil in 1 day. How is this top dollar, it’s consistently happening to many home sellers. In February I sold one home for a record price with 13 showings and 1 offer, priced it $19k above the last sale (3 days earlier) and held off with pre-emptive offers accepted, I still got $38k over ask. One similar home sold $27k over that 2 weeks later but was 23 years newer with a legal basement apartment, so to be expected. The last 2 weeks, the same models have been selling for around my original list price, since the agents have been listing at or below my list price. Listing low is only going to undermine our industry, what is your value if you can’t even price a home properly. I never advertised my sale as being over asking, as in my opinion it’s screaming, I don’t know how to do my job. When you have a couple dozen comparable’s at $1.2mil, why still price at $899 or $999, makes no sense whatsoever.

  11. This is a fantastic article. I absolutely agree that this practice of underwriting homes is misleading. I consider this to be a “bait and switch” practice which is illegal in business practices. We as realtors have a responsibility to be ethical and competent. We have low supply and high demand right now. There is no need to under price a property in this market. A well priced property will sell anyway.

  12. Excellent article. CREA code of ethics 3.2 -“ A Realtor shall not intentionally mislead anyone as to any matters pertaining to a property.” If a Realtor suggests to a seller to list a property at a price the seller has no intention of accepting is this not misleading the consumers? Is this a fraudulent act. Fraud is defined as “ an act of deceiving or misrepresenting”. Is it legal for a Realtor to deliberately mislead the consumers in advertising a property that they know the seller has no intentions of accepting? This under-pricing scam by Realtors should be banned by CREA /Government officials. Misleading advertising should not be permitted by Realtors as stated in the CREA code of ethics. Perhaps Realtors should add a statement in their listings -“the sellers of this property have no intentions of accepting the price advertised, buyers should proceed with caution”

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