The list price battle: too-low asking prices are frustrating homebuyers. But are they driving up prices?
In a housing market already tipped in favour of sellers, artificially low list prices, bully offers and blind bidding are the real estate realities that compound the frustration and sometimes desperation of homebuyers.
Realtors argue they are just sales strategies but some believe the lack of transparency in real estate transactions are actually helping drive Toronto area home prices - which hit $1.33 million on average in February for a house or condo.
The federal Liberals suggested as much when they campaigned on a Home Buyers' Bill of Rights, including a ban on blind bidding so that buyers competing on a property would know what the competition was offering.
Others suggest these tactics are a symptom of the overheating market, and not a driver of it, arguing low supply is the main factor in rising price tags.
Two recent Toronto sales illustrate the dilemma.
One house that attracted more than 70 showings, drew four offers - three of them within about $50,000 of one another. The winning buyer, unaware of what they were up against, paid more than $100,000 above the next lowest bid.
In another case, a home that was listed for $1.7 million - about what the sellers expected to get - drew no offers on the designated evening.
Buyers' realtors told the listing agent their clients were afraid they wouldn't be able to afford the house - that they feared they would have to pay $200,000 or $300,000 more. In the end, it sold for the asking price but it took a lot of phone calls between agents to communicate the seller's expectations before the deal was done.
In January, GTA homes sold for an average of 113 per cent above the list price. That's a couple of percentage points higher than the last record-setting period for home sales and prices in 2016 and early 2017. When the market cooled in spring 2017, selling prices retreated to just below asking.
Ben Rabidoux of market research firm North Cove Advisors says that underpricing to create a bidding war is symptomatic of an overpriced market. It is not the cause of it."
He points out that Toronto Regional Real Estate Board data shows an obvious correlation between a hot market and selling prices that exceed the list price of homes. The more fevered the competition, the higher above list price buyers will offer.
Re/Max Hallmark Realty agent Desmond Brown says he tries to list properties close to a realistic selling price. But even realtors can be surprised by where the ensuing bidding wars ends.
Would successful buyers offer less if they knew what the competing bids looked like? That's the big question, he said.
Some would because they really want the property and some would feel they overpaid," said Brown.
When I'm a listing agent it's my job to protect my seller and I will never disclose the next highest offer to the winning offer," he said.
While first-time buyers may not initially understand the now common sales strategy of pricing a property for less than the anticipated sale price, they quickly become informed through their real estate agent what a home can expect to fetch by looking at recent comparable sales that give them an idea of what to offer.
For the most part, the buyers have not had a problem with (underpricing) because they do their homework before," said Brown.
Jared Gardner with Re/Max Professionals says buyers are becoming exhausted by bidding wars and the low prices that fuel that competition.
I would love a system where there are better rules and regulations that get rid of some of the underpricing. There is nothing I despise more than having to consistently tell my buyers that you cannot afford a home - because it's listed at that price doesn't mean it's going to sell at that price," he said.
Still, Gardner admits that when it comes to his clients, who are selling, he's as guilty of helping set those prices as the next agent.
I would love if we didn't have offer dates and I'm just as guilty of doing offer dates. I'm just as guilty of listing a little under value because if you don't, unfortunately, in this type of market, you may scare off buyers - as funny as that is," he said.
A spokesperson for federal Finance Minister Chrystia Freeland said that housing affordability remains a priority for the Liberal government but did not respond directly to the question about blind bidding.
As we have said before, we will take further action in the upcoming budget," said Adrienne Vaupshas.
Meantime, the Ontario Progressive Conservative government is working on new regulations as part of its Trust in Real Estate Services Act that would give homeowners the option of allowing their realtor to disclose the details of competing offers without any personal or identifying information.
Ontario Real Estate Association CEO Tim Hudak says it's sad that the opportunity to become homeowners is slipping away for too many families. But the main culprit is lack of supply.
The best way to solve that is to increase housing supply dramatically," he said. That will actually put more power in the hands of buyers."
Hudak says real estate offers contain sensitive information - not only what a buyer is willing to pay but down payment, financing and other conditions.
It also has to be voluntary and, ultimately, it is the home seller who should have the choice about whether to disclose competing offers, he said.
The home is somebody's most precious and valuable asset and they should determine how they go about selling. I think most Ontarians would agree that the government should not be telling Ontarians they can only sell their home one way," said Hudak.
He said Ontario homeowners already have the option of selling through open auctions.
Auctions are the norm in Australia, for example, where buyers typically gather outside a property and place their bids.
Of course, auctions can drive up prices even higher when auction fever develops, said Hudak.
The number using auctions has actually increased because home sellers feel they can get a bigger price for their home by triggering that kind of auction fever," he said. Auctions tend to get you to the same spot or even higher. It's just there's a lot more incremental (bidding) on the way."
Tess Kalinowski is a Toronto-based reporter covering real estate for the Star. Follow her on Twitter: @tesskalinowski