"Asking" prices in the overheated GTA market aren't just faulty, they're a fiction bordering on fraud."
“Junction Triangle semi sells for 70 million per cent over asking!”
That’s a headline we might brace ourselves to expect soon, one to bring a ubiquitous, and ridiculous, Toronto pastime to an absurdist climax. Absurd, but likely: it is the expected result of a sales strategy reported on in the Star this week.
And perhaps it will be enough, for once, to stop people from the familiar shaking of their heads in awe and wonder at the batspit local real estate market, and stun them into the realization that the whole ritual is meaningless.
The ritualistic pastime I’m talking about, of course, is the one I call “over-asking astonishment,” and it is one of Toronto’s most common.
What we do is we look at the selling price of a house that has recently been sold, and compare it to the price it was listed for on the real estate Multiple Listing Service, the “asking price.” Then we make our eyes go wide and let our legs go weak and marvel at the monstrous gap between the two numbers, flabbergasted at what it tells us about The Bonkers Price of Housing These Days.
Except that gap doesn’t tell us anything. Because the “asking price” is entirely, and increasingly, meaningless. Or, worse than meaningless, intentional fictional — a ploy meant not to suggest an appropriate value but to trick people into paying attention to something they otherwise wouldn’t.
This is made plain in the case of the house that will sell for (at least!) 70 million per cent over asking, which was written about by my colleague Dan Taekema this week: a house on Edith Avenue listed for $1. Not because that is actually the price, obviously. Instead, it’s an openly deceitful attempt to, as the agent says, “get the highest possible price.”
He tells Taekema, without a hint of apparent shame, that though the price is advertised as a single buck, he will not accept any less than $700,000 (7 million per cent more than $1) and expects more than that — this new ploy is because his previous list price of $899,000 didn’t attract a buyer.
If you’re new around here and haven’t been exposed to the strategy before, it works fairly simply: The low price gets you to take a look, thinking it could be in your budget, and maybe while you’re looking you fall in love. And once you make an offer, you’re attached to the idea of buying it, so you might be persuaded to pay far more once you’re in a bidding war. It is a naked bait-and-switch.
But if this agent’s loonie trap is somewhat novel in its transparent gimmickry, his general strategy is not new: listing a house low to spark a bidding war that results in a high price is so common as to be unremarkable. Which is also why it’s well past time to stop being Surprised! Shocked! Bewildered! when there are bidding wars that see a house sold for its market price rather than for the arbitrary number that was put on it as a marketing poly.
Of course, if Tim Hortons or Loblaws or The Bay did this — put one price on their fliers and in their ads, but then demanded a price several times higher when you actually got to the cash register, they’d be busted for misleading advertising. The law forbids knowingly making misleading claims in ads, including specific prohibitions on selling things for more than the advertised price.
But all housing in Toronto is sold through a form of blind auction, with the sale going to the highest (or otherwise most attractive) bidder, so the advertised “price” is only ever a suggestion anyway. But it has become less than a suggestion. It’s often an outright lie.
This is only one of the many ways in which real estate is a business with bizarre practices. An industry where people are routinely forced to make life-altering decisions in a matter of hours or days, with limited information. An industry where the agent representing the purchaser gets paid by the seller — and gets paid more if they persuade their own client to pay a higher price. An industry in which purchasers bid in an auction without knowing for certain how many other bidders there are or what other people have bid.
But for some reason, the practice of pointless “asking prices” is especially annoying. In addition to being cravenly manipulative, it wastes a lot of people’s time, as they go out to see a house they think is in their price range — because the selling agent has told them directly it is! — only to realize it’s actually an order of magnitude more expensive than they can afford.
It needlessly breaks some of these people’s hearts, as they (if they are getting bad advice from their own realtor) get emotionally involved in a bidding war they cannot win. And it corrupts the impression the rest of us have of what’s happening in the market, thanks to those “$400,000 over asking!” headlines and realtor ads.
If the realtors who run the Multiple Listing Service gave a crap about serving those in the market at all, they’d reform listing price practices. I’ve considered if it should be like a regular auction, where the “reserve price” functions as a minimum — and where a seller without any better offers would be forced to accept an offer at their list price.
But given the other variables in a real estate offer — inspections, financing, closing dates, and so on — it might be too hard to make that practical.
But the listing service could do away with asking prices altogether, and instead just list the average selling price of comparable houses nearby as a more reliable guide for what to expect. Because the selling price is determined, really, by what people are willing to pay for that kind of house in that location, and recent sales of similar nearby houses are the closest approximation of what that number is.
At the very least, the rest of us could stop being suckered in. Asking prices are not expected prices, they aren’t minimum prices, they aren’t prices at all. They are just numbers chosen to attract attention.
Whatever purpose they serve for agents, the rest of us can stop paying attention to them, stop putting them in headlines as if they mean something, and stop marveling at the gap between them and real selling prices. Over-asking astonishment is over. The actual selling prices are astonishing enough.
Bloggers Comments: We have seen some of this in the past here in Winnipeg. As a real estate agent this practice would consititute fraud. One of the protections I provide my clients is that regardless of the asking price we look at the actual market value of similar properties and offer accordingly. My advice is that you don't want to go crazy on price even though you may absolutely love the home because it can come back and bite you when you sell. Especially if you sell sooner then later.