2017 is off to a strong start for the Toronto Real Estate market, with average prices rising 22.3% year over year, according to a recent Toronto Real Estate Board report. The average home in Toronto costs $770,745. In such a heated market, bidding wars are becoming more common. Over the past year, sales have increased 11.8%, while new listings and active listings decreased 17.6% and 49.5% respectively. Increase in demand, and lower supply (fewer listings) is a recipe for bidding wars in any market.
Asking Price vs. Selling Price
The asking price is how much the seller is asking for their property. This number is typically set by the real estate agent. Various factors are taken into consideration, such as curb appeal, location, and upgrades. Check out the top 7 features that drive up home’s selling price.
On the other hand, the selling price is basically what was offered by the buyer. How much the buyer is willing to offer is dependent on various factors. However, in today’s markets, it’s becoming more common for buyers to place an offer at higher than the asking price, especially for low rise homes. In January 2017, the average Sales Price/List Price (SP/LP) ratio was 104%, meaning that the average buyer paid 4% above the asking price. However, there have been incidents where the buyer has paid almost 100% over asking price.
There are 3 recent bidding wars that have been all over the media – each of them had a buyer that purchased the property at a price much higher than the asking price.
Don Mills Home
A 3 bedroom home in the Don Mills (Toronto area) sold for $1.15 million over asking price – at selling price of $2.3 million. Listing agent, Sohail Mansoor’s colleague listed a property in the same area for $990,000 and sold for $1.95 million a few weeks earlier. This property attracted 31 offers and over 170 showings in over 9 days (the Star).
Another 3 bedroom home in Brampton sold for more than $200,000 over the asking price – at the selling price of $756,000. This home drew 532 showings, and 82 offers after being on the market for only 8 days. Real estate agent Frank Leo claimed that this is the most number of offers and viewings he’s ever had on a home in his 27-year real estate career (CBC).
A 4 bedroom home in Vaughan sold for $400,000 over the asking price – at the selling price of $1.1 million. The open house attracted more than 800 showings; Atsaves claimed that the street “looked like a rock concert” (the Star). This home attracted 50 offers before the offer presentation date.
Real Estate Sales Tactic
The three homes mentioned above have one thing in common; a drastically underpriced asking price. In fact, each home sold for its respective market value (based on the previous sales within that area). Some headlines such as “Don Mills home sells for $1.15 million over asking” may seem discouraging for many millennials and/or first time homebuyers. In reality, these homes were sold over asking because their listing price was underpriced.
Vivek Dani claims that the lack of inventory in the market is fuelling this price increases.
“The lack of inventory in the market is fuelling this price increase. With limited listings in the market, Listing Agents are strategically marketing their listing to garner the most exposure. Listing below the fair market value has been one of those strategies. If you list a property below the market value you open an opportunity to investors and end-users who can purchase a property at that listing price. More exposure breeds more competition and well, more competition by nature drives up the price. The question a buyer or a prospective buyer should ask is, how much have the comparable properties sold for?” – Vivek Dani, salesperson at Home Life/GTA Realty Inc., cofounder of New Condo Releases.
As Vivek Dani mentioned, the main purpose of real estate agents under-listing is to attract the most attention as possible, inciting a potential bidding war. With the lack of inventory in today’s markets, sellers have the advantage over buyers in terms of pricing strategies.
While property x being sold over asking price may be true; it is not exactly accurate. Always dig deeper into the property details rather than reading the headline. What was the original asking price? Was the property underpriced? These are some of the questions you should ask. Fierce competition within the low rise housing segment has many first time homebuyers shifting their expectations towards the booming condo market. Many headlines indicate that a property has been sold for a significant amount over asking price, when in reality, it was sold for its fair market value.
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Writer: Jelani Smith
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