holding back – Refined Real Estate Team

What happens when a home doesn’t sell?

Jeffrey Luciano — Fri, 17 Feb 2023 20:09:45 +0000

If you’re considering selling your home, you have a choice between two commonly used approaches.

The first is old school. Decide on a price you would take, list it for sale at that price, and hope someone will pay pretty close to that price.

The second is a relatively recent development in the last couple of decades. While it happened on the rare occasion before then, it became increasingly common and even the predominant approach in a seller’s market. It involves listing for a price that is significantly lower than the home is worth or that the seller would accept, having a marketing period of a week or so, and then reviewing (hopefully multiple) offers on a specific offer date.

In the shifting market we’re experiencing in Toronto and the GTA these days, both approaches are being used and it is a real topic of conversation as to which one is appropriate. The answer varies depending on location, price point, housing type and other aspects, but we are definitely seeing a number of sellers that take the second approach and see if not work as planned.

What comes next is a function of how well they thought through their initial listing strategy and price. Let’s go through the three options that sellers and their agent have when the home doesn’t sell on the offer date.

Option #1 – Raise The Price

In our opinion, this is the best next step that a listing agent can take, but it relies on a few things have been doing correctly.

If the listing strategy was properly thought through, the listing price was below market value. A large part of the idea behind holding back on reviewing offers to a certain date is that you create a situation with multiple offers.

In order to receive multiple offers, you need lots of prospective buyers to view the property. If it is listed below market value, you have buyers who see the listing and say, “That looks like a great home for that price, let’s check it out.”

While a good purchasing agent will be able to guide expectations for their client, there are new or inexperienced agents who can’t help their client understand the likely sale price for the property. Such buyers end up putting in offers for the property that aren’t market value and won’t be accepted. They do, however, serve to put pressure on other buyers to raise their offer price, often resulting in a good sale price for the seller.

If the listing agent understands the protocol on how holding back reviewing offers is supposed to work, they have listed well below market price. Despite the property looking like a bargain, it failed to attract the price the seller was hoping for and now a change needs to take place.

They could lower the price even further and hold back reviewing offers until a later date, but that is quite risky. If the market didn’t give them the price they wanted with their initial, below market value price, then going even lower is not likely to get them anywhere close to their desired sale price.

By raising their price to their desired sale price and accepting offers at anytime, the listing agent is telling the market that they didn’t get any offers close to that amount before (otherwise they would have dealt with it and sold on the offer date) and that they want a sale price close to their new, higher list price.

In essence, it’s going back to the way all homes used to be sold because the other approach didn’t work out. There are, however, other options if their initial pricing strategy wasn’t thought through properly.

Option #2 – Keep The Price The Same

The second option is for the listing agent to remove the instructions to agents that they are holding back on reviewing offers until a certain date, say they will review offers anytime, yet keep the price the same.

This approach is an indication that the listing agent didn’t really think through their pricing strategy. If they are willing to sell the home at the same price as when they were holding back on reviewing offers, they clearly have given up on getting more than that initial price for the home.

In theory, this could appeal to buyers who thought the home was worth exactly the list price but were scared off by the idea of a multiple offer situation or thought (rightly!) that the seller was saying they wanted more than that price.

In practice, we find that this just indicates to the market that the seller and their agent didn’t have a good grasp of what the home was actually worth and after trying to see if anyone would buy it for more, they are now willing to take less.

This often creates the perception that the home has something wrong with it and that the price is too high. Regardless of whether either of these are true, the perception can certainly affect whether buyers are interested and at what price.

If the initial list price was actually what the seller was hoping to get, then the listing agent has made a mistake and has a tough road ahead.

Option #3 – Take The Property Off The Market

While keeping the price the same and getting a sale price the seller wants is challenging, it is definitely preferable to the third option for dealing with when a home doesn’t sell on the offer date.

While it isn’t common, we do occasionally see listings being terminated (and not coming back on the market) after the offer date.

This is the clearest indicator to us of a listing agent who managed to get the listing on the promise of a great, quick sale price. When the offer date came and no offer came in with the price the seller wanted, they fired the listing agent.

It’s a frustrating circumstance for buyers, as they saw a home they liked and wanted to buy. The agent they were working with had to rely on the listing agent doing their job well, which means informing their seller client of what a reasonable price would be for the home. The buyer and their agent undoubtedly went into the process with the hope of coming to a deal, yet if the seller isn’t well served by their agent, that is not likely to happen.

When we act as a purchasing agent for a client in situations like this, it’s somewhat of a powerless situation for our side. If the listing agent or their seller don’t have a grasp of the market and want an unreasonable amount, there is often nothing we can do to help our client get the property. All of the logic in the world won’t influence a seller who is unreasonable and only listed their home on the promise of a crazy sale price.

It’s pretty clear that of the three options sellers have when their home doesn’t sell on the offer date, the first option is the most likely to get the home sold. When the listing agent did their job properly, raising the price and accepting offers anytime is something they have prepared their client for and is likely to succeed.

When the listing agent didn’t do things properly, they are left with either continuing at the same price or having the listing terminated. If they continue at the same price, it often sits for a length of time before the price is dropped to what the market will now pay for this stale listing.

If you are considering buying or selling, make sure you work with a Realtor who understands how pricing strategy plays into getting a home sold. On the sale side, you want your agent to be clear about a path to getting you the price you want. On the buy side, you want your agent to understand what is going to happen with a property you want to buy. In either case, we’d love to help make your goals a realty and encourage you to get in touch with us to start the conversation.

Rules are for chumps.

Jeffrey Luciano — Fri, 10 Jun 2022 16:44:46 +0000

Many industries have a set of norms and expectations that may or may not be formally acknowledged, but that nonetheless dictate how things are done.

In real estate, one of these informal rules is what you’re communicating when you choose to either take offers anytime, or you choose to set an offer date for when you’re reviewing any offers.

The choice is up to the seller and their agent, and we tend to see certain approaches favoured in certain types of markets. Here’s our behind the scenes explanation of how each approach works, when it makes sense and what happens when agents don’t follow the unwritten rules.

Holding Back Offers

When it is a strong seller’s market, listings often have a specific date to review any offers, which is often about a week after they list on the market. This gives a long enough marketing period to allow more potential buyers to see the home, decide if they are interested in submitting an offer, preparing the offer, and then coming to the table on offer night.

Let’s talk about the unwritten rules when a listing is holding back offers.

Rule #1 – If you’re a listing agent and you’re holding back offers, you list the home for sale at a price that is below market value.

First and foremost, when there is an offer date set, the agent is communicating to other agents that the list price is below market value. The intent here is that by listing at a lower price than they expect to get, they will increase the number of showings during the marketing period. More showings can equal more buyers and given the goal is to have multiple offers submitted on the offer date, pricing below what they think it is worth can be an effective strategy.

What happens when agents don’t follow this rule?

If a listing agent decides to hold back offers but doesn’t list below market value, they are communicating very high price expectations to other agents. Consider a home that has good comparables selling for $1.2M. If the agent lists the home for $1.2M with an offer date, the unwritten rule is that they want considerably more than their list price. Even if this isn’t true and the seller would be happy with the list price, the agent has communicated the wrong expectation to the market and agents may not show the home or offer on the home due to the (wrong) communication from the agent that the $1.2M is well below what they want for the home.

The even more nuanced version of this rule is what the list price communicates to buying agents. If you list at the same list price as a home that sold last week down the street, you are telling us that you think your sale price should be similar to what that home received. If you want a different sale price than what this comparable received, list below or above it to clarify your seller’s expectations.

Rule #2 – If you’re a buying agent and the home is holding back offers, you need to do your own research as to what a good offer price would be, but it should be higher than list price.

The second rule follows directly from the first rule and involves the buying agent knowing that the list price isn’t a case of “it being a good deal” or the listing agent not knowing how to price the property. The buying agent will need to do their own research into what similar homes in the area are selling for recently in order to communicate that to their buyer client.

What happens when agents don’t follow this rule?

If a buying agent doesn’t acknowledge or know that the listing agent is communicating a price expectation that is higher than the list price, they can submit an offer that is too low and not be successful in closing the deal. We can see with great confidence that there are many agents who don’t understand this rule as we’ve seen hundreds of offer dates with our client where one or two of the multiple offers that come in are at list price, or even below! These agents do not succeed in buying the home for their client and in fact are responsible for pushing up the eventual sale price even higher. Due to the blind bidding system we have in Ontario, a buyer who is in competition with five other offers has no idea if they are good offers or poor offers.

Next, let’s look at what it means when you say you will accept offers anytime.

Offers Anytime

Whether it is due to a balanced market or seller preference, listing agents can advise their clients to list a home for sale and accept offers at anytime. This was historically the way that homes were sold in Ontario, with sellers setting the price they are willing to take and buyers deciding if they wanted to pay that price, or at least pay close to it.

Here are the unwritten rules about taking offers anytime.

Rule #1 – If you’re a listing agent and you’re taking offers at anytime, list at the price your selling will take.

This first rule seems very basic, yet astonishingly we have recently begun to see listing agents violate it, with poor outcomes as a result. The challenge with listing at the price that your seller would accept is that listing agents actually need to know the market well enough to be able to properly advise their seller client on a reasonable price. If you don’t know how to price a property, it can be very appealing to list “below market value” and “let the market tell us what it is worth”.

What happens when agents don’t follow this rule?

Chaos, fear, dogs and cats fighting in the streets. That is a bit dramatic, but when agents list a property for sale, with offers anytime, yet they have higher price expectations than the list price, it is a tremendous waste of everyone’s time. We have recently (March through June, 2022) encountered a number of circumstances where agents didn’t follow this rule. We have shown or intended to show homes that were listed as “offers anytime” and in many cases, have been on the market for weeks or even months. In such cases, what is being communicated is that the list price has not been achieved and the seller would take that price if offered. On a number of occasions, we’ve been informed by the listing agent that their seller won’t take a price below a certain number, and that number is literally hundreds of thousands of dollars over their list price.

It’s a waste of time for the buyer and the buyer’s agent to show the property, it’s a waste of time for the seller and the listing brokerage to facilitate the showing and we honestly don’t understand what the seller and their agent are thinking. The benefit of listing below market value with an offer date is that you get competing offers where at least one is pushed up higher to the price you would accept, even if some are too low. When you have no offer date, you likely have no competing offers, so you have an offer that comes in that is well below what the seller will take and the gap between the buyer’s budget and expectations and the seller’s desired price is simply too large to get a deal done. The home doesn’t sell, it becomes stale and stigmatized as buyers decide there must be something wrong with it and the eventual sale price is often much lower than what they could have received if it was priced properly.

Rule #2 – If you’re a buying agent and showing a property that is taking offers anytime, time is of the essence.

Even in a hot seller’s market, you occasionally hear stories or see sale prices where the buyer got a pretty good deal. In many cases, this is because the buyer and their agent moved quickly to see the property and then to put in an offer. Time is of the essence in real estate in most cases, but particularly when a home is taking offers anytime. Every minute that passes between you seeing the home and every minute that passes while you consider making an offer, is time that could result in another buyer seeing the home and deciding to make an offer.

What happens when agents don’t follow this rule?

When a buying agent doesn’t actively monitor the market and move quickly to see new properties that are offered for sale with offers anytime, they can absolutely miss out on great opportunities for their clients. Even homes that have been on the market for a length of time are subject to this same rule, as you never know if that home that has sat for a month without being sold may be viewed by a new buyer who just entered the market and loves it. On many occasions, we have worked with clients where a home on the market for weeks or even months sells the day of our planned visit. The rule is simple – if the home fits your criteria and is taking offers anytime, see it as soon as possible.

The corollary to this rule is that if you see a home taking offers anytime and it appeals, don’t waste time before writing the offer. There is sometimes the false belief that given it has been on the market a while, we can take our time to consider submitting an offer. The reality is that there is no guarantee that an offer won’t be received at any point. You should absolutely avoid making a hasty decision, but prioritize thinking it over and deciding sooner rather than later, or risk missing out on the opportunity.

The unwritten rules around pricing a listing and deciding to take offers anytime or hold back to an offer date can have a tremendous impact on the success of the sale. Make no mistake, when such conventions are typically followed in an industry, they are relied upon by the professionals who work within the field.

If your agent doesn’t understand these rules, the results can be disastrous for you, regardless of whether you’re on the buying or selling side. If you’re considering making a real estate transaction, we’d love to help make sure you get expert help in understanding what approach works to get you the results you deserve. If that sounds appealing, don’t hesitate to get in touch with us.