Hope is a very powerful emotion and is hugely important when you’re considering a major transaction such as buying or selling real estate.
You don’t know for certain what will happen and whether it is going to go as planned, but you hope that it will turn out like you imagine.
You hope that you’ll get the sale price and closing date you want for your home when you sell, and you hope that you’ll find a great place to buy at a price that you’re comfortable paying.
Whether your hopes come true or are dashed is by and large a function of how accurate your read is on the situation. Whenever you make plans, you won’t know until after whether you were realistic or naïve, wise or foolish.
In real estate, wishful thinking plays a big role in transactions that don’t go as planned. While hope is very necessary, knowing whether it is a realistic hope is crucial to the success of the sale or purchase.
Let’s look at the ways in which wishful thinking can derail a real estate transaction.
The number one way in which sellers (and their listing agent) let wishful thinking get in the way of the transaction is when they pick a sale price based on anything other than the market price.
The most common version of this involves a seller who does the math on what it will cost to sell their place, what they need to have in order to move onto the next stage and then picks the price based on that calculation. It’s a funny thing in that it really only happens with real estate deals.
Picture someone selling a Toyota who is buying a Porsche. If you asked them how much they wanted for their used Toyota and they said $126,000 and not a penny less, you would likely laugh and move on. The fact that they need the money to buy a Porsche doesn’t in any way, shape or fashion make their Toyota worth that price.
Sellers often move up the property ladder to a more expensive home or area, yet remain focused on keeping costs the same. When a seller wants to receive enough in sale proceeds to keep their mortgage at the same amount, yet are buying a property worth hundreds of thousands of dollars more, the math often doesn’t work.
When the seller pushes their listing agent for too high a price based on what they want to clear from the sale, the phrase “Well, you never know if someone won’t pay that price” is often said. While it possible that someone will pay a price unrelated to the market value of the home, it is not likely.
An important job for a listing agent is understanding the market and the cost that a reasonable buyer would pay for the home. Any pricing strategy that isn’t focused on this approach is almost always wishful selling.
Other examples of wishful selling include:
- Picking a property as a comparable that is superior to the home in terms of type, finishes, attributes and location.
- Expecting a shorter time on market than is the norm for this price point and area.
- Assigning a value to aspects of their home that is based on the seller’s own situation, rather than the typical situation for a buyer.
The results of wishful selling are predictable – a longer time on the market, fewer showings and offers and an eventual lower sale price than what they could have otherwise received.
The number one way that buyers engaging in wishful buying is ignoring the format of the listing and the features of the home in their preferred offer price.
In Toronto, homes are often listed at a below market price, with a holding back period of a week or so before the seller reviews any offers. The key here is that the list price is below market, and it is not a price that the seller would accept. These lower price listings are designed to bring lots of people through and to encourage multiple offers on the offer date, so that the home sells for a considerable percentage over asking price.
The other error that buyers often make with their offer approach is to over or under-value different aspects of the home. Whether it is the lake view on the condo or the high-end finishes in the kitchen of the house, the feel of a property has a big impact on the eventual sale price.
An important job of a buyer agent is to know the market and how homes are selling right now. If a buyer wants to submit an offer that ignores the fact that the home is priced below market value or doesn’t take into account the appeal of the home, they are not going to be successful. Such offers are in fact gifts to the seller, in that they drive up the eventual sale price by creating additional competition for the home.
Whenever a buyer says “Well, you never know if we might be able to get it for that price”, the job of their agent is acknowledge anything is possible, but what is likely is a sale price in excess of that price. No buyer wants to lose out on a home and the desire to not overpay must be balanced against the wish to be the successful bidder.
Other examples of wishful buying include:
- Low-ball offers when a home is new on the market or just had a price reduction, where the seller is not yet willing to consider that price.
- Believing that their budget as a buyer is in any way relevant to the sale price that a seller will accept.
- Thinking that something that is a negative for themselves as a buyer is universally true for other buyers and should impact the sale price.
When you hear about someone seeing hundreds of homes without buying, it is a clear case of wishful buying.
Setting goals for a purchase or sale is admirable and a crucial step in real estate transactions. However, one of the most dangerous phrases in the world is “Well, you never know if…” and if you ever find yourself saying it, take a step back.
If you’d like to work with an agent who understands how to balance the desire for the best outcome with the best possible result, please get in touch.