As situations change, the systems and processes that are in place sometimes fail to adapt.
Real estate is not immune to changes over time and we certainly do things very differently than we used to do. One important aspect of real estate has changed but our system hasn’t caught up to this new approach yet – holding back on reviewing offers on a listing.
This idea of listing below market value and refusing to review offers until a later date is common in Toronto, yet our MLS system isn’t designed for it. The statistics that we rely on are skewed considerably by this approach and the public facing tools don’t share enough information to allow consumers to know what to expect with a listing.
Let’s use this practice as an example of how our systems aren’t reflective of the different ways in which real estate is done now.
Ah, the good old days.
It used to be that when you had a property you wanted to sell, you hired an agent to sell it for you. They looked at market data and comparable properties and came up with the list price for the home. You put the For Sale sign outside, buyers viewed the property, someone liked it and said I want to buy it.
Sometimes they’d negotiate a fair bit off the price, sometimes they’d pay pretty close to the list price or even full list price. If you were unlucky enough as a buyer to be in a situation where you decided you wanted the home at the same time some other person did, you might be in competition and someone might even pay more than the list price.
When this was how real estate was sold, the system and tools in place worked pretty well. You could see your options on places for sale, you could see how long they’d been on the market and you could go shopping with your budget in mind and be reasonably certain that you could buy any of the places that were listed within your budget range.
Uh oh…things are changing.
On some historic day, an enterprising Realtor said, “No more!” Rather than list at the price they were willing to accept, this brave agent listed the property for significantly less than what they thought it was worth and they told people who wanted to buy it they had to wait – that the seller was holding back on reviewing offers until a specific date in the future.
We can only imagine the confusion as this approach of holding back on offers (or just “holding back” as it is commonly called now) was first used. It seems so contradictory to the goal of selling the property. This is very clear if you think about this approach being done in other situations.
Imagine seeing an ad for a used car in the paper. The price seems really low for the car pictured and when you go and see it, you think it’s a great car. You smile and say “I’ll take it!” and start to pay the seller only have them say “Oh no, no, I’m not selling it today. And not for that price. Come back next Tuesday but be prepared to pay a lot more.”
We wrote about this holding back approach in an earlier article about three ways to price a property, so feel free to check that out if you want to understand why a Realtor might hold back offers on a property.
This approach can be a valid one, but it becomes problematic when the systems we have in place aren’t designed for it. Here’s some unexpected repercussions.
How many days was that house really for sale?
There are two statistics that are heavily impacted by sellers choosing to hold back on reviewing offers.
The first is days on market, or how long it takes a property to sell. It’s pretty obvious, but if you are refusing to look at offers until a week or two after listing, your property won’t sell until a week or two after listing.
Before this approach became common, you could look at the average days on market as gauge for how much demand there was right now. It mattered if we went from an average of 20 days on market to an average of 10 days on market. After holding back offers became common, the days on market were less useful as a gauge for the strength of the market.
Even more relevant is the fact that not all attempts at holding back offers work. It is quite common to see a seller list at a lower than market price, wait a week to review offers and not receive an offer they are willing to accept. The listing is terminated and relisted at a new, higher price, with offers anytime. It sells for a price a bit below that new asking price and is marked on our MLS system as sold.
The challenge with this can be seen if we look at an example of a house was listed for 7 days when they were holding back offers and then after that listing was terminated, it was listed for another 10 days before selling. As it was two separate listings, our data shows that the home sold in 10 days. In fact, that listing sold in 10 days, but the home sold in 17 days.
Magnify the above example by a significant portion of the market and you suddenly have days on market stats that are just wrong.
It has become enough of a problem that the Toronto Regional Real Estate Board had to create a new stat, called property days on market, which seeks to show the combined days on market for a single property that was listed multiple times. Unfortunately, it is not available, nor relied upon or used nearly as often as the days on market stat, so we’re all using inaccurate data.
It looks like people will pay considerably more than something is worth.
The next stat that is being impacted by this approach of holding back offers is the sale to list price ratio.
If the sale to list price ratio is 100%, it means that the seller got exactly what they asked for with their property. Below 100% means they accepted less than their list price and above 100% means they receive more than their list price.
The obvious problem with listing below market value is that it is literally designed to sell for more than list price. If we see the average sale to list price go up in one month compared to the previous month, what does it really mean? In theory it means that when buyers are wiling to pay more than list price, the market is really hot. In practice, who knows what it means? If sellers are listing their homes at 10% below market value one month and 20% below market value the next, we’d assume that the market is really heating up – but it just means that they’re listing lower and lower.
When sellers are listing a home artificially low at a price they won’t accept, a sold over asking price is meaningless.
Buyers are confused as heck.
The above two points about statistics are a concern for real estate professionals but there is a very practical problem that the general public faces with this approach about sellers holding back on offers – they have no idea what price the seller actually wants.
The public facing tools for real estate listings do not include all of the data that Realtors can view. There is confidential information such as the names of the sellers and there is also a section called Remarks for Brokerages at the bottom where the listing agent can share practical information about the listing.
If there are showing restrictions, unusual situations with accessing the property or other details about how the buying agent can do their job, it’s in this section.
It’s also the only place on the MLS listing where it says if the seller is holding back offers, and if so, until what date and time. The general public has no way of seeing if the seller is following the approach of holding back offers or not. This means they don’t know if the list price is reflective of what they will accept or not.
We regularly encounter buyers who assume all properties are holding back offers and that they need to only see properties that are listed significantly below their upper budget amount if they have any chance of affording the home. In reality, there are a mix of approaches and some properties are holding back, some were but that didn’t work and are now relisted at a higher price with offers anytime, and some never tried holding back offers and will take the list price if offered.
Listing agents have no way of informing the public that offers are being held back as there is no field in place for that information to be shared. It must literally be written in the open text field that only other agents can see.
It is our hope that we see updates to the systems and tools in place within the industry so that we can have useful, accurate stats related to the days on market and sale to list price ratio. At the same time, updates to how listing agents populate the MLS system would allow the general public to get a better sense of individual listings and what is likely to happen.
It would seem to make sense to separate the two types of listings with the addition of some new fields for listing agents to fill in for the listing, such as:
- Holding back on reviewing offers? (Y/N)
- Allowing pre-emptive offers? (Y/N)
- Offer Review Date? (Date)
If this was put in place, it would then allow for statistics for the two approaches to listing a property to be separately calculated. Imagine being able to see the average days on market or sale to list price ratio for just properties that don’t hold back on offers. It would be useful and accurate. The same data for properties that are holding back offers would also be of some use for sellers to decide if that’s the right approach for them.
For now, we need to take a closer look at listings and the stats and do some manual deciphering of what is actually going on in the market. If you’re buying and want to work with agents who know what’s happening – or if you’re selling and want to take the right approach, get in touch!
