Bosley Realestate

Dear Urbaneer: About Holdbacks, Bully Offers, & Bidding Wars For Sellers

May 18th, 2018 | Dear Urbaneer

Welcome to this month’s installment of Dear Urbaneer, where our clients put us to task with their real estate questions. Last month, I helped a Buyer understand how the strategy of properties which come to market with a 'holdback on offers' function in purchasing Toronto real estate in 'Dear Urbaneer: About Holdbacks, Bully Offers, & Bidding Wars For Buyers'; I advised them on what their expectations and approach should be in this scenario. I thought it would be prudent to address the Seller's side of things as well, so I pulled this relevant question out of the archives:

 


 

Dear Urbaneer:

As we prepare to put our home on the market, our main objective, obviously, is to get the highest price we can. However, given that the market has moderated a bit over the past few months, how can we ensure that we position our property to get the price that we desire? What about leveraging a holdback on offers strategy? What are the usual risks and rewards for sellers?

Signed, 

Set On A Sum

 

 

Here's my reply:

Dear Set On A Sum:

Absolutely - you are correct to assume that getting your home's highest value isn’t as simple as picking a list price based on comparable sales, then sitting back and waiting for Buyers to flock to you with the sum you desire. Although in the original City of Toronto (opposed to the GTA) we remain in a Seller’s market, there is some fickleness as the landscape has shifted a little bit over the last year. Now it is even more important than ever for Sellers to consider their selling strategy before listing their property for sale.

Success (which in this case means getting top dollar and a swift sale) is more likely to occur if you’ve done your research and if you are well-informed about the nuances and influences of the current market in Toronto. This is definitely an essential component of executing a 'holdback on offers' strategy.

Here's what I recommend:

 

 

 

Sellers Must Address Buyer Psychology 

Purchasing goods, no matter what they are, involves an emotional engagement and psychological response from the Buyer. When you consider the intangible qualities around “Home”, it underscores how this factors into the purchase of real estate. Sellers need to tap into that emotional attachment that compels Buyers not only to buy, but to pay top dollar for their property. (**here's a read-worthy post of mine called The Psychology Of Real Estate, Housing & Home**). They also need to create the perception of value, both of which can be accomplished with a holdback offer strategy.

For a Seller with a desirable property that offers broad appeal to their target market(s) and the potential of multiple Buyers interested in their property, choosing the list price isn’t necessarily a straightforward formula of using comparable listings and recent sales. It’s about positioning your property aggressively in a market where the perception of availability is limited.

Setting a low list price attracts both the Buyers who see the possibility of scoring 'a deal', as well as the Buyers who have been actively trying to secure a property in a market where - in many parts of the City of Toronto - demand exceeds supply. This hinges on the psychological “fear of missing out”. Sellers taking this approach set their list price aggressively low to attract a larger pool of buyers, suggesting value while creating urgency by setting a deadline with a holdback offer date. They might also open the door to very motivated Buyers by offering the possibility of considering a pre-emptive offer (also known as a bully offer) before the holdback offer date. Setting a holdback on offers is a bit like setting up a running start for purchase, with lots of space between the list price and what you as a Seller really wants. It’s the momentum created by that gap and urgency that frequently garners the sum that you desire, or perhaps even surpasses it.

Click here to read my past post on the complexity of pricing houses and condominiums in The Snakes And Ladders Of Under Pricing Property.

 

 

Putting Strategy into Action

You - the Seller - ideally want to get X amount of dollars for your home. How do you do that? You can list at the sum you want and hope that there will be multiple Buyers and that your home will fetch what you want. While that does certainly happen in Toronto on a frequent basis, there is the possibility the property will sit and not sell, or that you may have to field offers below what you’d like to receive.

If your motivation is to facilitate a quick sale - because of some urgency (relocation, divorce, financial or health difficulties, you're part of an estate sale, or you've purchased another property, for example), pricing competitively below market value will fuel a faster sale and, potentially, see the property arrive at the same - or higher - selling price faster. Enter the holdback on offers strategy.

There are certain conditions that make a holdback on offers strategy favourable. Firstly, you need to be offering a property which is desired in any market. The property itself should be polished, in a coveted location and have the hallmark “too good to be true” price that signals your intent as the Seller and your realtor’s strategy. If the property needs work, or is situated in a less desirable area, it may be more difficult to attract enough Buyers to incite a bidding war. Unless, of course, the list price is sufficiently below low market to catch attention. That low list price is critical. "Low" is relative, meaning that it should be a sum which demonstrates that you understand market conditions (and not those $1 listings you see occasionally which confuses Buyers).

What's essential here is that you, as the Seller, have to be amenable to listing your home at a lower amount which isn’t always as easy as it sounds. It does indeed seem counterintuitive to list your home low in order to fetch a high price, but that's the framework that is necessary to trigger the desired bidding war. If you don’t, you are really setting yourself up for failure with this particular strategy and are better off to list at, or slightly above, market value and allow time to find the right Buyer.

One other detail. As a Seller, you need to decide if you want to set a specific 'holdback on offer date' to receive offers, or whether you are open to consider a pre-emptive - or bully - offer which in itself can be a bit of a roll of the dice. My recommendation would depend on a number of variables specific to you, your circumstance, and your property but, for the record I do not encourage Sellers to consider pre-emptive (or bully) offers. In fact, there have only been two occasions in my career where my Sellers considered - and sold - by accepting a pre-emptive bid. 

In any market, a holdback on offers strategy can prove very lucrative for Sellers, but it isn’t without its risk. For instance, search-weary Buyers could be discouraged in participating in what may very well become a bidding war of bully offers. You also run the risk of no one making the offer that you want and having to relist, which can potentially damage the perception of value and accuracy of price. That said, there potential upside as well; it really comes down to following a smart strategy.

 

 

How Holdbacks Fuel  Prices

From my experience, the closer the list price is to its value, the less likely it will go into competition as Buyers are fearful the Sellers will want a sum even higher than what's it is worth. That's why it's important to have a list price which signals it's below market value, which more or less announces your strategy to your target market and lets them react accordingly.

So how is it that a low list price gets this chain reaction in motion? First, it's important to understand that by choosing a low list price you're removing yourself, as the Seller, from the negotiating equation. Instead of Buyers negotiating with you, you're forcing Buyers to reconcile their own value of your property when vying against other Buyers blindly with no knowledge of anyone else's offers. I talked about how Buyers reconcile value in this post: Maslow’s Hierarchy Of Needs And Toronto Real Estate For Buyers.

By taking the list low approach, you encourage more interest which fuels more offers, which is an essential component of pushing the end value up. Going low as well will signal to other realtors that this is the strategy that is in play, and they can advise their Buyers how to proceed to successfully close the deal (while helping achieve your desired price).

It’s a symbiotic relationship that goes beyond supply and demand that leverages the temperament of the market. 

Click here to read about how bidding wars take their shape in my blogs called The Four Values Of Real Estate For Bidding Wars and Bully Offers & Bidding Wars - Strategies for Buying and Selling.

 

 

Holdback Offers in Toronto Today

As I’ve mentioned, it does indeed seem counter-intuitive to list low to push value up, but I’ve seen this happen on numerous occasions recently in Toronto’s Real Estate Trenches.

Recently, I was in a bidding war against 14 other buyers on a home in Danforth Village. The list price was $889,000 and it sold for $1.2mil - a sum which aligned close to the peak values of spring 2017. Three weeks prior I was in a bidding war with a home near Monarch Park on The Danforth where the list price was $749,000 and it spiked over $1mil with 17 offers.

My observation in these and other transactions has been that the psyche of Buyers right now is to secure a dwelling with an acquisition price that doesn't surpass the peak of last spring's market. The sentiment appears to be "as long as I get it for less than what I would have paid in Spring 2017, bring it on!". Because of this, in recent weeks, I’ve seen the gap close significantly between spring 2017 and now, keeping in mind that the articles circulating in the media right now reflect the market of the GTA and not the original City of Toronto.

Here is some more specific insight to the process: we recently assisted a Davisville Village Seller with a low list price strategy. This strategy proved successful not only because of the price we counselled our Sellers to list at, but also by how this price point spoke directly to their target market. You see, it's critical to not only identify the target market profile of your property, but to choose a list price that's in line with what those Buyers are ideally willing to pay in order to solicit multiple bids from them.

In this case - a 1970s three bed semi-detached midtown dwelling with three car parking including garage -  we knew the Buyer profile would consist of those likely climbing the property ladder from a condo to a house (likely a professional couple wanting to start a family or currently with child, looking for more space), or those living in a property outside the central core but wanting to be closer to downtown in a reputable convenient neighbourhood.

If the Buyers weren't currently residing in proximity to the neighbourhood, we knew they'd already be familiar with the family-friendly amenities and the calibre of the schools in the areas. I felt it unlikely the prospective Buyers already own a 2 or 3bed house in the city, as that market are more likely to be seeking to climb into a 4bed and/or detached. This listing would present as a lateral move to them which, with the high costs of buying and selling (including our double land transfer taxes) wouldn't make economic sense. Those Buyers generally prefer - and can afford - to climb into a higher price point

Where would these Buyers be in their property search? They were likely looking at properties last year and were becoming resigned to being shut out of the freehold market, but because the freehold segment flat-lined this past year while condo prices increased, they've now built enough equity to climb the ladder into a freehold house. Chances are those Buyers would have 300-400k from the sale of their condo to facilitate this next move. Alternatively, if they own property outside the central core, they recognize that even if their existing property has dropped in value, a purchase midtown in a Triple AAA location will always be the better investment. Both see now as the window of opportunity.

How did this sale turn out? We advised this Sellers to list at $1,149,000 - which is the current sweet spot for Buyers seeking to climb from the condo market into the freehold market - and the sum suburban buyers ideally seek too. This dwelling spiked over the Sellers' desired price to the "Dream Price', selling for $1,410,000 with 8 offers. And the successful Buyers are a family coming from the suburbs to secure.

What this sale demonstrates is that a successful holdback on offers strategy needs to be based both on market data and marketing acumen. When you can most directly connect your target market to your product with minimal distraction, while creating a sense of value and urgency, your chances of success are substantially higher.

 


 

As I mentioned in last month’s Dear Urbaneer, here are some of my real-time posts from my Tales From The Real Estate Trenches earlier this year which share the dynamics of the Toronto real estate market:

On January 24th, I wrote about how 35 Offers On 3 Downtown Properties Signals Rocketing Demand

On February 14th , I witnessed the excitement as Four Toronto Properties Went Into Bidding Wars In The Past 48 Hours

On March 7th, I talked about how On Toronto’s East Side 42 Buyers Bid On 3 Properties Tuesday Night

 

And, if you're a Seller, here are some more posts I believe you'll find helpful:

Maslow’s Hierarchy Of Needs And Toronto Real Estate For Sellers

Marketing Your Home With Urbaneer: Social Media

Marketing Your Toronto Real Estate With Urbaneer’s Steven Fudge

 

May my team and I be of assistance? We’d be delighted to develop a productive sales strategy that will maximize results by leveraging market data, targeting marketing and drawing on decades of hands-on experience. It would be our pleasure!

 

Sincerely,

~ Urbaneer Team

Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage - (416) 322-8000

- we're here to earn your trust, then your business -

Celebrating Twenty-Five Years As A Top-Producing Toronto Realtor

 

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