Bosley Realestate

Dear Urbaneer: Why Do Toronto Real Estate List Prices Go Down Then Up, As Much As Up Then Down?

May 27th, 2021 | Dear UrbaneerTales From The Real Estate TrenchesJunction/High Park/Bloor West/SwanseaDufferin Grove / Bloorcourt VillageWallace/Emerson & Brockton Village

Welcome to this month’s instalment of Dear Urbaneer, where I field interesting real estate questions from our inquisitive readers. This time around, I'm responding to a follower who keeps observing list prices for properties going up and down like a yo-yo in his own neighbourhood, and is wondering why this is happening in such a short period of time.

Dear Urbaneer:

I’m not in the market right now, but as a homeowner, I watch Toronto real estate with interest to see how values are changing. Recently, I have noticed in my neighbourhood some substantial differences in the asking prices for properties being listed, changing in a relatively short span of time. In some cases, I have seen houses re-list at higher prices. How can this be, especially if they were unsuccessful in selling at a lower price?!

Signed,

Sticker Shock

 

 

 

Dear Sticker Shock:

In broad terms, home values are driven by market conditions like supply and demand. More specifically, it's ultimately about how large or small the pool of buyers there are who are actively seeking properties in a particular location and specific price range at any particular moment in time. In other words, when a realtor is listing a property for sale, part of their selling strategy may include listing it at a price where it will attract multiple buyers to compete for a property. But there may be other reasons too. 

To give a little context, here are some recent examples of Toronto properties that came to market that explore the reasons behind their list prices.

 

 

1. Listing on MLS (the Multiple Listing Service) versus an Exclusive Listing - Junction Triangle Semi-Detach Soars After Listing On MLS

One of the key components to a successful sales strategy of any product is exposing it to the largest target market. And, ideally, that exposure includes informing the greatest number of prospective purchasers within the shortest amount of time so they may potentially have to compete to secure the limited product available. This, incidentally, is how you create the momentum for a bidding war that will fuel an escalation in value. (*I get into behind the psychological and behavioural science that compels buyer behaviour in an upcoming post called 'Bidding Wars and the Psychology of the Hyper-Competitive Toronto Real Estate Market'. Stay tuned!*).

In Canada, there is a Multiple Listing Service (MLS) that realtors use which is a central database of properties offered for lease and/or sale obtained under a listing agreement with a property's owner. This MLS shares specific criteria of the address with other real estate brokers and their associates for the purpose of sharing the information with Buyers and other Sellers, both to enable the assessment and appraisal of similar properties and to facilitate Agreements of Purchase & Sale (or lease) with clear cooperation and compensation. In Canada, the country is broken down by geography to create independent collections of Multiple Listing Services covering each specific location. For example in Toronto, the Toronto Regional Real Estate Board (TRREB) operates an MLS for the broader Greater Toronto Area. And Realtor.ca is the official site of the Canadian Real Estate Association, which is the gateway to all the properties offered for sale on the Multiple Listing Services linked across Canada.

Listing your property on MLS is the traditional way to market a home for sale, which is handled by your listing realtor who will explain how they will also work with a cooperating broker who will be representing the Buyer. There is a cost associated with listing on MLS - which will include your property being placed on Realtor.ca - which is built into the commission paid by the Seller to the realtors. The benefit of using this resource is it exposes your property to the largest pool of active Buyers and potentially thousands of eyeballs.

Alternatively, there are instances where one might list their property 'Exclusively'. In an exclusive listing, only one real estate broker is specifically authorized to act as the exclusive agent of the Seller, meaning only they have the sole right to market, show, and sell the property, while other realtors are excluded from trying to sell the property while the listing agreement is active. This also means your dwelling does not get posted on MLS. There are some reasons why you might go that route -  if you require confidentiality when selling your home, or if it’s very niche and will appeal only to specific Buyers. For example, a celebrity may opt to keep their multi-million listing off MLS, or a home built for individuals with very specific lifestyle needs can be marketed directly to them. You might go this route if you prioritize privacy when you are selling, or if you’d like to have more control over who might purchase your home, but be aware the circle of exposure is dramatically smaller with an exclusive listing, which can cost you thousands of dollars. 

Here's an example of a semi-detached house that sold near Symington and Bloor back in 2020 (so the listing and selling prices don't reflect current market values). However, it does demonstrate what happens when listing Exclusive versus on MLS.

There were lots to love about this contemporary sun-drenched 3bed semi-detached residence just north of Bloor Street West near Symington listed Exclusive in Spring 2020. Offered for sale for over a month at $1,300,000, I showed it to my Buyer after she mentioned she saw a sponsored Facebook promotion about the property posted by the listing realtor. Having contacted the listing realtor who welcomed my showing it to her - with a commitment to compensate me as a co-operating broker much like one is for properties listed on MLS - she decided it wasn't quite right for her. We also had a discussion on whether the property was priced 'too high' relative to recent sales in the immediate neighbourhood. 

After being listed Exclusive for a month, the house was then listed on MLS a year ago this week. What happened? Boom! In 2 days it sold in a bidding war for $1,427,000 (or 110% over its list price)! Here is the sale, as covered by Toronto Life: "Sale Of The Week: $1.4 Million For A Junction Triangle Semi That A Schoolteacher Renovated Himself"

 

*Photos courtesy of Toronto Life, with thanks.

 

It's certainly a testament to the power of exposure that MLS brings to a property. And it also demonstrates how different value can be when there are multiple buyers competing for a property. How strange to realize anyone could have secured the house over a 4-week period when it was listed exclusively for $1,300,000 (or possibly lower). Had that occurred I'm certain the Seller would have been accepting of that sum while the Buyer would have wondered if they had paid too much.

Fast forward to when the purchase is made amongst a pool of buyers in competition, and now the Seller is relieved his property was listed on MLS and the Buyer is thrilled that they won the bidding war. This is how listing your property on MLS exposes your property to the largest pool of active buyers. And, to go back to your question - this could be one reason why you might see a house list and then re-list to a higher offering price.

I have one more observation about this sale, in retrospect, which is that while this property seemed to be listed high relative to recent sales in the immediate neighbourhood long considered 'up and coming', it did garner a sale price that aligned with the value of well-executed renovated semi's located across the downtown core as a whole. This sale follows the same principle as I wrote about in Ten Toronto New Builds That Recently Sold For Between $2M And $10M, which is that the professional buyers are less likely to measure the specific dynamics of the neighbourhood as an indicator of value (the residue of its working-class roots, the proximity to industry or noxious uses, or the underbelly of a marginalized resident population), but how convenient the dwelling is for its accessibility and hip factor. If it's close to public transit, green space, neighbourhood amenities and a trendy status card - in this case, the Museum of Contemporary Art - then the comparable properties which serve as the barometers of value become all the other renovated semis of a similar calibre across the downtown core.

Furthermore, as I recently shared with one of my Buyers, over the past decade I have witnessed my buyers in their 30s eschew established middle class 'boring' neighbourhoods that have traditionally been the wiser purchase because they tend to increase more in value because of their coveted Triple AAA status to pursue dwellings which are in locations which have a bit of grit and cool coffee shops because it feels more 'authentic' and 'urban' (even though they and all their friends end up purchasing properties in the said area and it gentrifies into a bastion of professional class privilege). I was initially surprised that a buyer wouldn't pursue the Triple AAA location for the one with grit given the value of real estate has long been measured by the status accorded the privileges as to what constitutes 'Location Location Location' (like top-notch schools). But I've realized that buying into the 'urban grit of a neighbourhood' is a way of demonstrating one would first be described as liberal, progressive, and non-conformist before being labelled privileged. And I realized that, as the fellow who converted factories into cool lofts in working-class and industrial neighbourhoods in the 90s and 00s (which now sell for $1.5M to $2M), I shouldn't be surprised by this quest and their desire. Especially given I'm one of the players that fueled the commodification of urban grit as a symbol of the lifestyle choices the cool hip urbanite could make to eschew the status quo. And, it's not lost on me that I embraced this 'urban edge' for over two decades until I moved into Riverdale because it was a calmer safer neighbourhood to age in place. Not too long ago I wrote about How Toronto Real Estate Near Queen Street – East & West – Is Climbing In Value and why it makes perfect sense, given the intensification and densification of the city today.

 

 

 

2.  List Low Holdback Approach Second Time Around - A Bloorcourt Village Home Relisted For A Lower Price, Sells For Over List (But Under Original Ask)

Over the last several months, when feverish bidding wars were commonplace, we were frequently seeing the List Low Holdback Approach which I have written about a number of times. Check out Dear Urbaneer: Why Are There Bidding Wars For Toronto Real Estate During The COVID-19 Pandemic?, Dear Urbaneer: About Holdbacks On Offers, Bully Offers & Bidding Wars For Buyers - and - Dear Urbaneer: About Holdbacks, Bully Offers, & Bidding Wars For Sellers.

In the early days of the pandemic, when the market (and everything else) was frozen by our first lockdown, properties listed using the List Low Holdback Approach weren't attracting enough Buyers to generate the necessary momentum to drive the offering price up to a value that either met the expectations of the Listing Realtor or the Seller (or both). 

So realtors began listing properties for sums that were more aligned with the fair market values of dwellings that had sold pre-pandemic. But this didn't necessarily result in an immediate sale. If it did it was either for the willingness of the Buyer to negotiate close to the asking price (but still perhaps with some discount because, you know, pandemic) or because the Seller's motivation - whether that be rooted in anxiety, necessity or desperation - that prompted them to accept the lower-than-expected price (because, you know, pandemic).

 

 

Back in May 2020  this home in Bloorcourt Village - north of Bloor east of Dufferin - was listed for $1,349,000. After 22 days on the market, it still hadn't received an offer acceptable to the Sellers, which was a reflection of how slow the real estate market was. However, as the month of May progressed the List Low Holdback Approach that was backfiring in March and April due to the lack of Buyers looking to purchase started getting results. After 10 to 12 weeks in lockdown, more Purchasers began actively viewing properties listed for sale despite the pandemic, and houses started going into bidding wars as they had pre-pandemic.

Because of this, the listing realtor for this property counselled her Sellers to relist their property at $929,000 - both with a holdback on offers & with the seller having the right to consider a pre-emptive offer before the offer date - in the hopes that any co-operating brokers representing Buyers would share the previous listing at $1,349,000. Why? Because this tidbit of information can be compelling information to a Buyer who might see the opportunity to pony up a sum that was close to it but also under it, in order to secure a sale that still represented good value. And - to this realtor’s credit - Boom! within the day the Sellers' received a firm and binding condition-free offer of $1,320,000.

In this instance, the listing realtor didn't choose the List Low Holdback Approach the first time because there weren't many Buyers actively looking. Instead, she chose a list price in keeping with fair market values pre-pandemic. However, within weeks households in lockdown trying to live/work/learn/play in their existing spaces began encountering challenges with their existing spaces, which re-ignited Buyers to pursue larger dwellings. The end result? We started seeing bidding wars again. As I wrote in Demand For ‘Forever Homes’ In Toronto’s Downtown Family Neighbourhoods Persists Despite COVID-19, it's since become apparent that the Buyers purchasing property - including the houses in this post -  are typically the professional class who have not been financially impacted by the pandemic.

I also want to note - like this particular example - is that realtors and Sellers tend to prefer an outcome whereby the listing sells in competition. It is much more powerful for both a Seller and a listing realtor to say the dwelling "sold over asking by ___%". This result creates a completely different perception than if the property "sold under the list price". In this circumstance, this sale statistically appeared on MLS as having sold for 42% over asking, whereas when one analyzes the entire listing process (meaning the original listing and the relist), the property actually sold for 97.85% of its original list price. Fascinating, really. Wouldn't you agree?

 

 

 

3. List Low Holdback Approach Second Time Around - A Wychwood Park House Is Relisted For A Lower Price, Sells For Over List (But Under Original Ask)

Here is a more recent sale in Wychwood Park - located south of St Clair, west of Bathurst - that also reflects the same principle. This property was on the market for over a month at $2,349,000 and did not sell. The listing broker subsequently relisted the house for $1,999,000 with a holdback on offers. On the offer date a week later, the property spiked up in a bidding war to land at $2,290,000. One will never know, but it's conceivable to me that someone could have secured the property for a greater discount during the month it was listed  -  than the $59,000 discount from the initial asking price the second approach resulted in. 

 

 

In regards to your question about the changing asking prices for a property, there is more volatility in our current market than the media is reporting. After all, every property that comes to market for sale is geared to its own specific market based on location, size, condition and price, and its desirability will be a function of how much similar product is offered for sale at that very moment in time which, realistically, is changing week by week. As a result, it's not unusual for realtors to list a property for sale using the List Low Holdback Approach to start and, if the bidding war doesn't materialize or result in an acceptable final sale price, then the realtor may relist the dwelling at a higher price.

Or, as we see here, the listing realtor initially brought the property to the market at a list price that was aligned with market values for similar product but it still did not result in a sale. As a realtor in his 28th year of buying and selling Toronto real estate, I'm finding that Torontonians are now so accustomed to the List Low Holdback Approach that they're almost uncomfortable being the only Buyers negotiating with a Seller. Strange, but true.

 

 

 

4. Listed For Sale At The Seller's Price - Is “Value” Perceived In The Same Way By Buyers Compared To Sellers?

This home located north of Bloor west of Symington was an Estate Sale purchased in September 2020 in 'as-is, where-is' condition. Listed for $899,000, it sold six days later for $880,000 with a closing in December 2020. In February 2021 it came back on the market with an asking price of $1,095,000 and, fifteen days later, sold for $1,090,000.

The kicker? There were no changes made to this property, save for the preparation of some Drawings and the issuance of a Building Permit for a single-family renovation - but no actual work was done. In my analysis, the Sellers incurred the costs associated with buying (about 35k), carrying the property since purchase (est 7k), the drawing preparation and permit fees (est 10k), and reselling the property (about 60k). All in, the Seller needed to achieve a sum of about $992,000 more or less to break even. 

 

(Shown vacant second time listed)

 

It is important to remember when considering what “profits” you realize when selling real estate are not simply the difference between what you bought a home for and what you sell it for. In Toronto in particular, closing costs are high, which I have written about in Dear Urbaneer: What Are The Closing Costs For A Property Purchase?. The challenge I anticipated the Seller would face in this instance is that Buyers would be resistant to paying a sum even close to the $215,000 premium for a property that had sold for $880,000 just five month's earlier with no physical changes made to the dwelling? I mean, how much more would you be willing to pay for a property offered for $1,095,000 when the Seller closed and took title to the dwelling just two months earlier for $880k + closing costs? If you were looking for a property to renovate, then as long as you liked the space plan there would definitely be some value to paying the premium associated with drawings and an already-issued Building Permit. It would certainly expedite construction (assuming you don't get delayed from all the supply chain issues the shelter industry is experiencing right now).

Given the Buyer would have their own closing costs (about 33k), I wondered who would easily swallow having to cover the Seller's buying and selling costs simply for the privilege of securing this house? Would anyone comfortably pay the $112,000 premium to cover the owner's out-of-pocket expenses to sell a house they've only owned for two months, let alone give them a profit? The short answer here is that yes, one Buyer happily ponied up $1,090,000 to secure the property and give the Sellers an 8% profit for owning the property a couple of months.

As a realtor who lives and breathes real estate I'm not sure the typical consumer would be willing to pay $210,000 more for the same property just five months later, but it goes to show the intertwined relationship between buyer perception, the concept of value - and ultimately what anyone is willing to pay. It’s also worth mentioning that this home initially sold as an Estate Sale in October with furniture in it. In February it was presented and sold as a vacant house with permits, which I believe skewed the perception of Buyers looking at properties for sale in the area after it had sold.

This one specific sale had a tremendous impact on values in this location (basically every 3bed so-so condition semi with parking in this area went up over $200,000 in that time frame) that resulted in a ripple effect that pushed the sale price of one of our own fixer-upper listings to a new precedent. It prompted me to write this post called The Affordability Conundrum For Toronto House Buyers: Livability, Condition & Costs.

 

 

So - back to your question! 

There can be any number of reasons a house will come to market multiple times with different list prices. Sometimes it's because a listing realtor is using different approaches to achieve a selling sum acceptable to the Seller in changing market conditions. Other times it may be the relisting of a house that sold only a short time ago. What I hope this demonstrates is that there is no consistent 'story' in the sale of Toronto real estate. There can be any number of mitigating factors influencing the situation. It's one of the reasons I enjoy my career because every day and circumstance is unique.

I thank you for your question!

 


 

Are you thinking of selling your home? You can see, just from these examples how complex pricing strategy can be - especially in the challenging and dynamic Toronto real estate market. With decades of experience to help hone strategy intelligently, my team and I are here to help!

 

 

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Thanks for reading!

 

-The Urbaneer Team

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

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