There is a perception, in our currently scorching hot Toronto market, that Sellers are real estate pied pipers of sorts. All they need to do is announce their intention to sell, set their price and wait for Buyers to beat the door down, ready to pay any price.
First, if the objective is to receive multiple offers, Sellers may intentionally undercut their list price by a set sum (depending on the value of the property, and how in demand the location and property type) sufficiently under the true market value of the dwelling such that it vaults multiple Buyers to blindly compete in a frenzied bidding war. In some instances, this propels Buyers to push their offering bids well beyond a sum the Sellers might have listed in a more straightforward pricing strategy. While under pricing is a strategy that can yield abundant results in the current market, it is not as straight forward as one might think. Simply coming to market with a price that is below market value value does not assure a Seller a bidding war, nor will it necessarily garner a price that dramatically exceeds what the property is truly worth.
Like with many things real estate, there are external factors that will determine the likelihood (or better said the possibility) of realizing your asking price or beyond. It’s not a dart board approach – success is more heavily rooted in the tried and true economic base of the market. So if you're thinking of pricing low as a strategy to garner top dollar, it's critical to review the factors which will fuel your success. After all, how do you know that Buyers will show up with their cheque book? What approach will attract multiple offers beyond your asking price?
Any selling price is largely pre-determined by the width of the gap between supply and demand. Currently, in the City of Toronto, the scarcity of quality housing stock, particularly in the $500,000 to $800,000 freehold market, is ultimately what is behind the steady and somewhat meteoric price climb that the central core continues to experience. So if your property, simply because of what and where it is, comes for sale at a time where there are more Buyers than Sellers, you can expect more offers, not necessarily as a consequence of pricing but because of the inherent economic function of the ebbs and flow of supply and demand. In other words, scarcity drives prices up. And right now the lack of freehold inventory in the City is fueling a spike in values.
However, this is not always the situation with the condominium market. Did you know the downtown core has ten times the number of condominiums for sale than freehold houses? That sheer number means the likelihood of your condominium going into competition and spiking up in a bidding war is dramatically reduced. Granted, you might price your condominium low to go over your asking price, but it may not necessarily surpass any past precedent in your building or neighbourhood. If it does, it may very well be due to the level of upgrades, your view, or rare-to-find qualities like a massive terrace or two parking spaces. Still, those features deserve a premium and, being difficult to replicate could attract multiple offers, but for those with more conventional space plans we would be inclined to manage your expectations.
A bidding war is often dependent on how your home embrace the “location, location, location” mantra of real estate? Factors which preserve and ultimately boost property values in Toronto include the proximity to real estate gems like public transportation, green space and the convenience amenities of an urban shopping village. A good selection of schools helps too, because the likelihood of attracting a family-friendly Buyer whose interest is to buy for the long term. After all, a property that can serve a family for a ten to twenty year time frame means it's in a location with lower turn-over (because it's filled with similar buyer profiles) which, in itself, will increase demand and reduce supply.
The price point any property sits in also has bearing on whether a bidding war is feasible. Typically, homes that are in a lower price point (which in Toronto comes in at the sub-million price point) will attract more Buyers. Here you're working off of the concept of 'volume'. Attracting multiple offers hinge on the need for mass interest and volume. Theoretically, the lower the price, the greater the volume of Buyers are actively seeking to acquire a dwelling. However, even if you set the engine for volume by undercutting your price, there are some risks inherent to negotiating upward. For example, if you price your property within the affordability levels of first time buyers, but you expect a sum that reaches beyond their threshold, you may not see your price ultimately achieve the sum you want as your target market can't afford it. For example, it's not uncommon for the urbaneer.com team to compete in multiple offers, where we're submitting the absolute maximum price our Buyers can afford in the hopes it's enough to win the war. It's rarely a question of whether our Buyers would pay more, for often they would, but the reality is they can't. Sometimes our Buyers are taking a shot in competition at their max without any expectation they'll get it. Because that's what financial limitations do in a hot market.
The bottom line is that the real problem is nearly every player and influence that drives through the market is its own variable, and sellers have no control over how and when they unfold.
Toronto's real estate market is a fluid, dynamic entity that, at the moment, adds speed to its list of attributes. Typically, when something shoots up, there is no base to sustain it, and it is vulnerable to a sharp decline. There is no telling when this can happen, and the market can (and has in the past) turned on a dime. An about-face from a Seller’s market to a Buyer’s market (or even to a more moderate balanced market) could spell absolute disaster for the Sellers who undercut their own price, effectively whittling away their profit or forcing them to re-list at a higher price if their strategy doesn't work.
So what if the supply/demand relationship tipped? Unless your property bares some unique characteristics, if supply suddenly appears in the marketplace, under pricing as a strategy could be a bad move. More importantly, it's critical to remember that Buyers are fickle emotionally-centred beings, which makes them perhaps the most volatile, unpredictable entity of all. So if you're considering pricing low to create a bidding war, be strategic and ensure you have a comprehensive understanding of the marketplace as it relates to your specific property.
Or, you could call the experts who know what works – who have a comprehensive history of knowledge, practice and experience derived by twenty-three years of market immersion. This is what we possess in our Skill Set Tool Box at Urbaneer.com, And we'd be delighted to share this knowledge to achieve top dollar in the most direct fashion for your property.
Want to learn more about today's marketplace? Consider reading our Urbaneer Real Estate Forecasts, which explore some of the dynamics of our real estate market in more detail. And here's a recent piece called Interest Rates, Affordability, And The Toronto Housing Boom.
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~ Steven and the urbaneer team
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