Toronto’s spring real estate market has been as wild as any in recent history when it comes to bidding wars and bully offers.
While Torontonians are endlessly fascinated by the city’s housing capers, Joseph Richer, registrar of the Real Estate Council of Ontario, says the market is running smoothly, judging by the tenor of complaints to the not-for-profit corporation.
RECO regulates the trade of real estate on behalf of the Ontario government. It oversees education and insurance for agents, for example, and investigates complaints from buyers and sellers.
The office will sometimes hear from buyers and sellers who feel they were not well-served by a particular agent, Mr. Richer says, but he doesn’t know of any disgruntlement about some of the more talked-about bidding contests.
There was the Lawrence Park house that sold in April for $1.366-million with 72 offers, for example. The asking price was $699,000. That one lit up Twitter. A house on Perth drew 32 bids earlier in the spring and there was a burst of spirited competition on Manning.
“We really aren’t hearing a lot of complaints,” Mr. Richer says.
Niels Christensen of ReMax Professionals Inc. is one broker who is very outspoken about the Lawrence Park deal, however – to the point where he sent an e-mail about it. “This particular transaction irritated me so much, I just had to share my opinion on it.”
He is irked that so many potential buyers and their agents wasted so much energy. He’s exasperated that the listing agent also submitted the winning bid. And he says he’s not alone. In an interview, he says he didn’t represent any buyers on that April night but he has talked to agents who did. “They’re absolutely furious at it.”
Other agents who self-identified as “ranting” expressed their views to me through social media and by e-mail. Some continue to bring it up in sotto voce conversations weeks later.
Consumers who heard about the Lawrence Park house asked what it should realistically have been listed for. A reader named Brent said he can see how agents benefit from pricing a house at a low figure and then create a frenzy, as bidders are sucked in by emotion. The agent can boast that his or her listings sell at eye-popping amounts over asking. “It is absolutely brilliant … for everyone but the buyer.”
Susanne Hudson of Chestnut Park Real Estate Ltd. provided one answer for Globe and Mail readers. In an e-mail, she says this deal was a “hot button” issue for her and that a house selling for 50 to 90 per cent above asking is far from the norm. “I think readers should know that. I think they are better served by what the real story is. Not every home sells for over asking but many do … a great house under $1.6-million in the central core will probably attract four to six buyers – sometimes several more – and they go for 10 to 20 per cent over asking.”
The general consensus among agents seems to be that holding back offers and setting an asking price just below the price they actually hope to get is an acceptable strategy in order to lay the groundwork for multiple offers. “When the circumstances are appropriate, I do the same thing,” Mr. Christensen says.
As a rule, agents say that setting a price about 10 per cent below estimated market value is a good benchmark.
Mr. Christensen acknowledges that setting a list price is not an exact science, but he suggests that agents who dangle a price that’s completely irrelevant are incompetent or not doing their due diligence. “Why not just ask $1?”
One agent who works in that part of town says he had buyers who asked him what he thought about putting in an offer on the Lawrence Park house. He told them not to waste their time. I hear that refrain from agents all through the busiest time of the year and it frustrates them as much as it does their clients.
Mr. Christensen thinks RECO needs to do more. “This kind of nonsense has to stop. How does RECO serve the public’s interest when they fail to regulate how multiple offers are handled so that buyers are dealt with in a more transparent fashion?”
By “transparent,” he means that the bids in multiple offer scenarios should be disclosed to all.
RECO’s position, Mr. Richer says, is that bidders are free to decide how much they are willing to offer. A house is worth what someone is willing to pay for it. “Those are market forces.”
Mr. Christensen disagrees: “No one in his right mind would pay $100,000 more when he only had to pay $10,000 more.”
As for the agents who say that 10 per cent below market value is a fair listing price when offers are held back, Mr. Richer doesn’t see the logic. That is just one strategy, he points out, and who are they to dictacte what the “right” amount is. “Why is 10 per cent okay but not 20 per cent?”
In the case of the Lawrence Park house, he was heartened to hear that 80 per cent of the offers were for more than $1-million. Mr. Richer says that that is evidence the bidders were educated or had good advice from their agents. “The vast majority of people knew what it was going to go for.”
Those who bid below $1-million may have received bad advice, he acknowledges, but another explanation is that they decided to lowball an offer, he says.
Mr. Christensen points out that, for many years, all agents essentially represented the seller because it was the seller who paid the fees. “For years, this created much cause for concern.”
The industry fought long and hard to introduce buyer representation, he adds, but now that that practice is in place, the offer process is still tilted toward the seller. “Buyers are forced to go through this nonsense where the best advice their agent can give them is to pick a number and hope for the best.”
The fact that a listing agent can also represent a buyer for the same house – a practice known as or multiple representation or “double-ending” a deal – can create very bad optics, agents say.
Mr. Richer says consumers have not registered dissatisfaction with that practice. “Multiple representation makes up a very small percentage of our complaints. We’re not getting consumer complaints or registrant complaints about the actual conduct.”
One thing to keep in mind, he says, is that the transactions that make headlines in Toronto are the extreme examples in a sellers’ market. Most deals in Ontario – and even in Toronto – take place at a more leisured pace without multiple offers. Also, legislation has to cover buyers’ markets, too. “I’m not sure what the laws would look like that would be flexible enough to handle both sides.”
The Real Estate Council of Ontario is responsible for administering the Real Estate and Business Brokers Act, 2002, on behalf of the provincial government.
Queen’s Park has been working on some tweaks, but Mr. Richer knows of no plans to change the rules that govern multiple offers.
The Ontario government’s Bill 55 – introduced with the goal of providing stronger protection for consumers – targets so-called “phantom” bids. The goal, Mr. Richer says, is “to ensure there isn’t any funny business around trying to create the illusion of multiple offers.”
The legislation is waiting to be proclaimed by the next provincial government.
Another change, already passed, allows for more flexibility in the fees and commissions consumers pay to brokerages.
In the past, brokerages could charge a flat fee or a percentage of the sale price, but not a combination of the two. Under the new rules, Mr. Richer says, brokerages now have the option to negotiate fee arrangements that could include a combination of a flat fee and a percentage of the sale price.
Mr. Christensen isn’t satisfied with Mr. Richer’s explanation that RECO hasn’t received complaints. The organization should be pro-active in protecting consumers, he says. “It would be analogous to the police not leaving the police station until someone complained.”