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Fred Lum/The Globe and Mail

A Toronto photographer recently decided to sell his Victorian-era rowhouse in the vibrant Queen Street West neighbourhood. His real estate agents, Ingrid Furtado and Christian Torok of Real Estate Homeward Brokerage, figured a house in that location would appeal to artists and hipsters.

Two jazz musicians beat out seven other parties with an offer of $901,000, or $152,000 above the asking price of $749,000, for the house at 57 Robinson St.

The agents were amazed: They had estimated they might pull $825,000 after about 150 people swarmed through an open house and other agents booked 70 showings during the week it was on the market.

Mr. Torok says one offer came in close to the asking price while six more were clustered between $860,000 and $870,000. "The 901 just blew everyone away," he says.

Fortunately, the musicians were downsizing from a house in Toronto's richly-valued Beaches neighbourhood and they earn money from other sources than their music.

So the agents were never worried that they would have trouble holding up their side of the deal.

But in Toronto's sizzling spring market, it's becoming more common that properties are appraised at a value less than the selling price, the agents say. They point to the eye-popping premiums that buyers are willing to add to the asking price when they get into competition.

"It's a very interesting question these days: What is market value?" Mr. Torok observes.

Sometimes, appraisers are giving a value tens of thousands below the selling price of the house, he adds.

Ms. Furtado says sellers also need to be cautious because a bidder may become obsessed with winning. Anybody can put a number on a piece of paper, she says, but if a deal falls apart, that causes a headache for the seller, who will have to go back to the market.

She advises sellers to make sure the buyer has solid financial backing, even if that means taking the second-highest bid. "You can't always take the highest number – it doesn't work any more."

Banks and other lenders typically do not allow a home buyer to borrow an amount larger than the appraised value.

It's a particular worry for people who need a high-ratio mortgage. Such buyers require mortgage insurance. If they make a deal at $750,000, for example, and the appraised value is $700,000, the buyers have to make up the difference in order to get their financing approved.

Joe Sammut, a broker with Mortgage Architects, saw gaps in two deals in one day earlier this week and he was waiting to hear about a third.

In both cases his clients have the financial means to close the distance between the appraised value and the price they paid, he says.

In one case, the buyer was knowingly paying a premium for the property because he really wanted it, Mr. Sammut says, so he wasn't surprised when the appraised value fell a little short. He simply made up the difference. "The client is unscathed."

In the other, the buyers were surprised at the appraisal – they didn't know they were going above market value – but they weren't disappointed. They also have the means to make up the shortfall, Mr. Sammut says.

He isn't sure if the banks were asking their appraisers to be especially conservative but he expects the deals were an anomaly. "I don't think it's an epidemic. I don't think it's cause for concern."

Mr. Sammut says he often runs through a "mock offer" to see how the numbers work out. He also makes sure that clients are not stretching their finances too far. "We do the best stress testing we can."

He advises house and condo buyers to work with an experienced real estate agent who won't let them be carried away by emotion in a bidding contest.

Keith Lancastle, chief executive officer of the Appraisal Institute of Canada, says that buyers do face the risk of seeing the selling price escalate beyond the market value of a property when they get into multiple offers. "You're creating an environment where emotions come into play," he says.

He says the spring market has been so heated in some cities, he has no doubt that some buyers are pushing past market values.

He explains that appraisers use a variety of data to come up with a value. They look at comparable sales, for example, and the cost of construction if the dwelling had to be rebuilt.

"It's very rigorous and very statistically valid," he says. There's little room for subjectivity. Appraisers apply some of their own judgment but that shouldn't dramatically change the value. "It should be in a fairly tight range."

He adds that values can change within a fairly short time if market conditions shift. Appraisers are watching carefully to see the effect of volatile energy prices in Alberta, for example.

He believes financial institutions are keeping a close eye on their portfolios. "I think Canadian lenders are being cautiously prudent."

David Fleming, an agent with Bosley Real Estate Ltd., hasn't had any of his buyers or sellers affected by a lagging appraised value this spring. But he says buyers who get caught in a squeeze can ask a mortgage broker to try another lender and they may find a different result. "Someone wants that business – someone is going to lend on it."

Meanwhile, he is astonished at the bidding wars happening across the breadth of the market – including the condo segment. He was recently working with a buyer who wanted to make an offer for a simple condo unit in downtown Toronto.

The asking price at 21 Nelson St. was $399,000 for a unit that was sparkling clean and nicely presented, Mr. Fleming says, but not too different in layout from thousands of others in the downtown core. It's also not a highly-desirable location, in his opinion. "It used to be parking lots for nightclubs when I was younger," he says.

But when he submitted an offer for $395,000 with a quick closing, the listing agent told him he was third in line. Another bid landed after that. "There were four offers within 12 hours."

Mr. Fleming's client raised his bid to $400,000, then bowed out.

He points out that the last comparable unit to change hands in the building sold for $378,000 just a couple of months ago.

He thinks much of the enthusiasm for this unit was stirred by the glamorous decor, which included new light fixtures and beautiful paint colours.

He hasn't learned the final price for the unit his client gave up on, but he figures it was in the range of $410,000 to $415,000. A similar unit that was looking more bedraggled would likely sell for $30,000 or $40,000 less, he figures.

Ms. Furtado certainly thinks that staging, painting and a few small renovations pushed up the selling price on Robinson Street. The house was quite rundown, she says, and the owner had painted the rooms in intense shades of green, yellow and blue.

"It was quite a challenge for us to transfer it into something that would appeal to the audience," Mr. Torok says.

They worked with designer and stylist Danielle Nicholas Bryk, who had most of the walls painted in gallery white. Then, they displayed the owner's large photographic prints. "We were lucky we had really great art to work with."

Mr. Torok says the pair also aims to appeal to the emotions of a future buyer. He pulls out a feature sheet for a house in the Beaches that lists "25 things you will love,",from the laundry room to the hawk that lives in the oak tree a few doors down.

"The deciding factor is always emotional," he says. "If you really want it you're willing to go to a place that makes no rational sense."

Sometimes, homeowners push back against the changes, he says, but he advises them to look two steps ahead and think about the future.

"We're going to take this and turn it into something else that makes the most amount of money for you," Mr. Torok tells homeowners. "It's not your home any more, so check out," he says with a laugh.

That's what happened with the photographer, says Ms. Furtado, who was adamantly opposed to their design choices in the beginning.

"The first thing he said to us was that he did not want white walls," she recalls. "At the end. he sent a note to the designer saying, "I'm a white wall convert.'"

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