Real estate prices are rising so quickly in Toronto, some sellers are raising their prices to keep pace.
The risky strategy reaps rewards on some occasions and alienates buyers on others.
James Warren, a real estate agent with Chestnut Park Real Estate Ltd., recently had three buyers competing for a house in the upscale enclave of Rosedale – after raising the price.
The four-bedroom house at 172 Roxborough Dr. sold for $5.625-million, or $131,000 more than the asking price of $5.494-million.
That’s the same asking price set in September before a reduction to $5.25-million in October. The property remained on the market through the Christmas season, when sales and price growth was unusually robust for a month of December.
By January, the seller perceived strength in the market, Mr. Warren says, and reset the price back to $5.494-million.
“We sensed the market was starting to go up.”
Mr. Warren and his partner, Christopher Killam, showed the house to three prospective buyers on different occasions and, when one offer came in, they notified the agents of the other two parties, who also rushed to the table.
Mr. Warren says the road to a sale was longer partly because of the hurdles the coronavirus pandemic threw up along the way. The homeowner first listed the house with an asking price of $5.9-million in June when the market started moving again after the spring shutdown.
Tenants were still living in the house when Mr. Warren relisted the property after Labour Day.
“The tenants were a little bit anxious about people coming in,” Mr. Warren says.
There were also 44 listings above $1.8-million in the area after the Labour Day weekend, Mr. Warren says, compared with 24 to 26 in a typical fall market.
“That was a bit of a concern,” he says.
The tenants moved out during the fall and when the owner cut the asking price, he also decided to offer the house for lease at $14,000 a month.
By that time the house was empty, and that can make it harder for potential buyers to imagine living there, Mr. Warren says. It helped that the photos were taken while the tenants’ furniture was still there.
The owner received a strong offer to lease but by then was committed to selling.
Mr. Warren also received a few calls from house hunters who were wondering if the homeowner would accept a lower price.
“I told them, ‘there’s no deal here – the owner doesn’t have to sell’.”
So why did buyers compete for a property that they could have had for $5.250-million in the fall?
By February, the mood of buyers had changed, Mr. Warren says. Listings were tight in Rosedale and Moore Park, and buyers were keen to move on with their lives. Families with children also time their moves to synchronize with the school year, he adds.
“People have made the decision that it’s time to make a move to a larger house.”
Not only do parents and kids need more room for work and school under their own roof, people just crave more space. One new trend he has seen is the creation of the “Amazon room,” which has come along with the rise in online shopping.
“The Amazon room is where you can have your parcels dropped off – and you don’t touch them for 24 hours.”
And while the comfort of their homes has become even more important to people during the pandemic, Mr. Warren says that sellers who contemplate raising their asking price may or may not be successful. He advises them to assess demand in their particular pocket and look at recent sales. Some properties are listed on an exclusive basis but he recommends listing on the Multiple Listing Service of the Toronto Regional Real Estate Board in order to draw the largest possible pool of buyers.
“You put it on the MLS and see if there’s an appetite. You’ll know very quickly within a day – we either got it right or we got it wrong.”
He says buyers keep a keen eye on dynamics in different neighbourhoods and overpriced properties will languish.
“If you’re at market value or slightly under, you will get attention,” he says. “Buyers are just not going to waste their time with a seller who’s not realistic or motivated.”
Raising the price can be successful if there are few listings and lots of buyers in a particular neighbourhood. The Roxborough house sits next to Chorley Park.
“It was a superior location,” he says. “You can’t go wrong with 13 acres next door. There’s only so much Rosedale real estate and it’s a heritage district.”
He adds that properties with a high asking price give buyers the impression that they can wait around to see if the price comes down.
“You have to create that sense of urgency. You have to look at your merchandise.”
Andre Kutyan, a real estate agent with Harvey Kalles Real Estate Ltd., recently took one set of clients to see five houses in one afternoon. Four of the five were showing higher sticker prices at their relaunch in 2021 after sitting on the market in 2020.
Some homeowners, he says, appear to be looking at the latest data on sales and prices and figuring that the same trends extend to every neighbourhood and price range.
In reality, Toronto is made up of micro-markets where the dynamics change from one pocket to another. In areas where properties sit longer, he says, the price hikes are mystifying.
One of the properties Mr. Kutyan’s clients considered was a North York home near Yonge Street and Steeles Avenue that was listed in September with an asking price of $2.697-million. The house languished for five months at that price until the listing was cancelled and was relisted with the price bumped up to $2.75-million.
A few streets away in the area known as Newtonbrook, they went to tour another property that has been on the market – on and off – since May, 2018.
The first asking price of $2.77-million was gradually reduced over the ensuing two years to $2.588-million in October, 2020.
The house was taken off the market for a few weeks and launched again in mid-January with an asking price of $2.748-million.
“To raise the price by almost $160,000 makes no sense,” he says.
Another a little farther east arrived on the market with an asking price of $2.499-million in September, had one price bump in November, and came out at the even higher price of $2.588-million in February when it didn’t find a buyer.
Mr. Kutyan took another set of clients to see houses in Don Mills and saw the pattern there too. But he says the strategy is more common north of Highway 401 in areas such as Willowdale, Newtonbrook and West Lansing. A lot of the traditional small bungalows have been replaced in recent years with infill homes, and these tend to be the properties where prices fluctuate.
Mr. Kutyan says some sellers clearly sense the overall market has improved, but he believes agents should be managing the clients’ expectations.
“It’s not just the sellers, it’s the agents who are drinking the same Kool-Aid.”
As for his clients, Mr. Kutyan says they’re not tempted to make an offer immediately because they’ve only recently started their search. And he doesn’t expect properties with price hikes to inspire competition.
“I don’t think a lot of these listings are heading out the door any time soon.”
At Royal Bank of Canada, senior economist Nathan Janzen and economist Claire Fan point out that higher-income households have been much less impacted by job losses during the pandemic. They are also benefiting from the era’s low interest rates.
In the third quarter of 2020, household real estate assets rose $400-billion from the same quarter a year earlier – more than four times the rise in mortgage debt over the same period, the economists say.
They are predicting that the country’s economy will be supported in the future by the massive savings stockpile that Canadian households, in aggregate, have accumulated over the last year.
Your house is your most valuable asset. We have a weekly Real Estate newsletter to help you stay on top of news on the housing market, mortgages, the latest closings and more. Sign up today.