Toronto is in the thick of its spring market, and as many experts have predicted over the past couple of months, pent-up demand is now materializing into serious buyers and sellers. As such, it’s not usual to hear of bidding wars and multiple offer situations these days, or to see properties selling for hundreds of thousands of dollars over asking.
But if you peek behind the proverbial curtain you might notice that there’s something else at play: many of these listings are arguably (and purposefully) underpriced.
“I've got a lot of listings coming out in the next couple of weeks and pretty much every single conversation I'm having with sellers is, ‘listen, we're starting to see multiples come back, we're starting to see underpricing as a tactic and technique, how comfortable are you with that?’” says Erica Reddy-Choquette, a broker who works with buyers and sellers in Toronto proper.
Reddy-Choquette tells STOREYS that listing on the low side is strategy that agents use to “drive emotion” into the selling process by inciting a bidding war. The end goal, ideally, is to get a selling price that is actually above market value.
“By March, we started to see kind of buyer confidence coming back into the marketplace, and that's when this pricing strategy really started to come out,” she adds.
What If It Doesn’t Work?
Listing low can be an effective tactic for drumming up buyer interest and securing an over-asking offer — quite frankly, the proof is in the pudding — however, Reddy-Choquette cautions that it’s not a foolproof strategy.
“Probably the biggest drawback — and this is what every seller asks me when I say, ‘hey, do you want to do multiples versus not?’ — is what if it doesn't work? What if we get to the offer night and we don't get the price that we want, or we don't get the interest that we want, or we don't get the number of offers that we thought we were going to get,” she says.
“When that does happen the question becomes: how do we pivot? Do we look at that and go, this is the market value, this is what the market is telling us loud and clear. Or do we then pivot and cancel and re-list at a price that has a little bit of negotiating room and hope that a couple of buyers that maybe got scared away from competing... come and circle back?”
Because of the plausibility of that latter outcome, Karen Yolevski, Chief Operating Officer of Royal LePage's corporately owned brokerages, urges sellers to think very carefully about their current circumstance before pursuing the listing low tactic. In short, she says, the strategy isn’t for every type of seller.
“There’s the aspect of certainty versus the aspect of time, I think that’s a good way to describe it. So, if you want to sell your home quickly, one of the techniques to do so is to list at a competitive price that’s lower than the market price,” says Yolevski. “Let's say you have young kids, you're not going to want to be worried about the house looking pristine for months on end, so you might want to move through the selling process quicker.”
However, if time isn’t of the essence and you’re after certainty — so you know what you want for your home and aren’t interested in entertaining a wide range of offers — Yolevski suggests pursuing a more traditional listing strategy. “How you list is going to depend greatly on the scenario that the seller is faced with and their own lifestyle and family dynamics and all those things,” she adds.
When Underpricing Gets Out Of Hand
More broadly, Reddy-Choquette points out that there are implications to market psychology when underpricing gets out of hand.
“I feel it can get a bit toxic when we get into this environment where properties are selling for 120%, 130% more than list, because, in reality, the list price is largely irrelevant because it’s under market value to get the frenzy of, you know, five, seven, ten offers,” she says. “And so I think the really important thing is to not lose sight of the fact that the property is also significantly underpriced for the success of a bidding war.”
Meanwhile Toronto-based mortgage expert Jerome Trail adds another layer of complexity to the conversation. He says listing low can do a number on property valuations, which can lower the ceiling as to how much a buyer can borrow on a given property.
“It’s creating the same problem we had years ago, in that the lender does not know what the actual value is on the property,” says Trail. “A perfect example is, let's call it, the million-dollar-property that’s listed at $800K and then that sells for $1.2M. The lender is then left in a situation where they don't want to overextend, so they will rely completely upon evaluation by a third-party appraiser. And they will only lend to the lesser of the two: the purchase price or the appraisal.”
Return Of The Irrevocable
Reddy-Choquette says listing low isn’t the only pricing strategy she’s seeing make a comeback as the spring buying and selling season unfolds.
“I'm seeing a lot of agents... asking for 24 or 48 hours irrevocable on all offers, meaning they're still trying to get a bidding war without technically saying, ‘we're trying to have a bidding war,’” she explains.
“So you put the property on the market, you put it right around what you feel market value is — but maybe erring a bit on the light side — and then you review all offers within one or two business days irrevocable. The offers are then in the seller’s court, and what that allows the selling agent to do is turn around to all the other agents that have viewed the property and say: ‘we have an offer good until tomorrow at 9 pm, so if you're interested act now.’”
In representing her buyer clients, Reddy-Choquette says she was in two of these situations just last week alone. “There was one on Parkhurst and it was listed for around $2.5M,” she says. “They ended up selling for $2.71M, and it was a 24-hour irrevocable.”
