As seen in the Toronto Star, By: Susan Pigg Business Reporter, Published on Fri Jan 24 2014
Bidding wars begin — and the peak spring market is still weeks away.
Kingston realtor Manson Slik has sold hundreds of homes over the last 20 years with both the stroke of a pen and the slam of a gavel.
He’s become an evangelist for auctions.
“They are the purest way to achieve market value. There’s no smoke and mirrors, there are no games or tricks. It is an open and transparent process.”
With weeks to go until the peak spring real estate market kicks into gear, a worrisome new level of bidding wars is emerging in a market where, since the recession, new listings have remained well below historic norms.
A simple, three-bedroom semi — in fact, it’s really an end row house — in the Junction Triangle went for $848,625 this week in a frenzy of 32 bids.
That’s $210,000 over its $639,900 list price.
Another house at Yonge and Steeles reportedly went for $280,000 over it’s $730,000 list price (final prices have yet to be made public) with some 30 would-be buyers.
“It’s tight right now. We have slim, slim product to offer buyers out there,” says one Toronto realtor who’s also seeing more agents doing “exclusive” listings they just show their own clients that never hit the MLS home marketing system.
Listings of lowrise houses — the Holy Grail of Toronto’s unusually tight real estate market — are expected to pick up toward spring. But likely not enough to offset strong demand in much of the 416 and some prime 905 neighbourhoods.
The lack of listings, and bidding wars defying logic, begs the question: Is it fair for realtors to keep using tactics that, on purpose or not, only fuel the frenzy.
That ranges from “underlisting” properties (which brings a bigger crowd and breaks the hearts of novice buyers thinking they’ve found a rare bargain) to “holding back offers” (not accepting bids for six to eight days, ostensibly to allow time for buyer due diligence, but with the added benefit of driving up desire.)
Slik believes auctions short-circuit a lot of that raw emotion. They also reflect the market, and the value of a neighbourhood, at that moment in time, rather that a realtor’s “opinion of value” based on previous sales in the area and pressure from the seller to get as much as possible.
His company, Gordon’s Estate Services — which has auctioned off everything from Muskoka condos to the Cobourg jail — uses third-party, certified appraisers to determine market value. From that comes the published minimum bid which is revealed to interested bidders long before they walk into the auction.
Sellers are bound, by contract, to hand over the house if final offers come in at or over asking: There are no sign backs.
Australia has one of the strongest home auction market in the world, accounting for close to 20 per cent of all real estate deals and picking up steam, says Sydney-based realtor Angus Raine, CEO of the country’s oldest (130 years) and third-biggest brokerage, Raine & Horne.
He believes the traditional system — where potential buyers are bidding blindly against an uncertain number of competitors — is “messy,” in need of transparency and based on flawed property assessments, historic sales, that can be badly dated.
“You’re looking in the rear-view mirror when all the action is in the traffic ahead.”
Underlisting has, in theory, been outlawed by some Australian states: Realtors can face fines of $22,000 if properties are priced more than 10 per cent above or below comparables, says Raine.
Bidders are also vetted to make sure they aren’t neighbours, or agents of the sellers, looking to drive up bidding for personal gain, said Raine. But so far, at least, they’ve taken off largely in urban centres and high-end neighbourhoods, but not so much among seniors.
They find watching their family home, and biggest nest egg, sell in what can be a boisterous, short-lived “event” a bit too hard on their heart.
But even auctions aren’t without their issues: Sellers tend to get even higher prices via auctions than negotiated deals, he’s found, as some bidders get caught up in the flurry.
The difference is it takes a lot of unbridled emotion to get to $210,000 over the minimum bid.
Allegations of “underquoting” have re-emerged over the last year or so as Australia’s market has heated up, through a combination of factors also plaguing the Toronto market: an increasing population, a surge in would-be buyers, low interest rates, a shortage of listings and a problem just starting to hit the radar: a shortage of newly constructed houses.
Australia’s National Housing Supply Council has estimated that the gap between demand for new homes, and the actual number being built, is 200,000 across the country and slated to grow to 370,000 by 2016.