CBC Metro Morning interview with Matt Galloway, April 29, 2014
Matt: We know that bidding wars are not new to Toronto but they have reached dizzying heights this week when a North Toronto home sold for almost double its listed price after 72 offers. Realtors admitted that the home was listed deliberately low to try and generate interest. But it still has a lot of people talking about how homes are sold in this city. A lot of buyers feel hopeless, wondering about an alternative way to buy a house. Is an Auction a better way at least for transparency? Here to talk to us today is Manson Slik, Broker with Gordon’s Estate Services Ltd. Brokerage.
Manson: Good morning Matt.
Matt: I think a lot of people know about Auctions in the way of selling art, cattle, farms, people going out of business. What would an Auction look like for selling a home?
Manson: Well in general the difference between an Auction and a traditional sale is what you said earlier; transparency. In a traditional sale I would say you are in the dark. In an Auction scenario it turns on the lights. The 72 people in the room have an opportunity to see who is in the room and see what else is in front of them. The result may be the same but from a transparency point of view it takes the fear out of the process. The buyer only pays the next incremental bid of $1,000 or whatever it happens to be. A buyer can understand exactly what they are going to pay because they are only going to pay a few thousand more than the guy next to them. This process is totally transparent and gives the buyer confidence to pay what they need to pay for the property knowing someone is right behind them chasing them along.
The traditional sale method can have more opportunity for buyer remorse, 'Did I pay $50,000 more than the last bidder?'
In an Auction scenario they know that they just pay more than the guy next to them.
Matt: Is this going to cut out on some of the angst that people feel around being involved in a bidding war? Bidding wars dictate the price of the market and reflect the heat of the market. Will Auction take some of that sting out?
Manson: I don’t know if it will take out the sting. In a solid market like Toronto the marketplace takes care of itself so you just need to know that you have done your homework in advance and that you have confidence that you are actually paying what the property is worth. When the lights are off you don’t know what the guy next to you is willing to pay because you don't know what his last bid was and you pay what you think you should based on what? Essentially in a hot marketplace buyers are motivated by fear and sellers by greed. So when you are in a fearful situation in the dark sometimes you do things that you might not have done when the lights are turned on. When you know exactly what the person in front of you is doing and you're all bidding on the same terms it’s a fair process and I believe that people will pay as much or more when they understand what they are doing and what they are purchasing.
Matt: So it's not as though the price is going to be lower it's just that you know who and what you are up against.
Manson: When you are up against a hot market you have to do what you have to do to purchase the property. When there are 72 people in a room to buy one property, there are still going to be 71 people who did not get the property. The real challenge and issue at heart is grossly under pricing a property so you have 72 offers. A good multiple offer situation might be 2 or 3 offers. When you have 72 it is pretty scary for all concerned.
Matt: Why don’t we have more of these Auctions in Toronto then?
Manson: In general there are 45,000 Realtors in the province of Ontario and 170 Auctioneers and of those, there are only a few that specialize in the sale of Real Estate. The balance of power is in the hands of the traditional Real Estate industry not in the Auction industry. When you are dealing in a hot market people are not looking for an alternative. If I am a seller and I can list my property at a certain price and I know that I am going to get more then am I motivated to look at another process that might be fairer for the buyer?
Matt: It is interesting, I know a number of Realtors and they all bemoan the idea of a low listing price to create frenzy but they all admit to doing it themselves. What is the way to break out of that cycle?
Manson: In general people like to be treated fairly. If you are a buyer and you know that there has been a mechanism that places the property at a fair price you may feel more confident. Have the property appraised by a third party appraiser. It’s neither a Realtor providing an opinion of value or the seller saying this is what I would like. It is a third party opinion. So if the Real Estate industry would be built on the foundations of a third party appraiser that said here is the actual value of your property, like anything, there may be a 3% variable up or down on the value. The market can have a whole new level of confidence pushed into the marketplace in a fair pricing situation. So if they are asking $799,000 do I pay $810,000 was the appraisal wrong or do I pay $799,000?
So just some new level of confidence in the marketplace.
Matt: Yes but as you say the market is not driven at a level of fairness it is driven by the market.
Manson interesting to hear your perspective on this. I think a lot of people will be curious to follow this along.