Market Update for March 11

The list price battle: too-low asking prices are frustrating homebuyers. But are they driving up prices?

In a housing market already leaning in favour of sellers, artificially low list prices, bully offers, and blind bidding are the real estate realities that frustrate desperate homebuyers. Realtors argue they are just sales strategies, but some believe the lack of transparency in real estate transactions are actually helping drive Toronto area home prices.

The federal Liberals suggested as much when they campaigned on a Home Buyers’ Bill of Rights, including a ban on blind bidding so that buyers competing on a property would know what the competition was offering. Others suggest these tactics are a symptom of the overheating market, and not a driver of it, arguing low supply is the main factor in rising prices.

In January, GTA homes sold for an average of 113 per cent of list price. That’s a couple of percentage points higher than the last record-setting period for home sales and prices in 2016 and early 2017. When the market cooled in spring 2017, selling prices retreated to just below asking.

Ben Rabidoux of market research firm North Cove Advisors says that “underpricing to create a bidding war is symptomatic of an overpriced market. It is not the cause of it.” He points out that TRREB data shows an obvious correlation between a hot market and selling prices that exceed the list price of homes. The more fevered the competition, the higher above list price buyers will offer.

While first-time buyers may not initially understand the now common sales strategy of pricing a property for less than the anticipated sale price, they quickly become informed through their real estate agent what a home can expect to fetch by looking at recent comparable sales that give them an idea of what to offer.

Meantime, the Ontario Progressive Conservative government is working on new regulations as part of its Trust in Real Estate Services Act that would give homeowners the option of allowing their realtor to disclose the details of competing offers without any personal or identifying information.

Ontario Real Estate Association CEO Tim Hudak says real estate offers contain sensitive information — not only what a buyer is willing to pay but down payment, financing, and other conditions. It also has to be voluntary and, ultimately, it is the home seller who should have the choice about whether to disclose competing offers, he said.

“The home is somebody’s most precious and valuable asset, and they should determine how they go about selling. I think most Ontarians would agree that the government should not be telling Ontarians they can only sell their home one way,” said Hudak.

He said Ontario homeowners already have the option of selling through open auctions. Auctions are the norm in Australia, for example, where buyers typically gather outside a property and place their bids. Of course, auctions can drive up prices even higher when auction fever develops, said Hudak.

“The number using auctions has actually increased because home sellers feel they can get a bigger price for their home by triggering that kind of auction fever,” he said. “Auctions tend to get you to the same spot or even higher. It’s just there’s a lot more incremental (bidding) on the way.”