I talked about sold over asking about a year ago. It’s an understatement to say it’s more profound now than ever.
Today let’s talk about why it shouldn’t impress you, as a homeowner, to see ‘sold over asking’ mentioned on the marketing materials you receive, in the news, and with every real estate agent you come into contact with.
Let’s talk about Toronto real estate statistics. Listing inventory is at 15 year lows. February 2017 vs. February 2016 saw listings drop in half — 50% — meaning one out of every two homes available last year aren’t on the market this year.
Meanwhile, the number of properties sold continues to climb.
8,014 sales this past February.
With 5,400 active listings, 8,014 sales last month, and new listings dropping month after month, imagine what’s happening.
More offers on fewer properties. And selling prices smashing through previous records.
Sold over asking because of underpricing
Imagine a scenario where recent sales on a street for a detached, 4 bedroom home were around $1,000,000. What would happen if a new listing came on the market for $600,000?
Sounds ridiculous, but cases similar to this fictitious example have happened.
And in today’s market, if that $600,000 listing sold for $1,200,000, you’d get a ‘sold over asking’ percentage of 200%.
Seems unreal, but underpricing is skewing the sold-to-asking price percentages of sold properties in today’s market.
If a more prudent real estate agent priced the same property at $1,000,000, and eventually got $1,200,000 for it, that would be 120% sold to asking price.
It may be possible that the higher initial listing price could result in a much higher sale price.
So which real estate agent is doing the better job for you as a seller?
The one who underprices your home?
Or the one who sets a price that could possibly get you more in the end?
Question any kind of marketing you see where sold over asking percentages are seemingly high. It may not entirely be due to market conditions, lack of inventory of homes for sale, or even the real estate agent’s skill at marketing your property. Perhaps your property was priced low to begin with.
But what if the property is reasonably priced?
Underpricing is becoming a commonly used strategy to draw more bids and get seemingly higher selling prices.
But there are situations where properties are reasonably priced and still get smashingly high sold prices.
Neighbourhoods outside of Toronto are seeing multiple offers on properties that would have taken a month or more to sell just a few years ago.
And certain houses and condos in once questionable areas are seeing high sold over asking prices.
There are situations where real estate agents prudently price properties without the intention of underpricing.
Instead, they’re following the progression of prices in these areas that weren’t that popular a year or two ago.
It’s not uncommon to see condos in Scarborough to get 11 offers and sell for 119% over asking.
Is it ridiculous to get that much over the asking price, or is it just the reality of the market?
Get rid of all the noise
Let’s pretend that these sold over asking percentages don’t mean anything.
And let’s figure out how you can properly price your home to sell.
What would you base it on?
Likely it’ll be based on a house that sold just recently.
What pricing strategy should your real estate agent use?
Would you be happy knowing they underpriced it, just to get the most offers and action, in hopes to get the best price?
Or would it make sense to adjust the price based on market conditions, pushing it upwards, while creating value for potential buyers?
Even if a real estate agent doesn’t underprice houses for sale in today’s market, the sheer competition amongst buyers combined with limited inventory will result in a higher selling price to begin with.
In fact, a real estate agent who deliberately underprices your house or condo may not be doing you a favour.
Work with a real estate agent who can explain a proper pricing strategy for your home.
They should be able to tell you why they set a price a certain way, and what you should expect from the marketplace.
Beyond just setting a price, the real estate agent you work with should explain how they will communicate value when they price and market your home for sale.
Keep in mind that the price of your property will tell buyers a lot about its value.
So don’t be impressed by how much properties sell over their asking price.
Instead, you should wonder if it was priced too low to begin with.