Government Apparently Set To “End Bidding Wars”

TorontoRealtyBlog

Note my use of the word "apparently."

In case the cynicism isn't already…….wait for it…..apparent, let's talk today about what a bidding war is, why they happen, how they happen, and whether or not the government should "end" them, let alone could end them.

For those of you hoping that "something" would happen to help you afford a home, you have a greater chance that God will help you, than the good ole' government…

 

Define "bidding war," if you can.

Maybe we all have our own definitions.

No, wait, not maybe.  Definitely.

My definition of a "bidding war" is far different than yours, but I believe, in my humble opinion, that I'm in a better position to define the term, since I work in the real estate industry, and you shop for a home once every ten years.

The media, and a lot of the general public, would define a bidding war as:

"Ten offers on a $399,900 condo listing."

But that's not a bidding war, folks.

That's simply ten offers on a $399,900 condo listing.

A better term to describe that would be "reality."

Or perhaps to use one of my favourite expressions, "It's just Thursday."

This is one of my favourite sayings, which is meant to drive home the point that something is unremarkable, unspectacular, or not in any way unique.

If somebody remarked, "I can't believe that condo received fifteen offers!"  I might respond, "Soooo…..it was basically just your average Thursday?"

And in real estate, the saying rings even more true.  Because literally every night in the city of Toronto, there are dozens of properties that are receiving 5, 10, or 15 offers.

This is the reality of the Toronto marketplace in 2017.

So back to the definition of "bidding war."

Do you think that ten offers on a condo satisfies the definition of "bidding war?"

Because in my opinion, a bidding war is as follows…

There are twelve offers on a house.

The offers are reviewed, and the listing agent gives it the ole' "We're giving everybody a chance to improve their offer."

All twelve offers, even the ones at the bottom, that have no hope in hell of being in the mix.

Four of the buyers walk away, and eight of the buyers improve.

The listing agent then takes the three at the top and says, "You're all still really, really close, I mean, like, wow, like within a couple hairs," or some other synonym that means "close" but avoids using a term like "hundred" or "thousand."

The three buyers improve, and then the listing agent takes the top two and says, "We're going to accept the higher of the two, unless you want another shot to improve.  I'm not telling you to improve, but you might want to."

Both buyers then go back and improve.

Then before either offer can be accepted, one of the buyers improves, again, unsolicited.

The other buyer agent, upon seeing this agent walk out into the parking lot of the brokerage, and have his or her client sign a piece of paper, then calls his buyer, and tells them they need to improve, again, because the other buyer did as well.

By the time the ink is dry on the accepted Agreement of Purchase & Sale, the "winning" buyer has already improved his or her offer, 5-6 times.

That is a bidding war, folks.

And I have only ever been in that experience once in my thirteen years, because I wouldn't advise a client to partake in such foolishness.

Most of the time, as you know, the listing agent will accept the highest offer, "Unless two are virtually identical."

But when you have ten offers on a $399,900 condo listing, and the highest offer of $460,000 is accepted, that is, in absolutely, positively, no way a "bidding war."

Of course, the media disagrees.

So does a large part of the general public.

But if I may be so bold, dare I say that their opinion on the definition of a "bidding war" doesn't matter.  Because they're either living in a dream world, or analyzing the market in a vacuum, or as the media is often guilty of, spinning a story.

Folks, did you ever hear "the one" about the scorpion and the frog?

A scorpion and a frog meet on the bank of a stream and the scorpion asks the frog to carry him across on its back.

The frog asks, "How do I know you won't sting me?"

The scorpion says, "Because if I do, I will die too."

The frog is satisfied, and they set out.

But in midstream, the scorpion stings the frog.

The frog feels the onset of paralysis and starts to sink, knowing they both will drown, but has just enough time to gasp "Why?"

Replies the scorpion: "It's my nature…"

The frog was naive to expect the scorpion not to sting him.

Just as the public is naive not to expect multiple offers on real estate when there is low supply, and high demand.

This is why I get so frustrated when I see headlines like, "Government Set To End Bidding Wars."

End bidding wars?

Really?

First of all, you're completely mistaken in your definition of a "bidding war."

Secondly, how do you propose to do that?

City TV ran a segment last Thursday, and then followed up online.

Their headline is exactly what I'm talking about:

They showed a reporter, in a condo, talking about how "This $450,000 condo could get multiple offers, and result in a bidding war!"

Yes.  And the earth revolves around the sun.

It feels like these people are three years late to the party, and only now playing catch-up.  Only they seem so shocked by what they see.

"People in society are taking photos of their lunch, and putting it on social media for other people to comment on?" said the person who lived in a cave for three years.

Yes.  And with low supply, and high demand, in a market of buyers and sellers – multiple offers result.

So when I hear reports that "the government could end bidding wars," it scares me, because I think I know how they define "bidding war," and they're wrong.

The government can't stop ten offers on a $399,900 condo.  And if they think, as the media suggests, and as the public laments that "ten offers on a $399,900 condo is a bidding war," then I have no clue what the government intends on doing.

The problem in the Toronto market is, and always has been, supply and demand.

I have written about this dozens of times over the years, and it never gets old.  Why?  Because I write about it once for every 10-12 times that the media report about the hot-hot real estate market, and fail to mention that the root cause, or even one of the root causes, is low supply, and high demand.

"Ten offers on a $399,900 condo" is high demand.  Simple enough?

"Ten offers on a $399,900 condo" is the result of low supply.  Is it fair to say that if there were nine more of the same condo, then each of the ten condos would, on average, receive one offer?

To me, that is so damn simple.

But the media continues to talk about every sale of every property as though it's a bidding war, and they couldn't be more wrong.

In the City TV story last week, they interviewed a guy who said something to the effect of, "You don't know who you're bidding against, you don't know how many bids there are."

But he's wrong.

You do know how many bids there are.

In fact, you should NEVER submit an offer on a property unless you have, in writing, an indication from the listing agent on how many offers are registered on a property.

So if the gentleman interviewed in the City TV story last week truly "didn't know how many bids there were," then he should have fired his buyer-agent on the spot for not doing his or her job.

Perhaps another part of this "ending bidding wars" story is more transparency in the process.

That was alluded to in the City TV piece, but it was overshadowed by this idea that "the government" is going to wave their magic wand, and put an end to high real estate prices.

"Government to end bidding wars."  That headline makes the average person think that there will no longer be multiple offers on properties for sale, because the average person thinks that multiple offers on properties for sale is the definition of a bidding war!

So by the time we start to talk about the real story here – transparency, most people have already tuned out.

The City TV story referred to the "auction-style" of selling real estate in Australia, as though it were some sort of magic solution.

The grass is always greener on the other side.

Australia has their own problems with this system, which I wrote about last month, HERE.

So what transparency do we need?

We know the number of offers.

We can find out the names of the agents presenting the offers.

Do we want to know the prices of those offers?

Is that what we're talking about with "transparency" here?

Because I fail to see how that would work.  You know, unless we shut down the city every time a property went on sale, so we could have an Aussie-style auction.

I think the public want to be able to beat the highest offer by $1, but it doesn't work like that.

The idea of getting "caught up in a bidding war" ignores the fact that the buyer can quit at any time.

If you make an offer on a property, and it's accepted, great.  If you're told you've lost, then go home.  If you're told, "We're down to two offers, you and one other," you can still choose to go home.

So who creates the bidding war?

Is it sellers?

Listing agents?

Buyers?

Or is it everybody?

If you're a buyer, and you're willing to improve your offer 5-6 times, then you're just as culpable in the "bidding war" as the listing agent who continues to send you back.  But he's also as guilty as your buyer agent who doesn't say, "This is ridiculous, go home."  And that agent has just as much a role as the seller who says, "I want the most money for my home."

No kidding.  Doesn't everybody?

Folks, I don't know what can be done to "end bidding wars," since I think the definition of a bidding war is off-base, and I think multiple offers are a function of supply and demand.

But if the conversation we're having is how to "cool the market," and the terminology being thrown around is flawed, then that's a whole other conversation.

A great conversation for Wednesday!

The Globe & Mail ran an article last week with a slew of "ideas" on how to cool the market.  Let's talk about that.

I'll give you a hint at how I feel about the ideas: the word "tax" was used a whopping 15 times in the article…

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