beaconer
Active Member
An interesting artcle about bidding wars for homes in downtown neighbourhoods:
Link
The War of the Houses
ASHLEY HUTCHESON/TORONTO STAR
The Star's Sandro Contenta entered a bidding war on five homes and ended up with this one.
From Riverdale to Danforth, Leslieville and back, our reporter couldn't close the deal on a new house. The Star's Sandro Contenta tells his story of blind bids, termites and crushed hopes.
Jul 21, 2007 04:30 AM
Sandro Contenta
Feature Writer
After four years in London, one of the most expensive real estate markets in the world, a closet-sized studio selling for half a million dollars begins to look normal.
So in February, when I returned to Toronto, the seen-it-all smugness of the Old World informed my decision to buy a home. Compared with London, buying in Toronto would surely be a walk in the park.
Five months, 101 home visits and four bidding wars later, I joined the home-hunters' ranks of the barely walking wounded.
My partner and I eventually landed a home, but the experience of competing in bidding wars was exhausting.
The way bidding wars are conducted in Toronto is at the heart of the problem. There don't appear to be any rules. In one case we were asked to re-bid because several of the offers were "similar." Similar?
The process is conducted in the dark by real estate agents working on commission and with a vested interest in the highest possible price.
It seems designed to boost uncertainty for potential buyers, inflate housing prices (not to mention commissions) and reduce overall transparency.
A hot sellers' market is partly the cause. But there seems to be more quality control and consumer protection when buying a car or a litre of milk than when making the biggest purchase in most people's lives.
As a new homeowner, some might argue I now have an interest in seeing the real estate cabal flourish. But as a veteran of Toronto's bidding wars, I'm convinced buyers would open their wallets all the more if they didn't fear being ripped off.
Bidding war I: First contact
Our first combat experience was in late February, over a two-storey, semi-detached house with no parking in Riverdale. It went through the standard, speedy procedure: An open house for real estate agents on the Wednesday, public open houses on the weekend, and offers "gratefully accepted" on Tuesday night.
The house was listed at $449,900. Considering how much the owners had paid for it and how much the value of homes had increased since then, it was listed at more or less its market value.
We had a home inspection done four hours before bidding began because vendors, we were assured, immediately reject offers with conditions. The inspector discovered termites munching at the stairway leading to the basement. Under a fresh coat of paint, termite tunnels were also visible on the basement's exposed brick wall.
We then met our agent at a coffee shop. She told us nine people had "registered" bids on the house, which meant they called the vendor's agent to say a bid was coming. The sales agent informed her that only three home inspections were conducted. In other words, six people were bidding unaware the place was infested.
Our agent noted that if we were to tell the sales agent of the termites, the vendor would be obliged to inform all registered bidders. She recommended we not say a word.
"Why spoil it for everyone," she said.
Our agent was as conscientious and hard working as they come. Her point was simple: In a sellers' market, it's buyer beware.
Insisting that all offers be made at the same time is designed to generate a bidding frenzy, and a blind one at that, since bidders don't know how much competitors are offering. They also have no way of verifying how many people are bidding, or whether fake offers are being used to increase competition and drive up the price.
Our agent taught us a bidding war rule of thumb: Calculate at least $10,000 above the asking price for each registered bidder. It's advice real estate agents all over Toronto are likely give their clients because the purchase prices, more often than not, are in the formula's ballpark.
In our case, the fear of overbidding acted as a break on what we were willing to part with in each war we fought.
In the Riverdale battle, we placed a bid that made a mockery of the rule of thumb. The house sold for $537,000 – $87,100 above asking for a termite-infested abode.
Bidding war II: The ambush
The 2½ storey, semi-detached, corner lot house near Danforth and Jones Aves. was for sale at $425,000. A home inspection report, paid for by the owners, had found "inactive termite shelter tubes" and a leaky basement. But we liked it: The sun seemed to stream in from everywhere.
The sales agent told us five people, including ourselves, had registered for bids. We offered a ridiculous $67,000 above asking. We waited for an answer at the office of the sales agents' brokerage firm on Danforth.
The sales agents – there were two of them – had the vendor and a bidder as clients. To avoid a conflict of interest, the office manager conducted the bidding process.
"Congratulations, you have the best offer," the manager told us, adding immediately: "Did you know there's an encroachment issue?"
What?
He explained that the garage was partly built on city land.
"You're telling me this now," I said.
He acknowledged that the sales agents should have noted the encroachment on the "status report," which outlined the details of the home. They had instead made available a poor quality photocopy of a 1971 survey during the open house.
I also noted that the status report advertised the house as having two parking spots. But the 11th hour disclosure made clear that one of them is in an illegal garage and the other on city property in front of the garage. (The Toronto Real Estate Board notes on status reports that it "assumes no responsibility for the accuracy of the information shown.")
The manager argued the garage had stood on the spot for years and would likely never be disputed by the city.
It felt like an ambush.
The information about the illegal garage was given to us at 8 p.m. The offer expired an hour later. Lawyers couldn't be reached. The office manager told us another offer was close to ours, so we had better make a decision fast. We asked for 24 hours, enough time to consult a lawyer about the encroachment. The owners said no, and we walked away.
The house sold that evening at $32,500 less than what we had offered.
Bidding war III: Sneak attack
Winning the bidding war yet losing the home left us punch drunk and angry. It took a while before we could muster the energy for the weekly rounds of open houses. But with our belongings in storage and life in an apartment hotel getting tiresome, we were bidding again in early May.
By now seasoned combatants, we felt this one would be easy. By the 5 p.m. deadline to register bids, only one other warrior had made his intentions know for a Leslieville townhouse. Applying the rule of thumb, we bid $20,000 more than the $469,000 asking price.
We then learned that a third buyer came in well after the deadline and grabbed the house for $30,000 above asking. What we assumed was one of the few immutable rules in the process – bids must register by a set deadline – went out the window.
Bidding war IV: shakedown
By mid May we were seriously thinking of renting.
A bizarre psychology had set in. We blamed ourselves for not throwing more money at the Leslieville townhouse, for being cheap, in other words, even after bidding $20,000 above asking. We suddenly understood the syndrome of people who, out of sheer frustration from repeatedly losing bids, offer $100,000 more than asking for the next house they like.
The next round took place on a quiet street north of Danforth Ave., as we sat in our real estate agent's car in the middle of a deluge. By the registration deadline, we learned that three other potential buyers were also sitting in cars in the rain.
We bid $43,000 above asking. Our real estate agent then got a call: three bids were "similar," so could we please make a second offer.
Not the same, but similar. In other words, one among the three had the highest bid. And who says the bids were similar? Where's the proof? The only clear and transparent thing was that more money was being demanded.
We dug up another $5,000. Someone threw an extra $38,000 at the house. They won.
The final encounter
The fourth battle had done us in. We were all but ready to raise a white flag. We avoided homes we knew would attract frenzied interest. One we visited was on Lynd Ave. in Roncesvalles village. Listed at $514,900, it attracted 13 offers and sold for $640,000. My partner and I congratulated ourselves for staying away.
We focused on potentially stressed sellers, those whose houses sit on the Multiple Listing Service past their sell-by date. An empty, fully renovated home is always a vulnerable contender.
We zeroed in on one in what real estate agents call Beaconsfield village, in the Dovercourt and Queen St. W. area. Our real estate agent learned the owner, who was flipping the house, had run out of money during renovations. It had no appliances. After two weekends of open houses, no one had put in a bid.
We suddenly found ourselves in a one-on-one negotiation. After 48 hours of haggling, the owner reduced his price by $21,000 and we had a deal, conditional on a home and termite inspection.
----
The Australian way: Auction the house
When Toronto Real Estate Board president Maureen O'Neill pronounced the city's multiple bidding process as transparent as possible, she likely didn't have Australia's approach in mind.
In Sydney and Melbourne, an auctioneer stands in front of a home for sale and takes competing bids until the slam of a gavel declares it sold. Imagine that happening in Toronto.
"The bidding war goes on right there on the spot," said Graham Joyce, president of the Australia Real Estate Institute, which represents 85 per cent of the country's real estate agents.
"It's certainly very public and you know how much you have to bid to get the property," he said, adding that the vendor sets a reserve price.
Told of Toronto's multiple bidding process – closed offers presented at a set time – Joyce said: "It's certainly not very transparent, is it."
He wasn't surprised to hear that Michael Manley, defeated by O'Neill in recent elections for Toronto board president, complained of "phantom offers" – fake bids designed to fuel a bidding war.
Australia guards against "dummy bids" – what Joyce described as the auctioneer "taking a bid off the tree across the road" – by having potential buyers register prior to the auction. They're identified by the paddles they wave to make bids.
He's also convinced public auctions generate the highest sales prices. In Toronto-style bidding wars, "People may not feel comfortable going to their limit because they don't know what others are prepared to pay," he said.
About half of the homes sold in eastern Australia are auctioned publicly. The rest are sold through one-on-one negotiations: A buyer registers an offer, the seller may counter it, and they go back and forth until a deal is struck.
People who purchase homes this way get a "cooling off period" of several days that allows them to change their minds between the initial agreement of purchase and the exchange of title, Joyce said.
This form of consumer protection doesn't exist in western Australia, where state laws are different. There, most homes are sold through one—on-one negotiations.
A further difference with Toronto is that 95 per cent of buyers don't use real estate agents. And agents by law must compete on the commissions they make. Commissions run between 1 and 3 per cent of sale price, compared with Toronto's unshakable 5 per cent.
"If there's any collusion amongst agents in relation to fee structures they're right on to us," Joyce said, referring to regulatory bodies.
Toronto residents don't need to look as far as Australia to find a different approach to selling homes. While Toronto-style bidding wars are common in Calgary and Vancouver, Montreal residents indicate yet again that they're part of a distinct society.
The average price of a home in Montreal has increased 60 per cent since 2000 – more than in Toronto. Yet real estate agents can't get Toronto-style bidding wars going.
Montrealers are extremely reluctant to pay more than a home's asking price, let alone get involved in a blind bidding war.
"It's a cultural thing," said Andre Campeau, co-owner of a RE/MAX branch in Westmount, Montreal's wealthiest community.
Montrealers approach real estate like an Arab souk; the asking price is an upper limit that has to be bargained down.
"When we see houses sell above asking, there are so few of them compared to Toronto that we say, `Oh, look at this.' They stand out," Campeau said.
One-on-one negotiations is the widespread method in Montreal. Vendors can negotiate more than one offer at a time, and should consider themselves lucky if they get a chance to do so.
"In Montreal, often, when a buyer hears there's already an offer on a house he will stay away. He'll say, `I don't want to be caught in a bidding war,'" Campeau said.
The Quebec Association of Brokers and Real Estate Agents, which administers the province's real estate act, restricts competition for homes.
If a second offer comes in, the vendor can inform the first bidder and give him a chance to increase his bid. If bidder number one does so, the vendor can't tell bidder number two of the increased bid, Campeau said.
The Quebec association insists "you have one kick at the can ... no back and forth, don't fuel a bidding frenzy," Campeau said.
Don't fuel a bidding frenzy? Now there's a radical idea.
Link
The War of the Houses
ASHLEY HUTCHESON/TORONTO STAR
The Star's Sandro Contenta entered a bidding war on five homes and ended up with this one.
From Riverdale to Danforth, Leslieville and back, our reporter couldn't close the deal on a new house. The Star's Sandro Contenta tells his story of blind bids, termites and crushed hopes.
Jul 21, 2007 04:30 AM
Sandro Contenta
Feature Writer
After four years in London, one of the most expensive real estate markets in the world, a closet-sized studio selling for half a million dollars begins to look normal.
So in February, when I returned to Toronto, the seen-it-all smugness of the Old World informed my decision to buy a home. Compared with London, buying in Toronto would surely be a walk in the park.
Five months, 101 home visits and four bidding wars later, I joined the home-hunters' ranks of the barely walking wounded.
My partner and I eventually landed a home, but the experience of competing in bidding wars was exhausting.
The way bidding wars are conducted in Toronto is at the heart of the problem. There don't appear to be any rules. In one case we were asked to re-bid because several of the offers were "similar." Similar?
The process is conducted in the dark by real estate agents working on commission and with a vested interest in the highest possible price.
It seems designed to boost uncertainty for potential buyers, inflate housing prices (not to mention commissions) and reduce overall transparency.
A hot sellers' market is partly the cause. But there seems to be more quality control and consumer protection when buying a car or a litre of milk than when making the biggest purchase in most people's lives.
As a new homeowner, some might argue I now have an interest in seeing the real estate cabal flourish. But as a veteran of Toronto's bidding wars, I'm convinced buyers would open their wallets all the more if they didn't fear being ripped off.
Bidding war I: First contact
Our first combat experience was in late February, over a two-storey, semi-detached house with no parking in Riverdale. It went through the standard, speedy procedure: An open house for real estate agents on the Wednesday, public open houses on the weekend, and offers "gratefully accepted" on Tuesday night.
The house was listed at $449,900. Considering how much the owners had paid for it and how much the value of homes had increased since then, it was listed at more or less its market value.
We had a home inspection done four hours before bidding began because vendors, we were assured, immediately reject offers with conditions. The inspector discovered termites munching at the stairway leading to the basement. Under a fresh coat of paint, termite tunnels were also visible on the basement's exposed brick wall.
We then met our agent at a coffee shop. She told us nine people had "registered" bids on the house, which meant they called the vendor's agent to say a bid was coming. The sales agent informed her that only three home inspections were conducted. In other words, six people were bidding unaware the place was infested.
Our agent noted that if we were to tell the sales agent of the termites, the vendor would be obliged to inform all registered bidders. She recommended we not say a word.
"Why spoil it for everyone," she said.
Our agent was as conscientious and hard working as they come. Her point was simple: In a sellers' market, it's buyer beware.
Insisting that all offers be made at the same time is designed to generate a bidding frenzy, and a blind one at that, since bidders don't know how much competitors are offering. They also have no way of verifying how many people are bidding, or whether fake offers are being used to increase competition and drive up the price.
Our agent taught us a bidding war rule of thumb: Calculate at least $10,000 above the asking price for each registered bidder. It's advice real estate agents all over Toronto are likely give their clients because the purchase prices, more often than not, are in the formula's ballpark.
In our case, the fear of overbidding acted as a break on what we were willing to part with in each war we fought.
In the Riverdale battle, we placed a bid that made a mockery of the rule of thumb. The house sold for $537,000 – $87,100 above asking for a termite-infested abode.
Bidding war II: The ambush
The 2½ storey, semi-detached, corner lot house near Danforth and Jones Aves. was for sale at $425,000. A home inspection report, paid for by the owners, had found "inactive termite shelter tubes" and a leaky basement. But we liked it: The sun seemed to stream in from everywhere.
The sales agent told us five people, including ourselves, had registered for bids. We offered a ridiculous $67,000 above asking. We waited for an answer at the office of the sales agents' brokerage firm on Danforth.
The sales agents – there were two of them – had the vendor and a bidder as clients. To avoid a conflict of interest, the office manager conducted the bidding process.
"Congratulations, you have the best offer," the manager told us, adding immediately: "Did you know there's an encroachment issue?"
What?
He explained that the garage was partly built on city land.
"You're telling me this now," I said.
He acknowledged that the sales agents should have noted the encroachment on the "status report," which outlined the details of the home. They had instead made available a poor quality photocopy of a 1971 survey during the open house.
I also noted that the status report advertised the house as having two parking spots. But the 11th hour disclosure made clear that one of them is in an illegal garage and the other on city property in front of the garage. (The Toronto Real Estate Board notes on status reports that it "assumes no responsibility for the accuracy of the information shown.")
The manager argued the garage had stood on the spot for years and would likely never be disputed by the city.
It felt like an ambush.
The information about the illegal garage was given to us at 8 p.m. The offer expired an hour later. Lawyers couldn't be reached. The office manager told us another offer was close to ours, so we had better make a decision fast. We asked for 24 hours, enough time to consult a lawyer about the encroachment. The owners said no, and we walked away.
The house sold that evening at $32,500 less than what we had offered.
Bidding war III: Sneak attack
Winning the bidding war yet losing the home left us punch drunk and angry. It took a while before we could muster the energy for the weekly rounds of open houses. But with our belongings in storage and life in an apartment hotel getting tiresome, we were bidding again in early May.
By now seasoned combatants, we felt this one would be easy. By the 5 p.m. deadline to register bids, only one other warrior had made his intentions know for a Leslieville townhouse. Applying the rule of thumb, we bid $20,000 more than the $469,000 asking price.
We then learned that a third buyer came in well after the deadline and grabbed the house for $30,000 above asking. What we assumed was one of the few immutable rules in the process – bids must register by a set deadline – went out the window.
Bidding war IV: shakedown
By mid May we were seriously thinking of renting.
A bizarre psychology had set in. We blamed ourselves for not throwing more money at the Leslieville townhouse, for being cheap, in other words, even after bidding $20,000 above asking. We suddenly understood the syndrome of people who, out of sheer frustration from repeatedly losing bids, offer $100,000 more than asking for the next house they like.
The next round took place on a quiet street north of Danforth Ave., as we sat in our real estate agent's car in the middle of a deluge. By the registration deadline, we learned that three other potential buyers were also sitting in cars in the rain.
We bid $43,000 above asking. Our real estate agent then got a call: three bids were "similar," so could we please make a second offer.
Not the same, but similar. In other words, one among the three had the highest bid. And who says the bids were similar? Where's the proof? The only clear and transparent thing was that more money was being demanded.
We dug up another $5,000. Someone threw an extra $38,000 at the house. They won.
The final encounter
The fourth battle had done us in. We were all but ready to raise a white flag. We avoided homes we knew would attract frenzied interest. One we visited was on Lynd Ave. in Roncesvalles village. Listed at $514,900, it attracted 13 offers and sold for $640,000. My partner and I congratulated ourselves for staying away.
We focused on potentially stressed sellers, those whose houses sit on the Multiple Listing Service past their sell-by date. An empty, fully renovated home is always a vulnerable contender.
We zeroed in on one in what real estate agents call Beaconsfield village, in the Dovercourt and Queen St. W. area. Our real estate agent learned the owner, who was flipping the house, had run out of money during renovations. It had no appliances. After two weekends of open houses, no one had put in a bid.
We suddenly found ourselves in a one-on-one negotiation. After 48 hours of haggling, the owner reduced his price by $21,000 and we had a deal, conditional on a home and termite inspection.
----
The Australian way: Auction the house
When Toronto Real Estate Board president Maureen O'Neill pronounced the city's multiple bidding process as transparent as possible, she likely didn't have Australia's approach in mind.
In Sydney and Melbourne, an auctioneer stands in front of a home for sale and takes competing bids until the slam of a gavel declares it sold. Imagine that happening in Toronto.
"The bidding war goes on right there on the spot," said Graham Joyce, president of the Australia Real Estate Institute, which represents 85 per cent of the country's real estate agents.
"It's certainly very public and you know how much you have to bid to get the property," he said, adding that the vendor sets a reserve price.
Told of Toronto's multiple bidding process – closed offers presented at a set time – Joyce said: "It's certainly not very transparent, is it."
He wasn't surprised to hear that Michael Manley, defeated by O'Neill in recent elections for Toronto board president, complained of "phantom offers" – fake bids designed to fuel a bidding war.
Australia guards against "dummy bids" – what Joyce described as the auctioneer "taking a bid off the tree across the road" – by having potential buyers register prior to the auction. They're identified by the paddles they wave to make bids.
He's also convinced public auctions generate the highest sales prices. In Toronto-style bidding wars, "People may not feel comfortable going to their limit because they don't know what others are prepared to pay," he said.
About half of the homes sold in eastern Australia are auctioned publicly. The rest are sold through one-on-one negotiations: A buyer registers an offer, the seller may counter it, and they go back and forth until a deal is struck.
People who purchase homes this way get a "cooling off period" of several days that allows them to change their minds between the initial agreement of purchase and the exchange of title, Joyce said.
This form of consumer protection doesn't exist in western Australia, where state laws are different. There, most homes are sold through one—on-one negotiations.
A further difference with Toronto is that 95 per cent of buyers don't use real estate agents. And agents by law must compete on the commissions they make. Commissions run between 1 and 3 per cent of sale price, compared with Toronto's unshakable 5 per cent.
"If there's any collusion amongst agents in relation to fee structures they're right on to us," Joyce said, referring to regulatory bodies.
Toronto residents don't need to look as far as Australia to find a different approach to selling homes. While Toronto-style bidding wars are common in Calgary and Vancouver, Montreal residents indicate yet again that they're part of a distinct society.
The average price of a home in Montreal has increased 60 per cent since 2000 – more than in Toronto. Yet real estate agents can't get Toronto-style bidding wars going.
Montrealers are extremely reluctant to pay more than a home's asking price, let alone get involved in a blind bidding war.
"It's a cultural thing," said Andre Campeau, co-owner of a RE/MAX branch in Westmount, Montreal's wealthiest community.
Montrealers approach real estate like an Arab souk; the asking price is an upper limit that has to be bargained down.
"When we see houses sell above asking, there are so few of them compared to Toronto that we say, `Oh, look at this.' They stand out," Campeau said.
One-on-one negotiations is the widespread method in Montreal. Vendors can negotiate more than one offer at a time, and should consider themselves lucky if they get a chance to do so.
"In Montreal, often, when a buyer hears there's already an offer on a house he will stay away. He'll say, `I don't want to be caught in a bidding war,'" Campeau said.
The Quebec Association of Brokers and Real Estate Agents, which administers the province's real estate act, restricts competition for homes.
If a second offer comes in, the vendor can inform the first bidder and give him a chance to increase his bid. If bidder number one does so, the vendor can't tell bidder number two of the increased bid, Campeau said.
The Quebec association insists "you have one kick at the can ... no back and forth, don't fuel a bidding frenzy," Campeau said.
Don't fuel a bidding frenzy? Now there's a radical idea.
