What's the Thinking Behind Holding Back Offers?

June 13, 2017

Is holding back offers a good idea if you are willing to accept an offer today?

 

Have you ever sold anything on Kijiji or Craigslist? Maybe a sofa or a TV? Or an iPhone? It's kinda hard to know exactly how much to sell whatever it is you're selling for, so the first thing most people do is search for someone else selling the same thing. At least that gives an idea of what to expect, more or less. This is pretty much how real estate works. Some might even say it's exactly how real estate works. 

 

The only way to accurately value something is to see how much someone was willing to pay for the same item (or as close to the same as possible) in the very recent past, under the same conditions.

 

But in times of great demand (ie - a rising market) it's safe to assume that the most recent sale of that identical "thing" would be the support level on price (ie - the lowest it should sell for in the same market) until the market is no longer rising. So what should the next sale be? $10k higher? 1% higher? Can anyone be sure how much the next buyer might be willing to pay?

 

And this is where the idea behind holding back offers in real estate was born.

 

We all know how it works. Seller A wants to sell his place after his neighbour just sold his almost identical place for $600k. Everything would suggest that market demand is still strong, so Seller A and his agent decide to list their property for $550k and they "hold back offers" until a given date and time. Why? Because they want the "market" to tell them what the place is worth to them, now that they know what the previous sale was. Why list for lower than the previous sale? To get attention and get even more people in the door. And why hold back offers? Because Seller A has no intention of selling for $550k. Why would he if he knows very well that his place should be worth at least $600k? 

 

A lot of agents will say things like "we didn't hold back offers to spark a bidding war. We just want to make sure everyone who wants to see the property has a chance to do so."

 

I call BS. I'd rather agents just tell it like it is: 

 

"We listed low to get a bidding war. The seller won't accept the list price because we know it's worth more, so tell us what your buyer is willing to pay and we'll see".

 

And I'm cool with that. It's part of the game that is TO real estate.

 

But holding back offers just because you can doesn't make any sense in all situations.

 

I see only three viable reasons to hold back offers:

 

1 - The market has such limited supply that buyers who are serious will have very few other options.

 

    This is how the first 3-4 months of 2017 went. Nothing was for sale and more and more buyers entered the market. So why not list everything at $359k or $699k or whatever the hot number was for that type of unit, hold back offers, and see what happens? And that's exactly what happened. Sales for units listed at $359k clocked in at $388k, then $400k, then $425k, then $500k. And each time a listing came up, it was still one of only a handful of units on the market. So holding back offers was still the correct strategy right through April, until more and more units starting hitting the market and the supply caught up to demand.


2 - Your property is so unique that there really is no recent sale to compare to.

 

    This is applicable in almost any market. There are a handful of really cool, unique, sought-after buildings as well as very unique condo units with large terraces, custom layouts and upgrades, etc that are very difficult to value and are rarely, if ever, available. So in these instances, sure, why not price a little low, hold back offers and let a buyer decide how much it's worth to them. It's almost like bidding on a piece of art.


3 - Your price so ridiculously low that anyone who has any idea about real estate knows that you expect a bidding war, or will only consider an offer well above list price.

 

    This happens pretty regularly. If the most recent sale of a unit in a building was $500k and the identical unit lists the next day for $399k, that's a pretty clear sign to anyone paying attention that there is absolutely no way the seller will accept anything close to $399k. So it's a tactic to draw attention, which is part of the seller's strategy. To each his own.

 

The public can't see whether a property is holding back offers (there is a field on the agent MLS system called "Brokerage Remarks" where the listing agent can state whether or not there is a set offer date). Anytime I see that comment, the first thought in my mind is "so they want more than the list price. Got it." And I'll let my clients know that's the message the seller is sending and we discuss whether it makes sense for this property.

 

What I don't understand is listing something for what is pretty close to market value (or even above market value) and also holding back offers in what is clearly a much more balanced, less frantic market. What's the purpose of holding back in this situation? Hoping you'll get lucky? Unless you have something really special, it's an expensive game to think you have no competition out there from other sellers.

 

In this market, it will probably just stress you out and piss off buyers. And yet I still see this constantly.

 

The message you'll be sending to the public (and by public I mean buyer agents who will relay this info to their buyers) is this:

 

"I want more than list price".

 

That's it. That's precisely what you are saying, whether you intend to or not.

 

And if you, as a seller, are willing to sell for list price (or less) today, what's the point of holding back offers? Think about whether you are willing to turn away someone ready to offer you full price today. Because if you are willing to accept that buyer's full price offer today, you just told him you won't, even before he steps through the door, just by holding back offers. Whether you realize it or not. And in a market like today's where buyers have way more choice, he may not be back on your offer night.

 

If you have a comment, feel free to leave it below. And remember, if you haven't already, please "like" my Facebook page and check back regularly!

 

Your Toronto condo lover,
Adil Dharssi
 

#AdilKnowsCondos

#TrustSomeoneWhoKnows

 

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