Sometimes it takes more than just a single sale to set "market value" for a building.
Most of my blog posts come from actual experiences while helping clients. It's usually about a question I get over and over, or something I notice clients or agents saying or doing that push me to document the situation so that anyone reading these might pick up a trick or two. More and more I'm finding that I'm sending links to previous blog posts I've written when a client or potential clients bring up a topic that I was passionate enough to write about - my eyes light up and I say "I wrote a blog about that! Check it out and you'll see what I'm talking about". And my favourite clients actually read them ;)
Which brings me to this blog post's topic. When you track sales in buildings as closely as I do, you start to notice trends that ultimately lead to what "market value" is for a particular building, layout, view, etc. You can see what people are willing to pay and over time, start to predict what certain units will sell for. That's actually one of the most fun and challenging parts of working with buyers, particularly in the most active times of the year when bidding wars are the norm. (It's like playing The Price Is Right in my head!) And as we all know, buyers start to see those sales numbers as well so they can also see what the market is willing to pay for a similar property and can decide if that's in line with what they think a place is worth.
Usually this works well. Market value is determined by buyers and sellers at any given moment, based off of previous sales, current market conditions, adjustments for features, etc.
But what happens when one sale just blows away the numbers?
I mean, what if one sale in a building is higher than anyone could possibly have predicted?
Does that set a new benchmark for the building?
Does that mean market value for the building has dramatically increased?
And, most importantly, does that mean this is the new benchmark that buyers should expect to pay and sellers should expect to see?
It's always not that simple.
A few weeks ago I was showing clients stacked townhouses just on the other side of the DVP. It was one of those moments where there were four similar options to choose from, which is a rarity for Toronto. There were two identical units, mirror images of each other, one larger unit with a roof deck, and a smaller unit that was sitting on the market.
The catch? Both units my clients were interested in (the two identical units) were holding back offers.
By the time we got there on Saturday, one of the units had sold conditionally via a bully offer. It's rare to see something sell via a bully offer with conditions but in a situation where your neighbour is also up for sale at the same time, I can see why the seller took it. (Check out one of my previous blogs where I wrote about what not to do when facing multiple offers as a buyer:
I'll spare you the details of everything that went down at the townhouses but the unit my clients loved was listed for $649k, with a hold-back on offers. After much discussion, my gut said someone might pay $700k but the unit was probably worth closer to $680k. With the other unit sold conditionally, we wouldn't know the final sale price for at least a couple days until the buyer's conditions were removed.
Nobody wants to be the buyer who paid more than the identical unit in the same week, so we were in a bit of a tough spot. Luckily that other sale firmed up quickly and the sale price was published - $701k.
I called my clients and told them the news and their response puzzled me - "Adil, we don't want to pay more than $680k for this place so we'd rather not make an offer, since this seller now clearly wants at least $700k".
I paused. How do we know what the seller wants? Sure the $701k sale is out there but does that mean another buyer will also pay $701k for basically the same unit? Maybe that buyer "went nuts" (you'll hear me say this a lot if you work with me) and paid more than any other buyer would right now.
After a lengthy chat, my clients ultimately decided not to offer and the unit didn't sell on offer night. In fact, it was re-listed for $699,900, then again for $679,900, before ultimately selling for....well, it's still on the market for $679,900.
This was an interesting situation - the high sale price of a unit in a building actually deterred buyers from offering on another identical unit because the sale was too high for the rest of the market to stomach.
Just because there was a sale at $701k, does that mean "market value" for the unit was $701k? Clearly not. I mean, where's the rest of the market jumping on that other unit for $679k?
Sales is all about timing, and my buyers have since turned cold on this unit and decided to keep looking.
You only need one buyer to set a record. But if your neighbour found that one willing buyer, it doesn't always mean there are other buyers right behind them ready to pay the same.
Market value isn't set by one transaction and the market is generally pretty efficient, so be careful not to let one-off sales affect what the true value in a building really is - whether you're on the buying or selling side.
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Your Toronto condo lover,
iPro Realty Ltd, Brokerage
Direct: 647-223-1679 (call/text)