What They’re Thinking

Corinne and I just started working with new clients who are looking for their first home. Young professionals. Smart. They ask a lot of questions and they catch on quickly.

They sent us this email yesterday: “We saw this home on realtor.ca. It looks like a very nice home in a good location. Do you think it’ll sell for close to list price?” It was listed at $1,450,000. This morning it was relisted at $1,499,000. A few hours later it sold for $1,460,000.

There are times when the residential real estate market in central Toronto makes no sense to rational people unless you understand the market’s psychology i.e. what buyers and sellers are thinking. (Even then it doesn’t always make sense.) This was one of those times so we took the opportunity to explain what probably happened to our clients because the more they understand about how the market works, the better their result is likely to be. We’ll never know what happened here for sure because we weren’t involved in the transaction, but we’ve seen this happen often enough to have a fairly good idea of what went on.

The sellers chose an initial list price of $1,450,000 hoping to get multiple offers that would bid the price up on offer night. Buyers who looked at the home thought “They’ve listed it at $1,450,000, but how much do they really want? They probably want more than $1,500,000 and maybe even more than $1,600,000. That’s way more than it’s worth to us so we’re not going to make an offer on offer night. If someone else wants to pay that big price, good luck to them.”

Offer night came and went with no offers. The sellers weren’t willing to sell their home for $1,450,000 so they relisted their home for $1,499,000. Our intelligent clients were thinking “Why in the world would sellers raise their list price when their home didn’t sell at the lower list price?” Good question. Here’s why: because they never intended to sell their home for $1,450,000 in the first place and always wanted to sell it for more. By relisting at $1,499,000, they were giving themselves some room to negotiate and still sell for more than $1,450,000.

A few years ago, when the strategy of relisting at a higher price was in its infancy, it wasn’t all that successful because buyers would think “If it didn’t sell when it was listed for $1,450,000, why on earth would I ever pay them more than that?” Good point. But things have changed. This strategy is now used regularly and is familiar to us Realtors and to the clients we educate about the market. And when you’re educated about the market, you know that list prices can sometimes be somewhat meaningless. It doesn’t matter if a home is listed at $1,450,000 or $1,499,000. All that matters is its fair market value.

In this case, the buyers of this home didn’t want to make an offer on offer night because they thought the sellers wanted well in excess of their list price. That’s how buyers think these days. Probably because it’s true that most sellers do want well in excess of their list prices. When it didn’t sell on offer night, the buyers figured that the sellers’ expectations had been lowered. They felt that they could make an offer for what they considered to be fair market value, $1,460,000, not be in a bidding war and buy the home they wanted at a price they considered fair. So that’s what they did.

And that’s how the market works. And if you know how the market works, your chances of being successful increase exponentially.

Now, if you know anyone who’s interested in learning how the market works and who’d like to receive the kind of help that involves honest answers, straightforward advice, no pressure and being treated like family, please let me know the best way for me to connect with them because I’d like to offer them this kind of help. And as always, don’t be shy if you have any questions or comments about this post! Thanks for reading.

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