You may read this question and say to yourself, “Isn’t that obvious? It’s because greedy sellers and their unscrupulous Realtors want to mislead innocent buyers into thinking they can actually buy the home for the low list price so they’ll make offers and bid the price way up.” Well, I’m here to tell you it’s not quite as simple as that.
Most sellers aren’t greedy. They just want to get the highest possible price for their home. Wouldn’t you want the same thing? And most Realtors aren’t unscrupulous. They’re just trying to get their clients the highest possible price. That’s their job.
Before we go any further, let me say this: I HATE low list prices. I find the practice to be misleading. If it were up to me, I’d abolish it. Unfortunately, it’s not up to me because I don’t control the market or the real estate industry. But I have to confess there have been times when I’ve felt it was my duty to suggest a low list price to my clients. Why would I do that? Here’s the simple answer:
When it’s in my clients’ best interests to go with a low list price because it’ll help them get the highest price for their home I have to put my personal preferences aside. If I were asked to suggest to my clients that they do something illegal or unethical it would be a different story. I just wouldn’t do it. But whether I agree with them or not, low list prices have become a commonly accepted pricing strategy.
How did they become so mainstream? Here’s the history. It used to be that in the early to mid 1990s unrenovated semi-detached homes at Yonge & Lawrence, for example, would sell for between $220,000 and $230,000. Renovated semi-detached homes would sell for between $230,000 and $240,000. (What’s harder to believe – that they actually sold for those prices or that I’m that old?) Selecting the right list price was easy. If the home was unrenovated it would usually be listed for about $229,000 and if it was renovated it would be listed for about $239,000. Buyers could look at the list prices and the sale prices of comparable homes and get a pretty good idea of the price the sellers expected (hoped?) to receive for their homes.
As time passed, both sale prices and list prices increased. Eventually, the market got really hot and bidding wars started appearing. This was good news for sellers because they were still listing their homes at or above market value so the bidding wars pushed sale prices above market value and sellers received premiums for their homes.
Somewhere along the way, someone got the idea of setting an artificially low list price to generate a bidding war. The rationale I often heard was, “I don’t know what fair market value is so we’re going to set a low list price to generate offers and let the market determine the price”. Personally, I never found that to be an acceptable justification for setting an artificially low list price. To me it was an excuse by Realtors who didn’t want to figure out the list price that would produce the highest possible sale price.
Apart from finding low list prices misleading, I also found they weren’t always successful. Some sellers would list their homes at $1m, for example, and then be all happy when they received six offers and sold their homes for $1.3m. What they failed to realize was that their homes were actually worth $1.5m. I stuck to my reasonable list price strategy because it continued to produce the best results for my clients, but despite their shortcomings, low list prices quickly gained in popularity.
I held out as long as I could, but a couple years ago things got to the point where setting a reasonable list price wasn’t always in my clients’ best interests. So many sellers were setting low list prices that buyers came to expect them. If they saw a home listed for $999,000 they compared it to the other homes they had seen listed for $999,000 which sold for $1,200,000 and expected it to sell for $1,200,000. If they saw a home listed for $1,200,000 they compared it to the other homes they had seen listed for $1,200,000 which sold for $1,500,000 and expected it to sell for $1,500,000. This is still happening today. Buyers look at a list price and expect the home to sell for a higher price. If they see a home listed for $1,200,000 which they think is only worth $1,200,000, they still expect it to sell for $1,500,000 because most homes listed at $1,200,000 are selling for $1,500,000. The problem is that they then shy away from homes which are reasonably priced because they expect them to sell for more than they’re worth. As a result, sellers who now choose a reasonable list price risk not getting any offers so they’re better off with a low list price because that’s what buyers have come to expect.
This isn’t to say that low list prices are prevalent everywhere in central Toronto because that’s certainly not the case. Remember, the Toronto market is comprised of many different niche markets. The practice of low list prices is most common with homes under $2m and is not nearly as common with condos, higher priced homes or homes outside of central Toronto.
While I sometimes suggest to my clients that a low list price might be in their best interests, I don’t suggest it all the time. It depends on the circumstances. I look at it as another potential tool to use to help my clients get the highest possible prices for their homes. Even when it may be appropriate to go with a low list price, I still present my clients with different pricing strategies including a reasonable list price strategy. I explain the benefits and drawbacks of each strategy and then let them decide which one they feel most comfortable with. Some of them go with a reasonable pricing strategy and some opt for the low pricing strategy. Either way, I spend considerable time determining the optimal list price for each strategy I suggest and don’t just pick prices out of thin air.
Does the low pricing practice make things even more confusing and frustrating for buyers and their Realtors in this crazy market as they try to figure out how much a home is worth, what price the sellers expect to receive and how much other buyers might offer? Absolutely.
But can it be blamed on greedy sellers and unscrupulous Realtors? I don’t think so. Sellers want to receive the highest price possible. Realtors want to do the best job possible for their clients. And buyers play their part in this drama by not offering on homes that are reasonably priced.
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.