How Low Is Too Low For A Listing Price?

Roberts House2.jpg

When working with buyers looking for a home in Toronto, one of the big things I often have to explain is that the list price means practically nothing.

For houses listed at roughly $2 million or lower, it’s often just a marketing tool to get buyers through the door who think the 3 bed, 2 bath semi with parking in Leslieville that’s listed for $899,000 might actually sell for $899,000. Reality is that house is usually selling for around $1.1 to $1.2 million, and some buyers are left with the reaction, “that’s crazy!!! $200k over asking!?!” or “why was it listed so low!?! That’s so misleading!!”

It is misleading. But that’s just how the market works.

You need to be working with a professional to know what’s real and what’s not. Someone who can tell you that the $899k list price is just a ploy to get you to go see it, and that the house is really worth $1.1, or whatever it sells for.

Houses that sell this way usually sell for 20 to 30 percent over the asking price. Sometimes it’s less, and sometimes it’s a lot more.

That had me thinking, how low is too low to list a property?

Occasionally you see places trade for 40-45% over asking. A few years back you’d sometimes see things 50-60% over.

Last week a home came out in North York near Yonge and Sheppard for $1 million.

It was a brand new custom home on a huge lot, great finishes, a two car garage, the works.

Homes with those specs in that area typically sell for between $3 and $4 million.

The listing generated some interest on my brokerage’s website. I got questions like, “is the price real”, “what’s wrong with this place”, etc.

I was left having to explain that the listing brokerage had used the list price to generate enormous buzz about this property. Anyone looking for a home in the area would likely see it online, and possibly go see it in person at their open house. It’s an easy way for the listing brokerage to connect with buyers.

The issue was that the price was so absurdly low, that the interested people I spoke to were immediately put off. The reaction was that the price was stupid.

The seller and their agents were likely hoping for a sale price 200-300% over asking, an amount no one was willing to pay.

The home took offers the other day and didn’t sell. They may have got offers, but they might not have been what the seller was looking for.

The home was just relisted today for almost $4 million.

What started at $1 million as a marketing gimmick, wound up at $4 million about a week later.

The question now becomes, will the marketing strategy help or hurt the seller in the long run?

What if they’d just listed it for what they wanted at the start?

What if they’d listed it at a more reasonable hold back number, like $3.5 million and hoped to have it bid up to closer to what they were really looking for?

The other issue is that even in this area where houses do sell in the $3 to $4 million range, very few of them sell in bidding wars. There’s so much inventory available that buyers can be picky when choosing a property to try and purchase.

The idea that people were going to line up out the door and bid way over the asking price was never one that made any sense in that specific neighbourhood.

This is an obvious situation where the list price was way too low. In local markets where holding back offers makes sense, I usually try to market properties about 20% below what our target price is for the home. This is a difference most buyers are comfortable paying, and there’s always the potential that if things go really well it could sell for a lot more.

Listing a place that’s worth upwards of $3 million for $1 million never made any sense. They might as well have just listed it for $1. At that point it’s so low that there’s no real difference.

I will be interested to see what it goes for. First impressions are very important in real estate, and many interested buyers might have been put off by their decision to list so low.

Jim RobertsComment