There are some houses you'll find priced on the Toronto Real Estate MLS for over $500,000, and others for just $1. The reason for the disparity? The latter is a pricing strategy meant to generate a bidding war between homebuyers, which real estate author and consultant Mark Weisleder believes is not effective.
In the seller’s market of today, some houses are priced way below fair market value to attract lots of buyers generally interested in taking advantage of the current low interest rates.
“When it’s a seller’s market, when there are more buyers than available homes, you'll see more bidding wars happen. Bidding wars are a reflection of debt,” says Weisleder, author of “Put the Pen Down!” who also writes a real estate column.
Pricing a home at low cost is a bad strategy since people are able to distinguish a sale versus what Weisleder calls a “ridiculous price.” It can be a waste of time for the seller, and can cause suspicion among buyers who would be more trusting of those who sell their homes at market value.
Although buyers may initially think that the price is a deal, this does not mean the seller will accept the offer at the starting price. Rather than testing the market, Weisleder advises sellers to be honest about pricing as that will attract the most serious buyers immediately.
“Say a house is $400,000 and you want to test market so you list it for $440,000, but there is a similar house [listed] for $395,000,” Weisleder says as an example. “Then you reduce the price. By that time, others think something is wrong with your home—bad strategy.”
In a seller’s market, there are more buyers than houses available, resulting in competition among homebuyers and driving up the price. However, Toronto Real Estate Board President Richard Silver says in an Oct. 18 news release that the first two weeks of October pointed towards more balanced market conditions, indicating more options for buyers in the months ahead.
When it comes to buying a house for the first time, it is imperative for people to have a set budget, understand needs over wants, find a buyer agent who will be objective, and make the deal conditional on inspection of the home, advises Weisleder.
Researching the location, taking a walk in the neighbourhood, and talking to people in the area will also give buyers a better idea of the suitability of the home and community, and help them in their decision to purchase the right home.
