The Bidding War Conundrum. What Can Buyers Do?
With the week almost behind us, I'm going to delve into a matter of great frustration to many buyers and many real estate brokers alike. I'm talking about bidding wars. And yes, not all brokers love them, because in many ways the pricing strategy is not transparent.
I'm quickly going to give an example of how a listing broker prices a property in the hopes of creating a bidding war, and at the end, I'm going to leave you with a few questions that you can answer for yourself.
Last November an article came out in the Montreal Gazette informing us that nearly 1 in 3 properties in Rosemont, Plateau and Verdun went into a bidding war. Just recently, a colleague of mine entered a bidding war for an 8 plex in the Mile-End. He was informed that his bid was one out of nearly forty, and in the end the seller invited the 10 highest all cash offers to revisit the property in order to cast another bid. If you are truly interested in buying in these markets, please read the following article in the Montreal Gazette : Bidding Wars/Montreal Gazette
So how would a broker start a bidding war? Here are the steps.
1) What kind of property are we listing? The 3 main types are as follows:
A) Tear downs or Gutters (Land value)
B) Statement pieces (New construction cost + Land value)
C) Liveables (More complicated)
Liveables are the most common properties. Imagine your mother's duplex with bathrooms renovated in the 90's, a kitchen renovated in the early 2000's, but has a new roof and 5 year old windows. That's a little more difficult to price perfectly.
2) What is our market? Steps to figuring out the market:
A) Look up all the listings in the area where your client's property resides (active/recently sold)
B) Look up recent statistics on comparables (delay to sell/price)
C) Make sure pricing strategy is not too high. If it is, you will only be helping your competitors sell their house
D) Make it seem like an exclusive listing (limit buyer's offers to specific days)
The stats that you see on your left will only be used for this example. The stats I use are property specific and more recent.
Our property is situated in the NDG, Cote-Des-Neiges, Montreal Ouest area and is a Statement property (Equivalent to a new construction). As we can see, the average price increased from $743,000.00 in 2018 to $820,000.00 in 2019. Let's say, my client desires to receive $900,000.00. That should convince me to list closer to $950k or above. Right?
But before doing so, let's look at the comparables:
1) Only 5 comparables (extremely tight market)
2) Demand for such properties is extremely high
3) Cheapest comparable is a tear down at $650k
4) Most expensive liveable property at $888k
5) Most expensive property is a brand new construction at 949k
In this case, the safest bet for my client would be to price slightly more than the most expensive liveable property, and significantly less than the brand new construction. My suggested price would be $899k.
This is great for sellers, but can be frustrating for potential buyers who get constantly out bid, even though they offer over asking. I ask who ever is interested in buying on the island; Can you pick an area that will be tomorrow's next Plateau, Rosemont or Verdun? Just five years ago, Ahuntsic was synonymous with leprosy. Today Fleury street in Ahuntsic is talked about in the same breath as Laurier, Masson, Wellington, Notre-Dame Ouest and even Monkland.
Is Ontario street in HOMA (Hochelaga Maisonneuve) the next one? As of last month, Hochelaga Maisonneuve/Mercier and a portion of Ville Marie were the only balanced markets (neither sellers market or buyers market) on the island. But as of today, all the listings I have been keeping my eye on in HOMA have been sold. My experiences are not official stats, but I wouldn't be surprised if that area leans towards the sellers very shortly. The housing inventory on the island of Montreal is down to 4 months, which is the lowest it has ever been.
If your looking at buying, you should also be looking outside the bidding war infested areas.
Have a great weekend,