Nick Horton, salesperson – Nov. 7/2020

This week I take a look at the sale of a bungalow on Hastings Ave in Leslieville on Oct 23. The sale of this bungalow is particularly interesting because it received 17 offers and sold for $1,420,000, which is $540,000 or 61% over the asking price of $879,900.

We see headlines in the media regularly (see Globe and Mail) about Toronto properties that received multiple offers and sell well above the asking price. The articles catch people’s attention and stir up conversation about the state of the real estate market in the city, even though they don’t provide any reliable insight into why the property sold for what it did. Usually, the article will quote the listing agent talking about the unique characteristics of the home, their staging, and/or the school district, etc.

Rarely do these articles talk about the pricing strategy, and sometimes realtors even play dumb when asked about it. No one wants to admit that the property is priced in a way that gives false confidence to buyers who can’t really afford the property. In a hot market, many times a buyer’s role is to be baited into making an offer, creating interest and competition for the real money. To execute this strategy well, the listing agent should know what the actual market value of the house is, the profile of the ideal buyer, and the current demand for the specific type of property. Knowing this, they can underprice the property just enough to draw the most amount of interest without being predatory. They can also choose not to underprice the property if that is where the best result may lie for that specific home.  

This brings us to Hastings Ave and it’s 17 offers. An asking price of $879,000 should be considered predatory pricing or unnecessarily low. The end result was a great outcome for the seller, but they likely didn’t need to waste the time of the many hopeful buyers. The seller could have got the same result with a higher starting price. Would 10 offers vs 17 offers make you change your mind on how much you should pay? It shouldn’t. On the buying side, to have success a buyer’s agent should be advising their client as to the seller’s strategy and thus setting realistic expectations. Similarly, the buyer’s agent should appraise the value of the house and help the buyer value it within their budget and versus other options available to them. Ultimately this isn’t always the case and is one reason why the practice of underpricing continues to work.

I didn’t have an offer on this property, but I do have clients who were interested and wanted to know my opinion on it. I told them it was a great property and they would likely need to consider $1.3M or more, but I wouldn’t advise them to go much higher. My clients have owned multiple houses downtown and are fairly savvy to the market, but they were still a bit surprised with my estimate. I am certain they loved the large lot and rear addition with vaulted ceilings, but to their point, it is still a small 2BR with an unfinished basement that needs updating. What isn’t immediately apparent is that the value isn’t in the house, the value is in the fundamentals; it is a detached house on a large lot with laneway access in a hot neighbourhood. What makes bungalows like this valuable is that they not only appeal to end-users, they appeal to investors looking to unlock value by building new or ‘topping’ them up.

Earlier this year, a house down the street sold for just over $2.0M. It was a renovated two-story detached house on the exact same sized lot. They held offers at $1.6M and it sold for $2.0M. There is a history on Hastings Ave of buyers being very aggressive for this lot size. Interestingly, at the sale price of $1.420M for this bungalow, the buyer almost certainly has to be an end-user who fell in love with the property. Considering the homes you can buy for $2M to $2.5M in the area, there is a tonne of risk to pay almost $1.5M (with land transfer tax and closing costs) for a building lot. So while there were likely some builders within those 17 offers, I suspect their bids weren’t overly aggressive.

So how does an end-user get to $1.42M on this property? The likely answer is a motivated buyer, low-interest rates, and the pandemic fuelling the need for privacy and outdoor space. Time will tell if my evaluation of this property is correct and I look forward to following up on it in the future