Are you a home buyer falling for the seller’s trap?

Trapped
Don't get trapped

The real estate market in 2014 should be referred to as the "mega multiple offer year". Some sellers and their agents use the strategy to drastically under list a property fooling buyers into thinking they have a chance to procure a house at a price the seller is unlikely to accept. This strategy sometimes produces many offers and drives up the sold price to record breaking levels.

I can give many examples but one that got a lot of media attention recently is a property in Lawrence Park which received 72 offers. Listed at $699,000, it sold for $1,365,888. The listing agent, it was reported, believed the property would fetch $1,100,000. There is nothing illegal about listing a property at a price well below what one thinks it's worth nor is it disallowed according to the rules that govern the industry. In fact, procuring a number of offers in a low supply high demand market is not uncommon.

Sign Rock Hard Place
Participating on such game is your choice

But when a property receives dozens of offers it's usually because the asking price was set drastically low which lures buyers into playing a game they have no chance of winning. The reality is that buyers were the pawns that drove up the price in this instance because the more offers, the higher the sold price. Participating is your choice but you have to ask yourself

"why am I playing a game with dozens of other buyers that will drive up house prices in an area I am trying to buy into? This new sold price will be the bench mark for market value in the neighbourhood so should I participate in a game that can only hurt me financially in the end?"

Experience
According to my experience all the offers drive up the sold price

I have participated in thousands of multiple offer situations representing the seller and based on my experience, in all likelihood, many of the 72 offers received on the Lawrence Park home were for a price that was nowhere near market value for the property. These buyers were never even in the game yet their offers managed to drive up the sold price as intended.

Ultimately, as a buyer, you should work with an agent who is not overzealous and who understands market value in the area you are bidding on. Otherwise you're wasting your time and hurting your chances of eventually buying into that area. For example, knowing values in Lawrence Park, any buyer that didn't offer a price having two commas (experience tells me there were many) wasted their time and did not understand market value for that property. Your buyer agent, having your best interest in mind, should discourage you from entering into a game that may hurt you in the end.

It's unlikely the real estate industry will ever disallow the strategy to drastically under list a property for sale which serves to rope buyers in. Therefore this practice will continue as long as a seller's market persists. But you can decide not to participate and if buyers don't attend the seller's dupe party this practice will stop because ironically, when it comes to the success of this strategy, "buyers rule".

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One Response to Are you a home buyer falling for the seller’s trap?

  1. Pingback: Beyond the Bench: Realtor Josie Stern warns buyers about undervalued listings | Park Bench Blog

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