If you’ve been looking to buy a new place, you’ve probably seen asking prices that seem too good to be true. Maybe you’ve tried making an offer on one of those properties and gotten massively outbid. Or the sellers say no even though you were offering something close to asking.
Frustrating? Definitely. But it’s actually pretty common. What’s happening is a strategy designed to generate interest – and potentially a higher price than the sellers would get if they listed at market value.
So if your budget is $800K and you see what seems like a “deal” for $795K, it’s probably not actually in your price range. The trick is to understand the strategy so you don’t end up wasting time going to showings and making offers on places that are out of your reach.
There are a few reasons why seller agents underprice properties:
1. More people see it
When you’re searching for a property online, you specify your price range, which means you won’t see any listings priced over your max. Listing at a lower asking price opens it up to a bigger buyer pool.
2. It encourages bidding wars
When a property is listed below market value, the sellers usually accept offers on a specific day. Offer day is like an auction where all interested buyers submit a bid – without knowing what other people are offering. When there are multiple offers, buyers are more inclined to bid higher, which raises the price. It doesn’t always mean the sellers will get more than market value, but the competition helps sell it quickly.
3. It increases urgency for serious buyers
Let’s say an underpriced property gets 10 offers. Chances are, 6 of those are close to the asking price and won’t even be considered (those are the buyers who are new to the game or whose agents haven’t explained the process). But the bidders who know the true value of the property don’t know who the other bidders are. They don’t want to lose out and will potentially go higher to beat out the competition – and the more competition, the higher they’ll go. Blind bidding doesn’t help matters here.
This strategy can be pretty misleading for buyers who don’t know the market, understand this particular pricing approach – or aren’t represented by a knowledgeable agent who digs deep to understand the real value of a property.
So how do you know what a property is actually worth – and whether it’s really in your range?
You and/or your agent need to do some serious homework. Look at the most recent sales in the building, on the street, and/or in the area. And when I say recent, I mean RECENT. With the market changing this fast, you can’t use sold prices from 3 or 4 months ago to determine current value.
Be sure to compare apples to apples: when you’re looking at what a comparable place just sold for, look at ALL the variables that might impact value, like number of bedrooms, location in the building or on the street, views, upgrades, number of storeys, size of backyard, etc.
This is where your agent can really help you. We are here to help you navigate this roller coaster of a market and figure out what a specific property is worth so you can come in prepared to compete – or walk away if it’s out of your reach.
Coming up with the right number
I always tell buyers this: when you know there are other offers, don’t let that get in your head or in your way. With your agent’s guidance and the potential range of the property’s value in mind, put your absolute best foot forward. Go with a number that won’t give you buyers’ remorse if you win. But also, if you lose, you won’t feel bad that you didn’t give it your all.
Also, if you’re inclined to shy away from bidding wars, keep this in mind: a property that gets a lot of attention when you’re buying it is also likely to get similar attention when it’s time to sell. But also, in a city like Toronto, it’s pretty unavoidable. If you want to play to win here you have to get comfortable with the idea of competing for what you want.
Read more: 5 ways to win a bidding war
Need help figuring out the true value of a specific property?
You need an agent who’s really tapped into the local market and has a track record for helping clients win in multiple offer situations. I’m happy to help you figure it out – give me a call anytime.
About Sean Miller
Recognized as one of the most dynamic, high-performing agents in the Toronto market, Sean is the #1 performer at Property.ca Inc. Brokerage and is in the top 1% of Toronto realtors for sales volume.*
Over the last decade, Sean has built a strong real estate career based on his uncompromising professionalism, relentless work ethic, and tenacious drive. He strives to provide the best possible outcome and to make the process seamless and transparent. Sean has proven that his exceptional service and attention to all of his clients are the recipes for his success. His deep understanding of the market makes him an ideal advisor for buyers, sellers, and investors alike. Sean’s tough negotiating skills, coupled with his “no-nonsense” approach to closing deals, put him in a league of his own.
*Toronto Real Estate Board (TRREB) 2021, 2022