Could a booming real estate market continue longer than expected?
The historical norm has been a ten-year pattern – five years up, and five years down. But we’ve never had the government-sponsored artificial market benders like ultra-low rates and a no-foreclosure policy before.
I was speaking with some Canadians yesterday, and they said the Toronto market has been positive for twenty years straight – and now a decent house cost $3,000,000. The dollar valuation on both sides of the border has contributed, but the market psychology is such that prices keep rising. The supply and demand is out of whack, and bidding-war strategies are in place on every listing.
This Toronto realtor mentioned that only 1 out of 200 deals fall through, and that the ‘bully offer’ tactic is common but rarely successful. Instead, they employ the ‘offer night’ strategy:
This is why listing agents host “offer night” in the brokerage, and encourage buyer’s agents to show up in person, and even bring their buyers. Try and picture that lobby, with eight agents, all waiting, all sizing each other up. Maybe two or three agents brought their clients and are pacing outside. A couple agents are on their cell phones, and others are whispering in the corner of the room.
That is how you create artificial demand, through emotion, anxiety, and an all-around frenzy.
Read more here:
One of the commenters there also suggested this strategy:
What the real estate business needs to implement is a ‘Stalking Horse Auction’. Stalking Horse Auctions are common in bankruptcy proceedings because they offer stakeholders the greatest transparency and maximise value.
It starts out with the “stalking horse” bid, this is one person who generally agrees to be the “stalking horse” to put forth the opening bid which will be revealed to all other participants. Other people who wanted to submit a bit would then see what the initial offer is going to be decide if they want to bid higher. Those bids are then disclosed to the ‘stalking horse’ who then decides if they wish to put forth a bid higher than those other bids. If the ‘stalking horse’ decides that they want to best the highest bid then they would walk away with the house, if not it goes to the highest bidder.
The ‘stalking horse’ is selected by having everyone sending in their initial bid and the highest one takes it.
There are advantages and disadvantages to both. Stalking horse sets the market and might bid too much in their initial offer. The other bidders get to see the ‘stalking horse’ offer and have an opportunity best that offer but could again be bested by the ‘stalking horse’ in the end.
The reason these auctions would never work in Toronto real estate is that their fair, transparent and take the power away from the agents and put it in the hands of the seller.
There could be more to look forward to if this market keeps going!