Get ready to be insulted on my behalf, because here goes…
Having been born in 1980 and perfectly situated at the age of twelve when Terminator 2: Judgment Day was released on VHS (and the laser-disc our family had…), I would like to think that I know a thing or two about Artificial Intelligence.
I watched Terminator 2 at least a dozen times per year all the way from age twelve through high school, and my friend Ryan and I knew every line by heart.
In our spare time, we used hindsight to determine what Miles Dyson could have done with Skynet or how Kyle Reese could have better protected against the machines gaining control over the human race.
We also plotted out the fallacies of the Terminator storyline, with respect to time travel and the nature of independent timelines, as we probably also wondered why we weren’t considered the cool kids at school, but I digress…
My point is that I knew what artificial intelligence was decades before y’all ever heard of ChatGPT
So, imagine my surprise when somebody told me last week, “I can’t believe you waste time writing three blogs a week when you can get A.I. to do it for you.”
“NOT POSSIBLE,” I said.
To which somebody else said, “Did you know that you can tell ChatGPT, ‘Write 500 words on Toronto homes in the style of Ernest Hemingway,’ and it’ll do it for you?”
Geez, and we thought the T-1000 was bad.
My point is this: today’s blog isn’t one that can be written by A.I., not only because Skynet will never be able to provide my “folksy intros,” with several hundred words that have absolutely nothing to do with real estate, and simply serve as an outlet for my ADHDOCDOCPD, as well as my fondness for the past, but also because the idea herein is too ridiculous for A.I. to comprehend.
Did you follow that?
What in the world is a “marketing price?”
Google this, and you’ll find results for “market price.”
But that’s not what we’re talking about, so eat it, A.I.
What we’re talking about today is something ridiculous. It’s unfair. It’s illogical. It’s perhaps laughable. Thus, it’s something that I’ll need to explain myself, without the help of Skynet or ChatGPT, and I’ll start now by talking about pricing in general.
We could talk for hours about pricing and ten thousand books have been written about the topic.
Are you familiar with “cost-plus pricing?”
How about “penetration pricing?”
Or what about “value-based pricing?”
Pick up a book or simply Google “types of pricing” or some combination of “market” or “product” and you’ll find all kinds of strategies.
But when it comes to the pricing of real estate, especially in Toronto, all those classic techniques are thrown out the window.
Of course, many of the concepts don’t fit.
In “cost-plus pricing,” the price is determined simply by adding a markup to the cost of producing the good. But in the resale housing market, we aren’t producing the good. It’s already there.
I would also add that the pricing of a single product, of which multiple could be bought at one time by the consumer, at different outlets/locations/suppliers, and for which there could be a relative substitute, has nothing to do with pricing a house or condo.
Pricing real estate is a completely different animal.
Now, many of you will be quick to point out that the way real estate is priced and offered for sale completely skews the concept of pricing itself. Specifically, that if you price a stainless steel water bottle at $29.99 and place it on a shelf in a store, the consumer can purchase it for that amount, without question. The consumer can purchase two, three, or ten of them.
When it comes to Toronto real estate, we know that the “advertised” price isn’t always what the seller is looking for.
Many of us take this as a given and don’t question how we got to this point.
But I questioned it at the very onset.
One of the first properties I ever went to see in person was a bungalow in Leaside on Glenvale Boulevard, priced at $409,000.
Here are the remarks in the MLS listing:
“What does this mean?” I wondered.
I asked the listing agent and he said, “Are you new?”
He was being facetious, but I said, “Yes,” and he said, “Oh, shit, sorry. Um, well, ask somebody who has the time to explain it to you…”
It didn’t take long for me to get a lesson in real estate pricing.
And this $409,000 bungalow ended up selling for $480,000.
An “offer date,” it was called, and I simply went with it.
It seemed that every property had an offer date, or at least every decent freehold in the central core.
And very quickly, I learned how real estate is priced in this market.
As we all know, for almost the entirety of the last twenty years, demand has far exceeded supply. So it would seem to reason that multiple consumers could be interested in a sought-after, low-supply product, and that this could be a major driver of price.
As a result, it seemed to reason that exposing the product – in this case, the house, to the market for a specific duration of time made sense.
That is how “offer dates” started.
But it also seemed to reason that, if you weren’t in danger of pricing too low, because it’s not a matter of “first horse to the trough gets to eat,” on account of having a scheduled offer date, then you could intentionally price low as a marketing strategy.
That is how “under pricing” started.
But them together, and that’s the classic “under-price, hold back” strategy that we have all come to know, love, and hate.
But this still isn’t what I’m here to talk about today.
Today’s title was, “What the heck is a ‘marketing price?’” and that’s a different animal from the classic under-listing strategy that has dominated real estate for two decades.
This new “strategy,” which I hesitate to put in quotations as it’s not a good strategy, is illogical to its core.
Consider that when you take a house that is seemingly worth $1,300,000, give or take, at $999,000, most market participants would figure that this looks off. In our market, most market participants would, with a tiny bit of market knowledge, assume there is an “offer date” afoot.
Scroll down to the REMARKS FOR BROKERAGES on the listing, or ask your real estate agent, and voila: “Offers Graciously Reviewed On November 20th @ 6:00pm, Please Register By 5:00pm. Seller Reserves The Right To Consider Pre-Emptive Offers.”
That’s exactly what we expected to find.
It’s a giant blue flag on the listing that says, “THE LIST PRICE ISN’T WHAT THE SELLER IS EXPECTING.”
But what if there was no offer date?
What if the property was priced at $999,000 with no offer date, but the seller expected $1,300,000 or more?
Are we in a different world now?
Some of you, in the past, have told me that there’s no difference. You’ve argued that whether there’s a posted offer date on the listing or not, the “strategy” remains the same.
I respectfully disagree.
Whether we’re talking about misleading/false advertising or whether we’re talking about seller expectations, I feel that pricing a property at 70% of fair market value and not specifying an “offer date” is illogical and just plain wrong.
One month ago, a listing came out in a downtown building where a client of mine owns two investment properties.
The price was very, very attractive.
$749,900 for 920 square feet, which is well below the “going rate,” although the going rate seems to be changing daily.
I scrolled down to the brokerage remarks and there was nothing about an “offer date.”
It even said, “Motivated seller.”
One week later, the listing was still up.
Two weeks later, the listing was still up.
After 28 days, the listing was still up on MLS, without a sale, and at $749,900.
But on the 29th day, something odd happened: the listing was terminated and the property was re-listed for $844,900.
Huh?
Why raise the price if you can’t sell the property – after 28 days!
I called the listing agent and politely said, “I was going to show your listing but suddenly the price is higher. Can you help me here?”
That’s when he said:
“David, $749,900 was just a marketing price.”
He went on to explain that the property was listed without an offer date because they didn’t want to “scare anybody away,” but they still expected to sell for well over the list price.
“But how are people to know your expectations are over the list price without an offer date?” I asked the agent.
He said, “Well, look at comparable sales.”
“There are no comparable sales in today’s market,” I explained. “Even something from August is stale-dated.”
“We had an offer,” he told me. “We got something around $700,000 and we signed it back at $900,000.”
I didn’t understand why he was telling me this, since it made even less sense, but somehow he was trying to use it to prove his point.
He was nice about it though. The conversation wasn’t contentious but rather confusing.
“We wanted to price low as a marketing strategy,” he told me. “And it worked, since we got a lot of people through. We just didn’t get the price he was looking for,” he said.
In my mind, they didn’t get the price the seller was looking for because nobody had any idea that the seller was looking for more than the list price.
But already this week, I’ve seen this same strategy play out.
A condo townhouse was listed for $1,299,000 for 30 days.
Then $1,279,000 for another 14 days, before being reduced to $1,249,000, where it sat for 30 days.
Now, it’s listed for $999,000 but with no offer date.
The listing says, “Motivated seller, bring all offers!”
I called the listing agent on Tuesday and asked, “What’s the deal here? Are you looking for $999,000?”
She scoffed and said, “No, of course not!”
I asked, “So how come there’s no offer date? Isn’t that how this works? You’re under-pricing, you want over asking…”
She said, “This is just a marketing price. I think it’s pretty obvious what we want.”
And the crazy thing is: she might be right.
They were listed for $1,299,000, $1,279,000, and $1,249,000.
It’s pretty obvious what they want.
And yet, I have a problem with the listing at $999,000 because it’s misleading.
Am I alone here?
I have written about this in the past, only it never had a name like “marketing price.” Agents never acted like this is a normal course of action before while scoffing at the idea that a “marketing price” wasn’t obvious.
Many TRB readers have felt that there’s zero difference and that under-pricing is under-pricing, but I can’t believe that this is what the fall market has turned into.
Sellers and listing agents are scrambling.
Scraping and clawing.
Unwilling to accept market conditions and getting very, very creative.
Should this creativity be rewarded? Should it be applauded?
Is this “thinking outside the box” or is it nonsensical?
May 7th, 2018, I wrote “Offer vs. Invitation To Treat”
It dealt with the same concept, only there was no name back then. “Marketing Price” is a fall, 2023 invention.
One reader commented:
I think real estate practice of intentionally underpricing properties should be prohibited. Even if there is “offer date” on the listing , it’s still false advertisement because “offer date ” clauses are only visible to realtors and NOT visible on: public websites (realtor, zolo, etc), online/newspaper advertising.
Another reader replied:
Should overpricing then be prohibited too?
Somebody else suggested:
There should be a rule that price can’t exceed 10% of list (with overage going to city for LTT or affordable housing).
Oh man. That’s a beauty. And the readers tore this apart, as you might expect.
But one person commented:
David, don’t you think that all of this can be fixed by the introduction of a “reserve price” on the MLS system?
Properties in Toronto are essentially auctioned without a formal auction. In most auctions, there is a reserve price that is higher than the list price, or “starting price”, so nobody is caught off guard.
The problem in Toronto real estate is that sellers aren’t required to state whether or not they have a resverve.
How about a simple checkbox on the MLS listing?
Reserve: Y/N
And that was about as good a suggestion I have seen.
Perhaps “reserve prices” are a whole other blog topic?
I started bidding on eBay in May of 1999. It was a completely different world back then, as most things were. But so many items had reserve prices and it was noted in bright red on the listings.
I didn’t bid as hard or remain as interested in items with reserve prices, but perhaps you can’t have it both ways.
People have never liked the “under price, hold back offer” listing strategy in Toronto real estate, but I don’t think it should be outlawed or banned, or even discouraged.
But the idea of listing low without any offer date is another story, and if this is a “strategy” that’s gaining momentum, I think that it’s time we seriously look at reserve prices on MLS listings.
Will organized real estate listen to such an idea?
I would assume, no.
But it’s my suggestion and you heard it here first.
Or second, if you already received a message from Skynet about this…
