What is the blog all about?!!! & Why is it important?!!(How is it related to ECONOMICS?!!)
Owing to the recession, the listings in the real estate market have been significantly low this year, and as a result, many agents have adopted auctioning as their standard option, to generate multiple offers for their property. In this way, a bidding war is artificially stimulated by underpricing the house first and then waiting a week to take in offers. However, the tide is turning this spring and a majority of the home buyers and sellers are perturbed by this immoral and deceptive practice. House sellers have decided not to involve themselves in the bidding war, and buyers are evading property that seem discounted on purpose. As of now, only a handful of buyers and sellers are defying in the hope that a little resistance will pave the way for a better market. For example, a property in the city's Forest Hill neighbourhood was sold in January 2010 for $200,000 more than its list price at $2.7 million. The strategy that agents follow in Toronto for high-demand properties is deliberately underpricing them and then refusing to take bids until after a week in order to force buyers into an auction and make them bid higher. The bidding war has reached the extent where some buyers are sending presents to vendors to have an advantage over other buyers in the auctions, as reported by the Star recently.The practice is not beneficial to buyers and sellers. "Some buyers end up wasting their time on a property they shouldn't have bothered bidding on in the first place since it was never in their price range, and sellers don't necessarily get a better price", says Realtor Thomas Cook, who is completely against this method and has also complained to the Toronto Real Estate Board.
Analysts foresee a tough spring market for potential buyers as low interest rates and a dearth of listings keeps the Toronto market heated. Some cons of bidding as discussed in the article include the unnecessary home inspections, stress on the buyers along with a waste of their time and creation of unsustainable prices. One counter-argument is that this practice can result in higher sales commissions. However, even that doesn't happen in a market that is completely down. The seller will eventually be left with unsold property as no one will come forward and bid on the day the offers are taken. However, in a market with little or no listings, underpricing a home could work. Buyers who would otherwise not be inclined to look at it because it was priced higher, might be attracted by this strategy.
The executive Vice-President of Re-Max Ontario-Atlantic Canada, the largest franchiser in the province says "it is virtually impossible to police an underpricing strategy." Since, its a free market, houses can be priced at any figure and there is nothing that can be done about it except not to participate if the sellers and buyers do not want to. Bidding wars are expected to continue for the first half of 2010, according to analysts. The introduction of the Harmonized Sales Tax in Ontario, accompanied by more listings in the second half of the year will cool the market activity and make the bidding wars less of an issue. In conclusion, an increasing number of people are refusing to partake in the perturbing bidding match and they are appreciated for their efforts to bring up the real estate market. Positive Statements (If...Then!!) Student Hat on!!!!
IF Sellers artificially stimulate a bidding war by underpricing their property, THEN the market would eventually be killed because buyers end up wasting their time and getting frustrated if they do not win the bidding war, and if a bidding process is not even generated, the sellers are left with very disappointing results.
IF the bidding practice continues, THEN the prices will remain high in the market and although it will benefit vendors at the beginning, they would have to use their profits to buy their next houses and get caught in consecutive bidding wars, thereby creating unsustainable prices.
IF the mortgage rates are low and the prices are high, THEN multiple offers will result and eventually bidding wars can benefit sellers to a great extent. In other words, sellers should first make sure the real estate market is favorable before they under-price their property and try to take in offers if they want to succeed.
Normative Statements (What should be done??) Economist Hat on!!!!
In order to maintain fairness in the Real Estate Market, bidding wars SHOULD completely cease to exist. Shortage of listings in the market should not be a reason for real estate agents to engage in unethical practices and force buyers to jump into bidding wars everywhere.
However,.........
If buyers decide to participate in bidding wars, they SHOULD be make up their mind quickly as to where their hearts lie, and acquire the property with an "iron-clad" proposal. If the property is not very impressive, potential buyers would do well to just search for other properties.
Super Eco-Freak's Best Call=)
The best option for home buyers and sellers would be to absolutely refuse to take part in these bidding wars and although the traditional way of buying property is slower, it is safer and prevents buyers from paying a higher price and receiving less in return. Also, they have to go through necessary stress if they do not get the property on their mind. Sellers do not always get the best price if there are more bids as only a few of the potential customers will actually be able to afford the true price.
"Buying or Selling a Home: Multiple Offers, bidding war, real estate agent." Expert Archive Questions. N.p., n.d. Web. 27 Apr. 2010.
Buying. "Lifestyle - HGTV Canada." HGTV Canada - Decorating, Entertaining, Real Estate and Renovation Advice. N.p., n.d. Web. 27 Apr. 2010.
"House sellers, buyers balk at bidding wars - Yourhome.ca." Decor, Renovation, Home Electronics, Outdoor Living, Garden, Real Estate - YourHome.ca. N.p., n.d. Web. 27 Apr. 2010.
http://www.primetorontoneighbourhoods.com/blog/wp-content/uploads/2009/07/Home_buying-bidding_wars-300x219.jpg
http://www.greaterfool.ca/wp-content/uploads/2009/10/bubble1.jpg
http://www.taxconcern.co.uk/images/cap_small.PNG
http://images.google.ca/imgres?imgurl=http://rlv.zcache.com/mommys_little_economist_hat-p148662997909266069tdto_210.jpg&imgrefurl=http://www.zazzle.com/economics%2Bhats&usg=__SeAGp6BlFNOyUl4vK_XuBXnK7F4=&h=210&w=210&sz=9&hl=en&start=2&um=1&itbs=1&tbnid=pxhqyTQi7XoViM:&tbnh=106&tbnw=106&prev=/images%3Fq%3Deconomist%2Bhat%26um%3D1%26hl%3Den%26sa%3DG%26tbs%3Disch:1
