A for sale sign outside a home in Toronto, Dec. 13, 2021.CARLOS OSORIO/Reuters
Ask a home buyer what they dread the most and the answer may very well be a bidding war. What they might not know is that right now the vast majority of home sales employing the offer day strategy – a day the seller sets aside to consider any bids on the property – result in no offers and no sales.
In July, according to data compiled by a new real estate search service called TopHouse.com, the percentage of all homes listed for sale that sold on an offer day is somewhere around 7 per cent in the largest real estate board in the country, the Toronto Regional Real Estate Board.
That figure may come as a surprise to buyers, but perhaps it will surprise sellers more because according to Ben Amir – CEO and founder of TopHouse – his data suggests 53 per cent of listings posted in July with offer dates generated no bids at all.
In July there were 13,712 new listings reported by TRREB, which was up 11.5 per cent compared to the same month in 2022. TopHouse found that 27 per cent of new listings were posted with an offer date, or about 2,879 listings.
The setting of an offer date is sometimes used to encourage multiple bidders to compete against each other.
According to TopHouse, only about 17 per cent of those sellers who used the offer day strategy actually received offers that they accepted. Another 20 per cent received offers but rejected them. In other words, more than 70 per cent of the time the offer data strategy failed. In just more than 10 per cent of the listings TopHouse analyzed a bully offer was accepted before the offer date.
Bidding wars have been a hot topic in Canadian real estate for years, and have been the subject of suggestions for reform around things like disclosure and openness to create more transparency in the bidding process. But TopHouse’s numbers suggest bidding wars aren’t even close to the majority of the market, despite the opposite impression.
“There’s been offer nights for so long; the market’s really been trained to do offer nights, especially if they want to be in a hot neighbourhood,” said Davelle Morrison, a broker with Bosley Real Estate Ltd., in Toronto. “It’s like Pavlov’s dogs: they’ve been trained. Even buyers who say they won’t deal with offer nights? Eventually they are going to get worn down and have to deal with an offer night because they don’t have a choice.”
Ms. Morrison also draws a distinction between the detached home market – which tends to see many more offer days – and the condominium apartment market. That said, in July, the number of new listings was weighted two-to-one for detached and semi-detached houses with freehold and condo townhomes topping 9,000 listings while the number of new listings for condo apartments was about 4,300.
But even among detached homes, sellers aren’t always in the driver’s seat.
“It’s been up and down over the last 26 years, but there’s definitely less of an appetite to fight … these interest rates are affecting buyers,” Audrey Azad, a salesperson with Re/Max Hallmark Estate Group Realty and part of a high-volume sales team. Ms. Azad said that there are still some areas that see bidding wars, while previously hot zones have gone cold.
“It’s very location specific: When I list something that’s spectacular, or rare, it’s business as usual,” she said. “Then there’s Woodbine-Danforth: there are five new-builds in there and no matter what anybody does, they still get no offers.”
For the current market, Mr. Amir is confident in his numbers: TopHouse has been getting raw data from TRREB for a few months. But Mr. Amir also ran a regression analysis based on publicly available data looking back over 10 years and while he doesn’t have as much confidence in those findings they suggest the offer day strategy is a lot more successful in hot markets with low volumes of listings, such as in 2017 and 2022. In those peak periods – which also saw some of the fastest rates of price appreciation in TRREB history – the number of successful offer day sales jumps up to 25 per cent of all listings, and Mr. Amir says his data suggests the percentage was closer to 30 per cent in January and February of 2022.
Mr. Amir was a co-founder of the popular real estate search service HouseSigma.com, before accepting a buyout. His new company is a competitor to his old one, but he’s relying on new artificial intelligence tools to create natural language searches that drill deeper into real estate preferences. Say you want “semi-detached homes near the Danforth Subway,” TopHouse will display listings that fit your terms.
“From my experience not a lot of people play around with the filters, it’s a lot of dropdowns and it’s annoying,” he said. TopHouse searches are providing for new insights into what people want, and among the tools he’s working on is a way for buyers to say “no offer days or bidding wars” when they search. TopHouse uses a mix of algorithmic identification and manual verification to identify properties with offer dates.
Long-time realtors accept that TopHouse’s bidding war figures are in the ballpark of their experience, but stress the difference between a successful offer night and a failed one has less to do with using the tactic at all, and more to do with what you are trying to sell.
“I won’t be doing it with everything: it has to be a specific type of property where demand outweighs available supply,” said Andre Kutyan, a broker with Harvey Kalles Real Estate Ltd. Mr. Kutyan mainly transacts in high-value homes in midtown Toronto but even he only puts an offer day on about a quarter of his listings. Too often he’s seeing seller’s pricing too high to generate buzz and a critical mass of bids.
“If I’m telling you to price it 20- [to] 30-per-cent below the market, they have to understand I’m not crazy,” he said. In his experience a home priced too close to its current market value isn’t going to generate gobsmacking over-asking bids.
“Some sellers have expectations higher than market value … and of course the Bank of Canada doesn’t help buyer attitude and sentiment,” he said.
So sellers have to be choosy about seeking out bidders, while for buyers there are upsides to an increase in failed offer days.
“The best time to buy is in a down market,” said Ms. Azad, particularly for move-up buyers. “If you can afford it, you’re going to find yourself with a much bigger house: In 2022, you got a pea-size house for $2-million. Now you can get a proper house in a good neighbourhood.”