Good ‘ole insanity is back!
Paying 10% more than a property is “worth” is back in high fashion, and this mentality was exemplified with the recent sale on Portland Street in the thriving King West area.
What a property is “worth” is anybody’s guess, but what if a comparable sale was staring you right in the face?
I consider a “buyer’s premium” to be anything paid above what the property should reasonably sell for.
If a property is under-priced by the seller and the seller’s agent and comes onto the market at $199,900 when it “should” sell for $225,000, then a $232,000 sale price would indicate a $7,000 “buyer’s premium.”
I also call this an emotional premium.
It’s hard to pin-point a value of any house or condo in the city, but we can sure come close!
So what do we make of a condo that is “worth” $340,000 selling for $385,000?
It’s pure insanity, in my opinion.
Before you judge, let me give you the backstory…
I detailed my experiences with this unit as part of another post last week, so forgive my redundancy.
Portland Street is located in “FreedVille” where Freed Developments has built half the area and has many more projects scheduled for construction in the not-too-distant future.
It is also in the heart of the thriving King West area between Spadina and Bathurst where all the chic restaurants and bars are located for the 24 – 30 year old crowds to pounce.
Brant House, West, Conviction, Brassai, Bier Market, The Spoke Club, Cheval, and even Blowfish if you feel like walking more than three minutes; are all at your doorstep.
I knew there would be action on this very dressed-up 1-bedroom unit in a 2-year-old building on Portland Street, but never did I think I’d see the complete insanity that plagued our market in 2007.
I mentioned last week how I stood outside the building with my clients one night waiting for another Realtor to come back with the key all while other groups of buyers showed up with their agents in tow.
We ended up seeing the unit with another group, and 2-3 more groups passed us by from the front door, to the elevator, to the lobby.
It was a complete mad-house, and the subsequent insanity should have come as no surprise.
But I’m naive, I suppose, and maybe a bit old fashioned.
I don’t get drawn in my the glitz and glamour of being able to pre-drink at my Portland Street condo before stumbling a block to Brant House with my buddies while my daddy’s Visa burns a hole in my pocket.
And when I see numbers and values staring me right in the face, I use them to make a rational, informed decision.
This unit on Portland Street was listed at $325,000 and immediately became the buzz of the industry. All my colleagues had shown it; some of them to 2-3 different clients, and every young buyer in the city was sent this listing by their Realtors.
The unit was perhaps a touch over 600 square feet, but it was meticulously staged right down to the color and organization of the bowl of jelly-belly on the counter.
It was a fantastic unit, but my buyers didn’t like the fact that the second-storey balcony overlooked the alley-way below. With the City of Toronto not picking up garbage and the hot summer heat, it was a pass for my clients.
We did our homework in advance, however, and found that the exact same model unit had sold for $345,000 only a month prior. This unit was on a higher floor and was facing south, meaning it didn’t look at a garbage-alley from ten feet above.
We determined that since the two units were the same inside, but not the same outside, perhaps the unit currently listed for sale was worth a hair less than the $345,000 asking price. I told my clients $338,000 but added that there may be a buyer willing to go right up to $345,000 just to ensure he or she gets the place.
My clients are both savvy people and said, “Why would we pay the same $345,000 price for this unit when the other one was substantially better?”
I told them “you wouldn’t, but somebody else might, and probably will.”
Emotion plays a huge part of the purchase process, but none of us were ready for the final selling price.
I ask YOU, the reader, to come up with an idea right now of the “insane” price you think I’m speaking of.
Do the math yourselves – the unit is “worth” slightly less than the exact same model that sold for $345,000 a month earlier because it happens to be on the second floor over looking an alley way behind a row of King Street restaurants.
The unit is “worth” $340,000, but somebody paid more, didn’t they?
Am I talking about $350,000?
How about $360,000?
Wouldn’t that be a gas? Somebody paying $20,000 more than all rational thought would indicate they should?
Try again.
How about $370,000 then?
No.
This unit sold for a whopping $385,000.
If you’re the guy that just paid $345,000 for the same model one month ago, congratulations – your condo just went up in value to the tune of forty-large.
But if you’re the moron that just paid a $45,000 emotional premium for this condo, please tell me WHY!
This is one circumstance where the old adage, “It’s worth what somebody is willing to pay for it” is completely false.
It’s not worth $385,000, now way, no how.
It simply can’t be worth $385,000 when the same unit just sold for $345,000!
If you are this buyer’s agent – you should be ashamed! But you won’t be, because you’re an a**hole who sold out his clients for a $9,625 commission…
This buyer got carried away, and simply said, “Screw it,” while throwing all caution to the wind. Perhaps the buyer had been looking for six months and finally found the “perfect” place to call home, but the price he paid should haunt him for quite some time.
One of the first things I tell my new clients is, “If you have a mental stumbling block about being in competition, you need to get over it right now.” Because for ever Dick or Jane looking at 1 Shaw Street, 1029 King Street, or 66 Portland Street, there is a Tom, Dick, or Harry looking at the same property with the same gleam in their eyes.
But when absolute INSANITY kicks in, I tell my buyers to walk away.
The price paid for this unit on Portland Street makes me sick to my stomach, and it has nothing to do with those awful ribs left over from Sunday night that I just microwaved and downed with a large glass of milk…
It has to do with the ridiculous price that somebody paid while tearing up the comparable sales and saying, “I’ll pay anything to get this place.”
That’s when you know the market is out of control.
I can’t predict the market – I can only comment on the current conditions.
But if this sort of thing starts to happen with increasing frequency, I’ll be very, very worried as we move ahead…
http://torontorealtyblog.com/2009/07/17/pure-insanity/
reviewed by Moishe Alexander, CFC Canadian Funding Corp CEO