Entries from January 2014 ↓

If you recall yellow helos full of lusty Chinese drooling over Vancouver from six thousand feet, you remember Cam Good. More than any one person, he was responsible for the Yellow Peril attack of two years ago. He’s the guy (through his Key Marketing Group) who stuffed a bunch of local suburban real estate agents of Asian heritage into a helicopter and told the media (he invited them, too) they were actually HAM scouting for properties.

 Then Cam placed two employees of Chinese ancestry in a condo sales centre at the Lunar New Year and told them to pose as sister-buyers from the old country, scooping a condo for their Mainland folks. So they did. And gullible reporters from CTV and CBC bought it. More Yellow Peril.

Then he went to China and sent this message back to Vancouverites, now whipped into a jingoistic frenzy over foreign buyers:  “If you don’t want to live in a city that beautiful, with that much demand, then maybe you should live somewhere else, because in any city, no matter where it is, if there is international demand you are going to have these concerns, so either you want to live there or you don’t.”

So, some people see Cam Good as a pricky little self-lubricating, manipulating, fabricating flogger whose tools of choice are fear and fiction.

Now he’s at it again. But this time, since HAM is a spent force, Mr. Good has turned his glint to the next thing on the local hate list: cars. In a great example of how condo developers are increasingly desperate, the guy is now marketing a new downtown project (“InGastown”) to clueless virgins who would like to ‘trade a car for a condo.’ This is useful, not just because InGastown will have no parking when it’s built in two or three years, but because it gives him a new opportunity to massage the truth.

In chart form, here’s the pitch:

Hipsters with a beater worth $5,400 can buy a condo, the marketer says, because 2% downpayments will be processed through Vancity. Of course, buyers have to somehow save the full 5% by the time a unit closes, but that’s in the small print. And while Camenomics is correct that cars always depreciate and real estate normally appreciates, InGastown really, really, really hopes none of their buyers get a calculator or read this blog in the next two years before the building goes up.

Because if they do, they’ll clearly see losses are headed their way. Those could be little, or they couple be epic. But they will not resemble anything on the promotional chart.

First, let’s take the best-case scenario. A metrosexual urban latte-sucker trades the Fiat and a bundle of cash for a $280,000 condo that actually appreciates steadily and is worth $311,000 in five years. Selling it (the only way to collect a profit) leaves about $297,000 after commission. The mortgage (which included the CMHC premium) needs to be paid off, so $41,458 remains. Deduct the $15,000 downpayment, and the profit is $26,450. Yes, baby! Cam for mayor!

Of course life doesn’t work that way.

The mortgage monthly (at the developer’s 3.89% rate) is $1,550, and with strata fees and property taxes the total amount to carry the 650-footer is $2,100. To rent a similar (actually larger), new one-bedroom condo downtown costs $1,495. So after five years the ‘owner’ has forked out $36,000 more than the renter, in order to secure a $26,450 profit. Plus the renter could have invested the $15,000 and turned it into $22,000. Or driven it around.

That’s it. Best case.

Now imagine a modest 15% correction in condo prices. In that scenario the ‘owner’ loses $27,300 (including the downpayment). Add in the $36,000 premium the hapless owner paid to live there, surplus to rent, and the damage jumps to more than $63,000.

As Cam says to the virgins, “First-time homebuyers: if you can rent, you can own InGastown.”

But why would you possibly want to?

The pattern continues.

Is it ethical to list a house for drastically less than it’s worth in order to pump desire and break hearts? Especially when available homes are few and many buyers desperate? Is it cruel to purposefully ignite a bidding war in which almost all will lose? Or is screwing out the last possible dollar the highest duty of a vendor’s agent?

The questions are floating around again in the country’s biggest market after the house below (middle peak) sold in Toronto’s Junction district – a place most people wouldn’t choose to live if houses weren’t normally in the modest $600,000 – $700,000 range.

The row house at 325 Perth was renovated a decade ago, but shows well. The lot’s just 18 feet wide, the bedrooms small, there’s one parking spot and the geriatric basement has a little suite. But beautiful or spacious, it ain’t. Here’s the back and interior.

The owner, a real estate agent, listed it for $639,900. Immediately a well-read real estate-pumping blog called it ‘a good catch.’ Mike Gryspeerdt, the agent-owner knew it. Once his house became a media story, he admitted he knew it would sell for $100,000 more than the list price. So, this was not an example of a property mispricing. It was no mistake. It was never intended to be a bargain in a city where detached houses are scarce and rare. It was a strategy.

It worked. Four hundred people came to the open house last weekend. They shut down the street and queued on the sidewalk. Once inside, nobody could spend time digging into the mechanicals or the structure. Clearly this was a high-octane, competitive race to secure a house for less than it was ‘worth.’

On Tuesday night, when offers and certified cheques were accepted at 7 pm, 32 of them littered the kitchen table. Two hours later Gryspeerdt accepted $848,625. That was a third more than he has asked and a hundred thousand more than fair market value. The auction has worked perfectly.

After bucking allegations of conflict-of-interest in listing and selling his own home, and despite admitting he deliberately mispriced the property, he lamented this to a reporter: “I’m genuinely, 100% shocked by this. I did not expect this to happen — nor did I want this to happen. I’m not comfortable with this at all.” But he still cashed the deposit cheque.

In seeking balance for this post I asked a very experienced and respected Toronto agent, George Klump (no relation to the CREA economist), for comments on the morality of sparking bidding wars which inflate prices and repulse buyers.

“The listing agents’ ethical duty is to the seller, it is their job to obtain the best possible result for their client. The agent has to take many things into consideration; has the seller already bought; is this typically a time of year when buyers are as active as other times; will there likely be more inventory coming to market soon, etc. When selling in hot areas like the Junction, prices are continuously changing upward so it is hard to establish exactly what a house is worth but the biggest mistake a seller can make is overshooting that upward movement and pricing too high – people will think you aren’t in touch with reality and the house will sit on the market at a great inconvenience to the seller and will likely need to be discounted before it actually sells.

“Adapting a strategy of pricing below market and setting an offer date has a lot of benefits for the seller as it creates excitement amongst buyers which in turn can lead to the price being bid up beyond what current market conditions might indicate because buyers get emotional and it makes sure the property is sold quickly, which can be very comforting to those sellers that bought their next home before selling their current home. Adopting this strategy is not without risk for the seller, as sometimes the offer date comes and there is only 1 offer and you are stuck at a low price with no leverage to push it up. This can happen for a variety of reasons; perhaps a couple of similar properties came on the market at the same time and diluted the pool current buyers; the demand for the neighbourhood was over-estimated; there was extreme weather that kept buyers away; or even world events such as 911 after which there was virtually no activity in the Toronto housing market for a few weeks. If this happens and you reject the offer and raise your price, it is usually viewed poorly by potential buyers.

“The ethical question should lie more with the potential buyers’ agent.  Although it is up to the buyer to decide what they are willing to pay, their agent should caution them about not letting their emotions rule and base their offer on facts and their specific needs. Their agent should provide them with a price range of what similar properties have sold for and should also warn them of the pitfalls of paying too much.  Those pitfalls can have severe consequences. If the buyer needs a mortgage and they paid well over the asking price, the bank’s appraisal may come in much lower and the financing will be based on the lower price which will mean the buyer has to come up with a much bigger down payment than they may be able to afford. The length of time the seller plans to live in the home should also be addressed, if there is a chance they may have to resell in the next 1-5 years there is a real risk of not recouping your initial investment including fees, taxes etc. but if the plan is to be there for the next 20 years paying a little more than you should doesn’t matter as much.

“That being said it is very frustrating for buyers when looking in these “hot pockets”. If you can afford up to $700,000 and you are looking at houses priced at $639,000 and they sell north of $800,000 it is very disheartening. Work with an agent that knows the market and can show you properties that likely will sell in your price range. Also, while this happens in certain prime areas in the city, most homes in Toronto still sell at or below the asking price.”

Are there lessons here?

Of course. If you want to sell your home, at least in a demand area, this is the moment. And if you seek top dollar (and no friends) now you know how. If you decide to create a frenzied, emotion-laden auction, then don’t talk to reporters afterwards. If you see a property with an unbelievable price, assume it’s a fake. If you’re moronic enough to enter a bidding war, never do it alone.

And if you lose, relax. You won.