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Originally Posted by Tom Ames
Me too. I wish someone could explain to me why this is due to "hot" areas and not ignorant realtors. Do the sellers' agents not realize the areas are "hot" when they put a price on the house when listing it? Obviously, they should, so should the houses not be priced accordingly?
Craig Alexander, chief economist at Toronto-Dominion, says the type of “auction” organized by the real estate industry is likely to produce a higher price.
“You generally get a higher price from a closed bidding process. The reason is in an open bidding concept, let’s say I am bidding against you and I’m prepared to go to $500,000. We start the process at, say, $380,000 and the most you will go to is $450,000, then I can get it for $451,000,” says Mr. Alexander, who says you cannot discount people getting emotional in any bidding process.
In the type of seller’s market we have today, the process is downright inflationary. The artificially low selling price just kicks the process off.
Moshe Milevsky, an associate professor in Finance at the Schulich School of Business at York University in Toronto, says the closest analogy he can think of is the market for initial public offerings.
“The investment bank tries to issue to the market at a low price,” Prof. Milevsky says. “They know the company is worth more but they go to market with a low price because they want that pop on the first day of trading. They want the publicity, the excitement.
“In cases of real estate, it’s not different,” he says. “What you offer it as not as important as what the market price is. You offer at a low number to create a bidding war.”
That’s not to say home prices are not rising fast. They are. And you can’t discount the possibility of that one buyer who bids well above market price. But asking price itself should not be your gauge for what a home is worth. Not anymore. Real estate agents have taken care of that.