Before I started blogging I used to send out an e-newsletter to my clients. Way back in January, 2008, I wrote a piece about bully offers. At the time, they were a relatively new phenomenon. In the years since, the practice has surged and waned, never going away completely, but not always playing a prominent role in the market place. Over the last few weeks we have seen a handful of big plays, resulting in some eye-popping numbers. It’s hard to say how much influence they have on the overall monthly numbers, but it is fair to say that the bully offer is something to consider/watch out for – depending upon your perspective. Anyway, here (below) is what I wrote back then:
As some of you have experienced recently, there is a relatively new phenomenon occurring in the Toronto real estate market: the Bully Offer. By now, most market watchers are familiar with the typical marketing cycle for homes listed for sale. The listing is posted this week, an open house is scheduled for the weekend, and offers will be reviewed next week. In the hectic Toronto market it has become important to make sure that we do sufficient marketing of a listing to ensure as good exposure as possible; we don’t want a listing being scooped up in one day. That leaves everybody wondering if the listing could have sold for more money – and maximizing the proceeds from a sale is the listing real estate agent’s duty to the Seller.
This procedure has basically become the de facto standard in recent years. However, a counter-strategy has emerged that can really make things difficult for everybody. A “bully offer” is one registered prior to the scheduled date – often several days early – to be presented ASAP. The Listing Agent is obliged to present the offer to the Sellers. The ball is then in the Sellers’ court: do they take the ‘bird in hand’, or wait for the scheduled date in the hopes of getting competition? To be attractive to the Seller, the bully offer is typically (almost always, in fact) for more money than the asking price, and often ‘firm’, meaning with no conditions attached. It’s a tough decision that can only be made by each Seller on a case-by-case basis.
What about other potential Buyers? The Listing Agent is obliged to inform only Buyer Agents who have registered an offer intended for the scheduled date. Since we usually don’t register until the scheduled day of offers, every other Buyer who has looked at the house may be left out. However, it seems most Listing Agents are taking the time to notify every other agent who has shown the property. (Also, I typically call the Listing Agent if my Buyers express any interest at all in a property; I ask to be kept up to date with changes or developments.) A bully offer puts tremendous pressure on the other Buyers, who may have been counting on more time to make their decision, arrange financing, etc. But, that’s the point of the bully offer – to ‘box out’ the competition.
How do you beat a bully offer? Firstly, be as ready as you can be to make a purchase: have your financing pre-approved and your deposit money readily accessible. Secondly, if you are interested in a property, consider a pre-home inspection. That costs money, and you might still get out-bid, but that will allow you to make a ‘firm’ offer, if necessary. Thirdly, try not to fall in love with any particular house! You may not get the house, and if you are emotionally committed to it you risk disappointment. (Remember: in any negotiation, you have to be ready to walk away if you don’t get what you want/need.) If you are ready and willing to make a competitive offer, you have just as good a chance against a bully offer as any other situation.
Being prepared to deal with bully offers is now part of the whole buying process. No matter what we encounter, I always recommend that my clients be flexible and co-operative in negotiations – even if the other side starts to get prickly. Staying cool and ‘professional’ helps get you through even the most difficult negotiations.