Real Estate: Is there a bully in the room?

By Lindsay Smith/Real Estate Columnist

When is a bully offer worth considering? What is a bully offer? The first time I heard of a bully, or a softer sounding name “pre-emptive” offer was in 2015. This was the run up to a really active real estate market that cooled in 2017. This was when realtors began to put properties on the market and accept offers at a certain date and time. An example would be when a home hits the market on Thursday and offers being entertained at 6 p.m. on Monday. A bully offer is what happens when a buyer submits an offer prior to Monday and wants an answer quickly. Typically, to jump ahead and slide in prior to other competing offers being presented along with their offer. In a market such as we have now, in order to get the attention of the seller, the buyer typically has to make the offer so compelling it would be crazy not to accept it. Or is it better to wait?

This is a challenge listing agents and sellers deal with regularly. If you accept a bully offer, you run the risk of “leaving money on the table.” Meaning you may get more if you wait until the date set for offer presentations. Or you may get less. It is a tough spot to be in. Let me give an example to share how a recent sale unfolded.

We had a property that was placed on the market on a Monday, and we advertised that we would review offers on the following Monday. The asking price was $960,000 and reviewing the selling history of the area showed the homes were selling for 13 per cent over asking, meaning, the home should sell for approximately $1,085,000. The sellers, being in their 80’s decided to move into a hotel for the week to allow the showings to happen seamlessly. In total we had about 70 groups through the home. On Saturday (two days prior to the offer date) I had a realtor call who wanted to submit a bully offer. I reminded him we were reviewing offers on the following Monday, however, he still sent his offer.

Again, as I mentioned above, a bully offer has to be compelling enough to cause the seller to work with it prior to the presentation date. This was a firm offer for $1,100,000. Is this considered compelling? What would you do if you were the seller in the situation?

I had a conversation with the sellers, and this price was above what our expectations were for a selling price. We weighed the pros and cons, reviewing how many showings we had on the property and the conversations I had had with realtors who had showed the property. The sellers came to the decision to wait until the Monday presentation time.

This can end up with two conclusions on offer date. The property sells for more than the bully offer or less. (A third result would be to accept an offer at the same price.) My role as the advisor to the sellers is to present all of the information with regards to activity, to ensure the bully offer is contractually acceptable and then to share with them my experiences of being in the situation and what the outcomes were. The sellers’ role was to make a decision.

One of the determining factors was the realtor who had submitted the bully offer was buying the home for he and his family. We came to the conclusion that if this buyer was interested on Saturday, they would still be interested two days later.

Are you curious what happened on Monday?

On Monday we ended up having six offers to review. The bully offer returned to be part of the process. From the beginning there was just over $100,000 difference between the highest and lowest offers. The bully offer returned at the same price and terms offered two days prior.

In the end the best offer, the sellers ultimately accepted was over $1,150,000. More than $50,000 above the bully offer. Here lies the quandary. The end result could just as easily been less than the pre-emptive offer. It is a risk either way for the seller. One tactic I have seen regularly over the past year is for an offer to be submitted prior to the review date, and not be dealt with by the seller, only to have the review date arrive with the bully offer nowhere to be seen. I see this as “fishing” exercises testing the sellers to see if they will sell for under what the market will bear.

The new terms, bully offers, pre-emptive offers, offer dates and bidding wars are all terms that belong in a real estate market where there are more buyers than sellers. If we see enough new inventory for sale hit the market, this new way of defining our market will become history.

It is easy to point fingers toward who created this way of selling homes, but an experience I had in 2020 at an open house I was hosting, revealed much about how buyers currently view the home buying process. I was not holding offers on a property as the seller did not want to “play that game.” (Their words) One of the buyers who came through the home asked me what was wrong with the home, given that we were not holding offers like everyone else. This way of selling homes has been supported by sellers and buyers, with the realtors responding to how the market has been changing. Each party has had a role to play.

If you are planning on moving, this is a perfect time, and for the good of our local economy you will be helping to turn this upside down market right side up.

If you have any questions about bully offers or how holding offers works I can be reached at lindsay@buyselllove.ca or www.buyselllove.ca.