The term bully offer sounds like you’re doing something bad, right? Well, it is and it isn’t depending on what side of the table you’re on. We’ll get into that in a moment, but to understand what a bully offer is and how it works you first need to understand what a multiple offer scenario means in real estate.
The Multiple Offer aka The Bidding War
I love when I first start working with clients and they ask “is there going to be a bidding war on this property?”. I know right then and there they read the news or watch some kind of real estate show on HGTV. That generally means I have some preconceived notions about the process I need to coach out of them!
In the real estate business we tend not to call it a “bidding war” in most instances. Instead, we’ll usually say “it looks like it’ll go in multiples“.
A bidding war is normally reserved for properties where there are a crazy amount of offers. For example, that one time I submitted an offer as part of a 17-person bidding war. The amount offers is mental and the price pushes beyond a reasonable amount the average buyer would pay for it. It also usually illicits a “are they friggin’ crazy?” response from my clients.
For other scenarios where you might have around 2-5 offers made on a property, we usually just use the term “multiple offers”.
How do you get multiple offers on a property?
This is the usual scenario:
- The sellers and listing agent set a price that’s somewhere between very far under market value to slightly below market value.
- The home is generally photographed, staged and shows very well.
- When the home goes to market, the listing agent advises everyone that they won’t be accepting any offers until a certain date in the future.
- When that date/time arrives, everyone can make their offer on the property.
But why do I have to wait? If the house is advertised for a certain price and I offer that, don’t the sellers have to accept my offer?
I get asked that question a lot and the answer is no. The sellers do not have to sell their home to anyone for any price if they do not want to. Even if they get an offer $500K above their asking price, they have the right to refuse that offer.
But why would anyone do that? Well, they wouldn’t but the point I’m trying to emphasize is that just because a home is advertised on the market for a certain price, doesn’t mean the sellers have to sell it for that amount.
And this is how the multiple offer works. Come “offer day”, everyone interested in the property will make their offer. Then the sellers will choose the offer they feel is the best to them. That at least sounds somewhat fair, right?
But, what if I don’t want to wait? What if I see a home and I want to buy it before anyone else can?
The Bully Offer
Let’s say that you find a home and it’s perfect. You want to buy it right on the spot. You ask your realtor if you can make an offer but he/she says “I’m sorry but the offer date isn’t until next week”.
Screw next week, I want it now!
This is where the bully offer comes in.
In reality there’s nothing actually stopping you from making an offer to a seller before the advertised offer date. The only issue is the seller doesn’t have to review your offer. In fact, they may have given their listing agent specific instructions NOT to review any offers at all until the advertised offer date. And if that’s the case you’re pretty much out of options and will have to bring that enthusiasm and excitement to the offer date.
But what if the seller is willing to review your offer?
Your agent calls up the listing agent and tells them you want to make an offer. The listing agent tells them that they are willing to listen but “your offer better blow our socks off!”.
You are so excited!
You sit down and you put together your offer with your agent and boy is it amazing!
You send it over to them and give them 1 hour to accept. They quickly review it. They can’t believe the price you’ve offered. It’s more than they thought they would get. Boom. Sold.
You’ve now bought the house on the strength of your bully offer.
But why is it called a bully offer?
Well you’ve essentially cut the line ahead of the other potential buyers. You’ve bullied your way to the front. You’ve forced the sellers to review your offer before anyone else’s with your 1 hour deadline. Yes, the sellers got everything they wanted, but it was only possible because you jumped the line.
But what about all those other people that were waiting for the offer date?
They’re out of luck!
But shouldn’t there be rules surrounding bully offers? How is that fair to other buyers?
There actually are a set of rules it’s just that a lot of agents don’t follow them. In the situation I described above (where you give the sellers only 1 hour to accept your offer), the listing agent has the duty to tell each and every person that expressed interest in the home about the offer they received AND they should give those people the opportunity to submit their own offer.
But wouldn’t that just create a new offer date?
Exactly! Essentially the risk you’re taking by submitting your bully offer is just pushing forward the offer date. If someone else expresses interest and says “hey don’t sell the place yet I’m going to put my offer together right now” then the listing agent could come back to you and say “we’ve received more offers and we’re going to review them all tonight at 8pm”.
Sure your 1 hour deadline might pass but the listing agent is taking the chance that more offers will mean even more money than your offer and they’re also taking the chance that you will still submit your offer again later on since you wanted the home so badly.
So, wait, bully offers can backfire on the buyer?
You have to be very sure that they will accept your offer or else you’ll just end up in multiples and you’ve already put the idea in the seller’s head that their home is worth what you just offered.
Do you suggest ever making a bully offer?
As long as the rules are being followed I have no problem putting in a bully offer for my clients. In the end, I want to do what’s best for them and what’s best for them is getting that dream home.
Now, if I’m on the other side as the listing agent, I typically advise not to look at bully offers. It creates too much stress and that person will very likely be back on offer day with that exact offer.
So now you know all about the big, bad bully offer and its place in the crazy multiple offer marketplace of GTA real estate. If you have any questions leave a comment below or contact me!