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 37-person bidding war. That amount of 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 probably 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 bully offer?
Your agent calls up the listing agent and tells them you want to make a bully 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, right?
Well, not quite yet. The listing agent needs to communicate to others that the sellers have changed their mind and are reviewing offers. There needs to be a new “offer date/time” set. However, it just needs to be within a reasonable amount of time to let anyone else interested in the home a chance to submit their offer.
So the listing agent will ask you to extend your irrevocable period (the time the offer is good until) and they’ll let you know if any other offers come in. You don’t have to agree to this. You could decide not to extend the time, but they also don’t have to review your offer.
What you’re doing with the bully offer is not beating everyone to offering on the home, but by bringing up the “offer date” to a short time in the future rather than days later, is limiting the amount of other offers to compete against.
And that, in essence, gives you a big advantage. Come the evening, you are still the best offer of the ones submitted and you win the right to buy the home.
You’ve now bought the house on the strength of your bully offer.
Why is it called a bully offer?
Well you’ve essentially cut the line ahead of a certain amount of other potential buyers. You’ve bullied your way to the front of the queue. You’ve forced the sellers to review all offers before their intended date.
But what about all those other people that were waiting for the offer date?
Anyone seriously interested in the property would have had to get their offer in by the new offer/date that you’ve helped create. If they can’t, then they’re out of luck.
But shouldn’t there be rules surrounding a bully offer? How is that fair to other buyers?
The rules I described above about communicating a new offer date/time to all agents who have seen the property or are scheduled to see the property is part of the set of rules surrounding the selling strategy of holding offers.
The listing agent must also publicly update their listing, so the new date/time is available for everyone to see.
So we’re really just creating a new offer date?
Exactly! Essentially the risk you’re taking by submitting your bully offer is just pushing forward the offer date/time. 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 will 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?
I wouldn’t say backfire exactly, but it’s not a guarantee by submitting a bully offer that you’re going to win the home.
Do you suggest ever making a bully offer?
Definitely.
As a buyer, there are certain scenarios it makes sense. If you feel that your offer is very strong and doesn’t go above your means and you want to limit competition, then go for it.
Now, if I’m on the other side as the listing agent, I typically advise not to look at bully offers. It creates a lot of stress and in my experience the person submitting the bully offer 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!
