What's the Right Way to Make a Bully Offer?
Asking for permission to make a bully offer ruins the whole point of being a "bully".
If you're tired of bidding wars, especially losing bidding wars, I'm sure the idea of making bully offers has been brought up in conversation, or at least crossed your mind.
What's a bully offer?
Well, if you've been house or condo hunting at any time in the past decade, you've probably encountered the situation where a house is priced for $x, which seems like a bargain, only to discover that "offers will be reviewed on Tuesday at 7pm". That sentence at the end of the listing (which only agents can see) translates into the same thing for most buyer agents: "$x won't happen. They want a bidding war." It usually takes buyers a little while to get used to this idea but after a while, the typical response from educated buyers when a house or condo is listed with an offer date is "so they are asking $x. How much more do we have to offer to get it?" Then you know your buyers understand how real estate in Toronto works.
So, back to the question: What's a bully offer?
The usual process on a house or condo that is holding back offers for a set day/time is that all buyers submit their offers to the listing agent at the same time on a predetermined day, and the seller chooses the best one. The exact mechanics of the offer night itself can vary depending on how the listing agent handles the process, but that's the gist. Everyone who wants the property submits a blind bid and the best offer takes it.
Now what if you've lost out on house after house and are just tired of the drama that inevitably surrounds each offer night? This is where a bully offer comes into play. Rather than waiting for offer night (say, next Tuesday at 7pm) you talk to your agent and say "I want this house. I'm tired of losing. I think it's worth $(x+y). So let's offer that now instead of waiting for Tuesday".
That's what a bully offer is. You ignore the note that "offers are to be reviewed on Tuesday at 7pm" and you basically bully your way in front of the seller and say, "Here's my offer today. Take it or leave it". And the seller can choose how to proceed. It's a bully bid. You basically throw an offer in the seller's face.
An important caveat: A seller has no obligation to accept, or even respond to, your bully offer. Just because a bully offer is submitted doesn't mean the seller has to consider it. If the price isn't amazing or the closing date isn't realistic or there are conditions the seller is not ok with, the seller (through his/her agent) will just respond with "thank you for your offer. But we'll wait until Tuesday and we hope to see you again then".
In some cases, a seller will specifically request "no preemptive offers". Which means don't bother trying to be a bully, because the seller won't look at any offer until offer night. In those cases, there's nothing you can do as a buyer but line up on offer night and try your luck.
So what's the right way to make a bully offer?
We'll, let's start with the wrong way. A bully offer is like a surprise birthday party for your friend. You don't want them to know about it, you want them to be caught off guard, and you want them to be excited about it when it happens. So a bully offer should be just that - it should be a surprise, not only with respect to when it happens but also in terms of the price being offered. (Yes, other factors go into a "good" offer but let's face it, the first and most important thing sellers care about is price).
Thinking about making a bully offer under asking? Or at asking? Or even slightly above asking?
If you were the seller, would you be pleasantly surprised by a "bully" offer that was at your asking price, especially when you know deep down you would never actually sell for that number? I didn't think so. I mean, would you be happy at your surprise birthday party if your friends didn't show up with presents, or cake, or balloons, or music?
Kinda kills the mood, yeah?
Well that's what a bad bully offer does. It kills the mood.
A bully offer should be a surprise. There should be no lead up, no warning, no pretense. And it should "wow". It's a "oh by the way, we love your house and we want it today" type of moment that should leave the seller a little frazzled.
Why? Because then all the seller's emotions start flowing - "this is a great offer, should we take it now or risk waiting until Tuesday? What if we don't get a better offer? Or any other offer? What if these guys find another place tomorrow?"
You see how it gets into the head of a seller? That's the point.
Last week I had two agents call me about a listing of mine to inform me "I should be able to get you a bully offer on Monday". This was Friday. Why would you ruin the surprise party like that? And why show your hand?
Several other agents called and asked, "Will your client consider a bully offer? And how much do they want?" That's like asking your friend if you can throw them a surprise birthday party. And then asking what they want for presents. You don't ask. You just do it. That's the point.
So what goes into a good bully offer?
- Make the price so appealing that the seller would feel nervous rejecting it. Give them an offer they can't refuse. Otherwise, don't be surprised if they do.
- Don't include any conditions. Again, this is case-by-case and I don't advocate making firm offers without talking it through with your agent but I will say this - I would never advise a seller to accept a conditional bully offer. It's too risky for a seller.
- Include a copy of your deposit. There's nothing worse than accepting an offer from a buyer and then never getting that deposit cheque. It's happened to me. It sucks. So make things simple for the seller. If they accept your offer, the deal is done and show them that the deposit will be in their hand within hours (or minutes). Done and done.
- Don't ask for permission from the listing agent. Don't ruin the surprise. Unless they've specifically said "no preemptive offers", it's fair game. And as a buyer, expect that other savvy buyers may submit bully offers at any time as well. Be prepared.
- Consider your irrevocable. Offers expire if they are not accepted by a given day/time (ie, they are irrevocable until that time). Work with your agent to figure out what makes the most sense. If you're submitting your bully offer at 10pm and giving the seller until midnight to respond, consider how impractical that may be. On the other hand, giving the seller too long may cause other bully offers to magically appear.
Remember, a seller doesn't have to entertain your bully offer. But if they are going to, the listing agent has an obligation to contact every other agent who booked an appointment or expressed interest in the property to let them know that the seller is considering an offer before the scheduled offer date. And the MLS listing needs to be updated to reflect this change in offer timing. It drives me crazy how many agents don't follow this rule but that's a topic for another blog. So don't be surprised if you submit a bully offer with a 24-hr irrevocable only to wake up the next day to find out another offer or two has emerged and you are now in a multiple offer situation - something a bully offer is supposed to help you avoid in the first place.
For more tips on what not to do during a bidding war, check out one of my previous posts: Top 5 Ways To Guarantee You Lose a Bidding War.
Your Toronto condo lover,
iPro Realty Ltd, Brokerage
Direct: 647-223-1679 (call/text)