Should You Accept A Bully Offer?
Accepting a bully offer is one of the most difficult decisions a seller has to make.
Were you bullied in high school? What about middle school? I think we can all remember that one kid who used to terrorize everyone. He'd steal your lunch, push you around, hide your stuff, tease you, and pretty much make your days a living nightmare. It's funny thinking back to those times and then running into that same person 10, 20, or even 30 years later. I don't think anyone wants to be remembered as the bully of their school but no matter who they've become after all that time, I think deep down they'll always be remembered as that jerk who terrorized everyone. Funny how some memories about people you never really forget.
When it comes to real estate however, sometimes being a bully is just what it takes to land the house or condo that you want.
For those of you that may not know exactly what a bully offer is, here's a quick primer:
Let's say a condo is listed for $599,000 with "offers reviewed on Thursday April 21st at 6pm." Typically that "offer date" is about a week after the condo first hits the market. This gives buyers a week to get in to see the place, make their assessment on market value (which is almost certainly above the $599k list price), get their financing in order, review the status certificate, and come to the offer night with an offer they think will beat out the competition. The listing agent's strategy of holding an offer night is basically to get as many offers as possible and to sell for as far over asking as they can.
A bully offer is when a buyer comes in before that set offer date of April 21st and says to the seller "I'm not waiting until offer night. Here's my offer now. Take it or leave it." Then the seller has a decision to make. Do they risk turning down this bully offer, with the hopes of getting an even better offer on offer night? But what if this is the best they'll see and offer night doesn't materialize as they had planned? The decision is left to the seller and they typically only have a couple hours to decide.
That's a bully offer. You bully your way into the seller's face and say "Well? Take it or leave it."
As a seller, there are a few very important things to consider before you jump on a bully offer, sign on the dotted line, and pop the champagne:
1 - Is this really the best you think you can do? This is a tough one. Anytime I list a property with an offer date, I do a really deep analysis on the market at that exact moment, the comparable sales that justify what I think a place could/should sell for, and whether the activity on the property in the first couple days of going live on MLS makes me feel confident about my analysis. A good listing agent will know what range a property could/should sell for, barring any bad luck. Imagine this - you listed your place for $599k, and within a couple days, you get a bully offer for $720,000. Sounds great, right? I mean, it's $120k over asking!! But that's where you really need to sit back and think - is this really the best I can do? If this buyer is willing to push all the other buyers aside and throw $720,000 in my face, is there someone else out there who might top that? If the range of where you thought your place could sell for was somewhere between $720,000 and $750,000, are you leaving money on the table by accepting the bully offer, or are you getting greedy?
2 - How has the showing activity been so far? There's nothing worse than listing a property with a set offer date, only to have very few showings get booked. As a listing agent, it's downright terrifying. You need (a lot of) showings to get offers and if you're not getting a ton of showings, maybe it's a sign that your property (or the market) isn't as hot as you thought. So when that bully offer of $720,000 shows up on day three of your listing, it starts to look a lot more tempting than if you had 30 showings booked within a couple days of hitting the market. It's not a perfect indicator but showing activity is usually a strong hint of how offer night will go.
3 - What does your agent advise you to do? A couple weeks ago I had a listing in a very popular downtown condo. I knew, with every instinct that I had, that the place would sell for $750k or better. I just knew it. Call it instincts, call it my read on the market, call it experience. I just knew. Showings were fast and furious as soon as we hit the market. We listed for $629,900 (hate the game, don't hate the player) and a few days later, I got a bully offer in my inbox. For $720,000. Now most people on the outside looking in might think this is amazing! I mean, even the seller did. But when I presented the offer to him, my exact words were "I got a bully offer but before I tell you the number, my professional advice is to reject it because I know we can do better. It's $720,000." The seller responded with "Holy cow. Wow. I never thought we'd get a number like this. But I trust you Adil. Whatever you think is best". On offer night, we ended up with 13 offers and sold for $777,000. Was it luck? Was it gambling? Nope. This is where the right agent who knows what they're doing really, really matters. For those of you that are wondering, almost half the offers were for $750k or higher. Good thing we didn't jump at $720k ;)
4 - Why is the buyer making a bully offer? Here's a little inside tip - when I'm working with buyers, I tell them that we should make bully offers on places they love if they think that the place could sell for more than we're willing to (or are able to) pay on offer night. So rather than risk losing, we fire a bully and put the seller to a decision and let them make the call. Think about that for a minute - if a buyer is worried about losing to a higher offer on offer night, their best plan of attack is a bully offer. But then wouldn't that stand to reason that a seller could get a higher offer on offer night, and this bully really would be the worst case outcome for the seller on offer night? These are the head games that come into play when bully offers are thrown around. Almost like a game of chicken. Is the buyer thinking the place is worth more than they're offering? Or is the seller worried that offer night isn't going to work out like they planned and is actually relieved to see a bully without going through the stress of potentially getting mediocre offers on offer night? It's like a game of poker!
5 - Does rejecting the bully offer make you uncomfortable? When I first start talking about how best to use a bully offer with any new buyer I work with, my explanation usually goes something like this: "The point of a bully offer is to make the seller uncomfortable. You need to put a number in their face that will make them nervous about the idea of turning it down. Hit them with a number that is so good that they can't possibly imagine turning it down, but one that's still less than what you think someone else might pay. You need to make the seller say to themselves 'can I really turn this down?' That's when you know you've hit the sweet spot." As a seller, a bully offer should make you jump up and down and say "done deal!". But if it doesn't give you that level of excitement, does it at least make you sweat when you think about saying "no thank you. I think I can do better"? If it makes you sweat, that means the buyer did their job and is putting you to the test. The buyer has said "all in" and now it's up to you as the seller to decide if he's bluffing or not. Yes, I love poker that much ;)
There's really no hard and fast rule about when you, as a seller, should accept a bully offer. Remember, you're under no obligation to actually accept one if one does get shoved in your face. Getting a decent bully offer is kinda like free market research - you know what someone out there is willing to pay, even if it's not what you want. But sometimes it's really tempting to jump on the first big number that comes your way, even though there's a chance a bigger number could be just around the corner, planning to wow you on offer night. You just haven't given that buyer the chance to step up to the plate. It's not an easy decision but if you've done your research and you've got a strong agent in your corner, you'll make the right call.
Have you checked out my previous blog posts?
Your Toronto condo lover,
iPro Realty Ltd, Brokerage
Direct: 647-223-1679 (call/text)