If you’re tired of hearing me say, “I’ve never worked in a market that’s this hot,” then believe me when I tell you that I’m even more tired of saying it.
While the market has been hot in every market cycle for the last decade, the one major difference between the Spring 2015 market and those in the past is the hated-as-it-is-loved, “bully offer,” and how buyers and agents alike are scrambling to deal with them…
Let’s start from the very beginning, for those who aren’t real estate connoisseurs and aren’t familiar with the concept of the “bully offer.”
When a property comes on to MLS, and there’s a “hold-back” on offers, with a note in the MLS listing that says, “Offers Will Be Reviewed On Wednesday April 29th At 7:00pm,” any buyer, and any agent, is free to submit an offer on the property he or she so chooses. One must not wait until the specified offer date, but rather can submit an offer beforehand.
This is referred to in our industry as a “bully offer.”
The term “pre-emptive offer” has been adopted by those who want to put a more positive spin on the subject, but I can tell you that the biggest problem in the industry right now, even more so than the skyrocketing prices, is how we deal with these bully offers.
And yes – I mean that, when I say “this is the biggest problem in the industry right now,” and if you ask me, “Isn’t rampant under-pricing a bigger issue,” I will kindly say “no.”
The difficult truth is: we have seen the “strategy” of under-pricing houses and holding-back for multiple offers for so long now, that we’ve accepted it.
It doesn’t make the process right, but we have become so used to it, that it’s totally normal to us.
In fact, when a house hits the market without a set offer date, buyers are suspicious, and I honestly think it hurts the potential sale price in the end.
I’ve been in this business for eleven years, and it’s the only way I’ve ever seen houses sold. Sure, there was a time when a lower percentage of houses employed the “strategy” of under-listing, but it’s still always been the way most houses in the central core of Toronto are sold.
So if we are to accept this as given, then we can’t really call it a “problem” anymore.
Alas, the real “problem” now is when houses don’t sell on offer night, because somebody has submitted a “bully offer” and interrupted the process.
The process of “holding back offers” might not be ideal, but it’s fair in a sense that everybody who wants a chance to bid on the property gets one. Hate the idea of under-pricing if you want, but at least the house isn’t sold out from under you.
Enter the “bully offer,” and now we have the greater of two evils.
It’s one thing to under-price and hold back for everybody to attend the offer night, but it’s another thing to under-price, tell people offers are on a certain night, and then sell the home before that.
When you see a hot new listing come onto MLS, and you read, “Offers Will Be Reviewed On Wednesday May 6th At 7:00pm,” you know you have time see the property. You don’t have to abruptly leave work, race over to see the home, and interrupt your life because of the almighty real estate chase.
The “offer date” gives you structure for you life, and allows you to plan accordingly. You might elect to see the property today, tomorrow, or the next day. You might choose to book a home inspection for the weekend, or have your parents through the home. You might have your mortgage broker do a “mock offer” through CMHC, which can take a few days.
So what happens when listing agents set offer dates, but those offer dates are not binding, and can change with no notice, and without penalty?
Folks, it’s the Wild West out there today, and buyers are scrambling to make sense of it all.
Bully offers are probably taking 1/3 of all houses with “offer dates,” and that might not sound like a lot, but consider in a given week there are 4-5 listings you want to take a look at on Saturday & Sunday, and often only a couple of them remain.
The truth is – nobody really knows what to do about bully offers.
Every listing agent, broker, and office manager has a different opinion on the “rules” that exist.
And RECO has no clue what to do either.
From what I gather, when a bully offer is submitted on a property, the listing agent has to make a reasonable attempt to inform “anybody who has shown interest in the property.”
But what is “interest?”
I take that to mean any buyer agent who has booked a showing, or any agent who has emailed a question to the listing agent. But many listing agents receive a bully offer, and fail to notify anybody, then simply sell the house, and call it a day.
And then there’s the question of, “Do you have to present the bully offer to your client?”
Another grey area.
Most buyer agents will ask the listing agent, “Will your clients look at a bully?” The listing agent can say, “no,” but legally, the agent has to present any offer to his or her clients, regardless of whether an offer date has been set.
The sellers don’t have to accept the offer, nor do they have to “work with” that offer when received (ie. inform all the other buyer agents of the offer, thereby moving up the offer date), but the listing agent does have to inform the seller of the offer.
In today’s market, many buyers are choosing to submit bully offers for a variety of reasons, including the following:
1) To eliminate the property from contention.
If you see a house listed at $599,000, and your absolute max is $675,000, then wouldn’t it be nice to know if that offer stands a chance next week on offer night?
So submit a bully offer at $675,000, and if the listing agent says, “Thanks, but we’re waiting until offer night,” then it’s a very good indication that they’re expecting more.
Sure, they might not get $675,000 on offer night, but in this market, the chances are slim to none of that happening.
So if a buyer sees 3-4 houses in a week that he or she wants to consider, then it’s possible to eliminate one from contention by submitting a bully offer, having it rejected, and knowing you’re out of the mix.
2) To get a feel for price.
Let’s say in the example above that you can actually afford $750,000, but you don’t want to pay that, and you’re curious to know what the market is going to bear for this house.
Submit that offer for $675,000, have it rejected, and you know the listing agent is expecting more than that number.
I call this an “exploratory offer,” and I’ve done this before, often to show my clients that the price they “hope” they can get the house for has no shot.
3) To move up the offer date.
Let’s say you’re looking at two properties, and they have offer dates of Tuesday and Wednesday next week.
The house you really want is taking offers on Wednesday, but if you didn’t get that house, you’d want to buy the house that was taking offers on Tuesday.
Tough spot to be in, right?
Well if you submit a bully offer on that sought-after property the day it hits the market, or on Saturday night perhaps, and force the seller to move the offer date up, then you create opportunity.
You either get the house, which was the goal from the start, or you lose the house, but knowing it’s sold – you can now focus on the other house that is taking offers on Tuesday.
4) To get the property.
You’d think this would be #1 on the list, no?
We used to submit bully offers to try and beat the crowd on offer night, but you never, ever, ever see a bully offer submitted and it’s the only offer the sellers look at. Maybe back in the day, but nowadays – the listing agent is ready for a bully, and the buyer pool is ready to jump in if need be.
Last Saturday night, I was spurred into action by a bully offer.
My clients were planning to bid on a house on Mark Street on Tuesday the 21st, but at 4pm on Saturday the 18th, I got a message from my office saying that a bully offer was registered, and the listing agent was looking at the offer at 7pm.
I called my clients, and told them to meet me at the office at 6pm.
Thank God they had got a deposit cheque three days before offer date, eh?
We signed our offer at 6pm, and submitted it to the listing agent.
My clients had to rearrange their whole day (leaving a family event out of town, and drive back to Toronto), and night (dropping off their child at a friend’s), as did basically every other person involved in this process.
My wife came with me to the office at 6pm, and waited for an hour for me to sign the offer with my clients.
We made it to dinner with our friends at 7pm – exactly a half hour late.
I was at the dinner table for about 25 minutes of the shortened hour-long dinner experience, since I was pounding the pavement out on Bayview Avenue, on my phone with the listing agent, my clients, and my assistant.
I apologized profusely to my friends, who were so incredibly gracious about my ruining our collective Saturday nights.
And then my wife and I went back to my office and hung out by the computer for another hour, before I received an accepted copy of our offer.
That’s my story.
But what about the other FIVE buyer who submitted offers after the bully offer was submitted?
I’m not telling this story to complain. My life is real estate, and it took me ten years to realize that I truly have no “life” but rather a job that consumes me.
I’m telling this story because I want to highlight how one bully offer can throw about 100 people off the rails. Each of the five buyers and buyer agents that ended up offering on this house on Mark Street had their lives interrupted on Saturday, and the domino effect was felt by their families and friends, babysitters, mortgage brokers, etc.
And then consider the buyers who didn’t get a chance to bid on Mark Street, because they thought offers were on Tuesday, as the listing specified.
Bully offers create chaos, and Toronto’s real estate market is pretty hectic to begin with!
There’s so much uncertainty in this market to begin with, but when you take away one of the only certainties there are – the set offer date, then it creates an absolute free-for-all.
Buyers now need to see properties the day they come out onto the market, for fear that a bully will take the property before they get a chance to see it.
Buyer agents need to email the listing agent for every house that they show, to say, “Let me know if you get a bully offer – keep me in the loop!”
Personally, I don’t work with bully offers, as listing agent.
I don’t like them, and I never have. Unless an offer was emailed to me, to my surprise, and it was so incredibly above any number I ever could have contemplated for the house, I simply tell buyer agents, “We’ll see you on offer night.”
I’m one person. But I wish others would follow my lead.
We need more structure in the industry, not less.