Bully Offers: The New Wild West

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…

WildWest

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?

Absolute chaos.

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.

18 Comments

Post A Comment

Your email address will not be published. Required fields are marked *

  1. joel says:

    I understand that this is an annoying process, but as you have mentioned before the seller should do what is best for them. If taking a bully offer allows them to get back to their lives sooner, with less people tromping through their house I think it is a good idea. Instead of the usual (in Toronto) week to sell a house, they can have it done in 2-3 days and still get a price they are happy with.

  2. Realty Check says:

    12762 Keele St King City, ON L7B 1H5
    DO NOT BUY THIS PROPERTY IT IS AN EX MARIJUANA GROW OP AND METH LAB.
    THESE CHINESE ARE SCAMS

  3. Kyle says:

    David, you once mentioned a strategy of registering a bid on any house, that a client might be interested in before your clients even had a chance to see the place. This way you would have to be informed of any bully offers that came in thus allowing you and your client to be “in the loop” and respond accordingly. Has something changed that makes this strategy less effective?

  4. Julie says:

    Number 2, ‘To get a feel for the price’ makes no sense to me. There’s a good chance that if you submit your ‘exploratory’ offer, the selling agent will get other interested parties to the table and your ‘exploration’ is over!!

  5. Donny says:

    “Personally, I don’t work with bully offers,”…..YOU don’t own the house the sellers do and its their call to accept/not accept. I don’t understand agents who use terms like “we”.

  6. Eduard Literate says:

    “And RECO has no clue what to do either.”

    Honestly – what does RECO have a clue about? You raise some good points, but the number 1 problem facing the residential real estate industry “right now” isn’t bully offers; it’s allowing homes to be bought and sold in blind auctions with no real rules. If the industry had actual, practical rules so that the market functioned efficiently for ALL actors, then you wouldn’t have the secondary and tertiary issues like bully offers, under-pricing, phantom offers or anything else that you constantly and consistently feel the need to point out (quite correctly, I might add).

    It’s readily apparent that self regulation isn’t working. It’s shameful, but the government doesn’t allow used cars to be sold the way homes are, and your industry shouldn’t either.

    1. jeff316 says:

      Would you expect to buy a used car the same way you bought a house?

      1. Eduard Literate says:

        No. I would expect better controls and clearer rules when buying a house than a used car. Unfortunately, it’s the other way around.

  7. Jason H says:

    I believe in bully offers. Welcome to “bidding”.

  8. Mike says:

    “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.”- Perhaps the Seller could hand out little red ribbons to all those who wanted to participate, that would make them feel special.

    You can’t complain that “bully bids” ruin your Saturday night (as well as others) after you take a guy to task for ignoring calls prior to going on vacation a couple months back. Do you know who’s dinners are always getting ruined by work: successful people. Yep, if you can rely on a lawyer, investment banker, CEO, doctor, dentist or even detective to never ruin social plans, then they’re not very successful.

    I don’t blame “bully bids”, bully bids are just bids, real estate has always sold on a first come, first serve basis. Then some enterprising real estate agent thought, what if the first bid wasn’t always the highers, what if I create demand by holding off offers until a specific date. I’m guessing this enterprising real estate agent was young; I say that because the idea probably came as they were lining up outside a club for twenty-minutes on a Saturday night, only to enter and find the place empty. Yes, the illusion of demand creates demand.

    If someone is willing to cut out of work early to see a listing the minute it hits the market then they deserve the spoils. I would have liked to have invented Facebook but unfortunately Mark Zuckerburg beat me to it. You can’t complain that its not fair because you were “going to” do something.

    Unfortunately in life if you’re going to be successful you need to make sacrifices; maybe that sacrifice is renting and working hard until you can afford a house in a higher price market where there isn’t the kind of competition you see below $2mm, maybe you alert your boss of your intentions to buy a home and discuss some flexibility that allows your to put house hunting a priority (if boss says no then really consider the former).

    Life’s not fair, the quicker you recognise that and move on the better your chances are.

    1. condodweller says:

      Very well put and I agree 100%. The day my agent told me he won’t look at a bully offer because it disturbs his social life is the day he gets fired. If he took me to court for “his” commission due to the agent agreement, do agents still make clients sign these, I wonder what the judge would say when he found out it was too inconvenient for the agent to react to a bully offer!?

      Spare a thought for someone working for twice minimum wage, say $45k, who has to pay, say $50k for real estate fees. Now tell him you don’t want to deal with a bully offer because you have dinner plans with your friends. I wonder if he would be willing to give up dinner with friends to make ~$20k in a few hours.

  9. Kyle says:

    If you think about it, the market is really just reverting back to “offers anytime”. Despite the presence of an offer date, savvy buyers will realize (much like listing price), that the offer date is meaningless and they will learn to disregard it. Meanwhile slow buyers will continue to lose out and complain that something needs to be done.

    Speaking of pre-empting, I’ve also noticed a lot more situations where deals are getting done before houses even hit mls. I’m guessing these are situations where the listing Agent either already has buyers he’s working with or is hoping to find a buyer to work with before going to the open market. I’ve seen listing Agents put the for sale sign on the lawn up to 2 weeks before the house ever goes on to mls or they have “Coming soon” flyers and advertisement on their websites. I’ve also seen houses never hit the mls and then suddenly one day have a sold sign on their lawn.

    1. jeff316 says:

      “If you think about it, the market is really just reverting back to “offers anytime”

      Glad I’m not the only one who noticed that.

      I just don’t get it. First, underpricing. Then, holding back offers is bad. Accepting an offer that not on a bid date is bad. Want to buy a house like it is a couch or a computer? Go buy pre-con out in the suburbs.

      I get that the losers will always get emotional, but the whining in the real estate market is getting ridiculous.

      1. jeff316 says:

        If you think about it, the market is really just reverting back to “offers anytime”

        Glad I’m not the only one who noticed that.

        I just don’t get it. First, underpricing is the boogeyman. Then, holding back offers is bad. Now, accepting an offer that’s not on a bid date is bad? Want to buy a house like it is a couch or a computer? Go buy pre-con out in the suburbs.

        I get that the losers will always get emotional, but the whining in the real estate market is getting ridiculous.

    2. Joe Q. says:

      I’ve also noticed a lot more situations where deals are getting done before houses even hit mls

      Perhaps I am misreading your comment, but isn’t this the whole phenomenon of “exclusives” or “pocket listings” — which have always been fairly widespread? An attempt to simplify and double-end the transaction by directly targeting potential buyers, rather than other agents. This would presumably have been even more widespread in the days before MLS.

      1. Kyle says:

        “which have always been fairly widespread” – Not where i live

        You’re right this is precisely what i am talking about, except i never saw this happening in my neighbourhood before bully offers became the new norm. With the exception of FSBOs, it used to always be that the sign goes in the lawn the same day the listing hit mls. These days it seems there are enough hungry buyers cruising the neighbourhood, ready to make an offer as soon as a detached house becomes available that getting top dollar without an mls listing seems to be much more of a possibility. In fact when i look at the TOSOLDS, it seems not uncommon to see DOM = 0.

      2. Mike says:

        It’s not so much an exclusive listing. You’re seeing it on houses in hot markets just before they’re put up for sale. The listing has been signed with the agent but the house isn’t ready for “prime time” so they put up a sign alerting neighbours to the fact that the house is for sale. It’s a good tactic for a number of reasons, it gets you out ahead of anyone on the street while you paint, decluter and prepare marketing materials, so you don’t have competition. As well it builds a buzz about the house in the area, get’s those people who are looking at other houses in the area to know there is something else coming into the market.

        It’s not really the same as an exclusive where there is a choice not to list on MLS, its more like when you get a listing and spread the info around your office about a house that will be hitting the market, this just gives you a wider audience.

  10. Julie says:

    I was surprised to read a note in a MLS listing that says “seller may consider pre-emptive offers.’ I don’t think I’ve seen that in a listing before. I guess it speaks to how common it is.

TWEETS